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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One:
[X]Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year ended December 31, 1998
or
[_]Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Transition Period from to
Commission file No. 1-9597
PIMCO ADVISORS HOLDINGS L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3412614
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 Newport Center Drive, Newport Beach,
California 92660
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 717-7022
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange
Title of each class Which registered
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Units of Limited Partner Interest New York Stock Exchange
</TABLE>
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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(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 [_]
Page 1 of 212 pages
Exhibit Index is on Page 97
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the units of limited partner interest held by
non-affiliates of the registrant as of March 8, 1999 was $1,445,006,568, based
on the closing price of the units on the New York Stock Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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FORWARD LOOKING STATEMENTS
Except for the historical information and discussions contained herein,
statements contained in this Form 10-K may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including the
performance of financial markets, the investment performance of PIMCO Advisors
L.P.'s sponsored investment products and separately managed accounts, general
economic conditions, future acquisitions, competitive conditions and
government regulations, including changes in tax laws. PIMCO Holdings cautions
readers to carefully consider such factors. Further, such forward-looking
statements speak only as of the date on which such statements are made; PIMCO
Holdings undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date of such statements.
PART I
Item 1. Business
Overview
PIMCO Advisors Holdings L.P. ("PIMCO Holdings") is a Delaware limited
partnership which as its sole business holds in excess of 48 million general
partnership units of PIMCO Advisors L.P. ("PIMCO Advisors"), representing a
44% equity interest in PIMCO Advisors. PIMCO Partners, G.P. ("PGP") is the
sole general partner of PIMCO Holdings and is the controlling general partner
of PIMCO Advisors.
PIMCO Advisors is one of the largest investment management companies in the
United States with approximately $244.2 billion under management at December
31, 1998. PIMCO Advisors' business provides high quality fixed income and
equity investment management to institutional and retail clients, offering the
investment management expertise, performance record and reputations of its
institutional investment managers, which include the fixed income oriented
Pacific Investment Management Company ("Pacific Investment Management") and
the equity oriented Oppenheimer Capital. PIMCO Advisors' business focuses on:
Institutional Fixed Income. PIMCO Advisors provides fixed income investment
management to large and medium-sized foreign and domestic corporate and public
clients, including eighty-one of the 200 largest U.S. pension funds. Fixed
income management is led by Pacific Investment Management, which offers
impressive long-term performance records across a diverse range of product
offerings such as total return, and other duration or sector specific
strategies.
Institutional Equity. PIMCO Advisors provides equity investment management
to institutional clients offering the investment management expertise of six
equity management groups, including the highly regarded Oppenheimer Capital.
PIMCO Advisors offers investors an enhanced index based strategy and a variety
of management styles, including value, growth, modified growth, quantitative
and international.
Institutional clients invest through separate accounts and pooled vehicles
such as the institutional share classes of the PIMCO Funds, PIMCO Advisors'
family of 51 proprietary mutual funds. PIMCO Advisors offers its investment
management services to institutional clients through client service
representatives at each of its investment managers.
Retail Distribution. PIMCO Advisors offers the investment expertise of its
institutional investment managers to retail investors through the retail share
classes of the PIMCO Funds. They are distributed primarily through broker-
dealers including PIMCO Funds Distributors LLC ("PFD", formerly known as PIMCO
Funds Distribution Company), a wholly-owned broker-dealer which distributes
and markets shares of the retail mutual funds of PIMCO Advisors. In addition,
PIMCO Advisors offers retail investors wrap fee accounts, variable annuity
products, 401(k) programs and various investment products through sponsored
trust companies. PIMCO Advisors' investment
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management groups, including Pacific Investment Management and Oppenheimer
Capital also provide investment management for a number of third-party
sponsored retail products.
PIMCO Advisors' strategy is to increase the amount and diversification of
its assets under management through (i) growth in the institutional market by
providing high levels of client service and entering new markets in the United
States and overseas, (ii) growth in the retail market by building brand
awareness and direct marketing of the PIMCO Funds through its broker-dealer
network and by penetrating additional distribution channels and (iii) new
product offerings to institutions and retail investors.
The revenues of PIMCO Advisors consist principally of management fees based
on the value of assets under management and, in some cases, the performance of
the advisor. The following table sets forth the growth and composition of
PIMCO Advisors' assets under management over the last three years (as adjusted
to include the assets under management of Oppenheimer Capital):
<TABLE>
<CAPTION>
As of December 31,
------------------------------ Compound
1998 1997 1996 1995 Annual Growth Rate
------- ------- ------ ------- ------------------
(in billions)
<S> <C> <C> <C> <C> <C>
SOURCE
Institutional Separate
Accounts
Fixed Income........... $ 106.6 $ 83.0 $ 63.4 $ 55.4 24.38%
Equity................. 50.8 51.1 44.1 38.0 10.16%
Retail Products and
Mutual Funds............ 86.8 65.4 50.7 39.0 30.56%
------- ------- ------ -------
TOTAL.................. $ 244.2 $ 199.5 $158.2 $ 132.4 22.64%
======= ======= ====== =======
ASSET MIX
Fixed Income............. $ 148.9 $ 112.3 $ 86.3 $ 74.7 25.85%
Equity................... 92.0 84.4 69.0 54.9 18.78%
Money Market............. 3.3 2.8 2.9 2.8 5.63%
------- ------- ------ -------
TOTAL.................. $ 244.2 $ 199.5 $158.2 $ 132.4 22.64%
======= ======= ====== =======
</TABLE>
Investment Products
PIMCO Advisors provides fixed income investment management to large and
medium-sized foreign and domestic corporate and public clients, including
eighty-one of the 200 largest U.S. pension funds, offering impressive long-
term performance records across a diverse range of product offerings such as
total return, low duration and other duration or sector specific strategies.
PIMCO Advisors also provides equity investment management to institutional and
retail clients, offering investors a variety of management styles, including
value, growth, balanced and quantitative management styles, as well as an
enhanced index-based equity strategy.
Fixed Income Management
Primarily through Pacific Investment Management, PIMCO Advisors offers a
variety of strategies for clients with fixed income portfolios, designed to
reflect each particular client's investment objective. PIMCO Advisors believes
that its strength in the management of fixed income assets is derived from
Pacific Investment Management's investment philosophy, which stresses a long-
term or secular focus, active management, with measured risk taking, and the
application of strong analytical capabilities across all fixed income market
sectors. Under this philosophy, longer term macro-economic trends are key
inputs to portfolio strategy, and moderate portfolio duration ranges are
favored to reduce volatility relative to client-specified benchmarks. Pacific
Investment Management's investment strategy begins with an intensive review of
long-term and cyclical trends to anticipate interest rates, volatility, yield
curve shape and credit trends. These forecasts become the basis for the major
portfolio strategies. Pacific Investment Management then uses a quantitative
valuation framework to select specific portfolio investments. Fixed income
products include:
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Total Return Portfolios. Total return portfolios are structured with the
objective of realizing maximum total return, consistent with the preservation
of capital and prudent investment management across the spectrum of fixed
income securities. This strategy generally results in a portfolio duration of
three to six years. Portfolios utilizing this strategy represented
approximately $94.7 billion of Pacific Investment Management's total assets
under management at December 31, 1998.
Low Duration Portfolios. Pacific Investment Management has actively managed
low duration accounts (overall portfolio duration one to three years) since
1979. The objectives in the low duration portfolios are to preserve principal
through investment in low-volatility instruments, while seeking to achieve
superior risk adjusted returns.
Other Duration Specific or Sector Specific Portfolios. Pacific Investment
Management also offers clients active management of portfolios based upon
specific duration targets (e.g., long duration portfolios or synthetic
guaranteed investment contracts) and sector emphases (e.g., international,
high-yield, or mortgages).
International and Other Portfolios. Pacific Investment Management, as
investment advisor to a series of offshore funds and separate accounts,
provides fixed income investment advice to non-U.S. investors. Assets under
management for these offshore funds totaled $12.1 billion at December 31,
1998. Pacific Investment Management also serves as subadvisor for a series of
term trusts investing in mortgage related securities that are marketed to
Japanese investors. These trusts had assets of $0.9 billion at December 31,
1998. Pacific Investment Management also serves as subadvisor for eighteen
families of U.S. mutual funds sponsored by other mutual fund complexes. Total
assets under management for these nonaffiliated funds at December 31, 1998 was
$7.3 billion.
Equity Management
PIMCO Advisors offers clients a wide array of equity investment strategies
and products. PIMCO Advisors' investment professionals offer Value, Growth,
Modified Growth, Quantitative and International management styles, as well as
an enhanced index based strategy.
Value. PIMCO Advisors offers equity clients the highly respected investment
management professionals of Oppenheimer Capital, which seeks to adhere to a
disciplined, value-oriented investment philosophy, by identifying company-
specific, rather than industry-specific opportunities. By investing in quality
securities that are temporarily out of favor or have been overlooked,
Oppenheimer Capital seeks to preserve capital in falling markets, reduce
volatility compared to the overall market and produce superior returns. In
addition, PIMCO Advisors' NFJ Investment Group follows a disciplined value
oriented approach, specializing in investing in a combination of low P/E
stocks with high dividends selected through a proprietary screening model. At
December 31, 1998, $64.9 billion (or 26.6%) of PIMCO Advisors' assets under
management were advised by value oriented investment managers. Value oriented
investment products include large-cap, mid-cap and small-cap portfolios and
non-U.S. and global value portfolios.
Growth. PIMCO Equity Advisors, a division of PIMCO Advisors, specializes in
fundamental research that identifies common characteristics of growing
businesses. PIMCO Equity Advisors provides investment management and advisory
services primarily to equity-oriented mutual funds and other institutional
clients. The primary investment style is quality growth within various market
capitalization ranges-small-cap, mid-cap and large-cap. PIMCO Equity Advisors
seeks to identify quality growth companies using proprietary research and the
execution of a disciplined investment process.
Modified Growth. PIMCO Advisors' Cadence Capital Management offers a "growth
at a reasonable price" equity investment philosophy. This investment
management group's philosophy is to participate in the long-term growth of the
equity markets by constructing fully invested portfolios of stocks selling at
reasonable valuations in relation to the fundamental prospects of the
underlying companies. The group uses a disciplined, "bottom-up" investment
process which utilizes quantitative screening for favorable fundamental and
valuation attributes, followed by "hands-on" qualitative research to confirm
the apparent business trends. These investment managers structure their
portfolios to be broadly based, typically including 80 to 100 issues. This
investment strategy involves
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the application of a proprietary investment management process to different
universes of equity securities which are usually differentiated by market
capitalization into four categories: large-cap, mid-cap, small-cap and micro-
cap.
Quantitative. PIMCO Advisors offers active and indexed strategies which are
based upon quantitative techniques in portfolio construction and management,
and are structured to meet client specific risk and return objectives. Active
portfolios seek superior returns relative to an assigned benchmark within a
risk controlled framework, while indexed portfolios are constructed to closely
track an appropriate index. In addition, the investment managers manage tax
efficient separate account strategies for taxable investors. The active
portfolios are designed to maintain economic sector allocations similar to the
benchmark. Security selection is based on a ranking system which evaluates
each stock's exposure to valuation, earnings and momentum factors. Portfolios
are optimized to achieve a diversified group of securities which have exposure
to factors associated with superior return and risk characteristics.
StocksPLUS(R). In addition to its fixed income products, Pacific Investment
Management also manages an enhanced index based strategy, StocksPLUS, which
accounted for $15.8 billion of assets under management at December 31, 1998.
StocksPLUS represents a proprietary technique developed by Pacific Investment
Management that combines the active management of stock index futures (to
provide a proxy for equity market returns) with active management of a short-
term fixed income portfolio using much of the same analytics as is used by
Pacific Investment Management in its fixed income portfolios.
International. PIMCO Advisors' investment management groups, offer
international equity investment products that combine country selection
strategies with the systematic application of investment processes. These
include the application of fundamental valuation criteria to country
allocations and then to stock selection in order to enhance client returns
over time. The international assignments include allocations to developed
countries and emerging markets.
Markets and Distribution Channels
Institutional Investors
The Institutional Market. The institutional market for investment management
services includes corporate, government and multi-employer pension plans,
charitable endowments and foundations, and corporations purchasing investment
management services for their own account. The industry consists of two
primary institutional markets. The defined benefit pension plan market,
historically the largest component and primary market for investment managers,
is large, fragmented, performance sensitive and generally sophisticated. The
other principal component is the defined contribution plan market, consisting
of plans such as 401(k) plans which, while historically a smaller market, has
grown in the last decade to almost equal the defined benefit market in size.
At year-end 1997, total U.S. corporate defined benefit and defined
contribution pension and retirement assets were estimated at approximately
$3.5 trillion. Of that amount, defined benefit plans accounted for $1.6
trillion, growing at an average rate of 17% over the past five years, and
defined contribution plans accounted for $1.9 trillion, growing at an average
rate of 15% over the past five years. Other sectors include insured assets
(primarily group and other annuities) at $0.9 trillion, state and local
government pension assets at $2.1 trillion and federal government pension
assets at $0.5 trillion. While all sectors experienced significant growth in
assets under management during the period, the cash flow growth rate has been
negative for defined benefit plans, at (3.8%) per year during the period,
while defined contribution plans have seen positive cash inflows of 2.0% per
year during the period.
Client Relations, Distribution and Marketing. Each of PIMCO Advisors'
investment management groups serves the institutional market and conducts
institutional marketing activities directly. In general, each investment
management group conducts its own marketing, which generally targets Fortune
1,000 companies and other large institutional investors. The investment
managers seek to develop client relationships through investment management
performance and focused, responsive client service. Business and marketing
strategies also involve increasing assets under management for non-U.S.
clients, expanding the array of fixed income and equity products
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offered to clients, seeking to expand market share with medium and smaller
institutional investors by offering pooled investment vehicles such as the
PIMCO Funds, advisory pooled investment products sponsored by non-affiliates
and otherwise seeking to diversify and expand their businesses by investment
strategy, method of delivery and markets.
A principal component of PIMCO Advisors' marketing strategy is the
historical performance of its investment managers relative to benchmarks over
longer periods of time. Each manager's performance will vary versus its
benchmarks over time, and further, will be subject to market trends, favoring
and disfavoring its investment style. PIMCO Advisors' emphasizes high quality
client relations and marketing in order to reduce the impact of this
volatility.
Retail Investors
The Retail Market. Like the institutional market for investment management
services, the mutual fund market has expanded rapidly in recent years. The
retail market is served in large part through mutual funds, although other
significant channels include wrap fee accounts and variable annuities. The
mutual fund industry is highly competitive and is characterized by a high
degree of fragmentation and a large and rapidly increasing number of product
offerings. Marketing strategies, product development, business development,
sales expertise and servicing are increasingly important. The traditional
channel for the distribution of mutual funds (other than money market funds)
is through brokerage firms that are not affiliated with the funds' sponsor
organization and that are compensated primarily through front-end sales loads
deducted from the purchaser's investment at the time of the sale. Increasingly
other distribution arrangements and channels have become important. These
include "no-load" or "low-load" funds sold primarily through direct marketing
efforts or captive sales forces affiliated with the sponsor organization;
"private label" and "proprietary" funds managed by and offered primarily
through, or to customers of, a financial organization such as a brokerage
firm, insurance company or bank; and "back-end load" or "level load" funds
offered through brokerage and other third-party channels, but with
compensation to the selling brokers being funded through commission advances
from the funds' sponsor which are recovered through ongoing charges against
fund assets assessed under Rule 12b-1 under the Investment Company Act of
1940, as amended, contingent deferred sales charges assessed against
shareholders at the time they redeem their investments, or a combination of
such sources.
The PIMCO Funds. PIMCO Advisors and its investment management professionals
sponsor and manage the PIMCO Funds, a family of 51 mutual funds for both
institutional and retail investors which is comprised of 23 funds advised by
Pacific Investment Management, and 28 funds advised by PIMCO Advisors, 24 of
which are subadvised by PIMCO Advisors' other investment managers and one
independent subadvisor. PIMCO Funds are offered in up to six different share
classes: institutional and administrative share classes for institutional
investors and, for retail investors, Class A shares (which are "front end"
load), Class B shares (which are "back-end load"), Class C shares (which are
"level load") and Class D shares which are offered only through financial
service firms. The PIMCO Funds now feature a "unified fee" structure which has
specified advisory and administrative fees per fund. As a result, PIMCO
Advisors and Pacific Investment Management (and not the PIMCO Funds) bear the
risk of increases in service costs (including third-party service providers
such as transfer agents) and will directly benefit from decreases in those
costs.
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At December 31, 1998, PIMCO Funds had $43 billion under management, of which
$10.5 billion was represented by retail share classes. At February 28, 1999,
seventeen of the PIMCO Funds had share classes with Morningstar ratings of 4
stars or above. Set forth below is information regarding these funds:
<TABLE>
<CAPTION>
Assets Under
Management
at 12/31/98
(in Morningstar
PIMCO Fund Management Style millions) Ranking
- ---------- --------------------------- ------------ -----------
<S> <C> <C> <C>
Total Return.............. Fixed Income--Total Return $23,740 *****
Low Duration.............. Fixed Income 3,646 *****
High Yield................ Fixed Income--High Yield 2,619 *****
StocksPLUS................ Enhanced Equity 957 *****
Innovation................ Technology Stock 621 *****
Foreign Bond.............. Fixed Income--International 555 *****
Short Term................ Fixed Income 467 *****
Low Duration II........... Fixed Income 456 *****
Core Equity............... Growth 170 *****
Enhanced Equity........... Quantitative 54 *****
Global Bond II............ Fixed Income International 42 *****
Growth.................... Growth 2,236 ****
Capital Appreciation...... Growth 1,144 ****
Total Return II........... Fixed Income--Total Return 939 ****
Renaissance............... Growth 635 ****
Total Return III.......... Fixed Income--Total Return 434 ****
International Developed... International Stock 132 ****
</TABLE>
The above chart is based on February 28, 1999 Morningstar ratings for the
highest rated class of the identified fund. Other share classes of the same
fund will have the same or lower Morningstar ratings. Morningstar ratings are
calculated from the fund's 3, 5 and 10 year average annual returns (if
applicable) in excess of the 90 day Treasury bill returns with appropriate fee
adjustments and a risk factor that reflects fund performance below 90 day
Treasury bill returns. Morningstar ratings reflect historical risk-adjusted
performance and are subject to monthly changes. Therefore, past ratings are
not a guarantee of future results. 10% of the funds in an investment class
receive 5 star ratings, the next 22.5% earn 4 stars, the next 35% earn 3
stars, the next 22.5% earn 2 stars and the bottom 10% earn 1 star. Morningstar
ratings are based on a fund's oldest class of shares.
PFD, a wholly-owned subsidiary of PIMCO Advisors, is the distributor for the
PIMCO Funds. PIMCO Advisors uses PFD to distribute the retail share classes of
PIMCO Funds through a large, diversified network of unaffiliated retail
broker-dealers, including many leading full-service broker-dealers. PFD has
selling agreements with over 1,000 broker-dealers and banks. The sales and
marketing personnel develop and support sales and marketing strategies between
PIMCO Advisors and individual retail broker-dealers. Additionally, the
relationships fostered by this group allow PFD's wholesalers to have access to
the branch offices and sales representatives of the retail broker-dealers.
Other Aggregators and Intermediaries. PIMCO Advisors' strategy also involves
focusing on financial service aggregators of retail assets such as
unaffiliated sponsors of mutual funds and other registered investment advisors
(including fee based financial planners) who recommend the use of "no load"
mutual funds such as the institutional and administrative fee only classes of
PIMCO Funds to their clients, and consultant alliances. Many of these
financial intermediaries that sell PIMCO Funds also offer funds not managed by
PIMCO Advisors and frequently offer funds managed by their own affiliates.
In addition to the 51 PIMCO Funds, PIMCO Advisors' investment managers
subadvise third party sponsored mutual funds. In particular, Opcap Advisors, a
subsidiary of Oppenheimer Capital, serves as subadvisor for six
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funds in the Quest For Value Series of OppenheimerFunds (an unaffiliated fund)
having $7.8 billion under management at December 31, 1998.
Wrap Fee Accounts. Oppenheimer Capital has become actively involved in
managing wrap fee accounts, or broker sponsored asset management programs.
Wrap fee accounts have grown rapidly since their introduction, reaching nearly
$9.6 billion under management at December 31, 1998. Oppenheimer Capital's
success is attributable in large part to its strong long term track record
which brokers promote in marketing.
Through wrap fee programs, brokers offer their clients discretionary
portfolio management services. The services are provided through independent
investment managers selected by the broker and the client from the broker's
approved list of managers. The broker's client investment objectives are
analyzed and an investment manager is chosen whose investment philosophy
appears to be compatible with the client's goals. The client enters into an
investment advisory agreement with the broker which has a separate master
agreement with Oppenheimer Capital. The client pays a single, all inclusive
fee which covers investment advisory services rendered, as well as custodial,
execution and other client related services performed by the broker, exclusive
of exchange fees and transfer taxes mandated by law. The broker pays
Oppenheimer Capital a fee monthly or quarterly, from the all inclusive fee
collected from the client. Oppenheimer Capital serves as wrap account manager
for eighteen programs totaling $9.6 billion under management, with
approximately 69% of those assets originated through the Salomon Smith Barney
brokerage network.
Variable Annuities. Oppenheimer Capital has developed a program managing
funds which support the variable annuity products of a number of insurance
companies. Since introduction, this program has grown to nearly $5.1 billion
in assets under management at December 31, 1998.
Asset growth is being driven by a combination of market appreciation,
investment performance and the development of relationships with additional
insurance companies. Subsidiaries of PIMCO Advisors manage portfolios for the
variable annuity accounts of Pacific Life Insurance Company and other
insurance companies.
Growth Strategy
PIMCO Advisors' strategy is to increase the amount and diversification of
its assets under management through (i) growth in the institutional market by
providing high levels of client service and entering new markets in the United
States and overseas, (ii) growth in the retail market by building brand
awareness and direct marketing of the PIMCO Funds through its broker-dealer
network and through penetrating additional distribution channels and (iii) new
product offerings to institutions and retail investors. PIMCO Advisors' growth
initiatives include:
Continued Institutional Growth. PIMCO Advisors works to build on the
strength of its institutional client base by providing high levels of client
service, penetration of new markets and new product offerings. In particular,
PIMCO Advisors is seeking to increase assets managed for overseas
institutional investors, and has recently established or expanded offices in
London, Tokyo, Singapore and Sydney. In addition, PIMCO Advisors formed a
Dublin trust as an additional vehicle for pooled investment by foreign
institutions and high net worth individuals.
Retail Base Expansion. PIMCO Advisors has commenced a significant initiative
to build its retail distribution through investing in its broker-dealer
network, increasing its participation in mutual fund "supermarkets", expanding
its presence in the 401(k) market by increasing the number of plan sponsors
offering PIMCO Advisors' investment products and building brand awareness both
at the broker-dealer level and the retail investor level through increased
marketing and public relations initiatives. In addition, PIMCO Advisors seeks
growth through building on its success in wrap fee accounts, variable annuity
programs and sponsored trust companies offering retail investment products.
New Product Offerings. PIMCO Advisors pursues growth in both the
institutional and retail markets through offering new products. By assessing
current product offerings, working with clients and monitoring market trends,
PIMCO Advisors identifies areas for new product placement. Leveraging off the
depth and expertise of its investment professionals, PIMCO Advisors has
recently developed several new funds to enhance its product line
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and expects to continue to supplement its fund offerings. Recent new product
offerings include a series of asset allocation funds, a tax efficient
management strategies fund, a series of products available to variable annuity
plans and investment products available to oversees investors.
PIMCO Advisors pursues these strategies both through internal investment and
through targeting existing investment managers and selectively acquiring or
hiring those that have demonstrated strong investment performance or provide
complementary products and investment philosophies to PIMCO Advisors' existing
investment management groups.
Competition
The investment management business is highly competitive. PIMCO Advisors
competes with a large number of other domestic and foreign investment
management firms, commercial banks, insurance companies, broker-dealers and
other financial services providers. Some of these financial services companies
have greater resources, assets under management and administration than PIMCO
Advisors and offer a broader array of investment products and services.
PIMCO Advisors believes that the most important factors affecting its
success are the abilities, performance records and reputations of its
investment managers, and the development of new investment and marketing
strategies. The relative importance of these factors varies depending on the
type of investment management service involved. Client service is also an
important competitive factor. PIMCO Advisors' ability to increase and retain
client assets could be adversely affected if client accounts underperform the
market over time or if key investment managers leave the firms. The ability of
PIMCO Advisors to compete with other investment management firms is also
dependent, in part, on the relative attractiveness of their investment
philosophies and methods under prevailing market conditions. There are
relatively few barriers to entry by new investment management firms in the
institutional managed accounts business, which increases competitive pressure.
A large number of mutual funds are sold to the public by investment
management firms, broker-dealers, insurance companies and banks in competition
with mutual funds sponsored by PIMCO Advisors. Many competitors apply
substantial resources to advertising and marketing their mutual funds which
may adversely affect the ability of PIMCO Advisors sponsored funds to attract
new retail clients and to retain retail assets under management.
Regulation
PIMCO Advisors, Pacific Investment Management, Oppenheimer Capital and its
other investment management subsidiaries are investment advisers registered
under the Investment Advisers Act of 1940. Each of the PIMCO Funds is
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940. PFD and OCC Distributors are registered with
the SEC as broker-dealers. All aspects of PIMCO Advisors' business are subject
to various federal and state laws and regulations and to the laws of foreign
countries in which PIMCO Advisors' affiliates conduct business.
Fee Revenues
General Characteristics
Investment management agreements between PIMCO Advisors' investment
management groups and their clients typically provide for fees based on a
percentage of the assets under management, generally determined at least
quarterly and valued at current market levels. The percentage of the fee
applicable to a particular classification of assets under management is a
function of several factors. For example, investments or strategies which have
a higher degree of risk and uncertainty command a higher percentage fee.
Therefore, significant fluctuations in securities prices or in the investment
patterns of clients that result in shifts in assets under management can have
a material effect on PIMCO Advisors' consolidated revenues and profitability.
Such fluctuations in asset valuations and client investment patterns may be
affected by overall economic conditions and other factors influencing the
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capital markets and the net sales of mutual fund shares generally, including
interest rate fluctuations. Virtually all of PIMCO Advisors' revenues are
derived from investment management agreements with clients that are terminable
at any time or upon 30 to 60 days' notice, as is the case generally in the
investment management industry. In general these investment management
agreements may not be assigned without the consent of the client. Any
termination of agreements representing a significant portion of assets under
management could have an adverse impact on PIMCO Advisors' results of
operations. The investment management business is highly competitive and fees
vary among investment managers. Some of PIMCO Advisors' investment management
groups' fees are higher than those of many investment managers relative to the
average size of accounts under management. Each investment manager's ability
to maintain its fee structure in the competitive environment is dependent to a
large extent on the ability of its investment managers to provide clients with
service and investment returns that will cause clients to be willing to pay
those fees. There can be no assurance that PIMCO Advisors' investment
management groups will be able to retain their clients or sustain their fee
structures in the future.
Performance Based Fees
Approximately 4.1%, 4.5% and 4.0% of PIMCO Advisors' revenues (as adjusted
to combine with the revenues of Oppenheimer Capital) for the years ended
December 31, 1998, 1997 and 1996, respectively, were derived from performance
based fees. Most of these revenues are attributable to Pacific Investment
Management's operations. To earn a performance based fee with respect to an
account, the relevant investment manager must generally outperform a specific
benchmark over a particular period. Performance based fee arrangements make
revenues more volatile, but also provide an opportunity to earn higher fees
than could be obtained under fee arrangements based solely on a percentage of
assets under management. Pacific Investment Management's StocksPLUS product,
which accounted for approximately $15.8 billion of assets under management at
December 31, 1998, is generally subject to a performance based arrangement in
which under performance relative to the S&P 500 over a particular time period
results in no fees being paid by clients, while superior performance results
in incentive fees that are generally not subject to a cap. In addition to the
StocksPLUS accounts, several large fixed income accounts aggregating
approximately $15.7 billion at December 31, 1998, also have performance based
fee arrangements. Pacific Investment Management's performance based fee
arrangements, including the StocksPLUS fee arrangement, can materially affect
Pacific Investment Management's revenues, and thus those of PIMCO Advisors,
from period to period.
Employees
As of December 31, 1998, PIMCO Advisors and its subsidiaries employed 1,084
employees.
Item 2. Properties
The principal offices of PIMCO Holdings and PIMCO Advisors are located at
(i) 800 Newport Center Drive, Newport Beach, California where they occupy
approximately 16,000 square feet of space under a lease expiring in 2005, and
(ii) 2187 Atlantic Street, Stamford, Connecticut where PIMCO Advisors and PFD
occupy approximately 17,200 square feet of space under a sublease expiring in
2002. Subsidiaries of PIMCO Advisors also lease space in Atlanta, Boston,
Chicago, Dallas, Edinburgh, London, Newport Beach, New York City, Seattle,
Singapore, Sydney, Tampa and Tokyo. Each location is a modern office building
and the space is adequate for PIMCO Holdings', PIMCO Advisors' and its
subsidiaries current operations, but more space may be necessary should PIMCO
Advisors business expand.
Pacific Investment Management's principal offices are located at 800 and 840
Newport Center Drive and 5 Civic Plaza, Newport Beach, California where it
occupies approximately 85,000 square feet of space under leases expiring 2005.
Pacific Investment Management has entered into a Office Space Lease with The
Irvine Company pursuant to which Pacific Investment Management would lease
approximately 50,000 square feet in Newport Beach, California for an initial
lease payment of $117,000 per month, increasing to $122,000 commencing
September 1, 2000, $127,000 commencing September 1, 2001, $132,000 commencing
September 1, 2002, $141,000 commencing September 1, 2003 and $146,000
commencing September 1, 2004. Beginning twelve
11
<PAGE>
months following the commencement date, the lease provides for payment of
certain building costs and property taxes. The lease for the property at 5
Civic Plaza expires at midnight prior to the commencement of this lease.
Oppenheimer Capital currently maintains office space at the following
locations: approximately 40,000 square feet at the Oppenheimer Tower, New
York, New York; 39,800 square feet at the Merrill Lynch Tower, New York, New
York; and 44,000 square feet at 33 Maiden Lane, New York, New York. PIMCO
Advisors entered into an Assignment and Assumption of Lease dated as of
February 24, 1999 with UBS AG, relating to the assignment of a Lease dated
December 31, 1994, as amended, between 1345 Leasehold Limited Partnership and
UBS AG. Under the terms of the Assignment PIMCO Advisors will pay
approximately $24,000,000 upon commencement of the assignment. The Lease for
approximately 180,000 square feet encompassing the 46th through the 50th
floors of 1345 Avenue of the Americas, New York, New York, provides for fixed
annual lease payments of $6.4 million for the year ended December 31, 1999,
$6.9 million for each of the five years beginning January 1, 2000, $7.5
million for each of the five years beginning January 1, 2005, and $8.0 million
for each of the years in the period beginning January 1, 2010 and ending
December 31, 2016. This office space will house the operations of Oppenheimer
Capital and PIMCO Equity Advisors.
Item 3. Legal Proceedings
There are no material legal proceedings pending or, to the knowledge of
management, threatened against PIMCO Holdings or PIMCO Advisors.
On October 20, 1998, the Court of Chancery of the State of Delaware approved
the agreed upon settlement of the Oppenheimer Capital, L.P. Unitholders
Litigation in settlement of class action suits filed in 1997 in connection
with the acquisition of Oppenheimer Capital. Members of the class (comprising
generally beneficial owners of units of Oppenheimer Capital, L.P. at the close
of business on November 4, 1997) received a special distribution of $0.777 per
unit rounded down to the nearest penny per unitholder, which funds were
delivered to the transfer agent on October 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
None.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Until December 31, 1997, PIMCO Holdings units (formerly Oppenheimer Capital,
L.P. units) were traded on the New York Stock Exchange ("NYSE") under the
symbol "OCC" and the PIMCO Advisors Class A limited partner units were traded
on the NYSE under the symbol "PA." Commencing January 1, 1998, following the
combination of the public ownership of PIMCO Holdings and PIMCO Advisors, the
PIMCO Advisors Class A units are no longer publicly traded and PIMCO Holdings
units are traded on the NYSE under the symbol "PA."
The following table sets forth, for the periods indicated, the high and low
trading prices for PIMCO Holdings units as reported on the NYSE and the total
cash distributions paid per PIMCO Holdings unit:
PIMCO HOLDINGS UNITS
(formerly Oppenheimer Capital, L.P. units prior to January 1, 1998)
<TABLE>
<CAPTION>
Trading Prices(2)
------------------
Total Cash
Reporting Period(1) High Low Distributions
------------------- --------- -------- -------------
<S> <C> <C> <C>
Fiscal 1997 (ended April 30, 1997(1))
First Quarter................................ $17 7/8 $15 3/4 $0.389
Second Quarter............................... 20 3/4 16 5/8 0.449
Third Quarter................................ 22 3/8 19 3/8 0.569
Fourth Quarter............................... 22 7/8 19 1/4 0.689
------
Total...................................... $2.096
======
Fiscal 1997 (partial year ended December 31,
1997(1))
First Quarter................................ $25 7/8 $21 1/2 $0.569
Second Quarter............................... 34 5/8 26 3/4 0.569
Third Quarter (through December 31, 1997).... 32 9/16 28 3/16 0.904
------
Total...................................... $2.042
======
Fiscal 1998 (ended December 31, 1998)
First Quarter................................ $35 15/16 $29 3/8 $ 0.58
Second Quarter............................... 34 1/2 29 3/4 0.53
Third Quarter................................ 35 3/8 25 7/16 0.53
Fourth Quarter............................... 32 7/8 24 1/4 0.55
------
Total...................................... $ 2.19
======
Calendar 1999
First Quarter (January 1, 1999 through March
8, 1999).................................... $30 15/16 $27 5/8 $ 0.57
------
Total...................................... $ 0.57
======
</TABLE>
- --------
(1) On December 1, 1997, PIMCO Holdings changed its fiscal year end to
December 31. The information displayed in this chart through December 31,
1997 is based on a fiscal year end of April 30. Information after December
31, 1997 is based upon a fiscal year end of December 31.
(2) PIMCO Holdings unit prices and distributions prior to December 1, 1997
have been restated to reflect the 1.67-to-one unit split effective as of
that date.
On March 8, 1999, the closing price of PIMCO Holdings units was $29 13/16
per unit and there were approximately 1,730 holders of record of PIMCO
Holdings units.
13
<PAGE>
Distribution Policy
PIMCO Holdings' policy is to distribute substantially all of its net cash
flow on an annual basis subject to establishment of appropriate reserves.
Distributions are declared and paid to unitholders of record on March 31, June
30, September 30 and December 31 of each year within thirty days following the
end of each calendar quarter. Because PIMCO Holdings' sole business is to hold
an investment as a general partner of PIMCO Advisors, the cash flow of PIMCO
Holdings consists of distributions from PIMCO Advisors. The Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors Holdings L.P., as
amended (the "PIMCO Holdings Partnership Agreement") requires the general
partner of PIMCO Holdings to declare quarterly distributions to the record
holders of PIMCO Holdings units (the "Unitholders") in an amount equal to the
cash distributions from PIMCO Advisors, less expenses and reserves. Because
PIMCO Advisors currently pays all expenses of PIMCO Holdings other than taxes,
PIMCO Holdings' per unit distributions generally equal the PIMCO Advisors
distributions less applicable taxes.
PIMCO Advisors distributes on an annual basis cash in an amount equal to
Operating Profit Available for Distribution (as defined in the Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (the "PIMCO
Advisors Partnership Agreement")) less any amount deemed appropriate for
capital expenditures, future payments of indebtedness, as reserves or
otherwise in the business of PIMCO Advisors. The Management Board of PIMCO
Advisors declares distributions on a quarterly basis.
Actual distribution levels will depend on the financial performance of PIMCO
Advisors, and there can be no assurance that the recent distribution rates
will continue to be achieved. Distributions made by PIMCO Holdings will depend
on the profitability of the investment management business of PIMCO Advisors,
which is affected in part by overall economic conditions and other factors
affecting capital markets generally, which are beyond the control of PIMCO
Holdings and PIMCO Advisors. In addition, the general partners of PIMCO
Advisors may, in determining the amount of distributions, deduct any amount
from Operating Profit Available for Distribution the general partners deem may
be required for capital expenditures, reserves or otherwise in the business of
PIMCO Advisors. To the extent PIMCO Advisors or PIMCO Holdings retains profits
in any year, unitholders may have taxable income from PIMCO Holdings that
exceeds their cash distributions.
Item 6. Selected Consolidated Financial Data
The following tables set forth summary financial data of PIMCO Holdings
(retroactively restated to reflect a 1.67 for 1 unit split effective December
1, 1997) for the year ended December 31, 1998, for the eight-months ended
December 31, 1997 and for each of the four years ended April 30, 1997. The
table also sets forth summary financial data for Oppenheimer Capital for the
eight-months ended December 31, 1997, and for each of the four years ended
April 30, 1997 and selected consolidated financial data of PIMCO Advisors for
each of the five years ended December 31, 1998. In the fourth quarter of 1997,
PIMCO Advisors acquired Oppenheimer Capital, and PIMCO Holdings investment in
Oppenheimer Capital was exchanged for an interest in PIMCO Advisors.
Accordingly, PIMCO Advisors data includes the performance of Oppenheimer
Capital from November 4, 1997, and PIMCO Holdings data consists of the
performance of PIMCO Advisors from December 1, 1997. In addition, PIMCO
Advisors and its subsidiaries were formed on November 15, 1994, when Pacific
Asset Management LLC merged certain of its investment management businesses
and substantially all of its assets (the "PFAMCo Group") into Thomson Advisory
Group L.P. ("TAG LP") (the "Consolidation"). Under generally accepted
accounting principles, the Consolidation was accounted for as an acquisition
of TAG LP by PFAMCo Group. Therefore, the historical financial statements of
PIMCO Advisors include the operations of PFAMCo Group, in its corporate form,
prior to the Consolidation and the combined results of PIMCO Advisors in its
partnership form, for the period since the Consolidation. This information
should be read in conjunction with the financial statements of PIMCO Advisors
Holdings L.P., the consolidated financial statements of PIMCO Advisors L.P.
and the consolidated financial statements of Oppenheimer Capital, and the
related notes thereto included elsewhere in this report on Form 10-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of PIMCO Advisors Holdings L.P."
14
<PAGE>
<TABLE>
<CAPTION>
PIMCO Advisors Holdings L.P.
------------------------------------------------------------------
For
For the Year the Eight
Ended Months Ended
December 31, December 31, For The Years Ended April 30,
------------ ------------ ---------------------------------------
1998 1997 1997 1996 1995 1994
------------ ------------ -------- -------- ------- -------
(Amounts in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ 90,682 $ 45,737(3) $ 56,046(1) $ 61,316(1) $34,282 $35,091
Expenses................ 14,537 1,605 2,720 2,720 3,461 4,038
-------- -------- -------- -------- ------- -------
Net income.............. $ 76,145 $ 44,132(3) $ 53,326(1) $ 58,596(1) $30,821 $31,053
======== ======== ======== ======== ======= =======
Diluted Net Income per
unit................... $ 1.52 $ 1.68 $ 2.04 $ 2.27 $ 1.21 $ 1.22
======== ======== ======== ======== ======= =======
Distributions declared
per unit............... $ 2.18 $ 2.05(4) $ 2.10(2) $ 1.90(2) $ 1.30 $ 1.28
======== ======== ======== ======== ======= =======
Weighted average number
of units outstanding... 47,257 25,768 25,663 25,457 25,277 25,122
Financial Condition at
End of Period:
Total assets............ $503,996 $438,964 $116,149 $110,099 $96,633 $98,116
Total liabilities....... 42,377 30,627 17,858 12,713 10,321 10,319
-------- -------- -------- -------- ------- -------
Partners' capital....... $461,619 $408,337 $ 98,291 $ 97,386 $86,312 $87,797
======== ======== ======== ======== ======= =======
</TABLE>
- --------
(1) Includes revenues and a non-recurring gain of $1.8 million, or $.07 per
unit in fiscal 1997 and $17.7 million, or $.69 per unit in fiscal 1996.
(2) Includes a special distribution related to the non-recurring gain of $.06
per unit in fiscal 1997 and $.33 per unit in fiscal 1996.
(3) Includes revenues and a non-recurring gain of $2.8 million, or $.11 per
unit.
(4) Includes a special distribution related to the non-recurring gain of $.07
per unit.
<TABLE>
<CAPTION>
PIMCO Advisors L.P.
For The Years Ended December 31
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
(Amounts in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Total revenues.......... $ 852,432 $ 516,669 $392,024 $323,014 $180,263
Operating expenses...... 571,458 347,453 261,978 215,271 145,220
Amortization of
intangibles, options
and restricted units... 80,805 51,676 41,171 42,723 6,202
---------- ---------- -------- -------- --------
Operating income........ $ 200,169 $ 117,540 $ 88,875 $ 65,020 $ 28,841
========== ========== ======== ======== ========
Net Income.............. $ 208,376 $ 118,330 $ 91,128 $ 68,467 $ 19,255
========== ========== ======== ======== ========
Diluted Net Income Per
Unit(1):
General Partner and
Class A Limited Partner
units.................. $ 1.83 $ 1.45 $ 1.29 $ 1.16 $ 0.12
========== ========== ======== ======== ========
Dividends/Distributions
Declared(2):........... $ 271,345 $ 208,713 $131,604 $ 89,613 $ 24,384
========== ========== ======== ======== ========
Financial Condition at
End of Period:
Total assets(3)......... $1,412,038 $1,334,884 $358,500 $369,592 $379,708
Total liabilities....... 352,951 280,819 62,257 38,035 34,179
---------- ---------- -------- -------- --------
Partners' capital....... $1,059,087 $1,054,065 $296,243 $331,557 $345,529
========== ========== ======== ======== ========
Other Statistics:
Assets under management
(in billions).......... $ 244.2(4) $ 199.5(4) $ 110.0 $ 95.2 $ 72.2
Operating Profit
Available for
Distribution(1)........ $ 289,191 $ 173,166 $132,314 $111,205 $ 12,306
</TABLE>
- --------
(1) Computed on earnings following the Consolidation. Operating Profit
Available for Distribution is defined by the PIMCO Advisors Partnership
Agreement as the sum of net income plus non-cash charges from the
amortization of intangible assets, non-cash compensation expenses arising
from option and restricted unit plans, and losses of any subsidiary which
is not a flow-through entity for tax purposes.
(2) PIMCO Advisors accelerated its distribution declaration record date by one-
month effective December 31, 1997, thus 1997 reflects five quarterly
declarations.
15
<PAGE>
(3) Upon completion of the acquisition of Oppenheimer Capital, approximately
$897.5 million of intangible assets were recorded. Upon completion of the
Consolidation, approximately $284.9 million of intangible assets were
recorded. See Note 3 in the Notes to the Consolidated Financial Statements
of PIMCO Advisors L.P. and Subsidiaries.
(4) Includes Oppenheimer Capital.
<TABLE>
<CAPTION>
Oppenheimer Capital
--------------------------------------------------------
For the Eight
Months Ended
December 31, For The Years Ended April 30,
------------- -----------------------------------------
1997 1997 1996 1995 1994
------------- -------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $148,937 $181,974 $158,215 $129,912 $112,290
Expenses................ 83,951 103,064 95,551 83,066 64,683
-------- -------- -------- -------- --------
Operating income........ 64,986 78,910 62,664 46,846 47,607
Gain on Quest sale...... 4,374(2) 2,806(1) 27,725(1) -- --
-------- -------- -------- -------- --------
Income before income tax
expense and minority
interest............... $ 69,360 $ 81,716 $ 90,389 $ 46,846 $ 47,607
======== ======== ======== ======== ========
Financial Condition at
End of Period:
Total assets............ $ 86,236 $ 93,019 $ 76,338 $ 56,129 $ 43,034
Total liabilities....... 38,654 53,044 41,462 41,582 30,557
Minority interest....... 213 277 174 87 25
-------- -------- -------- -------- --------
Partners' capital....... $ 47,369 $ 39,698 $ 34,702 $ 14,460 $ 12,452
======== ======== ======== ======== ========
Other Statistics:
Assets under management
(in billions).......... $ 61.4 $ 51.2 $ 40.6 $ 31.8 $ 29.4
</TABLE>
- --------
(1) Reflects the gain realized on the sale of the investment advisory and
other contracts and business relationship for the twelve Quest for Value
mutual funds to OppenheimerFunds, Inc. in November 1995.
(2) Reflects the gain realized on the sale of the investment advisory and
other contracts and business relationship of the Quest Dual Purpose Fund
to OppenheimerFunds, Inc. in July 1997.
16
<PAGE>
Item 7. Management's Discussion and Analysis Of Financial Condition And
Results of Operations of
PIMCO Advisors Holdings L.P.
General
PIMCO Advisors Holdings L.P. ("PIMCO Holdings") (formerly Oppenheimer
Capital, L.P.) is a publicly traded Delaware limited partnership owned .01% by
its general partner, PIMCO Partners, G.P. and 99.99% by its public limited
partners ("Unitholders"). Until November 30, 1997, PIMCO Holdings' primary
sources of income were its proportionate (67%) share of the net income of
Oppenheimer Capital, an equity oriented investment management firm, and
interest income from a 10%, $32.2 million note receivable (the "Equities
Note") from an affiliate. As a result of the acquisition of Oppenheimer
Capital by PIMCO Advisors L.P. ("PIMCO Advisors") described below, commencing
December 1, 1997, PIMCO Holdings primary source of income has been its
proportionate share of the net income of PIMCO Advisors. As of December 31,
1998, PIMCO Holdings held approximately 48 million general partner units of
PIMCO Advisors, representing a 44% general partner interest in PIMCO Advisors.
PIMCO Partners, G.P. and other private holders hold the remaining interest in
PIMCO Advisors. PIMCO Partners, G.P. is the sole general partner of PIMCO
Holdings.
PIMCO Advisors is one of the largest investment management firms in the
United States with approximately $244.2 billion under management at December
31, 1998. PIMCO Advisors provides high quality fixed income and equity
investment management to institutional and retail clients, offering the
investment management expertise, performance record and reputations of its
institutional investment managers, which include the fixed income oriented
Pacific Investment Management Company and the equity oriented Oppenheimer
Capital.
The financial condition and results of operations of PIMCO Advisors are
discussed below under "PIMCO ADVISORS L.P." The financial condition and
results of operations of Oppenheimer Capital are discussed below under
"OPPENHEIMER CAPITAL".
Combination of Oppenheimer Capital and PIMCO Advisors
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings. In the transaction,
Opgroup became a subsidiary of PIMCO Advisors, and the Opgroup stockholders
received 2.1 million PIMCO Advisors Class A units and rights to exchange up to
$230 million of outstanding term notes of Opgroup for an additional 6.9
million PIMCO Advisors Class A units at $33 1/3 per unit. In connection with
the transaction, PIMCO Advisors split the one percent general partner interest
in PIMCO Holdings into a .01% general partner interest and a .99% limited
partner interest, and sold the general partner interest to its general
partner.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly-owned subsidiary of
PIMCO Advisors, and the limited partner units of PIMCO Holdings came to
represent an indirect investment in the business of PIMCO Advisors. On
December 1, 1997, PIMCO Holdings effected a 1.67 for 1 split of the PIMCO
Holdings units, so that each PIMCO Holdings unit outstanding after the split
represented an economic interest in one PIMCO Advisors unit.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly
traded, and PIMCO Holdings' general partner interest in PIMCO Advisors
increased to approximately 43%.
Prior to the OpCap Merger, PIMCO Holdings reported its results of operations
and its financial position based on an April 30 fiscal year end. Upon
completion of the OpCap Merger, PIMCO Holdings changed its fiscal year to
17
<PAGE>
a calendar year to correspond with that of PIMCO Advisors. Accordingly, the
period ending December 31, 1997 is a "stub" reporting period, eight-months in
total, consisting of two three-month periods and one two-month period.
Pro Forma Financial Information
Because of the different ownership interests during the historical reporting
periods and the different elapsed times of the historical reporting periods,
management has included below certain pro forma financial information as if
the above discussed transactions had been completed as of January 1, 1996. Pro
forma results eliminate the significant comparative differences in the
historical results of operations arising primarily from the inclusion of 67%
of Oppenheimer Capital's stand alone results prior to November 30, 1997 as
compared with 24% of the consolidated results of PIMCO Advisors for December
of 1997 and 43-44% of such activities after December 31, 1997, and from
certain events effected in the transactions principally related to the
creation and amortization of intangible assets.
The following table summarizes the audited 1998 condensed actual results of
PIMCO Holdings and PIMCO Advisors since completion of the above discussed
acquisition transactions and the unaudited 1997 and 1996 condensed pro forma
results of operations of PIMCO Holdings and PIMCO Advisors as if the above
discussed acquisition transactions had been completed on January 1, 1996.
<TABLE>
<CAPTION>
PIMCO Advisors Holdings L.P.
For the Years Ended
December 31,
------------------------------
1998 1997 1996
-------------------- ---------
(Actual) (Pro forma)
(in millions)
<S> <C> <C> <C>
REVENUES
Equity in earnings of PIMCO Advisors........ $ 90.7 $ 66.0 $ 45.9
--------- --------- ---------
NET INCOME................................... $ 76.1 $ 66.0 $ 45.9
========= ========= =========
Basic Net Income per Unit................... $ 1.61 $ 1.44 $ 1.00
========= ========= =========
Diluted Net Income per Unit................. $ 1.52 $ 1.39 $ 0.98
========= ========= =========
<CAPTION>
PIMCO Advisors L.P.
For the Years Ended
December 31,
------------------------------
1998 1997 1996
-------------------- ---------
(Actual) (Pro forma)
(in millions)
<S> <C> <C> <C>
REVENUES..................................... $ 852.4 $ 704.8 $ 567.1
--------- --------- ---------
EXPENSES
Compensation and related.................... 359.6 295.9 245.0
Other operating expenses.................... 203.6 148.4 111.0
Amortization of intangibles and restricted
units...................................... 80.8 103.2 101.7
--------- --------- ---------
Total..................................... 644.0 547.5 457.7
--------- --------- ---------
Net income................................... $ 208.4 $ 157.3 $ 109.4
========= ========= =========
Basic Net Income per Unit................... $ 1.92 $ 1.44 $ 1.00
========= ========= =========
Diluted Net Income per Unit................. $ 1.83 $ 1.39 $ 0.98
========= ========= =========
Assets Under Management: (in billions)
Beginning of period......................... $ 199.5 $ 158.2 $ 132.4
End of period............................... $ 244.2 $ 199.5 $ 158.2
</TABLE>
18
<PAGE>
The foregoing pro forma operating results give effect to:
(i) Conversion of PIMCO Holdings to a calendar year reporting basis;
(ii) The issuance of 2.1 million PIMCO Advisors Class A units in
connection with the acquisition of the privately held 33% interest in
Oppenheimer Capital which occurred on November 4, 1997 ("Opgroup
Transaction");
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors Class A
units, of which $149.5 million had been exchanged as of December 31, 1998;
(iv) The contribution of the 67% interest in Oppenheimer Capital by PIMCO
Holdings for 26.1 million PIMCO Advisors Class A units which occurred on
November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets at
PIMCO Advisors which arose on November 4, 1997 as a result of the OpCap
Merger and which will be amortized over 20 years;
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997;
(vii) The elimination of the priority distribution structure related to
pre-December 31, 1997 rights of PIMCO Advisors Class A units; and
(viii) The repayment of the Equities Note in November, 1997 and the
resulting elimination of interest income and related expense.
This pro forma information is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during
the periods presented, nor is it an indication of future results.
PIMCO ADVISORS HOLDINGS L.P.
Comparative Results of Operations
Calendar 1998 actual compared to Calendar 1997 pro forma:
PIMCO Holdings realized $90.7 million as its proportionate share of earnings
of PIMCO Advisors (approximately 44%) as compared with $66.0 million pro forma
in 1997, an increase of $24.7 million or 37.4%. This increase was principally
the result of a comparable increase in the net income of PIMCO Advisors,
resulting from a $147.6 million, or 20.9%, pro forma increase in revenues
influenced predominantly by a 22.4% increase in managed assets as of the end
of the respective periods.
The increase in PIMCO Advisors' managed assets aggregated $44.7 billion,
which was comprised of $21.0 billion of net cash inflows and $23.7 billion of
net market appreciation. There can be no assurances that future cash flows or
market activity will occur at the rates experienced in recent years.
The operating expenses of PIMCO Advisors include compensation and related
costs, which increased a pro forma $63.7 million or 21.5%; other operating
expenses, which increased a pro forma $55.2 million or 37.2% and amortization
of intangibles and restricted units and options, which decreased a pro forma
$22.4 million or 21.7%. Compensation and related costs are heavily influenced
by increased revenues because a substantial portion of such costs reflect
participation by key employees in the profitability of the investment advisor
subsidiaries. Other operating costs include occupancy and other costs and tend
to grow at a slower rate than revenues, however, as discussed below under
"PIMCO Advisors L.P.", the expansion of marketing programs and increased sales
activity at PIMCO Funds Distributors LLC ("PFD") increased this cost category
by nearly $25 million in 1998, while increases in occupancy and other costs
accounted for the balance.
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The amortization of intangibles and restricted units and options in 1997 and
1996 includes a charge of approximately $25.8 million related to the complete
amortization as of December 31, 1997 of the intangible value (approximately
$80.7 million) of PIMCO Advisors' master limited partnership ("MLP")
structure, originally scheduled to expire on December 31, 1997.
Under the change in the tax laws enacted in August of 1997, PIMCO Holdings
has elected to continue to be treated as a publicly traded partnership,
subject to a 3.5% federal tax on allocable gross income from active
businesses, however, there will be no specific intangible amortization related
to this structure in the future. Based upon current operating margins, it is
expected that the federal tax will amount to an approximate 15% to 17%
reduction in otherwise reportable net income and an 11% to 12% reduction in
cash flow otherwise available for distribution. In 1998 this tax amounted to
approximately $14.5 million at PIMCO Advisors Holdings.
Net income of PIMCO Holdings amounted to $76.1 million, or $1.52 diluted
earnings per unit, based upon an average of 47.3 million units outstanding for
1998 and $66.0 million, or $1.39 diluted earnings per unit, based upon an
average of 45.7 million units outstanding on a pro forma basis in 1997.
Calendar 1997 pro forma compared to Calendar 1996 pro forma:
PIMCO Holdings realized $66 million as its proportionate share of pro forma
earnings of PIMCO Advisors (approximately 44%) as compared with $45.9 million
pro forma in 1996, an increase of $20.1 million or 43.8%. This increase was
the result of a comparable increase in the net income of PIMCO Advisors,
resulting from a $137.7 million, or 24.3%, pro forma increase in revenues
influenced predominantly by a pro forma 26.1% increase in managed assets as of
the end of the respective periods.
The pro forma increase in managed assets aggregated $41.3 billion, which was
comprised of $16.0 billion of net cash inflows and $25.3 billion of net market
appreciation. There can be no assurances that future cash flows or market
activity will occur at the rates experienced in recent years.
The operating expenses of PIMCO Advisors include compensation and related
costs, which increased a pro forma $50.9 million or 20.8%; other operating
expenses, which increased a pro forma $37.4 million or 33.7% and amortization
of intangibles and restricted units and options, which increased a pro forma
$1.5 million or 1.5%. Compensation and related costs are heavily influenced by
increased revenues because a substantial portion of such costs reflect
participation by key employees in the profitability of the investment advisor
subsidiaries. Other operating costs include occupancy and other costs and tend
to grow at a slower rate than revenues, however, as discussed below under
"PIMCO Advisors L.P.", the implementation of a unified administrative fee in
the PIMCO Funds complex in 1997 resulted in costs previously borne by the
mutual funds being borne directly by the adviser with a corresponding new
revenue.
Historical eight-months ended December 31, 1997 compared to the fiscal year
ended April 30, 1997
PIMCO Holdings realized $43.8 million as its proportionate share of the
earnings of its investees during the eight-months ended December 31, 1997.
This included $39.8 million representing its approximate 67% ownership of
Oppenheimer Capital through November 30, 1997 and $4.0 million representing
its approximate 24% ownership of PIMCO Advisors for the month of December
1997. Equity in earnings of Oppenheimer Capital for the period included $2.8
million representing the proportionate share of a gain recognized by
Oppenheimer Capital upon the sale of the investment advisory contracts and
business relationships of the Quest for Value Dual Purpose Fund, Inc. to
OppenheimerFunds, Inc. ("OFI"). This compares with fiscal 1997 recorded
results of $52.8 million of equity in earnings of Oppenheimer Capital, which
results also reflected a $1.8 million gain from the sale of the Quest for
Value Funds investment advisory contracts and business relationships to OFI.
These two sales are referred to as the Quest sales. The comparative reduction
in earnings is predominantly due to the shorter relative time frames (seven
months of ownership of Oppenheimer Capital as compared to 12 months of
ownership) offset by increased managed assets during that period. Variances in
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interest income, amortization of intangibles and other expenses are all due to
the difference in length of the respective reporting periods.
Net income per unit amounted to $1.70 based upon a weighted average 25.8
million units outstanding.
Comparison of historical fiscal years ended April 30, 1997 and 1996
PIMCO Holdings recorded equity in earnings of Oppenheimer Capital for the
years ended April 30, 1997 and 1996 of $52.8 million and $58.1 million,
respectively. Equity in earnings of Oppenheimer Capital for the 1997 and 1996
fiscal years included gains recognized by Oppenheimer Capital on the Quest
sales of $1.8 million and $17.7 million, respectively. Equity in earnings of
Oppenheimer Capital, excluding the Quest sales, increased 26.4% to $51.0
million for the year ended April 30, 1997 from $40.4 million for the year
ended April 30, 1996, as a result of higher operating income at Oppenheimer
Capital. Interest income on the Equities Note for each of the years ended
April 30, 1997 and 1996 totaled $3.2 million.
Amortization of goodwill for each of the years ended April 30, 1997 and 1996
amounted to $2.6 million. Other expenses consist of New York City
unincorporated business tax ("UBT") computed at a rate of 4% of taxable
income. For the years ended April 30, 1997 and 1996, New York City UBT
amounted to $132,000 each year.
Net income amounted to $53.3 million or $2.06 per unit based on an average
of 25.8 million units outstanding for the year ended April 30, 1997 and $58.6
million or $2.28 per unit based on an average of 25.5 million units
outstanding for the year ended April 30, 1996. Included in the net income for
the years ended April 30, 1997 and 1996 are gains on the Quest sale, which
amounted to $1.8 million, or $.07 per unit and $17.7 million, or $.69 per
unit, respectively.
Taxes
PIMCO Holdings is not subject to federal, state, or local income taxes,
which are the obligations of the individual partners. However, beginning in
calendar year 1998, PIMCO Holdings elected to be subject to a 3.5% federal tax
on its share of PIMCO Advisors gross income from the active conduct of a trade
or business in order to retain its partnership status. The imposition of these
taxes will reduce both net income and cash available for distribution to
partners from levels that would otherwise be available. Similar taxes may be
imposed by states in which PIMCO Holdings is subject to such taxes. As of
December 31, 1998, PIMCO Holdings anticipates an effective tax on gross
income, including current state imposed taxes, to approximate 4%.
Liquidity and Capital Resources
PIMCO Holdings is dependent upon the operating cash flow of PIMCO Advisors
(Oppenheimer Capital before November 30, 1997) for its liquidity and capital
resources. The liquidity and capital resources of PIMCO Advisors is discussed
separately below.
For the year ending December 31, 1998, PIMCO Holdings declared total
distributions to holders of PIMCO Holdings units of $2.18 per unit. For the
eight-months ended December 31, 1997, PIMCO Holdings declared total
distributions to holders of PIMCO Holdings units of $2.05 per unit, including
$.07 related to the Quest sale. For the fiscal years ended April 30, 1997 and
1996, PIMCO Holdings declared total distributions to holders of PIMCO Holdings
units of $2.10 and $1.90 per unit, respectively. The total distributions for
the fiscal years ended April 30, 1997 and 1996 included special distributions
of $.06 and $.33, respectively, related to the Quest sales. PIMCO Holdings'
policy is to distribute substantially all of its net cash flow on an annual
basis after establishment of appropriate reserves. Distributions are declared
to unitholders of record on March 31, June 30, September 30 and December 31 of
each year and paid within thirty days following the end of each calendar
quarter. Because PIMCO Holdings' sole business is to hold an investment as a
general partner of PIMCO Advisors, the operating cash flow of PIMCO Holdings
consists of distributions from PIMCO Advisors. Because PIMCO Advisors
currently pays all expenses of PIMCO Holdings other than taxes, PIMCO
Holdings' per-unit distributions generally equal the PIMCO Advisors
distributions, less applicable taxes (see PIMCO Advisors L.P. "Liquidity and
Capital Resources" and "Distributions").
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Distribution levels will depend on the financial performance of PIMCO
Advisors. There can be no assurance that current distribution rates will be
maintained. Distributions made by PIMCO Holdings will depend on the
profitability of the investment management business of PIMCO Advisors, which
is affected in part by overall economic conditions and other factors affecting
capital markets generally, which are beyond the control of PIMCO Holdings and
PIMCO Advisors.
PIMCO ADVISORS L.P.
Revenues and Assets Under Management
PIMCO Advisors derives substantially all its revenues and net income from
advisory fees for investment management services provided through its
investment management subsidiaries to its institutional and individual
clients, and advisory, distribution and servicing fees for services provided
to the PIMCO Funds.
Generally, such fees are determined based upon a percentage of client assets
under management and are billed quarterly to institutional clients, either in
advance or arrears, depending on the agreement with the client and monthly in
arrears to the PIMCO Funds. Revenues are determined in large part based upon
the level of assets under management, which itself is dependent upon factors
including market conditions, client decisions to add or withdraw assets from
PIMCO Advisors management, and PIMCO Advisors' ability to attract new clients.
In addition, PIMCO Advisors has certain accounts which are subject to
performance based fee schedules wherein performance relative to the S&P 500
Index or other benchmarks over a particular time period can result in
additional fees. Such performance based fees can have a significant effect on
revenues, and provide an opportunity to earn higher fees (as well as lower)
than could be obtained under fee arrangements based solely on a percentage of
assets under management. While no assurances can be given that PIMCO Advisors
will continue to earn any performance fees, such fees have aggregated $34.7
million, $31.6 million and $22.5 million, or 4.1%, 4.5% and 4.0% of total
revenues (pro forma in 1997 and 1996) in 1998, 1997 and 1996 respectively.
The following table sets forth the actual composition of PIMCO Advisors
assets under management as of December 31, 1998 and 1997 compared to pro forma
December 31, 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -----------
(Actual) (Actual) (Pro Forma)
-------- -------- -----------
(in millions)
<S> <C> <C> <C>
Assets under management by source:
Institutional separate accounts
Fixed income............................... $106,633 $ 82,981 $ 63,388
Equity..................................... 50,753 51,139 44,053
Retail products and mutual funds............. 86,780 65,425 50,808
-------- -------- --------
Total.................................... $244,166 $199,545 $158,249
======== ======== ========
Assets under management by type:
Fixed income................................. $148,853 $112,318 $ 86,942
Equity....................................... 92,040 84,405 68,389
Money market................................. 3,273 2,822 2,918
-------- -------- --------
Total.................................... $244,166 $199,545 $158,249
======== ======== ========
</TABLE>
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<PAGE>
In 1998 managed assets increased by $44.7 billion. The increase resulted
from net cash inflows from new and existing clients of $21.0 billion and net
market appreciation of $23.7 billion. In 1997 and 1996, on a pro forma basis
assuming the acquisition of Oppenheimer Capital as of January 1, 1996, net
cash inflows were $16.1 billion and $10.4 billion respectively. Net market
appreciation contributed $25.1 billion and $15.4 billion in 1997 and 1996,
respectively, under the same pro forma assumptions. There can be no assurances
that future cash flows or market activity will occur at the rates experienced
in recent years.
PIMCO Advisors' principal business units include Pacific Investment
Management, a fixed income manager, Oppenheimer Capital, a value based equity
manager and PIMCO Funds Distributors LLC ("PFD"), the broker dealer
distributing the PIMCO Funds. Effective January 1, 1999, PIMCO Equity
Advisors, a division focused principally on equity management for mutual
funds, was established. Revenues are generally dependent upon the average
levels of assets managed, and to a lesser extent, the levels of net assets
gathered in the case of PFD. Accordingly, revenue impacts from growth, or
declines, in managed assets are more noticeable in periods subsequent to the
change than in the period of change itself.
As discussed above, PIMCO Advisors completed the acquisition of Oppenheimer
Capital and its subsidiaries in a two step transaction, wherein an approximate
one-third interest was acquired November 4, 1997 and the remaining interest
was acquired November 30, 1997. Because control of Oppenheimer Capital was
achieved in the first step, the results of Oppenheimer Capital have been
consolidated with those of PIMCO Advisors since November 4, 1997.
PIMCO Advisors has structured its proprietary mutual fund operations into
the "PIMCO Funds" family of mutual funds. PIMCO Funds are offered in up to six
different share classes: Institutional and administrative share classes
primarily for institutional investors and, for retail investors, front end
load, back-end load and level load share classes. The PIMCO Funds have a
"unified fee" structure which has specified advisory and administrative fees
per fund. As a result, PIMCO Advisors and Pacific Investment Management (and
not the PIMCO Funds) bear the risk of increases in service costs (including
those of third-party service providers such as transfer agents) and will
directly benefit from any decreases in those costs.
Intangible Assets
PIMCO Advisors and its subsidiaries were formed on November 15, 1994, when
Pacific Asset Management LLC (formerly Pacific Financial Asset Management
Company) merged certain of its investment management businesses and
substantially all of its assets (the "PFAMCo Group") into Thomson Advisory
Group L.P. ("TAG LP") (the "Consolidation"). As described above, PIMCO
Advisors acquired Oppenheimer Capital in the fourth quarter of 1997.
Intangible assets of approximately $284.9 million created by the
Consolidation represent the excess of the purchase price over the fair value
of net tangible assets of TAG L.P. deemed acquired by PFAMCo Group.
Approximately $80.7 million of the intangible assets represents the value
assigned to PIMCO Advisors' MLP structure. Under previous tax law, an MLP was
exempt from federal and most state and local income taxes through December 31,
1997. As discussed elsewhere, the tax status for publicly traded partnerships
has been extended. However, the value attributed to the MLP structure has been
amortized through the period ended December 31, 1997. In connection with the
acquisition of Oppenheimer Capital in the fourth quarter of 1997 approximately
$897.5 million of intangible assets was recorded, representing the excess of
the purchase price over the fair value of the net tangible assets acquired.
The remainder of all intangibles is being amortized over the estimated useful
life of 20 years.
Distributions
PIMCO Advisors distributes on an annual basis cash in an amount equal to
Operating Profit Available for Distribution (as defined in the Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (the "PIMCO
Advisors Partnership Agreement")) less any amount deemed required for capital
expenditures, future payments of indebtedness, as reserves or otherwise in the
business of PIMCO Advisors. Operating Profit Available
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<PAGE>
for Distribution is defined by PIMCO Advisors Partnership Agreement and is
computed as the sum of net income plus non-cash charges from the amortization
of intangible assets, non-cash compensation expenses arising from option and
restricted unit plans, and losses of any subsidiary which is not a flow-
through entity for tax purposes. In general, the PIMCO Advisors Management
Board evaluates distribution levels quarterly.
During 1998 PIMCO Advisors declared distributions to holders of PIMCO
Advisors units of $2.49 per unit, consisting of quarterly declarations of
$0.60, $0.60, $0.63 and $0.66 for the first, second, third and fourth
quarters, respectively. The fourth quarter declaration was paid on January 29,
1999. PIMCO Holdings also declared distributions to holders of PIMCO Holdings
units of $2.18 per unit, consisting of quarterly declarations of $0.53, $0.53,
$0.55 and $0.57 for the first, second, third and fourth quarters,
respectively. The fourth quarter distribution was paid on January 29, 1999.
The difference between the distribution levels of PIMCO Advisors and PIMCO
Holdings arises from the tax on publicly traded partnerships that became
effective in 1998.
Actual distribution levels will depend on the financial performance of PIMCO
Advisors, and there can be no assurance that recent distribution rates will
continue to be achieved. Distributions made by PIMCO Holdings will depend on
the profitability of the investment business of PIMCO Advisors, which is
affected in part by overall economic conditions and other factors affecting
capital markets generally, which are beyond the control of PIMCO Holdings and
PIMCO Advisors. In addition, the general partners of PIMCO Advisors may, in
determining the amount of distributions, deduct any amount from Operating
Profit Available for Distribution the general partners deem may be required
for capital expenditures, reserves or otherwise in the business of PIMCO
Advisors. To the extent PIMCO Advisors or PIMCO Holdings retains profits in
any year, unitholders may have taxable income from PIMCO Holdings that exceeds
their cash distributions.
Prior to 1998, net income per unit had been computed under the two-class
method which allocated net income to Class A and Class B units in proportion
to the Operating Profit Available for Distribution for each class. PIMCO
Advisors Class A units were entitled to a priority distribution of $1.88 per
unit per year until December 31, 1997. Because of this, the amount of
Operating Profit Available for Distribution allocated to such units has been
greater during some periods than the amount allocated to PIMCO Advisors Class
B units. As a result, prior to 1997 the net income allocated per Class A unit
was greater than the net income allocated per Class B unit. In addition,
because of the priority distribution, the initial dilution to net income per
unit from the assumed exercise of unit options was applied entirely to PIMCO
Advisors Class B units. However, growth in both net income and Operating
Profit Available for Distribution in 1997 beyond the priority levels resulted
in the allocations of income and distributions per unit to be equal across all
classes in 1997.
Distributions are declared and paid to unitholders of record as of the
quarter end (including for PIMCO Holdings) within thirty days following the
end of each calendar quarter. The Class A unit distribution preference ended
with the payment of the distribution for the fourth quarter of 1997, and on
March 1, 1998, all PIMCO Advisors Class B units were converted into Class A
units.
Comparative Results of Operations
Year ended December 31, 1998 actual results compared to year ended December
31, 1997 pro forma results
PIMCO Advisors consolidated 1998 revenues, including those of its wholly-
owned distributor, PFD, were $852.4 million, compared to pro forma revenues of
$704.8 million in 1997. Advisory revenues in this comparison increased $128.5
million to $770.1 million in 1998. Distribution and servicing revenues
increased $19.1 million to $82.3 million in 1998. For most operating entities
revenue increases resulted from the commitment of new assets primarily by
institutional clients and increases in the market value of existing assets
under management. These increases were further enhanced by an increase in
performance based fees, which amounted to $34.7 million in 1998 as compared to
$31.6 million in 1997. The increase in performance based fees occurred
principally in equity index portfolio products seeking to outperform the S&P
500 Index.
While the consolidated assets under management of PIMCO Advisors increased
by $44.6 billion, CCI continued to experience net outflows of managed assets,
aggregating $1.8 billion in 1998, resulting in a decrease in
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<PAGE>
its revenues of $9.4 million or 16.3%. Oppenheimer Capital, while experiencing
net outflows of managed assets of approximately $4.9 billion, saw its revenues
increase $17.7 million, or 7.6%, because of higher average managed assets in
1998 as compared to 1997. With the establishment of PIMCO Equity Advisors in
the first quarter of 1999, and the transfer of the management of five PIMCO
Funds portfolios from CCI to PIMCO Equity Advisors, it is expected that the
revenues of CCI will again decline in 1999 by more than $17 million as a
result of this transfer. These revenues will remain within the consolidated
results of PIMCO Advisors, however.
Compensation and benefit expenses in 1998 of $359.6 million were $63.7
million higher than pro forma 1997 of $295.9 million, reflecting additional
staffing at virtually all subsidiaries, and increased profit sharing at the
investment management subsidiaries due to improved profitability. The total
number of employees increased from 980 as of December 31, 1997 to 1,084 as of
December 31, 1998.
Commission expenses increased by $17.5 million or 29.1% in 1998 as compared
with pro forma 1997 amounts of $60.3 million. Commission expenses are
primarily incurred by PFD and are paid primarily to broker-dealers and their
sales people for the sale of PIMCO Advisors retail-oriented mutual funds.
These include "up-front" commissions paid at the time of sale of the mutual
funds, "trail" commissions paid for the maintenance of assets in the mutual
funds and service fee commissions paid for services provided to mutual fund
shareholders. The level of commission expense will vary according to the level
of assets in the mutual funds (on which trail and service fee commissions are
determined) and on the level of sales of mutual funds (on which up-front
commissions are determined). Trail and service fee commissions are generally
paid quarterly beginning one year after sale of the mutual funds. Therefore,
at any given time, trail and service fee commissions will be paid on only the
mutual fund assets that qualify for such payments. In 1998, trail and service
fee commissions increased to $51.6 million, an increase of $10.2 million or
24.9%, compared to 1997 pro forma amounts. This increase is related to an
increase in the underlying qualifying assets. Up-front commissions increased
from $19.0 million on a pro forma basis in 1997 to $26.2 million in 1998, an
increase of $7.2 million or 37.9%. This is a result of increases in total
sales volume and the mix of share classes sold.
Restricted unit and option plan costs increased $3.4 million, or 15.2% from
1997 pro forma amounts of $22.4 million. This cost is predominantly due to the
award of restricted units in the Oppenheimer Capital acquisition that will
result in an annual charge of approximately $15-$16 million in this cost
category over the five year vesting period. Coupled with existing charges to
this line item, the 1999 charge is expected to aggregate approximately $24.9
million.
Marketing and promotional costs increased $8.6 million or 42.8% in 1998
compared to pro forma amounts of $20.1 million in 1997. Increases commensurate
with increased activities occurred at most entities. In addition, the retail
fund complex adopted a unified administrative fee structure in 1997 which
results in costs previously borne directly by the funds being borne by the
advisor with a concurrent revenue received by the advisor. The majority of
those newly borne costs are reflected in the marketing and promotional and
general and administrative cost categories.
Occupancy and equipment costs increased $5.9 million or 33.5% in 1998
compared to pro forma amounts of $17.6 million in 1997. The increase relates
to increased depreciation of equipment and inflationary facilities cost
increases at all entities, as well as expansion costs associated with
headcount increases. Subsequent to year end, PIMCO Advisors and Oppenheimer
Capital have entered into a new lease for approximately 180,000 square feet of
space in New York City to house the operations of PIMCO Equity Advisors and
Oppenheimer Capital. It is expected that this relocation and expansion will
result in higher occupancy costs in 1999 than were experienced in 1998, but
increases beyond 1999 should be less than those experienced in prior years.
General and administrative costs increased $11.2 million or 34.7% in 1998
compared to pro forma amounts of $32.4 million in 1997. As noted above, the
retail fund complex adopted a fixed administrative fee basis in 1997 resulting
in increases to this cost category for expenses previously borne directly by
the funds.
Other expense includes such items as interest expense, consulting costs,
reimbursement agreements, taxes and other, and reflects a net increase of
$13.1 million in 1998 compared to pro forma amounts of $6.2 million in 1997.
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Interest expense on debt assumed in the Oppenheimer Capital acquisition of
approximately $5.0 million, net increases in other interest expense of
approximately $2.2 million, declines in investment earnings and non-recurring
gains of approximately $3.0 million, as well as generally expanded activities
at all of the operating subsidiaries, account for this increase.
Amortization of intangibles decreased $25.7 million when compared to the pro
forma levels of $80.8 in 1997. The completed amortization of the originally
established intangible asset allocable to the MLP status of PIMCO Advisors
caused this decline. Future annual charges are expected to equal the amount
recognized in 1998.
Year ended December 31, 1998 actual results compared to year ended December
31, 1997 actual results
The 1998 results of operations reflect the consolidation of Oppenheimer
Capital for the entire year, while the 1997 actual results reflect Oppenheimer
Capital for only the two months after the acquisition occurring on November 4,
1997. In addition to the growth in most of the operating revenues and expenses
discussed above in the comparison of the pro forma 1997 results to those of
1998, the inclusion of Oppenheimer Capital in the consolidated financial
results for an additional 10 months in 1998 accounts for the significant
increases in most line items. In particular, revenues, compensation,
restricted unit and option costs and amortization of intangibles all increased
in 1998 as a result of the Oppenheimer acquisition.
Year ended December 31, 1997 actual results compared to year ended December
31, 1996 actual results
PIMCO Advisors consolidated 1997 revenues, including those of its wholly-
owned distributor, PFD, were $516.7 million, compared to revenues of $392.0
million in 1996. Advisory revenues in this comparison increased $114.9 million
to $453.2 million in 1997. Distribution and servicing revenues increased $9.8
million to $63.5 million in 1997. The acquisition of Oppenheimer Capital
during the fourth quarter of 1997 accounts for a portion of the individual
increases in the respective operational line items on a year-over-year basis.
Most significantly, approximately $39.0 million of revenues, $14.5 million in
compensation and related expenses, and $2.8 million of restricted unit
amortization arose in the post acquisition period. The impact of Oppenheimer
Capital on other cost categories for the post acquisition period was generally
not material because of the short time period involved. In addition to the
revenues from Oppenheimer Capital, for most operating entities revenue
increases resulted from the commitment of new assets primarily by
institutional clients and increases in the market value of existing assets
under management. These increases were further enhanced by an increase in
performance based fees, which amounted to $31.6 million in 1997 as compared to
$22.5 million in 1996. The increase in performance based fees occurred
principally in equity index portfolio products seeking to outperform the S&P
500 Index. CCI continued to experience net outflows of managed assets,
principally in large-cap separate accounts, aggregating $6.1 billion in 1997,
resulting in a decrease in its revenues of $6.1 million or 9.6%.
Compensation and benefit expenses in 1997 of $225.8 million were $52.3
million higher than 1996, reflecting additional staffing at virtually all
subsidiaries, and increased profit sharing at the investment management
subsidiaries due to improved profitability as well as the aforementioned
impact of the Oppenheimer Capital acquisition. The total number of employees
increased from 547 as of December 31, 1996 to 980 as of December 31, 1997,
inclusive of 365 employees at Oppenheimer Capital.
Commission expenses increased by $9.0 million or 23.9% in 1997 as compared
with 1996. Commission expenses are primarily incurred by PFD and are paid
primarily to broker-dealers and their sales people for the sale of PIMCO
Advisors retail oriented mutual funds. In 1997, trail and service fee
commissions increased to $35.6 million, an increase of $5.3 million or 17.5%,
compared to 1996. This increase is related to an increase in the underlying
qualifying assets. Up front commissions increased from $7.4 million in 1996 to
$11.1 million in 1997, an increase of $3.7 million or 50.0%. This is a result
of increases in total sales volume and the mix of share classes sold.
Restricted unit and option plan costs increased $3.0 million, or 58.6% from
1996. This is predominantly due to the award of restricted units in the
Oppenheimer Capital acquisition.
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Marketing and promotional costs increased $5.6 million or 51.1% in 1997
compared to 1996. Increases commensurate with increased activities occurred at
most entities, including the effects of Oppenheimer Capital of approximately
$1.4 million. In addition, the retail fund complex adopted a unified
administrative fee structure in 1997 which results in costs previously borne
directly by the funds being borne by the advisor with a concurrent revenue
received by the advisor. The majority of those newly borne costs are reflected
in the marketing and promotional and general and administrative cost
categories.
Occupancy and equipment costs increased $2.6 million or 28.3% in 1997
compared to 1996. The increase relates to increased depreciation of equipment
and inflationary facilities cost increases at all entities, as well as the
impact of Oppenheimer Capital of approximately $1.5 million during the period
following the acquisition.
General and administrative costs increased $9.8 million or 55.5% in 1997
compared to 1996. As noted above, the retail fund complex adopted a fixed
administrative fee basis in 1997 resulting in increases to this cost category
for expenses previously borne directly by the funds.
Other expense includes such items as interest expense, consulting costs,
reimbursement agreements and other, and reflects a net increase of $4.5
million in 1997 compared to 1996. Interest expense on debt assumed in the
Oppenheimer Capital acquisition of approximately $2 million, as well as
increased activities at PIMCO Advisors related to acquisition analysis, and
generally expanded activities at all of the operating subsidiaries accounts
for this increase.
Amortization of intangibles increased $7.5 million due to the intangibles
created in the Oppenheimer Capital acquisition.
Liquidity and Capital Resources
PIMCO Advisors business has not historically been capital intensive,
although increasing sales of PIMCO Funds Class B shares require PIMCO Advisors
to finance increasing amounts of the brokerage commissions associated with
these shares which commissions are repaid through future 12b-1 fees. In
general, working capital requirements have been satisfied out of operating
cash flow or short-term borrowings. PIMCO Advisors often finances quarterly
profit sharing payments to employees using short-term borrowings and may
finance "B" share commissions with short or long term borrowings.
PIMCO Advisors had approximately $116.1 million of cash and cash equivalents
and short-term investments at December 31, 1998 compared to approximately
$67.9 million at December 31, 1997. The increases were due to the timing of
payment of certain liabilities offset by the funding of "B" Share commissions
to brokers. "B" Shares involve the payment of commissions to the selling
broker by the distributor at the time of sale of mutual fund shares. Through
deferred sales charges to the investor, or 12b-1 plans with the mutual fund,
these "front end" commissions are recouped by the distributor over a period of
years. PIMCO Advisors' excess liquidity, after distributions to its
unitholders, is used for general corporate purposes including profit sharing
payments and brokers' commissions on sales of mutual fund shares distributed
without a front end sales load. To the extent that the level of such
commissions may increase due to the introduction of new products and mutual
fund pricing structures, an alternate financing source may be needed. However,
PIMCO Advisors has made no decision as to the source or necessity of such
financing.
PIMCO Advisors distributes substantially all of its Operating Profit
Available for Distribution, after appropriate reserves, to its partners.
Distributions have been paid quarterly, in arrears, on the units outstanding
to unitholders of record on the last day of the quarter. Distribution
declarations in 1998 were $2.49 for each Class A limited and general partner
unit, reflecting distributions of Operating Profit Available for Distribution
for the four quarters of 1998. Distribution declarations in 1997 were $2.570
for the PIMCO Advisors Class A limited and general partner units and $2.564
for the PIMCO Advisors Class B limited partner units. These amounts reflect
Operating Profit Available for Distribution for the fourth quarter of 1996 and
the four quarters of 1997. The Class A unit distribution preference ended with
the payment of the distribution for the fourth quarter of 1997, and on March
1, 1998, all PIMCO Advisors Class B units were converted into Class A units.
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PIMCO Advisors assumed $230.0 million of 6% exchangeable debt in connection
with the Oppenheimer Capital acquisition in November 1997. Through December of
1998, $149.5 million of that debt has been exchanged for Class A units at a
rate of $33 1/3 per unit. The remaining $80.5 million of such debt is expected
(but is not required) to be exchanged for units on the same terms upon the
expiration of certain tax contingencies over the next six to seven years.
On May 12, 1998, PIMCO Advisors secured a syndicated $500 million credit
facility to provide liquidity for working capital, including financing "B"
share commissions and strategic opportunities. This credit facility consists
of (i) a Long-Term Credit Facility, providing for a $250 million five-year
revolving credit facility and (ii) a Short-Term Credit Facility, providing for
a $250 million 364 day revolving credit facility. As of December 31, 1998,
$65.0 million was outstanding under the Long-Term Credit Facility.
General Economic and Other Factors
The general economy including interest rates, inflation and client responses
to economic factors will affect, to some degree, the operations of PIMCO
Advisors. As a significant portion of assets under management are fixed income
funds, fluctuations in interest rates could have a material impact on the
operations of PIMCO Advisors. PIMCO Advisors' advisory business is generally
not capital intensive and therefore any effect of inflation, other than on
interest rates, is not expected to have a significant impact on its operations
or financial condition. Client responses to the economy, including decisions
as to the amount of assets deposited may also impact the operations of PIMCO
Advisors. Any resulting revenue fluctuations may or may not be recoverable in
the pricing of services offered by PIMCO Advisors.
Year 2000 Readiness Disclosure
Many of the world's computer systems record years in a two-digit format.
These systems may be unable to correctly recognize, interpret or use dates
beyond the year 1999. This inability to process date information might lead to
significant business disruptions. PIMCO Advisors and its subsidiaries are
taking steps to assure that their computer systems will function properly
after 1999. PIMCO Advisors and its subsidiaries have designated a team of
information and business professionals to address the Year 2000 problem and
have developed a written Year 2000 Plan to address Year 2000 issues. PIMCO
Advisors presently estimates that its Year 2000 related expenditures will be
approximately $14.3 million and that Year 2000 will not have a material affect
on its operations. As of December 8, 1998, PIMCO Advisors and subsidiaries
have expended an estimated $6.7 million on Year 2000 related expenses. PIMCO
Advisors and its subsidiaries are in various stages of reviewing, testing and
making software repairs and upgrades to those systems and programs that they
believe will become affected by the Year 2000 problem. Because the Year 2000
project is an ongoing company-wide endeavor, the state of progress changes
daily. Year 2000 budget estimates are subject to change and revision. See
"Uncertainty" below. The PIMCO Advisors' Year 2000 Plan consists of five
general phases: Awareness, Assessment, Remediation, Testing, and
Implementation.
Awareness: During the Awareness phase, the Year 2000 team informed the
employees of PIMCO Advisors and its subsidiaries, including the highest levels
of PIMCO Advisors' management, about the Year 2000 problem. A written Year
2000 Plan was prepared and Year 2000 budget estimates were compiled. The
Management Board of PIMCO Advisors formally approved the Year 2000 Plan and a
preliminary budget on July 21, 1998. The Board approves successive and updated
Year 2000 plans and budgets quarterly.
Assessment: During the Assessment phase, the Year 2000 team prepared an
inventory of information technology ("IT") and non IT systems used in PIMCO
Advisors' and its subsidiaries' business. Systems are classified as software,
hardware, and embedded chips. Separately, systems are also classified as
mission critical systems and non mission critical systems. Except for voice,
and data lines, security, fire, electrical and other building facilities,
PIMCO Advisors does not currently believe that the failure of its non IT
systems would have a material adverse effect upon its business. As the
inventory is compiled and verified, each system is preliminarily assessed for
Year 2000 compliance. This preliminary assessment is made by obtaining
manufacturers' representations that a given product is Year 2000 compliant or
other evidence of compliance. Systems for which no such evidence can be
obtained are identified as candidates for correction or replacement
("Remediation"). The
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<PAGE>
assessment phase is substantially complete with respect to PIMCO Advisors'
internal systems and with respect to certain third party systems such as
building facilities and certain data providers.
Remediation: During the Remediation Phase, software, hardware, and embedded
chips identified during the Assessment phase to be non Year 2000 compliant
will be corrected or replaced. PIMCO Advisors and its subsidiaries plan to
substantially complete remediation of the non compliant mission critical
software, hardware, and non IT systems by March 31, 1999, except with respect
to the portfolio management and accounting system utilized by Oppenheimer
Capital, which is expected to be remediated by April 30, 1999. Non mission
critical systems are anticipated to be substantially completed by April 30,
1999. Necessarily, further corrections and replacements may need to be made
after the Remediation Phase has been completed as a result of problems
identified during the Testing Phase or otherwise.
Testing: The Testing Phase includes internal testing, point-to-point
testing, and industry testing. Testing will be conducted on both existing and
new systems as they are added. PIMCO Advisors generally plans to test its
systems in order of criticality (mission critical, then non mission critical).
PIMCO Advisors does not plan to test non mission critical systems that are not
used in its business (e.g., software applications incidentally installed on
PCs with other software that is used in PIMCO Advisors and its subsidiaries'
business). PIMCO Advisors will design and implement internal, point-to-point,
and industry testing programs that use test scripts, portfolios and various
hypothetical dates generated by PIMCO Advisors and its subsidiaries, vendors,
and industry groups. Internal testing already has taken place at PIMCO
Advisors' major subsidiaries, Pacific Investment Management Company and
Oppenheimer Capital. Four of PIMCO Advisors' SEC registered investment
advisory subsidiaries intend to participate in an industry-wide testing forum
sponsored by the Securities Industry Association. Pacific Investment
Management Company has been at the forefront of this process through its
participation in the Bond Market Association's Asset Managers' Forum, a
committee which is advising the Securities Industry Association on issues
associated with investment managers and Year 2000 issues. PIMCO Advisors
currently expects that internal testing of its mission critical systems will
be substantially complete by April 30, 1999; point-to-point testing will be
substantially complete by June 7, 1999; and industry testing may be
substantially complete by May 1, 1999. These dates may change significantly
depending upon whether PIMCO Advisors and its subsidiaries, their
counterparties, and the securities industry in general meet their anticipated
deadlines. PIMCO Advisors anticipates that it will conduct tests with as yet
unidentified third parties until December 31, 1999, as circumstances warrant.
Implementation: During the Implementation phase, systems that have been
tested and identified as being Year 2000 Compliant will be put into normal
business operation. PIMCO Advisors and its subsidiaries currently plan to
complete Implementation with respect to their mission critical systems by
March 31, 1999 (with the exception of the portfolio management system utilized
by Oppenheimer Capital), and of other systems as soon as possible thereafter,
but in any event by June 7, 1999. PIMCO Advisors and its subsidiaries are
continuously reviewing and revising written contingency plans addressing
possible failures of technology and services in their various business
operations. PIMCO Advisors also anticipates that it will continuously revise
its contingency plans until December 31, 1999, as new risks and strategies
become apparent. Although PIMCO Advisors and its subsidiaries are preparing
plans, no assurance can be given that contingency plans can be developed that
would avoid all problems in the event of the failure of certain mission
critical systems, counterparties, and third-party providers.
Third Parties: PIMCO Advisors' and its subsidiaries' business operations are
heavily dependent upon a complex worldwide network of systems that contain
date fields, including data feeds to trading systems, securities transfer
agent operations and stock markets. PIMCO Advisors' and its subsidiaries'
ability to assess the effects of the Year 2000 Problem upon their clients is
highly dependent upon the efforts of third parties, particularly brokers,
dealers, and clients' custodians. The failure of third party organizations to
resolve their own processing issues with respect to the Year 2000 Problem in a
timely manner could have a material adverse effect on PIMCO Advisors'
business. PIMCO Advisors and its subsidiaries are taking steps to verify the
Year 2000 readiness of material third parties with which they do business.
PIMCO Advisors and its subsidiaries have substantially completed an inventory
of brokers, dealers, custodians, and other material third parties with which
they have direct, significant business relationships. PIMCO Advisors and its
subsidiaries have sent written questionnaires to the identified third parties
inquiring about the status of their Year 2000 compliance programs. The results
of these questionnaires are being collected, analyzed, and distributed to
appropriate internal personnel. Follow up or additional questionnaires and
inquiries will be sent to third parties that did not respond satisfactorily to
the initial questionnaire. With respect to its most significant business
partners, PIMCO Advisors is conducting on site reviews of their Year 2000
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<PAGE>
programs. PIMCO Advisors currently anticipates that its efforts with respect
to assessing the Year 2000 status of its counterparties and other third
parties will continue into the Year 2000.
Uncertainty: This discussion of PIMCO Advisors' and its subsidiaries' Year
2000 program contains forward looking statements. At present, the management
of PIMCO Advisors believes that costs associated with the Year 2000 problem
will not have a material adverse effect on PIMCO Advisors' business or
operations. However, PIMCO Advisors expects that its Year 2000 expense
estimates will change as the Year 2000 approaches and PIMCO Advisors and its
subsidiaries execute the Testing and Implementation phases. Although PIMCO
Advisors' efforts and expenditures on Year 2000 issues are substantial, there
can be no assurances that its clients, unitholders, counterparties or others
will not suffer from disruptions or adverse results arising as a consequence
of entering Year 2000. PIMCO Advisors' current expectations regarding its and
its counterparties transition to Year 2000 are based upon unfinished
remediation and testing, and are subject to a number of uncertainties and
factors that are beyond its control and which could cause actual costs to
differ materially from those currently expected. Furthermore, although
management currently anticipates that its expenditures and efforts are
appropriate, complications as yet unidentified in internal or external
systems, with data providers, with other securities firms or institutions,
with other counterparties, and with general economic conditions related to the
Year 2000 in general may trigger significantly greater expenses or losses.
OPPENHEIMER CAPITAL
Overview
Prior to December 31, 1997, the registrant's principal activity was its
67.6% ownership of Oppenheimer Capital. Accordingly, certain historical
information and analysis is presented herein to assist the reader in their
understanding of the historical financial results. Oppenheimer Capital's
historical results of operations include those of its institutional investment
management business and those of its subsidiary entities; OpCap Advisors, OCC
Distributors ("Distributors") Oppenheimer Capital Limited, Oppenheimer Capital
Trust Company ("Opcap Trust"), and 225 Liberty Street Advisers, L.P., formerly
AMA Investment Advisers, L.P. ("AMA Advisers"). The results for the fiscal
year ended April 30, 1997 also include Saratoga Capital Management
("Saratoga"), which was sold on April 29, 1997.
For the periods presented, Oppenheimer Capital's operations have been
characterized by substantial increases in assets under management. This growth
has been from four principal sources. First, new clients have entered into
investment management agreements and existing clients have added funds to
their accounts under management, offset in part by net outflows from
institutional accounts. Second, rising securities price levels have increased
the market values of investment portfolios. Third, mutual funds and variable
annuities managed by OpCap Advisors have added to assets under management due
to increased sales and market appreciation. Fourth, wrap fee assets have
increased due to new accounts opened, expanded distribution to broker-dealers
and market appreciation. The growth in assets under management has been
tempered by Oppenheimer Capital's withdrawal from the low fee rate option
management business in fiscal 1996 in order to concentrate on businesses
offering higher returns. For the periods presented, the option management
business had no material effect on revenues or profitability. Revenues are
generally derived from charging a fee based on the net assets of clients'
portfolios. Revenues for all periods presented consist principally of
investment management fees.
In fiscal 1996, Oppenheimer Capital began to implement a strategic decision
to withdraw from selling directly to the retail market, and to instead market
directly to institutions with strong retail distribution capabilities. In
November 1995, Oppenheimer Capital withdrew from the open end mutual fund
distribution business (see "Gain on Quest Sale" below) and began to eliminate
retail operations at AMA Advisers, completing this process in the first
quarter of fiscal 1997. Oppenheimer Capital also reduced the losses incurred
by Saratoga throughout fiscal 1997, and during the fourth quarter of fiscal
1997 sold its interest in Saratoga. Additionally, Oppenheimer Capital
terminated the distribution of unit investment trusts during the fourth
quarter of fiscal 1997.
The value of total assets under management increased 19.9% to $61.4 billion
at December 31, 1997 from $51.2 billion at April 30, 1997. For the eight-
months ended December 31, 1997, assets under management for separately
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managed accounts increased 12.9% to $37.5 billion, mutual fund and other
commingled products increased 32.9% to $16.0 billion, and wrap fee accounts
increased 31.8% to $7.9 billion. The growth of separately managed accounts was
tempered by net outflows from existing accounts as clients rebalanced their
portfolios and shifted equity assets to other asset classes.
The value of total assets under management increased 26.3% to $51.2 billion
at April 30, 1997 from $40.6 billion at April 30, 1996. The growth of assets
under management was tempered by the loss of $530 million in mutual fund
assets as a result of the closed end Quest for Value Dual Purpose Fund
redeeming all income fund shares and converting to an open end fund. For the
year ended April 30, 1997, assets under management for separately managed
accounts increased 18.1% to $33.2 billion, mutual fund and other commingled
products increased 33.4% to $12.0 billion, and wrap fee accounts increased
73.7% to $6.0 billion.
Gain on Quest Sale
On November 22, 1995, Oppenheimer Capital completed the Quest sale to OFI,
which is unrelated to Oppenheimer Capital, for an initial purchase price
payment of $41.7 million. In December 1996, a deferred purchase price payment
of $3.8 million was received by Oppenheimer Capital as a result of the assets
of the six merged fixed income funds being at stated levels. The gains on the
sale, before New York City UBT and minority interest, amounted to $2.8 million
for the year ended April 30, 1997, and $27.7 million for the year ended
April 30, 1996.
Total assets of the twelve funds were $1.7 billion at November 21, 1995. The
six equity funds involved, representing $1.4 billion of those assets, continue
to be managed by Advisors under a subadvisory contract with OFI, which allows
the current portfolio management teams to remain in place. The six equity
funds were renamed the Oppenheimer Quest for Value funds (the "Quest funds").
The six fixed income funds, representing approximately $300 million of those
assets, were merged into comparable funds managed by OFI.
The overall impact of the Quest sale on Oppenheimer Capital's results has
been positive. Although the fee rate as a subadviser is less than the previous
fee rate, assets in the six equity funds had increased more than fourfold to
$6.7 billion at January 31, 1998 as a result of the extensive distribution
capabilities of OFI and market appreciation. In addition, Oppenheimer Capital
has eliminated distribution expenses related to these funds. Reflecting the
impact of these various factors, the profitability of Oppenheimer Capital's
mutual fund business has increased since the Quest sale.
Oppenheimer Capital implemented a portion of the mutual fund distribution
cost savings prior to the close of the Quest sale, and results for the quarter
ended April 30, 1996 reflected those savings. In addition, as a result of the
sale, significant expenditures that would have been made in systems,
technology, sales and marketing capabilities, and new product development have
not been necessary.
On January 31, 1997, the closed end Quest for Value Dual Purpose Fund (the
"Dual Purpose Fund") redeemed all of its income shares as required by its
Articles of Incorporation, and on February 28, 1997, the Fund converted to an
open end fund. The investment contracts and other business relationships were
sold to OFI (the "Dual Purpose Fund sale"), and OpCap Advisors now serves as
subadviser to the Dual Purpose Fund under an agreement with OFI. The
subadvisory fee is significantly lower than the management fee previously
earned by Oppenheimer Capital.
On July 18, 1997, Oppenheimer Capital received an initial payment of $7.0
million related to the Dual Purpose Fund sale, and recorded a pre tax gain of
$4.4 million.
Comparative Results of Operations
As a result of the change in the year end to a calendar year end, the period
ended December 31, 1997 is only eight-months, a 33% shorter time frame than
all other periods being compared. Therefore, revenue, expense and net income
generally show overall decreases as a result of the shorter time period ended
December 31, 1997 compared to the year ended April 30, 1997, while generally
showing annualized increases.
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Operating Revenues Eight-months Ended December 31, 1997 and Years Ended April
30, 1997 and 1996
Total operating revenues decreased 18.2% for eight-months (a 33% shorter
time frame) ended December 31, 1997 to $148.9 million from $182.0 million for
the year ended April 30, 1997 and increased 15.0% for the year ended April 30,
1997 from $158.2 million for the year ended April 30, 1996. Total operating
revenues include investment management fees, net distribution assistance and
commission income, and interest and dividends.
Investment management fees decreased 17.6% to $144.8 million for the eight-
months ended December 31, 1997 from $175.8 million for the year ended April
30, 1997. This decrease is due to the eight-month period being compared to a
twelve month period, and was offset in part by a 27.6% increase in average
assets under management, which increased to $58.4 billion for the eight-months
ended December 31, 1997 compared to $45.8 billion for the year ended April 30,
1997.
Investment management fees increased 16.2% to $175.8 million for the year
ended April 30, 1997 from $151.3 million for the year ended April 30, 1996.
This increase is a result of average assets under management increasing 24.7%
to $45.8 billion for the year ended April 30, 1997 from $36.7 billion for the
year ended April 30, 1996. Investment management fee revenue grew less than
assets under management due to the lower subadvisory fee rates earned on the
Quest funds than the advisory fee rate prior to the Quest sale. These lower
fee rates were more than offset by asset growth for these funds and the
elimination of mutual fund distribution expenses.
In addition, investment management fee revenue grew less than the increase
in assets under management due to a decline in performance fees earned in
fiscal 1997 to $1.2 million from $3.0 million in fiscal 1996. These decreases
were offset in part by investment management fees increasing due to higher fee
realizations resulting from a continued shift in the asset mix toward higher
effective fee rate businesses such as variable annuities and wrap fee
accounts.
Net distribution assistance and commission income decreased 39.1 % to $3.0
million for the eight-months ended December 31, 1997 from $4.9 million for the
year ended April 30, 1997. This decrease is primarily due to eight-months
being compared to twelve months, as well as lower unit investment trust
commission income as Oppenheimer Capital exited this business in April 1997.
Net distribution assistance and commission income decreased 18.9% for the
year ended April 30, 1997 from $6.1 million for the, year ended April 30,
1996. This decrease reflects reduced commission and distribution income as a
result of the Quest sale and lower unit investment trust commission income due
to reduced demand for fixed income unit investment trusts. This decrease was
offset in part by a $1.3 million increase in certificate of deposit commission
income as a result of increased demand for funds by banks.
Interest and dividend income decreased 7.6% to $1.2 million for the eight-
months ended December 31, 1997 from $1.3 million for the year ended April 30,
1997. This decrease is due to the comparison of eight-months to twelve months
which was offset in part by higher average cash balances.
Interest and dividend income increased 39.7% for year ended April 30, 1997
from $0.9 million for the year ended April 30, 1996. This increase can be
attributed to higher average cash balances.
Operating Expenses Eight-months Ended December 31, 1997, and Years Ended
April 30, 1997 and 1996
Total operating expenses decreased 18.5% for the eight-months (a 33% shorter
time frame) ended December 31, 1997 to $84.0 million from $103.1 million for
the year ended April 30, 1997 and increased 7.9% for the year ended April 30,
1997 and from $95.6 million for the year ended April 30, 1996.
Oppenheimer Capital's most significant expense category is compensation and
benefits, which includes salaries, bonuses, sales commissions, incentive
compensation and other payroll related expenses. Compensation and benefits
expenses decreased 14.6% to $66.3 million for the eight-months ended December
31, 1997 from $77.7
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million for the year ended April 30, 1997 and increased 12.9% for the year
ended April 30, 1997 from $68.8 million for the year ended April 30, 1996. For
the eight-months ended December 31, 1997 compared to the year ended April 30,
1997, the decrease was due to the shorter time period which was offset by the
following increases: For the eight-month period and for fiscal 1997,
compensation and benefits increased primarily due to higher incentive
compensation costs due to increased new business, higher operating profits and
increased participation by key executives in incentive compensation plans as a
result of industry competitive pressures and their individual contributions to
firm profitability. In addition, compensation and benefits expense increased
due to staff salary increases and additions to staff to support expanding
businesses. These increases were offset in part by significant staff
reductions at OCC Distributors, AMA Advisers, and in mutual fund accounting in
fiscal 1996 with most staff reductions occurring after the Quest sale in
November 1995. In fiscal 1997, staff size was reduced as a result of the sale
of Oppenheimer Capital's 50% interest in Saratoga and the termination of the
unit investment trust distribution effort during the fourth fiscal quarter.
Reflecting these reductions, staff size declined to 344 at April 30, 1997 from
348 at April 30, 1996.
Occupancy expense decreased 28.3% for the eight-months December 31, 1997 to
$4.7 million from $6.6 million for the year ended April 30, 1997 and decreased
4.4% for the year ended April 30, 1997 from $6.9 million for the year ended
April 30, 1996. The decrease for the eight-month period ending December 31,
1997 reflects the shorter time period involved, as well as adjustments made to
rent escalation accruals during the period. The decrease for the year ended
April 30, 1997 reflects reduced rent expense as a result of the termination of
leases at AMA Advisers as well as adjustments made to rent escalation accruals
during the fiscal year.
General and administrative expenses decreased 29.9% for the eight-months
ended December 31, 1997 to $8.8 million from $12.5 million for the year ended
April 30, 1997 and increased 1.6% for the year ended April 30, 1997 from $12.3
million for the year ended April 30, 1996. The decrease in general and
administrative expenses in the eight-month period ended December 31, 1997
compared to the year ended April 30, 1997 is due to the shorter time period
involved, and was partially offset by increased investments in computer
technology described below. The rate of growth of general and administrative
expenses slowed in fiscal 1996 and continued in fiscal 1997 as Oppenheimer
Capital realized cost savings from the Quest sale and cost reductions at AMA
Advisers. As a result of the Quest sale in November 1995, Oppenheimer Capital
was able to eliminate all of its outstanding bank loans and related interest
expense. Offsetting these reductions in both fiscal 1997 and 1996 were
increased costs incurred in connection with the development of new businesses
and increased investments in computer equipment and software as a result of
increased technical support for professional and administrative staff and
higher professional services expense due to the expansion of Oppenheimer
Capital's business.
Promotional expenses decreased 34.1% for the eight-months ended December 31,
1997 to $4.2 million from $6.3 million for the year ended April 30, 1997 and
decreased 16.7% for the year ended April 30, 1997, from $7.6 million for the
year ended April 30, 1996. The decrease in promotional expenses for the eight-
months ended December 31, 1997 compared to the year ended April 30, 1997 was
due to the shorter time period involved. The decrease in promotional expenses
for fiscal 1997 was due primarily to a reduction in expenses incurred by OCC
Distributors as a result of the elimination of the open end mutual fund
distribution effort, and the retail operations of AMA Advisers, and was offset
in part by increased expenses in Oppenheimer Capital's increased travel and
entertainment expenses as a result of new business activities. In addition,
promotional expenses decreased in fiscal 1997 due in part to decreased
promotional activities at Saratoga.
Operating Income Eight-months Ended December 31, 1997 and Years Ended April
30, 1997 and 1996
Operating income decreased 17.6% for the eight-months (a 33% shorter time
frame) ended December 31, 1997 to $65.0 million from $78.1 million for the
year ended April 30, 1997 and increased 25.9% for the year ended April 30,
1997 from $62.7 million for the year ended April 30, 1996. For the eight-
months ended December 31, 1997, the operating profit margin rose to 43.6% from
43.4% for the year ended April 30, 1997; for the year ended April 30, 1997,
the operating profit margin expanded from 39.6% for the year ended April 30,
1996. Operating income decreased for the eight-months ended December 31, 1997
compared to the year ended April 30, 1997 due to the shorter time period
involved while operating profit margins continued to improve. The increase in
operating income and operating profit margins for all annualized periods
presented is due to rising securities price levels,
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strong new business growth and the resultant revenue increase combined with
Oppenheimer Capital controlling the rate of expense growth. In both fiscal
1997 and fiscal 1996, the operating revenue growth rate exceeded the operating
expense growth rate. This was accomplished primarily from the decision to
withdraw from the mutual fund distribution business (the Quest sale), which
was completed in the final quarter of fiscal 1996, and the suspension of
retail sales activities at AMA Advisers. This process, which began in fiscal
1996, was completed in the first quarter of fiscal 1997. In addition, losses
from Saratoga were reduced to $1.4 million in fiscal 1997 from $2.5 million in
fiscal 1996, and during the fourth quarter of fiscal 1997, Oppenheimer Capital
sold its 50% interest in Saratoga.
Taxes
Oppenheimer Capital is not subject to federal, state, or local income taxes,
which are the obligations of the individual partners. Oppenheimer Capital was,
however, subject to New York City UBT of $3.0 million, $3.2 million and $3.6
million, respectively, for the eight-months ended December 31, 1997 and for
the years ended April 30, 1997 and 1996. The decrease in New York City UBT
expense for the eight-month period ended December 31, 1997 compared to the
fiscal year ended April 30, 1997 is due to the shorter time period involved,
and was offset in part by the gain recorded on the Dual Purpose Fund sale. The
decrease in New York City UBT expense in fiscal 1997 compared to fiscal 1996
is due to a decline in net income in fiscal 1997 as a result of the $27.7
million gain recorded for the Quest sale in fiscal 1996, compared with the
$2.8 million gain in fiscal 1997. This decline was offset in part by higher
operating income in fiscal 1997 than in fiscal 1996.
A corporate subsidiary of Oppenheimer Capital is subject to federal, state
and local income taxes. A foreign corporate subsidiary is subject to taxes in
the foreign jurisdiction in which it is located.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
None.
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Item 8. Financial Statements and Supplemental Data
Index to Financial Statements:
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
PIMCO Advisors Holdings L.P.
Report of Independent Accountants.................................... 36
Statements of Financial Condition as of December 31, 1998 and
December 31, 1997................................................... 37
Statements of Operations for the year ended December 31, 1998, for
the eight-months ended December 31, 1997 and for the years ended
April 30, 1997 and 1996............................................. 38
Statements of Changes in Partners' Capital for the year ended
December 31, 1998, for the eight-months ended December 31, 1997 and
for the years ended April 30, 1997 and 1996......................... 39
Statements of Cash Flows for the year ended December 31, 1998, for
the eight-months ended December 31, 1997 and for the years ended
April 30, 1997 and 1996............................................. 40
Notes to Financial Statements........................................ 41
PIMCO Advisors L.P.
Report of Independent Accountants.................................... 48
Consolidated Statements of Financial Condition as of December 31,
1998 and 1997....................................................... 49
Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996............................................. 50
Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 1998, 1997 and 1996.............................. 51
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996............................................. 53
Notes to Consolidated Financial Statements........................... 54
Oppenheimer Capital
Report of Independent Accountants.................................... 67
Consolidated Statements of Financial Condition as of December 31,
1997 and April 30, 1997............................................. 68
Consolidated Statements of Operations for the eight-months ended
December 31, 1997 and for the years ended April 30, 1997 and 1996... 69
Consolidated Statements of Changes of Partners' Capital for the
eight-months ended December 31, 1997 and for the years ended April
30, 1997 and 1996................................................... 70
Consolidated Statements of Cash Flows for the eight-months ended
December 31, 1997 and for the years ended April 30, 1997 and 1996... 71
Notes on Consolidated Financial Statements........................... 72
</TABLE>
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Board and Partners of PIMCO Advisors Holdings L.P.
In our opinion, the accompanying statements of financial condition and the
related statements of operations, of changes in partners' capital and of cash
flows present fairly, in all material respects, the financial position of
PIMCO Advisors Holdings L.P., (the "Partnership") at December 31, 1998 and
December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1998, the eight-month period ended December 31,
1997 and for each of the two years in the period ended April 30, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 29, 1999
36
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(Dollars in
thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,580 $ 15,522
Distribution receivable................................... 31,993 15,172
Other current assets...................................... 40 15
-------- --------
Total current assets.................................... 42,613 30,709
Investment in operating partnership......................... 461,230 408,137
Other non current assets.................................... 153 118
-------- --------
Total assets................................................ $503,996 $438,964
======== ========
LIABILITIES
Distribution payable........................................ $ 27,631 $ 15,112
Other current liabilities................................... 14,746 15,515
-------- --------
Total liabilities........................................... 42,377 30,627
-------- --------
PARTNERS' CAPITAL
General Partner............................................. 63 41
Limited Partners (48,469,822 and 45,531,586 units issued and
outstanding)............................................... 461,556 408,296
-------- --------
Total partners' capital..................................... 461,619 408,337
-------- --------
Total liabilities and partners' capital..................... $503,996 $438,964
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The
For The Eight-months For The Years
Year Ended Ended Ended April 30,
December 31, December 31, ---------------
1998 1997 1997 1996
------------ ------------ ------- -------
(Dollars in thousands, except per unit
amounts)
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of operating
partnerships:
Operating earnings................. $90,682 $41,036 $51,022 $40,359
Gain on Quest sales................ -- 2,809 1,800 17,734
------- ------- ------- -------
Total equity in earnings of
operating partnerships............ 90,682 43,845 52,822 58,093
Interest............................. -- 1,892 3,224 3,223
------- ------- ------- -------
Total revenues................... 90,682 45,737 56,046 61,316
------- ------- ------- -------
Expenses:
Amortization of intangible assets.. -- 1,517 2,588 2,588
Other.............................. 14,537 88 132 132
------- ------- ------- -------
Total expenses................... 14,537 1,605 2,720 2,720
------- ------- ------- -------
Net income........................... $76,145 $44,132 $53,326 $58,596
======= ======= ======= =======
Basic net income per unit............ $ 1.61 $ 1.70 $ 2.06 $ 2.28
======= ======= ======= =======
Diluted net income per unit.......... $ 1.52 $ 1.68 $ 2.04 $ 2.27
======= ======= ======= =======
Distributions declared per unit...... $ 2.18 $ 2.05 $ 2.10 $ 1.90
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Limited Partners Total
General -------------------- Partners'
Partner Units Amounts Capital
------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balances at May 1, 1995............... $ 876 25,278,518 $ 85,436 $ 86,312
Net income.......................... 586 58,010 58,596
Distributions declared.............. (489) (48,416) (48,905)
Amortization of restricted unit
compensation expense............... 11 1,127 1,138
Capital contributions............... 3 197,449 242 245
----- ---------- --------- ---------
Balances at April 30, 1996............ 987 25,475,967 96,399 97,386
Net income.......................... 533 52,793 53,326
Distributions declared.............. (543) (53,790) (54,333)
Amortization of restricted unit
compensation expense............... 15 1,476 1,491
Capital contributions............... 4 197,922 417 421
----- ---------- --------- ---------
Balances at April 30, 1997............ 996 25,673,889 97,295 98,291
Net income.......................... 355 43,777 44,132
Distributions declared.............. (413) (68,481) (68,894)
Amortization of restricted unit
compensation expense............... 22 2,236 2,258
Revaluation of Partners' Capital
upon receipt of interests in PIMCO
Advisors L.P. ..................... 14 139,391 139,405
Reduction of general partner's
interest from 1% to .01%........... (942) 257,774 942 --
Capital contributions............... 9 118,529 891 900
Contribution of investment in PIMCO
Advisors L.P. by public holders.... -- 19,481,394 192,245 192,245
----- ---------- --------- ---------
Balances at December 31, 1997......... 41 45,531,586 408,296 408,337
Net income.......................... 8 76,137 76,145
Distributions declared.............. (11) (103,407) (103,418)
Issuance of Units for additional
interest in PIMCO Advisors L.P. ... 9 2,938,236 80,530 80,539
Capital contributions............... 16 -- -- 16
----- ---------- --------- ---------
Balances at December 31, 1998......... $ 63 48,469,822 $ 461,556 $ 461,619
===== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The
For The Eight-months For The Years
Year Ended Ended Ended April 30,
December 31, December 31, ------------------
1998 1997 1997 1996
------------ ------------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 76,145 $ 44,132 $ 53,326 $ 58,596
Adjustments to reconcile net
income to net cash provided by
operating activities:
Distributions received greater
than (less than) the equity in
earnings of operating
partnerships.................. 10,580 9,997 (6,662) (14,677)
Amortization of intangibles.... -- 1,517 2,588 2,588
Change in operating assets and
liabilities:
Change in other assets....... -- 541 (8) (19)
-------- -------- -------- --------
Net cash provided by operating
activities...................... 86,725 56,187 49,244 46,488
-------- -------- -------- --------
Cash flows from investing
activities:
Investment in operating
partnerships.................... (136) (33,217) (530) (300)
-------- -------- -------- --------
Net cash used in investing
activities...................... (136) (33,217) (530) (300)
-------- -------- -------- --------
Cash flows from financing
activities:
Cash distributions paid.......... (90,898) (56,207) (49,188) (46,513)
Change in other liabilities...... (769) 15,515 -- --
Note receivable payment.......... -- 32,193 -- --
Capital contribution from General
Partner......................... 16 60 -- --
Issuance of limited partnership
units on exercise of Restricted
options......................... 120 900 530 300
-------- -------- -------- --------
Net cash used in financing
activities...................... (91,531) (7,539) (48,658) (46,213)
-------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents............ (4,942) 15,431 56 (25)
Cash and cash equivalents,
beginning of period............. 15,522 91 35 60
-------- -------- -------- --------
Cash and cash equivalents, end of
period.......................... $ 10,580 $ 15,522 $ 91 $ 35
======== ======== ======== ========
Supplemental disclosure:
New York City unincorporated
business tax paid............. $ 140 $ 70 $ 140 $ 151
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business
PIMCO Advisors Holdings L.P ("PIMCO Holdings") (formerly Oppenheimer
Capital, L.P) is a publicly traded limited partnership owned .01% by its
general partner, PIMCO Partners, G.P. and 99.99% by its public limited
partners ("Unitholders"). PIMCO Holdings' sole business is its ownership of an
approximate 44% interest (approximately 48.5 million GP Units) in PIMCO
Advisors L.P. ("PIMCO Advisors"), a registered investment advisor. PIMCO
Partners, GP and other private holders hold the remaining interest in PIMCO
Advisors. The financial statements of PIMCO Holdings should be read in
conjunction with the consolidated financial statements of PIMCO Advisors.
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings. In the transaction,
Opgroup became a subsidiary of PIMCO Advisors, and the Opgroup stockholders
received 2.1 million PIMCO Advisors Class A units and rights to exchange up to
$230 million of outstanding term notes of Opgroup for an additional 6.9
million PIMCO Advisors Class A units at $33 1/3 per unit. In connection with
the transaction, PIMCO Advisors split the one percent general partner interest
in PIMCO Holdings into a .01% general partner interest and a .99% limited
partner interest, and sold the general partner interest to its general partner
for $80,000, its approximate book value. The purchase method of accounting was
used by PIMCO Advisors to record the acquisition of Opgroup.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to
represent an indirect investment in the business of PIMCO Advisors. On
December 1, 1997, PIMCO Holdings effected a 1.67 for 1 split of the PIMCO
Holdings units, so that each PIMCO Holdings unit outstanding after the split
represented an economic interest in one PIMCO Advisors unit. The transaction
was accounted for at book value of PIMCO Advisors, as a transaction between
related parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly
traded, and PIMCO Holdings general partner interest in PIMCO Advisors
increased to approximately 43%. Concurrently, PIMCO Holdings New York Stock
Exchange trading symbol was changed from "OCC" to "PA".
Prior to November 4, 1997, PIMCO Holdings was a publicly traded limited
partnership owned 1% by its general partner, Opfin and 99% by its public
limited partners. PIMCO Holdings sole business was its ownership of a 67.6%
interest in Oppenheimer Capital, a registered investment adviser. Opfin held
the remaining 32.4% interest in Oppenheimer Capital.
41
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies
a. Financial Statement Presentation--Effective December 1, 1997, PIMCO
Holdings effected a 1.67 for 1 unit split of PIMCO Holdings units. For
purposes of these financial statements, all units authorized and
outstanding, and per unit amounts have been restated to reflect the
split of the PIMCO Holdings units.
b. Change of Fiscal Year--Prior to the OpCap Merger, PIMCO Holdings
reported its results of operations and its financial position based on
an April 30 fiscal year end. Upon completion of the OpCap Merger, PIMCO
Holdings changed its fiscal year to a calendar year to correspond with
that of PIMCO Advisors. Accordingly, the period ending December 31, 1997
is a "stub" reporting period, eight-months in total, consisting of two
three-month periods and one two-month period.
c. Cash and Cash Equivalents--PIMCO Holdings invests certain cash balances
in money market funds. At December 31, 1998 and 1997, this investment is
approximately $10.6 million and $15.5 million is invested in non-
affiliate money market funds. The December 31, 1997 includes $15.4
million restricted as a distribution payable to holders of PIMCO
Holdings units on November 4, 1997, pending resolution of certain legal
proceedings (see Note 7). That amount was paid out in October of 1998.
Management considers investments in money market funds to be cash
equivalents for purposes of the Statements of Cash Flows. These
investments are carried at cost, which approximates market.
d. Investment in Partnerships--PIMCO Holdings accounts for its investment
in PIMCO Advisors (and Oppenheimer Capital prior to November 30, 1997)
in accordance with the equity method of accounting. PIMCO Holdings
records as income its proportionate share of the net income of its
investee partnerships and credits distributions from such partnerships
to its investment in partnerships. At December 31, 1998 and 1997, PIMCO
Holdings had a distribution receivable of $32.0 million and $15.2
million, respectively, from PIMCO Advisors.
e. Unit Exchanges--PIMCO Holdings intends to periodically offer holders of
PIMCO Advisors units the opportunity to exchange those units for PIMCO
Holdings units on a one for one basis. Units issued in such exchanges
are recorded at the book value of the underlying PIMCO Advisors units
received.
f. Income Taxes--PIMCO Holdings, as a partnership, generally is not subject
to federal or state income taxes. All partners of PIMCO Holdings are
responsible for taxes, if any, on their proportionate share of PIMCO
Holdings taxable income. However, effective January 1, 1998, PIMCO
Holdings became subject to a 3.5% federal tax on its gross income from
active businesses and became subject to a similar tax in certain states.
PIMCO Holdings recorded tax expenses of $14.5 million for the year ended
December 31, 1998 related to this tax. PIMCO Holdings is also subject to
an unincorporated business tax in a certain jurisdiction in which it
operates.
g. Net Income per Unit--Basic net income per unit is computed based on the
weighted average number of units outstanding. Diluted net income per
unit is computed based on the weighted average number of units
outstanding, assuming the exercise of dilutive unit options. Proceeds
from the exercise of such unit options are assumed to be used to
repurchase outstanding limited partner units under the treasury stock
method. Net income per unit is computed as follows:
42
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For The For The Eight For The Years Ended
Year Ended Months Ended April 30,
December 31, December 31, -------------------
1998 1997 1997 1996
------------ ------------- --------- ---------
(Dollars in thousands, except per unit
amounts)
<S> <C> <C> <C> <C>
Basic net income per unit:
Net income...................... $76,145 $44,132 $ 53,326 $ 58,596
Less net income applicable to
General Partner................ 8 355 533 586
------- ------- --------- ---------
Net income available to Limited
Partners....................... $76,137 $43,777 $ 52,793 $ 58,010
======= ======= ========= =========
Weighted average units
outstanding.................... 47,257 25,768 25,663 25,457
------- ------- --------- ---------
Basic per unit amount........... $ 1.61 $ 1.70 $ 2.06 $ 2.28
======= ======= ========= =========
Diluted net income per unit:
Net income...................... $76,145 $44,132 $ 53,326 $ 58,596
Effect on the recognized equity
in earnings of the operating
partnership resulting from the
dilution of earnings per unit
at the operating partnership... (4,357) -- -- --
------- ------- --------- ---------
Net income after effect of
dilution....................... 71,788 44,132 53,326 58,596
Less net income applicable to
General Partner................ 8 355 533 586
------- ------- --------- ---------
Net income available to Limited
Partners....................... $71,780 $43,777 $ 52,793 $ 58,010
======= ======= ========= =========
Weighted average units
outstanding.................... 47,257 25,768 25,663 25,457
Effect of dilutive options...... -- 249 178 72
------- ------- --------- ---------
Total average units
outstanding.................... 47,257 26,017 25,841 25,529
======= ======= ========= =========
Diluted per unit amount......... $ 1.52 $ 1.68 $ 2.04 $ 2.27
======= ======= ========= =========
</TABLE>
h. Other--Certain items have been reclassified to conform with the current
year presentation.
i. Use of Estimates in the Preparation of Financial Statements--The
financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
3. Intangible Assets
The excess of the initial contributions of capital to Oppenheimer Capital
over the fair value of the net assets acquired had been amortized on a
straight line basis over a period of 25 years at an annual rate of
approximately $2.6 million. Following the OpCap Merger, this intangible was
eliminated in establishing the investment in PIMCO Advisors.
43
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Supplementary Financial Data
The following table summarizes the audited condensed results of operations
of PIMCO Holdings for the calendar year ended December 31, 1998 and the
unaudited condensed pro forma results of operations of PIMCO Holdings for the
calendar years ended December 31, 1997 and 1996 as if the above acquisition
transactions had been completed on January 1, 1996. The pro forma operating
results give effect to:
(i) Conversion of PIMCO Holdings to a calendar year reporting basis;
(ii) The issuance of 2.1 million restricted PIMCO Advisors Class A units in
connection with the acquisition of the privately held 33% interest in
Oppenheimer Capital which occurred on November 4, 1997 (Opgroup
Transaction);
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors Class
A units, of which $149.5 million had been exchanged as of December
31, 1998;
(iv) The contribution of the 67% interest in Oppenheimer Capital by PIMCO
Holdings for 26.1 million PIMCO Advisors Class A units which occurred
on November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets at
PIMCO Advisors which arose on November 4, 1997 as a result of the
Opgroup Transaction which will be amortized over 20 years;
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997;
(vii) The elimination of the priority distribution structure related to pre
December 31, 1997 rights of PIMCO Advisors Class A units; and
(viii) The repayment of the Equities Note in November 1997 and the
resulting elimination of interest income and related expense.
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------------------------
1998 1997 1996
--------------- ---------------- ----------------
(Actual) (Pro forma) (Pro forma)
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C>
Revenues
Equity in earnings of
operating
partnerships........... $ 90,682 $ 65,963 $ 45,872
--------------- --------------- ---------------
Net income...... $ 76,145 $ 65,963 $ 45,872
=============== =============== ===============
Basic net income per
unit................... $ 1.61 $ 1.44 $ 1.00
=============== =============== ===============
Diluted net income per
unit................... $ 1.52 $ 1.39 $ 0.98
=============== =============== ===============
</TABLE>
The pro forma information above is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during
the periods presented, nor is it an indication of future results.
44
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Benefit Plans
PIMCO Advisors and PIMCO Holdings jointly adopted the 1998 Unit Incentive
Plan (the "1998 Plan") effective January 1, 1998. The 1998 Plan was adopted to
replace the 1997 Unit Incentive Plan (the "1997 Plan") which in turn, replaced
the previous unit based incentive plans sponsored by PIMCO Advisors and
Oppenheimer Capital. Upon the adoption of the 1998 Plan, each option
outstanding under the 1997 Plan, the 1993 Unit Option Plan of PIMCO Advisors
L.P., the 1996 Unit Incentive Plan of PIMCO Advisors L.P., the Oppenheimer
Capital Amended and Restated Restricted Option Plan, and the Oppenheimer
Capital Amended and Restated Restricted Unit Plan was replaced by an option or
award under 1998 Plan. Each such award covered the same number of limited
partnership units and had the same term and vesting schedule as the award
which it replaced. The 1998 Plan is intended to further the financial success
of PIMCO Holdings and PIMCO Advisors through obtaining and retaining the
services of members of their respective management boards, key employees and
consultants who will contribute to their growth, development and financial
success, by offering such members, key employees and consultants the
opportunity to own, or have the right to share in the appreciation of, PIMCO
Holdings units, and, if they are "qualified persons" within the meaning of
1998 Plan, PIMCO Advisors units. The 1998 Plan is currently administered by
the Management Board of PIMCO Holdings and the Unit Incentive Committee of the
Management Board of PIMCO Advisors. Pursuant to an arrangement between PIMCO
Advisors and PIMCO Holdings, PIMCO Advisors will issue to PIMCO Holdings a
number of PIMCO Advisors units equal to the number of PIMCO Holdings units
issued under the 1998 Plan.
Concurrent with the effective date of the 1997 Plan, awards for an aggregate
of 12,525,069 Partnership Units (including 3,203,850 restricted unit rights)
granted under plans sponsored by PIMCO Advisors and Oppenheimer Capital were
assumed under the 1997 Plan.
Prior to effectiveness of the 1997 Plan, PIMCO Holdings and Oppenheimer
Capital maintained the OpCap Option Plan and the OpCap Rights Plan for the
benefit of certain key employees. Pursuant to these plans, an eligible
employee was granted the right to receive a number of units of PIMCO Holdings
at no cost to the employee ("Rights"), in the case of the OpCap Rights Plan,
and/or the right to purchase a number of units at the fair market value of
such units on the date of grant ("Options"), in the case of the OpCap Option
Plan. The right to receive or purchase units vests 33 1/3% per year at the end
of each of the third, fourth and fifth years from the date of grant. PIMCO
Holdings transferred to Oppenheimer Capital the proceeds from the exercise of
Options in exchange for an increase in its general partner interest in
Oppenheimer Capital. Opfin and the limited partners of PIMCO Holdings incurred
dilution, in accordance with their respective percentage interest in
Oppenheimer Capital, upon the vesting of Rights and the exercise of Options.
No compensation cost is recognized in the statements of income by
Oppenheimer Capital for the Options granted under the OpCap Option Plan
because the exercise price of the Options approximates the market price of the
units on the date of the grant. For the same reason no compensation cost is
recognized in the statements of operations of PIMCO Advisors for its fixed
unit option plans. Had compensation cost been recognized based on the fair
value of the awards at the date of grant, PIMCO Holdings net income would have
been reported as the pro forma amounts indicated below:
45
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For The Year For The Eight
Ended Months Ended For The Years
December 31, December 31, Ended April 30,
1998 1997 1997 1996
------------ ------------- ------- -------
(Dollars in thousands, except per unit
amounts)
<S> <C> <C> <C> <C>
Net income
As reported........................ $76,145 $44,132 $53,326 $58,596
Pro forma.......................... $74,716 $44,060 $53,214 $58,554
Basic net income per unit
As reported........................ $ 1.61 $ 1.70 $ 2.06 $ 2.28
Pro forma.......................... $ 1.58 $ 1.70 $ 2.05 $ 2.27
</TABLE>
For the purpose of the above disclosure, the fair value of each award
granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for the
grants in the year ended December 31, 1998, eight-months ended December 31,
1997, fiscal 1997 and fiscal 1996, respectively: 1) For the 1998 Plan--
distribution yield of 6.9%, expected volatility of 22%, risk free interest
rate of 5.51% and expected lives of 5 years., 2) For the OpCap Option Plan--
distribution yield of 5.8%, 7.3% and 8.0%; expected volatility of 19%, 21% and
22%; risk free interest rate of 6.62%, 6.36% and 6.96%; and expected lives of
6, 6 and 7 years; and 3) For the 1997 Plan--distribution yield of 7.3%, 7.7%
and 3.5%; expected volatility of 21%, 14% and 10%; risk free interest rate of
6.52%, 6.30% and 6.80%; and expected lives of 5, 6 and 7 years.
6. Gain on Quest Sale
Included in "Equity in earnings of operating partnerships" for the fiscal
years ended April 30, 1997 and 1996 are gains resulting from Oppenheimer
Capital's sale of the investment advisory and other contracts and business
relationships for its twelve Quest for Value mutual funds to OppenheimerFunds,
Inc. ("OFI"), which is unrelated to Oppenheimer Capital. For the years ended
April 30, 1997 and 1996, PIMCO Holdings recognized gains of $1.8 million, or
$.07 per unit, and $17.7 million, or $.69 per unit, respectively.
The Quest for Value Dual Purpose Fund was sold to OFI in July 1997, and
PIMCO Holdings recognized a gain on the sale of $2.8 million, or $.11 per unit
in the period ended December 31, 1997.
7. Legal Proceedings
On November 30, 1997, Richard Buzby filed an action on behalf of a purported
class of limited partners of PIMCO Holdings against PIMCO Advisors and certain
individuals associated with the previous general partner of PIMCO Holdings in
the Court of Chancery of the State of Delaware, New Castle County. The
complaint alleged, among other things, various breaches of fiduciary duty,
conflicts of interest and unfair dealing in connection with the OpCap Merger.
The complaint sought compensatory and/or recissionary money damages or,
alternatively, injunctive relief or recission of the transactions.
Subsequently, certain other complaints were filed in the states of Delaware
and New York, making similar allegations. These cases were consolidated in the
Court of Chancery of the State of Delaware, New Castle County.
In 1998, the Court of Chancery of the State of Delaware approved the
settlement of class action suits. In October 1998, PIMCO Holdings made a
payment (net of legal and administrative fees) of $0.777 per unit on 15.4
million Oppenheimer Capital, L.P. units outstanding as of November 4, 1997. As
of December 31, 1997, this amount had been funded to a segregated cash account
and was included in other current liabilities.
PIMCO Advisors and its subsidiaries are subject to various pending and
threatened legal actions which arise in the normal course of business. In the
opinion of management, the disposition of claims currently pending and
46
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
threatened will not have a material adverse effect on PIMCO Advisors and its
subsidiaries' financial position or results of operations.
8. Selected Quarterly Financial Data (Unaudited)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1998
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Revenues................... $ 20,037 $ 23,634 $ 22,670 $ 24,341
=========== =========== =========== ===========
Net income................. $ 16,525 $ 19,374 $ 19,820 $ 20,426
=========== =========== =========== ===========
Basic net income per unit.. $ 0.36 $ 0.42 $ 0.41 $ 0.42
=========== =========== =========== ===========
Diluted net income per
unit...................... $ 0.34 $ 0.39 $ 0.39 $ 0.40
=========== =========== =========== ===========
Distribution declared per
unit...................... $ 0.53 $ 0.53 $ 0.55 $ 0.57
=========== =========== =========== ===========
Trading market price per
unit
Low...................... $ 29.375 $ 29.750 $ 25.437 $ 24.250
High..................... $ 35.937 $ 34.500 $ 35.375 $ 32.875
</TABLE>
<TABLE>
<CAPTION>
For The Eight-months Ended December 31, 1997
---------------------------------------------------------
Two Months Ended
First Quarter Ended Second Quarter Ended December 31,
July 31, 1997 October 31, 1997 1997
------------------- -------------------- ----------------
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C>
Revenues................ $19,585(1) $17,025 $ 9,127
======= ======= ========
Net income.............. $18,900(1) $16,340 $ 8,892
======= ======= ========
Basic net income per
unit................... $ 0.71(1) $ 0.65 $ 0.34
======= ======= ========
Diluted net income per
unit................... $ 0.70(1) $ 0.64 $ 0.34
======= ======= ========
Distribution declared
per unit............... $ 0.57 $ 0.90 $ 0.58
======= ======= ========
Trading market price per
unit
Low................... $21.500 $26.750 $28.1875
High.................. $25.875 $34.625 $32.5625
</TABLE>
- --------
(1)Includes a gain on the Quest sale of $2.8 million, or $0.11 per unit (see
Note 6).
<TABLE>
<CAPTION>
For The Year Ended April 30,
1997
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except
per unit amounts)
<S> <C> <C> <C> <C>
Revenues................................. $12,280 $13,308 $16,196(1) $14,262
======= ======= ======= =======
Net income............................... $11,595 $12,622 $15,511(1) $13,598
======= ======= ======= =======
Basic net income per unit................ $ 0.45 $ 0.48 $ 0.60(1) $ 0.53
======= ======= ======= =======
Diluted net income per unit.............. $ 0.45 $ 0.48 $ 0.59(1) $ 0.52
======= ======= ======= =======
Distribution declared per unit........... $ 0.39 $ 0.45 $ 0.57(2) $ 0.69
======= ======= ======= =======
Trading market price per unit
Low.................................... $15.750 $16.625 $19.375 $19.250
High................................... $17.875 $20.750 $22.375 $22.875
</TABLE>
- --------
(1)Includes a gain on the Quest sale of $1.8 million, or $0.07 per unit (see
Note 6).
(2)Includes a special distribution related to the Quest sale of $0.06 per
unit.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Board and Partners of PIMCO Advisors L.P.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of changes in
partners' capital and of cash flows present fairly, in all material respects,
the financial position of PIMCO Advisors L.P. and Subsidiaries (the
"Partnership") at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 29, 1999
48
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 46,134 $ 34,301
Investment advisory fees receivable:
Private accounts.................................. 146,159 132,280
Proprietary Funds................................. 17,484 10,631
Distribution and servicing fees receivable.......... 7,579 5,372
Notes receivable.................................... 998 1,750
Receivable from affiliates.......................... 546 536
Short term investments.............................. 69,923 33,611
Other current assets................................ 36,529 12,722
---------- ----------
Total current assets............................ 325,352 231,203
Investment in partnerships............................ 4,764 4,336
Fixed assets--Net of accumulated depreciation and
amortization of $16,874 and $10,630.................. 22,717 15,418
Intangible assets--Net of accumulated amortization of
$176,071 and $121,019................................ 1,005,817 1,060,869
Other non current assets.............................. 53,388 23,058
---------- ----------
Total assets.......................................... $1,412,038 $1,334,884
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............... $ 27,960 $ 22,803
Commissions payable................................. 3,863 10,930
Accrued compensation................................ 68,476 50,033
Distribution payable................................ 73,455 61,786
Short term borrowings............................... 65,000 30,000
Other current liabilities........................... 33,421 19,490
---------- ----------
Total current liabilities....................... 272,175 195,042
Long term notes....................................... 80,467 83,129
Other non current liabilities......................... 309 2,648
---------- ----------
Total liabilities..................................... 352,951 280,819
---------- ----------
PARTNERS' CAPITAL
General Partners (49,269,821 and 46,336,184 units
issued and outstanding).............................. 801,304 812,884
Class A Limited Partners (62,026,351 and 27,201,200
units issued and outstanding)........................ 336,438 246,950
Class B Limited Partners (none and 32,993,050 units
issued and outstanding).............................. -- 65,662
Unamortized compensation.............................. (78,655) (71,431)
---------- ----------
Total partners' capital............................... 1,059,087 1,054,065
---------- ----------
Total liabilities and partners' capital............... $1,412,038 $1,334,884
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
---------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands,
except per unit amounts)
<S> <C> <C> <C>
Revenues
Investment advisory fees:
Private accounts............................... $551,404 $291,890 $213,852
Proprietary Funds.............................. 218,756 165,829 128,856
Distribution and servicing fees.................. 76,811 56,769 48,182
Other............................................ 5,461 2,181 1,134
-------- -------- --------
Total revenues............................... 852,432 516,669 392,024
-------- -------- --------
Expenses
Compensation and benefits........................ 359,583 225,831 173,526
Commissions...................................... 77,842 46,739 37,739
Restricted Unit and Option Plans................. 25,753 8,188 5,162
Marketing and promotional........................ 28,682 16,592 10,982
Occupancy and equipment.......................... 23,554 11,800 9,195
General and administrative....................... 43,669 27,406 17,630
Insurance........................................ 2,946 2,576 2,621
Professional fees................................ 7,668 6,426 5,473
Amortization of intangible assets................ 55,052 43,488 36,009
Other............................................ 27,514 10,083 4,812
-------- -------- --------
Total expenses............................... 652,263 399,129 303,149
-------- -------- --------
Operating income................................... 200,169 117,540 88,875
Equity in income/(loss) of partnerships.......... 106 (361) 271
Other income, net................................ 8,673 2,853 3,183
-------- -------- --------
Income before income tax expense................. 208,948 120,032 92,329
Income tax expense............................... 572 1,702 1,201
-------- -------- --------
Net income......................................... $208,376 $118,330 $ 91,128
======== ======== ========
Net income per unit:
Basic net income:
General Partner and Class A Limited Partner
unit.......................................... $ 1.92 $ 1.54 $ 1.29
======== ======== ========
Diluted net income:
General Partner and Class A Limited Partner
unit.......................................... $ 1.83 $ 1.45 $ 1.29
======== ======== ========
Class B Limited Partner unit................... -- $ 1.45 $ 1.05
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
50
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Limited
General Partners Partners
------------------- ---------------------
Units Amount Units Amounts
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balances, January 1, 1996.......... 800,000 $ 3,457 40,121,155 $228,466
Net income....................... 1,034 51,882
Distributions.................... (1,504) (75,451)
Restricted Unit Plan grants...... 25,000 525
Vesting of options and restricted
units...........................
---------- -------- ----------- --------
Balances, December 31, 1996........ 800,000 2,987 40,146,155 205,422
Net income....................... 5,115 62,038
Distributions.................... (17,166) (106,967)
Exercise of unit options......... 15,030 208 10,689 326
Issuance for acquisition......... 26,037,766 629,436 2,119,608 63,661
Restricted Unit Plan grants...... 67,844
Issuance of restricted units in
lieu of director fees...........
Issuance of units................ 1,994 59
Exchange of notes................ 4,406,142 146,871
Vesting of options and restricted
units...........................
Exchange of PIMCO Advisors L.P.
public units for PIMCO Advisors
Holdings L.P. units............. 19,481,394 192,245 (19,481,394) (192,245)
---------- -------- ----------- --------
Balances, December 31, 1997........ 46,336,184 812,884 27,201,200 246,950
Net income....................... 92,225 116,151
Distributions.................... (120,138) (151,207)
Exercise of unit options......... 1,516,942 607 332,634 4,001
Restricted Unit Plan grants...... 1,435,798 32,977
Issuance of restricted units in
lieu of director fees........... 2,544 74
Issuance of units................ 1,397,970 34,895
Exchange of notes................ 79,850 2,661
Exchange of Class B Limited
Partners Units for Class A
Limited Partners Units.......... 32,993,050 65,662
Exchange of Limited Partners
Units for General Partners
Units........................... 1,336,845 13,065 (1,336,845) (13,065)
Vesting of options and restricted
units...........................
---------- -------- ----------- --------
Balances, December 31, 1998........ 49,269,821 $801,304 62,026,351 $336,438
========== ======== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL--(Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Class B Limited
Partners
--------------------- Unamortized Total
Units Amounts Compensation Partners'Capital
----------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
Balances, January 1,
1996..................... 32,960,826 $114,806 $(15,172) $ 331,557
Net income.............. 38,212 91,128
Distributions........... (54,649) (131,604)
Restricted Unit Plan
grants................. (525) --
Vesting of options and
restricted units....... 5,162 5,162
----------- -------- -------- ----------
Balances, December 31,
1996..................... 32,960,826 98,369 (10,535) 296,243
Net income.............. 51,177 118,330
Distributions........... (84,580) (208,713)
Exercise of unit
options................ 534
Issuance for
acquisition............ 693,097
Restricted Unit Plan
grants................. 25,000 545 (68,389) --
Issuance of restricted
units in lieu of
director fees.......... 7,224 151 151
Issuance of units....... 59
Exchange of notes....... 146,871
Vesting of options and
restricted units....... 7,493 7,493
Exchange of PIMCO
Advisors L.P. public
units for PIMCO
Advisors Holdings L.P.
units..................
----------- -------- -------- ----------
Balances, December 31,
1997..................... 32,993,050 65,662 (71,431) 1,054,065
Net income.............. 208,376
Distributions........... (271,345)
Exercise of unit
options................ 4,608
Restricted Unit Plan
grants................. (32,977) -
Issuance of restricted
units in lieu of
director fees.......... 74
Issuance of units....... 34,895
Exchange of notes....... 2,661
Exchange of Class B
Limited Partners Units
for Class A Limited
Partners Units......... (32,993,050) (65,662) --
Exchange of Limited
Partners Units for
General Partners
Units.................. --
Vesting of options and
restricted units....... -- -- 25,753 25,753
----------- -------- -------- ----------
Balances, December 31,
1998..................... -- -- $(78,655) $1,059,087
=========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $208,376 $118,330 $ 91,128
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 71,026 51,262 40,916
Deferred income taxes........................... -- -- 735
Issuance of restricted units in lieu of
directors fees................................. 74 151 --
Restricted Unit and Option Plans................ 25,752 8,188 5,162
Equity in loss (income) of unconsolidated
partnerships................................... (106) 361 54
Unrealized gain on investments.................. (42) (1,171) (272)
Gain on sale of investments..................... (303) -- --
Change in operating assets and liabilities,
excluding net effects of acquired entities:
Change in fees receivable..................... (22,939) (21,050) (8,920)
Change in receivable from Proprietary Funds... (75) (73) (125)
Change in other assets........................ (61,532) (25,953) (11,676)
Change in accounts payable and accrued
expenses..................................... 12,021 6,332 5,710
Change in other liabilities................... 16,104 10,358 17,778
Other......................................... 7 (34) (44)
-------- -------- --------
Net cash provided by operating activities........ 248,363 146,701 140,446
-------- -------- --------
Cash flows from investing activities:
Purchases of investments......................... (68,516) (46,122) (695)
Proceeds from sales of investments............... 31,791 47,186 784
Return of investment in partnerships............. 600 -- 1,600
Investment in partnerships....................... (164) (2,815) (700)
Proceeds from sale of fixed assets............... 33 3 645
Purchase of fixed assets......................... (13,790) (4,856) (3,446)
Notes receivable advances........................ (1,312) (699) (634)
Cash of acquired entities........................ -- 36,300 --
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... (51,358) 28,997 (2,446)
-------- -------- --------
Cash flows from financing activities:
Short term borrowings............................ 35,000 30,000 --
Long term debt paid off.......................... -- (32,193) --
Unit options exercised........................... 4,608 -- --
Issuance of Limited Partnership Units to Deferred
Compensation Plan............................... 34,880 -- --
Capital contribution from General Partner........ 16 -- --
Change in distribution payable................... 11,669 28,198 --
Cash distributions declared...................... (271,345) (208,713) (131,604)
-------- -------- --------
Net cash used in financing activities............ (185,172) (182,708) (131,604)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 11,833 (7,010) 6,396
Cash and cash equivalents, beginning of year..... 34,301 41,311 34,915
======== ======== ========
Cash and cash equivalents, end of year........... $ 46,134 $ 34,301 $ 1,311
======== ======== ========
Supplemental disclosures:
Income taxes paid............................... $ 8,676 $ 316 $ 448
======== ======== ========
Interest paid................................... $ 8,510 $ 1,102 $ --
======== ======== ========
Fair value of non-cash assets acquired.......... $982,459
========
Liabilities assumed............................. $330,889
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
PIMCO Advisors L.P. ("PIMCO Advisors") is an investment management firm
providing fixed income and equity investment management to institutional and
retail clients, offering the investment management expertise, performance
record and reputations of its institutional investment managers, which include
the fixed income oriented Pacific Investment Management Company ("Pacific
Investment Management") and the equity oriented Oppenheimer Capital. PIMCO
Advisors operates in one industry segment--investment management services.
PIMCO Advisors offers its investment management services to institutional
clients through client service representatives of its investment management
groups. Institutional clients invest through separate accounts and pooled
vehicles such as the institutional share classes of the PIMCO Funds, PIMCO
Advisors' family of 51 proprietary mutual funds. PIMCO Advisors offers the
investment expertise of its institutional investment managers to retail
investors through the retail share classes of the PIMCO Funds, which are
distributed primarily through broker dealers including PIMCO Funds
Distributors LLC ("PFD", formerly known as PIMCO Funds Distribution Company),
a wholly-owned broker-dealer.
PIMCO Advisors and its subsidiaries were formed on November 15, 1994, when
Pacific Asset Management LLC (a subsidiary of Pacific Life Insurance Company)
merged certain of its investment management businesses and substantially all
of its assets (the "PFAMCo Group") into Thomson Advisory Group L.P. ("TAG LP")
(the "Consolidation").
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Advisors Holdings L.P. (formerly
Oppenheimer Capital, L.P.) ("PIMCO Holdings"). In the transaction, Opgroup
became a subsidiary of PIMCO Advisors, and the Opgroup stockholders received
2.1 million PIMCO Advisors Class A units and rights to exchange up to $230
million of outstanding term notes of Opgroup for an additional 6.9 million
PIMCO Advisors Class A units at $33 1/3 per unit. In connection with the
transaction, PIMCO Advisors split the one percent general partner interest in
PIMCO Holdings into a .01% general partner interest and a .99% limited partner
interest, and sold the general partner interest to its general partner for
$80,000, its approximate book value. As explained further in Note 3, the
purchase method of accounting was used by PIMCO Advisors to record the
acquisition of Opgroup.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to
represent an indirect investment in the business of PIMCO Advisors. As a
result, the consolidated statement of operations includes the operations of
Oppenheimer Capital since November 4, 1997, also reflecting a minority
interest expense of $2.4 million for the month of November, included in other
income, net. The transaction was accounted for at book value of PIMCO
Advisors, as a transaction between related parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly
traded, and PIMCO Holdings general partner interest in PIMCO Advisors
increased to approximately 43%. Concurrently, PIMCO Holdings New York Stock
Exchange trading symbol was changed from "OCC" to "PA".
54
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying consolidated financial statements include the accounts of
PIMCO Advisors and its subsidiaries. The investment advisor subsidiaries
included in these consolidated financial statements are as follows:
. Pacific Investment Management Company manages a variety of predominantly
fixed income portfolios primarily for institutions and mutual funds;
. Oppenheimer Capital is a value oriented manager of equity securities
primarily for institutions, retail products and mutual funds;
. Columbus Circle Investors ("CCI") manages primarily equity securities
using a Positive Momentum/Positive Surprise approach, principally for
institutions and mutual funds;
. Cadence Capital Management ("Cadence") specializes in disciplined,
growth oriented management of equity securities primarily for
institutions and mutual funds;
. Parametric Portfolio Associates ("Parametric") specializes in highly
quantitative management of domestic and international equity portfolios
primarily for institutions and mutual funds;
. NFJ Investment Group ("NFJ") is a value oriented manager of equity
securities primarily for institutions and mutual funds; and
. Blairlogie Capital Management ("Blairlogie") specializes in
international equity securities from its office in Edinburgh, Scotland,
primarily for institutions and mutual funds.
The investment advisor subsidiaries are supported by certain additional
subsidiaries including:
. Value Advisors LLC ("Value"), a registered investment adviser and wholly
owned subsidiary of PIMCO Advisors, acting principally as the
administrator of eight closed end funds;
. PIMCO Funds Distributors LLC ("PFD") serves as the distributor of
institutional and retail mutual funds for which PIMCO Advisors and the
investment advisor subsidiaries provide investment management and
administrative services;
. StocksPLUS Management, Inc. ("StocksPLUS"), a wholly-owned subsidiary of
Pacific Investment Management, owns approximately 0.125 percent interest
in, and is the general partner of StocksPLUS, L.P. (Note 12);
. Columbus Circle Trust Company ("CCTC"), a non bank trust company and
wholly owned subsidiary of CCI, established in November 1995, which
commenced business in January 1996;
. Opcap Advisors, a value oriented manager and 99% owned subsidiary of
Oppenheimer Capital, with 1% owned by Value;
. OCC Distributors ("Distributors"), a registered broker/dealer and 99%
owned subsidiary of Oppenheimer Capital, with 1% owned by Value;
. 225 Liberty Street Advisers L. P. ("225") a registered investment
adviser and 99% owned subsidiary of Oppenheimer Capital, with 1% owned
by Value;
. Oppenheimer Capital Trust Company ("Trust Co."), a non bank trust
company and wholly owned subsidiary of Oppenheimer Capital;
. PIMCO Global Advisors (Europe) Ltd. ("PGA Europe"), formerly Oppenheimer
Capital Limited, a registered investment adviser in the United Kingdom
and wholly owned subsidiary of Value;
55
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. PIMCO Global Advisors (Japan) Ltd. ("PGA Japan"), a registered
investment adviser in Japan and wholly owned subsidiary of PIMCO
Advisors; and
. PIMCO Global Advisors (Australia) PTY Limited. ("PGA Australia"), a
registered investment adviser in Australia and wholly owned subsidiary
of PIMCO Advisors.
PIMCO Advisors L.P., Pacific Investment Management, Oppenheimer Capital,
CCI, Cadence, Parametric, NFJ, Blairlogie, Value, OpCap Advisors, 225 and
Limited are registered investment advisors. PFD and Distributors are
registered broker/dealers with the Securities and Exchange Commission and
members of the National Association of Securities Dealers, Inc.
Prior to January 17, 1997, PIMCO Advisors' sponsored institutional mutual
funds managed consisted of two open end investment management companies. One
series is predominantly fixed income funds. The other series is predominantly
equity funds. The retail mutual funds managed were included within two open
end investment management companies, the PIMCO Advisors Funds ("PAF"),
formerly the Thomson Funds, and the Cash Accumulation Trust ("CAT"). With
Trustee and shareholder approval, the fund groups (excluding CAT) were
combined into a single mutual fund complex, the PIMCO Funds, in January 1997,
consisting of 51 funds offering retail and institutional share classes as of
December 31, 1998.
2. Significant Accounting Policies
a. Cash and Cash Equivalents--PIMCO Advisors invests certain cash balances
in money market funds. At December 31, 1998, this investment is
approximately $43.9 million, of which approximately $37.3 million is
invested in invested in non-affiliate money market funds. At December
31, 1997, this investment is approximately $28.9 million, of which
approximately $24.5 million is invested in non-affiliate money market
funds. Management considers investments in money market funds to be cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
These investments are carried at cost, which approximates market.
b. Investment Advisory Fees--PIMCO Advisors records investment advisory
fees on an accrual basis. Investment advisory fees receivable for
private and separate accounts consist primarily of accounts billed on a
quarterly basis. Private accounts may also generate a fee based on
investment performance, which is recorded as income when earned and not
subject to forfeiture. Investment advisory fees for the Proprietary
Funds are received monthly.
c. Short-Term Investments--The short term investments, as of December 31,
1998 and 1997, are primarily invested in the PIMCO Funds with a short-
term duration objective. The investments are carried at market value.
Cost approximated market value as of December 31, 1998 and 1997.
d. Depreciation and Amortization--Office equipment, furniture and fixtures
are depreciated on a straight line basis over their estimated useful
lives, generally five years. Automobiles are depreciated on a straight
line basis over their estimated lives, generally three years. Leasehold
improvements are amortized on a straight line basis over the remaining
terms of the related leases or the useful lives of such improvements,
whichever is shorter.
e. Other Assets--PFD offers for sale a "B" class of mutual fund shares.
Under this share structure PFD advances commissions to independent
brokers and is entitled to recoup its marketing costs through an ongoing
fee stream from the respective funds or through contingent deferred
sales charges collected from the share purchaser. Such fees are
capitalized as deferred sales charges and amortized on a straight line
basis as commission expense over a period of 60 months. Deferred
unamortized marketing costs of approximately $51.0 million and $22.7
million are included in other non current assets at December 31, 1998
and 1997, respectively.
56
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
f. Income Taxes--PIMCO Advisors and its subsidiaries are predominantly
partnerships and, as a result, are generally not subject to federal or
state income taxes. All partners of PIMCO Advisors are responsible for
taxes, if any, on their proportionate share of PIMCO Advisors' taxable
income. PIMCO Advisors is subject to an unincorporated business tax in a
certain jurisdiction in which it operates. Certain corporate
subsidiaries are subject to federal and state income taxes and file
separate tax returns. The provision for income taxes is determined using
the liability method which gives recognition to deferred tax assets and
liabilities based on the expected future tax consequences of events that
have been recognized in the financial statements or tax returns.
g. Foreign Currency Translation--The assets and liabilities of Blairlogie,
PGA Europe and PGA Japan have been translated into U.S. dollars at the
current rate of exchange existing at year end. Revenues and expenses
were translated at the average of the monthly exchange rates then in
effect.
h. Net Income Allocation--Net income is allocated in accordance with the
Amended and Restated Agreement of Limited Partnership of PIMCO Advisors.
Net income is generally allocated among unit holders in the same
proportions as cash distributions. Prior to 1998, PIMCO Advisors cash
distribution policy provided for a first priority distribution to
General Partner and Class A Limited Partner units ($1.88 per year
through December 31, 1997) followed by a second priority distribution to
Class B Limited Partner units. During the year ended December 31, 1996,
the second priority distribution was less than the first priority
distribution. For the year ended December 31, 1997, the distribution was
equal for all classes of units. The Class A unit distribution preference
ended with the payment of the distribution for the fourth quarter of
1997, and on March 1, 1998, all PIMCO Advisors Class B units converted
into Class A units.
i. Net Income Per Unit--Basic net income per unit is computed based on the
weighted average number of units outstanding. Diluted net income per
unit assumes the exercise of dilutive unit options. Proceeds from the
exercise of such unit options are assumed to be used to repurchase
outstanding limited partner units under the treasury stock method. The
weighted average number of units used to compute basic and diluted net
income per unit was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Basic
General Partner and Class A Limited
Partner Units......................... 108,582,920 43,773,904 42,501,469
Diluted
General Partner and Class A Limited
Partner Units......................... 113,918,207 45,701,026 42,501,469
Class B Limited Partner Units.......... -- 35,662,779 34,513,573
</TABLE>
j. Other--Certain items have been reclassified to conform with the current
year presentation. All significant intercompany items have been
eliminated in the accompanying consolidated financial statements.
k. Use of Estimates in the Preparation of Financial Statements--The
financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
3. Intangible Assets
The acquisition of Opgroup in November 1997 was recorded under the purchase
accounting method. Intangible assets of approximately $897.5 million
represented the excess of the purchase price over the fair value of the net
tangible assets of Oppenheimer Capital acquired. This amount is amortized on a
straight line basis over 20 years. For accounting purposes, a transaction in
1994 was treated as a purchase and recapitalization of TAG LP by PFAMCo Group,
or a "reverse acquisition." Intangible assets of approximately $284.9 million
represented the excess of the purchase price over the fair value of the net
tangible assets of TAG LP deemed acquired in the transaction. A portion of
these intangible assets represented the value assigned to PIMCO Advisors
Master Limited
57
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Partnership ("MLP") structure. Under prior Internal Revenue Code guidelines,
an MLP was exempt from federal and most state and local income taxes through
December 31, 1997. The value attributed to the MLP structure has been
amortized over the period ending December 31, 1997. The remainder is amortized
on a straight line basis over its estimated life of 20 years.
4. Supplementary Financial Data
The following table summarizes the actual condensed 1998 results of
operations of PIMCO Advisors and the unaudited condensed pro forma 1997 and
1996 results of operations of PIMCO Advisors as if the above acquisition
transactions had been completed on January 1, 1996. The pro forma operating
results give effect to:
(i) Conversion of Oppenheimer Capital to a calendar year reporting
basis;
(ii) The issuance of 2.1 million restricted PIMCO Advisors Class A
units in connection with the acquisition of the privately held 33%
interest in Oppenheimer Capital which occurred on November 4, 1997
("Opgroup Transaction");
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors
Class A units, of which $149.5 million had been exchanged as of
December 31, 1998;
(iv) The contribution of the 67% interest in Oppenheimer Capital by
PIMCO Holdings for 26.1 million PIMCO Advisors Class A units which
occurred on November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets
at PIMCO Advisors which arose on November 4, 1997 as result of the
Opgroup Transaction which will be amortized over 20 years;
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997;
and
(vii) The elimination of the priority distribution structure related to
pre December 31, 1997 rights of PIMCO Advisors Class A units.
58
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For the Years Ended December
31,
-------------------------------
1998 1997 1996
-------- ---------- ----------
(Actual) (Pro Forma) (Pro Forma)
(Dollars in thousands,
except per unit amounts)
<S> <C> <C> <C>
Revenues
Investment advisory..................... $770,160 $641,662 $509,124
Distribution and servicing.............. 82,272 63,184 57,949
-------- -------- --------
852,432 704,846 567,073
-------- -------- --------
Expenses
Compensation and related expense........ 359,583 295,886 245,028
Other operating expense, net............ 203,668 148,443 111,017
Amortization of intangibles, options and
restricted units....................... 80,805 103,157 101,635
-------- -------- --------
644,056 547,486 457,680
-------- -------- --------
Net income.............................. $208,376 $157,360 $109,393
======== ======== ========
Basic net income per unit............... $ 1.92 $ 1.44 $ 1.00
======== ======== ========
Diluted net income per unit............. $ 1.83 $ 1.39 $ 0.98
======== ======== ========
</TABLE>
The pro forma information above is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during
the periods presented, nor is it an indication of future results.
5. Notes Receivable
PIMCO Advisors and certain subsidiaries have granted loans to certain
employees as part of programs designed to ensure the long term retention of
those employees. These loans are primarily non interest bearing and are
generally due within one year of issuance.
6. Fixed Assets
The major classifications of fixed assets are as follows:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Office equipment, furniture and fixtures............ $ 30,486 $ 19,102
Automobiles......................................... 22 31
Leasehold improvements.............................. 9,083 6,915
----------- -----------
Total fixed assets.................................. 39,591 26,048
Less accumulated depreciation and amortization...... 16,874 10,630
----------- -----------
Fixed assets, net................................... $ 22,717 $ 15,418
=========== ===========
</TABLE>
59
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
Only certain subsidiaries are subject to income taxes directly and they file
separate tax returns. The total income tax provision for the affected
subsidiaries is as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------
1998 1997 1996
----- ------ ------
(Dollars in
thousands)
<S> <C> <C> <C>
Current expense:
State................................................ $ 163 $ 105 $ 164
Federal.............................................. 427 156 295
Deferred (benefit) expense:
State................................................ (31) 293 198
Federal.............................................. 13 1,148 544
----- ------ ------
$ 572 $1,702 $1,201
===== ====== ======
</TABLE>
8. Benefit Plans
a. Profit Sharing and Incentive Programs--PIMCO Advisors and its
subsidiaries have several profit sharing and incentive programs that
compensate participants on the basis of profitability and discretionary
bonuses. Compensation under these programs was approximately $239.8
million, $152.9 million, and $114.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
b. Executive Deferred Compensation Plan--PIMCO Advisors and its
subsidiaries have a nonqualified deferred compensation plan pursuant to
which a portion of the compensation otherwise payable to certain
eligible employees will be mandatorily deferred, and pursuant to which
such eligible employees may elect to defer additional amounts of
compensation. The plan is unfunded and is maintained primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees, within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement
Income Security Act of 1974, as amended. Amounts deferred under the
plan are used to acquire units of PIMCO Advisors and are held in a
trust for the employees. As of December 31, 1998 and 1997, the balance
related to PIMCO Advisors and its subsidiaries in the trust at fair
value was approximately $68.0 million and $14.8 million, respectively.
c. Savings and Investment Plans--PIMCO Advisors and its subsidiaries have
several defined contribution employee benefit plans covering
substantially all employees. PIMCO Advisors and Pacific Investment
Management are the sponsors of certain defined contribution employee
savings and investment plans. The plans qualify under Section 401(k) of
the Internal Revenue Code and allow eligible employees of PIMCO
Advisors and certain of its subsidiaries, to contribute up to ten
percent of their annual compensation as defined, and subject to a
maximum dollar amount determined from time to time under the provisions
of the Internal Revenue Code. Employees are generally eligible
following the later of attainment of age 21 or the completion of one
year of credited service. For 1998, 1997 and 1996, PIMCO Advisors and
certain of its subsidiaries matched and contributed an amount up to the
first six percent of annual compensation, subject to Internal Revenue
Code limits, contributed by the employees. In addition, PIMCO Advisors
and certain of its subsidiaries, may elect to make a discretionary
contribution to all participants. The amount expensed by PIMCO Advisors
and its subsidiaries related to these plans during the year ended
December 31, 1998, 1997 and 1996 was approximately $4.3 million, $2.2
million and $2.0 million, respectively.
Pacific Investment Management has several defined contribution
employee benefit plans covering substantially all of its employees and
made contributions to the plans ranging from five percent to eleven
percent of covered individuals' base compensation. The aggregate
expense recorded is approximately $1.3 million, $1.1 million and $0.9
million in 1998, 1997 and 1996, respectively.
60
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
d. Unit Based Incentive Plans--PIMCO Advisors and PIMCO Holdings jointly
adopted the 1998 Unit Incentive Plan (the "1998 Plan") effective
January 1, 1998. The 1998 Plan was adopted to replace the 1997 Unit
Incentive Plan (the "1997 Plan") which in turn, replaced the previous
unit based incentive plans sponsored by PIMCO Advisors and Oppenheimer
Capital. Upon the adoption of the 1998 Plan, each option outstanding
under the 1997 Plan, 1993 Unit Option Plan of PIMCO Advisors L.P., the
1996 Unit Incentive Plan of PIMCO Advisors L.P., the Oppenheimer
Capital Amended and Restated Restricted Option Plan, and the
Oppenheimer Capital Amended and Restated Restricted Unit Plan was
replaced by an option or award under 1998 Plan. Each such award covered
the same number of limited partnership units and had the same term and
vesting schedule as the award which it replaced. The 1998 Plan is
intended to further the financial success of PIMCO Holdings and PIMCO
Advisors through obtaining and retaining the services of members of
their respective management boards, key employees and consultants who
will contribute to their growth, development and financial success, by
offering such members, key employees and consultants the opportunity to
own, or have the right to share in the appreciation of, PIMCO Holdings
units, and, if they are "qualified persons" within the meaning of 1998
Plan, PIMCO Advisors units. The 1998 Plan is currently administered by
the Management Board of PIMCO Holdings and the Unit Incentive Committee
of the Management Board of PIMCO Advisors. Pursuant to an arrangement
between PIMCO Advisors and PIMCO Holdings, PIMCO Advisors will issue to
PIMCO Holdings a number of PIMCO Advisors units equal to the number of
PIMCO Holdings units issued under the 1998 Plan.
Concurrent with the effective date of the 1997 Plan, awards for an
aggregate of 12,525,069 Partnership Units (including 3,203,850
restricted unit rights) granted under plans sponsored by PIMCO Advisors
and Oppenheimer Capital were assumed under the 1997 Plan.
Prior to effectiveness of the 1997 Plan, PIMCO Holdings and Oppenheimer
Capital maintained the OpCap Option Plan and the OpCap Rights Plan for
the benefit of certain key employees. Pursuant to these plans, an
eligible employee was granted the right to receive a number of units of
PIMCO Holdings at no cost to the employee ("Rights"), in the case of
the OpCap Rights Plan, and/or the right to purchase a number of units
at the fair market value of such units on the date of grant
("Options"), in the case of the OpCap Option Plan. The right to receive
or purchase units vests 33 1/3% per year at the end of each of the
third, fourth and fifth years from the date of grant. PIMCO Holdings
transferred to Oppenheimer Capital the proceeds from the exercise of
Options in exchange for an increase in its general partner interest in
Oppenheimer Capital. Opfin and the limited partners of PIMCO Holdings
incurred dilution, in accordance with their respective percentage
interest in Oppenheimer Capital, upon the vesting of Rights and the
exercise of Options.
Prior to the adoption of the 1998 Plan, PIMCO Advisors maintained a
restricted unit plan and two unit options plans for the benefit of
certain key employees. A total of 150,000 Class A limited partner units
and 150,000 Class B limited partner units have been awarded under the
plan. In addition, under the OpCap Rights Plan, approximately 2,177,000
Class A limited partner deferred units were awarded. Under these plans,
units generally vest over a five-year period. The expense under these
plans was approximately $21.3 million, $3.8 million and $.8 million
during 1998, 1997 and 1996, respectively.
61
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, PIMCO Advisors maintained two unit option plans, which are
described below. No compensation cost is recognized for these fixed unit
option plans where the option price approximated the market price on the date
of grant. Had compensation cost for PIMCO Advisors two unit option plans been
determined based on the fair value at the grant dates, PIMCO Advisors net
income and earnings per unit would have been reported as the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------
1998 1997 1996
------ ------ -----
(Dollars in
millions, except
per unit amounts)
<S> <C> <C> <C>
Net income
As reported........................................ $208.4 $118.3 $91.1
Pro forma.......................................... $205.1 $116.5 $90.9
Diluted net income per unit
Diluted net income per General Partner and Class A
Limited Partner unit
As reported........................................ $ 1.83 $ 1.45 $1.29
Pro forma.......................................... $ 1.80 $ 1.43 $1.29
</TABLE>
For the above disclosure purposes, the fair value of each option granted is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1998, 1997
and 1996, respectively: dividend yield of 6.9%, 7.3% and 7.7%; expected
volatility of 22%, 21% and 14%; risk free interest of 5.51%, 6.52% and 6.30%;
and expected lives of 5, 5 and 6 years, respectively.
The unit option plans were administered by the Unit Incentive Committee of
the Management Board of PIMCO Advisors, which determines the key employees and
the terms of the options to be granted. Under the 1998 and 1997 Plans, PIMCO
Advisors could grant options on the Class A units to its employees for up to a
total that the Unit Incentive Committee of the Management Board of PIMCO
Advisors deems appropriate. The expense under the option plans was
approximately $4.4 million, $4.4 million and $4.7 million during 1998, 1997
and 1996, respectively. Under the 1996 Plan, the exercise price for each
option reported herein has not been less than the average trading price of
PIMCO Advisors units for the 20 trading day period prior to the grant date and
each option's maximum term is 10 years. There was no material difference
between the option price and the market price on the grant date. The
outstanding options vest over a period of not more than five years and vested
options are generally exercisable after January 1, 1998. As noted above,
effective January 1, 1998, all such awards, and those under the OpCap Option
Plan and OpCap Rights Plan, were assumed under the 1998 Plan. In 1998, all
Class B unit options were converted to Class A unit options. Following is a
summary of the status of the awards under the unit option plans:
62
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Units Range Per Unit
---------- ----------------
<S> <C> <C>
Outstanding, January 1, 1996...................... 7,570,930 $ 2.425--$ 14.68
Options on Limited Partner units Granted........ 227,000 $17.720--$18.810
Cancelled....................................... (29,200) $12.780--$13.530
----------
Outstanding, December 31, 1996.................... 7,768,730 $ 2.425--$18.810
----------
Options on Limited Partner units
Granted......................................... 794,600 $21.400--$26.770
Exercised....................................... (30,000) $ --$13.530
Cancelled....................................... (212,720) $ 2.425--$22.870
Assumed options................................... 1,000,609 $12.350--$21.630
----------
Outstanding, December 31, 1997.................... 9,321,219 $ 2.425--$26.770
----------
Options on Limited Partner units
Granted......................................... 1,612,827 $26.875--$34.875
Exercised....................................... (2,412,702) $ 2.425--$22.870
Cancelled....................................... (153,870) $ 2.425--$34.625
----------
Outstanding, December 31, 1998.................... 8,367,474 $ 2.425--$26.770
==========
Exercisable, December 31, 1998:
Options on Limited Partner units................ 5,832,164 $ 2.425--$34.875
==========
</TABLE>
9. Long Term Notes
In connection with the OpCap Merger, as discussed in Note 1, PIMCO Advisors
acquired Opgroup, the issuer of $230 million principal amount of notes. The
notes are exchangeable for Class A limited partner units at $33 1/3 per unit.
The notes bear interest at 6% per annum with a maturity date of December 1,
2037. As of December 31, 1998, approximately $149.5 million had been exchanged
for approximately 4.5 million Class A limited partner units. At December 31,
1998 and 1997, the outstanding balance on the notes was $80.5 and $83.1
million, respectively. Interest expense related to these notes was
approximately $5.0 and $1.7 million in 1998 and 1997, respectively.
10. Contingencies
PIMCO Advisors and its subsidiaries are subject to various pending and
threatened legal actions which arise in the normal course of business. In the
opinion of management, the disposition of claims currently pending and
threatened will not have a material adverse effect on PIMCO Advisors and its
subsidiaries' financial position or results of operations.
11. Commitments
a. Lease Agreements--PIMCO Advisors and its subsidiaries lease office space
and certain office equipment under noncancelable leases with terms in
excess of one year. Future minimum payments are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
(Dollars in thousands)
<S> <C>
1999................................................ $ 8,958
2000................................................ 9,272
2001................................................ 8,538
2002................................................ 8,776
2003................................................ 8,087
Thereafter.......................................... 14,831
-------
Total............................................. $58,462
=======
</TABLE>
63
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense in connection with these agreements was approximately $10.5
million, $4.6 million and $3.8 million for the years ended December 31, 1998,
1997 and 1996, respectively.
b. Letter of Credit--PIMCO Advisors is contingently liable for a letter of
credit in the amount of approximately $247,000 related to PIMCO Advisors
membership in an insurance program.
c. Revolving Line of Credit--PIMCO Advisors has a $500 million, 5 year
revolving credit facility, originated in May of 1998. The facility
permits short term borrowings at a floating rate of interest. The terms
of the agreement include an interest coverage ratio, a consolidated
funded debt ratio and a minimum operating cash flow ratio. At December
31, 1998, the balance outstanding was $65.0 million and PIMCO Advisors
was in compliance with the required ratios.
11. Net Capital
PFD and OCC Distributors are subject to the Uniform Net Capital Rule (Rule
15c3-1) under the Securities and Exchange Act of 1934, which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. At
December 31, 1998, PFD had net capital of $2.0 million, which was $1.3 million
in excess of its required net capital of $.7 million. PFD's net capital ratio
was 4.82 to 1. At December 31, 1997, PFD had net capital of $2.7 million,
which was $1.7 million in excess of its required net capital of $1.0 million.
PFD's net capital ratio at that date was 5.32 to 1. At December 31, 1998, OCC
Distributors had net capital of $2.4 million, which was $2.3 million in excess
of its required net capital of $0.1 million. OCC Distributors' net capital
ratio was .24 to 1. At December 31, 1997, OCC Distributors had net capital of
$1.0 million, which was $.9 million in excess of its required net capital of
$0.1 million. OCC Distributors' net capital ratio was .38 to 1.
12. Investment in Partnerships
Included in investment in partnerships is an investment by StocksPLUS in
StocksPLUS, L.P. StocksPLUS accounts for its investment in StocksPLUS, L.P.
under the equity method because StocksPLUS is the general partner in, and
exercises significant influence over the operating and financial policies of
StocksPLUS, L.P. (Note 1). The underlying investments of StocksPLUS, L. P. are
carried at fair value. StocksPLUS, L. P. has made its investments with the
intent to have its performance exceed that of the S & P 500 Index.
StocksPLUS has mitigated the effects of its pro rata investment in
StocksPLUS, L.P.'s investments through the use of short futures positions.
Gains and losses related to these positions are settled daily. Included in
"Short term investments" in the accompanying Consolidated Statements of
Financial Condition are securities which are used as necessary for deposits
made in connection with the futures positions and are recorded at fair value.
The notional amounts of the contracts do not necessarily represent future cash
requirements, as the contracts are intended to be closed prior to their
expiration. As of December 31, 1998 and 1997, the notional amounts of futures
contracts approximated $3.1 million and $2.9 million, respectively.
64
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed financial information for StocksPLUS, L.P. is as follows:
Summary of Financial Condition
<TABLE>
<CAPTION>
As of December 31,
---------------------
1998 1997
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Assets
Investments at fair value........................... $5,569,953 $3,288,830
Other assets........................................ 62,082 24,845
---------- ----------
Total assets...................................... $5,632,035 $3,313,675
========== ==========
Liabilities and partners' capital
Liabilities......................................... $ 359,688 $ 222,738
StocksPLUS' Partner Capital......................... 3,770 2,915
Limited Partners' Capital........................... 5,268,577 3,088,022
---------- ----------
Total liabilities and partners' capital........... $5,632,035 $3,313,675
========== ==========
</TABLE>
Summary of Operations
<TABLE>
<CAPTION>
For The Years Ended December
31,
------------------------------
1998 1997 1996
---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net trading gains on futures............... $ 875,775 $575,696 $292,185
Net (loss)/gain in fair value of
securities................................ (10,584) 13,140 12,040
Interest income............................ 266,098 164,175 126,535
Fees and commissions....................... (10,741) (6,119) (4,631)
---------- -------- --------
Net income............................... $1,120,548 $746,892 $426,129
========== ======== ========
</TABLE>
65
<PAGE>
PIMCO ADVISORS HOLDINGS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Consolidated Quarterly Results of Operations (unaudited)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
Three
Months Three Three Three
Ended Months Months Months
March Ended Ended Ended
31, June 30, September 30, December 31,
1998 1998 1998 1998
-------- -------- ------------- ------------
(Dollars in thousands, except per unit
amounts)
<S> <C> <C> <C> <C>
Revenues........................ $193,857 $216,612 $213,937 $228,026
Expenses........................ 146,906 161,290 162,544 172,744
-------- -------- -------- --------
Income before taxes............. 46,951 55,322 51,393 55,282
Income tax expense.............. 169 202 141 60
-------- -------- -------- --------
Net income...................... $ 46,782 $ 55,120 $ 51,252 $ 55,222
======== ======== ======== ========
Diluted net income per General
Partner and Class A Limited
Partner unit................... $ 0.42 $ 0.48 $ 0.45 $ 0.48
======== ======== ======== ========
<CAPTION>
Three
Months Three Three Three
Ended Months Months Months
March Ended Ended Ended
31, June 30, September 30, December 31,
1997 1997 1997 1997
-------- -------- ------------- ------------
(Dollars in thousands, except per unit
amounts)
<S> <C> <C> <C> <C>
Revenues........................ $103,898 $117,192 $126,368 $174,111
Expenses........................ 80,156 89,879 93,536 137,200
-------- -------- -------- --------
Income before taxes............. 23,742 27,313 32,832 36,911
Income tax expense.............. 553 (101) 773 1,243
-------- -------- -------- --------
Net income...................... $ 23,189 $ 27,414 $ 32,059 $ 35,668
======== ======== ======== ========
Diluted net income per General
Partner and Class A
Limited Partner unit........... $ 0.32 $ 0.34 $ 0.40 $ 0.39
======== ======== ======== ========
</TABLE>
66
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The General Partners of
Oppenheimer Capital
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of changes in
partners' capital and of cash flows present fairly, in all material respects,
the financial position of Oppenheimer Capital and its subsidiaries (the
"Partnership") at December 31, 1997 and April 30, 1997, and the results of
their operations and their cash flows for the eight-month period ended
December 31, 1997 and for each of the two years in the period ended April 30,
1997, in conformity with generally accepted accounting principles. These
consolidated financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
January 30, 1998
67
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
April
December 31, 30,
1997 1997
------------ -------
(Dollars in
thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and short term investments......................... $19,644 $27,123
Investment management fees receivable................... 55,616 52,357
Investments in affiliated mutual funds and other
sponsored investment products.......................... 3,304 4,347
------- -------
Total current assets.................................. 78,564 83,827
Furniture, equipment and leasehold improvements at cost
less accumulated depreciation and amortization of $3,288
and $2,812............................................... 3,885 3,795
Intangible assets, less accumulated amortization of $1,030
and $565................................................. 1,170 1,511
Other non current assets.................................. 2,617 3,886
------- -------
Total assets.............................................. $86,236 $93,019
======= =======
<CAPTION>
LIABILITIES, MINORITY INTEREST AND
PARTNERS' CAPITAL
<S> <C> <C>
Accrued employee compensation and benefits................ $17,820 $13,914
Accrued expenses and other liabilities.................... 11,556 8,880
Note payable.............................................. -- 400
Deferred investment management fees....................... 9,278 4,532
Distribution payable to partners.......................... -- 25,318
------- -------
Total liabilities......................................... 38,654 53,044
------- -------
Minority interest......................................... 213 277
Partners' Capital......................................... 47,369 39,698
------- -------
Total liabilities, minority interest and partners'
capital.................................................. $86,236 $93,019
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
68
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The
Eight-months For The Years Ended
Ended April 30,
December 31, --------------------
1997 1997 1996
------------ --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues
Investment management fees............... $144,790 $ 175,814 $ 151,269
Net distribution assistance and
commission income....................... 2,992 4,910 6,051
Interest and dividends................... 1,155 1,250 895
-------- --------- ---------
Total revenues......................... 148,937 181,974 158,215
-------- --------- ---------
Expenses
Compensation and benefits................ 66,312 77,664 68,781
Occupancy................................ 4,713 6,572 6,873
General and administrative............... 8,753 12,494 12,293
Promotional.............................. 4,173 6,334 7,604
-------- --------- ---------
Total expenses......................... 83,951 103,064 95,551
-------- --------- ---------
Operating income........................... 64,986 78,910 62,664
Gain on Quest sales...................... 4,374 2,806 27,725
-------- --------- ---------
Income before income tax expense and
minority interest......................... 69,360 81,716 90,389
Income tax expense....................... 2,985 3,198 3,627
-------- --------- ---------
Income before minority interest............ 66,375 78,518 86,762
Minority interest........................ (251) (254) (452)
-------- --------- ---------
Net income................................. $ 66,124 $ 78,264 $ 86,310
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
69
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<S> <C>
Balance at May 1, 1995................................................ $ 14,460
Net income.......................................................... 86,310
Amortization of restricted unit compensation expense................ 1,691
Distributions declared to partners:
Oppenheimer Financial Corp........................................ (22,247)
Oppenheimer Capital, L.P.......................................... (45,812)
Contributions by Oppenheimer Capital, L.P........................... 300
--------
Balance at April 30, 1996............................................. 34,702
Net income.......................................................... 78,264
Amortization of restricted unit compensation expense................ 2,209
Distributions declared to partners:
Oppenheimer Financial Corp........................................ (24,707)
Oppenheimer Capital, L.P.......................................... (51,300)
Contributions by Oppenheimer Capital, L.P........................... 530
--------
Balance at April 30, 1997............................................. 39,698
Net income.......................................................... 66,124
Amortization of restricted unit compensation expense................ 2,677
Distributions declared to partners:
Oppenheimer Financial Corp........................................ (17,624)
Oppenheimer Capital, L.P.......................................... (36,752)
Value Advisors LLC................................................ (7,447)
PIMCO Advisors L.P................................................ (58)
Contributions by Oppenheimer Capital, L.P........................... 751
--------
Balance at December 31, 1997.......................................... $ 47,369
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
70
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Eight For The Years
Months Ended Ended April 30,
December 31, ----------------
1997 1997 1996
------------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $66,124 $78,264 $86,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of restricted unit
compensation............................... 3,808 2,209 1,691
Depreciation and amortization............... 623 1,019 2,413
Minority interest, net of distributions..... (64) 103 87
Change in operating assets and liabilities:
Change in investment management fees
receivable............................... (3,259) (9,341) (9,839)
Change in other assets.................... 731 (182) (1,195)
Change in accrued employee compensation
and benefits............................. 3,906 1,041 4,549
Change in accrued expenses and other
liabilities.............................. 2,676 1,712 290
Change in deferred investment management
fees..................................... 4,746 1,662 1,154
------- ------- -------
Net cash provided by operating activities..... 79,291 76,487 85,460
------- ------- -------
Cash flows from investing activities:
Purchases of fixed assets..................... (566) (1,111) (498)
Intangible assets resulting from
acquisitions................................. (500) -- --
Proceeds from sales of mutual funds shares and
other Investments............................ 1,485 3,132 7,296
Purchases of mutual funds shares and other
investments.................................. (340) (2,819) (7,844)
------- ------- -------
Net cash provided by (used in) investing
activities................................... 79 (798) (1,046)
------- ------- -------
Cash flows from financing activities:
Net (repayments of) proceeds from bank loans.. -- -- (9,182)
Payment of note payable....................... (400) (400) (400)
Distributions to partners:
Oppenheimer Financial Corp.................. (25,853) (22,280) (21,187)
Oppenheimer Capital, L.P.................... (53,842) (46,160) (43,415)
Value Advisors LLC.......................... (7,447) -- --
PIMCO Advisors L.P.......................... (58) -- --
Contributions by Oppenheimer Capital, L.P..... 751 530 300
------- ------- -------
Net cash used in financing activities......... (86,849) (68,310) (73,884)
------- ------- -------
Net increase (decrease) in cash and short term
investments.................................. (7,479) 7,379 10,530
Cash and short term investments at beginning
of period.................................... 27,123 19,744 9,214
------- ------- -------
Cash and short term investments at end of
period....................................... $19,644 $27,123 $19,744
======= ======= =======
Supplemental disclosures
Interest paid............................... $ 45 $ 112 $ 638
======= ======= =======
New York City unincorporated business tax
paid....................................... $ 1,730 $ 3,376 $ 3,701
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
71
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Organization and Consolidation--Oppenheimer Capital is a general
partnership wholly owned by PIMCO Advisors L.P. ("PIMCO Advisors")
directly and indirectly through PIMCO Advisors' wholly owned subsidiary
Value Advisors LLC. Oppenheimer Capital is a registered investment
adviser and is part of an affiliated group of companies operating in the
financial services industry.
The consolidated financial statements include the accounts of
Oppenheimer Capital and its subsidiaries, Opcap Advisors, OCC
Distributors ("Distributors"), 225 Liberty Street Advisers, L.P.
(formerly AMA Investment Advisers, L.P.) (collectively, the
"Subpartnerships"), Oppenheimer Capital Limited and Oppenheimer Capital
Trust Company. All material intercompany balances and transactions have
been eliminated in consolidation.
b. Cash and Short Term Investments--Short term investments are recorded at
cost, which approximates market value, and include holdings in money
market mutual funds and highly liquid investments with maturities of
three-months or less.
c. Furniture, Equipment and Leasehold Improvements--Furniture and equipment
are depreciated on a straight line basis over five to seven year
periods. Amortization of leasehold improvements is on a straight line
basis over the lesser of their economic useful life or the term of the
lease.
d. Investment Management Fees--Investment management fees are based on
written contracts and are generally computed on the net assets of the
managed accounts and recognized in the period earned.
e. Statements of Cash Flows--For purposes of reporting cash flows, cash and
short term investments include highly liquid investments with maturities
of three-months or less.
f. Intangible Assets--Impairment of intangible assets is measured on the
basis of anticipated undiscounted cash flows. At December 31, 1997 and
April 30, 1997 and 1996, Oppenheimer Capital determined that there was
no impairment of intangible assets.
g. Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
2. Sale of Opfin Interest
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings L.P. ("PIMCO Holdings")
(formerly, Oppenheimer Capital, L.P.). In the transaction, Opgroup became a
subsidiary of PIMCO Advisors, and the Opgroup stockholders received 2.1
million PIMCO Advisors Class A units and rights to exchange up to $230 million
of outstanding term notes of Opgroup for an additional 6.9 million PIMCO
Advisors Class A units at $33 1/3 per unit. In connection with the
transaction, PIMCO Advisors split the one percent general partner interest in
PIMCO Holdings into a .01% general partner interest and a .99% limited partner
interest, and sold the general partner interest to its general partner for
$80,000, its approximate book value. The purchase method of accounting was
used by PIMCO Advisors to record the acquisition of Opgroup.
72
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to
represent an indirect investment in the business of PIMCO Advisors. The
transaction was accounted for at book value of PIMCO Advisors, as a
transaction between related parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly
traded, and PIMCO Holdings general partner interest in PIMCO Advisors
increased to approximately 43%. Concurrently, PIMCO Holdings New York Stock
Exchange trading symbol was changed from "OCC" to "PA".
3. Long Term Lease Commitments
Oppenheimer Capital occupies office premises at various locations, including
the Oppenheimer Tower under an agreement to sublease with CIBC Oppenheimer
Corp., ("Opco"), a broker-dealer which was affiliated with Oppenheimer Capital
until November 4, 1997. Oppenheimer Capital's lease commitments for office
space under operating leases having noncancelable lease terms in excess of one
year provide for the following minimum annual rentals:
<TABLE>
<CAPTION>
Year Ending
December 31,
----------------------
(Dollars in thousands)
<S> <C>
1998.................................................. $ 4,140
1999.................................................. 4,140
2000.................................................. 4,140
2001.................................................. 3,387
2002.................................................. 3,554
Thereafter............................................ 7,130
-------
Total................................................. $26,491
=======
</TABLE>
The agreements expire at various dates through the calendar year ending
December 31, 2005 and contain provisions for additional charges (e.g., ground
rent, real estate taxes and operating expenses). Office rent expense for the
eight-month period ended December 31, 1997 was $3,785,000, and for the years
ended April 30, 1997 and 1996 was $5,046,000 and $5,348,000, respectively.
4. Compensation Plans
Oppenheimer Capital has established a Restricted Unit Plan and a Restricted
Option Plan (the "OpCap Plans") for the benefit of certain key employees.
Pursuant to the OpCap Plans, an eligible employee is granted the right to
receive a number of units of PIMCO Holdings or, in certain cases after
December 31, 1997, PIMCO Advisors, at no cost to the employee ("Rights"), in
the case of the Restricted Unit Plan, and/or the right to purchase a number of
units at the fair market value of such units on the date of grant ("Options"),
in the case of the Restricted Option Plan. Obligations under the OpCap Plans
have been assumed by PIMCO Advisors and PIMCO Holdings effective January 1,
1998. The right to receive or purchase units vests 33 1/3% per year at the end
of each of the third, fourth and fifth years from the date of grant. A total
of 6,304,250 restricted units and/or restricted options have been authorized
under the OpCap Plans. The following table shows the Rights granted and the
Options granted with exercise prices of $12.35 to $21.63 (all reflective of a
1.67 for 1 split effective December 1, 1997) at December 31, 1997. As a result
of the grant of Rights, Oppenheimer Capital recorded deferred restricted unit
compensation expense in partners' capital of $8,574,000 for the eight-month
period ended December 31, 1997 and $5,977,000 and $4,738,000 for the fiscal
years ended April 30, 1997 and 1996, respectively, which amounts are amortized
over a
73
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
five year period. In addition, approximately $67.8 million was recorded as
deferred compensation expense in partners' capital of PIMCO Advisors for
special grants made in November of 1997 associated with the completion of sale
of the Opfin interest. Amortization of $2,677,000 for the eight-month period
ended December 31, 1997 and $2,209,000 and $1,691,000 for the fiscal years
ended April 30, 1997 and 1996, respectively, has been recorded. This
amortization results in a charge to compensation and benefits and a
corresponding credit to partners' capital.
<TABLE>
<CAPTION>
Rights Options
outstanding outstanding Price per option
----------- ----------- ----------------
<S> <C> <C> <C>
Balances at May 1, 1995............... 413,742 445,611 $ 8.084--$16.841
Rights granted...................... 314,862
Rights cancelled.................... (13,916)
Units issued with respect to
Rights............................. (172,344)
Options granted..................... 255,510 $ --$12.425
Options exercised................... (25,105) $ 8.084--$14.970
Options canceled.................... (50,656) $12.350--$14.970
--------- ---------
Balances at April 30, 1996............ 542,344 625,360 $10.853--$16.841
Rights granted...................... 346,553
Rights cancelled.................... (23,562)
Units issued with respect to
Rights............................. (160,071)
Options granted..................... 281,395 $17.590--$20.210
Options exercised................... (37,851) $10.853--$17.590
Options canceled.................... (40,080) $12.425--$17.590
--------- ---------
Balances at April 30, 1997............ 705,264 828,824 $10.853--$20.210
Rights granted...................... 2,553,453
Rights cancelled.................... (5,979)
Units issued with respect to
Rights............................. (48,888)
Options granted..................... 283,900 $ --$21.632
Options exercised................... (92,075) $10.853--$14.970
Options canceled.................... (20,040) $12.425--$17.590
--------- ---------
Balances at December 31, 1997......... 3,203,850 1,000,609 $12.350--$21.632
========= =========
</TABLE>
74
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No compensation cost is recognized in the consolidated statements of
operations for Options granted under the OpCap Plans because the exercise
price of the Options approximates the market price of the units on the date of
grant. Had compensation cost for the Options been recognized based on the fair
value of the Options at the date of the grant, Oppenheimer Capital's net
income would have been reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For The
Eight-months
Ended For The Years
December 31, Ended April 30,
------------ ---------------
1997 1997 1996
------------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Net income
As reported................................... $66,124 $78,264 $86,310
Pro forma..................................... $66,017 $78,098 $86,248
</TABLE>
For the purpose of the above disclosure, the fair value of each Option
granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants
for the eight-month period ended December 31, 1997 and for the fiscal years
ended April 30, 1997 and 1996, respectively: distribution yield of 5.8%, 7.3%
and 8.0%; expected volatility of 19%, 21% and 22%; risk free interest rate of
6.62%, 6.36% and 6.96%; and expected life of 6, 6 and 7 years.
5. Transactions With Affiliated Companies
a. Cash and Short Term Investments--Oppenheimer Capital invests excess
funds in OCC Cash Reserves Primary Portfolio, a money market fund
managed by OpCap Advisors. Included in cash and short term investments
at December 31, 1997 and April 30, 1997 was $2,685,000 and $1,567,000
respectively, invested in this fund. Also included in cash and short
term investments at April 30, 1997 and 1996 was $35,000 and $275,000,
respectively, on deposit with Opco.
b. Investments in Affiliated Mutual Funds and Other Sponsored Investment
Products--Investments in affiliated mutual funds and other sponsored
investment products are carried at market value.
c. Distribution Assistance Fees and Expenses--Oppenheimer Capital receives
distribution assistance fees from various mutual funds and has entered
into agreements with various broker-dealers including Opco to obtain
sales related services in rendering distribution assistance. Payments to
Opco for the Quest for Value equity and fixed income mutual funds for
the year ended April 30, 1996 were recorded as distribution assistance
expenses and for financial statement purposes were netted against
distribution assistance fees (see note 7). Payments to Opco for OCC Cash
Reserves are netted against investment management fees. During the
eight-month period ended December 31, 1997, such payments to Opco
totaled $4,602,000, and totaled $8,902,000 and $9,522,000 for the years
ended April 30, 1997 and 1996, respectively.
d. Affiliated Mutual Funds and Commingled Products--Investment Management
Fees--Oppenheimer Capital provides investment management services to
affiliated mutual funds and other commingled products. For the eight-
month period ended December 31, 1997 the amount earned for these
services totaled $9,797,000, and for the years ended April 30, 1997 and
1996 the amounts totaled $15,382,000 and $22,778,000, respectively.
75
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Income Taxes
Although Oppenheimer Capital is not otherwise subject to federal, state, or
local income taxes, it was subject to New York City unincorporated business
tax of $2,906,000 for the eight-month period ended December 31, 1997, and
$3,143,000 and $3,667,000, respectively, for the years ended April 30, 1997
and 1996.
A domestic corporate subsidiary of Oppenheimer Capital is subject to
federal, state and local income taxes. A foreign corporate subsidiary is
subject to taxes in the foreign jurisdiction in which it is located.
7. Gain on Quest Sale
On November 22, 1995, Oppenheimer Capital sold the investment advisory and
other contracts and business relationships for its twelve Quest for Value
mutual funds to OppenheimerFunds, Inc. ("OFI"), which is unrelated to
Oppenheimer Capital. In fiscal 1997 and 1996, Oppenheimer Capital received
payments of $3.8 million and $41.7 million, respectively, related to the sale,
and recognized pre tax gains of $2.8 million and $27.7 million, respectively.
8. Gain On Dual Purpose Sale
On July 18, 1997, Oppenheimer Capital completed the sale of the investment
advisory and other contracts and business relationships of the Quest for Value
Dual Purpose Fund to OFI. Oppenheimer Capital received a payment of $7.0
million and recorded a pre tax gain of $4.4 million.
9. Sale of AMA License
On May 12, 1997, Oppenheimer Capital sold its exclusive license to market
financial products to members of the American Medical Association for $1
million. The proceeds received from this transaction were used to purchase the
remaining 19.9% interest of AMA Advisers, L.P. not owned by Oppenheimer
Capital and Opfin, and to repay the balance of the original acquisition debt
incurred to purchase AMA Advisers, L.P. AMA Advisers, L.P. has been renamed
225 Liberty Street Advisers, L.P.
76
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Management of PIMCO Holdings
The PIMCO Holdings Partnership Agreement provides that PIMCO Holdings is
managed by its general partner, PIMCO Partners, G.P. ("PGP"). PGP has
delegated the day to day management of PIMCO Holdings to a Management Board
which has appointed executive officers of PIMCO Holdings. The Management Board
members and executive officers of PIMCO Holdings are comprised of the
following persons, who also serve as executive officers of PIMCO Advisors:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
William D. Cvengros..... 50 Management Board Member and Chief Executive Officer
Kenneth M. Poovey....... 67 Management Board Member and Chief Operating Officer
Robert M. Fitzgerald.... 47 Management Board Member, Senior Vice President and Chief
Financial Officer
Stephen J. Treadway..... 51 Executive Vice President
Ernest L. Schmider...... 41 Senior Vice President
James G. Ward........... 44 Senior Vice President and Director of Human Resources
Richard M. Weil......... 35 Senior Vice President, General Counsel and Secretary
</TABLE>
Biographical information with respect to the above listed individuals is set
forth below. Because the sole business of PIMCO Holdings is that of owning
PIMCO Advisors units, information relating to the management of PIMCO Advisors
is set forth below.
Management of PIMCO Advisors
PIMCO Advisors is managed by its general partners, PGP and PIMCO Holdings.
PGP has direct control of PIMCO Holdings, and therefore controls PIMCO
Advisors. While the general partners must pursuant to the PIMCO Advisors
Partnership Agreement retain and exercise certain powers, generally relating
to extraordinary transactions or events, the general partners have delegated
all other management and control of PIMCO Advisors to a 16 member management
board (the "PIMCO Advisors Management Board"), comprised of the Chief
Executive Officer of PIMCO Advisors, representatives of the general partners,
representatives of the investment management divisions and subsidiaries, and
three "disinterested" members not otherwise affiliated with PIMCO Advisors or
the general partners. The PIMCO Advisors Management Board generally acts by
majority vote, however, certain significant actions require a three-quarters
majority vote. The delegation to the PIMCO Advisors Management Board may be
revoked by the general partners at any time.
The PIMCO Advisors Management Board has, in turn, constituted a five member
Executive Committee and delegated to it much of the functions of the PIMCO
Advisors Management Board. In addition, PIMCO Advisors has an Audit Committee,
a Compensation Committee, a Nominating Committee and a Unit Incentive
Committee, each comprised of members of the PIMCO Advisors Management Board.
The Audit Committee reports to the Management Board with respect to matters
relating to the independent auditors, and reviews various matters relating to
the auditing policies and procedures. The Audit Committee held four meetings
in 1998. The Compensation Committee is responsible for compensation and
compensation related matters including but not limited to responsibility and
authority for determining bonuses and salaries for certain employees. The Unit
Incentive
77
<PAGE>
Committee is responsible for granting options and awarding deferred units
under the 1998 Unit Incentive Plan and administering the 1998 Unit Incentive
Plan and the Deferred Compensation Plan.
The members of the PIMCO Advisors Management Board, the Executive Committee,
Audit Committee, Compensation Committee, Unit Incentive Committee and the
executive officers of PIMCO Advisors are as set forth below. The terms of all
PIMCO Advisors Management Board and committee members expire on April 30,
1999. PIMCO Advisors Management Board members are appointed to one-year terms.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Walter E. Auch, Sr. .... 77 Board Member, Audit Committee and Unit Incentive Committee Member
David B. Breed.......... 51 Board Member
Donald A. Chiboucas..... 54 Board Member
William D. Cvengros..... 50 Board Member, Chief Executive Officer, Executive Committee
Member Walter B.
Gerken................. 76 Board Member and Chairman
William H. Gross........ 54 Board Member, Compensation Committee Member
Brent R. Harris......... 39 Board Member, Executive Committee Member
Donald R. Kurtz......... 68 Board Member, Audit Committee and Unit Incentive Committee Member
James McCaughan......... 45 Board Member
James F. McIntosh....... 57 Board Member, Audit Committee, Compensation Committee and Unit
Incentive Committee Member
William F. Podlich,
III.................... 54 Board Member
Glenn S. Schafer........ 49 Board Member, Executive Committee Member
Thomas C. Sutton........ 55 Board Member, Compensation Committee Member
William S. Thompson, 53 Board Member, Executive Committee Member, Compensation
Jr. ................... Committee Member
Benjamin L. Trosky...... 38 Board Member
Kenneth M. Poovey....... 67 Chief Operating Officer
Stephen J. Treadway..... 51 Executive Vice President
Robert M. Fitzgerald.... 47 Senior Vice President and Chief Financial Officer
Ernest L. Schmider...... 41 Senior Vice President
James G. Ward........... 44 Senior Vice President and Director of Human Resources
Richard M. Weil......... 35 Senior Vice President, General Counsel and Secretary
</TABLE>
Set forth below is certain biographical information with respect to the
persons who are the members of the PIMCO Advisors Management Board or who
serve as executive officers of PIMCO Advisors or PIMCO Holdings:
Walter E. Auch, Sr. Mr. Auch has served as a member of the PIMCO Advisors
Management Board as an independent member and as a member of the Audit
Committee and Unit Incentive Committee since November 1994. He currently is a
management consultant. Mr. Auch was a Director of Thomson Advisory Group, Inc.
("TAG"), now Pacific Financial Products, Inc. the former general partner of
PIMCO Advisors from October 1990 until November 1994. He was previously the
Chairman and Chief Executive Officer of the Chicago Board Options Exchange
from 1979 to 1986. He is also a Director of Fort Dearborn Fund, Smith Barney
Citicorp Advisors Fund, Smith Barney Citicorp TRAK Fund, Banyan Strategic Land
Trust, Nicholas/Applegate Funds, Brinson Fund, Brinson Relationship Fund,
Advisors Series Trust, Legend Properties Inc. and The Semele Group.
David B. Breed. Mr. Breed has served as a member of PIMCO Advisors
Management Board since the Consolidation of Pacific Financial Asset Management
Corporation and Thomson Advisory Group LP ("TAG LP") in November 1994 (the
"Consolidation"). Mr. Breed is a founder of Cadence Capital Management where
he is a Managing Director and serves as CEO and CIO. From February 1988 to
July 1993, he was a Managing Director and Director of Cadence Capital
Management Corporation, and he was Chief Executive Officer and Chief
Investment Officer thereof until November 1994.
Donald A. Chiboucas. Mr. Chiboucas has served as a member of the PIMCO
Advisors Management Board and a Managing Director of Columbus Circle Investors
since the Consolidation in November 1994. Mr. Chiboucas
78
<PAGE>
was Senior Executive Vice President of TAG and PIMCO Advisors, a member of
PIMCO Advisors Executive Operating Committee and President of Columbus Circle
Investors from October 1990 until November 1994.
William D. Cvengros. Mr. Cvengros serves as Chief Executive Officer and a
member of the Management Board of PIMCO Holdings and PIMCO Advisors and is
currently a member of the Executive Committee of the PIMCO Advisors Management
Board. Mr. Cvengros is the Principal Executive Officer of PIMCO Holdings. He
has served in his positions with PIMCO Advisors since the Consolidation in
November 1994, and in his positions with PIMCO Holdings since November 1997.
He was associated with Pacific Life Insurance Company from 1972 to November
1994, most recently as Vice Chairman and Chief Investment Officer. He is a
Director of Furon Company and Remedy Temp.
Robert M. Fitzgerald. Mr. Fitzgerald serves as Senior Vice President, Chief
Financial Officer of PIMCO Holdings and PIMCO Advisors, and as a member of the
Management Board of PIMCO Holdings. Mr. Fitzgerald is the Principal Financial
and Accounting Officer of PIMCO Holdings. He has served in his positions with
PIMCO Advisors since February 1995, and in his positions with PIMCO Holdings
since November 1997. From April 1994 through January 1995, he served as a
consultant to various companies, including Pacific Investment Management
Company. From October 1991 until April 1994, he served in various senior
executive positions, including President, at Mechanics National Bank.
Walter B. Gerken. Mr. Gerken has served as Chairman of the PIMCO Advisors
Management Board since the Consolidation in November 1994. Mr. Gerken is the
former Chairman of the Board and CEO of Pacific Life Insurance Company. Mr.
Gerken is a Senior Advisor of the Boston Consulting Group, Inc. and serves on
the Board of Directors of the W.M. Keck Foundation.
William H. Gross. Mr. Gross has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Compensation Committee of the PIMCO Advisors Management Board.
Mr. Gross joined Pacific Investment Management Company in June 1971, and has
served there as a Managing Director since February 1982.
Brent R. Harris. Mr. Harris has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Executive Committee of the PIMCO Advisors Management Board. Mr.
Harris joined Pacific Investment Management Company in June 1985, and has
served there as a Managing Director since April 1993. Mr. Harris is Chairman
and Director of the PIMCO Commercial Mortgage Securities Trust, Inc.
Donald R. Kurtz. Mr. Kurtz has served on the PIMCO Advisors Management Board
as an independent member and as a member of the Audit Committee, Nominating
Committee and Unit Incentive Committee of PIMCO Advisors since the
Consolidation in November 1994. Mr. Kurtz was a Director of Thomson Advisory
Group, Inc. from May 1992 until November 1994. From December 1994 until
October 1995, he was acting Managing Director of Domestic Equity Investments
at General Motors Investment Management Corp. Prior thereto, he served as Vice
President or Director, Internal Asset Management at General Motors Investment
Management Corp. from January 1990.
James P. McCaughan. Mr. McCaughan has served as a member of the PIMCO
Advisors Management Board since July 1998. He is a Managing Director and Chief
Operating Officer of Oppenheimer Capital, a position that he has held since
May 1998. From October 1996 to May 1998 Mr. McCaughan was President and Chief
Executive Officer of UBS Asset Management (New York) Inc. From 1994 to 1996
Mr. McCaughan was functional adviser on institutional asset management at the
UBS head office in Zurich. From 1987 to 1994 Mr. McCaughan was a managing
director of UBS International Investment London Limited.
James F. McIntosh. Mr. McIntosh has served as a member of the PIMCO Advisors
Management Board as an independent member and as a member of the Audit
Committee, Compensation Committee and Unit Incentive Committee since the
Consolidation in November 1994. He is currently the Executive Director of
Allen, Matkins, Leck, Gamble & Mallory LLP, a law firm, which position he has
held from October 1994. From January 1981 to October 1994, he was Executive
Director of Paul, Hastings, Janofsky & Walker LLP, a law firm.
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<PAGE>
William F. Podlich, III. Mr. Podlich has served as a member of the PIMCO
Advisors Management Board since the Consolidation in November 1994 and is
currently a member of the Nominating Committee of the PIMCO Advisors
Management Board. Mr. Podlich joined Pacific Investment Management Company in
August 1969, and has served there as a Managing Director since 1982.
Kenneth M. Poovey. Mr. Poovey serves as Chief Operating Officer of PIMCO
Holdings and PIMCO Advisors, and as a member of the Management Board of PIMCO
Holdings. Mr. Poovey has served as Chief Operating Officer of PIMCO Holdings
and PIMCO Advisors since January 1998, and served as General Counsel to PIMCO
Holdings from November 1997 to January 1999 and as General Counsel of PIMCO
Advisors from November 1994 to January 1999. Mr. Poovey was a partner with the
law firm of Latham & Watkins from 1980 to March 1997.
Glenn S. Schafer. Mr. Schafer has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Executive Committee of the PIMCO Advisors Management Board. He
currently serves as a Director and the President of Pacific Life Insurance
Company. Mr. Schafer was the Executive Vice President and Chief Financial
Officer of Pacific Life Insurance Company from April 1991 until January 1995.
Ernest L. Schmider. Mr. Schmider has served as Senior Vice President of
PIMCO Advisors since January 1998. Mr. Schmider joined Pacific Investment
Management Company in March 1994, where he served as Senior Vice President
until his appointment to Executive Vice President and Chief Administrative
Officer in April 1997. Mr. Schmider was affiliated with the law firm of Latham
& Watkins from 1983 to 1994.
Thomas C. Sutton. Mr. Sutton has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Compensation Committee and Nominating Committee of the PIMCO
Advisors Management Board. Mr. Sutton has been the Chairman and Chief
Executive Officer of Pacific Life Insurance Company since January 1990. Mr.
Sutton is also a Director of Edison International, Newhall Land and Farming
Company and The Irvine Company.
William S. Thompson, Jr. Mr. Thompson has served as a member of the PIMCO
Advisors Management Board since the Consolidation in November 1994 and is
currently a member of the Compensation Committee, Nominating Committee and
Chairman of the Executive Committee of the PIMCO Advisors Management Board.
Mr. Thompson joined Pacific Investment Management Company in April 1993, where
he has served as a Managing Director and Chief Executive Officer since that
time. Mr. Thompson is Director of Spieker Properties, a real estate investment
trust.
Stephen J. Treadway. Mr. Treadway has served as an Executive Vice President
of PIMCO Advisors, Chairman and President of PIMCO Funds Distributors LLC
since joining PIMCO Advisors in May 1996. Prior thereto, he was associated
with Smith Barney, Inc. for eighteen years and served in various senior
positions, including Executive Vice President.
Benjamin L. Trosky. Mr. Trosky has served as a member of the PIMCO Advisors
Management Board since December 1997. Mr. Trosky joined Pacific Investment
Management Company in October 1990, and has served there as a Managing
Director since February 1996.
James G. Ward. Mr. Ward is Senior Vice President and Director of Human
Resources of PIMCO Holdings and PIMCO Advisors. Mr. Ward has served in his
positions at PIMCO Holdings and PIMCO Advisors since November 1997 and April
1995, respectively. Prior to that time, he served as Vice President and
Director of Human Resources for Pacific Investment Management Company, a
position he held beginning October 1994. From November 1987 through October
1994, he served as Vice President and Director of Human Resources for Salomon
Brothers Inc.
Richard M. Weil. Mr. Weil is Senior Vice President, General Counsel and
Secretary of PIMCO Holdings and PIMCO Advisors. Mr. Weil has served as an
officer of PIMCO Advisors since joining PIMCO Advisors in March 1996, and as
an officer of PIMCO Holdings since November 1997. Mr. Weil has served as
General Counsel of PIMCO Advisors and PIMCO Holdings since January 1999. Mr.
Weil was a Vice President in the Global Asset
80
<PAGE>
Management Group of Bankers Trust Company from December 1994 through February
1996 and was associated with the law firm of Simpson, Thatcher & Bartlett from
September 1989 through November 1994.
Item 11. Executive Compensation
Prior to November 1997, PIMCO Holdings did not have any employees. During
such time, the officers of Oppenheimer Capital performed the management
functions on behalf of PIMCO Holdings. The current executive officers of PIMCO
Holdings are also executive officers of PIMCO Advisors. The compensation of
the executive officers is allocated between PIMCO Advisors and PIMCO Holdings
based on the amount of services provided to each entity. The following table
sets forth the cash compensation paid or allocated with respect to the three
years ended December 31, 1998 for services rendered to PIMCO Advisors in all
capacities by the Chief Executive Officer of PIMCO Holdings and each of the
five most highly compensated executive officers of PIMCO Holdings or PIMCO
Advisors (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-term Compensation
Awards
------------------------
Annual Compensation Securities All
------------------------------ Other Annual Restricted Underlying Other
Name and Principal Salary Bonus Compensation Unit Options/UAR Compensation
Underlying Position(1) Year ($) ($) ($) Awards ($) (#) ($)
- ---------------------- ---- -------- ---------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Cvengros....... 1998 $509,600(2) $1,110,000 -0- -0- -0- $ 3,204(4)
Chief Executive Officer 1997 500,000 1,200,000 9,500(3) -0- -0- 3,324(4)
1996 500,000 950,000 9,500(3) -0- -0- 3,444(4)
Kenneth M. Poovey......... 1998 $325,000 -- -- $778,250(6) -0- $1,876,566(4)(7)
Chief Operating Officer 1997 225,000(5) -- -- 756,250(6) 50,000 1,101,202(4)(7)
1996 -- (5) -- -- -0- -0- --
Stephen J. Treadway....... 1998 $334,600(2) $ 850,000 -- $778,250(6) -0- $ 328,204(4)(7)
Executive Vice President 1997 309,000(8) 500,000 -- -0- -0- 303,324(4)(7)
1996 196,730(5) 250,000 -- 562,500(6) 100,000 303,444(4)(7)
Ernest L. Schmider........ 1998 $221,586(9) $ 756,819 -- -0- 10,000 $ 181,566(4)(7)
Senior Vice President 1997 271,748 592,768 -- -0- 10,000 188,477(4)(7)
1996 270,314 295,000 -- -0- 35,000 131,602(4)(7)
Robert M. Fitzgerald...... 1998 $259,600(2) $ 295,000 -0- 26,000 $ 156,566(4)(7)
Senior Vice President and 1997 234,500(8) 339,000 -- -0- 10,000 187,102(4)(7)
Chief Financial Officer 1996 209,500(10) 220,000 -- -0- -0- 30,000(7)
Richard M. Weil........... 1998 $259,600 $ 250,000 -0- 22,500 $ 201,566(4)(7)
Senior Vice President and 1997 234,500(8) 200,000 -- -0- 10,000 226,602(4)(7)
General Counsel 1996 166,667(5)(8) 91,167 -- -0- 22,000 75,000(7)
</TABLE>
- --------
(1) During fiscal year 1997, George A. Long served as the Chairman and Chief
Executive and Investment Officer of Oppenheimer Capital. In such
capacities, Mr. Long performed management functions on behalf of PIMCO
Holdings. Mr. Long's salary for his services in such capacities in the
fiscal years ended April 30, 1997 and 1996 was $350,000 and $350,000,
respectively, and his bonus compensation during such periods was
$3,573,000 and $3,825,000, respectively.
(2) The salary amount includes amounts deferred under the PIMCO Advisors
401(k) Savings and Investment Plan of $10,000 and a $9,000 Company match.
(3) Represents a bonus paid in lieu of the employer contribution to the PIMCO
Advisors 401(k) Savings and Investment Plan.
(4) Includes the premiums on term life insurance and long-term disability.
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<PAGE>
(5) Mr. Treadway joined PIMCO Advisors in May 1996, and his 1996 salary
reflects a partial year of service. Mr. Weil joined PIMCO Advisors in
March 1996, and his 1996 salary reflects a partial year of service. Mr.
Poovey joined PIMCO Advisors in April 1997 and his 1997 salary reflects a
partial year of service.
(6) In the year ended December 31, 1998, Mr. Poovey was awarded 25,000 PIMCO
Advisors restricted units. These units vest over a three year period, pay
distributions quarterly and had an aggregate value of $778,250 at December
31, 1998. In the year ended December 31, 1997, Mr. Poovey was awarded
25,000 PIMCO Advisors restricted units. These units vest over a three-year
period, pay distributions quarterly and had an aggregate value of $756,250
at December 31, 1997. In the year ended December 31, 1998, Mr. Treadway
was awarded 25,000 PIMCO Advisors restricted units. These units vest over
a three year period, pay distributions quarterly and had an aggregate
value of $778,250 at December 31, 1998. In the year ended December 31,
1997, Mr. Treadway was awarded 25,000 PIMCO Advisors units. These units
vest over a five year period, pay distributions quarterly and had an
aggregate value of $562,500 at December 31, 1996.
(7) Includes amounts deferred under PIMCO Holdings' Executive Deferred
Compensation Plan.
(8) The salary and bonus amounts include amounts deferred in the PIMCO
Advisors 401(k) Savings and Investment Plan of $9,500 for Mr. Fitzgerald
and Mr. Weil and $9,000 for Mr. Treadway for 1997.
(9) The salary and bonus for Mr. Schmider include the amounts deferred under
the Pacific Investment Management Company Employee Savings Plan of $8,000
and an $8,000 Company match and $13,586 in the Employee Retirement Plan.
(10) The salary and bonus amounts for Mr. Fitzgerald include amounts deferred
in the PIMCO Advisors 401(k) Savings and Investment Plan of $9,500 for
1996.
Compensation to key employees who are not executive officers may exceed the
compensation paid to executive officers in any given year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors of PIMCO Holdings, officers or employees of the general
partner of PIMCO Holdings who perform policy making functions for PIMCO
Holdings, and persons who own more than ten percent of the units of PIMCO
Holdings to file with the SEC and the NYSE initial reports of ownership and
reports of changes in ownership of units of PIMCO Holdings. To the best of
PIMCO Holdings knowledge, during the year ended December 31, 1998 all Section
16(a) filing requirements applicable to its executive officers, directors and
ten percent beneficial owners were complied with.
Option Grants in Fiscal Year 1998
The following table provides information concerning individual grants of
options and deferred units to the Named Executive Officers in the year ended
December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value
Individual Grants At Assumed Annual Rates
------------------------------------------------------ Of Unit Price Appreciation
Deferred Units Percent Of For Option Term
and Options Total Options Exercise Per Expiration ---------------------------
Name Granted (#) Granted in 1998 Unit Price Date 5% 10%
- ---- -------------- --------------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William D. Cvengros..... 0 0.0 -- -- -- --
Kenneth M. Poovey....... 25,000 1.6 (1) -- -- --
Stephen J. Treadway..... 25,000 1.6 (2) -- -- --
Ernest L. Schmider...... 10,000 0.6 $34.625 3/16/2008 $ 217,755 $ 551,833
Robert M. Fitzgerald.... 26,000 1.6 $34.625 3/16/2008 $ 566,162 $ 1,434,767
Richard M. Weil......... 22,500 1.4 $34.625 3/16/2008 $ 489,948 $ 1,241,625
</TABLE>
- --------
(1)Deferred Unit grant which vests 33% per year beginning December 31, 1998.
As of December 31, 1998 8,333 units are vested.
(2)Deferred Unit grant which vests 20% per year beginning December 31, 1998.
As of December 31, 1998, 5,000 units are vested.
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<PAGE>
Aggregated Option/UAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/UAR Values
The following table provides information on option exercises in 1998 by the
Named Executive Officers, and the value of unexercised options held by each
Named Executive Officer at December 31, 1998.
<TABLE>
<CAPTION>
Number of Units
Underlying
Unexercised In-The-Money
Units Options/UARs Options/UARs
Acquired Value at-FY-End(#) At FY-End($)
On Exercise Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable(U)
---- ----------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
William D. Cvengros... 200,000 $3,994,000 200,000 (E) $3,159,000 (E)
-0- (U) -- (U)
Kenneth M. Poovey..... 10,000 $ 83,025 10,000 (E) $ 93,150 (E)
30,000 (U) $ 279,450 (U)
Stephen J. Treadway... 17,797 $ 576,200 20,000 (E) $ 263,100 (E)
40,000 (U) $ 526,200 (U)
Ernest L. Schmider.... 5,704 $ 179,700 47,000 (E) $ 643,535 (E)
28,000 (U) $ 221,940 (U)
Robert M. Fitzgerald.. 10,664 $ 364,635 15,200 (E) $ 136,190 (E)
32,800 (U) $ 152,700 (U)
Richard M. Weil....... 0 -- 21,700 (E) $ 215,510 (E)
32,800 (U) $ 171,190 (U)
</TABLE>
Compensation of Management Board Members
PIMCO Advisors pays members of the PIMCO Advisors Management Board who are
not employees of PIMCO Holdings, PIMCO Advisors, one of the investment
management group subsidiaries or Pacific Life Insurance Company a $20,000
annual retainer plus $750 per in person meeting ($250 per conference call
meeting) of the PIMCO Advisors Management Board attended and for each meeting
of a committee of the PIMCO Advisors Management Board. Members who are
employees of PIMCO Holdings, PIMCO Advisors, one of its investment management
group subsidiaries or Pacific Life Insurance Company are not entitled to any
additional compensation for their services as PIMCO Advisors Management Board
members. Pursuant to the terms of the 1998 Unit Incentive Plan of PIMCO
Advisors Holdings L.P. and PIMCO Advisors L.P. (the "1998 Plan"), the non
employee members of the Management Board may elect to receive restricted PIMCO
Holdings units or PIMCO Advisor Units in lieu of such retainer, with such
restricted units valued at 91% of fair market value on the date of issuance.
Each of the members of the Management Board of PIMCO Holdings is an executive
officer of PIMCO Holdings and PIMCO Advisors and, as such, does not receive
any compensation as a member of the Management Board of PIMCO Holdings.
Compensation of General Partner
The general partners of PIMCO Holdings and PIMCO Advisors receive no
compensation from PIMCO Holdings or PIMCO Advisors for services rendered to
PIMCO Holdings or PIMCO Advisors as a general partner. Rather, the general
partners' interests in profits and losses of PIMCO Holdings and PIMCO Advisors
are based on their interest in PIMCO Holdings and PIMCO Advisors,
respectively. Upon liquidation, the liquidating distributions to the general
partners will be based on the number of PIMCO Holdings units and PIMCO
Advisors units each holds. Each general partner is reimbursed for all direct
expenses paid by it on behalf of PIMCO Advisors, for all expenses incurred by
it in connection with the business and affairs of PIMCO Advisors and, in the
case of PIMCO Holdings as the public general partner for all expenses (other
than taxes).
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<PAGE>
Compensation Pursuant to Contract
William D. Cvengros, the Chief Executive Officer of PIMCO Holdings and PIMCO
Advisors and a member of the PIMCO Advisors Management Board and the Executive
Committee, was party to an employment agreement with PIMCO Advisors, the term
of which was extended through December 31, 1998 by the Management Board of
PIMCO Advisors in January 1997. Under the agreement, Mr. Cvengros received an
annual base salary of $500,000 and a guaranteed annual bonus of $500,000. Mr.
Cvengros was also eligible to receive a discretionary bonus pursuant to the
agreement in the target range of $200,000 to $500,000 (which amount may have
been increased or decreased upon the recommendation of the Executive Committee
and the approval of the PIMCO Advisors Management Board). PIMCO Advisors
granted Mr. Cvengros options to purchase up to 400,000 PIMCO Advisors units
under the PIMCO Advisors 1994 Unit Option Plan. In 1994, Mr. Cvengros was also
granted 200,000 restricted PIMCO Advisors units.
Kenneth M. Poovey, Chief Operating Officer of PIMCO Holdings and PIMCO
Advisors, and PIMCO Advisors has agreed to a compensation arrangement,
pursuant to which Mr. Poovey receives an annual base salary of $325,000. Mr.
Poovey is also eligible to receive a bonus. In May 1997, PIMCO Advisors
granted Mr. Poovey 25,000 restricted PIMCO Advisors units vesting over a three
year period. In March 1998, Mr. Poovey was granted 25,000 restricted PIMCO
Advisors units, which will also vest over a three year period. PIMCO Advisors
granted Mr. Poovey options to purchase up to 50,000 PIMCO Advisors units,
which will vest over a period of five years. PIMCO Advisors also paid Mr.
Poovey a $100,000 relocation loan which will be forgiven over five years
subject to certain conditions. At December 31, 1998, the loan had an
outstanding balance of $80,000.
In July 1996, PIMCO Advisors made a $250,000 relocation loan to Robert M.
Fitzgerald, Senior Vice President and Chief Financial Officer of PIMCO
Advisors and PIMCO Holdings. The loan bears interest at 8% per annum, and
$200,000 of the principal and interest thereon will be forgiven over three
years subject to continued employment. At December 31, 1998, the loan had an
outstanding principal balance of $66,667.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Compensation awards for executive officers of PIMCO Holdings are determined
by the PIMCO Advisors Compensation Committee. The members of the Compensation
Committee are Messrs. Gross, McIntosh, Sutton and Thompson. Equity based
awards for the executive officers of PIMCO Holdings are determined by the
PIMCO Advisors Unit Incentive Committee and the Management Board at PIMCO
Holdings. The members of the Unit Incentive Committee are Messrs. Auch, Kurtz,
and McIntosh, each of whom were appointed to the Unit Incentive Committee of
PIMCO Advisors in November 1997. None of the members of the Compensation
Committee or the Unit Incentive Committee have served as an officer or
otherwise been engaged as an employee of PIMCO Holdings.
Employee Benefit Plans.
1998 Unit Incentive Plan. The 1998 Unit Incentive Plan of PIMCO Advisors
Holdings L.P. and PIMCO Advisors L.P. (the "1998 Plan") provides for the grant
of options and the award of deferred and restricted units to any key employee
or consultant of PIMCO Advisors or any of its present or future subsidiaries.
Generally the 1998 Plan provides for awards of limited partner units of PIMCO
Holdings, although participants who are eligible to be partners of PIMCO
Advisors may elect to receive units of PIMCO Advisors upon exercise of
options. The 1998 Plan is administered by the Unit Incentive Committee of the
Management Board of PIMCO Advisors and the Management Board of PIMCO Holdings.
The Committee is authorized to select the individuals to whom awards are to be
granted and to determine the number of units to be subject to grants and
awards and the terms and conditions of the grants and awards, upon the
recommendation of Management consistent with the 1998 Plan.
The 1998 Plan provides for awards of options, deferred units and restricted
units. Option awards generally entitle the participant to acquire a stated
number of limited partnership units at one or more dates in the future, upon
satisfaction of vesting and other requirements, for a stated consideration or
"exercise price" per unit. Deferred unit awards generally entitle the
participant to be issued a stated number of limited partnership units at one
or more dates in the future, upon satisfaction of vesting and other
requirements, and additional limited partnership units based on distributions
paid by PIMCO Advisors during the period prior to vesting. Restricted unit
awards provide for a stated
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<PAGE>
number of limited partnership units to be issued and held in escrow until the
fulfillment of vesting requirements. Regular distributions paid in respect of
the limited partnership units held in the escrow are distributed to the
participant. The 1998 Plan provides that Non-Employee Board Members may elect
to receive all or a portion of their annual retainer fee in the form of
limited partnership units. Limited partnership units issued in respect of a
retainer fee are issued on the date that the retainer fee would otherwise have
been paid, and are valued at 91% of the fair market value of the limited
partnership units on the date of issuance.
The total number of limited partnership units subject to the 1998 Plan is
the sum of (i) the number of units underlying awards assumed under the
previous unit based incentive plans and, (ii) two percent of the outstanding
PIMCO Advisors general partner and limited partner units on January 1 of each
year beginning January 1, 1998, on a cumulative basis. Each year on January 1,
the number of limited partnership units subject to the 1998 Plan will increase
by a number of units equal to two percent of the PIMCO Advisors units
outstanding on that date. On December 31, 1998, 11,484,346 units were
authorized for issuance under the 1998 Plan. On January 1, 1999 the number of
units authorized for issuance under the 1998 increased 2,225,923 to
13,710,268.
Executive Deferred Compensation Plan. The Executive Deferred Compensation
Plan of PIMCO Advisors Holdings L.P. and PIMCO Advisors L.P. (the "Deferred
Compensation Plan") is an unfunded nonqualified deferred compensation plan
pursuant to which a portion of compensation otherwise payable to certain
eligible employees will be subject to mandatory deferral, and pursuant to
which eligible employees may elect to defer additional amounts of
compensation. The Deferred Compensation Plan was adopted by each of PIMCO
Holdings and PIMCO Advisors effective January 1, 1998, as an amendment and
restatement of a similar plan of PIMCO Advisors adopted effective December 1,
1996. An employee's eligibility to participate in the Deferred Compensation
Plan is determined based on that employee's estimated compensation for the
plan year in question. Employees with estimated compensation in excess of
$250,000 (as adjusted for inflation) for a plan year are eligible to
participate in the Deferred Compensation Plan. Estimated compensation is based
on the sum of the employee's annual base salary rate determined as of the
first day of the plan year (or the first day of employment, if employment
begins during a plan year) and his estimated bonus compensation, generally
determined based on bonus compensation for services rendered during the most
recent plan year. Participation in the Deferred Compensation Plan consists of
a mandatory component and a voluntary component, determined based on the level
of an eligible employee's equity holdings in PIMCO Advisors and PIMCO
Holdings. Participation is mandatory for an eligible employee whose equity
holdings are less than his estimated compensation for that plan year, unless
the employee's estimated compensation is greater than $1 million, in which
case participation is mandatory unless the employee's equity holdings are
greater than twice his estimated compensation for that plan year. Eligible
employees who are not required to participate may voluntarily elect to defer a
portion of their compensation pursuant to the Deferred Compensation Plan.
Employees for whom participation is mandatory are subject to deferrals of
cash compensation according to the following schedule: (i) 10% of cash
compensation in excess of $250,000 up to $500,0000; (ii) 30% of cash
compensation in excess of $500,000 up to $1,000,000; and (iii) 30% of all cash
compensation in excess of $1,000,000. Participating employers may upon
adopting the plan or in the third quarter of any plan year specify percentages
and amounts in excess of those set forth above to be effective for the
following plan year; provided, that the percentage of compensation in excess
of $1,000,000 required to be deferred may not exceed 50%, and the aggregate
amount of compensation required to be deferred may not exceed 40% of the
participant's total compensation. An eligible employee who receives an award
of restricted units may elect to defer the receipt of the restricted units
upon their vesting, whether or not the employee is otherwise a participant
during that plan year. The issuer of the restricted units to be deferred shall
issue and deliver such units to the trustee of the Deferred Compensation Plan,
which shall allocate such units to the participant's unit award deferral
subaccount for the plan year in which the participant received the award, as
provided below. Each month, the trustee of the Deferred Compensation Plan will
sell for cash any assets other than limited partner units in PIMCO Advisors
credited to the deferral accounts and use the proceeds to acquire limited
partner units in PIMCO Advisors from PIMCO Advisors. The purchase price of the
limited partner units in PIMCO Advisors is (i) 85% of fair market value for
cash attributable to deferral subaccounts of current employees which are
"discount subaccounts" and contribution subaccounts of current employees and
(ii) 100% of fair market value for cash attributable other deferral
subaccounts and contribution subaccounts. The Deferred Compensation Plan is
administered, by the Unit Incentive Committee of the PIMCO Advisors Management
Board.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of
PIMCO Holdings units by each person who, to PIMCO Holdings' knowledge, is the
beneficial owner of more than 5% of PIMCO Holdings units and the Named
Executive Officers. Except as indicated, the address of each person or entity
listed below is 800 Newport Center Drive, Suite 100, Newport Beach, California
92660.
<TABLE>
<CAPTION>
PIMCO Percentage of PIMCO Percentage of
Holdings Units PIMCO Advisors Units PIMCO
Beneficially Holdings Units Beneficially Holdings Units
Owned(1)(2) Outstanding Owned(1)(3) Outstanding(4)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Five Percent Holders
PIMCO Partners, G.P.
("PGP") (5)............ 0 * 39,415,420 35.41
Pacific Life Insurance
Company ("Pacific
Life") (6)............. 0 * 56,071,170 50.38
Pacific Asset Management
LLC ("PAM") (6)........ 0 * 56,071,170 50.38
PIMCO Holding LLC
("PIMCO LLC") (7)...... 0 * 39,415,420 35.41
PIMCO Partners, LLC
("PPLLC") (8).......... 0 * 39,557,900 35.54
Pacific Financial
Products, Inc.
(formerly Thomson
Advisory Group)
("PFP")................ 0 * 14,380,217 12.92
William R. Benz, II
(9).................... 94,000 * 39,557,900 35.54
Christopher P. Dialynas
(9).................... 10,300 * 39,557,900 35.54
William H. Gross
(9)(10)................ 675,356 1.39 39,557,900 35.54
John L. Hague (9)....... 230,000 * 39,557,900 35.54
Brent R. Harris (9)..... 230,000 * 39,557,900 35.54
Dean S. Meiling (9)..... 230,000 * 39,557,900 35.54
James F. Muzzy (9)...... 230,000 * 39,557,900 35.54
William F. Podlich, III
(9).................... 16,000 * 39,621,900 35.60
William C. Powers (9)... 151,435 * 39,557,900 35.54
Lee R. Thomas (9)....... 49,006 * 39,557,900 35.54
William S. Thompson, Jr.
(9)(11)................ 230,000 * 39,557,900 35.54
Benjamin L. Trosky (9).. 69,255 * 39,557,900 35.54
Named Executive Officers
Not Included Above
William D. Cvengros..... 205,000 * 360,000 *
Kenneth M. Poovey....... 10,000 * 123,459 *
Robert M. Fitzgerald.... 24,264 * 0 *
Stephen J. Treadway..... 37,797 * 5,000 *
Ernest L. Schmider...... 6,204 * 0 *
Richard M. Weil......... 22,200 * 0 *
------- ----------
All directors and
executive officers as a
group persons
(6 persons)............ 305,465 * 488,459 *
</TABLE>
- --------
* Less than 1%
(1) Each of the persons and entities listed disclaims beneficial ownership of
any units except to the extent that it has a pecuniary interest in such
units.
(2) Includes options exercisable within sixty days of February 1, 1999.
(3) Does not include units underlying options which may be exercised for
either units of limited partner interest in PIMCO Advisors or PIMCO
Holdings units exercisable within sixty days of February 1, 1999, which
are reflected in the column titled "PIMCO Holdings Units Beneficially
Owned."
(4) Assumes exchange of all units of limited partner interest in PIMCO
Advisors for PIMCO Holdings units.
(5) Includes 39,410,321 PIMCO Advisors units held of record by PGP and 5,099
units general partner interest in PIMCO Holdings.
(6) Includes 39,415,420 PIMCO Advisors units held of record by PGP, which
maybe deemed to be beneficially owned by Pacific Life and PAM, because
PIMCO LLC is a general partner of PGP and is a wholly-owned subsidiary of
PAM which is wholly-owned subsidiary of Pacific Life. Also includes an
aggregate of 16,655,750 PIMCO Advisors units issued as follows: Pacific
Financial Products, Inc. (formerly Thomson Advisory Group Inc.)
(14,380,217 units), CCM LLC (508,258 units), NFJ LLC (306,204 units),
Cadence Partners L.P. (637,000 units), Parametric Partners L.P. (393,860
units), NFJ Partners L.P. (430,211 units) which may be deemed
beneficially owned by PAM because Pacific Financial Products, CCM LLC,
NFJ LLC and PPA LLLC are wholly-owned subsidiaries of PAM and CCM LLC,
NFJ LLC and PPA LLC are the general partners of Cadence Partners L.P.,
NFJ Partners L.P. and Parametric Partners L.P., respectively. As general
partners they have shared investment and disposition powers with respect
to the units held by Cadence Partners L.P., NFJ Partners L.P. and
Parametric Partners L.P.
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<PAGE>
(7) Includes 39,415,420 PIMCO Advisors units held of record by PGP, which may
be deemed to be owned by PIMCO LLC because PIMCO LLC is a general partner
of PGP.
(8) Includes (i) 142,480 PIMCO Advisors units held of record by PPLLC and
(ii) 39,415,420 PIMCO Advisors units held of record by PGP and which may
be deemed to be beneficially owned by PPLLC, which is a general partner
of PGP.
(9) Includes the following which may be deemed to be beneficially owned by
the individual as a member of PPLLC: (i) 142,480 PIMCO Advisors units of
PIMCO Advisors held of record by PPLLC, and (ii) 39,415,420 PIMCO
Advisors units held of record by PGP, and which may be deemed to be
beneficially owned by PPLLC as a general partner of PGP.
(10) Includes units held by members of Mr. Gross' family and a family trust
which Mr. Gross is a trustee, as to which he may be deemed to be the
beneficial owner.
Item 13. Certain Relationships and Related Transactions
Relationship Between PIMCO Holdings and PIMCO Advisors
Operating Agreement
PIMCO Holdings and PIMCO Advisors are party to an Operating Agreement (the
"Operating Agreement") which, together with the PIMCO Advisors Partnership
Agreement, governs the ongoing relationship of PIMCO Holdings and PIMCO
Advisors. Pursuant to the Operating Agreement, PIMCO Holdings has agreed to
take actions from time to time so as to ensure that the number of its
outstanding units is at all times equal to the number of PIMCO Advisors units
held by PIMCO Holdings and its subsidiaries which are allocable to the limited
partner interests in PIMCO Holdings. The Operating Agreement provides that
upon any issuance of PIMCO Holdings units, PIMCO Holdings shall contribute the
consideration, if any, received by PIMCO Holdings for such PIMCO Holdings
units to PIMCO Advisors in exchange for PIMCO Advisors units equal in number
to the number of such PIMCO Holdings units.
The Operating Agreement provides that PIMCO Holdings shall take such actions
to insure that the number of outstanding PIMCO Holdings units is at all times
equal to the number of PIMCO Advisors units held by PIMCO Holdings. Under the
Operating Agreement upon the issuance of PIMCO Holdings units, PIMCO Holdings
is required to contribute the consideration received by PIMCO Holdings to
PIMCO Advisors in exchange for PIMCO Advisors units in an equal number to the
number of PIMCO Holdings units issued. The Operating Agreement provides that
PIMCO Holdings assumes and agrees to perform the obligations of PIMCO Advisors
under: (i) the PIMCO Advisors unit based incentive plans; (ii) the Exchange
Rights issued by PIMCO Advisors in the Opgroup Transaction; and (iii) the 1994
Registration Rights Agreement and the 1997 Registration Rights Agreement (each
as described under "Registration Rights Agreements").
The Operating Agreement provides that PIMCO Holdings may not, without the
consent of PIMCO Advisors, (a) carry on any business except in connection with
or incidental to (i) the performance of its duties as a general partner under
the PIMCO Advisors Partnership Agreement, (ii) the direct or indirect
acquisition, ownership or disposition of PIMCO Advisors units, and (iii) its
governance and existence; (b) merge or consolidate with or into any other
person, or sell or otherwise dispose of all or substantially all of its
assets, or effect a recapitalization with respect to PIMCO Holdings units, or
issue or agree to issue any equity securities other than PIMCO Holdings units;
or (c) create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to any
indebtedness. Finally, in the Operating Agreement PIMCO Holdings agrees to
exchange PIMCO Holdings units for PIMCO Advisors units as described below.
Exchange Opportunities for PIMCO Advisors Unitholders
PIMCO Holdings intends, twice each year at such times as may be permitted
under the PIMCO Advisors Partnership Agreement, to offer holders of PIMCO
Advisors units the opportunity to exchange those units for PIMCO Holdings
units on a one for one basis. During a "Semiannual Exchange Period", subject
to certain conditions, PIMCO Holdings may make registered exchange offers for
PIMCO Advisors units, pursuant to which the holders of PIMCO Advisors units
may exchange their units for PIMCO Holdings units. The first Semiannual
Exchange Period of a year, if any, begins following the issuance of the year
end financial statements but no earlier than March 15 and ends no later than
July 31 of such year, and the second Semiannual Exchange Period, if any,
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<PAGE>
begins following the issuance of the financial statements for the first six
months of such year but no earlier than August 15 and ends no later than
December 31 of such year. A Semiannual Exchange Period lasts twenty business
days or a greater number of days if required by the Exchange Act. The PIMCO
Advisors Partnership Agreement provides that, except for certain transfers of
PIMCO Advisors units that are specified as being exempt, no PIMCO Advisors
units may be transferred except during two "Semiannual Transfer Periods" each
year. During the Semiannual Transfer Periods, subject to certain notice
provisions, PIMCO Advisors units may be transferred to other persons qualified
under the PIMCO Advisors Partnership Agreement to hold PIMCO Advisors units. A
Semiannual Transfer Period is the last five of the ten business days
immediately following the end of the Semiannual Exchange Period.
PIMCO Holdings anticipates effecting this exchange in a manner which will
result in the issuance and resale (in the case of affiliates of PIMCO
Holdings) of the newly issued PIMCO Holdings units which will be registered
under the Securities Act of 1933, as amended. On May 19, 1998 PIMCO Holdings
filed a Registration Statement on Form S-4 (the "Shelf Registration") which
registered 10,000,000 units of limited partnership interest of PIMCO Holdings
to be issued from time to time in connection with the exchange offer. During
the year ended December 31, 1998, there were two Semiannual Exchange Offers
during which an aggregate of 1,570,378 PIMCO Holdings units were exchanged for
PIMCO Advisors units under the Shelf Registration.
Expense Reimbursement
In accordance with the PIMCO Advisors Partnership Agreement, PIMCO Advisors
pays all of the expenses (other than taxes) of PIMCO Holdings. See "Executive
Compensation Compensation of General Partner."
PGP Indebtedness
The operations of PIMCO Advisors may be affected by the terms of the $130
million of indebtedness owed by PGP. Although this indebtedness does not
constitute an obligation of PIMCO Advisors or any of its subsidiaries, and the
documents governing the indebtedness are not binding on PIMCO Advisors or any
of its subsidiaries, the terms of the indebtedness require PGP to cause PIMCO
Advisors to observe certain operating restrictions. The operating
restrictions, which remain in effect until the debt matures in 2001 if the
debt is not prepaid, include, among other things, cash flow and interest
coverage requirements and restrictions on incurrence of indebtedness and
liens, investments, asset sales, mergers and consolidations, affiliate
transactions, issuance of additional PIMCO Advisors units and amendment of the
PIMCO Advisors Partnership Agreement. The indebtedness is non-recourse to PGP
and is secured by, among other things, a pledge of certain PIMCO Advisors
units owned by PGP. Management of PGP has informed PIMCO Advisors that it is
currently in discussions with its lenders concerning a modification to the
indebtedness involving the substantial elimination of covenants governing the
operations of PIMCO Advisors. There can be no assurances that any final
agreement with respect to these matters will be reached, or as to the terms of
any such possible arrangements if an agreement were reached.
Withdrawal and Removal of a General Partner of PIMCO Holdings or PIMCO
Advisors
The PIMCO Holdings Partnership Agreement provides that, except under certain
limited exceptions, the general partner of PIMCO Holdings may withdraw as
general partner of PIMCO Holdings only if (i) such withdrawal is approved by
holders of a majority of PIMCO Holdings units and the general partner makes a
Partnership Assignment Determination, and (ii) counsel renders a Partnership
Limited Liability Determination and a Partnership Tax Determination (each as
defined in the PIMCO Holdings Partnership Agreement). The general partner may
be removed by a vote of holders of PIMCO Holdings units holding 80% or more of
all outstanding PIMCO Holdings units if a successor general partner is
appointed, counsel makes a Partnership Limited Liability Determination and a
Partnership Tax Determination, the general partner makes a Partnership
Assignment Determination and such removal is approved by the successor general
partner. Also, interests in the general partner may be sold or transferred
without any prior approval or consent of the holders of PIMCO Holdings units.
The PIMCO Advisors Partnership Agreement provides that any general partner
may withdraw as a general partner of PIMCO Advisors only if (a) the general
partner transfers all of its PIMCO Advisors GP Units to an affiliate of such
general partner, and the affiliate is admitted as a general partner of PIMCO
Advisors in accordance with the PIMCO Advisors Partnership Agreement or (b)
such withdrawal is approved by holders of a majority of the
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<PAGE>
units of limited partner interest (other than those held by the general
partners and their affiliates) and if counsel renders an opinion that the
limited partners do not lose their limited liability pursuant to Delaware law
or the PIMCO Advisors Partnership Agreement (a "PIMCO Advisors Limited
Liability Determination"), and provides certain other opinions relating to the
status of PIMCO Advisors as a partnership for federal income tax purposes (a
"PIMCO Advisors Tax Determination") and the continuation of PIMCO Advisors
advisory agreements (a "PIMCO Advisors Assignment Determination"). The general
partners may be removed by a vote of unitholders holding 80% or more of all
outstanding units if PIMCO Advisors receives a PIMCO Advisors Limited
Liability Determination, a PIMCO Advisors Tax Determination and a PIMCO
Advisors Assignment Determination with respect to such removal and (ii) if
such general partner is the sole general partner, a person qualified to be
general partner, which has agreed in writing to carry on the business of PIMCO
Advisors, is approved by the partners of PIMCO Advisors as the successor
general partner. However, by virtue of PGP's and PIMCO Holdings' ownership of
units, either of the general partners can veto any such removal. Also,
interests in a general partner may be sold or transferred without any prior
approval or consent of the holders of PIMCO Advisors limited partnership
units.
In the event of withdrawal or removal of a general partner of PIMCO
Advisors, the departing general partner will become a limited partner and its
PIMCO Advisors GP Units will be converted into PIMCO Advisors limited
partnership units. At the time of such conversion, the departing general
partner must pay to PIMCO Advisors any negative balance in its capital
account. If PIMCO Advisors is indebted to the departing general partner at the
time of its withdrawal or removal, PIMCO Advisors will repay the general
partner, within 60 days, the amount of such indebtedness, subject to reduction
for damages incurred if the general partner withdraws in violation of the
PIMCO Advisors Partnership Agreement. All outstanding obligations incurred by
the departing general partner as general partner of PIMCO Advisors will be
assumed by the successor to the general partner, or if there is no successor,
by the remaining general partners.
Indemnification
The PIMCO Holdings Partnership Agreement requires PIMCO Holdings to
indemnify the general partner, its affiliates and all of its officers,
directors, partners, employees and agents (collectively, the "Indemnitees")
against any and all proceedings in which the Indemnitees may be involved, or
threatened to be involved, as a party or otherwise by reason of their
management of the affairs of PIMCO Holdings or which relates to or arises out
of PIMCO Holdings or related entities. The PIMCO Holdings Partnership
Agreement provides that such Indemnitees are not entitled to indemnification
with respect to any claim, issue or matter in which they have been adjudged
liable for actual fraud, willful misconduct or gross negligence, unless and
only to the extent that the court in which such action was brought, or another
court of competent jurisdiction, determines upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnification for such
liabilities and expenses as the court may deem proper.
The PIMCO Holdings Partnership Agreement also provides that the general
partner will not be liable to PIMCO Holdings or the holders of PIMCO Holdings
units for errors in judgment or for breach of fiduciary duty (including breach
of any duty of care or any duty of loyalty) unless the general partner's
action or failure to act involved an act or omission that constitutes actual
fraud, gross negligence or willful or wanton misconduct.
The PIMCO Advisors Partnership Agreement provides that PIMCO Advisors will
indemnify (i) any general partner, (ii) any former general partner, (iii) any
person which is or was an affiliate of any general partner or any former
general partner, (iv) any person which is or was an Associate (as defined in
the PIMCO Advisors Partnership Agreement) of any general partner, former
general partner, affiliate of a general partner or former general partner, or
PIMCO Advisors or its subsidiaries and (v) any person which is or was serving
at the request of PIMCO Advisors or any of its subsidiaries, any general
partner or any former general partner as an Associate of another person.
The PIMCO Advisors Partnership Agreement also provides that neither a
general partner nor any indemnitee will be liable to PIMCO Advisors or the
unitholders for errors in judgment or for breach of fiduciary duty (including
breach of any duty of care or any duty of loyalty) unless it is proved by
clear and convincing evidence that the general partner's action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to PIMCO Advisors or was undertaken with reckless disregard for the
best interests of PIMCO Advisors.
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Contribution Agreement
In connection with the acquisition of the investment advisory assets of
Opgroup, Opfin, Opgroup, PIMCO Advisors and Value Advisors LLC entered into a
contribution agreement (the "Contribution Agreement") pursuant to which
Opgroup, then a subsidiary of PIMCO Advisors, caused its subsidiary Opfin to
contribute (i) the ownership of Value Advisors LLC and the one percent general
partner interest in PIMCO Holdings to PIMCO Advisors, and then (ii) Opfin's
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interests in three subsidiaries of Oppenheimer Capital
to Value Advisors LLC (then a subsidiary of PIMCO Advisors). In exchange for
these contributions, Opfin received 6.0 million PIMCO Advisors Class C units
of limited partner interest. Each PIMCO Advisors Class C unit of limited
partner interest is entitled to the same proportionate share of profits,
losses and distributions as a PIMCO Advisors Class A unit of limited partner
interest, but with a minimum priority distribution of $2.75 per year and a
maximum distribution of $3.00 per year, or $0.75 per quarter subject to a
catch up on an annual basis.
Under the terms of the Contribution Agreement, if PIMCO Advisors or its
direct or indirect subsidiaries (other than Opgroup or Opfin) incurs a loss
relating to or arising from Opfin's investment advisory businesses or which is
otherwise attributable to the Opgroup merger agreement, and, as a result of
such loss, Opgroup receives an indemnification payment in excess of any loss
incurred by Opgroup or Opfin attributable to the same loss event (the excess
portion thereof, an "Excess Indemnification Payment"), then (i) if the
indemnification payment is in the form of a reduction of the face amount of
the Indemnity Certificate, Opfin shall return to PIMCO Advisors a number of
PIMCO Advisors units equal to the quotient of (x) 6,000,000 multiplied by the
principal amount of the reduction constituting such Excess Indemnification
Payment divided by (y) $265 million, or (ii) if the Excess Indemnification
Payment is in cash, Opgroup shall distribute the cash to PIMCO Advisors.
In addition, PIMCO Advisors agreed that if Opgroup or Opfin incurs a loss
for which Opgroup does not receive an indemnification payment in cash, PIMCO
Advisors will loan to Opgroup an amount equal to the loss. PIMCO Advisors
further agreed to loan Opgroup an amount sufficient to pay the remaining
principal and interest payments on the Opfin Debt. Accordingly, following the
closing of the Opgroup Transaction, PIMCO Advisors loaned $35 million to
Opgroup, which used a portion of the proceeds of this loan to retire the
indebtedness owed by Opfin to PIMCO Holdings.
Registration Rights Agreements
PIMCO Advisors is a party to (i) that certain Registration Rights Agreement
dated November 4, 1997 between PIMCO Advisors and former Opgroup stockholders
(the "1997 Registration Rights Agreement"), and (ii) that certain Registration
Rights Agreement dated as of November 15, 1994 between PIMCO Advisors and
certain of its unitholders (the "1994 Registration Rights Agreement").
Following the Restructuring, PIMCO Advisors was no longer obligated to effect
registrations under these agreements. However, pursuant to the Operating
Agreement, PIMCO Holdings has agreed to perform the obligations of PIMCO
Advisors under the 1997 Registration Rights Agreement and the 1994
Registration Rights Agreement, and PIMCO Holdings intends to provide
registration rights with respect to PIMCO Holdings units comparable to those
described below.
The holders of registration rights under the 1997 Registration Rights
Agreement were granted (i) the right to initiate up to two registrations of
their registerable securities (subject to customary limitations, a minimum
sale requirement and priority rights of holders of registration rights under
the 1994 Registration Rights Agreement) and (ii) certain piggyback
registration rights in respect of registrations initiated by the partnership
or by other holders of registration rights granted pursuant to a separate
agreement, subject to approval of the managing underwriter. In the case of a
registration initiated by the partnership, participation in such registration
by the holders of registration rights under the 1997 Registration Rights
Agreement and other registration rights agreements could not be reduced to
less than 40%. The holders of registration rights under the 1994 Registration
Rights Agreement were granted (i) the right to initiate up to five demand
registrations on Form S-1 and an unlimited number of demand registrations on
Form S-3 (subject to customary limitations and a minimum sale requirement) and
(ii) piggy-back registration rights in respect of primary offerings by the
partnership similar to those held by the holders under the 1997 Registration
Rights Agreement. The holders under the 1994 Registration Rights Agreement
generally have priority over the holders under the 1997 Registration Rights
Agreement with respect to management of the registration process and inclusion
of shares in registrations initiated by holders of registration rights.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements.
Financial Statements of the registrant are listed in "Index to Financial
Statements" on page 35 and are filed as part of this Report.
(2) Financial Statement Schedules.
There are no Financial Statement Schedules of the registrant filed as part of
this Report.
(3) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1 Amended and Restated Agreement of Limited Partnership of PIMCO
Advisors Holdings L.P. dated June 30, 1998 (Incorporated by reference
to PIMCO Advisors Holdings L.P.'s Proxy Statement filed May 19, 1998)
3.1.1 Amendment to Amended and Restated Agreement of Limited Partnership of
PIMCO Advisors Holdings L.P. dated November 4, 1997 (Incorporated by
reference to Exhibit 3.1.1 of PIMCO Advisors Holdings L.P.'s
Registration Statement No. 333-39585 on Form S-1)
3.1.2 Assignment of General Partner Interest and Amendment to Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors Holdings
L.P. dated November 4, 1997 (Incorporated by reference to Exhibit
3.1.2 of PIMCO Advisors Holdings L.P.'s Registration Statement No.
333-39585 on Form S-1)
3.1.3 Assignment of General Partner Interest and Amendment to Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors Holdings
L.P. dated November 4, 1997 (Incorporated by reference to Exhibit
3.1.3 of PIMCO Advisors Holdings L.P.'s Registration Statement No.
333-39585 on Form S-1)
3.1.4 Amendment to Amended and Restated Agreement of Limited Partnership
Agreement of PIMCO Advisors Holdings L.P. dated November 4, 1997
(Incorporated by reference to Exhibit 3.1.4 of PIMCO Advisors Holdings
L.P.'s Registration Statement No. 333-39585 on Form S-1)
3.1.5 Amendment to Amended and Restated Limited Partnership Agreement of
PIMCO Advisors Holdings L.P. dated December 1, 1997 (Incorporated by
reference to Exhibit 3.1.5 of PIMCO Advisors Holdings L.P.'s
Registration Statement No. 333-39585 on Form S-1)
3.1.6 Amendment to Amended and Restated Limited Partnership Agreement of
PIMCO Advisors Holdings L.P. dated December 1, 1997 (Incorporated by
reference to Exhibit 3.1.6 of PIMCO Advisors Holdings L.P.'s
Registration Statement No. 333-39585 on Form S-1)
4.1 Form Certificate of Limited Partnership Units (Incorporated by
reference to Exhibit 4.1 of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997)
10.1 Acquisition Agreement dated August 17, 1995 among Oppenheimer Capital,
Quest for Value Advisors, Quest for Value Distributors and Oppenheimer
Management Corporation (Incorporated by reference to Exhibit 10.1 of
the PIMCO Advisors Holdings L.P.'s Form 10-Q for the fiscal quarter
ended October 31, 1995)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.2 Form of Indemnification Agreement executed by certain officers of the
Registrant and certain directors of Thomson McKinnon Asset Management
Inc. (Incorporated by reference to Exhibit 10.21 of Thomas McKinnon
Asset Management L.P.'s Report No. 33-17227 on Form 10-Q for the
fiscal quarter ended June 30, 1990)
10.3 Form of Indemnification Agreement executed by certain directors of
Thomson Advisory Group, Inc. (Incorporated by reference to Exhibit
10.22 of Thomson Advisory Group L.P.'s Report No. 33-17227 on Form 10-
Q for the quarter ended September 30, 1990)
10.3.1 Form of Amendment No. 1 to Indemnification Agreement (Incorporated by
reference to Exhibit 10.46 of Thomson Advisory Group L.P.'s Report No.
33-17227 on Form 10-Q for the fiscal quarter ended March 31, 1991)
10.4 Registration Rights Agreement dated as of November 15, 1994, among the
Funds, PFAMCo Partners and Individuals (as such terms are defined
therein) (Incorporated by reference to PIMCO Partners G.P.'s Schedule
13D filed November 25, 1994)
10.5 Amended and Restated Operating Agreement between PIMCO Advisors L.P.
and PIMCO Advisors Holdings L.P. dated January 1, 1998 (Incorporated
by reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-
K for the year ended December 31, 1997)
10.6 Amended and Restated Agreement of Limited Partnership of PIMCO
Advisors L.P. dated December 31, 1997 (Incorporated by reference to
Exhibit 10.7 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997)
10.7 Agreement and Plan of Merger dated November 4, 1997 (Opgroup
Transaction) (Incorporated by reference to Exhibit 10.1 of PIMCO
Advisors L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.8 Put Right dated November 4, 1997 (Incorporated by reference to Exhibit
10.2 of PIMCO Advisors L.P.'s Report on Form 8-K/A dated November 4,
1997)
10.9 Exchange Right dated November 4, 1997 (Incorporated by reference to
Exhibit 10.3 of PIMCO Advisors L.P.'s Report on Form 8-K/A dated
November 4, 1997)
10.10 Note Agreement dated November 4, 1997 (Incorporated by reference to
Exhibit 10.4 of PIMCO Advisors L.P.'s Report on Form 8-K/A dated
November 4, 1997)
10.11 Contribution Agreement dated November 4, 1997 (Incorporated by
reference to Exhibit 10.5 of PIMCO Advisors L.P.'s Report on Form 8-
K/A dated November 4, 1997)
10.12 Certificate of Long Term Indemnity Indebtedness dated November 4, 1997
(Incorporated by reference to Exhibit 10.6 of PIMCO Advisors L.P.'s
Report on Form 8-K/A dated November 4, 1997)
10.13 Amended and Restated Release and Indemnity Agreement dated November 4,
1997 (Incorporated by reference to Exhibit 10.65 of PIMCO Advisors
Holdings L.P.'s Registration Statement No. 333-
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.14 Amended and Restated Tax Indemnity Agreement dated November 4, 1997
(Incorporated by reference to Exhibit 10.66 of PIMCO Advisors Holdings
L.P.'s Registration Statement No. 333- 39585 on Form S-1)
10.15 Registration Rights Agreement dated November 4, 1997 (Incorporated by
reference to Exhibit 10.7 of PIMCO Advisors L.P.'s Report on Form 8-
K/A dated November 4, 1997)
10.16 Agreement and Plan of Merger dated November 4, 1997 (Oppenheimer
Capital Merger) (Incorporated by reference to Exhibit 10.68 of PIMCO
Advisors Holdings L.P.'s Registration Statement No. 333-39585 on Form
S-1)
10.17 First Amendment to Agreement and Plan of Merger dated as of November
4, 1997 (Oppenheimer Capital Merger) (Incorporated by reference to
Exhibit 10.69 of PIMCO Advisors Holdings L.P.'s Registration Statement
No. 333-39585 on Form S-1)
10.18 Amended and Restated Unit Purchase Agreement dated November 4, 1997
(Incorporated by
Reference to Exhibit 10.70 of PIMCO Advisors Holdings L.P.'s
Registration Statement No. 333-
39585 on Form S-1)
10.19 Restructuring Contribution and Issuance Agreement dated December 31,
1997 (Incorporated by reference to Exhibit 10.20 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997)
10.20 Written Action dated November 4, 1997 (Delegation to the Management
Board of PIMCO Advisors Holdings L.P.) (Incorporated by reference to
Exhibit 10.21 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997)
10.21 Written Action dated November 28, 1997 (Delegation to the Management
Board of PIMCO Advisors L.P.) (Incorporated by reference to Exhibit
10.22 of Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997)
10.22 1997 Unit Incentive Plan of PIMCO Advisors Holdings L.P. and PIMCO
Advisors L.P. (Incorporated by reference to Exhibit 10.1 of PIMCO
Advisors Holdings L.P.'s Registration Statement No. 333-43201 on Form
S-8)
10.23 Profit Sharing Plan for Pacific Investment Management Company
(Incorporated by reference to Exhibit 10.5 of PIMCO Advisor's Report
on Form 10-K for the fiscal year ended December 31, 1994)
10.24 Profit Sharing Plan for Columbus Circle Investors (Incorporated by
reference from Thomson Advisory Group L.P.'s Report on Form 8-K dated
July 11, 1994)
10.25 PIMCO Advisors L.P. 401(k) Savings and Investment Plan (Incorporated
by reference to Exhibit 10.10 of Thomson Advisory Group L.P.'s Report
on Form 10-K for the fiscal year ended December 31, 1991)
10.25.1 First Amendment to the PIMCO Advisors L.P. 401(k) Savings and
Investment Plan (Incorporated by reference to Exhibit 10.10(b) of
Thomson Advisory Group L.P.'s Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.25.2 PIMCO Advisors L.P. 401(k) Savings and Investment Plan Submitter
Amendment (Incorporated by reference to Exhibit 10.10(c) of Thomson
Advisory Group L.P.'s Report on Form 10-K for the fiscal year ended
December 31, 1993)
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.25.3 Third Amendment to the PIMCO Advisors L.P. 401(k) Savings and
Investment Plan (Incorporated by reference to Exhibit 10.18(E) of
PIMCO Advisors L.P.'s Report on Form 10-K for the fiscal year ended
December 31, 1994)
10.25.4 Fourth Amendment to the PIMCO Advisors L.P. 401(k) Savings and
Investment Plan (Incorporated by reference to Exhibit 10.18(F) of
PIMCO Advisor L.P.'s Report on Form 10-K for the fiscal year ended
December 31, 1994)
10.26 Employment Agreement: David B. Breed (Incorporated by reference to
Exhibit 10.25 of PIMCO Advisors L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.27 Employment Agreement: William D. Cvengros (Incorporated by reference
from Thomson Advisory Group L.P.'s Report on Form 8-K dated July 11,
1994)
10.28 Employment Agreement: Donald A. Chiboucas (Incorporated by reference
from Thomson Advisory Group L.P.'s Report on Form 8-K dated July 11,
1994)
10.29 Employment Agreement: William H. Gross (Incorporated by reference to
Exhibit 10.26 of PIMCO Advisors L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.30 Employment Agreement: Brent R. Harris (Incorporated by reference to
Exhibit 10.28 of PIMCO Advisors L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.31 Employment Agreement: William F. Podlich, III (Incorporated by
reference to Exhibit 10.31 of PIMCO Advisors L.P.'s Report on Form 10-
K for the fiscal year ended December 31, 1996)
10.32 Employment Agreement: William S. Thompson, Jr. (Incorporated by
reference to Exhibit 10.32 of PIMCO Advisors L.P.'s Report on Form 10-
K for the fiscal year ended December 31, 1996)
10.33 Employment Agreement: Benjamin L. Trosky (Incorporated by reference to
Exhibit 10.33 of PIMCO Advisors L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.34 Form of Manager Employer Agreement (Incorporated by reference from
Thomson Advisory Group L.P.'s Report on Form 8-K dated July 11, 1994)
10.35 Office Lease dated as of February 19, 1998 by and between California
State Teachers Retirement System and Pacific Investment Management
Company (Incorporated by reference to Exhibit 10.43 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997)
10.36 Lease with respect to the premises at Oppenheimer Tower (Incorporated
by reference to Registrant's Registration Statement on Form S-3,
Registration No. 33-39354)
10.37 Lease with respect to premises at 33 Maiden Lane, New York
(Incorporated by reference from exhibit 10.9 on Form 10-K of
Oppenheimer Capital, L.P. for its fiscal year ended April 30, 1994)
10.38 Lease with respect to premises at World Financial Center, Tower B, New
York (Incorporated by reference in the Annual Report on Form 10-K of
Oppenheimer Capital, L.P. for its fiscal year ended April 30, 1993)
10.39 1998 Unit Incentive Plan of PIMCO Advisors Holdings L.P. and PIMCO
Advisors L.P. (Incorporated by reference to Exhibit 10.1 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998)
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.40 Executive Deferred Compensation Plan of PIMCO Advisors Holdings L.P.
and PIMCO Advisors L.P. (Incorporated by reference to Exhibit 10.2 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998)
10.41 Long-Term Credit Agreement dated as of May 12, 1998 among PIMCO
Advisors L.P., NationsBank, N.A., Deutsche Bank, N.A., New York
Branch, Union Bank of California, N.A., CitiBank, N.A. and the
financial institutions whose names are set forth on the signature
pages thereto (Incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 8-K dated May 12, 1998 as filed
with the Commission on May 20, 1998)
10.42 Short-Term Credit Agreement dated as of May 12, 1998 among PIMCO
Advisors L.P., NationsBank, N.A., Deutsche Bank, N.A., New York
Branch, Union Bank of California, N.A., CitiBank, N.A. and the
financial institutions whose names are set forth on the signature
pages thereto (Incorporated by reference to Exhibit 10.2 of
Registrant's Current Report on Form 8-K dated May 12, 1998 as filed
with the Commission on May 20, 1998)
10.43 Office Space Lease between The Irvine Company and Pacific Investment
Management Company
10.44 Assignment and Assumption of Lease dated as of February 24, 1999 by
and between UBS AG and PIMCO Advisors L.P.
10.45 Agreement of Lease between Fisher-Sixth Avenue Company and Hawaiian-
Sixth Avenue Corp. and Union Bank of Switzerland, New York Branch
21 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. None
95
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PIMCO ADVISORS HOLDINGS L.P.
/s/ William D. Cvengros
By: _________________________________
William D. Cvengros,
Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William D. Cvengros Board Member, Chief Executive March 26, 1999
- ----------------------------- Officer (Principal Executive
William D. Cvengros Officer)
/s/ Robert M. Fitzgerald Board Member, Senior Vice President, March 26, 1999
- ----------------------------- Chief Financial Officer (Principal
Robert M. Fitzgerald Financial and Accounting Officer)
/s/ Kenneth M. Poovey Board Member, Chief Operating March 26, 1999
- ----------------------------- Officer
Kenneth M. Poovey
96
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit Description Page
- --------- ------------------------------------------------- ------------
10.43 Office Space Lease between The Irvine Company and 98
Pacific Investment Management Company
10.44 Assignment and Assumption of Lease dated as of 144
February 24, 1999 by and between UBS AG and
PIMCO Advisors L.P.
10.45 Agreement of Lease between Fisher-Sixth Avenue 164
Company and Hawaiian-Sixth Avenue Corp. and Union
Bank of Switzerland, New York Branch
21 Subsidiaries of Registrant 210
23.1 Consent of PricewaterhouseCoopers LLP 211
27 Financial Data Schedule 212
<PAGE>
EXHIBIT 10.43
OFFICE SPACE LEASE
BETWEEN
THE IRVINE COMPANY
AND
PACIFIC INVESTMENT MANAGEMENT COMPANY
<PAGE>
OFFICE SPACE LEASE
THIS LEASE is made as of the ___ day of _______________, 1998, by
and between THE IRVINE COMPANY, hereafter Called "Landlord," and PACIFIC
INVESTMENT MANAGEMENT COMPANY, a Delaware general partnership, hereinafter
called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Tenant's Trade Name: PIMCO
2. Premises: The Premises are more particularly described in Section 2.1. In
addition, Tenant shall also lease the "Must Take Space" described in
Section 2.6.
Project Description (If applicable): Corporate Plaza West
3. Use of Premises: General Office use, which may include, subject to
compliance with applicable governmental requirements, a private exercise
facility, one or more lunch or breakrooms, and one or more computer rooms.
4. Estimated Completion Date: June 1, 1999
5. Lease Term: The Term of this Lease ("Term") shall expire at midnight on
March 31, 2005.
6. Basic Rent: One Hundred Sixteen Thousand Seven Hundred Forty-Nine Dollars
($116,749.00) per month ($2.33 per rentable square foot).
Rental Adjustments:
Commencing September 1, 2000, the Basic Rent shall be One Hundred
Twenty-One Thousand Seven Hundred Sixty Dollars ($121,760.00) per month
($2.43 per rentable square foot).
Commencing September 1, 2001, the Basic Rent shall be One Hundred
Twenty-Six Thousand Seven Hundred Seventy-One Dollars ($126,771.00) per
month ($2.53 par rentable square foot).
Commencing September 1, 2002, the Basic Rent shall be One Hundred
Thirty-One Thousand Seven Hundred Eighty-One Dollars ($131,781.00) per
month ($2.63 per rentable square foot).
Commencing September 1, 2003, the Basic Rent shall be One Hundred Forty
Thousand Eight Hundred One Dollars ($140,801.00) per month ($2.81 per
rentable square foot).
Commencing September 1, 2004, the Basic Rent shell be One Hundred
Forty-Five Thousand Eight Hundred Eleven Dollars ($145,811.00) per month
($2.91 per rentable square foot).
See Section 2.6 and Exhibit X for additional rental adjustments.
7. Property Tax Base: The Property Taxes per rentable square foot actually
incurred by Landlord during the twelve month period beginning on the
Commencement Date of this Lease (or on the first day of the next following
calendar month if the Commencement Date occurs other than on the first day
of a calendar month).
Building Cost Base: The Building Coats per rentable square foot actually
incurred by Landlord during the twelve month period beginning on the
Commencement Date of this Lease (or on the first day of the next following
calendar month if the Commencement Date occurs other than on the first day
of a calendar month).
Expense Recovery Period: Every twelve month period during the Term
commencing upon the expiration of the Property Tax/Building Cost Base
period and each yearly anniversary thereof.
8. Floor Area of Premises: approximately 50,107 rentable square feet (see
section 2.6 for additional rentable area to be leased by Tenant)
9. Security Deposit: None
10. Broker(s): Cushman Realty Corporation
11 Plan Approval Date: N/A
1
<PAGE>
12. Address for Payments and Notices:
LANDLORD TENANT
The Irvine Company Pacific Investment Management
c/o PM Realty Group Company
630 Newport Center Drive, Suite 100 800 Newport Center Drive
Newport Beach, CA 92660 Suite 300
Attn: Property Manager Newport Beach, CA 92660
Attn: Ernest L. Schmider, Esq.
with a copy of notices to:
THE IRVINE COMPANY
P.0. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Operations - Office Properties
2
<PAGE>
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant rents
from Landlord the premises consisting of the entire rentable area of the 1400
freestanding office building to be constructed by Landlord in the location
designated as the "Initial Building" in Exhibit A (the "Premises"); containing
the floor area set forth in Item 8 of the Basic Lease Provisions. The building
in which the Premises are situated (which together with the underlying real
property, is called the "Building") is a portion of the project described in
Item 2 (the "Project"). With respect to the foregoing Building and any other
building in which Tenant leases at least one full floor, Tenant shall also have
the right to use a proportionate share of the shafts, risers and conduits to the
building roof and between floors, provided such use does not interfere with
building systems and complies with all applicable laws, codes and other legal
requirements. Upon completion of the Building shell, Landlord shall cause its
architect to recalculate the rentable area of the Premises. If Landlord's
architect determines that the rentable square footage of the Premises differs
from that set forth in the Basic Lease Provisions, then Landlord shall so notify
Tenant and Tenant shall be afforded a period of fifteen (15) days to review such
determination; provided that in the event Tenant disputes the calculation within
that period, the matter shall be resolved by arbitration in accordance with
Section 14.7. Should it be finally determined that the rentable area differs
from that set forth in Item 8 of the Basic Lease Provisions, the Basic Rent (as
shown in Item 6 of the Basic Lease Provisions) shall be promptly adjusted in
proportion to the change in square footage, which adjustment shall be
retroactive (if applicable) to the Commencement Date. In determining the
rentable area of the Premises, Landlords architect shall calculate the usable
area of the Premises in accordance with the standards of ANSI/BOMA Z65.1-1996,
and the rentable areas of the Premises shall equal that usable area multiplied
by a load factor of 1.08 (which load factor shall only apply to the initial
Building leased in its entirety hereunder). Promptly following the final
determination of the rentable area, the parties shall memorialize the
adjustments, if any, by executing an amendment to this Lease prepared by
Landlord.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, except as set forth in this Lease. The taking
of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises and the Building
were in satisfactory condition and in conformity with the provisions of this
Lease in all respects, except for those matters which Tenant shall have brought
to Landlord's attention on a written punch list. The list shall be limited to
items constructed by Landlord (i.e., exclusive of the Tenant improvements
constructed by Tenant), and shall be delivered to Landlord within one hundred
eighty (180) days after the term ("Term") of this Lease commences as provided in
Article III below. Nothing contained in this Section shall affect the
commencement of the Term or the obligation of Tenant to pay rent. Landlord shall
diligently complete all punch list items of which it is notified as provided
above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name
selected by Landlord from time to time for the Building and/or the Project as
any part of Tenant's corporate or trade name. Landlord shall have the have the
right to change the name, number or designation of the Building or Project
without liability to Tenant, upon not less than three (3) months prior written
notice to Tenant.
SECTION 2.4. RIGHT OF FIRST OFFER. Concurrently with the construction of
the Building, Landlord intends to construct a second building within the Project
which is identified as the "Adjacent Building" in Exhibit A (the "Adjacent
Building"). Provided Tenant is not then in default hereunder beyond any
applicable grace period, Landlord hereby grants Tenant the continuing right
("First Right") to lease, during the Term of this Lease, any space in excess of
5,000 rentable square feet which may become available for lease with the
Adjacent Building ("First Right Space") whether upon completion of the Adjacent
Building or thereafter, in accordance with and subject to the provisions of this
Section 2.4. It is understood, however, that the First Right Space shall also
include any space in the Adjacent Building that Landlord intends to lease with
option/must take rights to additional space that exceeds, in combination with
the initial space, 5,000 rentable square feet.
At any time after the date of this Lease, but prior to leasing the First Right
Space to any other party, Landlord shall give Tenant written notice of the basic
economic terms, including but not limited to the Basic Rent, term, operating
expense base, and tenant improvement allowance (collectively, the "Economic
Terms"), upon which Landlord is willing to lease such particular First Right
Space to Tenant or to a third party; provided that the Economic Terms shall
exclude brokerage commissions and other Landlord payments that do not directly
inure to the tenant's benefit. It is understood that should Landlord intend to
lease other space in addition to the First Right Space as part of a single
transaction, then Landlord's notice shall so provide and all such space shall
collectively be subject to the following provisions.
Within ten (10) business days after receipt of Landlord's notice, Tenant must
give Landlord written notice pursuant to which Tenant shall elect to do one of
the following: (i) lease all, but not less than all, of the space specified in
Landlord's notice (the "Designated Space") upon such Economic Terms and the same
non-economic terms as set forth in this Lease; provided, however, that if the
lease term proposed by
3
<PAGE>
Landlord for the Designated Space would extend beyond the scheduled expiration
date of this Lease, then Tenant may elect, in its written notice, to lease the
Designated Space for a term coterminous with the remaining Term hereof (but in
no event for a period of less than one (1) year), in which event the tenant
improvement allowance (if any) and all other applicable concessions set forth in
Landlord's proposed Economic Terms shall be appropriately prorated to reflect
the Shorter term; or (ii) refuse to lease the Designated Space, specifying that
such refusal is not based upon the Economic Terms, but upon Tenant's lack of
need for the Designated Space, in which event Landlord may lease the Designated
Space upon any terms it deems appropriate; or (iii) refuse to lease the
Designated Space, specifying that such refusal is based upon said Economic
Terms, in which event Tenant shall also specify revised Economic Terms upon
which Tenant shall be willing to lease the Designated Space. In the event that
Tenant does not so respond in writing to Landlord's notice within said period,
Tenant shall be deemed to have elected clause (ii) above. In the event Tenant
gives Landlord notice pursuant to clause (iii) above, Landlord may, within ten
(10) business days, elect to either (x) lease the Designated Space to Tenant
upon such revised Economic Terms and the same other non-Economic Terms as set
forth in this Lease, or (y) lease the Designated Space to any third party upon
Economic Terms which are not materially more favorable to such party than those
Economic Terms proposed by Landlord.
Should Tenant agree to lease the Designated Space from Landlord on the terms
proposed by Landlord or should Landlord otherwise elect to lease the Designated
Space to Tenant, then Landlord shall promptly prepare and deliver to Tenant an
amendment to the Lease consistent with the foregoing, and Tenant shall execute
and return same to Landlord within twenty (20) days. Tenant's failure to timely
return the amendment shall entitle Landlord to specifically enforce Tenant's
commitment to lease the Designated Space and/or to pursue any other available
legal remedy against Tenant.
In the event that Landlord shall not enter into a lease for the applicable First
Right Space with a third party within six (6) months following Landlord's notice
described above, then prior to leasing that First Right Space to any third
party, Landlord shall repeat the procedures set forth in this Section 2.4. In
the event that Landlord leases the First Right Space to a third party in
accordance with the provisions of this Section 2.4, and during the Term of this
Lease the First Right Space shall again become available for releasing, then
prior to Landlord entering into any such new lease with a third party for the
First Right Space, Landlord shall repeat the procedures specified above in this
Section 2.4.
Notwithstanding the foregoing, it is understood that Tenant's First Right shall
be subject to any extension rights granted by Landlord to any third party tenant
occupying the First Right Space, and in no event shall any such First Right
Space be deemed available for leasing with the existing tenant thereof shall
have vacated the First Right Space. Tenant's First Right shall further be
subject to any expansion right granted any third party tenant of the First Right
Space provided that such expansion right was identified in a First Right notice
given to Tenant in accordance with this Section prior to the execution of that
third party lease. Tenant's rights under this Section 2.4 shall belong solely to
Pacific Investment Management Company and may not be assigned or transferred by
it except in connection with an authorized assignment of this Lease; provided
that should any such assignee exercise such First Right, it is agreed that
Pacific Investment Management Company shall remain liable for all monetary
obligations in connection therewith as if it were the party exercising such
First Right.
SECTION 2.5. OPTION TO LEASE ADDITIONAL SPACE. Provided that Tenant is not
then in default hereunder beyond any applicable grace period and has not, in one
or more transactions pursuant to Section 2.4 above, leased an amount of space in
the Adjacent Building that equals the entire rentable area of a full floor of
the Adjacent Building, then subject to the conditions set forth below, Tenant
shall have the option to lease additional space within the Project consisting of
the leases of (i) 25,000 rentable square feet or (ii) the entire rentable area
of a building within the Project as described below (the "Expansion Area").
Unless required to do so sooner by the provisions below, Tenant shall exercise
that option by giving written notice to Landlord not later than May 31, 2000
(the "Option Notice"). Within thirty (30) days following receipt of the Option
Notice, Landlord shall determine the intended location of the Expansion Area.
Such location may, at Landlord's election, either be within the Adjacent
Building, if sufficient space is then available, or within another building
consisting of between 20,000 and 70,000 rentable square feet to be subsequently
developed by Landlord within the Project (the "Additional Building"). The
Additional Building shall, if applicable, be constructed utilizing exterior and
interior materials and finishes similar to those of the Building.
Should Landlord determine that the Expansion Area is to be located in the
Additional Building, then Landlord shall diligently pursue all necessary
entitlements and penalties for the Additional Building. However, Landlord shall
only be obligated to obtain a building permit and commence construction of the
Additional Building if (i) Landlord can obtain financing on commercially
reasonable terms for the Additional Building, (ii) Tenant's then-current
Standard & Poor's credit rating, if any, is not lower then "BBB-", (iii)
Landlord is able to achieve not less than the Minimum Return (as defined below)
on the Additional Building, and (iv) Landlord is able to secure the necessary
entitlements and permits. For purposes of this Section, the "Minimum Return" on
the Additional Building shall mean a projected return, as reasonably calculated
by Landlord, equal to the then-current ten (10) years treasury bond yield plus
550 basis points on the total cost of the Additional Building. The total cost of
the Additional Building shall include all hard
4
<PAGE>
and soft costs incurred by Landlord in connection with the development and
construction of the Additional Building, the improvements, therein, and all
attendant infrastructure and common area improvements, together with an imputed
land cost equal to Eighty Dollars ($80.00) per gross building square foot of the
Additional Building. Should Landlord pro-forma a yield, on the Additional
Building that is less than the Minimum Return (which determination shall be made
by Landlord within thirty (30) days following delivery of the Option Notice),
Landlord shall have no obligation to construct same unless Tenant agrees in
writing to lease all of the rentable area of the Additional Building at a rental
rate sufficient to provide the Minimum Return. In no event, however, shall the
obligation to construct the Additional Building be binding on any successor to
the interest of Landlord in the Building following a foreclosure of that
interest or the transfer of title by deed in lieu thereof.
Should Landlord obtain the necessary entitlements for the Additional Building
prior to Tenant's delivery of the Option Notice, then Landlord may so notify
Tenant and require that Tenant either deliver the Option Notice within twenty
(20) days thereafter or waive its option rights under this Section. Should
Tenant fail to deliver the Option Notice to Tenant within that period, then its
right to do so thereafter shall permanently lapse and this Section shall become
null and void. Landlord agrees, however, that if Tenant does timely deliver the
Option Notice as a result of the foregoing demand by Landlord, then Tenant shall
not be required to accept delivery of the Expansion Area prior to June 1, 2000.
Subject to the Minimum Return requirement set forth above, the rental rate and
other economic terms for the Expansion Area shall be reasonably determined by
Landlord in accordance with the criteria described in Section 3.3 below for the
calculation of the "Prevailing Rate"; provided that then-current tenant
improvement allowances provided by Landlord within the Project shall be utilized
in such determination. Landlord's calculation of the Prevailing Rate shall be
subject to Tenant's reasonable review and approval; in the event the parties are
unable to agree thereon within thirty (30) days, then either party may submit
same to arbitration in accordance with Section 14.7. The term of Tenant's lease
of the Expansion Area shall be coterminous with the remaining Term of this Lease
but in no event shall be less than sixty (60) months. Should fewer than sixty
(60) months remain in the Term hereof as of the commencement date of the
Expansion Area, then Tenant shall have the right, by written notice to Landlord
given within thirty (30) days following that commencement date, to extend the
Term of this Lease as to the remainder of the Premises to be coterminous with
the Expansion Area. The rental rate for the remainder of the Premises during
that extension period shall be at the rate per rentable square foot that is
payable from time to time for the Expansion Area during such period. The
non-economic terms for Tenant's lease of the Expansion Area shall be as set
forth in this Lease.
The commencement data of Tenant's lease of the Expansion Area shall be
established in accordance with Section 3.1 of this Lease. Except as otherwise
provided above, it is understood that Landlord may deliver the Expansion Area to
Tenant at any time following Tenant's delivery of the Option Notice. In the
event the Expansion Area is to be located in the Additional Building, then
subject to the conditions above, Landlord shall deliver the Additional Space,
ready for the commencement of the tenant improvement work by Tenant, not later
than eighteen (18) months following receipt by Landlord of all necessary
entitlements and permits for the commencement of construction, as such outside
data shall be extended for the period of delays caused by Tenant and by other
matters beyond the reasonable control of Landlord. Landlord shall, upon request
by Tenant from time to time, keep Tenant advised as to the status of the
development and construction of the Additional Building.
Promptly following the determination of the location of the Expansion Area and
all of the economic terms of Tenant's lease thereof, Landlord shall prepare an
appropriate amendment to this Lease memorializing same and Landlord shall
execute and return that amendment to Landlord within ten (10) days. Tenant's
rights under this Section are personal to Pacific Investment Management Company,
and may not be assigned or transferred except in connection with an assignment
of this Lease by a Tenant Affiliate meeting the credit standards set forth
above.
SECTION 2.6. MUST TAKE SPACE. Tenant shall lease, for a term equal to the
then unexpired portion of the Term of this Lease, the entire rentable area of
the ground floor of the Adjacent Building (the "Must Take Space"), whereupon the
Must Take Space shall be deemed a part of the Premises. The rentable area of the
Must Take Space is approximately 23,920 rentable square feet, which measurement
shall be subject to recalculation in accordance with the procedures and criteria
set forth in Section 2.1. Tenant's lease of the Must Take Space shall be subject
to all of the terms of the Lease (including the provisions of the Work Letter
attached as Exhibit X), except as follows: (i) the commencement of the Lease
Term of the Must Take Space (the "Commencement Date for the Must Take Space")
shall be determined pursuant to the criteria set forth in Section 3.1, provided
that the Shell Completion Date shall be deemed to refer to the substantial
completion of the Landlord's Work for the Adjacent Building; (ii) Tenant shall
have the right to terminate only its obligation to lease the Must Take Space
(but not the entire Lease) pursuant to Subsection 3.2(a) above if the Shell
Completion Date for the Adjacent Building does not timely occur as provided in
that Subsection based on an Estimated Completion Date for the Adjacent Building
of August 1, 1999; (iii) the Basic Rent for the Must Take Space shall be at the
same rate per rentable square foot as is payable from time to time for the
initial Premises in accordance with the Basic Rent schedule set forth in Item 6
of the Basic Lease Provisions; (iv) the Property Tax and Building Cost
5
<PAGE>
Bases for the Must Take Space shall equal the Property Taxes and Building Costs,
respectively, actually incurred by Landlord from the Commencement Date for the
Must Take Space through June 30, 2000, as reasonably extrapolated by Landlord to
a full year of operation and taxation, and Tenant's obligation to fund Operating
Expenses for the Must Take Space shall commence concurrently with its obligation
to make such payments for the initial Premises; (v) Tenant shall be afforded
non-exclusive exterior signage rights on the Adjacent Building as provided in
Subsection 52(b) of the Lease (it being understood that the condition set forth
in Subsection 5.2(b) that the signage be available shall be deemed satisfied);
(vi) reserved parking stalls shall be allotted with respect to the Must Take
Space as provided below in Section 6.4; (vii) Tenant be afforded the right to
install one (1) satellite dish or antenna on the roof of the Adjacent Building
in accordance with the provisions of Section 22.6 below, including the monthly
license fee set forth therein; (viii) Tenant shall have no right to install any
additional emergency generator for the Must Take Space except as may otherwise
hereafter be agreed in writing by Landlord; and (ix) all electric, gas, and, at
Landlord's option, water services to the Must Take Space may be separately
metered and billed to Tenant in accordance with the provisions of Paragraph 8 of
Exhibit B hereto. For purposes of the Lease, all references to the "Building"
shall be deemed to refer to the Initial Building and/or the Adjacent Building,
either individually or collectively as the context may require. In addition to
the foregoing Landlord agrees that should Tenant enter into any sublease for a
portion of the Must Take Space only (i.e., exclusive of the initial Premises)
which would commence within the six (6) month period beginning on the
Commencement Date for the Must Take Space, then with respect to any such
sublease (A) Tenant's obligation to share any excess rent with Landlord pursuant
to Subsection 9.1(c)(2) below shall only be applicable if the sublease term
exceeds two (2) years and (B) Landlord's rights to disapprove the subtenant
pursuant to Subsections 9.1(c)(3), (4) or (5) or to recapture the subleased
premises pursuant to Subsection 9.1(d) shall only be applicable if the sublease
term exceeds three (3) years. Not later than June 1, 1999, Tenant shall deliver
to Landlord the sum of Fifty-Five Thousand Seven Hundred Thirty-Four Dollars
($55,734.00) which shall be applied against the Basic Rent first due and payable
for the Must Take Space.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of
the Basic Lease Provisions. The Term shall commence ("Commencement Date") on the
earlier of (a) seventy-five (75) days following the date ("Shell Completion
Date") of substantial completion of the Landlord's Work described in Article I
of Exhibit X hereto, provided that such period shall be extended on a
day-for-day basis for the period of any "Landlord Delays" described in Exhibit
X, or (b) the date Tenant commences its business activities within the Premises.
Promptly following request by Landlord, the parties shall memorialize on a form
provided by Landlord the actual Commencement Date and the expiration date
("Expiration Date") of this Lease.
SECTION 3.2. RIGHTS TO TERMINATE.
(a) If the Shell Completion Date fails to occur by the "Outside
Date" as defined below, then Tenant shall have the right to terminate this Lease
by giving written notice thereof to Landlord after the Outside Date but prior to
the Shell Completion Date. If, from time to time prior to the Outside Date,
Landlord determines that the Shell Completion Date will not occur by the Outside
Date, Landlord shall deliver to Tenant a written notice setting forth Landlord's
opinion as to the revised outside date by which the Shell Completion Date will
occur. Within five (5) business days following delivery of that notice, Tenant
may elect by written notice to Landlord to terminate this Lease; otherwise, the
Outside Date shall be deemed extended to the revised date set forth in
Landlord's notice. For purposes hereof, the "Outside Date" shall mean the date
that is three (3) months following the Estimated Completion Date set forth in
Item 4 of the Basic Lease Provisions; provided that the Outside Date shall be
extended on a day-for-day basis for the period of any delays caused by Tenant
and for the period of any delays (up to a maximum of six (6) months) resulting
from matters of force majeure as set forth in Section 20.9.
(b) Landlord shall have the right to terminate this Lease upon
written notice to Tenant should either (i) Landlord determine that it will be
unable to commence construction of the Building by January 1, 1999, or (ii) an
event of casualty or other matter of force majeure occurs at any time following
the commencement of construction of the Building that would, in Landlord's
reasonable estimation, delay construction by a period in excess of six (6)
months.
SECTION 3.3. RIGHTS TO EXTEND. Provided that Tenant is not then in default
under any provision of this Lease beyond any applicable grace period, Tenant may
extend the Term of this Lease for up to two (2) consecutive periods of sixty
(60) months each. Tenant shall exercise each such right to extend the Term by
and only by delivering to Landlord, not less than nine (9) months or more than
eighteen (18) months prior to the then-current scheduled expiration date of the
Term, Tenant's written notice of its irrevocable election to extend (the
"Exercise Notice"). Tenant may, if so specified in the Exercise Notice, elect to
relinquish, as of the commencement of the applicable extension period, any space
then leased by Tenant hereunder that is not a portion of the Initial Building to
be leased in its
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entirety by Tenant, which relinquished space shall be identified in the Exercise
Notice; provided, however, that in no event shall Tenant be permitted to
relinquish space on any floor within the Project unless all of the space on that
floor is so relinquished.
The Basic Rent payable under the Lease during the extension of the Term shall be
at the prevailing rental rate and other economic terms for office space being
leased by Landlord in the Project and at 23, 24 and 26 Corporate Plaza with a
term commencing at or about the commencement of the applicable extension period,
as determined by Landlord based on a reasonable extrapolation of its then
current leasing rates (the "Prevailing Rate"). In determining the Prevailing
Rate, recent new and renewal leases with non-equity tenants of the Project and
in the buildings owned by Landlord and located at 23, 24 and 26 Corporate Plaza
in Newport Beach shall be considered. The Prevailing Rate shall reflect the
rental rate and terms payable in those third party transactions, taking into
account pertinent economic concessions then generally being granted by Landlord
such as "free rent," Operating Expense base years, parking charge limitations,
and the like. It is understood, however, that no consideration shall be given to
brokerage commissions, lease "takeover" payments, moving allowances, or tenant
improvement allowances (other than retrofit allowances granted to renewal
tenants). The rental rates payable in any third party transactions executed more
than five (5) months prior to the commencement of the applicable extension
period shall be reasonably extrapolated, if applicable, to reflect anticipated
changes in the Prevailing Rate based on current rental trends. Landlord shall
make available to Tenant a summary of the basic economic terms of the pertinent
leases used by Landlord to calculate the Prevailing Rate, provided that Landlord
may elect to withhold the identities of the third party tenants.
Following Tenant's delivery of the Exercise Notice, but not later than five (5)
months prior to the then-current expiration date of the Term, Landlord shall
notify Tenant in writing ("Landlord's Notice") of Landlord's calculation of the
Prevailing Rate for the extension period based on the foregoing criteria. Should
Tenant dispute Landlord's calculation, then Tenant may, by written notice to
Landlord within sixty (60) days following Landlord's Notice, submit the
reasonableness of Landlord's calculation of the Prevailing Rate to arbitration
in accordance with Section 14.7(b) of the Lease (the "Arbitration Election").
Should Tenant fail timely to make the Arbitration Election, then Landlord's
determination of the Prevailing Rate shall be conclusive.
Within twenty (20) days after the determination of the Prevailing Rate, Landlord
shall prepare a reasonably appropriate amendment to this Lease setting forth all
pertinent terms for the extension period and Tenant shall execute and return
same to Landlord within ten (10) days. Should the Prevailing Rate not be
established by the commencement of the extension period, then Tenant shall
continue paying rent at the rate in effect during the month preceding such
commencement, and a lump sum adjustment shall be made promptly upon the
determination of such new rental.
If Tenant does not deliver the Exercise Notice by the date set forth above, then
Tenant's right to extend the Term shell be extinguished and the Lease shall
automatically terminate as of the then-current expiration date of the Term,
without any extension and without any liability to Landlord. Any attempt to
assign or transfer any right or interest created by this paragraph separate and
apart from an authorized assignment of this Lease shall be void from its
inception.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset a Basic Rent for the Premises
on the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. The rent shall be due and payable in advance
commencing on the Commencement Date (as prorated for any partial month) and
continuing thereafter on the first day of each successive calendar month of the
Term. No demand, notice or invoice shall be required. An installment of rent in
the amount of one (1) full month's Basic Rent at the initial rate specified in
Item 6 of the Basic Lease Provisions shall be delivered to Landlord on or before
April 1, 1999, and shall be applied against the Basic Rent first due hereunder.
SECTION 4.2. OPERATING EXPENSE INCREASE.
(a) Commencing twelve (12) months following the Commencement Date,
Tenant shall compensate Landlord, as additional rent, for Tenant's proportionate
shares of "Building Costs" and "Property Taxes," as those terms are defined
below, incurred by Landlord in the operation of the Building and Project.
Property Taxes and Building Costs are mutually exclusive and may be billed
separately or in combination as determined by Landlord. Tenant's proportionate
share of Property Taxes shall equal the product of the rentable floor area of
the Premises multiplied by the difference of (i) Property Taxes per rentable
square foot less (ii) the Property Tax Base set forth in Item 7 of the Basic
Lease Provisions. Tenant's proportionate share of Building Costs shall equal the
product of the rentable floor area of the Premises multiplied by the difference
of (i) Building Costs per rentable square foot less (ii) the Building Cost Base
set forth in Item 7 of the Basic Lease Provisions. Tenant acknowledges
Landlord's rights to
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make changes or additions to the Project from time to time pursuant to Section
6.5 below, in which event the total rentable square footage within the Project
may be adjusted. For convenience of reference, Property Taxes and Building Costs
may sometimes be collectively referred to as "Operating Expenses"
(b) Commencing prior to the start of the first full "Expense
Recovery Period" of the Lease (as defined in Item 7 of the Basic Lease
Provisions), and prior to the start of each full or partial Expense Recovery
Period thereafter, Landlord shall give Tenant a written estimate of the amount
of Tenant's proportionate shares of Building Costs and Property Taxes for the
Expense Recovery Period or portion thereof. Commencing twelve (12) months
following the Commencement Date, Tenant shall pay the estimated amounts to
Landlord in equal monthly installments, in advance, with Basic Rent. If Landlord
has not furnished its written estimate for any Expense Recovery Period by the
time set forth above, Tenant shall continue to pay cost reimbursements at the
rates established for the prior Expense Recovery Period, if any; provided that
when the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date (but upon not less than thirty (30) days written notice to Tenant),
pay any accrued cost reimbursements based upon the new estimate, which accrual
shall not exceed six (6) months. Landlord may from time to time change the
Expense Recovery Period to reflect a calendar year or a new fiscal year of
Landlord, as applicable, in which event Tenant's share of Operating Expenses
shall be equitably prorated for any partial year.
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Property Taxes and Building Costs
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual proportionate shares as shown by
the annual statement. In connection therewith, any overpayment by Tenant of
either category of Operating Expenses shall be credited against any underpayment
of the other category. If Tenant has not made estimated payments during the
Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a)
above shall be paid to Landlord within thirty (30) days after receipt of
Landlord's statement. If actual Property Taxes or Building Costs allocable to
Tenant during any Expense Recovery Period are less than the Property Tax Base or
the Building Cost Base, respectively, Landlord shall not be required to pay the
differential to Tenant. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within one hundred eighty (180) days
following delivery of Landlord's expense statement, Landlord's determination of
actual Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties.
(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Tenant's share of Property
Taxes and Building Costs for the Expense Recovery Period in which the Lease
terminates, Tenant shall within thirty (30) days following notice pay the entire
increase due over the estimated expenses paid, subject to Tenant's audit right
pursuant to Subsection (h) below. Conversely, any overpayment made in the event
expenses decrease shall be rebated by Landlord to Tenant within thirty (30) days
following final determination of Operating Expenses.
(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated expenses for the
year, then Tenant's estimated share of Property Taxes or Building Costs, as
applicable, shall be increased for the month in which the increase becomes
effective and for all succeeding months by an amount equal to Tenant's
proportionate share of the increase. Landlord shall give Tenant written notice
of the amount or estimated amount of the increase, the month in which the
increase will become effective, Tenant's monthly share thereof and the months
for which the payments are due. Tenant shall pay the increase to Landlord as a
part of Tenant's monthly payments of estimated expenses as provided in paragraph
(b) above, commencing with the month in which effective, but not less than
thirty (30) days after Landlord's notice to Tenant of such increase.
(f) Except for those items specifically excluded below, the term
"Building Costs" shall include all expenses of operation and maintenance of the
Building and the Project, together with all appurtenant Common Areas (as defined
in Section 6.2), and shall include the following charges by way of illustration
but not limitation: water and sewer charges; insurance premiums or reasonable
premium equivalents should Landlord elect to self-insure any risk that Landlord
is authorized to insure hereunder; license, permit, and inspection fees; heat;
light; power; janitorial services; repairs; air conditioning; supplies;
materials; equipment; tools; tenant services that are available for all tenants
of the Project; programs instituted to comply with transportation management
requirements; amortization of capital investments which produce a reduction in
operating charges or energy conservation; amortization of capital investments
necessary to bring the Building into compliance with applicable laws and
building codes enacted subsequent to the completion of construction of the
Building; labor; reasonably allocated wages and salaries, fringe benefits, and
payroll taxes for administrative and other personnel directly applicable to the
Building and/or Project, including both Landlord's personnel and outside
personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and
10.2 and Exhibits B and C below; and a reasonable overhead/management fee not to
exceed that paid by landlords of comparable first class office
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projects in the vicinity. It is understood that Building Costs shall include
competitive charges for direct services provided by any subsidiary or division
of Landlord. However, in addition to the items excluded in subsection (g) below,
with respect only to the initial Premises leased hereunder (but not for any
additional space leased by Tenant within another building), Building Costs shall
exclude all charges for electricity, gas and water service to the Building (as
opposed to the exterior Common Areas), which utility charges for the initial
Premises shall be paid in full directly by Tenant as provided in Exhibit B. The
term "Property Taxes" as used herein shall include the following: (i) all real
estate taxes or personal property taxes, as such property taxes may be
reassessed from time to time; and (ii) other taxes, charges and assessments
which are levied with respect to this Lease or to the Building and/or the
Project, and any improvements, fixtures and equipment and other property of
Landlord located in the Building and/or the Project and used for the benefit of
the Project, except that general net income and franchise taxes imposed against
Landlord shall be excluded; and (iii) any tax, surcharge or assessment which
shall be levied in addition to or in lieu of real estate or personal property
taxes, other than taxes covered by Article VIII; and (iv) costs and expenses
incurred in contesting the amount or validity of any Property Tax by appropriate
proceedings. A copy of Landlord's unaudited statement of expenses shall be made
available to Tenant upon request. The Building Costs shall be extrapolated by
Landlord to reflect the greater of ninety-five percent (95%) or actual occupancy
of the rentable area of the Building.
(g) The following shall be excluded from the Building Costs and
Property Taxes for the purposes of this Section 4.2:
(1) Costs of repairs, replacements or other work occasioned by
fire, windstorm or other casualty, or the exercise by governmental authorities
of the right of eminent domain, to the extent Landlord is entitled to receive
insurance or condemnation proceeds therefor (or would have been entitled to such
insurance proceeds if Landlord had carried the insurance required under this
Lease, exclusive of commercially reasonable deductibles).
(2) Leasing commissions, attorneys fees, costs, disbursements
and other expenses incurred by Landlord or its agents in connection with
negotiations for leases with tenants, other occupants or prospective tenants or
other occupants of the Building, and similar costs incurred in connection with
disputes with and/or enforcement of any leases with tenants, other occupants, or
prospective tenants or other occupants of the Building.
(3) "Tenant allowances", "tenant concessions", work letters,
and other costs or expenses (including permit, license and inspection fees)
incurred in completing, fixturing, furnishing, renovating or otherwise
improving, decorating or redecorating space for tenants or other occupants of
the Building, or vacant, leasable space in the Building, including space
planning/interior design fees for same.
(4) Depreciation, other "non-cash" expense items or
amortization, except as otherwise expressly permitted herein.
(5) Costs of items that are properly capitalized in accordance
with generally accepted accounting principles, consistently applied, except as
otherwise expressly permitted herein.
(6) Costs in connection with services (including electricity),
items or other benefits of a type which are not standard for the Project and
which are not available to Tenant without specific charge therefor, but which
are provided to another tenant or occupant of the Project whether, or not such
other tenant or occupant is specifically charged therefor by Landlord.
(7) Services, items and benefits for which Tenant or any other
tenant or occupant of the Project specifically reimburses Landlord or for which
Tenant or any other tenant or occupant of the Project pays third persons.
(8) Costs or expenses (including fines, penalties and legal
fees) incurred due to the violation by Landlord, its employees, agents and/or
contractors, of any lease in the Project, and/or of any applicable laws, rules,
regulations and codes of any federal, state, county, municipal or other
governmental authority having jurisdiction over the Project that would not have
incurred but for such violation by Landlord, its employees, agents and/or
contractors, it being intended that each party shall be responsible for the
costs resulting from its own violation of such leases and laws, rules,
regulations and codes as same shall pertain to the Project; provided, however,
that costs incurred to comply with laws, regulations or codes that become
effective after the date of this Lease shall be includable in Operating
Expenses.
(9) Penalties for late payment of taxes, equipment leases, etc.
(10) Costs directly resulting from the negligence or willful
misconduct of Landlord, its employees, agents and/or contractors.
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(11) Payments in respect of overhead and/or profit to any
subsidiary or affiliate of Landlord for services (other than the management fee)
to the Project or for goods, supplies or other materials, to the extent that the
costs of such services, goods, supplies and/or materials exceed the costs that
would have been paid had the services, goods, supplies or materials been
provided by parties unaffiliated with Landlord.
(12) Payments of principal, finance charges or interest on
debt or amortization on any mortgage, deed of trust or other debt, and rental
payments (or increases in same) under any ground or underlying lease or leases
(except to the extent the same may be made to pay or reimburse, or may be
measured by, real estate taxes).
(13) Except for the reasonable management fee, costs of
Landlord's general overhead and general administrative expenses (individual,
partnership or corporate, as the case may be).
(14) Compensation paid to clerks, attendants or other persons
in commercial concessions serving the general public (such as a snack bar,
restaurant or newsstand, but exclusive of the parking facilities for the
Project), if any, operated by Landlord or any subsidiary or affiliate of
Landlord.
(15) Rentals and other related expenses, if any, incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial, maintenance or emergency services and which is not affixed
to the Project.
(16) Advertising and promotional expenses, including costs of
tenant identity signage (other than the cost of maintaining building
directories).
(17) Costs or expenses for sculpture, paintings or other works
of art, including costs incurred with respect to the purchase, ownership,
leasing, showing, promotion, repair and/or maintenance of same.
(18) Costs for which Landlord is compensated through or
reimbursed by insurance or other means of recovery.
(19) Costs of correcting or repairing defects in the Project
and/or any associated garage facilities of the Project and/or equipment, or the
replacement of defective equipment, to the extent such costs are covered by
warranties of manufacturers, suppliers or contractors, or are otherwise borne by
parties other than Landlord.
(20) Contributions to operating expense reserves.
(21) Contributions to charitable or political organizations.
(22) Costs incurred in removing the property of former tenants
and/or other occupants of the Building.
(23) Costs or fees relating to the defense of Landlord's title
to or interest in the Building.
(24) Compensation in the form of wages, salaries and such
other compensation and benefits, as well as any adjustments thereto, for all
employees and personnel of Landlord above the level of the on-premises Project
manager (if applicable); provided that Operating Expenses may include an
equitable allocation of the wages, salaries and other compensation and benefits
of Landlord's employees and personnel (up to the level of senior portfolio
manager) that work on the Project and on other projects, including, without
limitation, those being periodically developed, managed and/or operated by
Landlord, in addition to the Project.
(25) Taxes payable by Landlord other than the Property Taxes
payable with respect to Landlord's ownership of the Building and/or the Project.
(26) Amortization charges on account of any capital
expenditure incurred by Landlord to affect an annual net reduction in the
Operating Expenses of the Building to the extent that such charge (inclusive of
financing costs, all amortized over the reasonable life at the capital
investment item) exceeds the anticipated savings in Operating Expenses
attributable to such expenditures in any given year.
(27) Any other expense which, under generally accepted
accounting principles, consistently applied, would not be considered to be a
normal maintenance or operating expense of the Building.
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(28) Costs for any new category of Operating Expenses which
was not included in either the Building Cost Base or Property Tax Base unless
either (i) the new category is commercially reasonable for first-class office
buildings comparable to the Project or (ii) the Building Cost Base or Property
Tax Base, as applicable, is grossed up to include the first year's cost of such
new expense category.
(29) Costs arising from disputes, claims or potential disputes
to the extent not typically included in Operating Expenses by landlords of
comparable office projects.
(30) Costs of effecting compliance with the requirements of
any applicable law in existence at the time of construction of the Building.
(31) Costs of premiums for earthquake insurance unless either
(i) the Building Cost Base already includes earthquake insurance coverage or
(ii) the Building Cost Base is thereupon grossed up to include the first year's
cost of such insurance.
In no event shall Landlord collect Operating Expenses from all tenants of the
Project during any Expense Recovery Period that total in excess of one hundred
percent (100%) of the actual Operating Expenses incurred by Landlord during that
Expense Recovery Period.
(h) Provided Tenant is not then in default hereunder beyond any
applicable notice and cure period, Tenant shall have the right to cause a
certified public accountant to audit Operating Expenses by inspecting Landlord's
ledger accounts not more than once during any Expense Recovery Period. Tenant
shall give notice to Landlord of Tenant's intent to audit within one hundred
eighty (180) days after Tenant's receipt of Landlord's expense statement which
sets forth Landlord's actual Operating Expenses; provided, however, that Tenant
shall have until the date that is thirty (30) months following the Commencement
Date to initiate an audit of Landlord's Base Year expenses. Any audit by Tenant
shall be conducted at a mutually agreeable time during normal business hours at
the office of Landlord or its management agent where such accounts are
maintained. If Tenant's audit determines that actual Operating Expenses have
been overstated by more than four percent (4%), then subject to Landlord's right
to review and/or contest the audit results, Landlord shall reimburse Tenant for
the reasonable out-of-pocket costs of such audit. Tenant's rent shall be
appropriately adjusted to reflect any overstatement in Operating Expenses. In
addition, if any component of Operating Expenses is determined to be either
inappropriate or excessive during an Expense Recovery Period, and if the
Building Cost Base or Property Tax Base also included such component, then the
appropriate Base shall concurrently be adjusted if and to the extent
appropriate. In the event of a dispute between Landlord and Tenant regarding the
results of such audit, either party may elect to submit the matter for binding
arbitration pursuant to Section 14.7(b) below. All of the information obtained
by Tenant and/or its auditor in connection with such audit, as well as any
compromise, settlement or adjustment reached between Landlord and Tenant as a
result thereof, shall be held in strict confidence and, except as may be
required pursuant to litigation, shall not be disclosed to any third party,
directly or indirectly, by Tenant or its auditor or any of their officers,
agents or employees. Landlord may require Tenant's auditor to execute a separate
confidentiality agreement affirming the foregoing as a condition precedent to
any audit.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions (the "Security Deposit"), to be held by Landlord as
security for the full and faithful performance of Tenant's obligations under
this Lease to pay any rent as and when due, including without limitation such
additional rent as may be owing under any provision hereof, and to maintain the
Premises as required by Sections 7.1 and 15.3. Upon any breach of those
obligations by Tenant, Landlord may apply all or part of the Security Deposit as
full or partial compensation. If any portion of the Security Deposit is so
applied, Tenant shall within five (5) days after written demand by Landlord
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, the Security Deposit or any balance thereof shall
be returned to Tenant or, at Landlord's option, to the last assignee of Tenant's
interest in this Lease.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way interfere with the rights or quiet enjoyment
of other occupants of the Building or the Project, or use or allow the Premises
to be used for any unlawful purpose, nor shall Tenant permit any nuisance or
commit any waste in the Premises or the Project. Tenant shall not do or permit
to be done anything which will invalidate or increase the cost of any insurance
policy(ies) covering the Building, the Project
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and/or their contents, and shall comply with all applicable insurance
underwriters rules and the requirements of the Pacific Fire Rating Bureau or any
other organization performing a similar function. Tenant shall comply at its
expense with all present and future laws, ordinances and requirements of all
governmental authorities that pertain to Tenant's specific improvement or use of
the Premises, including without limitation all federal and state occupational
health and safety and handicap access requirements, whether or not Tenant's
compliance will necessitate expenditures or interfere with its use and enjoyment
of the Premises; conversely, should any such expenditure be required of any
general office user of the Premises, then Landlord shall be responsible for
making the necessary alterations of the Premises, subject to inclusion of the
cost thereof in Operating Expenses. Tenant shall not generate, handle, store or
dispose of hazardous or toxic materials (as such materials may be identified in
any federal, state or local law or regulation) in the Premises or Project
without the prior written consent of Landlord; provided that the foregoing shall
not be deemed to proscribe the use by Tenant of customary office supplies in
normal quantities so long as such use comports with all applicable laws. Tenant
agrees that it shall promptly complete and deliver to Landlord any disclosure
form regarding hazardous or toxic materials that may be required by any
governmental agency. Tenant shall also, from time to time upon request by
Landlord, execute such affidavits concerning Tenant's best knowledge and belief
regarding the presence of hazardous or toxic materials in the Premises. Landlord
shall have the right at any time to perform an assessment of the environmental
condition of the Premises and of Tenant's compliance with this Section. As part
of any such assessment, Landlord shall have the right, upon reasonable prior
notice to Tenant, to enter and inspect the Premises and to perform tests,
provided those tests are performed in a manner that minimizes disruption to
Tenant. Tenant will cooperate with Landlord in connection with any assessment
by, among other things, promptly responding to inquiries and providing relevant
documentation and records. The reasonable cost of the assessment/testing shall
be reimbursed by Tenant to Landlord if such assessment/testing determines that
Tenant failed to comply with the requirements of this Section. In all events
Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease
from any release of hazardous or toxic materials caused by Tenant, its agents,
employees, contractors, subtenants or licensees. Should any hazardous or toxic
material be discovered in the Premises that was not introduced by Tenant, its
employees, agents, contractors or subtenants, and should Landlord be legally
required to remediate same, then Landlord shall be responsible for such
remediation and shall indemnify Tenant against any liability in connection
therewith. The foregoing covenants shall survive the expiration or earlier
termination of this Lease.
SECTION 5.2. SIGNS.
(a) Because the initial Premises constitutes the entire rentable
area of the Building, Tenant shall be allotted, at Tenant's expense, all of the
lobby directory strips for that Building, except for those strips needed by
Landlord for building information, property management and other administrative
purposes. Should Tenant lease additional space in any other building, Tenant
shall, at its expense, be entitled to one (1) lobby directory strip for every
2,000 rentable square feet leased.
(b) Tenant shall, at its expense, be allowed to install in the
initial Building signage consisting of Tenant's name and logo on the interior
lobby walls, provided that the specifications and manner of installation of the
signage shall be subject to Landlord's reasonable approval. Tenant shall be
solely responsible for the cost of maintaining that signage, and shall cause the
same to be promptly removed at Tenant's expense at such time as Tenant ceases to
lease the entire building. Tenant shall repair any damage to the walls or any
other portion of the Building resulting from such removal. Should Tenant lease
additional space in any other building within the Project, Tenant shall have the
right to install, at Tenant's expense, building standard signage adjacent to the
entry door of such additional space, which signage shall be ordered through
Landlord; provided that should Tenant lease over fifteen thousand (15,000)
rentable square feet hereunder in that other building, then Tenant shall also be
afforded exterior primary or secondary signage on that building if such signage
is then available. Except as provided in Subsection (c) below, Tenant shall not
place or allow to be placed any other sign, decoration or advertising matter of
any kind that is visible from the exterior of the Premises. Any violating sign
or decoration may be immediately removed by Landlord at Tenant's expense without
notice and without the removal constituting a breach of this Lease or entitling
Tenant to claim damages.
(c) Tenant shall have the right to install exterior signage on two
(2) sides of the initial Building to be leased in its entirety to Tenant, which
signage shall consist only of the name "PIMCO" or a derivation thereof. The
specifications, location and design of such signage shall be subject to the
prior approval of both Landlord and the City of Newport Beach, and shall be
subject to Landlord's Sign Criteria for the Project. Installation, insurance.
and maintenance of such signage shall be at Tenant's sole cost and expense.
Tenant's signage right shall belong solely to Pacific Management Company, and
may not be transferred or assigned to other than a Tenant Affiliate without
Landlord's prior written consent, which may be withheld by Landlord in
Landlord's reasonable discretion. At such time as Tenant ceases to occupy
(exclusive of any subtenant) at least one full floor of the initial Premises,
then Tenant shall promptly remove the exterior signage at Tenant's expense. Such
removal shall be at Tenant's sole expense, and Tenant shall bear the cost of any
resulting repairs to the Building that are reasonably necessary due to the
removal.
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ARTICLE VI. LANDLORD SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
conditions and payment obligations and standards set forth in this Lease.
Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damages
resulting from power surges or any breakdown in telecommunications facilities or
services. Landlord's temporary inability to furnish any services or utilities
shall not entitle Tenant to any damages, relieve Tenant of the obligation to pay
rent or constitute a constructive or other eviction of Tenant, except that
Landlord shall diligently attempt to restore the service or utility promptly;
provided that if the Premises are rendered untenantable for more than five (5)
consecutive business days due to a utility service interruption, then rent
hereunder shall abate from and after the sixth (6th) business day until the
service is restored. Tenant shall comply with all reasonable rules and
regulations which Landlord may reasonably establish for the provision of
services and utilities, and shall cooperate with all reasonable conservation
practices established by Landlord. Landlord shall at all reasonable times have
free access to all electrical and mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate in a first-class manner all Common Areas within the
Building and the Project. The term "Common Areas" shall mean all areas within
the Building and other buildings in the Project which are not held for exclusive
use by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and tenants and
their respective employees and invitees, including without limitation parking
areas and structures, driveways, sidewalks, landscaped and planted areas,
hallways and interior stairwells not located within the premises of any tenant,
common entrances and lobbies, elevators, and restrooms not located within the
premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all reasonable and
non-discriminatory rules and regulations as are prescribed from time to time by
Landlord. Landlord shall at all times during the Term have exclusive control of
the Common Areas, and may restrain any use or occupancy, except as authorized by
Landlord's rules and regulations. Tenant shall keep the Common Areas clear of
any obstruction or unauthorized use related to Tenant's operations. Landlord may
temporarily close any portion of the Common Areas for repairs, remodeling and/or
alterations, to prevent a public dedication or the accrual of prescriptive
rights, or for any other reasonable purpose so long as Tenant's use of the
Premises is not materially adversely affected.
SECTION 6.4. PARKING. Landlord shall make available for use by
Tenant up to four (4) parking stalls for every 1,000 usable square feet of space
leased hereunder by Tenant (the "Allotted Stalls") at no monthly stall charge
during the initial Lease Term. With respect to the initial Premises and the Must
Take Space, up to ten percent (10%) of that allotted parking shall be reserved
in a location designated by Landlord and reasonably acceptable to Tenant; the
remainder of the Allotted Stalls shall be unreserved. It is understood, however,
that Landlord may require that all of those reserved stalls, including those
allotted with respect to the Must Take Space, be situated in the Parking Area
for the Initial Building until such time (if ever) that Landlord grants reserved
parking to a third party tenant of the Adjacent Building. The Allotted Stalls
shall be provided in accordance with Exhibit C to this Lease. In addition to the
foregoing, Tenant shall be afforded the license to utilize, on a month-to-month
basis, up to One Hundred (100) parking stalls located on the rooftop level of
the parking structure for the building located at 810 Newport Center Drive in
Newport Beach (the "Additional Stalls"), subject to the monthly availability of
such stalls as determined by Landlord. The terms of that license shall be set
forth in a reasonable parking license agreement prepared by Landlord and
executed by the parties. Tenant shall pay Landlord's asking rate from time to
time for the Additional Stalls; provided that the rate shall be Sixty-Five
Dollars ($65.00) per stall per month during the initial twelve (12) months of
the license. If requested by Landlord, Tenant shall cooperate with Landlord's
parking control methods to provide assurance that the rooftop parking
requirement is being observed, which methods may include attaching stickers to
employees' cars.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves
the right to make alterations or additions the Building or the Project, or to
the attendant fixtures, equipment and Common Areas, provided that Tenant's
proportionate share of Operating Expense shall not thereby be increased on a
percentage basis. No change shall entitle Tenant to any abatement of rent or
other claim against Landlord, provided that the change does not deprive Tenant
of reasonable access to or use of the Premises.
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ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Subject to Landlord
providing the services required pursuant to Exhibit B and Section 7.2, Tenant at
its sole expense shall make all repairs necessary to keep the Premises in the
condition as existed on the Commencement Date (or on any later date that the
improvements may have been installed), excepting ordinary wear and tear. All
repairs shall be at least equal in quality to the original work, shall be made
only by a licensed, bonded contractor approved in writing in advance by Landlord
and shall be made only at the time or times approved by Landlord, which approval
shall not be unreasonably withheld, conditioned or delayed. Any contractor
utilized by Tenant shall be subject to Landlord's standard requirements for
contractors, as modified from time to time. Landlord may impose reasonable
restrictions and requirements with respect to repairs, as provided in Section
7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, should Tenant fail to make a repair within thirty (30) days
following notice from Landlord, Landlord may elect to make any such repair on
behalf of Tenant and at Tenant's expense, and Tenant shall promptly reimburse
Landlord as additional rent for all costs incurred upon submission of an
invoice. Each party hereto agrees to cooperate with the other party as
appropriate in assigning or enforcing applicable third party warranties for
maintenance or repair.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 10.3 and Article XI, Landlord shall provide
service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises (exclusive of any
supplemental HVAC equipment installed by or at the request of Tenant) and shall
maintain in good repair the roof, roof membrane, foundations, footings, the
exterior surfaces of the exterior walls of the Building, and the structural,
electrical and mechanical systems. Landlord shall have the right to employ or
designate any reputable person or firm, including any employee or agent of
Landlord or any of Landlord's affiliates or divisions, to perform any service,
repair or maintenance function. Landlord need not make any other improvements or
repairs except as specifically required under this Lease, and nothing contained
in this Section shall limit Landlord's right to reimbursement from Tenant for
maintenance, repair costs and replacement costs as provided elsewhere in this
Lease. Tenant understands that it shall not make repairs at Landlord's expense
or by rental offset.
(b) Except as provided in Sections 6.1 above and 11.1 and 12.1
below, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements to any portion of the
Building, including repairs to the Premises, nor shall any related activity by
Landlord constitute an actual or constructive eviction; provided, however, that
in making repairs, alterations or improvements, Landlord shall interfere as
little as reasonably practicable with the conduct of Tenant's business in the
Premises.
SECTION 7.3. ALTERATIONS. Except for cosmetic alterations to the interior
of the Premises which cost less than Fifty Thousand Dollars ($50,000.00) and
which do not affect the structural, electrical, mechanical or fire/life safety
systems of the Building, are not visible from the exterior of the Premises, and
do not otherwise require a permit (the "Authorized Alterations"), Tenant shall
make no alterations, additions or improvements to the Premises without the prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Landlord may impose, as a condition to its consent, any requirements
that Landlord in its discretion may deem reasonable or desirable, including but
not limited to reasonable requirements as to the manner, time, and contractor
for performance of the work. Without limiting the generality of the foregoing,
Tenant shall use Landlord's designated mechanical and electrical contractors for
all work affecting the mechanical or electrical systems of the Building,
provided that the fees of such designated contractors are generally competitive
with other contractors of like quality and experience. Tenant shall obtain all
required permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances, and Landlord shall be entitled to a
supervision fee in the amount of five percent (5%) of the cost of the work.
Under no circumstances shall Tenant make any improvement which incorporates
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or improvements
affixed to the Premises (excluding moveable trade fixtures and furniture) shall
become the property of Landlord and shall be surrendered with the Premises at
the end of the Term, except that Landlord may, by notice to Tenant given at the
time of Landlord's consent to the alteration or improvement, require Tenant to
remove by the Expiration Date, or sooner termination date of this Lease, all or
any alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises arising from that removal. Landlord may require Tenant to
remove an improvement provided as part of the initial build-out pursuant to
Exhibit X, if any, if and only if the improvement is a non-building standard
item and Tenant is notified of the requirement prior to the build-out. Except as
otherwise provided in this Lease or in any Exhibit to this Lease, should
Landlord make any alteration or improvement to the Premises at the request of
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute. In the event that Tenant shall
not, within thirty (30) days following the imposition of any lien, cause the
lien to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other available remedies, the right to cause the
lien to be released by any means it deems proper, including payment of or
defense against the claim giving rise to the lien. All expenses so incurred by
Landlord, including Landlord's
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attorneys' fees, shall be reimbursed by Tenant promptly following Landlord's
demand, together with interest from the date of payment by Landlord at the rate
of ten percent (10%) per annum until paid. Tenant shall give Landlord no less
than ten (10) days' prior notice in writing before commencing construction of
any kind on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION.
(a) Subject to the provisions of Subsection (b) below, Landlord
shall at all reasonable times, upon reasonable prior written or oral notice to
Tenant (except in emergencies or to supply normal janitorial services), have the
right to enter the Premises to inspect them, to supply services in accordance
with this Lease, to protect the interests of Landlord in the Premises, to make
repairs and renovations as reasonably deemed necessary by Landlord, and to
submit the Premises to prospective or actual purchasers or encumbrance holders
(or, during the last one hundred and eighty (180) days of the Term, as extended,
or when an uncured Tenant default exists, to prospective tenants), all without
being deemed to have caused an eviction of Tenant and without abatement of rent
except as provided elsewhere in this Lease. Landlord shall at all times have and
retain a key which unlocks all of the doors in the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open the doors in an emergency in order to
obtain entry to the Premises, and any entry to the Premises obtained by Landlord
shall not under any circumstances be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or any eviction of Tenant from the
Premises.
(b) Tenant may in good faith, and for legitimate security purposes,
designate certain limited portions of the Premises as "Secured Areas", subject
to Landlord's reasonable approval. Tenant may restrict Landlord's access to the
Secured Areas except in the event of an emergency or unless Landlord provides
Tenant with 24-hour advance written or oral notice of a desired entry. Tenant
shall have the right to accompany Landlord during any such entry. Landlord shall
not have any obligation to provide janitorial services to the Secured Areas
unless Tenant provides reasonable access thereto for the janitorial personnel.
SECTION 7.6. SPACE PLANNING AND SUBSTITUTION. Should Tenant at any time
lease space within the Project that does not consist of all of the rentable area
of the applicable building floor (the "Partial Floor Space"), then Landlord
shall have the right, upon providing not less than forty-five (45) days written
notice, to move Tenant from that Partial Floor Space to other space of
comparable size in the Project. The new space shall be provided with
improvements of comparable quality to those within the Partial Floor Space.
Landlord shall pay the reasonable out-of-pocket costs to relocate and reconnect
Tenant's personal property and equipment within the new space; provided that
Landlord may elect to cause such work to be done by its contractors. Landlord
shall also reimburse Tenant for such other reasonable out-of-pocket costs that
Tenant may incur in connection with the relocation, including without limitation
necessary stationery revisions, provided that a reasonable estimate thereof is
given to Landlord within twenty (20) days following Landlord's notice. In no
event, however, shall Landlord be obligated to incur or fund total relocation
costs, exclusive of tenant improvement expenditures, in an amount in excess of
two (2) months of Basic Rent in the amount then payable hereunder for the
Partial Floor Space. Within ten (10) days following request by Landlord, Tenant
shall execute an amendment to this Lease prepared by Landlord to memorialize the
relocation.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay before delinquency, all taxes and
assessments levied against all personal property of Tenant located in the
Premises. When possible Tenant shall cause its personal property to be assessed
and billed separately from the real property of which the Premises form a part.
If any taxes on Tenant's personal property are levied against Landlord or
Landlord's property and if Landlord pays the same, or if the assessed value of
Landlord's property is increased by the inclusion of a value placed upon the
personal property of Tenant and if Landlord pays the taxes based upon the
increased assessment, Tenant shall pay to Landlord the taxes so levied against
Landlord or the proportion of the taxes resulting from the increase in the
assessment.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant, or its
employees, agents or Tenant Affiliates, without Landlord's prior written
consent, which consent shall not unreasonably be withheld in accordance with the
provisions of Section 9.1.(c). No assignment (whether voluntary, involuntary or
by operation of law) and no subletting shall be valid or effective without
Landlord's prior written consent and, at Landlord's election, shall constitute a
material default of this Lease. Landlord shall not be deemed to have given its
consent to any assignment or subletting by any other course of action, including
its acceptance of any name for listing in the Building directory. To the extent
not prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of
itself and its creditors, administrators and assigns waives
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the applicability of Section 365(e) of the Bankruptcy Code unless the proposed
assignee of the Trustee for the estate of the bankrupt meets Landlord's standard
for consent as set forth in Section 9.1(c) of this Lease. If this Lease is
assigned to any person or entity pursuant to the provisions of the Bankruptcy
Code, any and all monies or other considerations to be delivered in connection
with the assignment shall be delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of the Bankruptcy Code. Any person or
entity to which this Lease is assigned pursuant to the provisions of the
Bankruptcy Code shall be deemed to have assumed all of the obligations arising
under this Lease on and after the date of the assignment, and shall upon demand
execute and deliver to Landlord an instrument confirming that assumption.
(b) If Tenant is a corporation, or is an unincorporated association
or partnership, the transfer of any stock or interest in the corporation,
association or partnership which results in a change in the voting control of
Tenant shall be deemed an assignment within the meaning and provisions of this
Article; provided that the foregoing shall not apply to any stock transfer
through a national stock exchange or by a public offering or private placement
of additional securities if Tenant is a publicly-held corporation. In addition,
any change in the status of the entity, such as, but not limited to, the
withdrawal of a general partner, shall be deemed an assignment within the
meaning of this Article.
(c) If Tenant desires to transfer an interest in this Lease, it
shall first notify Landlord of its desire and shall submit in writing to
Landlord:(i) the name and address of the proposed transferee;(ii) the nature of
any proposed subtenant's or assignee's business to be carried on in the
Premises; and (iii) the terms and provisions of any proposed sublease or
assignment. Except as provided in Subsection (d) of this Section, Landlord shall
not unreasonably withhold its consent where such consent is required, provided:
(1)the use of the Premises will be consistent with the provisions of this Lease
and with Landlord's commitment to other tenants of the Building and Project;
(2)fifty percent (50%) of any excess rent received by the Tenant from the
assignment or subletting, whether during or after the Term of this Lease, shall
be paid to Landlord when received after first deducting the reasonable
out-of-pocket costs incurred by Tenant in effecting the transfer, (3) any
proposed subtenant or assignee demonstrates that it is financially responsible
by submission to Landlord of all reasonable information as Landlord may request
concerning the proposed subtenant or assignee, including, but not limited to, a
balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent and statements of income or
profit and loss of the proposed subtenant or assignee for the last fiscal year
preceding the request for Landlord's consent, it being understood that a
transferee with a net worth (exclusive of good will and other intangible assets)
of at least Ten Million Dollars ($10,000,000) shall be deemed financially
responsible for purposes of this Article; (4) any proposed subtenant or assignee
demonstrates to Landlord's reasonable satisfaction a record of successful
experience in business; and (5) the proposed assignee or subtenant is neither an
existing tenant of the Building or Project nor a prospective tenant with whom
Landlord is then actively negotiating (except that this limitation shall not be
enforced by Landlord if it does not then have sufficient available space in the
Project to accommodate the proposed transferee). If Landlord consents to the
proposed transfer, Tenant may within one hundred eighty (180) days after the
date of the consent effect the transfer upon the terms described in the
information furnished to Landlord; provided that any material change in the
terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within ten (10)
business days following receipt of Tenant's written request and the information
set forth above. Tenant shall pay to Landlord a transfer fee of Five Hundred
Dollars ($500.00) if and when any transfer requested by Tenant is approved.
(d) Notwithstanding the provisions of Subsection (c) above, in lieu
of consenting to a proposed assignment of this Lease or a subletting of all of
the space then being leased by Tenant on any floor within the Project, Landlord
may, within ten (10) business days following receipt of Tenant's written request
and the information set forth above, elect to terminate this Lease as to the
portion of the Premises proposed to be subleased or assigned with a
proportionate abatement in the rent payable under this Lease, effective on the
date that the proposed sublease or assignment would have become effective.
Landlord may thereafter, at its option, assign or re-let any space so recaptured
to any third party, including without limitation the proposed transferee of
Tenant. Should Landlord exercise its rights under this Subsection (d), then
Tenant may, by written notice to Landlord given within five (5) business days
following such exercise by Landlord, elect to rescind its request to assign or
sublet the Premises, as applicable, in which event Landlord's recapture election
shall be null and void and Tenant shall not effect its proposed transfer.
(e) Notwithstanding the foregoing, Tenant may, without Landlord's
consent but with concurrent written notice to Landlord, assign this Lease or
sublet the Premises to any entity that (i) results from a merger or
consolidation with Tenant, (ii) succeeds to the business and assets of Tenant,
or (iii) controls, is controlled by, or is under common control with, Tenant
(respectively "Tenant Affiliate"). Any transfer to a Tenant Affiliate shall not
be subject to the recapture, transfer fee, or rent sharing requirements, set
forth above in this Article.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord or to a Tenant Affiliate, shall relieve Tenant, or any
successor-in-interest to Tenant hereunder, of its obligation to pay rent and to
perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any
negligence or willful misconduct by an assignee or subtenant. Each assignee,
other than Landlord, shall be deemed to assume all obligations of Tenant under
this Lease and shall be liable jointly and severally with Tenant for the payment
of all rent, and for the due performance of all of Tenant's obligations, under
this Lease. Such joint and several liability shall not be discharged or impaired
by any subsequent modification or extension of this Lease. No transfer shall be
binding on Landlord unless any document memorializing the transfer is delivered
to Landlord and, except for a transfer to a Tenant Affiliate, both the
assignee/subtenant and
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Tenant deliver to Landlord an executed consent to transfer instrument prepared
by Landlord and consistent with the requirements of this Article. The acceptance
by Landlord of any payment due under this Lease from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease. In addition to the foregoing, no change in the status
of Tenant or any party jointly and severally liable with Tenant as aforesaid
(e.g., by conversion to a limited liability company or partnership) shall serve
to abrogate the liability of any person or entity for the obligations of Tenant,
including any obligations that may be incurred by Tenant after the status change
by exercise of a preexisting right in this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs
(i.e., after notice and failure to timely cure) in the performance of Tenant's
obligations under this Lease, Tenant shall have the right to receive and collect
the sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease. Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured default exists in the performance
of Tenant's obligations under this Lease, to pay to Landlord all sums then and
thereafter due under the sublease, subject to Section 9.1(c). Tenant agrees that
the subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord. In the event Landlord collects amounts from subtenants that exceed the
total amount then due from Tenant hereunder, Landlord shall promptly remit the
excess to Tenant.
(b) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.
(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide the following
types of insurance, with or without deductible and in amounts and coverages as
may be reasonably determined by Landlord: "all risk" property insurance, subject
to standard exclusions, covering the Building or Project, and such other risks
as Landlord or its mortgagees may from time to time deem appropriate, and
commercial general liability coverage. Landlord shall not be required to carry
insurance of any kind on Tenant's leasehold improvements, trade fixtures,
furnishings, equipment, interior plate glass, signs and all other items of
personal property, and shall not be obligated to repair or replace that property
should damage occur. All proceeds of insurance maintained by Landlord upon the
Building and Project shall be the property of Landlord, whether or not Landlord
is obligated to or elects to make any repairs.
SECTION 10.3. INDEMNITY.
(a) To the fullest extent permitted by law, but subject to
Section 10.4, Tenant shall defend, indemnify and hold harmless Landlord, its
agents, lenders, and any and all [ILLEGIBLE] of Landlord, from and against any
and all claims, liabilities, costs or expenses arising either before or after
the Commencement Date from any default in the performance of any obligation on
Tenant's part to be performed under this Lease, or from any willful misconduct
or negligence of Tenant or its agents, employees, subtenants, or contractors.
Landlord may, at its option, require Tenant to assume Landlord's defense in any
action covered by this Section through counsel reasonably satisfactory to
Landlord.
(b) To the fullest extent permitted by law, but subject to Section
10.4, Landlord shall indemnify and hold harmless Tenant from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from any default in the performance of Landlord's obligations
hereunder or from the negligence or willful misconduct of Landlord or its
agents, employees or contractors.
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SECTION 10.4. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other on account of loss and damage
occasioned to the property of such waiving party to the extent that the waiving
party is entitled to proceeds for such loss and damage under any "all risk"
property insurance policies carried or otherwise required to be carried by this
Lease. By this waiver it is the intent of the parties that neither Landlord nor
Tenant shall be liable to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage insured against under
any "all-risk" property insurance policies, even though such loss or damage
might be occasioned by the negligence of such party, its agents, employees,
contractors or invitees. The foregoing waiver by Tenant shall also inure to the
benefit of Landlord's management agent for the Building.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If a Building of which any portion of the Premises is a part is
damaged as the result of an event of casualty, Landlord shall repair that damage
as soon as reasonably possible unless:(i)Landlord reasonably determines that the
cost of repair would exceed ten percent (10%) of the full replacement cost of
the Building ("Replacement Cost") and the damage is not caused by a risk covered
by Landlord's fire and extended coverage insurance (or by a normal extended
coverage policy should Landlord fail to carry that insurance); or (ii) Landlord
reasonably determines that the cost of repair would exceed twenty-five percent
(25%) of the Replacement Cost; or (iii) Landlord reasonably determines that the
cost of repair would exceed ten percent (10%) of the Replacement Cost and the
damage occurs during the final twelve (12) months of the Term (as the Term may
be extended pursuant to Section 3.3). Should Landlord elect not to repair the
damage for one of the preceding reasons, Landlord shall so notify Tenant in the
"Casualty Notice" (as defined below), and this Lease shall terminate as to the
portion of the Premises situated in the affected Building as of the date of
delivery of that notice.
(b) As soon as reasonably practicable following the casualty event
but not later than thirty (30) days thereafter, Landlord shall notify Tenant in
writing ("Casualty Notice") of Landlord's election, if applicable, to terminate
as set forth in Subsection (a) above. Absent such termination election, the
Casualty Notice shall set forth the anticipated period for repairing the
casualty damage. If the anticipated repair period exceeds seven (7) months and
if the damage is so extensive as to reasonably prevent Tenant's substantial use
and enjoyment of the portion of the Premises situated in the affected Building,
then Tenant may elect to terminate this Lease as to such portion of the Premises
by written notice to Landlord within ten (10) days following delivery of the
Casualty Notice.
(c) From and after the sixth (6th) business day following the
casualty event, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Premises that is rendered unusable by
the damage from time to time bears to the total floor area of the Premises;
provided that if any damage to a portion of the Premises makes it infeasible for
Tenant to conduct business within the remainder of the Premises in the same
Building and Tenant ceases to conduct business within that Building, then all of
Tenant's rent for such Building shall abate from and after that sixth business
day until Tenant's use can be restored.
(d) Notwithstanding the provisions of subsections (a),(b) and (c) of
this Section, the cost of any repairs shall be borne by Tenant (but not to
exceed an amount equal to the lesser of Landlord's property insurance deductible
or Tenant's liability insurance coverage limit), and Tenant shall not be
entitled to rental abatement or termination rights, if the damage is due to the
negligence or willful misconduct of Tenant or its employees, subtenants,
contractors or representatives. In addition, the provisions of this Section
shall not be deemed to require Landlord to repair any improvements or fixtures
that Tenant is obligated to repair or insure pursuant to any other provision of
this Lease.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the
Premises in a Building is taken by any lawful authority by exercise of the right
of eminent domain, or sold to prevent a taking, or if access to the Premises
therein is substantially removed or impaired by any such taking, either Tenant
or Landlord may terminate this Lease as to the portion of the Premises situated
in the affected Building, effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of a Building or
Project, other then the Premises, is taken or sold in lieu of taking, and if
Landlord elects to restore that Building in such a way as to alter the Premises
therein materially or to substantially remove or impair access to that Premises,
either party may terminate this Lease as to the affected Premises by written
notice to the other party, effective on the date of vesting of title. In the
event neither party has elected to terminate as provided above, then Landlord
shall promptly, after receipt of a sufficient condemnation award, proceed to
restore the Premises to substantially their condition prior to the taking, and a
proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant is
deprived on account of the taking and restoration. In the event of a taking,
Landlord shall be entitled to the entire amount of the condemnation
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award without deduction for any estate or interest of Tenant; provided that
nothing in this Section shall be deemed to give Landlord any interest in, or
prevent Tenant from seeking any award against the taking authority for, the
taking of personal property and fixtures belonging to Tenant or for relocation
or business interruption expenses recoverable from the taking authority or for
Tenant's goodwill.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to abatement of rent, and any
award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed thirty (30)
days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking
of the parking area for a Building such that Landlord can no longer provide
sufficient parking to comply with this Lease, Landlord may substitute reasonably
equivalent parking in a location reasonably close to the Building; provided that
if Landlord fails to make that substitution within ninety (90) days following
the taking and if the taking materially impairs Tenant's use and enjoyment of
the Premises in the affected Building, Tenant may, at its option, terminate this
Lease into the portion of the Premises in that Building by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1. SUBORDINATION. At the option of Landlord or any of its
mortgagees/deed of trust beneficiaries, this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying lease, or the foreclosure of any
such mortgage or deed of trust, to which Tenant has subordinated this Lease
pursuant to this Section. Landlord shall use its commercially reasonable efforts
to obtain a nondisturbance covenant for the benefit of Tenant from Landlord's
initial mortgagee of the Building within thirty (30) days following the
effective date of that mortgage/deed of trust. In the event of a termination or
foreclosure, Tenant shall become a tenant of and attorn to the
successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall promptly execute any instrument reasonably
required by Landlord's successor for that purpose. Tenant shall also, within ten
(10) days following written request of Landlord (or the beneficiary under any
deed of trust encumbering the Building), execute and deliver all instruments as
may be required from time to time by Landlord or such beneficiary (including
without limitation any subordination, nondisturbance and attornment agreement in
the form customarily required by such beneficiary) to subordinate this Lease and
the rights of Tenant under this Lease to any ground or underlying lease or to
the lien of any mortgage or deed of trust; provided, however, that any such
beneficiary may, by written notice to Tenant given at any time, subordinate the
lien of its deed of trust to this Lease. Tenant may condition its execution of
any subordination agreement upon its receipt of a commercially reasonable
non-disturbance covenant from the beneficiary of the subordination agreement.
Failure of Tenant to execute any statements or instruments necessary or
desirable to effectuate the provisions of this Article, within thirty (30) days
after written request by Landlord, shall constitute a default under this Lease.
Tenant acknowledges that Landlords mortgagees and successors-in-interest and all
beneficiaries under deeds of trust encumbering the Building are intended third
party beneficiaries of this Section.
SECTION 13.2. ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not
less than thirty (30) days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord, in any form that Landlord may reasonably
require, a statement in writing in favor of Landlord and/or any prospective
purchaser or encumbrancer of the Building (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
the modification and certifying that this Lease, as modified, is in full force
and effect) and the dates to which the rental, additional rent and other charges
have been paid in advance, if any, and (ii) acknowledging that, to Tenant's
knowledge, there are no uncured defaults on the part of Landlord, or specifying
each default if any are claimed, and (iii) setting forth all further information
that Landlord may reasonably require. Tenant's statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Building
or Project. Tenant's failure to deliver any estoppel statement within the
provided time shall constitute a default under this Lease and shall be
conclusive upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord. (ii) there are no uncured
defaults in Landlord's performance, and (iii) not more than one month's rental
has been paid in advance. Upon request by Tenant made not more often than
annually, Landlord shall provide a similar estoppel certificate for the benefit
of any potential third party lender or purchaser of Tenant.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default
set forth in this Lease, the occurrence of any one or more of the following
events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of five (5) business days after written notice from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of,
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and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. For purposes of these default and
remedies provisions, the term "additional rent" shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord, except where such consent is not required.
(c) The discovery by Landlord that any financial statement provided
by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.
(d) The failure or inability by Tenant to observe or perform any of
the covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in any other subsection of this Section, where the
failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. However, if the nature of the
failure is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences the
cure within thirty (30) days, and thereafter diligently pursues the cure to
completion.
(e) (i) The making by Tenant of any general assignment for the
benefit of creditors;(ii)the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within ninety (90) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within sixty (60) days; (iv) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within sixty (60) days; or (v) Tenant's convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts. Landlord shall not be deemed to have knowledge of any event described in
this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, then in addition to any
other remedies available to Landlord, Landlord may exercise the following
remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which
the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result from Tenant's default; and
(5) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as maybe permitted by law. The term "rent" as used
in this Lease shall be deemed to mean the Basic Rent and all other sums required
to be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum,
other than Basic Rent, shall be computed on the basis of the average monthly
amount accruing during the twenty-four (24) month period immediately prior to
default, except that if it becomes necessary to compute such rental before the
twenty-four (24) month period has occurred, then the computation shall be on the
basis of the average monthly amount during the shorter period. As used in
subparagraphs (1) and (2) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten percent (10%) per annum. As
used in subparagraph (3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or
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relet the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) The various rights and remedies reserved to either party in this
Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, either party may pursue any or all of its rights and remedies at
the same time. No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent required by this Lease
shall be deemed to be other than a partial payment on account of the earliest
due stipulated rent, nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction and Landlord shall accept the check
or payment without prejudice to Landlord's right to recover the balance of the
rent or pursue any other remedy available to it. No act or thing done by
Landlord or Landlord's agents during the Term shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept a surrender shall be valid
unless in writing and signed by Landlord. No employee of Landlord or of
Landlord's agents shall have any power to accept the keys to the Premises prior
to the termination of this Lease, and the delivery of the keys to any employee
shall not operate as a termination of the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS. Any rent due under this Lease that is not
paid to Landlord within ten (10) days of the date when due shall bear interest
at the rate of ten percent (l0%) per annum from the date due until fully paid.
The payment of interest shall not cure any default by Tenant under this Lease.
In addition, Tenant acknowledges that the late payment by Tenant to Landlord of
rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Those costs may include, but are not limited to, administrative,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any rent due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a late
charge in the amount of one hundred dollars ($100.00) for each delinquent
payment; provided that the foregoing late payment charge will not be applicable
to the first late payment in any calendar year unless such late payment is not
paid to Landlord within three (3) days after written notice from Landlord to
Tenant. Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off, except
as specifically permitted by this Lease. if Tenant fails to pay any sum of
money, or fails to perform any other act on its part to be performed under this
Lease, and the failure continues beyond any applicable grace period set forth in
section 14.1, then in addition to any other available remedies, Landlord may, at
its election make the payment or perform the other act on Tenant's part.
Landlord's election to make the payment or perform the act on Tenant's part
shall not give rise to any responsibility of Landlord to continue making the
same or similar payments or performing the same or similar acts. Tenant shall,
promptly upon demand by Landlord, reimburse Landlord for all sums paid by
Landlord and all necessary incidental costs, together with interest at the rate
of ten percent (1O%) per annum from the date of the payment by Landlord.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or Tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees, and
all other costs. The prevailing party for the purpose of this paragraph shall be
determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL/RIGHT TO ARBITRATE.
(a) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND
HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL
BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE
ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANTS USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
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(b) SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY MATTER
DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR UNLAWFUL OR FORCIBLE
DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED TO JAMS/ENDISPUTE OR
ITS SUCCESSOR ("JAM") IN THE COUNTY IN WHICH THE BUILDING IS SITUATED FOR
BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY RESERVES THE
RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO ARBITRATION ELECTION
BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE EFFECTIVE IF MADE LATER
THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL SUMMONS AND COMPLAINT BY
OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE STREAMLINED RULES OF PRACTICE AND PROCEDURE OF JAMS AND
OTHERWISE PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE OF CIVIL PROCEDURE
SECTIONS 1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE ARBITRATOR IS
SPECIFICALLY DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS ESSENTIAL TO THE
EFFECTIVE PROSECUTION OR DEFENSE OF THE ACTION, AND IN NO EVENT SHALL SUCH
DISCOVERY BY EITHER PARTY INCLUDE MORE THAN ONE NON-EXPERT WITNESS DEPOSITION
UNLESS BOTH PARTIES OTHERWISE AGREE. THE ARBITRATOR SHALL APPORTION THE COSTS OF
THE ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES OF THE PARTIES, IN THE MANNER
DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE INTENTION OF THE PARTIES THAT
THE PREVAILING PARTY ORDINARILY BE ENTITLED TO RECOVER ITS REASONABLE COSTS AND
FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY
COURT HAVING JURISDICTION.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease. Any hold-over by Tenant shall be subject to all of the terms of
this Lease, except that the monthly rental shall be one hundred fifty percent
(150%) of the total monthly rental for the month immediately preceding the date
of termination, subject to Landlord's right to modify same upon thirty (30) days
notice to Tenant effective as of any date on or after the first day of the third
month of the holdover. If Tenant falls to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claims made by any succeeding tenant relating to such
failure to surrender, provided that Landlord notifies Tenant in writing of the
nature of such liability prior to the expiration of this Lease or within ten
(10) days after any early termination. Acceptance by Landlord of rent after the
termination shall not constitute a consent to a holdover or result in a renewal
of this Lease. The foregoing provisions of this Section are in addition to and
do not affect Landlord's right of re-entry or any other rights of Landlord under
this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
all voice and/or data transmission cabling installed by or for Tenant, together
with all personal property and debris, except for any items that Landlord may by
written authorization allow to remain. Tenant shall repair all damage to the
Premises resulting from the removal, which repair shall include the patching and
filling of holes and repair of structural damage, provided that Landlord may
instead elect to repair any structural damage at Tenant's expense. If Tenant
shall fail to comply with the provisions of this Section, Landlord may effect
the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If requested by Landlord, Tenant
shall execute, acknowledge and deliver to Landlord an instrument in writing
releasing and quitclaiming to Landlord all right, title and interest of Tenant
in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or
offset except as specifically provided herein, in lawful money of the United
States to Landlord at its address set forth in item 12 of the Basic Lease
Provisions, or at any other place as Landlord may designate in writing. Unless
this Lease expressly provides otherwise, as for example in the payment of rent
pursuant to Section 4.1, all payments shall be due and payable within thirty
(30) days after demand. All payments requiring proportion shall be prorated on
the basis of a thirty (30) day month and a three hundred sixty (360) day year.
Any notice, election, demand, consent, approval or other communication to be
given or other document to be delivered by either party to the other shall be in
writing (unless otherwise authorized
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herein) and may be delivered to the other party, at the address set forth in
Item 12 of the Basic Lease Provisions, by personal service or telegram, or by
any courier or "overnight" express mailing service, or may be deposited in the
United States mail, postage prepaid. Either party may, by written notice to the
other, served in the manner provided in this Article, designate a different
address. If any notice or other document is sent by mail, it shall be deemed
served or delivered three (3) business days after mailing. If more than one
person or entity is named as Tenant under this Lease, service of any notice upon
any one of them shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to comply with the Rules and Regulations attached as Exhibit
E, and any reasonable and nondiscriminatory amendments, modifications and/or
additions as may be adopted and published by written notice to tenants by
Landlord for the safety, care, security, good order, or cleanliness of the
Premises, Building, Project and/or Common Areas. Landlord shall not be liable to
Tenant for any violation of the Rules and Regulations or the breach of any
covenant or condition in any lease or any other act or conduct by any other
tenant, and the same shall not constitute a constructive eviction hereunder. One
or more waivers by Landlord of any breach of the Rules and Regulations by Tenant
or by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations after notice and a five (5) business day cure period shall
constitute a default under this Lease. In the case of any conflict between the
Rules and Regulations and this Lease, this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
agrees to indemnify and hold the other party harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real state broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law, and the transferee assumes in
writing the obligations of the Landlord accruing after such transfer. No holder
of a mortgage and/or deed of trust to which this Lease is or may be subordinate
shall be responsible in connection with the Security Deposit, unless the
mortgagee or holder of the deed of trust or the landlord actually receives the
Security Deposit. It is intended that the covenants and obligations contained in
this Lease on the pail of Landlord shall, subject to the foregoing, be binding
on Landlord, its successors and assigns, only during and in respect to their
respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
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SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor, including without limitation the provisions of Sections 2.4, 2.5 and 3.3
above.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER. One or more waivers by Landlord or Tenant of any
breach of any term, covenant or condition contained in this Lease shall not be a
waiver of any subsequent breach of the same or any other term, covenant or
condition. Consent to any act by one of the parties shall not be deemed to
render unnecessary the obtaining of that party's consort to any subsequent act.
No breach of this Lease shall be deemed to have been waived unless the waiver is
in a writing signed by the waiving party.
SECTION 20.9 INABILITY TO PERFORM. In the event that either party shall be
delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall nor operate to excuse Tenant from
the prompt payment of rent.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If either party is a
corporation or partnership, each individual executing this Lease on behalf of
the applicable corporation or partnership represents and warrants that he is
duly authorized to execute and deliver this Lease on behalf of the corporation
or partnership. and that this Lease is binding upon the corporation or
partnership in accordance with its terms.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or mutual termination of this Lease
shall be effective unless in writing signed by authorized signatories of Tenant
and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings pr other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
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ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease or as otherwise required by law or in connection with any litigation
between the parties. Landlord agrees that it will not make any public
announcement about this Lease without Tenant's prior approval, which shall not
be unreasonably withheld, conditioned or delayed.
SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of execution of this Lease by Tenant.
Tenant shall during the Term promptly furnish Landlord with annual financial
statements reflecting Tenant's financial condition upon written request from
Landlord in connection with a proposed sale or financing of the Building.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent provided that the modifications do
not increase the obligations of Tenant or materially and adversely affect the
leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord, including, if
necessary to effect the cure, time to obtain possession of the Building by power
of a sale or judicial foreclosure provided that such foreclosure remedy is
diligently pursued; provided, however, that with respect to monetary defaults,
the beneficiary's cure period shall be forty-five (45) days following receipt of
Tenant's written notice thereof.
SECTION 22.5. DISCLOSURE STATEMENT. Tenant acknowledge that it has read,
understands and, if applicable, shall comply with the provisions of Exhibit F to
this Lease, if that Exhibit is attached.
SECTION 22.6. SATELLITE DISH. At any time upon the execution by Tenant of
Landlord's standard License Agreement, Tenant shall have the right to maintain
and operate on the roof of the Building, during the Term of this Lease and
subject to the availability of sufficient roof-top space, up to four (4)
satellite dishes/antennae in accordance with and subject to the terms of said
License Agreement. During the initial sixty (60) months of the Lease Term only,
Tenant shall pay a license fee in the amount of Three Hundred Dollars ($300.00)
per month per antenna/dish for the aforementioned antennae/dishes. Thereafter,
the license fee for each antenna/dish shall be the amount then being charged by
Landlord for similar licenses from time to time. Any such installation by Tenant
shall be at Tenant's sole expense and shall be subject to receipt of all
required governmental approvals; provided that Landlord shall use reasonable
efforts to assist Tenant in obtaining such requisite approvals so long as
Landlord is not thereby required to incur any additional expense or liability.
The antennae/dishes shall not be visible from the exterior of the Building and
shall not interfere with Building Systems. Landlord shall not be deemed to have
made any representation either that Tenant's installation will comport with
applicable laws and ordinances or that adequate roof-top space is available for
Tenant's needs.
SECTION 22.7. EXISTING OFFICE SPACE LEASE. Landlord and Tenant are
presently parties to an office space lease dated July 5, 1994, as amended (the
"Existing Lease"), for Suites 200 and 300 in the office building located at 5
Civic Plaza, Newport Beach, California (the "Existing Premises"). The Existing
Lease shall terminate as of midnight on the day preceding the Commencement Date
of this Lease. Until such termination occurs, and for a holdover period
thereafter of up to thirty (30) days, Landlord agrees that Tenant may continue
to occupy the Existing Premises upon the same terms and conditions set forth in
the Existing Lease, except that the basic rent for Suite 200 from and after July
1, 1998 shall be as follows: Fifty-Seven Thousand Seven Hundred Ninety-Eight
Dollars ($57,798.00) per month through August 31, 1999; thereafter, the basic
rent for Suite 200 shall, if applicable, be Sixty-Four Thousand Two Hundred
Twenty Dollars ($64,220.00) per month, which amount shall increase by three
percent (3%) on a compound and cumulative basis on each six (6) month
anniversary of September 1,1999. Notwithstanding the foregoing, however, should
Tenant need to continue its occupancy of the Existing Premises after the
expiration of the 30-day holdover period referenced above, then Tenant shall be
permitted to remain in the Existing Premises for an additional thirty (30) day
period subject to the provisions of the Existing Lease, except that the basic
rent for Suite 200 during that additional 30-day period shall be the greater of
(i) one hundred thirty-five percent (135%) of the basic rent payable for Suite
200 during the preceding month or (ii) the rate per rentable square foot that
Landlord is then receiving pursuant to its most recent leases within the Civic
Plaza project. In the event this Lease is terminated by
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either party pursuant to Section 3.2 prior to the Commencement Date hereof, then
the Existing Lease shall continue in effect for a period of six (6) months
following such termination, during which time the basic rent for Suite 200 shall
be as set forth above. The termination of the Existing Lease shall not abrogate
any obligation accrued as of the date of termination or that is otherwise
reasonably intended to survive such termination.
SECTION 22.8. BUILDING STAIRWELLS. In the initial Building, as well as any
other building leased hereunder by Tenant in its entirety, Tenant shall have the
right to utilize the internal stairwells for inter-floor access. The stairwells
shall be accepted on an as-is basis and Landlord shall not have an obligation to
provide any additional improvements thereto.
SECTION 22.9. UPDATES. Upon request of Tenant from time to time, Landlord
shall cooperate with Tenant by sharing pertinent information regarding the
development and construction of the Building.
SECTION 22.10. CABLING. If and when Tenant leases space from Landlord
within one or more additional buildings in the Project, Landlord shall permit
Tenant to install underground conduit and cabling between the buildings occupied
by Tenant in accordance with plans and specifications approved in advance by
Landlord. No separate fee shall be charged by Landlord for the right to install
and maintain that cabling. As a condition to such installation, the parties
shall enter into a license agreement reasonably acceptable to both parties,
which agreement shall, without limitation, identify the location and manner of
installation of the conduit and shall require Tenant to restore all affected
landscape and hardscape. Landlord agrees that it shall reasonably cooperate with
Tenant, at Tenant's expense, to obtain any necessary governmental permit for
such installation.
SECTION 22.11. GOOD FAITH. Whenever the Lease grants Landlord or Tenant
the right to take action, exercise discretion, establish rules and regulations
or make allocations or other determinations, Landlord and Tenant shall act in
good faith and take no action which might result in the frustration of the
reasonable expectations of a sophisticated landlord and sophisticated tenant
concerning the benefits to be enjoyed under the Lease.
LANDLORD: TENANT:
THE IRVINE COMPANY PACIFIC INVESTMENT MANAGEMENT
COMPANY, a Delaware general partnership
By PIMCO MANAGEMENT, INC.,
a Delaware corporation, General Partner
By By /s/ William S. Thompson
-------------------------------- ------------------------------------
Richard G. Sim, Group President, Printed Name William S. Thompson
Investment Properties -----------------------
Title Managing Director & CEO
------------------------------
By By /s/ Ernest L. Schmider
--------------------------------- ------------------------------------
William R. Halford, President, Printed Name Ernest L. Schmider
Irvine Office Company, -----------------------
a division of The Irvine Company Title Executive Vice President
------------------------------
Approved as to Form.
Latham & Watkins
By /s/ J.W. Daniels
------------------
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SITE PLAN
[DIAGRAM OF CORPORATE PLAZA WEST]
CORPORATE PLAZA [LOGO OF THE IRVINE COMPANY
NEWPORT BEACH INVESTMENT PROPERTIES GROUP]
EXHIBIT A
<PAGE>
EXHIBIT A-I
[DIAGRAM OF PIMCO CORPORATE PLAZA WEST]
PIMCO -
CORPORATE PLAZA WEST
- --------------------
GENSLER 8.26.98
<PAGE>
EXHIBIT B
UTILITIES AND SERVICES
The following standards for utilities and services shall be in effect with
respect to the Premises. In the case of any conflict between these standards and
the Lease, the Lease shall be controlling. Subject to all of the provisions of
the Lease, including but not limited to the restrictions contained in Section
6.1, the following shall apply:
1. Subject to Paragraph 8 below, Landlord shall furnish to the Premises
during the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m
to 1:00 p.m. on Saturday, generally recognized national holidays and Sundays
excepted, air conditioning, heating and ventilation services in accordance with
the specifications referenced in Exhibit X; provided that with respect to the
initial Premises leased by Tenant consisting of the entire rentable area of the
Building, Tenant may establish the hours for normal HVAC service. Subject to the
provisions set forth below, Landlord shall also furnish the Building with
elevator service, electric power with an average capacity of at least eight (8)
watts connected load and five (5) watts demand load per usable square foot of
the Premises (inclusive of fluorescent and incandescent overhead lighting), and
water for lavatory, drinking, and office kitchen purposes, which services shall
be provided twenty-four hours per day, seven days per week. This paragraph shall
at all times be subject to applicable governmental regulations.
2. Subject to Paragraph 8 below, upon written request from Tenant
delivered to Landlord prior to the period for which service is requested, but
during normal business hours, Landlord will provide any of the foregoing
building services to Tenant at such times when such services are not otherwise
available. With respect to any additional space leased by Tenant for which HVAC
is not separately metered and billed to Tenant, Tenant agrees to pay Landlord
for those afterhour services at rates that Landlord may establish from time to
time provided such rates shall be consistent with those charged by landlords of
comparable first-class office projects in the vicinity. If Tenant requires
electric current in excess of that which Landlord is obligated to furnish under
this Exhibit B, Tenant shall first obtain the consent of Landlord, and Landlord
shall cause an electric current meter to be installed in the Premises to measure
the amount of electric current consumed. The cost of installation, maintenance
and repair of the meter shall be paid for by Tenant, and Tenant shall reimburse
Landlord promptly upon demand for all electric current consumed for any special
power use as shown by the meter. The reimbursement shall be at the rates charged
for electrical power by the local public utility furnishing the current, plus
any additional expense incurred in keeping account of the electric current
consumed.
3. [Intentionally omitted]
4. Landlord shall furnish water for drinking, lavatory, and office kitchen
purposes only. If Tenant requires or uses water for any other purposes, Landlord
may, in its discretion, install a water meter to measure Tenants water
consumption. Tenant shall pay Landlord for the cost of the meter and the cost of
its installation, and for consumption throughout the duration of Tenants
occupancy. Tenant shall keep the meter and installed equipment in good working
order and repair at Tenant's own cost and expense, in default of which Landlord
may cause the meter to be replaced or repaired at Tenant's expense. Tenant
agrees to pay for water consumed to the extent in excess of the amount Landlord
considers normal for office usage, which payment shall be based on consumption
as shown on the meter and when bills are rendered, and on Tenant's default in
making that payment Landlord may pay the charges on behalf of Tenant. Any costs
or expenses or payments made by Landlord for any of the reasons or purposes
stated above shall be deemed to be additional rent payable by Tenant to Landlord
upon demand.
5. In the event that any utility service to the Premises is separately
metered or billed to Tenant, Tenant shall pay all charges for that utility
service to the Premises and the cost of furnishing the utility to tenant suites
shall be excluded from the Operating Expenses as to which reimbursement from
Tenant is required in the Lease. If any utility charges are not paid when due
Landlord may pay them, and any amounts paid by Landlord shall immediately become
due to Landlord from Tenant as additional rent. If Landlord elects to furnish
any utility service to the Premises, Tenant shall purchase its requirements of
that utility from Landlord as long as the rates charged by Landlord do not
exceed those which Tenant would be required to pay if the utilIty service were
furnished it directly by a public utility.
6. Landlord shall provide janitorial services five days per week in
accordance with the Janitorial Specifications attached as Exhibit B-1, and
window washing as reasonably required; provided, however, that Tenant shall pay
for any additional or unusual janitorial services rendered by reason of any
nonstandard improvements in the Premises, including without limitation wall
coverings and floor coverings installed by or for Tenant, or by reason of any
use of Premises other than exclusively as offices. The cleaning services
provided by Landlord shall also exclude refrigerators, eating utensils (plates,
drinking containers and silverware), and interior glass partitions. Tenant shall
pay to Landlord the cost of removal of any of Tenant's refuse and rubbish, to
the extent that they exceed the refuse and rubbish usually attendant with
general office usage.
7. Tenant shall have access to the Building and parking facilities 24
hours per day, 7 days per week, 52 weeks per year; provided that Landlord may
install access control systems as it deems advisable for the Building. Such
systems shall initially include a card identification access system, although
Landlord may from time to time provide additional or alternative procedures.
Landlord may impose a reasonable charge for access control cards and/or keys
issued to Tenant. Landlord shall have no liability to Tenant for the provision
by Landlord of improper access control services, for any breakdown in service,
or for the failure by Landlord to provide access control services. Tenant
further acknowledges
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that Landlord's access systems may be temporarily inoperative during building
emergency and system repair periods. Tenant agrees to assume responsibility for
compliance by its employees with any regulations established by Landlord with
respect to any card key access or any other system of building access as
Landlord may establish. Tenant shall be liable to Landlord for any loss or
damage resulting from its or its employees misuse of any access system. In
addition to the foregoing, Tenant may, at its sole expense, install its own
security system in the Premises and in the landing areas of the stairwells on
those floors on which Tenant leases space hereunder. Any security system
installed by Tenant shall be subject to Landlord's prior review and reasonable
approval (which approval shall not be deemed a warranty of fitness), shall not
interfere with Landlord's Building systems, and shall not be visible from the
exterior of the Premises unless otherwise approved by Landlord. Any system
installed by Tenant shall be promptly removed by Tenant, at its expense, if and
when Tenant vacates the applicable Premises.
8. Notwithstanding the foregoing, it is understood that with respect to
the initial Premises leased by Tenant consisting of the entire rentable area of
the Building, electricity, gas and water services to the Building shall be
separately metered. The cost of those utility services to the Building shall be
invoiced to Tenant and paid in full as additional rent by Tenant, promptly
following receipt of invoice, directly to the applicable utility provider
provided that Landlord may instead elect to make such utility payments, in which
event Tenant shall promptly reimburse Landlord in full as additional rent upon
receipt of invoices therefor.
9. Tenant may, at its sole expense, install, operate and maintain an
emergency generator in or about the Building for back-up power in support of its
communications and data systems in the Premises. The location of the emergency
generator shall be as shown on Exhibit A-1 to this Lease. The equipment shall be
housed within an enclosure constructed, at Tenant's sole expense, with materials
and pursuant to a design consistent with Landlord's adjoining equipment
structure for the Building. Tenant shall also be responsible for the reasonable
cost of replacing any parking stalls lost due to the installation of Tenant's
generator. The plans for such enclosure shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld so long as the
requirements herein are satisfied. Any such equipment shall be self-sufficient
and separate from all Building systems.
2
<PAGE>
JANITORIAL SPECIFICATIONS
-------------------------
Landlord shall use best efforts to provide cleaning services in accordance
with the following specifications:
I. OFFICE SPACE
A. DAILY
(1) Empty trash
(2) General carpet vacuuming
(3) General dusting of furniture and window ledges (if
clear)
(4) Spot clean carpet
(5) Damp and dry mop hard surface floors
(6) Spot clean doors, walls, and interior partition glass
(7) Clean lunch room tables and countertops (if clear)
B. WEEKLY
(1) Thorough vacuuming (i.e., under furniture)
(2) Dust lower furniture surfaces
(3) Dust areas over 6 feet high
(4) Damp wipe interior doors and vinyl furniture
C. MONTHLY
(1) Detail vacuuming (edges, covers)
(2) Vacuum drapes
(3) Dust miniblinds
(4) Clean vents
II. RESTROOMS
A. DAILY
(1) Clean/sanitize sinks, toilets, urinals
(2) Clean mirrors and stainless steel
(3) Sweep/disinfect floors
(4) Spot clean walls
(5) Damp wipe partitions
(6) Empty trash
(7) Replenish paper supplies, soap, etc.
B. WEEKLY
(1) Dust tops of partitions
(2) Flush floor drains
C. MONTHLY
(1) Scrub/refinish floors
(2) Clean vents
III. PUBLIC AREAS
A. DAILY
(1) Vacuum/sweep as needed
(2) Spot clean carpet
(3) Spot clean lobby doors
(4) Dust interior signage
(5) Wipe clean lobby directories
(6) Clean elevator cabs
B. WEEKLY
(1) Clean lobby doors
(2) Dust tops of door frames
C. MONTHLY
(1) Refinish lobby doors (where necessary)
(2) Clean vents
IV. WINDOWS
Windows to be cleaned inside and out, two (2) times per year.
EXHIBIT B-1
<PAGE>
EXHIBIT C
PARKING
The following parking regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable, nondiscriminatory modifications
and additions to the regulations by written notice to Tenant, provided such
modifications do not materially affect Tenant's access to the parking areas and
do not materially either impair the rights or increase the obligations of
Tenant. In the case of any conflict between these regulations and the Lease, the
Lease shall be controlling.
1. Landlord agrees to maintain, or cause to be maintained, an automobile
parking area ("Parking Area") in reasonable proximity to the Building for the
benefit and use of the visitors and patrons and, except as otherwise provided,
employees of Tenant and other tenants and occupants of the Building. The Parking
Area shall include, whether in a surface parking area or a parking structure,
the automobile parking stalls, driveways, entrances, exits, sidewalks and
attendant pedestrian passageways and other areas designated for parking.
Landlord shall have the right and privilege of determining the nature and extent
of the automobile Parking Area, whether it shall be surface, underground or
other structure, and of making such changes to the Parking Area from time to
time which in its opinion are desirable and for the best interest of all persons
using the Parking Area. Landlord shall keep the Parking Area in a neat, clean
and orderly condition, and shall repair any damage to its facilities. Landlord
shall not be liable for any damage to motor vehicle, of visitors or employees,
for any loss of property from within those motor vehicles, or for any injury to
Tenant, its visitors or employees, unless ultimately determined to be caused by
the negligence or willful misconduct of Landlord. Unless otherwise instructed by
Landlord, every parker shall park and lock his or her own motor vehicle.
Landlord shall also have the right to establish, and from time to time amend,
and to enforce against all users of the Parking Area all reasonable rules and
regulations (including the designation of areas for employee parking) as
Landlord may deem necessary and advisable for the proper and efficient operation
and maintenance of the Parking Area. Garage managers or attendants are not
authorized to make or allow any exceptions to these regulations.
2. Subject to Paragraph 7 below and Section 6.4 of the Lease, Landlord
may, if it deems advisable in its sole discretion, charge for parking and may
establish for the Parking Area a system or systems of permit parking for Tenant,
its employees and its visitors, which may include, but not be limited to, a
system of charges against nonvalidated parking, ventilation of users, a set of
regulations governing different parking locations, and an allotment of reserved
or nonreserved parking spaces based upon the charges paid and the identity of
users. In no event shall Tenant or its employees park in reserved stalls leased
to other tenants or in stalls within designated visitor parking zones. It is
understood that Landlord shall not have any obligation to cite improperly parked
vehicles or otherwise attempt to enforce reserved parking rules during hours
when parking attendants are not present at the Parking Area. Subject to
Paragraph 7 below and Section 6.4 of the Lease, Tenant shall comply with such
system in its use (and in the use of its visitors, patrons and employees of the
Parking Area, provided, however, that the system and rules and regulations shall
apply to all persons entitled to the use of the Parking Area, and all charges to
Tenant for use of the Parking Area shall be no greater than Landlords then
current scheduled charge for parking.
3. Tenant shall, upon request of Landlord from time to time, furnish
Landlord with a list of its employees' names and of Tenant's and its employees
vehicle license numbers. Tenant agrees to acquaint its employees with these
regulations and assumes responsibility for compliance by its employees with
these parking provisions, and shall be liable to Landlord for all unpaid parking
charges incurred by its employees. Any amount due from Tenant shall be deemed
additional rent. Tenant authorizes Landlord to tow away from the Building any
vehicle belonging to Tenant or Tenant's employees parked in violation of these
provisions, and/or to attach violation stickers or notices to those vehicles. In
the event Landlord elects or is required to limit or control parking by tenants,
employees, visitors or invitees of the Building, whether by validation of
parking tickets, parking meters or any other method of assessment, then subject
to Paragraph 7 below, Tenant agrees to participate in the validation or
assessment program under reasonable rules and regulations as are established by
Landlord and/or any applicable governmental agency.
4. Landlord may establish an identification system for vehicles of Tenant
and its employees which may consist of stickers, magnetic parking cards or other
identification devices supplied by Landlord. All identification devices shall
remain the property of Landlord, shall be displayed as required by Landlord or
upon request and may not be mutilated or obliterated in any manner. Those
devices shall not be transferable and any such device in the possession of an
unauthorized holder shall be void and may be confiscated. Landlord may impose a
reasonable fee for identification devices and a replacement charge for devices
which are lost or stolen. Each identification device shall be returned to
Landlord promptly following the Expiration Date or sooner termination of this
Lease. Loss or theft of parking identification devices shall be reported to
Landlord or its Parking Area operator immediately and a written report of the
loss filed if requested by Landlord or its Parking Area operator.
5. Persons using the Parking Area shall observe all directional signs and
arrows and any posted speed limits. Unless otherwise posted, in no event shall
the speed limit of 5 miles per hour be exceeded. All vehicles shall be parked
entirely within painted stalls, and no vehicles shall be parked in areas which
are posted or marked as "no parking" or on or in ramps, driveways and aisles.
Only one vehicle may be parked in a parking space. In no event shall Tenant
interfere with the use and enjoyment of the Parking Area by other tenants of the
Building or their employees or invitees.
6. Parking Areas shall be used only for parking vehicles. Washing, waxing,
cleaning or servicing of vehicles, or the parking of any vehicle on an overnight
basis, in the Parking Area (other than
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emergency services) by any parker or his or her agents or employees is
prohibited unless otherwise authorized by Landlord. Tenant shall have no right
to install any fixtures, equipment or personal property (other than vehicles) in
the Parking Area, nor shall Tenant make any alteration to the Parking Area.
7. It is understood that the employees of Tenant and the other tenants of
Landlord within the Building and Project shall not be permitted to park their
automobiles in the portions of the Parking Area which may from time to time be
designated for patrons of the Building and/or Project and that Landlord shall at
all times have the right to establish rules and regulations for employee
parking. During the initial Term of this Lease and notwithstanding the foregoing
provisions hereof, Tenant shall not be required to pay any monthly stall charge
for the Allotted Stalls provided in connection with the initial Premises, nor
shall Tenant be required to pay for visitor parking. Thereafter, Tenant shall
pay to Landlord or its agents for the use of employee parking spaces the amounts
as Landlord shall from time to time determine. Landlord may authorize persons
other than those described above, including occupants of other buildings, to
utilize the Parking Area so long as sufficient parking remains for Tenant and
its employees. In the event of the use of the Parking Area by other persons,
those persons shall pay for that use in accordance with the terms established
above; provided, however, Landlord may allow those persons to use the Parking
Area on weekends, holidays, and at other non-office hours without payment.
8. Notwithstanding the foregoing paragraphs 1 through 7, Landlord shall be
entitled to pass on to Tenant its proportionate share of any charges or parking
surcharge or transportation management costs levied by any governmental agency.
The foregoing parking provisions are further subject to any governmental
regulations which limit parking or otherwise seek to encourage the use of
carpools, public transit or other alternative transportation forms or traffic
reduction programs. Tenant agrees that it will use its best efforts to
cooperate, including registration and attendance, in programs which may be
undertaken to reduce traffic. Tenant acknowledges that as a part of those
programs, it may be required to distribute employee transportation information,
participate in employee transportation surveys, allow employees to participate
in commuter activities, designate a liaison for commuter transportation
activities, distribute commuter information to all employees, and otherwise
participate in other programs or services initiated under a transportation
management program.
9. Should any parking spaces be allotted by Landlord to Tenant, either on
a reserved or nonreserved basis, Tenant shall not assign or sublet any of those
spaces, either voluntarily or by operation of law, without the prior written
consent of Landlord, except in connection with an authorized assignment of this
Lease or subletting of the Premises.
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EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Building. Tenant agrees to obtain and present evidence to Landlord that it has
fully complied with the insurance requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, blanket contractual, independent contractors, broad form
property damage, fire legal liability, liquor law liability (if alcoholic
beverages are sold, served or consumed within the Premises), and cross liability
and severability of interest clauses, which policy(ies) shall be written on an
"occurrence" basis and for not less than $2,000,000 combined single limit (with
a $50,000 minimum limit on fire legal liability) per occurrence for bodily
injury, death, and property damage liability, or the current limit of liability
carried by Tenant, whichever is greater; (ii) workers' compensation insurance
coverage as required by law, together with employers' liability insurance
coverage; (iii) with respect to improvements, alterations, and the like required
or permitted to be made by Tenant under this Lease, builder's all-risk
insurance, in amounts reasonably satisfactory to Landlord; (iv) insurance
against fire, vandalism, malicious mischief and such other additional perils as
may be included in a standard "all risk" form, insuring the leasehold
improvements, trade fixtures, furnishings, equipment and items of personal
property in the Premises, in an amount equal to not less than ninety percent
(90%) of their actual replacement cost (with replacement cost endorsement),
which policy shall also include loss of income/business interruption/extra
expense coverage in an amount not less than nine months loss of income from
Tenant's business in the Premises. In no event shall the limits of any policy be
considered as limiting the liability of Tenant under this Lease. Notwithstanding
the foregoing, Tenant may elect to self-insure its all-risk property insurance
coverage, provided that Landlord's rights are not thereby impaired; in such
event, for purposes of Section 10.4 of this Lease, Tenant shall be deemed to
have fully insured any property loss with waiver of subrogation against
Landlord.
2. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
do business in the State of California and with a Best's policyholder rating of
not less than "B++ VII" subject to final acceptance and approval by Landlord.
Any insurance required of Tenant may be furnished by Tenant under any blanket
policy carried by it or under a separate policy. A certificate of insurance,
certifying that the policy has been issued, provides the coverage required by
this Exhibit D and contains the required provisions, shall be delivered to
Landlord prior to the date Tenant is given the right of possession of the
Premises. Proper evidence of the renewal of any insurance coverage shall also be
delivered to Landlord prior to the expiration of the coverage.
3. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or clauses
satisfactory to Landlord: (i) a provision that the policy and the coverage
provided shall be primary and that any coverage carried by Landlord shall be
noncontributory with respect to any policies carried by Tenant; (ii) with
respect to Tenant's liability insurance coverage, a provision including Landlord
and any other parties in interest designated by Landlord as an additional
insured; (iii) a waiver by the insurer of any right to subrogation against
Landlord, its agents, employees, contractors and representatives which arises or
might arise by reason of any payment under the policy or by reason of any act or
omission of Landlord, its agents, employees, contractors or representatives; and
(iv) a provision that the insurer will not cancel or change the coverage
provided by the policy without first giving Landlord ten (10) days prior written
notice.
4. In the event that Tenant fails to procure (after the expiration of any
notice and cure period), maintain and/or pay for, at the times and for the
durations specified in this Exhibit D, any insurance required by this Exhibit D,
or fails to carry insurance required by any governmental authority, Landlord may
at its election procure that insurance and pay the premiums, in which event
Tenant shall repay Landlord all sums paid by Landlord, together with interest at
the rate of ten percent (10%) per annum and any related costs or expenses
incurred by Landlord, within ten (10) days following Landlord's written demand
to Tenant.
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EXHIBIT E
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable nondiscriminatory modifications
and additions at any time, provided that such modifications and additions do not
materially adversely affect Tenant's rights and obligations under the Lease. In
the case of any conflict between these regulations and the Lease, the Lease
shall be controlling. Landlord shall use reasonable efforts to cause the tenants
of the Project to comply with the Rules and Regulations; provided that Landlord
shall not thereby be compelled to initiate litigation proceedings unless
Landlord determines, in its sole discretion, that such proceedings are
warranted.
1. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the retail sale of, newspapers, magazines, periodicals, or
theater tickets, in or from the Premises, nor shall Tenant carry on, or permit
or allow any employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building. Tenant shall
not allow the Premises to be utilized for any manufacturing of any kind, or the
business of a public barber shop, beauty parlor, or a manicuring and chiropodist
business, or any business other than that specifically provided for in the
Lease.
2. The sidewalks, halls, passages, elevators, stairways, and other common
areas shall not be obstructed by Tenant or used by it for storage or for any
purpose other than for ingress to and egress from the Premises. The halls,
passages, entrances, elevators, stairways, balconies and roof are not for the
use of the general public, and Landlord shall in all cases retain the right to
control and prevent access to those areas of all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants. Nothing contained in this Lease
shall be construed to prevent access to persons with whom Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors and messengers and
the like) unless those persons are engaged in illegal activities. Neither Tenant
nor any employee or contractor of Tenant shall go upon the roof of the Building
without the prior written consent of Landlord, except to service any
antenna/satellite dish located thereon in accordance with a license granted by
Landlord.
3. The sashes, sash doors, windows, glass lights, solar film and/or
screen, and any lights or skylights that reflect or admit light into the halls
or other places of the Building shall not be covered or obstructed. The toilet
rooms, water and wash closets and other water apparatus shall not be used for
any purpose other than that for which they were constructed, and no foreign
substance of any kind shall be thrown in those facilities, and the expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by Tenant
4. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Building or the Premises without the prior written consent of Landlord. If
Landlord shall have given its consent at any time, whether before or after the
execution of this Lease, that consent shall in no way operate as a waiver or
release of any of the provisions of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by Landlord
and shall not be construed as dispensing with the necessity of obtaining the
specific written consent of Landlord with respect to any subsequent sign,
advertisement or notice. If Landlord, by a notice in writing to Tenant, shall
object to any curtain, blind, tinting, shade or screen attached to, or hung in,
or used in connection with, any window or door of the Premises, the use of that
curtain, blind, tinting, shade or screen shall be immediately discontinued and
removed by Tenant. No awnings shall be permitted on any part of the Premises.
5. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything in the Premises, which shall in any way increase the rate
of fire insurance on the Building, or on the property kept in the Building, or
obstruct or interfere with the rights of other tenants, or in any way injure or
annoy them, or conflict with the regulations of the Fire Department or the fire
laws, or with any insurance policy upon the Building, or any portion of the
Building or its contents, or with any rules and ordinances established by the
Board of Health or other governmental authority.
6. The installation and location of any unusually heavy equipment in the
Premises, including without limitation file storage units, safes and electronic
data processing equipment, but exclusive of normal office photocopiers and other
equipment, shall require the prior written approval of Landlord. Landlord may
restrict the weight and position of any equipment that may exceed the weight
load limits for the structure of the Building, and may further require, at
Tenant's expense, the reinforcement of any flooring on which such equipment may
be placed and/or an engineering study to be performed to determine whether the
equipment may safely be installed in the Building and the necessity of any
reinforcement. The moving of large or heavy objects shall occur only between
those hours as may be designated by, and only upon previous written notice to,
Landlord, and the persons employed to move those objects in or out of the
Building must be reasonably acceptable to Landlord. No freight, furniture or
bulky matter of any description shall be received into or moved out of the lobby
of the Building or carried in any elevator other than the freight elevator
designated by Landlord unless approved in writing by Landlord.
7. Landlord shall clean the Premises as provided in the Lease, and, except
with the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for that purpose.
Tenant shall not cause unnecessary labor by reason of Tenant's carelessness and
indifference in the preservation of good order and cleanliness.
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8. Tenant shall not sweep or throw, or permit to be swept or thrown, from
the Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors and/or vibrations, or interfere in any
way with other tenants or those having business with other tenants, nor shall
any animals or birds be kept by Tenant in or about the Building. Smoking or
carrying of lighted cigars, cigarettes, pipes or similar products anywhere
within the elevators, restrooms, common corridors, lobbies or other common areas
of the Building is strictly prohibited. Any such activity within the Premises
shall, until further notice, be permitted only absent written notification to
Landlord from another tenant of the Building that such activity is creating
fumes or odors that are offensive or objectionable; in the event such notice is
given to Landlord, Landlord may prohibit smoking within the Premises and may
enforce such prohibition pursuant to Landlord's leasehold remedies. Smoking is
permitted outside the Building and within the project only in areas designated
by Landlord.
9. No cooking shall be done or permitted by Tenant on the Premises, except
pursuant to the normal use of a U.L. approved microwave oven and coffee maker
for the benefit of Tenant's employees and invitees, nor shall the Premises be
used for the storage of merchandise or for lodging.
10. Except for supplies and cleaning materials used by typical office
tenants, Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord or reasonably approved by Landlord.
11. No boring or cutting for wires or otherwise shall be made without
directions from Landlord.
12. Upon the termination of its tenancy, Tenant shall deliver to Landlord
all the keys to offices, rooms and toilet rooms and all access cards which shall
have been furnished to Tenant or which Tenant shall have had made.
13. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises, except to
install normal wall hangings. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except by a paste, or other material which
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any floor covering
shall be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant
14. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m., access to the Building, or to the halls,
corridors, elevator or stairways in the Building, or to the Premises, may be
refused unless the person seeking access complies with any access control system
that Landlord may establish. Landlord shall in no case be liable for damages for
the admission to or exclusion from the Building of any person whom Landlord has
the right to exclude under Rules 2 or 18 of this Exhibit. In case of invasion,
mob, riot, public excitement, or other commotion, or in the event of any other
situation reasonably requiring the evacuation of the Building, Landlord reserves
the right at its election and without liability to Tenant to prevent access to
the Building by closing the doors or otherwise, for the safety of the tenants
and protection of property in the Building.
15. Tenant shall be responsible for protecting the Premises from theft,
which includes keeping doors and other means of entry closed and securely
locked. Tenant shall cause all water faucets or water apparatus to be shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be shut off, so as to prevent waste or
damage. The foregoing shall not relieve Landlord of the responsibility of
maintaining the access control systems for the Building.
16. Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the Premises without the prior written consent of
Landlord. If Landlord gives its consent, Tenant shall in each case promptly
furnish Landlord with a key for any new or altered lock.
17. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or air
conditioning service in excess of that to be provided by Landlord under the
Lease except in accordance with Exhibit B; provided, however, that Tenant may
install such equipment if necessary for the operation of its business so long as
Tenant funds to Landlord the cost of any necessary upgrades to the systems and
equipment of the Building.
18. Landlord shall have full and absolute authority to regulate or
prohibit the entrance to the Premises by any vendor, supplier, purveyor,
petitioner, proselytizer or other similar person. In the event any such person
is a guest or invitee of Tenant, Tenant shall notify Landlord in advance of each
desired entry, and Landlord shall authorize the person so designated to enter
the Premises, provided that such person will not be involved in general
solicitation activities, or the proselytizing, petitioning, or disturbance of
other tenants or their customers or invitees, or engaged or likely to engage in
conduct which may in Landlord's reasonable opinion distract from the use of the
Premises for its intended purpose. Notwithstanding the foregoing, Landlord
reserves the absolute right and discretion to limit or prevent access to the
Buildings by any food or beverage vendor, except to the extent specifically
invited by Tenant to the Premises, and Landlord may condition such access upon
the vendor's execution of an entry permit agreement which may contain provisions
for insurance coverage.
19. Tenant shall be required to utilize the third party contractor
designated by Landlord for the Building to provide any telephone wiring services
from the minimum point of entry of the telephone cable in the Building to the
Premises. Notwithstanding the foregoing, however, in the event Tenant does not
have
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a telephone switch within the Premises, Tenant may, with Landlord's approval and
supervision, use a trained contractor to provide such wiring services, but only
from the Premises to the telephone room on the floor on which the Premises are
situated.
20. Landlord may from time to time grant tenants individual and temporary
variances from these Rules, provided that any variance does not have a material
adverse effect on the use and enjoyment of the Premises by Tenant.
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EXHIBIT X
WORK LETTER
-----------
I. LANDLORD'S WORK
---------------
Landlord shall, at its expense, complete all base building work in
substantial accordance with the plans and specifications described in
Exhibit X-1 hereto (the "Landlord's Work").
II. TENANT IMPROVEMENTS
-------------------
The tenant improvement work ("Tenant Improvements") shall consist of any
work, exclusive of the Landlord's Work specified in Article I above,
required to complete the Premises pursuant to plans and specifications
approved by both Landlord and Tenant. Tenant shall employ its own
architect (Gensler) and general contractor in constructing the tenant
improvements. The general contractor shall be selected by Tenant on the
basis of a competitive bid involving general contractors approved in
advance in writing by Landlord; provided that such bidders shall include
Turelk Inc. The work shall be undertaken and prosecuted in accordance with
the following requirements:
A. Concurrently with sign-off by Tenant, the space plans, construction
drawings and specifications for all improvements and finishes,
together with any changes thereto, shall be submitted to Landlord
(with samples as required) for review by Landlord and its architect
for the Protect.
B. Landlord shall, subject to the foregoing, approve or disapprove any
submittal of plans or specifications, or requests for changes
thereto, by Tenant within five (5) business days following receipt
thereof by Landlord. Landlord's failure to respond within that
period shall be deemed a "Landlord Delay" for purposes of this Lease
if and to the extent the completion of the Tenant Improvements is
delayed as a result thereof. In lieu of disapproving an item,
Landlord may approve same on the condition that Tenant pay to
Landlord, not later than four (4) months prior to the expiration or
termination of this Lease and in addition to all sums otherwise due
hereunder, an amount equal to the cost, as reasonably estimated by
Landlord, of removing and replacing the item upon the expiration or
termination of the Lease. Should Landlord approve work that would
necessitate any ancillary Building modification or other expenditure
by Landlord, then except to the extent of any remaining balance of
the "Landlord's Contribution" as described below, Tenant shall, in
addition to its other obligations herein, promptly fund the cost
thereof to Landlord.
C. Tenant shall use the electrical, mechanical, plumbing and fire/life
safety engineers and subcontractors designated by Landlord, provided
that their charges are generally competitive with those of other
contractors with similar qualifications and experience. All other
subcontractors shall be subject to Landlord's reasonable approval,
and Landlord may require that one or more designated subtrades be
union contractors.
D. Tenant shall deliver to Landlord a copy of the final application for
permit and issued permit for the construction work.
E. Tenant's general contractor and each of its subcontractors shall
comply with Landlord's requirements as generally imposed on third
party contractors, including without limitation all insurance
coverage requirements and the obligation to furnish appropriate
certificates of insurance to Landlord prior to commencement of
construction.
F. A construction schedule shall be provided to Landlord prior to
commencement of the construction work, and periodic updates shall be
supplied during the progress of the work.
G. Tenant shall give Landlord ten (10) days prior written notice of the
commencement of construction so that Landlord may cause an
appropriate notice of non-responsibility to be posted.
H. Tenant and its general contractor shall attend weekly job meetings
with Landlord's construction manager for the Project.
I. Upon completion of the work, Tenant shall cause to be provided to
Landlord (i) record drawings of the Premises signed by Tenants
architect, (ii) CADD tapes of the improved space compatible with
Landlord's CADD system, (iii) a final punchlist signed by Tenant,
(iv) final and unconditional lien waivers from all contractors and
subcontractors, (v) a duly recorded Notice of Completion of the
improvement work, and (vi) a certificate of occupancy for the
Premises (collectively, the "Close-out Package").
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J. The work shall be prosecuted at all times in accordance with all
state, federal and local laws, regulations and ordinances, including
without limitation all OSHA and other safety laws.
K. All of the provisions of this Lease shall apply to any activity of
Tenant, its agents and contractors, in the Premises prior to the
Commencement Date, except for the obligation of Tenant to pay rent.
L. Landlord shall permit Tenant and its contractors to enter the
Premises forty-five (45) days prior to the Shell Completion Date in
order that Tenant may commence the Tenant Improvements. Such early
entry by Tenant is, however, conditioned upon Tenant's contractors
and their subcontractors and employees working in harmony and not
interfering with the work being performed by Landlord. That license
is further conditioned upon the compliance by Tenants contractors
with all requirements imposed by Landlord on third party contractors
and subcontractors, including without limitation the maintenance by
Tenant and its contractors and subcontractors of workers'
compensation and public liability and property damage insurance in
amounts and with companies and on forms satisfactory to Landlord,
with certificates of such insurance being furnished to Landlord
prior to proceeding with any such entry. The entry shall be deemed
to be under all of the provisions of the Lease except as to the
covenants to pay rent.
M. In addition to the event of Landlord Delay described in Paragraph B
above, any interference by Landlord with the construction by Tenants
contractors of the Tenant improvements, whether during the
forty-five (45) day early access period described above or
thereafter, shall be deemed a "Landlord Delay" for purposes of this
Lease if Tenant promptly notifies Landlord of the interference and
if and to the extent such interference actually and necessarily
delays, on a critical path basis, the completion of the Tenant
Improvements.
Except to the extent caused by Landlords negligence or willful misconduct,
Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any work performed by Tenant, nor shall Landlord be
responsible for repairing any defective condition therein. Except as
provided in Article III of the Lease, in no event shall Tenant's failure
to complete the Tenant Improvements extend the Commencement Date of the
Lease.
III. COST OF THE WORK
----------------
A. Landlord shall provide to Tenant a tenant improvement allowance in
the amount of Twenty-Four Dollars and Fifteen Cents per usable
square foot of the initial Premises (the "Landlord's Contribution").
Subject to the provisions below, any excess cost shall be borne
solely by Tenant. The Landlords Contribution shall be utilized to
fund space planning and other architectural costs (including the
reasonable cost charged by Landlord's architect to review Tenant's
submittals), construction costs and plan check and permit fees. It
is understood that Landlord's management agent for the Project shall
be entitled to a supervision/ administrative fee equal to three
percent (3%) of such costs, which fee shall be paid from the
Landlords Contribution.
B. If the actual cost of completion of the Tenant Improvements is less
than the maximum amount provided for the Landlords Contribution,
such savings (up to a maximum of Four Dollars ($4.00) per usable
square foot of the Premises) shall be applied as a credit against
the Basic Rent payable for the initial Lease Term. Such credit shall
be in the amount of Eighteen Dollars and Thirty-Four Cents ($18.34)
per month for each One Thousand Dollars ($1,000) of savings, with
any portion thereof appropriately prorated. Any savings in excess of
the maximum amount described above shall inure solely to the benefit
of Landlord. The amount of the monthly credit shall, if applicable,
be memorialized on a form provided by Landlord.
C. Landlord shall fund the Landlords Contribution (less deductions for
the above-described supervision fee and charges of Landlords
architect) in installments as and when costs are incurred and a
payment request therefor as submitted by Tenant, which payment
requests shall be submitted not more frequently than once per month.
Each payment request shall include a copy of all [ILLEGIBLE]
invoices, lien waivers (in the form prescribed by the California
Civil Code, and pertinent back-up. It is understood that such lien
waivers may be conditional until final payment is made. Landlord
shall fund the payment request within thirty (30) days following
receipt of the application and supporting materials provided that a
ten percent (10%) retention shall be held on payments to Tenant
until Landlord receives the complete Close-out Package. The
remaining balance of the Landlord's Contribution shall be funded
when Landlord receives the complete Close-out Package.
D. In addition to the foregoing, Landlord shall advance to Tenant, at
Tenant's written request, the cost of other tenant improvement work
in the Premises, but exclusive of furniture, furnishings and
removable personal property, up to a maximum of Five Dollars per
usable square foot of the initial Premises and the Must Take Space
(the "Advance")
2
<PAGE>
The Advance shall be deemed a loan to Tenant and shall bear interest
at the rate of ten percent (10%) per annum and shall be repaid by
Tenant as additional rent in equal fully-amortized monthly
installments on the first day of each month during the initial sixty
(60) months of the Term of this Lease. The amount of the Advance, if
any, and the monthly amortization amount shall be memorialized by
the parties on a form provided by Landlord. Should this Lease
terminate prior to the date the Advance is repaid in full, all
unpaid principal and interest shall be immediately due and payable.
IV. WARRANTIES
----------
Each party agrees to cooperate with the other party in enforcing and/or
assigning any warranties that would benefit such other party in fulfilling
its repair and maintenance obligations under this Lease.
3
<PAGE>
EXHIBIT X-1
CORPORATE PLAZA WEST, PHASE I PROJECT
NEWPORT BEACH, CA
DRAWING LIST
In accordance with Drawings us prepared by the following:
ARCHITECT: McLarand, Vasquez & Partners, Inc.
Architecture & Planning
695 Town Center Drive, Suite 300
Costa Mesa, CA 92626
CIVIL ENGINEERS: The Keith Companies
2955 Red Hill Avenue
Costa Mesa, CA 92626
STRUCTURAL ENGINEERS: Culp & Tanner
23686 Birtcher Drive
El Toro, CA 92630
MECHANICAL & PLUMBING
ENGINEERS: Tsuchiyama & Kaino
17877 Von Karman Avenue, Suite 100
Irvine, CA 92714
ELECTRICAL ENGINEER: R.E. Wall & Associates
2842-A Walnut Ave.
Tustin, CA 92680-7027
LANDSCAPE ARCHITECT: Burton Associates
12760 High Bluff Drive, Suite 120
San Diego, CA 92130
GEOTECHNICAL ENGINEER: NMG Geotechnical
17791 Mitchell, Suite D
Irvine, CA 92614
CIVIL
- --------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
G-0.00 Cover Sheet Building W1 & W2 ----
Sheet 1 of 1 Conceptual Grading Plan ----
C1 of 11 Precise Grading Plan - Addendum G 6/15/98
C2 of 11 Precise Grading Plan - Addendum E 4/21/98
C3 of 11 Precise Grading Plan - Addendum G 6/15/98
C4 of 11 Precise Grading Plan - Addendum G [ILLEGIBLE]15/98
C5 of 11 Storm Drain - Addendum G [ILLEGIBLE]5/98
C6 of 11 Storm Drain (Low Flow) - Addendum E 4/21/98
C7 of 11 Erosion Control Plan - Addendum E 4/21/98
C8 of 11 Horizontal Control Plan- Addendum E 4/21/98
C9 of 11 Signing and Striping Plan - Addendum G 6/15/98
C10 of 11 Construction Details - Addendum E 4/21/98
C11 of 11 Wall Profiles and Details - Addendum E 4/21/98
Sheet 1 of 11 Corporate Plaza West Improvement Plan -
Addendum G 6/15/98
Sheet 2 of 11 Corporate Plaza West Improvement Plan - Water -
Addendum G 6/15/98
Page 1 7/13/98
<PAGE>
CORPORATE PLAZA WEST, PHASE 1 PROJECT
NEWPORT BEACH, CA
DRAWING LIST
<TABLE>
<CAPTION>
DRAWING NO. TITLE DATE
<S> <C> <C>
Sheet 3 of 11 Corporate Plaza West Improvement Plan - Sewer - Addendum E 4/21/98
Sheet 4 of 11 Corporate Plaza West Improvement Plan - E.C.H. Sewer 4/21/98
Connection - Addendum E
Sheet 5 of 11 Corporate Plaza West Improvement Plan - N.C.D. Median 6/15/98
Modification - Addendum G
Sheet 6 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 6/15/98
N.C.D. Median - Addendum G
Sheet 7 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 4/21/98
N.C.D. Median - Addendum E
Sheet 8 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 4/21/98
Water NCD Phase I - Addendum E
Sheet 9 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 4/21/98
Water - N.C.D. - Phase II - Addendum E
Sheet 10 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 4/21/98
Sewer at E.C.H. - Addendum E
Sheet 11 of 11 Corporate Plaza West Improvement Plan - Traffic Control for 4/21/98
Water at E.C.H. - Addendum E
<CAPTION>
GENERAL INFORMATION
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
G-0.01 General Notes Building W1 & W2 - Addendum E 4/21/98
G-0.02 General Notes Building W1 & W2 1/29/98
G-0.03 Area Entitle & Parking Requirement Calc. Building W1 & W2 1/29/98
G-0.04 Exit Plan/Building Height Compliance Building W1 & W2 - 4/21/98
Addendum E
<CAPTION>
ARCHITECTURAL
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
A-0.01 Site Plan Building W1 & W2 - Addendum E 4/21/98
A-1.01 Level One Floor Plan Building W1 - Addendum E 4/21/98
A-1.02 Level Two Floor Plan Building W1 1/29/98
A-1.03 Roof Plan Building W1 l/29/98
A-1.11 Level One Floor Plan Building W2 - Addendum E 4/21/98
A-1.12 Level Two Floor Plan Building W2 1/29/98
A-1.13 Roof Plan Building W2 1/29/98
A-2.01 Exterior Elevation Building W1 1/29/98
A-2.02 Exterior Elevation Building W1 1/29/98
A-2.03 Building Sections Building W1 & W2 1/29/98
A-2.11 Exterior Elevation Building W2 1/29/98
A-2.12 Exterior Elevations Building W1 1/29/98
A-2.15 Building Sections Building W1 and W2 1/29/98
A-2.20 Enlarged Elevation, Precast Detail Building 1 & 2 1/29/98
A-2.21 Precast Details Building W1 and W2 1/29/98
A-2.22 Precast Details Building W1 and W2 - Addendum D 3/18/98
A-2.23 Precast Detail Building I - Addendum D 3/18/98
A-4.01 Floor Plan Level One Building W1 - Addendum E 4/21/98
A.4.02 Floor Plan Level Two Building W1 - Addendum E 4/21/98
A-4.11 Floor Plan Level One Building W2 - Addendum E 4/21/98
A-4.12 Floor Plan Level Two Building W2 - Addendum E 4/21/98
</TABLE>
Page 2 7/13/98
<PAGE>
CORPORATE PLAZA WEST, PHASE 1 PROJECT
NEWPORT BEACH, CA
DRAWING LIST
<TABLE>
<CAPTION>
DRAWING NO. TITLE DATE
<S> <C> <C>
A-4.21 Paving Plan Level One Building W1 1/29/98
A-4.22 Paving Plan Level Two Building W1 - Addendum E 4/21/98
A-4.31 Paving Plan Level One Building W2 1/29/98
A-4.32 Paving Plan Level Two Building W2 - Addendum E 4/21/98
A-04.41 Ceiling Plan Level One Building W1 1/29/98
A-4.42 Ceiling Plan Level Two Building W1 - Addendum E 4/21/98
A-4.51 Ceiling Plan Level One Building W2 1/29/98
A-4.52 Ceiling Plan Level Two Building W2 - Addendum E 4/21/98
A-4.61 Stair Sections Building W1 - Addendum E 4/21/98
A-4.91 Stair Details Building 1 & 2 - Addendum E 4/21/98
A-4.92 Stair Details Building 1 & 2 1/29/98
A-5.01 Interior Elevations Building W1 & W2 1/29/98
A-5.02 Interior Elevations Building W1 & W2 1/29/98
A-6.01 Wall Types Building W1 & W2 1/29/98
A-6.02 Details Building W1 & W2 1/29/98
A-6.06 Interior Finish Schedule Building W1 1/29/98
A-6.07 Interior Finish Schedule Building W2 1/29/98
A-6.11 Interior Details Building W1 & W2 1/29/98
A-6.12 Interior Details Building W1 & W2 - Addendum E 4/21/98
A-6.13 Title 24 Accessibility Compliance Building 1 & 2 1/29/98
A-6.20 Door Schedule Building 1 - Addendum E 4/21/98
A-6.21 Door Schedule Building 2 - Addendum E 4/21/98
A-6.31 Details Building 1 & 2 - Addendum D 3/18/98
A-7.01 Misc. Details - Addendum D 3/18/98
A-7.02 Trash Enclosure Building W1 & W2 - Addendum E 4/21/98
A-7.03 Misc. Details Building W1 and W2 - Addendum D 3/18/98
<CAPTION>
STRUCTURAL
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
S-0.01 General Notes - Addendum F 6/05/98
S-1.01 Foundation Plan Building W1 - Addendum E 4/21/98
S-1.02 Floor Framing Plan Level 2 Building W1 - Addendum F 6/05/98
S-1.03 Roof Framing Plan Building W1 - Addendum F 6/05/98
S-1.11 Foundation Plan Building W2 - Addendum E 4/21/98
S-1.12 Floor Framing Plan Level 2 Building - Addendum F 6/05/98
S-1.13 Roof Framing Plan Building W2 - Addendum F 6/05/98
S-2.01 Frame Elevations 1/29/98
S-4.10 Details 1/29/98
S-5.10 Details 1/29/98
S-5.11 Details - Addendum E 4/21/98
S-5.12 Details - Addendum E 4/21/98
S-6.10 Typical Deck Details 1/29/98
<CAPTION>
MECHANICAL
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
M0.1 Legend and Schedules Buildings W1 & W2 1/29/98
M0.2 Compliance Forms building W1 & W2 1/29/98
M1.00 Site Plan Buildings W1 & W2 - Addendum E 4/21/98
M-1.01 Mechanical Floor Plan Level 1 Building W1 1/29/98
M-1.02 Mechanical Floor Plan Level 2 Building W1 1/29/98
M-1.03 Mechanical Roof Plan Building W1 1/29/98
</TABLE>
Page 3 7/13/98
<PAGE>
CORPORATE PLAZA WEST, PHASE 1 PROJECT
NEWPORT BEACH, CA
DRAWING LIST
<TABLE>
<CAPTION>
DRAWING NO. TITLE DATE
<S> <C> <C>
M-1.04 Mechanical Floor Plan Level 1 Building W2 1/29/98
M-1.05 Mechanical Floor Plan Level 2 Building W2 1/29/98
M-1.06 Mechanical Roof Plan Building W2 1/29/98
M-3.01 Sections and Details Building W1 & W2 - Addendum E 4/21/98
M-3.02 Sections and Details Building W1 & W2 - Addendum E 4/21/98
M-5.01 Details Building W1 & W2 1/29/98
M-6.01 Wiring and Controls Building W1 & W2 - Addendum E 4/21/98
<CAPTION>
PLUMBING
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
P-0.01 Site Plan Building W1 - Addendum E 4/21/98
P-0.02 Legend, Schedules & Notes Building W1 & W2 - Addendum E 4/21/98
P-1.01 Level One Floor Plan Building W1 - Addendum E 4/21/98
P-1.02 Level Two Floor Plan Building W1 - Addendum E 4/21/98
P-1.03 Roof Plan Building W1 - Addendum E 4/21/98
P-1.04 Level Two Floor Plan Building W2 - Addendum E 4/21/98
P-1.05 Level Two Floor Plan Building W2 - Addendum E 4/21/98
P-1.06 Partial Plans Building W1 - Addendum E 4/21/98
P-3.01 Enlarged Plans Building W1 - Addendum E 4/21/98
P-3.02 Enlarged Plans Building W2 - Addendum E 4/21/98
P-4.01 Diagrams Building 1 - Addendum E 4/21/98
P-4.02 Diagrams Building 2 - Addendum E 4/21/98
P-5.01 Details Building W1 & W2 - Addendum E 4/21/98
<CAPTION>
ELECTRICAL
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
E0.1 Now Sheet Building W1 & W2 4/23/98
E0.2 Project Note Sheet Building W1 & W2 4/23/98
E0.3 Fire Alarm Specifications Building W1 & W2 4/23/98
E1.0 Single Line Diagram Building W1 4/23/98
E1.1 Panel Schedules Building W1 & W2 - Addendum E 4/23/98
E2.0 Utility Site Plan Building W1 & W2 4/23/98
E2.1 Lighting Site Plan Building W1 & W2 - Addendum H 7/07/98
E2.2 Photometric Site Plan - Addendum H 7/07/98
E3.0 1st. Floor Lighting & Power Plan Building W1 - Addendum E 4/23/98
E3.1 2nd. Floor Lighting & Power Plan Building W1 - Addendum E 4/23/98
E3.2 Roof Plan Building W1 4/23/98
E4.0 1st. Floor Lighting & Power Plan - Addendum E 4/23/98
E4.1 2nd. Floor Lighting & Power Plan 4/23/98
E4.2 Roof Plan Building W2 4/23/98
E5.0 Title 24 Calculations Building 1 & 2 - Addendum H 7/07/98
<CAPTION>
LANDSCAPE
- ---------------------------------------------------------------------------------------
DRAWING NO. TITLE DATE
<S> <C> <C>
LT-1 Title Sheet - Addendum E 4/21/98
LC-1 Construction Layout Plan - Addendum E 4/21/98
LC-2 Landscape Construction Details - Addendum E 4/21/98
LC-3 Landscape Construction Plan - Addendum E 4/21/98
LC-4 Landscape Construction Details - Addendum C 2/23/98
LC-5 Landscape Construction Specifications - Addendum C 2/23/98
LI-1 Landscape Irrigation Plan - Addendum E 4/21/98
</TABLE>
Page 4 7/13/98
<PAGE>
CORPORATE PLAZA WEST, PHASE 1 PROJECT
NEWPORT BEACH, CA
DRAWING LIST
<TABLE>
<CAPTION>
DRAWING NO. TITLE DATE
<S> <C> <C>
LI-2 Landscape Irrigation Plan - Addendum C 2/23/98
LI-3 Landscape Irrigation Plan - Addendum C 2/23/98
LI-4 Landscape Irrigation Plan - Addendum C 2/23/98
LI-5 Landscape Irrigation Legend - Addendum C 2/23/98
LI-6 Landscape Irrigation Specifications - Addendum C 2/23/98
LTP-1 Landscape Planting Plan - Addendum E 4/21/98
LTP-2 Landscape Planting Plan - Addendum C 2/23/98
LTP-3 Landscape Planting Plan - Addendum C 2/23/98
LSP-1 Landscape Shrub Planting Plan - Addendum E 4/21/98
LSP-2 Landscape Shrub Planting Plan - Addendum C 2/23/98
LSP-3 Landscape Shrub Planting Plan - Addendum C 2/23/98
LP-4 Landscape Planting Details & Legend - Addendum C 2/23/98
LP-5 Landscape Planting Specifications - Addendum C 2/23/98
LP-6 Landscape Planting Specifications - Addendum C 2/23/98
</TABLE>
Addendum's:
Addendum C, dated 2/25/98
Addendum D, dated 3/18/98
Addendum E, dated 4/21/98
Addendum F, dated 6/5/98
Addendum G, dated 6/15/98
Addendum H, dated 7/07/98
Preliminary Geotechnical Investigation for the Proposed Corporate Plaza West,
- -----------------------------------------------------------------------------
Phase 1
- -------
as prepared by NMG Geotechnical Inc., dated 12/29/97, dated 02/23/98, dated
05/22/98, dated 06/15/98.
Project Manual by McLarand Vasquez & Partners, Inc. Dated January 8, 1998.
[ILLEGIBLE INITIALS]
Page 5 7/13/98
<PAGE>
Exhibit 10.44
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS AGREEMENT, dated effective as of February 24, 1999
("Agreement"), by and between UBS AG (successor by merger to Union Bank of
Switzerland), NEW YORK BRANCH, a Swiss banking corporation, having an office at
299 Park Avenue, New York, New York 10171 ("Assignor") and PIMCO ADVISORS L.P. a
--------
Delaware limited partnership having an office at 800 Newport Center Drive,
Newport Beach, California 92660 ("Assignee").
--------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to an Agreement of Lease dated as of December 31,
1994 between THE FISHER-SIXTH AVENUE COMPANY and HAWAIIAN SIXTH AVENUE CORP., as
landlord ("Initial Landlord"), and Assignor, as tenant, as amended by the side
----------------
letters, dated April 6, 1995 and May 30, 1996 and by the First Supplemental
Agreement, dated as of April 30, 1995 (collectively, "Lease"), true and complete
-----
copies of which are attached hereto as Exhibit A, Initial Landlord leased and
Assignor hired the entire 46th, 47th, 48th, 49th and 50th floors ("Premises") in
--------
the building known as 1345 Avenue of Americas, New York, New York 10105
("Building"), upon and subject to such terms and provisions as are more
--------
particularly set forth in the Lease; and
WHEREAS, pursuant to a Cleaning Agreement, dated as of December 31,
1994 between 1345 CLEANING SERVICE CO., as contractor ("Contractor"), and
----------
Assignor, as tenant, as amended by the First Amendment To Cleaning Agreement
dated April 3O, 1995 and the side letter dated May 30, 1996 (collectively
"Cleaning Agreement"), true and complete copies of which are attached hereto as
------------------
Exhibit B,
<PAGE>
Contractor agreed to furnish and Assignor hired the cleaning services of
Contractor ("Cleaning Services") for the Premises through the term of the Lease;
-----------------
and
WHEREAS, as of May 30, 1996, 1345 LEASEHOLD LIMITED PARTNERSHIP
("Landlord") consisting of the same ownership as Initial Landlord succeeded to
the interests of Initial Landlord; and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's
right, title and interest in and to the Lease effective as of the Effective Date
(hereinafter defined) and Assignee desires to assume from Assignor all of
Assignor's obligations under the Lease to the extent such obligations are
allocable to the period from and after the Effective Date; and
WHEREAS, Assignor desires to convey to Assignee certain items of
real and personal property located in the Premises including, without
limitation, the items described more fully on Schedule 1 annexed hereto
("FF&E"); and
----
WHEREAS, Assignor desires to assign to Assignee all of Assignor's
right, title and interest in and to the Cleaning Agreement effective as of the
Effective Date, and Assignee desires to assume from Assignor all of Assignor's
obligations under the Cleaning Agreement to the extent such obligations are
allocable to the period from and after the Effective Date; and
WHEREAS, Assignee intends to retain Plaza Construction Corp., a
company affiliated with Landlord ("Landlord's Affiliated Contractor"), in
--------------------------------
connection
-2-
<PAGE>
with Assignee's initial alterations and improvements ("Initial Construction") in
--------------------
the Premises.
NOW, THEREFORE, in consideration of the terms and conditions herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Assignor and Assignee hereby agree as follows:
(a) Definitions. All capitalized terms used herein, unless otherwise
-----------
defined in this Agreement, shall have the meaning given such terms in the Lease
and/or the Cleaning Agreement, as the case may be.
(b) Assignment and Assumption. Effective as of the Effective Date,
-------------------------
Assignor hereby assigns, conveys and transfers to Assignee, without recourse or
warranty, all of Assignor's right, title and interest as Tenant in and to the
Lease, the Cleaning Agreement and the FF&E except that Assignor shall remain (i)
-----------
entitled to receive all benefits, rights and privileges and (ii) liable for and
obligated to discharge all of the obligations of Assignor under the Lease and
the Cleaning Agreement, to the extent such rights and obligations are allocable
to the period prior to the Effective Date. It is hereby acknowledged and agreed
that the consideration of Nineteen Million Two Hundred Fifty Thousand
($19,250,000) Dollars payable by Assignee to Assignor in connection with this
Agreement ("Consideration") shall be paid into escrow upon the execution of this
Agreement. The Effective Date of this Agreement shall be defined as the date on
which that Agreement has been executed and delivered by Assignor and Assignee,
has been consented to by Landlord, and all of the other Conditions listed in the
Escrow Agreement between Assignor and Assignee dated effective as of February
24, 1999 have been met and the Consideration is delivered to Assignor.
Notwithstanding anything herein
-3-
<PAGE>
contained to the contrary, if the Conditions in the Escrow Agreement are not
satisfied, and this Agreement is terminated, Assignor shall have no liability to
Assignee therefor.
Assignee hereby accepts such assignment and agrees from and after
the Effective Date to assume and discharge all of the liabilities and
obligations of Assignor under the Lease and Cleaning Agreement and agrees to be
personally bound by and upon all of the covenants, agreements, terms, provisions
and conditions thereof on the part of Assignor to be performed or observed from
and after the Effective Date, and Assignee further agrees that the provisions of
Section 15.1 of the Lease shall, notwithstanding any future assignment or
transfer, continue to be binding upon it in the future in the same manner and
with the same force and effect as if Assignee had originally executed the
Cleaning Agreement and the Lease as the tenant thereunder.
Assignor and Assignee acknowledge that the method for computation,
as currently employed by Contractor in the Building, of the charges for
additional cleaning services is acceptable and Landlord agrees to cause such
Contractor to only escalate the charges for such additional services from year
to year as is consistent with past practice (based on increases in the hourly
wage rate for employment of porters in Class A office Buildings, from time to
time established by agreement between RAB and Local 32B-32J of the Building
Service Employees International Union AFL-CIO or by the successors to either or
both of them, as provided in the Cleaning Agreement with respect to cleaning
cost escalation). The kinds and frequency of additional cleaning services of
Contractor used by Assignee are subject to agreement by Contractor and Assignee,
and nothing herein shall obligate Assignee to use any additional cleaning
services or to use the same
-4-
<PAGE>
kinds and frequency of special cleaning services as Assignor. Assignor and
Assignee have reviewed the methods and procedures used by Contractor in
calculating cleaning cost escalations under the Cleaning Agreement and agree
that such methods and procedures may be used at calculating such cleaning cost
escalations going forward.
Assignee shall indemnify, defend and save harmless Assignor, its
officers, agents, servants and employees from and against any claims, liability,
expense, suit, damage, action or charge including, without limitation,
reasonable attorneys' fees (collectively "Claims"), suffered or incurred by
Assignor by reason of (i) death, personal injury or property damage (other than
to the property of Assignee) at the Premises arising out of Assignee's
possession of the Premises occurring on or after the Effective Date, except to
the extent caused by the negligent or willfull actions after the Effective Date
of Assignor, its officers, agents, servants or employees or (ii) a breach of
Assignee's duty to apportion fixed minimum rent and Additional Rent (as
hereinafter defined), or to promptly refund to Assignor any payments or credits
received from either Landlord or Contractor in respect of any matter pertaining
to the Lease or the Cleaning Agreement for periods prior to the Effective Date,
as described more fully in paragraph (e).
Assignor shall indemnify, defend and save harmless Assignee, its
officers, agents, servants and employees from and against any Claims suffered or
incurred by Assignee by reason of (i) death, personal injury or property damage
(other than to the property of Assignor) at the Premises arising out of
Assignor's possession of the Premises occurring prior to the Effective Date,
except to the extent caused by the negligent or willful actions prior to the
Effective Date of Assignee, its officers, agents, servants or employees, (ii) a
-5-
<PAGE>
breach of Assignor's duty to apportion fixed minimum rent and Additional Rent,
or to promptly reimburse Assignee for payments reasonably made to Landlord or
Contractor in respect of any matter pertaining to the Lease or Cleaning
Agreement for periods prior to the Effective Date, as described more fully in
paragraph (e), or (iii) the breach or inaccuracy of any representation,
warranty, certification, covenant or agreement made by Assignor in this
Agreement or in Assignor's estoppel certificate ("Estoppel Certificate") to be
--------------------
delivered by Assignor to Assignee.
(c) Further Transfer Conditions (i) This Agreement is subject to all
---------------------------
of the terms, covenants, agreements, provisions, and conditions of the Lease;
(ii) Assignee shall not have the right to a further assignment hereof or
sublease or assignment under the Lease, or to allow the Premises to be used by
others, except as provided expressly in Section 15.2 of the Lease, without the
consent of Landlord in each instance, as provided in the Lease; (iii) a consent
by Landlord thereto shall not be deemed or construed to modify, amend or affect
the terms and provisions of the Lease, or Assignee's obligations thereunder,
which shall continue to apply to the Premises involved, and the occupants
thereof, as if the assignment had not been made; (iv) if Assignee defaults in
the payment of any rent, Landlord is authorized to collect any rents due or
accruing from any other assignee, subtenant or other occupant of the Premises
and to apply the net amounts collected to the fixed annual rent and additional
rent reserved under the Lease; and (v) the receipt by Landlord of any amounts
from any other assignee or subtenant, or other occupant of any part of the
Premises shall not be deemed or construed as releasing
-6-
<PAGE>
Assignee from Assignee's obligations under the Lease or the acceptance of that
party as a direct tenant.
(d) Landlord's Out of Pocket Costs. Assignor shall, together with
------------------------------
requesting Landlord's consent to the Agreement, pay Landlord's reasonable
out-of-pocket costs and expenses with respect to the requested consent.
(e) Assignee's Rent and Escalations. The fixed minimum rent to be
-------------------------------
paid by Assignee shall be in accordance with the terms of the Lease. Further,
Assignee shall be obligated to pay to Landlord additional rent pursuant to,
inter alia, Article 4 and Article 5 of the Lease, and escalations pursuant to
- ----------
the Cleaning Agreement (or pursuant to Article 6 of the Lease if such Cleaning
Agreement is terminated for any reason) as escalations in the cost of Cleaning
Services ("Cleaning Costs") (all such additional rent and escalations are
--------------
hereinafter referred to as "Additional Rent"). For the purposes of determining
---------------
the amounts that Assignee is obligated to pay thereunder, the amounts that
Assignee shall be obligated to pay under Article 4 and Article 5 of the Lease
shall be computed as provided in the Lease. In calculating the amounts that
Assignee is obligated to pay under the Cleaning Agreement, the amounts that
Assignee shall be obligated to pay as escalations in Cleaning Costs shall be
computed as provided in such Cleaning Agreement. In the event that the Cleaning
Agreement is terminated for any reason, the amount that Assignee is obligated to
pay Landlord as Cleaning Costs shall be determined under Article 6 of the Lease.
-7-
<PAGE>
In addition to the foregoing, Assignee shall pay any and all other
additional rent or charges due to Landlord as provided in the Lease and the
Cleaning Agreement.
Any fixed minimum rent and/or Additional Rent payable for the month
in which the Effective Date shall occur shall be equitably and reasonably
apportioned between Assignor and Assignee as of 11:59 p.m. of the day before the
Effective Date. The amount of any fixed minimum rent and Additional Rein paid by
Assignor but attributable to the period beginning with the Effective Date based
on such apportionment shall be promptly reimbursed by Assignee to Assignor. Any
errors or omissions in computing apportionments or other adjustments shall be
corrected within a reasonable time following the Effective Date. If any
additional Rent paid by Assignor for periods prior to the Effective Date shall
be determined upon reconciliation, audit or similar process to be less or more
than the amounts payable as finally determined, (i) Assignee shall pay to
Assignor (at the direction of Assignor after prompt notice to Assignor) any
refund or credit of such overpayment of Additional Rent received from Landlord
or Contractor, and (ii) Assignor shall pay to Assignee (at the direction of
Assignee after prompt notice to Assignor) any additional amount of Additional
Rent due for payment to Landlord or Contractor, whichever the case may be.
(f) Brokerage. Assignor represents and warrants that it has dealt
---------
with no broker other than Cushman & Wakefield or CB Richard Ellis, Inc. in
connection with this Agreement. Assignee represents and warrants that it has
dealt with no broker other than CB Richard Ellis or Cushman & Wakefield in
connection with this Agreement.
-8-
<PAGE>
Assignor shall be responsible only for paying all compensation due solely to
Cushman & Wakefield pursuant to a separate agreement. Assignee shall be
responsible for paying all compensation due to CB Richard Ellis, Inc. in
connection with this Agreement. Each party shall indemnify, the other party and
hold the other party harmless from and against any and all costs, claims,
losses, liability and expenses (including reasonable attorneys' fees, costs and
disbursements) arising out of any inaccuracy or alleged inaccuracy of the
foregoing representation.
(g) Effectiveness of Agreement. This Agreement shall become
--------------------------
effective upon the occurrence of the Effective Date. Pursuant to Section 15.5 of
the Lease, Assignee shall promptly furnish to Landlord such information as may
be reasonably requested to obtain Landlord's consent (including, without
limitation, all financial information regarding Assignee as is required by
Landlord under the Lease) and to enter into such agreements among Landlord,
Assignor and Assignee as Landlord may reasonably require pursuant to the Lease
in connection with the giving of its consent to this Agreement. In the event
that the Effective Date does not occur because all of the Conditions listed in
the Escrow Agreement between Assignor and Assignee are not satisfied as provided
therein, then either party shall have the right by written notice to the other
to terminate this Agreement and neither party shall have any further obligation
or liability to one another.
(h) Assignee currently intends to engage Landlord's Affiliated
Contractor, subject to negotiation, execution and delivery of a mutually
acceptable engagement agreement, to be the general contractor and construction
manager for
-9-
<PAGE>
Assignee's Initial Construction in the Premises; the fees of Landlord's
Affiliated Contractor shall be commercially competitive in accordance with a
separate agreement to be mutually agreed upon between Assignee and Landlord's
Affiliated Contractor.
(i) Compliance with Applicable Laws and Other Possible Limitations.
--------------------------------------------------------------
Assignor represents and warrants that, to the best of Assignor's knowledge, the
Premises complies with all applicable laws and does not contain any friable
asbestos, friable asbestos containing materials or other hazardous materials.
(j) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the matters stated herein
and may not be amended or modified unless such amendment or modification shall
be in writing and signed by the party against whom enforcement is sought.
(k) Successors and Assigns. The terms, covenants and conditions
----------------------
contained in this Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
(l) Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of New York.
(m) Counterparts. This Agreement may be executed in any number of
------------
duplicate originals and each such duplicate original shall be deemed to
constitute but one and the same Agreement. Facsimile signatures shall constitute
valid and binding signatures of the parties when delivered by telefax to the
attorneys for the parties to this Agreement. The parties shall exchange original
signatures in due course but the failure to
-10-
<PAGE>
deliver original signatures shall in no way effect the validity and
enforceability of this Agreement.
(n) Unenforceability. If any terms, covenants or conditions of this
----------------
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such provision.
(o) Payment of Taxes. Assignor shall be responsible for the payment
----------------
of all real property transfer and sales taxes, if any, due in connection with
the assignment, conveyance and transfer effected by this Agreement and agrees to
indemnify and hold harmless Assignee with respect to any costs arising out of
Assignor's failure to pay same.
(p) Representations. Assignor hereby covenants, represents and
---------------
warrants (i) that Assignor is the legal and beneficial owner of the interest
being assigned free and clear of all adverse claims and encumbrances including,
without limitation, any encumbrance on the FF&E (ii) that Assignor is a duly
licensed New York branch of a Swiss banking corporation and (iii) that the
persons executing this Agreement on behalf of Assignor are officers of said
Assignor, that they as such officers are duly authorized to execute, acknowledge
and deliver this Agreement to Assignee, and that the delivery of this Agreement
by Assignor to Assignee has been ratified by all necessary corporate action.
Assignee hereby covenants, represents and warrants (i) that Assignee
is a duly qualified Delaware limited partnership authorized to do business in
the State of New York and (ii) that the persons executing this Agreement on
behalf of Assignee are general partners of such Assignee, and that they as such
general partners are
-11-
<PAGE>
duly authorized to execute, acknowledge and deliver this Agreement to Assignor,
and that delivery of this Agreement by Assignee to Assignor has been ratified by
all necessary partnership action.
(q) Notices. All notices, demands or requests between Assignor and
-------
Assignee shall be given in the manner set forth in Section 31 of the Lease to
the following parties:
Assignor: UBS AG, Stamford Branch
-------- 677 Washington Boulevard
Stamford, CT 06901
P.O. Box 120300
Stamford, CT 06912-0300
Attn Director, Corporate Real Estate
with a copy to
UBS AG, Stamford Branch
677 Washington Boulevard
Stamford, CT 06901
P.O. Box 120300
Stamford, CT 06912-0300
Office of the General Counsel
Assignee: PIMCO ADVISORS L.P.
-------- 800 Newport Center Drive
Newport Beach, CA 92660
Kenneth Poovey, Esq., Chief Operating
Officer
with a Copy to
Oppenheimer Capital
200 Liberty Street
New York, NY 10281
Attn: Secretary
Landlord: 1345 Leasehold Limited Partnership
-------- 299 Park Avenue
New York, New York 10171
-12-
<PAGE>
Attn: Office of General Counsel
Contractor: 1345 Cleaning Service Co.
---------- 299 Park Avenue
New York, New York 10171
Attn: Office of General Counsel
After the Effective Date, any notices to the tenant under the Lease
or under the Cleaning Agreement shall be given in the manner set forth in
Section 31 of the Lease and in the Cleaning Agreement, except that the parties
and addresses set forth above shall be substituted for the parties and addresses
set forth in Section 31 of the Lease and the Cleaning Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
UBS AG, NEW YORK BRANCH
By: /s/ Michael P. Lagana, Jr.
----------------------------
Name: Michael P. Lagana, Jr.
Title: Director
By: /s/ Markus U. Buergler
----------------------------
Name: Markus U. Buergler
Title: Executive Director
PIMCO ADVISORS L.P.
By: /s/ Richard M. Weil
----------------------------
Name: Richard M. Weil
Title: General Counsel
By:
----------------------------
Name:
Title: General Partner
CONSENTED TO:
1345 LEASEHOLD LIMITED PARTNERSHIP
BY THE FISHER SIXTH-AVENUE COMPANY
General Partner
By:
----------------------------
General Partner
BY HAWAIIAN SIXTH AVENUE CORP.
General Partner
By:
----------------------------
General Partner
<PAGE>
STATE OF CONNECTICUT
:ss.:
COUNTY OF FAIRFIELD
On the 16th day of March in the year 1999 before me, the
undersigned, personally appeared Michael Lagana, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her capacity as a Director of UBS AG, New York Branch,
that by his/her signature on the instrument, the person upon behalf of which the
individual acted, executed the instrument, and that such individual made such
appearance before the undersigned in the
(insert the city or other political subdivision and the state or country or
other place the acknowledgment was taken).
/s/ Corinne Brennan
-------------------
Notary Public
CORINNE BRENNAN
NOTARY PUBLIC
MY COMMISSION EXPIRES FEB 28, 2000
<PAGE>
STATE OF CONNECTICUT
:ss.:
COUNTY OF FAIRFIELD
On the 16th day of March in the year 1999 before me, the
undersigned, personally appeared Markus Buergler, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her capacity as a Executive Director of UBS AG, New
York Branch, that by his/her signature on the instrument, the person upon behalf
of which the individual acted, executed the instrument, and that such individual
made such appearance before the undersigned in the
(insert the city or other political subdivision and the state or country or
other place the acknowledgment was taken).
/s/ Corinne Brennan
-------------------
Notary Public
CORINNE BRENNAN
NOTARY PUBLIC
MY COMMISSION EXPIRES FEB 28, 2000
<PAGE>
STATE OF NEW YORK)
:ss.:
COUNTY OF NEW YORK)
On the 11th day of March in the year 1999 before me, the
undersigned, personally appeared Richard M. Weil, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her capacity as a General Counsel of PIMCO ADVISORS,
L.P., that by his/her signature on the instrument, the person upon behalf of
which the individual acted, executed the instrument, and that such individual
made such appearance before the undersigned in the City of New York, State of
New York.
(insert the city or other political subdivision and the state or country or
other place the acknowledgment was taken).
/s/ Lynn Anne M. Schow
----------------------
Notary Public
LYNN ANNE M. SCHOW
Notary Public [ILLEGIBLE] of New York
No. [ILLEGIBLE]
Qualified in New York County
Commission Expires Oct 26, 2000
<PAGE>
Schedule I
1. Reception Desk;
2. Built-in kitchen equipment;
3. Approximately 28 trading desks, including IPC telephone equipment and the
turrets servicing those desks on the 48th floor;
4. Built-in supplemental A/C equipment;
5. Under-floor cabling;
6. Raised floor;
7. Data Centers and IDF Rooms
(a) vertical and horizontal cubic and terminations, including
telephone, fiber, and level 5 cable;
(b) level 5 and fiber patch panels and telephone "110 b1ocks"
mounted in racks and on walls;
(c) labels on both ends or all cables;
(d) equipment cabinets, including power cabling and power strips,
shelves and keys for door locks;
(e) IPC Turret telephone switch;
(f) five racks of Telco-provided equipment in 50th floor data
center;
(g) environmental and security monitoring and alarm sensors,
wiring, and systems, including contents of Security Room;
(h) Liebert UPS systems and batteries, including main UPS/Battery
Room and power distribution cabling, switches and circuit
breakers, and monitoring equipment;
8. Outside Data Centers and IDF Rooms
(a) vertical and horizontal cable and terminations, including
telephone, fiber, and level 5 cable;
(b) voice, data and power outlets in raised floors, built-in
furniture, trading desks, offices and other existing
locations;
(c) IPC Turret phone sets on trading desks;
(d) light dimming controls, projection screen and window screen
controls;
(e) equipment enclosures and cabling for audio/visual systems in
conference rooms;
<PAGE>
To the extent same is in Assignor's possession, or is otherwise available to
Assignor, documentation for power, data, and voice enabling, UPS equipment, and
supplementary A/C equipment as well as complete architectural drawings for the
Demised Premises will be provided to the Assignee or its designated agents on
the Closing Date. All transferable guarantees and warranties relating to the
FF&E shall be transferred from Assignor to Assignee. Assignor shall reasonably
cooperate with Assignee to effectuate the transfer of any other guarantees and
warrantees with respect to the FF&E.
-2-
<PAGE>
[LETTERHEAD OF 1345 LEASEHOLD LIMITED PARTNERSHIP]
March 18, 1999
UBS AG NEW YORK BRANCH
299 Park Avenue
New York, NY 10171
Re: 1345 Avenue of the Americas;
Assignment and Assumption of Lease
("Assignment and Assumption of Lease")
dated as of February 24, 1999 between
UBS AG (successor by merger to Union
bank of Zwitzerland) NEW YORK BRANCH,
a Swiss banking corporation, having
an office at 299 Park Avenue, New York,
New York 10171 ("Assignor") and PIMCO ADVISORS
--------
L.P. a Delaware limited partnership having
an office at 800 Newport Center Drive,
Newport Beach, California 92660 ("Assignee").
------------------------------------------
Gentlemen:
This letter is to indicate our consent to the Assignment and Assumption of
Lease, a copy of which is attached hereto.
Very truly yours,
1345 LEASEHOLD LIMITED PARTNERSHIP
/s/ Kenneth Fisher
By: Kenneth Fisher
KF/ad
Attachment
<PAGE>
EXHIBIT 10.45
AGREEMENT OF LEASE
BETWEEN
FISHER-SIXTH AVENUE COMPANY
AND
HAWAIIAN-SIXTH AVE CORP.,
LANDLORD,
AND
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
TENANT
PREMISES:
THE ENTIRE 47TH, 48, 49TH AND 50TH FLOORS
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
Article ....................................................................Page
PREFACE AND DEMISED PREMISES ....................................... 1
1 RENT ............................................................... 2
2 OCCUPANCY .......................................................... 4
3 PREPARATION OF THE DEMISED PREMISES ................................ 6
4 TAX ESCALATION ..................................................... 5
5 EXPENSE ESCALATION ................................................. 11
6 CLEANING COST ESCALATION ........................................... 18
7 ELECTRICITY ........................................................ 23
8 ALTERATIONS AND INSTALLATIONS ...................................... 28
9 REPAIRS ............................................................ 33
10 REQUIREMENTS OF LAW; FIRE INSURANCE ................................ 36
11 SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES .................... 38
12 LOSS, DAMAGE, REIMBURSEMENT, LIABILITY, ETC ........................ 40
13 DESTRUCTION-FIRE OR OTHER CASUALTY ................................. 43
14 EMINENT DOMAIN ..................................................... 46
15 ASSIGNMENT, MORTGAGING, SUBLETTING, ETC ............................ 48
16 ACCESS TO DEMISED PREMISES; CHANGES ................................ 52
17 CERTIFICATE OF OCCUPANCY ........................................... 54
18 BANKRUPTCY ......................................................... 55
19 DEFAULT ............................................................ 57
20 REMEDIES OF LANDLORD; WAVER OF REDEMPTION .......................... 60
21 FEES AND EXPENSE; INTEREST ......................................... 62
22 NO REPRESENTATIONS BY LANDLORD ..................................... 63
23 END OF TERM ........................................................ 64
24 QUIET ENJOYMENT .................................................... 65
25 DEFINITIONS ........................................................ 66
26 ADJACENT EXCAVATION--SHORING ....................................... 67
27 RULES AND REGULATIONS .............................................. 68
28 NO WAIVER .......................................................... 69
29 WAIVER OF TRIAL BY JURY ............................................ 70
30 INABILITY TO PERFORM ............................................... 71
31 NOTICES ............................................................ 72
32 SERVICES ........................................................... 73
33 ARBITRATION ........................................................ 78
34 CONSENTS AND APPROVALS ............................................. 79
35 INDEMNITY .......................................................... 80
36 CERTIFICATE OF TENANT .............................................. 81
37 NAME OF BUILDING; SIGNAGE .......................................... 83
38 MEMORANDUM OF LEASE ................................................ 84
39 BROKERAGE .......................................................... 85
40 INVALIDITY OF ANY PROVISION ........................................ 86
41 MISCELLANEOUS ...................................................... 87
42 RESTRICTIONS UPON USE .............................................. 89
43 SUCCESSORS AND ASSIGNS ............................................. 90
44 LANDLORD MORE THAN ONE PERSON ...................................... 91
45 EFFECTIVE DATE ..................................................... 92
46 RETAIL SPACE LEASE ................................................. 93
<PAGE>
EXHIBIT A - FLOOR PLANS .................................................... A-1
EXHIBIT B - INTENTIONALLY OMITTED .......................................... B-1
EXHIBIT C - RULES AND REGULATIONS .......................................... C-1
EXHIBIT D - CLEANING SPECIFICATIONS ........................................ D-1
<PAGE>
AGREEMENT OF LEASE made as of the 31st day of December, 1994, between THE
FISHER-SIXTH AVENUE COMPANY, a New York partnership ("Fisher") with its office
at c/o Fisher Brothers, 299 Park Avenue, New York, New York 10171 and HAWAIIAN
SIXTH AVENUE CORP., a New York corporation ("Hawaiian") with its office at 1345
Avenue of the Americas, New York, New York 10105 (hereinafter Fisher and
Hawaiian are collectively called .Landlord") and UNION BANK OF SWITZERLAND, NEW
YORK BRANCH, a Swiss banking corporation, having an office at 299 Park Avenue,
New York, New York 10171 (hereinafter called "Tenant").
WITNESSETH:
The parties hereto (hereinafter sometimes called "the parties") for
themselves, their heirs, distributees, executors, administrators, legal
representatives, successors and assigns, hereby covenant and agree as follows:
A. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
the premises hereinafter described, in the building known as 1345 Avenue of the
Americas, New York, New York 10105 (hereinafter called the "Building"), for the
term hereinafter stated, for the rents hereinafter reserved and upon and subject
to the conditions (including limitations, restrictions and reservations) and
covenants hereinafter provided. Each party hereto hereby expressly covenants and
agrees to observe and perform all of the conditions and covenants herein
contained on its part to be observed and performed.
B. The premises hereby leased to Tenant are the entire area on the 47th,
48th, 49th and 50th floors of the Building as shown on the floor plans attached
hereto as Exhibit A. Said premises are hereinafter called the "demised
premises".
C. (1) The term of this Lease, for which the demised premises are hereby
leased, shall commence on the date that Landlord's Work (as defined in Article
3) shall have been completed by Landlord (hereinafter called the "Commencement
Date") and shall end on the last day of the month in which the twenty-one year
and six month anniversary of the Commencement Date of this Lease occurs, which
ending date is hereinafter called the "Expiration Date", or shall end on such
earlier date upon which said term may expire or be canceled or terminated
pursuant to any of the conditions or covenants of this Lease or pursuant to law.
ARTICLE 1 RENT
1.1. Tenant shall pay to Landlord a fixed annual rent (hereinafter referred
to as,"fixed annual rent") as follows:
(a) FOUR MILLION EIGHT HUNDRED NINETY-TWO THOUSAND TWO HUNDRED SIXTY
Dollars ($4,892,260.00) per annum for the period commencing on the Rent
Commencement Date and ending on the day immediately preceding the fifth
(5th) anniversary of the Rent Commencement Date;
(b) FIVE MILLION THREE HUNDRED FOUR THOUSAND SEVEN HUNDRED SIXTY Dollars
($5,304,660.00) per annum for the period commencing on the fifth (5th)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the tenth (10th) anniversary of the Rent Commencement Date;
(c) FIVE MILLION SEVEN HUNDRED SEVENTEEN THOUSAND TWO HUNDRED SIXTY Dollars
($5,717,260.00) per annum for the period commencing on the tenth (10th)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the fifteenth (15th) anniversary of the Rent Commencement Date;
(d) SIX MILLION ON HUNDRED TWENTY-NINE THOUSAND SEVEN HUNDRED SIXTY Dollars
($6,129,760.00) per annum for the period commencing on the fifteenth (15th)
anniversary of the Rent Commencement Date and ending on the Expiration
Date;
1.2. Intentionally Omitted.
<PAGE>
1.3. Tenant's obligations hereunder shall not be affected by any delay or
failure of Landlord in billing the fixed annual rent provided for hereunder, nor
shall any such delay constitute a waiver of, or in any way impair, the
obligations of Tenant.
1.4. Tenant agrees to pay the fixed annual rent in lawful money of the
United States of America, in equal monthly installments in advance on the first
day of each calendar month during said term, at the office of Landlord or such
other place in the United States of America as Landlord may designate, without
any setoff or deduction whatsoever, except such deduction as may be occasioned
by the occurrence of any event permitting or requiring a deduction from or
abatement of rent, as specifically set forth herein. Should the obligation to
pay fixed annual rent commence or change on any day other than on the first day
of a month, then the fixed annual rent for the unexpired portion of such month
shall be adjusted and prorated on a per diem basis.
1.5. Tenant shall pay the fixed annual rent and additional rent as above
and as hereinafter provided as follows:
(a) With respect to (i) fixed annual rent, and (ii) additional rent
that is owed to Landlord pursuant to the provisions of Articles 4, 5, 6 and 7,
and which monthly installments of additional rent were previously billed to
Tenant and which Tenant is obligated to continue to pay until notification of
further adjustment by Landlord, Tenant shall pay such fixed annual rent and
additional rent by directly depositing such amount in immediately available
funds in a special bank account maintained by Landlord for such purpose at a
bank to be designated by Landlord, and Tenant shall be advised of such special
account number and bank, which may be changed by Landlord from time to time; and
(b) With respect to any other amounts of additional rent owed by
Tenant pursuant to this Lease, Tenant shall pay such additional rent by good and
sufficient check (subject to collection) drawn on a New York City bank which is
a member of the New York Clearing House or a successor thereto.
All sums other than fixed annual rent payable by Tenant hereunder shall be
deemed additional rent payable on demand, unless other payment dates are
provided herein. Landlord shall have the same rights and remedies with respect
to failure by Tenant to pay additional rent as Landlord has with respect to
failure by Tenant to pay fixed annual rent.
1.6. Notwithstanding the provisions of Section 1.1 of this Lease, the fixed
annual rent and additional rent payable by Tenant under Articles 4 and 5 shall
be abated for the period (the "Abatement Period") commencing on the Commencement
Date and ending on the eight (8) month anniversary of the Commencement Date.
ARTICLE 2
OCCUPANCY
2.1. The demised premises shall be used solely as and for executive,
administrative, general and banking offices, and for all other purposes
incidental thereto and not prohibited by law (including, without limitation, the
certificate of occupancy for the Building) provided that: (a) such use shall be
in keeping with the character of the Building, and (b) no part of the demised
premises shall have an automated cash dispensing machine for use by the general
public during hours other than normal business hours provided the use of such
automated cash dispensing machine 1) does not violate the certificate of
occupancy for the Building and 2) is not inconsistent with or in contravention
of any provisions of the insurance policies for the Building.
2.2. Subject to applicable governmental regulations, Building rules and
regulations and such other rules and regulations as Landlord may, from time to
time establish and the availability of a proper mean of exhaustion, Tenant may
designate a portion of the demised premises to be used as a fully operable
kitchen and dining facility (the Kitchen'), within which Tenant shall be
permitted to use and maintain a fully operable kitchen for the purpose of
preparing foods for the personal use and consumption of Tenant, its employees or
visitors and not for the sale to the general public. Tenant covenants that if
its use of the Kitchen shall, in Landlord's sole but reasonable judgment, (i)
cause or threaten to cause harm of any kind or nature whatsoever to the Building
or any part thereof, or (ii) if food odors, vapors, fumes or exhaust emanate
from the demised premises to other portions of the Building in a manner which is
objectionable or
<PAGE>
disruptive to Landlord or any other tenant of the Building, then Tenant shall
promptly cease the use of the Kitchen in such a manner which causes harm or
which is objectionable or disruptive and shall take all actions at Tenant's sole
cost and expense, to return the affected portions of the Building to the
condition existing prior to such harm or disruption. If Tenant fails to promptly
make any required repairs or restorations, the same may be made by Landlord at
the expense of Tenant and such cost and expense shall be collectible as cost and
additional rent under this Lease and shall be paid by Tenant upon demand.
Notwithstanding anything to the contrary contained herein, if Tenant cannot use
the Kitchen in a manner which does not cause harm to the Building or which is
not objectionable or disruptive to other tenants of the Building, then Tenant
shall' cease for the balance of the term of the Lease to use the Kitchen for the
purposes herein stated and Tenant shall not be entitled to an allowance for
diminution of rental value and there shall be no liability on the part of the
Landlord or its agents by reason of inconvenience, annoyance, interruption, or
injury to business arising from such inability of Tenant to continue to operate
the Kitchen for the purposes herein stated and no such change in the use of the
demised premises by Tenant shall constitute an actual or constructive eviction,
in whole or in part, or release Tenant from any of its obligations under this
Lease.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.1. (a) Except as specifically provided in this Section 3 Tenant agrees to
accept the demised premises in their condition and state of repair existing as
of the date hereof subject to normal wear and tear and to the removal therefrom
of the property, if any, of the existing tenant or occupant thereof and
understands and agrees that Landlord shall not be required to perform any work,
supply any materials or incur any expense to prepare the demised premises for
---
Tenant's occupancy.
(b) Landlord agrees that (i) Landlord will demolish the existing
tenant improvements in the demised premises, supply Tenant with an ACP-5 form
and remove asbestos-containing materials ("ACM") therein, as required in order
for Tenant to perform work therein in accordance with Tenant's approved final
plans and specifications, in compliance with Local Laws #76/1985 and any other
applicable laws and legal requirements relating to asbestos (such demolition and
asbestos removal is hereinafter called "Landlord's Work") and (ii) Landlord will
also perform the following work in the demised premises (other than work
affected by Tenant's work or alterations) to comply with the Americans with
Disabilities Act: modifications of the core bathrooms and entrances,
installation of strobe panels, strobe lights in the core (including core
bathrooms), elevator buttons, core door hardware, warden station relocation and
alarm pull box (such compliance is hereinafter called "Landlord's ADA Work").
Tenant shall be responsible for all other work as may be necessary to comply
with the Americans with Disabilities Act not included in Landlord's ADA Work.
(c) Landlord agrees that it will commence performing Landlord's ADA
Work in the demised premises as soon as reasonably possible and such work shall
be coordinated and completed with Tenant's performance of alterations and
installations in the demised premises.
(d) Following the completion of Landlord's Work, Landlord and Tenant
shall perform a walk through of the demised premises and following such walk
through Landlord shall, where necessary, clean or repair damaged convector units
and convector covers, repair any damaged window caulking or millions and
Landlord shall, where necessary, replace damaged convector grills.
(e) Landlord has no knowledge of the existence of any hazardous waste,
toxic waste or pollutants in the Building.
ARTICLE 4
TAX ESCALATION
4.1. Tenant shall pay to Landlord, as additional rent, tax escalation in
accordance with this Article 4:
(a) Definitions: For the purpose of this Article 4, the following
definitions shall apply:
(i) The term "base taxes" as hereinafter set forth for the
determination of real estate tax escalation shall mean the average
<PAGE>
of real estate taxes for the New York City real estate tax year commencing
July 1, 1994 and ending June 30, 1995 and the real estate tax year
commencing July 1, 1995 and ending June 30, 1996.
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean 7.164 (7.164%) percent.
(iii) The term"the building project" shall mean the aggregate
parcels of land (hereinafter called the "Land.") forming a single tax lot,
on a portion of which are the improvements of which the demised premises
form a part, with all the improvements thereon.
(iv) The term "comparative year" shall mean the twelve (12) months
following the New York City real estate tax year commencing July 1, 1995
and ending June 30, 1996, and each subsequent period of twelve (12) months.
(v) The term "real estate taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time by
any governmental authority upon or against the building project, and also
any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of income or rents
from the building project to the extent that same shall be in lieu of all
or a portion of any of the aforesaid taxes or assessments, or additions or
increases thereof, upon or against the building project. If, due to a
future change in the method of taxation or in the taxing authority, or for
any other reason, a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
Landlord in substitution in whole or in part for the real estate taxes, or
in lieu of additions to or increases of said real estate taxes, then-such
franchise, income, transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "real estate taxes"
for the purposes hereof. As to special assessments which are payable over a
period of time extending beyond the term of this Lease, only a pro rata
portion thereof, covering the portion of the term of this Lease unexpired
at the time of the imposition of such assessment, shall be included in
"real estate taxes". If, by law, any assessment may be paid in
installments, then, for the purposes hereof (a) such assessment shall be
deemed to have been payable in the maximum number of installments permitted
by law and (b) there shall be included in real estate taxes, for each
comparative year in which such installments may be paid, the installments
of such assessment so becoming payable during such comparative year,
together with interest payable during such comparative year. The real
estate taxes during the base tax year and each comparative year shall be
adjusted, if necessary, to reflect 100% occupancy in the Building.
(b) 1. In the event that the real estate taxes for any comparative
year shall exceed the base taxes, Tenant shall pay to Landlord, as
additional rent for such comparative year, an amount equal to The
Percentage of the excess. Before or after the start of each comparative
year, Landlord shall furnish to Tenant a statement of the real estate taxes
for such comparative year, which statement shall be accompanied by a copy
of the applicable New York City real estate tax bill for the Building. If
the real estate taxes for such comparative year exceed the base taxes,
additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Tenant to Landlord, and such
additional rent shall be payable by Tenant to Landlord as follows: after
Landlord has furnished Tenant with the aforesaid statement, Tenant shall
pay Landlord with the monthly installments of rent due on June 1, and
December 1 of each such comparative year an amount equal to one-half (1/2)
of the total sum of additional rent due from Tenant to Landlord pursuant to
such statement for such comparative year, until such time as a new
statement for a subsequent comparative year shall become effective. If,
during the term of this Lease, any such taxes are required to be paid, in
full or in quarterly or other installments, on any other date or dates than
as presently required, then Tenant's tax escalation payment(s) shall be
correspondingly accelerated so that said payments are due at least thirty
(30) days prior to the date the corresponding portion of the payments are
due to the taxing authority. If a statement is furnished to Tenant after
the commencement of the comparative year in respect of which such statement
is rendered, Tenant shall, within ten (10) days thereafter, pay to Landlord
an amount equal to those installments or the total tax escalation payable
as provided in the preceding sentence during the period prior to the first
day of the month next succeeding the month in which the applicable
statement has been furnished.
2. If, after Tenant shall have made a payment of additional rent under
this subdivision (b), Landlord shall receive a refund of any portion of the real
estate taxes payable during any comparative year on which such payment of
additional rent shall have been based, as a result of a reduction of such real
estate taxes by final determination of legal proceedings, settlement or
otherwise, Landlord shall within ten (10) days after receiving the refund pay to
Tenant The Percentage of the refund allocable to such payment.
<PAGE>
3. (A) The statements of the real estate taxes to be furnished by
Landlord as provided above shall be certified by Landlord and shall constitute a
final determination as between Landlord and Tenant of the real estate taxes for
the periods represented thereby, unless Tenant within sixty (60) days after they
are furnished shall in writing challenge their accuracy or their appropriateness
or unless any reduction in real estate taxes shall be obtained. If Tenant shall
dispute said statements, then pending the resolution of such dispute Tenant
shall pay the additional rent to Landlord in accordance with the statements
furnished by Landlord.
3. (B) If the resolution of any such dispute shall include a
determination that Tenant shall have made an overpayment under subsection
4.1(b), such overpayment (together with interest thereon at the Prime Rate
calculated from the date of the overpayment to the date the overpayment is
credited or refunded to Tenant) shall be credited against the next installment
of fixed annual rent due under Article 1 and if the amount of the credit exceeds
the amount of the next installment of fixed annual rent due under Article 1,
Landlord shall, within ten (10) days following the resolution of such dispute,
refund the amount of any such overpayment (together with such interest) in
excess of the next installment of fixed annual rent to Tenant. Notwithstanding
anything contained in the immediately preceding sentence no interest shall be
paid to Tenant by Landlord for an overpayment made under subsection 4.1(b) (2).
4. In no event shall the fixed annual rent under this Lease be reduced
by virtue of this Article 4.
5. If the Commencement Date is not the first day of a comparative
year, then the additional rent due hereunder for such comparative year shall be
a proportionate share of the said additional rent for the entire comparative
year, said proportionate share to be based upon the length of time that the
Lease term will be in existence during such comparative year. Upon the date of
any expiration or termination of this Lease (except termination because of
Tenant's default), whether the same be the date hereinbefore set forth for the
expiration of the term or any prior 'or subsequent date, a proportionate share
of said additional rent for the comparative year during which such expiration or
termination occurs shall immediately become due and payable by Tenant to
Landlord, if it was not theretofore already billed and paid. The said
---
proportionate share shall be based upon the length of time that this Lease shall
have been in existence during such comparative year. Landlord shall promptly
cause statements of said additional rent for that comparative year to be
prepared and furnished to Tenant. Landlord and Tenant shall thereupon make
---
appropriate adjustments of amounts then owing.
6. Landlord's and Tenant's obligation to make the adjustments referred to
in subdivisions 4.1(b) 1, 4.1(b)2 and 4.1 (b)5 above shall survive any
expiration or termination of this Lease.
7. Any delay or failure of Landlord in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such tax escalation hereunder provided,
however, if Landlord should fail to render any statement for real estate tax
escalation within two (2) years of the expiration of the comparative year
relating thereto then, provided Tenant shall notify Landlord that Landlord has
failed during such two (2) year period to render such statement to Tenant,
Landlord shall be deemed to have waived its right to collect any real estate tax
escalation for such comparative year. Tenant agrees to promptly notify Landlord
at any time Tenant becomes aware that Landlord has failed to render any
statement for real estate tax escalation. If Tenant so notifies Landlord that
Tenant has not received any statement for real estate tax escalation within such
two (2) year period, Landlord shall be deemed to have waived its right to
collect any real estate tax escalation for such comparative year unless Landlord
shall render such statement before the earlier to occur of (i) the date which is
six (6) months after such notification, or (ii) the expiration of such two (2)
year period (provided, however, the time period for Landlord to render such
statement shall in no event be less than thirty (30) days) from receipt of
Tenant's notice.
ARTICLE 5
EXPENSE ESCALATION
5.1. Tenant shall pay to Landlord, as additional rent, expense escalation
in accordance with this Article 5:
(a) Definitions: For the purpose of this Article 5, the following
definitions shall apply:
(i) The term "Expense Base Factor" shall mean the amount of the
Expenses for the calendar year 1995.
<PAGE>
(ii) The term "the building project" shall mean the aggregate parcels
of land forming a single tax lot, on a portion of which are the
improvements of which the demised premises form a part, with all the
improvements thereon.
(iii) The term "comparative year" shall mean the twelve consecutive
months which constitute the fiscal or calendar year (during which the term
of this Lease commences) utilized by Landlord for computing expense
escalation generally for other tenants of the Building and each subsequent
period of twelve (12) months during which occurs any portion of the terms
of this Lease.
(iv) The term "The Percentage", for purposes of computing expense
escalation, shall mean 7.454 (7.454%) percent.
(v) The term 'Expenses" shall mean the total of all the costs and
expenses incurred or borne by Landlord with respect to the operation and
maintenance of the building project and the services provided tenants
therein including, but not limited to, the costs and expenses incurred for
and with respect to: steam and any other fuel; water rates and sewer rents;
air-conditioning, ventilation and heating (subject to adjustment as
hereinafter described); Building electric current; metal, elevator cab,
lobby and plazas.
1. (Costs or expenses incurred in combination with other
properties (e.g., insurance, association fees, etc.) shall be reasonably
----
allocated by Landlord among such other properties and the Building.)
2. i.e, the cost of Building electric current shall be deemed to
---
mean the cost of all electricity purchased for use in the Building other
than that which is redistributed to tenants in the Building; the parties
agree that fifty percent (50%) of the Building's payment to the public
utility for the(continued...) maintenance and cleaning; elevators;
escalators; protection and security; lobby decoration and interior and
exterior landscape maintenance; repairs, replacements and improvements
which are appropriate for the continued operation of the Building as a
first-class building; maintenance; painting of non-tenant areas; fire,
extended coverage, boiler and machinery, sprinkler, apparatus, public
liability and property damage, rental and plate glass insurance and any
insurance required by a mortgagee; supplies; wages, salaries, disability
benefits, pensions, hospitalization, retirement plans and group insurance
respecting employees of Landlord up to and including the building manager;
uniforms and working clothes for such employees and the cleaning thereof;
expenses imposed on Landlord pursuant to law or to any collective
bargaining agreement with respect to such employees; worker's compensation
insurance, payroll, social security, unemployment and other similar taxes
with respect to such employees; the cost for a bookkeeper and for an
accountant; professional and consulting fees, including legal and
connection with any application or proceeding wherein Landlord obtains or
seeks to obtain reduction or refund of the real estate taxes payable or
paid upon or against the building project; an annual fee, for management of
the Building, equal to the annual management fee for the calendar year 1995
(hereinafter called the "Management Fee"). Said fee shall be increased for
each comparative year for which Tenant pays additional rent hereunder, to
an amount equal to the percentage of the Management Fee that
(1) the Expenses (exclusive of such management fees) for the comparative
year involved bear to (2) the Expense Base Factor reduced by the Management
Fee. purchase of electricity shall be deemed to be payment for Building
electric current and that, in the event (i) there should be a change in the
amount of tenanted areas to which electricity is supplied, or (ii) either
party believes that such 50% allocation or any subsequent allocation is not
a correct allocation, then either party may hire its own electrical
consultant to make an electrical survey to determine the allocation and
advise the other party of such electrical consultant's determination. If
the other party disputes such electrical consultant's determination, it
shall do so in accordance with the dispute procedure set forth in the
provisions of subsection 7.4(b) hereof and such dispute shall be resolved
in accordance with subsection 7.4(b). Provided, however, that the foregoing
costs and expenses shall exclude or have deducted from them, as the case
may be and as shall be appropriate:
(a) costs of cleaning and window washing (interior and exterior) of
tenant areas, by contract or otherwise;
(b) leasing commissions, consulting fees paid in lieu of leasing
commissions and other expenses directly related to the marketing or leasing
of space;
(c) salaries for executives above the grade of building manager;
<PAGE>
(d) expenditures for capital improvements, which under generally
accepted accounting principles are capitalized (the parties acknowledge and
agree that under generally accepted accounting principles some expenditures
may be expensed rather than capitalized because of lack of materiality),
except for capital expenditures required by law, in which case the cost
thereof shall be included in Expenses for the comparative year in which the
costs are incurred and subsequent comparative years, on a straight line
basis, to the extent that such items are amortized over an appropriate
period, but not more than ten years, with an interest factor equal to the
Prime Rate (as defined in Section 25.7 hereof) at the time of Landlord's
having incurred said expenditure;
(e) amounts received by Landlord through proceeds of insurance to the
extent the proceeds are compensation for expenses which were previously
included in Expenses hereunder;
(f) cost of repairs or replacements incurred by reason of fire or
other casualty, to the extent to which Landlord is compensated therefor
through proceeds of insurance, or caused by the exercise of the right of
eminent domain;
(g) advertising and promotional expenditures;
(h) legal fees for disputes with or the negotiation of leases with
tenants and legal and auditing fees, other than legal and auditing fees
reasonably incurred in connection with the maintenance and operation of the
Building or in connection with the preparation of statements required
pursuant to additional rent or lease escalation provisions;
(i) costs incurred in performing work or furnishing services to or for
individual tenants (including this Tenant) at such tenant's expense, to the
extent that such work or service is in excess of any work or service
Landlord at its expense is obligated to furnish to or for this Tenant;
costs of performing work or furnishing services for tenants other than this
Tenant at Landlord's expense, to the extent that such work or service is in
excess of any work or service Landlord is obligated to furnish to or for
this Tenant at Landlord's expense if any work or service is performed or
furnished by Landlord to or for any tenant other than this Tenant, at such
tenant's expense, then, but only to the extent that Landlord is obligated
to perform such work or furnish such service to or for this Tenant at
Landlord's expense, such work or service shall be deemed to have been
performed or furnished to or for such other tenant at Landlord's expense
and shall therefore be included in Expenses. Tenant agrees that there shall
be no adjustment in calculating Expenses relating to supplying condenser
water to occupants of the Building; and
(j) any governmental fines, penalties or other costs incurred by
Landlord due to Landlord's negligence or misconduct.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure designed to result in savings or reductions in Expenses, and
Landlord reasonably believes it will result in such savings or reductions, then
the costs for same shall be included in Expenses. The costs of capital equipment
or capital expenditures are so to be included in Expenses for the comparative
year in which the costs are incurred and subsequent comparative years, on a
straight line basis, to the extent that such items are amortized over such
period of time as reasonably can be estimated as the time in which such savings
or reductions in Expenses are expected to equal Landlord's costs for such
capital equipment or capital expenditure, with an interest factor equal to the
Prime Rate at the time of Landlord's having incurred said costs. If Landlord
shall lease any such item of capital equipment designed to result in savings or
reductions in Expenses, then the rentals and other costs paid pursuant to such
leasing shall be included in Expenses for the comparative year in which they
were incurred.
If during all or part of calendar year 1995 and any comparative year,
Landlord shall not furnish any particular item(s) of work or service (which
would constitute an expense hereunder) to portions of the Building, due to the
fact that such portions are not occupied or leased, or because such item of work
or service is not required or desired by the tenant of such portion, or such
tenant is itself obtaining and providing such item of work or service, or for
other reasons (except by reason of Landlord's failure to furnish such item of
work or service to Tenant which Landlord is obligated to furnish to Tenant under
this Lease [but only during the period of time that Landlord fails to furnish
such item of work or service]), then, for the purposes of computing the
additional rent payable hereunder, the amount of the expenses for such item for
such period shall be increased by an amount equal to the additional operating
and maintenance expenses which would reasonably have been incurred during such
period by Landlord if it had at its own expense furnished such item of
<PAGE>
work or service to such portion of the Building. Landlord's statements hereunder
shall reflect any such adjustments due to the factors set forth in this
paragraph.
Landlord is in compliance with existing laws, however, to the extent any
compliance is required in the future due to existing laws, the modification of
existing laws or the enactment of new laws, the cost of such compliance shall be
included in Expenses, subject to Section 5.1(a) (v) (d).
(b) 1. If the Expenses for any comparative year shall be greater than the
Expense Base Factor, Tenant shall pay to Landlord, as additional rent for such
comparative year, in the manner hereinafter provided, an amount equal to The
Percentage of the excess of the Expenses for such comparative year over the
Expense Base Factor (such amount being hereinafter called the "Expense
Payment").
Following the expiration of each comparative year and after receipt thereof
from Landlord's certified public accountant, Landlord shall submit to Tenant a
statement, certified by Landlord, setting forth the Expenses for the preceding
comparative year and the Expense Payment, if any, due to Landlord from Tenant
for such comparative year. The rendition of such statement to Tenant shall
constitute prima facie proof of the accuracy thereof and, if such statement
shows an Expense Payment due from Tenant to Landlord with respect to the
preceding comparative year then, (i) Tenant shall make payment of any unpaid
portion thereof within fifteen (15) days after receipt of such statement; and
(ii) Tenant shall also pay to Landlord, as additional rent, within fifteen (15)
days after receipt of such statement, an amount equal to the product obtained by
multiplying the total Expense Payment for the preceding comparative year by a
fraction, the denominator of which shall be 12 and the numerator of which shall
be the number of months of the current comparative year which shall have elapsed
prior to the first day of the month immediately following the rendition of such
statement; and (iii) Tenant shall also pay to Landlord, as additional rent,
commencing as of the first day of the month immediately following the rendition
of such statement and on the first day of each month thereafter until a new
statement is rendered, 1/12th of the total Expense Payment for the preceding
comparative year. The aforesaid monthly payments based on the total Expense
Payment for the preceding comparative year may be adjusted to reflect, if
Landlord can reasonably so estimate, known increases in rates, for the current
comparative year, applicable to the categories involved in computing Expenses,
whenever such increases become known prior to or during such current comparative
year. The payments required to be made under (ii) and (iii) above shall be
credited toward the Expense Payment due from Tenant for the then current
comparative year, subject to adjustment as and when the statement for such
current comparative year is rendered by Landlord. If Landlord fails to render a
statement for any comparative year within two (2) years after the expiration of
such comparative year, then provided Tenant shall notify Landlord that Landlord
has failed during such two (2) year period to render such statement to Tenant,
Landlord shall be deemed to have waived its right to collect any Expenses for
such comparative year. Tenant agrees to promptly notify Landlord at any time
Tenant becomes aware that Landlord has failed to render any statement for
Expense escalation. If Tenant so notifies Landlord that Tenant has not received
any Expense escalation statement within such two (2) year period, Landlord shall
be deemed to have waived its right to collect any Expenses for such comparative
year unless Landlord shall render such statement before the earlier to occur of
(i) the date which is six (6) months of such notification, and (ii) the
expiration of such two (2) year period (provided, however, the time period for
Landlord to render such statement shall in no event be less than thirty (30)
days from receipt of Tenant's notice).
If any statement rendered to Tenant shall indicate that Tenant shall have
made an overpayment with respect to any Expense payment, such overpayment
(together with interest thereon at the Prime Rate calculated from the date of
the overpayment to the date the overpayment is credited or refunded to Tenant)
shall be credited against the next installment of fixed annual rent due under
Article 1 and if the amount of the credit exceeds the amount of the next
installment of fixed annual rent due under Article 1, Landlord shall within ten
(10) days following the rendition of such statement, refund the amount of such
overpayment (together with such interest) in excess of the next installment of
fixed annual rent to Tenant. The statements of the Expenses to be furnished by
Landlord as provided above shall be certified by Landlord, and shall be prepared
in reasonable detail for Landlord by an independent certified public accountant.
Wherever the calculation of Expenses requires any credit or adjustment with
respect to any cost or expense, the certified public accountant who prepares the
statement (who may be the certified public accountant now or then employed by
Landlord for the audit of its accounts) shall determine the additional costs or
expenses incurred by Landlord, or the amount saved if such is the case, with
respect to any item of work or service and, to the extent necessary, said
accountant may rely on allocations and estimates made by Landlord's management.
The statements thus furnished to Tenant shall constitute a final determination
as between Landlord and Tenant of the Expenses for the periods represented
thereby, unless Tenant within ninety (90) days after they are furnished shall
give a notice to Landlord that it disputes their accuracy or their
appropriateness, which notice shall specify the particular respects in which the
statement is inaccurate or inappropriate.
<PAGE>
Pending the resolution of such dispute, Tenant shall pay the additional rent to
Landlord in accordance with the statements furnished by Landlord. After payment
of said additional rent, Tenant shall have the right, during reasonable business
hours and upon not less than five (5) business days' prior written notice to
Landlord, to examine Landlord's books and records with respect to the foregoing,
provided such examination is concluded within ninety-five (95) days from the
date Tenant sent such dispute notice to Landlord, but shall nevertheless have
reasonable access thereafter to said bills and records in order to verify its
examination.
Any such dispute as to said statement shall be resolved by arbitration in
accordance with the provisions of Article 33 hereof, which arbitration shall be
by three (3) arbitrators each of whom shall be experienced in the operation of
major office buildings in Manhattan, but none of whom shall be a person whose
primary business activity or affiliation is being a commercial landlord.
3. In no event shall the fixed annual rent under this Lease be reduced by
virtue of this Article 5.
4. If the Commencement Date is not the first day of a comparative year,
then the additional rent due hereunder for such comparative year shall be a
proportionate share of said additional rent for the entire comparative year,
said proportionate share to be based upon the length of time that the Lease term
will be in existence during such comparative year. Upon the date of any
expiration or termination of this Lease (except termination because of Tenant's
default) whether the same be the date hereinabove set forth for the expiration
of the term, or any prior or subsequent date, a proportionate share of said
additional rent for the comparative year during which such expiration or
termination occurs shall immediately become due and payable by Tenant to
Landlord, if it was not theretofore already billed and paid. The said
proportionate share shall be based upon the length of time that this Lease shall
have been in existence during such comparative year. Landlord shall, as soon as
reasonably practicable, cause statements of the Expenses for that comparative
year to be prepared and furnished to Tenant. Landlord and Tenant shall thereupon
make appropriate adjustments of amounts then owing.
5. Landlord's and Tenant's obligation to make the adjustments referred to
in subdivisions 5.1(b) (1), (2) and (4) hereof shall survive any expiration or
termination of this Lease.
6. Any delay or failure of Landlord in billing any expense escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such expense escalation hereunder.
ARTICLE 6
CLEANING COST ESCALATION
6.1. Landlord and Tenant recognize and agree that all cleaning services in
the demised premises shall be provided to Tenant pursuant to a cleaning contract
(hereinafter called the "Cleaning Agreement") dated as of December 31, 1994,
between 1345 Cleaning Service Co. (hereinafter called "Cleaning Contractor") and
Tenant, a copy of which Cleaning Agreement has been furnished by Tenant Co
Landlord.
6.2. In the event the Cleaning Agreement is terminated for any reason
whatsoever, then (a) Landlord shall provide cleaning services Co the demised
premises as more particularly set forth in Section 32.8 hereof; and (b) the
provisions of Sections 6.2 and 6.3 hereof shall be substituted for the
provisions of Section 6.1 hereof and the fixed annual rent for the demised
premises shall be increased by the amount of the Fixed annual Cleaning Fee and
Cleaning Cost Escalation then payable under the Cleaning Agreement.
6.3. If at any time after the Cleaning Agreement is terminated Landlord
shall be providing cleaning services to the demised premises, Tenant shall pay
to Landlord, as additional rent, cleaning cost escalation in accordance with
this Section 6.3.
Tenant acknowledges and understands that cleaning in and for the Building,
including, but not limited to, interior and exterior and window washing, may be
done by a cleaning contractor which is an entity under common control with
Landlord, and that Landlord may, from time to time, designate a different
cleaning contractor to do such work.
(a) Definitions: For the purpose of this Article 6, the following
definitions shall apply:
<PAGE>
(i) The term "base labor rate" as hereinafter used for the
determination of cleaning cost escalation, shall mean the labor rate as
that term is hereinafter defined for the calendar year in which the
Cleaning Agreement is terminated, as presently contained in the Agreement
between The Realty Advisory Board on Labor Relations, Inc. and Local 32B-
32J of the Building Service Employees International Union AFL-CIO.
(ii) The term "comparative year" shall mean the full calendar year
after the Cleaning Agreement is terminated and each subsequent calendar
year.
(iii) The term "Cleaning Cost Factor" shall mean the cost of
cleaning the Building for the calendar year in which the Cleaning Agreement
is terminated.
(iv) The term "The Percentage", for purposes of computing cleaning
cost escalation, shall mean 7.454 (7.454%) percent.
(v) The term "labor rate" shall mean the average hourly cost,
inclusive of allocations and apportionments of taxes (including sales and
use taxes) and fringe benefits incident, applicable, allocable or
reasonably related thereto, for an hour's work by a porter engaged to work
a 40 hour work week, based on the minimum regular hourly wage rate for such
employment, determined as follows:
(1) The minimum regular hourly wage rate shall be the rate
for employment of porters in Class A office buildings, from time
to time established by Agreement between the Realty Advisory Board
on Labor Relations, Inc. and Local 32B-32J of the Building Service
Employees International Union AFL-CI0 or by the successors to
either or both of them (this rate shall be used in computations
under this Article 6 whether or not porters' wages are actually
paid by or for the Landlord or by independent contractors who
furnish such services to the demised premises).
(2) As used herein, the term "porters" shall mean that
classification of employee engaged in the general maintenance and
operation of office buildings most nearly comparable to that
classification now applicable to porters in the 1995 agreement
with said Local 32B-32J (which classification is presently termed
"others" in said agreement).
(3) As used herein the term "fringe benefits" shall mean all
fringe benefits, including, but not limited to, amounts for,
allocable to or attributable to, pensions, welfare funds,
vacations, holidays, sick days, birthdays, jury duty, medical
checkup, lunch hours, relief time and other paid time off,
bonuses, social security, unemployment, disability benefits,
health, life, accident, workmen's compensation and other types of
insurance. Furthermore, included within fringe benefits shall be
an amount representing a reasonable cost for an average number of
days taken by employees during a calendar year for days which are
individual to an employee, such as jury days, death days, sick
days, etc.; and at the request of Tenant, Landlord shall furnish
to Tenant the information which is the basis of Landlord's
calculation of said amount.
If there is no such union agreement in effect at any time during the term
of this Lease, then all computations and payments shall, nevertheless, be made,
but shall be on the basis of the regular hourly wage rates, plus taxes
(including sales and use taxes) and fringe benefits incident, allocable, or
applicable thereto, actually being paid or accrued at such time by the Landlord,
or by the contractor performing the cleaning services for Landlord, for such
porters, and appropriate retroactive adjustment shall thereafter be made if and
when the minimum regular hourly wage rate pursuant to such agreement is finally
determined; and further provided, however, if any union agreement shall require
the regular employment of porters on days or during hours when overtime or other
premium pay rates are in effect, then the "regular hourly wage rate", as used
above, shall be deemed to mean the actual weekly wage rate, divided by the
actual hours in a calendar week during which such porters are required to be
employed (if, for example, as of October 1, 1988, an agreement between RAB and
Local 32B-32J shall require the regular employment of building porters for forty
(40) hours during a calendar week at a regular hourly wage rate of $9.00 for the
first thirty (30) hours, and premium or overtime hourly wage rate of $12.00 for
the remaining ten (10) hours, then the regular straight time hourly wage rate
under this Article 6, as of October 1, 1988, shall be deemed to be the total
weekly rate of $390.00 divided by the total number of required hours of
employment, forty (40), or $9.75).
(b) In the event that the labor rate in effect on the first day of
any comparative year shall exceed the base labor rate,
<PAGE>
Tenant shall pay to Landlord, as additional rent for such comparative year,
an amount equal to the product obtained by multiplying (i) the Cleaning
Cost Factor by (ii) the percentage increase of the said labor rate in
effect on the first day of such comparative year over the base labor rate
and then multiplying the result by (iii) The Percentage. By or after the
start of the first comparative year and by or after the start of each
comparative year thereafter, Landlord shall furnish to Tenant a statement
of the labor rate in effect on the first day of such comparative year and a
statement of the base labor rate, showing the cleaning cost escalation, if
any, which shall be due hereunder from Tenant to Landlord and the
additional rent then payable by Tenant to Landlord shall be paid as
provided in subsection 6.3(c) below.
(c) The statements of the cleaning cost escalation to be furnished by
Landlord as provided in subsection 6.3(b) above shall be certified by
Landlord, and shall be prepared in reasonable detail; Each such annual
amount of cleaning cost escalation, due by reason of the foregoing, shall
commence to be payable, in equal monthly installments, as of the first day
of' the period for which such labor rate shall exceed the base labor rate;
and, after Landlord shall furnish Tenant with an escalation statement
relating to such excess in the labor rate, such monthly installments of
cleaning cost escalation, equal to one-twelfth (1/12) of the Annual amount
determined above, shall be paid by Tenant to Landlord until a new change
shall take place in the labor rate. In the event that the escalation
statement is furnished to the Tenant after the commencement or effective
date of any change in the labor rate, there shall be promptly paid by
Tenant to Landlord any additional amount theretofore accrued or allocable
to the period prior to the furnishing of the said escalation statement. In
the event that the labor rate shall be changed or shall change more
frequently than once a year, the adjustment hereunder shall similarly be
made by Landlord in an additional escalation statement furnished by
Landlord, so as to reflect such change in the monthly installments, as of
the effective date of each such change.
(d) The statements thus furnished to Tenant shall constitute a final
determination as between Landlord and Tenant of the labor rate and cleaning
cost escalation for the periods represented thereby, unless Tenant within
ninety (90) days after they are furnished shall give a notice to Landlord
that it disputes their accuracy, which notice shall specify the particular
respects in which the statement is inaccurate. Pending the resolution of
such dispute, Tenant shall pay the additional rent to Landlord in
accordance with the statements furnished by Landlord.
Any such dispute as to the accuracy of the calculations in said statements
shall be resolved by arbitration in accordance with the provisions of Article 33
hereof, which arbitration shall be by three (3) arbitrators each of whom shall
have at least ten (10) years' experience in the supervision of the operation and
management of major office buildings in Manhattan.
(e) If the date of termination of the Cleaning Agreement is not the
first day of the first comparative year, then the additional rent due
hereunder for such first comparative year shall be a proportionate share of
said additional rent for the entire comparative year, said proportionate
share to be based upon the length of time that the Lease term will be in
existence during such first comparative year. Upon the date of any
expiration or termination of this Lease (except termination because of
Tenant's default), whether the same be the date hereinabove set forth for
the expiration of the term or any prior or subsequent date, a proportionate
share of said additional rent for the comparative year during which such
expiration or termination occurs shall immediately become due and payable
by Tenant to Landlord. The said proportionate share shall be based upon the
length of time that this Lease shall have been in existence during such
comparative year. Prior to or promptly after said expiration or
termination, Landlord shall compute the additional rent, if any, due from
Tenant, as aforesaid, which computations shall either be based on that
comparative year's labor rate(s) or be a reasonable estimate based upon the
most recent statements theretofore prepared by Landlord and furnished to
Tenant. If an estimate is used, then Landlord shall cause statements to be
prepared on the basis of that comparative year's labor rate(s), and upon
Landlord's furnishing such statement to Tenant, Landlord and Tenant shall
make appropriate adjustments of amounts then owing.
(f) Landlord's and Tenant's obligation to make the adjustments
referred to in subsection 6.3(c) and (e) above shall survive any expiration
or termination of this Lease. Any delay or failure of Landlord in billing
for any cleaning cost escalation payable as hereinabove provided shall not
constitute a waiver of or in any way impair the continuing obligation of
Tenant to pay such cleaning cost escalation hereunder.
(g) In no event shall the fixed annual rent under this Lease be
reduced by virtue of this Article 6.
<PAGE>
ARTICLE 7
ELECTRICITY
7.1. Landlord shall furnish to Tenant the electric energy which Tenant
requires in the demised premises through the presently installed electrical
facilities for Tenant's reasonable use in the demised premises, subject to the
provisions of Section 7.6(a), for lighting, customary office equipment,
computers, market data systems, supplemental HVAC and the usual small business
machines, including Xerox or other copying machines. Landlord shall not in any
way be liable or responsible to Tenant for any loss or damage or expense which
Tenant may sustain or incur if either the quantity or character of electric
service is changed or is no longer available or suitable for Tenant's
requirements.
7.2. Intentionally deleted.
7.3. (a) Landlord shall, prior to the date Tenant occupies the demised
premises for the conduct of its business, at Landlord's expense (which shall not
be included as an Expense in any year), install and make functional a sufficient
number of check meters and the equipment ancillary thereto on each floor of the
demised premises (hereinafter called the "Check Meters") to (i) measure and
record and provide printouts of the measurement of the demand and consumption in
the demised premises of electric current during each month of each calendar year
occurring during the term of this Lease and (ii) operate such meters to
ascertain Tenant's consumption of kilowatt hours, by time of day, if applicable
("KWH") and demand in kilowatts ("KW") for each month. The Check Meters shall be
connected so as to read the totalized demand of the demised premises. Landlord
shall maintain and keep the Check Meters in good repair (including replacement,
if necessary), working order and condition during the term of this Lease. All
costs and expenses of maintaining and repairing the Check Meters shall be borne
by Landlord. During any period that a Check Meter is non-operational or where
such Check Meter(s) have not yet been installed after the Commencement Date, the
Electricity Charge (as hereinafter defined) attributable to such Check Meter(s)
shall be an amount reasonably estimated by Landlord's electrical consultant
based upon the historical readings previously or thereafter received by Landlord
from such non-operational Check Meter(s).
(b) Tenant shall pay Landlord, for the furnishing of electricity to
the demised premises as set forth herein an amount ("Electricity Charge") equal
to Landlord's cost, as if billed by the electric utility supplying the Building,
to furnish electricity to the demised premises (herein called "Landlord's Cost")
for each calendar month. Landlord's Cost shall be determined by applying the KWH
and KW to the rates pursuant to which Landlord purchases electric current for
the Building during the particular calendar month, including therein any taxes,
fuel adjustment charges, surcharges, demand charges, energy charges, time-of-day
charges, rate adjustment charges or other impositions of any nature payable by
Landlord (other than interest or penalties on late payments) and adding thereto
a two percent (2%) ("Electricity Adjustment Fee") charge to compensate Landlord
for any transmission loss in transmitting the electric energy from its source in
the Building to the demised premises. If consumption or demand is billed at
different rates depending on different subdivisions or categories of the rate
schedule, then Tenant's KWH consumption and KW demand shall be billed at
Landlord's Cost per KW or KWH (as the case may be) for such subdivision or
category (e.g., KWH consumption is currently billed at different rates depending
on the time of day of consumption and accordingly Tenant's KWH's shall be
applied separately to the rates applicable to the period in which each KWH of
Tenant's consumption was consumed). If the rates pursuant to which Landlord
purchases electricity for the Building should change so that the application of
the monthly KWH and KW to such rates (together with any taxes, fuel adjustment
charges, surcharges, demand charges, energy charges, time-of-day charges, rate
adjustment charges or other impositions) shall not reflect Landlord's actual
cost of furnishing such KW and KWH then the calculation of Landlord's Cost shall
be appropriately revised so that Landlord's Cost shall reflect Landlord's actual
cost of furnishing electric current to the demised premises (e.g., if KWH
consumption shall be billed at different rates depending on the volume of KWH
consumed, then Tenant's KWH consumption shall be billed at Landlord's Cost per
KWH in order that the benefit of any volume discount for KWH consumption shall
be applied to Tenant's KWH consumption).
7.4. (a) Following the expiration of each calendar month, Landlord shall
submit to Tenant a statement setting forth in reasonable detail the Electricity
Charge for such month together with copies of the Check Meter printouts showing
the KW and KWH recorded during the applicable month and copies of the public
utility rate schedule pursuant to which Landlord is then purchasing electricity
for the Building. Tenant shall pay the amount of Electricity Charge shown on the
statement (which amount shall be equal to Landlord's Cost for such month) within
thirty (30) days after receipt of such statement.
(b) The determination of the Electricity Charge by Landlord shall be
binding and conclusive on Landlord and on Tenant
<PAGE>
from and after the delivery of copies of such determination (and the back-up
documentation required by Section 7.4 (a) hereof) to Landlord and Tenant, unless
within sixty (60) days after the delivery of such copies, Tenant disputes such
determination. Upon Tenant' s request, Landlord shall furnish to Tenant copies
of all bills for the relevant period from the public utility company furnishing
electricity to the Building. If Tenant disputes the determination of Landlord,
it shall, at its own expense, obtain from a reputable, independent electrical
consultant its determination of the amount of the Electricity Charge in
accordance with the provisions of this Article 7. Tenant and Landlord then shall
seek to agree on the Electricity Charge. If they cannot agree, they shall choose
a reputable electrical consultant (who shall not be or have been employed by or
retained on an independent consulting basis, within the last two (2) years by
either Landlord or Tenant, or any affiliate of Landlord or Tenant) whose cost
shall be shared equally by Landlord and Tenant, to make a similar determination
of the Electricity Additional Rent, which determination shall be limited to
verification of the relevant Check Meter readings, the rates of the public
utility for the applicable period and the accuracy of the computation of the
Electricity Charge being contested, and if so limited, the determination of the
Electricity Charge change by such third electrical consultant shall be
controlling. If Landlord and Tenant cannot agree on such consultant, within ten
(10) days, then either party may apply to the Supreme Court in the County of New
York for the appointment of such consultant. However, pending such
determination, Tenant, without prejudice to Tenant's rights, shall pay to
Landlord the amount of Electricity Additional Rent as determined by Landlord. If
the resolution of any such dispute shall include a determination that Tenant
shall have overpaid any Electricity Charge, such overpayment (together with
interest thereon at the Prime Rate calculated from the date of the overpayment
to the date the overpayment is credited or refunded to Tenant) shall be credited
against the next installment of fixed annual rent due under Article 1 hereof and
if the amount of the credit exceeds the amount of the next installment of fixed
annual rent due under Article 1, Landlord shall refund the amount of any such
overpayment (together with such interest) in excess of the next installment of
fixed annual rent to Tenant. If the resolution of any such dispute shall include
a determination that Tenant has underpaid Electricity Charge, then Tenant shall
pay to Landlord the amount of any such underpayment together with interest
thereon at the Prime Rate calculated from the date such underpayment should have
been paid by Tenant to the date such amount is actually paid by Tenant to
Landlord.
7.5. Landlord reserves the right to discontinue furnishing electric energy
to Tenant at any time upon sixty (60) days' written notice to Tenant, and from
and after the effective date of such termination, Landlord shall no longer be
obligated to furnish Tenant with electric energy, provided, however, that such
termination date may be extended for a time reasonably necessary for Tenant to
make arrangements to obtain electric service directly from the public utility
company servicing the Building. If Landlord shall discontinue service on a
voluntary basis, then Landlord shall reimburse Tenant for all reasonable out-of-
pocket costs incurred by Tenant in connection with Tenant's arrangements to
obtain electric service directly from the public utility company servicing the
Building. If Landlord shall discontinue such service on an involuntary basis
(e.g., discontinuance required by law), then Landlord and Tenant shall share
such reasonable out-of-pocket costs incurred by Tenant in connection with
Tenant's arrangements to obtain electric service directly from the public
utility company servicing the Building on a declining basis with Tenant being
responsible for an amount equal to such reasonable out-of-pocket costs
multiplied by a fraction, the numerator of which is the number of months
remaining in the term of this Lease and the denominator of which is two hundred
fifty-eight (258). If Landlord exercises such right of termination, this Lease
shall remain unaffected thereby and shall continue in full force and effect; and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building, and may utilize the then
existing electric feeders, risers and wiring serving the demised premises to the
extent available and safely capable of being used for such purpose and only to
the extent of Tenant's then authorized connected load. Landlord shall be
obligated to pay no part of any cost required for Tenant's direct electric
service. Landlord shall not voluntarily discontinue furnishing electric energy
to Tenant in an arbitrary and discriminatory manner.
7.6. (a) Landlord agrees that, at all times during the term of this Lease,
the risers, feeders, transformers, panels and wiring installed in the Building
by Landlord will be sufficient to permit a demand electrical load in the demised
premises of six (6) watts (volt-amperes) per useable square foot of the demised
premises excluding the Building HVAC systems; it being agreed that Tenant may
distribute such six (6) watts (volt-amperes) among the demised premises as
Tenant may reasonably require, subject to Landlord's approval, which approval
shall not be unreasonably withheld. Tenant covenants and agrees that in no event
shall its use of electric current in the demised premises exceed six (6) watts
(volts-amperes) of demand electric load per useable square foot of the demised
premises or any increased demand load as may be available after the installation
of additional risers, feeders and other equipment, if permitted, pursuant to the
provisions of this Section 7.6, and any breach by Tenant of this covenant shall
be deemed a material breach of this Lease. Any additional risers, feeders or
other proper or necessary equipment to supply Tenant's electrical requirements
in excess of six (6) watts (volt-amperes) of demand electric load per useable
square foot, upon written request of Tenant, will be installed by Landlord, at
the sole but reasonable cost and expense of Tenant if, in Landlord's sole but
reasonable judgment, the same are necessary and will not cause permanent
<PAGE>
damage or injury to the Building or the demised premises, or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repair or expense or unreasonably interfere with or disturb other
tenants or occupants of the Building. Landlord shall install at Tenant's expense
any additional Check Meters which may be necessary to measure Tenant's demand
and consumption of electric current by reason of the installation of any such
additional risers, feeders or other electrical equipment required as a result of
Tenant's electrical usage exceeding the level of electricity Landlord is
obligated to provide hereunder.
(b) At Landlord's option, Tenant shall purchase from Landlord or
Landlord's agent all lighting tubes, lamps, bulbs and ballasts used in the
demised premises and Tenant shall pay Landlord's reasonable and competitive
charges for providing and installing same, on demand, as additional rent.
7.7. In no event shall the fixed annual rent under this Lease be reduced by
virtue of this Article 7, except by reason of any credit granted pursuant to the
provisions of Section 7.4(b) for an overpayment of any Electricity Charge.
7.8. It is the intention of Landlord that Tenant shall be required pursuant
to this Article 7 to pay only the actual cost and expense incurred by Landlord
in connection with furnishing electrical power to the demised premises plus the
"Electricity Administrative Fee" it being understood and agreed that the charges
to Tenant under this Article 7 are in no instance intended to include any profit
or premium payable to Landlord for providing such electrical service other than
such Electricity Administrative Fee.
ARTICLE 8
ALTERATIONS AND INSTALLATIONS
8.1. Except as hereinafter provided, Tenant shall make no alterations,
installations, additions or improvements in or to the demised premises without
Landlord's prior written consent. All such work shall be done only by
contractors or mechanics first approved by Landlord, such approval not to be
unreasonably withheld. Ail such work, alterations, installations, additions and
improvements shall be done at Tenant's sole expense and at such times and in
such manner as Landlord may from time to time reasonably designate.
Landlord shall within five (5) business days of receipt from Tenant,
approve or disapprove Tenant's requests for nonstructural alterations, additions
and improvements (such consent not to be unreasonably withheld or delayed
provided they will not affect the outside of the Building or adversely affect
its structure, electrical, HVAC, plumbing or mechanical systems) except when the
nature or complexity of such alterations, additions or improvements shall
require additional time on the part of Landlord to review Tenant's request, in
which case such five (5) business day period shall be extended for such time as
is reasonably necessary for Landlord to review such request. Subject to the
provisions of the preceding sentence, Landlord's consent shall not be required
for such nonstructural alterations, additions and improvements costing less than
the sum of (i) $100,000, plus (ii) the product of $100,000 and the percentage
increase, if any, in the "Index" (as defined below) from the Index in effect on
the Commencement Date to the Index in effect on the first day of the month in
which Tenant would request consent to such alterations, additions or
improvements, except to the extent any such alterations, additions or
improvements require any governmental filing, in which case such alterations,
additions or improvements shall be subject to Landlord's consent, which consent
shall not be unreasonably withheld or delayed.
"Index" shall mean one-half ( 1/2) the sum of the following indexes first
published, without adjustments by virtue of later revisions, for the month
involved:
(i) Consumer Price Index for Ail Urban Consumers and
(ii) Consumer Price Index for Urban Wage Earners and Clerical Workers,
New York, N.Y. - Northeastern N.J., base year [1982-1984 = 100] specified
for "All Items", as issued by the Bureau of Labor Statistics of the United
States Department of Labor, whether or not the composition of the items upon
which such indexes are based, their relative effects thereon or the region
considered may be changed from time to time. If either the Consumer Price Index
for all Urban Consumers or the Consumer Price Index for Urban Wage Earners and
Clerical Workers shall cease to be published, then the
<PAGE>
Index shall mean the sum of whichever of the aforesaid indexes is published and
if both of such indexes cease to be published and there is no successor thereto,
the Index shall be such other index as Landlord and Tenant shall agree upon in
writing. If Landlord and Tenant are unable to agree as to such substituted
Index, such matter shall be submitted to arbitration in accordance with the
provisions of Article 33 hereof.
Tenant shall promptly reimburse Landlord upon demand for any out-of-pocket
costs and expenses incurred by Landlord, including out-of-pocket costs of any
consultants hired by Landlord, in connection with Landlord's review of Tenant's
plans and specifications for any such alterations, installations, additions or
improvements.
Any such approved alterations and improvements shall be performed in
accordance with the foregoing and the following provisions of this Article 8:
1. All work shall be done in a good and workmanlike manner.
2. In the event Tenant shall employ any contractor to do in the demised
premises any work permitted by this Lease, such contractor and any
subcontractor shall agree to employ only such labor as will not result in
jurisdictional disputes or strikes. Landlord agrees that such contractor or
subcontractor shall have reasonable use of the Building facilities. Tenant
will inform Landlord in writing of the names of any contractor or
subcontractor Tenant proposes to use in the demised premises at least ten
(10) days prior to the beginning of work by such contractor or
subcontractor.
3. All such alterations shall be effected in compliance with all applicable
laws, ordinances, rules and regulations of governmental bodies having or
asserting jurisdiction in the demised premises.
4. Tenant shall keep the Building and the demised premises free and clear
of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises on Tenant's behalf, and all work to be
performed by Tenant shall be done in a manner which will not unreasonably
interfere with or disturb other tenants or occupants of the Building.
5. During the progress of the work to be done by Tenant, said work shall be
subject to inspection by representatives of Landlord which shall be
permitted access and the opportunity to inspect, at all reasonable times.
6. With respect to alteration or improvement work costing more than
$20,000, Tenant agrees to pay to Landlord, if Tenant uses one of Landlord's
pre-approved contractors, as additional rent, upon being billed therefor, a
sum equal to two (2%) percent of the cost of such work or alteration for
Landlord's indirect costs, field supervision and coordination in connection
with such work, and if such work is done by a contractor other than a pre-
approved contractor, then such two percent amount shall be increased to
five (5%) percent. The provisions of the preceding sentence shall not apply
with respect to (i) the first alterations costing more than $20,000 made by
Tenant in the demised premises and (ii) any work at the demised premises
that is performed for Tenant by Landlord or a contractor controlled by
Landlord or any one or more of the general partners of Landlord.
7. Prior to commencement of any work, Tenant shall furnish to Landlord
certificates evidencing the existence of:
(i) worker's compensation insurance covering all persons employed
for such work; and
(ii) reasonable comprehensive general liability and property damage
insurance naming Landlord, its designees and Tenant as insureds, with
coverage of at least $1,000,000 single limit.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or other estate or interest of Landlord in and to the
demised premises.
<PAGE>
8.2. Any mechanic's lien, filed against the demised premises or the
Building for work claimed to have been done for or materials claimed to have
been furnished to Tenant shall be discharged by Tenant at its expense within
ninety (90) days after such filing, by payment, filing of the bond required by
law or otherwise.
8.3. All alterations, installations, additions and improvements made and
installed by Landlord, shall be the property of Landlord and shall remain upon
and be surrendered with the demised premises as a part thereof at the end of the
term of this Lease.
8.4. All alterations, installations, additions and improvements made and
installed by Tenant, or at Tenant's expense, upon or in the demised premises
which are of a permanent nature and which cannot be removed without damage to
the demised premises or Building shall become and be the property of Landlord,
and shall remain upon and be surrendered with the demised premises as a part
thereof at the end of the term of this Lease.
8.5. Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equipment, counters, screens, grille work, special panelled doors,
cages, partitions, metal railings, closets, panelling, lighting fixtures and
equipment, drinking fountains, refrigeration and air handling equipment, and any
other movable property shall remain the property of Tenant which may at its
option remove all or any part thereof at any time prior to the expiration of the
term of this Lease. In case Tenant shall decide not to remove any part of such
property, Tenant shall notify Landlord in writing not less than three (3) months
prior to the expiration of the term of this Lease, specifying the items of
property which it has decided not to remove. If, within thirty (30) days after
the service of such notice, Landlord shall request Tenant to remove any of the
said property, Tenant shall at its expense remove the same in accordance with
such request. As to such property which Landlord does not request Tenant to
remove, the same shall be, if left by Tenant, deemed abandoned by Tenant and
thereupon the same shall become the property of Landlord.
8.6. If any alterations, installations, additions, improvements or other
property which Tenant shall have the right to remove or be requested by Landlord
to remove as provided in Sections 8.4 and 8.5 hereof (herein in this Section 8.6
called the "property") are not removed on or prior to the expiration of the term
of this Lease, Landlord shall have the right to remove the property and to
dispose of the same without accountability to Tenant and at the sole cost and
expense of Tenant. In case of any damage to the demised premises or the Building
resulting from the removal of the property Tenant shall repair such damage or,
in default thereof, shall reimburse Landlord for Landlord's cost in repairing
such damage. This obligation shall survive any termination of this Lease.
8.7. Tenant shall keep records of Tenant's alterations, installations,
additions and improvements costing in excess of $50,000, and of the cost
thereof. Tenant shall, within 45 days after demand by Landlord, furnish to
Landlord copies of such records and cost if Landlord shall require same in
connection with any proceeding to reduce the assessed valuation of the Building,
or in connection with any proceeding instituted pursuant to Article 14 hereof.
8.8. Tenant, subject to Landlord's consent, which consent will not be
unreasonably withheld or delayed, and any applicable governmental regulations,
shall have the right to install interior staircases in the demised premises at
Tenant's sole cost and expense. Upon the expiration or earlier termination of
this Lease Tenant shall have no obligation to remove any interior staircases
installed under this Section 8.8.
8.9. Tenant, subject to Landlord's consent which consent shall not be
unreasonably withheld or delayed, and any applicable governmental regulations
and the availability of proper exhaust, shall have the right to install a
cooking flue in the demised premises at Tenant's sole cost and expense. Upon the
expiration or earlier termination of this Lease Landlord shall have the right to
request Tenant to remove any such installed cooking flue.
ARTICLE 9
REPAIRS
9.1. Tenant shall, at its sole cost and expense, make such repairs to the
demised premises and the fixtures and
<PAGE>
appurtenances therein as are necessitated by the act, omission, occupancy or
negligence of Tenant (except for fire or other casualty caused by Tenant's
negligence, if the fire or other casualty insurance policies insuring Landlord
are not invalidated by this provision) or by the use of the demised premises in
a manner contrary to the purposes for which same are leased to Tenant, as and
when needed to preserve them in good working order and condition. All damage or
injury to the demised premises and to its fixtures, appurtenances and equipment
or to the Building or to its fixtures, appurtenances and equipment caused by
Tenant moving property in or out of the Building or by installation or removal
of furniture, fixtures or other property, and for which Landlord has not been or
will not be reimbursed by insurance, shall be repaired, restored or replaced
promptly by Tenant at its sole cost and expense, which repairs, restorations and
replacements shall be in quality and class equal to the original work or
installations. If Tenant fails to make such repairs, restoration or
replacements, same may be made by Landlord at the expense of Tenant and such
expense shall be collectible as additional rent and shall be paid by Tenant
within 15 days after rendition of a bill therefor.
The exterior walls of the Building, the portions of any window sills
outside the windows and the windows are not part of the premises demised by this
Lease and Landlord reserves all rights to such parts of the Building.
9.2. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which such floor was designed to
carry and which is allowed by law. Landlord certifies that the floor of the
demised premises will carry fifty (50) pounds live load per square foot of floor
space and twenty (20) pounds for partitions per square foot of floor space. If
Tenant shall desire a floor load in excess of that set forth above, Landlord
agrees (provided Landlord's architects, in their reasonable discretion, find
that the work necessary to increase such floor load does not adversely affect
the structure of the Building, and further provided that such work will not
interfere with the amount or availability of any space adjoining alongside,
above or below the demised premises, or interfere with the occupancy of other
tenants in the Building), to strengthen and reinforce the same so as to give the
live load desired, provided Tenant shall submit to Landlord the plans showing
the locations of and the desired floor live load for the areas in question and
provided further that Tenant shall agree to pay for or reimburse Landlord on
demand for the cost of such strengthening and reinforcement as well as any other
costs to and expenses of Landlord occasioned by or resulting from such
strengthening or reinforcement.
9.3. Business machines and mechanical equipment used by Tenant which cause
vibration, noise, cold or heat that may be transmitted to the Building structure
or to any leased space to such a degree as to be objectionable to Landlord or to
any other tenant in the Building shall be placed and maintained by Tenant at its
expense in settings of cork, rubber or spring type vibration eliminators
sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators and air-conditioning and heating equipment will cause
some vibration, noise, heat or cold which may be transmitted to other parts of
the Building and demised premises. Landlord shall be under no obligation to
endeavor to reduce such vibration, noise, heat or cold beyond what is customary
in current good building practice for first class office buildings on Park
Avenue between 46th and 57th Streets in the Borough of Manhattan or required by
law.
9.4. Except as otherwise provided in this Lease, there shall be no
allowance to Tenant for a diminution of rental value and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from the making of any repairs, alterations, additions or improvements
in or to any portion of the Building or the demised premises or in or to
fixtures, appurtenances or equipment thereof. Landlord shall exercise reasonable
diligence so as to minimize any interference with Tenant's business operations.
9.5. Landlord shall (i) keep the steps, entrance walks, sidewalks and curbs
adjoining the Building reasonably free of ice, snow, refuse, rubbish and
unlawful obstruction, (ii) keep and maintain the Building and its fixtures,
appurtenances, systems and the facilities, serving and/or in the demised
premises, in good working order, condition and repair, (iii) promptly make all
repairs and replacements, structural or otherwise, necessary or desirable to
keep in good order and repair the interior and exterior of the Building, and
(iv) if any of Tenant's property shall be damaged in any way as a result of the
negligence of (including the improper installation of any of Tenant's property
by) Landlord, its employees or agents, repair the property so damaged to good
condition; except, as to clauses (ii) and (iii), those repairs which Tenant is
expressly obligated to make pursuant to other provisions of this Lease.
9.6. Whenever Landlord shall make any repairs, alterations, additions or
improvements, it agrees to use reasonable efforts to the extent practicable to
do such work in such a manner as not materially to interfere with Tenant's use
and enjoyment of the demised premises. Landlord shall use its best efforts to
complete such repairs in a timely manner and if such repairs materially
interfere with Tenant's business operations in the demised premises Landlord
shall use overtime labor to make such repairs provided the repairs are not
<PAGE>
necessitated or hindered by the acts or omissions of Tenant. Tenant shall
cooperate with Landlord by transferring, wherever practicable, activities from
the area where repairs are to be made to other portions of the demised premises
so as to permit the repairs to be made as expeditiously as practicable. Tenant
recognizes that emergency repairs may be required and in such instances Tenant
will permit Landlord all reasonable and necessary access to the demised premises
to make such repairs.
ARTICLE 10
REQUIREMENTS OF LAW; FIRE INSURANCE
10.1. Tenant shall comply with all laws, orders and regulations of Federal,
State, County and Municipal authorities and with any direction of any public
officer or officers, pursuant to law, which shall impose any violation, order or
duty upon Landlord or Tenant with respect to the demised premises, or the use or
occupation thereof. Landlord represents and warrants that at the time of the
Commencement Date the demised premises will comply with all applicable laws,
rules, regulations, orders and directions to which the demised premises are
subject at such time, the non-compliance with which would adversely affect
Tenant's occupancy of the demised premises (except those laws, rules,
regulations, orders and directions with respect to which (i) Tenant would not be
obligated to incur any cost to correct such non-compliance or (ii) Tenant would
not be deemed to be in default under this Lease), other than those with which
Tenant is required hereunder to comply, provided however, Landlord shall not be
required to comply with, and the foregoing representation and warranty shall not
apply with respect to, such laws, rules, regulations, orders and directions,
where compliance with same would be obviated by complete reconstruction of the
demised premises. Notwithstanding anything to the contrary contained in this
Section 10.1, Tenant shall not be responsible to cure any violation of any laws,
orders or regulations set forth above which violation existed as of the
Commencement Date with respect to Local Law #5 and Local Law #10. Tenant shall,
only with respect to the demised premises, be obligated to comply with Local Law
#5 as a result of any alteration made to the demised premises.
10.2. Tenant shall not do or permit to be done any act or thing upon the
demised premises, which will invalidate or be in conflict with New York Standard
Fire Insurance policies covering the Building, and fixtures and property
therein, or which would increase the rate of fire insurance applicable to the
Building to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the demised premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on within the demised premises; but nothing in this
Section 10.2 shall prevent Tenant's use of the demised premises for the purposes
stated in Article 2 hereof.
10.3. If, as a result of any act or omission by Tenant or violation of this
Lease, the rate of fire insurance applicable to the Building shall be increased
to an amount higher than it otherwise would be, Tenant shall reimburse Landlord
for all increases of Landlord's fire insurance premiums so caused; such
reimbursement to be additional rent payable upon the first day of the month
following any outlay by Landlord for such increased fire insurance premiums. In
any action or proceeding wherein Landlord and Tenant are parties, a schedule or
"make up" of rates for the Building or demised premises issued by the body
making fire insurance rates for the demised premises, shall be presumptive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rate then applicable to the demised premises.
ARTICLE 11
SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES
11.1. This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all ground leases, overriding leases
and underlying leases of the Land and/or the Building now or hereafter existing
and to all mortgages which may now or hereafter affect the Land and/or the
Building and/or any of such leases, whether or not such mortgages shall also
cover other lands and/or buildings, to each and every advance made or hereafter
to be made under such mortgages, and to all renewals, modifications,
replacements and extensions of such leases and such mortgages and spreaders and
consolidations of such mortgages, except that with respect to all such mortgages
and leases entered into hereafter, this Lease shall be subject and subordinate
thereto only if the holder thereof (in the case of a mortgage) or the lessor
thereunder (in the case of a lease) enters into an agreement with Tenant
providing in substance that so long as no default exists as would entitle
Landlord to terminate this Lease, Tenant's leasehold estate hereunder shall not
be terminated or disturbed nor shall Tenant's rights hereunder be affected. This
Section 11.1 shall be self-operative and no further instrument
<PAGE>
of subordination shall be required. In confirmation of such subordination,
Tenant shall promptly execute and deliver any instrument that Landlord, the
lessor of any such lease or the holder of any such mortgage or any of their
respective successors in interest may reasonably request to evidence such
subordination. The leases to which this Lease is, at the time referred to,
subject and subordinate pursuant to this Article are hereinafter sometimes
called "superior leases" and the mortgages to which this Lease is, at the time
referred to, subject and subordinate are hereinafter sometimes called "superior
mortgages" and the lessor of a superior lease or its successor in interest at
the time referred to is sometimes hereinafter called a "lessor," and the holder
of a superior mortgage or its successor in interest at the time referred to is
sometimes hereinafter called a "holder."
11.2. In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time, to cancel or
terminate this Lease, or to claim a partial or total eviction, Tenant shall not
exercise such right (i) until it has given written notice of such act or
omission to the holder of each superior mortgage and the lessor of each superior
lease whose name and address shall previously have been furnished to Tenant in
writing, and (ii) unless such act or omission shall be one which is not capable
of being remedied by Landlord or such holder or lessor within a reasonable
period of time, until a reasonable period for remedying such act or omission
shall have elapsed following the giving of such notice and following the time
when such holder or lessor shall have become entitled under such superior
mortgage or superior lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this Lease or otherwise, after similar notice, to effect
such remedy), provided such holder or lessor shall with due diligence give
Tenant written notice of its intention to, and commence and continue to remedy
such act or omission.
11.3. If the lessor of a superior lease or the holder of a superior
mortgage shall succeed to the rights of Landlord under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of such party so succeeding to Landlord's rights (herein
sometimes called "successor landlord") and upon such successor landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize such successor landlord as Tenant's landlord under this Lease, and
shall promptly execute and deliver any instrument that such successor landlord
may reasonably request to evidence such attornment. Upon such attornment, this
Lease shall continue in full force and effect as, or as if it were, a direct
lease between the successor landlord and Tenant upon all of the terms,
covenants, conditions, agreements and provisions, as are set forth in this Lease
except that the successor landlord shall not:
(a) be liable for any previous act or omission of Landlord under this
Lease,
(b) be subject to any offset, not expressly provided for in this
Lease, which shall have theretofore accrued to Tenant against Landlord, and
(c) be bound by any previous modification of this Lease, not expressly
provided for in this Lease, or by any previous prepayment of more than one
month's fixed annual rent, unless such modification or prepayment shall
have been expressly approved in writing by the lessor of the superior lease
or the holder of any superior mortgage.
11.4. If, in connection with the financing of the Building, the holder of
any mortgage shall request reasonable modifications in this Lease as a condition
of approval thereof, Tenant will not unreasonably withhold, delay or defer
making such modifications, provided that they do not increase the obligations of
Tenant hereunder or materially and adversely affect the leasehold interest
created by this Lease.
11.5. Landlord agrees to obtain and deliver to Tenant a subordination, non-
disturbance and attornment agreement from Bankers Trust Company, as trustee, the
holder of the existing mortgage on the Building in the form annexed hereto as
Exhibit B.
ARTICLE 12
LOSS, DAMAGE, REIMBURSEMENT, LIABILITY, ETC.
12.1. Landlord or its agents shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, steam,
gas, electricity, water, rain, snow or leaks from any part of the Building, or
from the pipes, appliances
<PAGE>
or plumbing works or from the roof, street or subsurface or from any other place
or by dampness or by any other cause of whatsoever nature, unless any of the
foregoing shall be caused by or due to the negligence, willful act or willful
omission of Landlord, its agents, servants or employees.
12.2. Landlord or its agents shall not be liable for any damage which
Tenant may Sustain, if at any time any window of the demised premises is broken,
or temporarily or permanently (restricted to windows on a lot line, if
permanently) closed, darkened or bricked up for any reason whatsoever, except
only the Landlord's arbitrary acts if the result is permanent, and Tenant shall
not be entitled to any compensation therefor or abatement of rent or to any
release from any of Tenant's obligations under this Lease, nor shall the same
constitute an eviction.
12.3. Tenant shall reimburse Landlord for all expenses, damages or fines
incurred or suffered by Landlord, and for which Landlord has not been or will
not be reimbursed by insurance, by reason of any breach, violation or
nonperformance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant except
as provided in Section 8.5 of this Lease, or by reason of or arising out of the
carelessness, negligence or improper conduct of Tenant, or its agents, servants
or employees, in the use or occupancy of the demised premises. Subject to the
provisions of Section 19.4 hereof, where applicable, Tenant shall have the
right, at Tenant's own cost and expense, to participate in the defense of any
action or proceeding brought against Landlord, and in negotiations for
settlement thereof if, pursuant to this Section 12.3, Tenant would be obligated
to reimburse Landlord for expenses, damages or fines incurred or suffered by
Landlord.
12.4. Tenant shall give Landlord notice in case of fire or accidents in the
demised premises promptly after Tenant is aware of such event.
12.5. Tenant agrees to look solely to Landlord's estate and interest in the
Land and Building, or the lease of the Building, or of the Land and Building,
and the demised premises, for the satisfaction of any right or remedy of Tenant
for the collection of a Judgment (or other Judicial process) requiring the
payment of money by Landlord, in the event of any liability by Landlord, and no
other property or assets of Landlord (or the partners or members thereof if
Landlord is other than individual or corporation) shall be subject to levy,
execution, attachment, or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder, or Tenant's use and occupancy of the demised
premises, or any other liability of Landlord to Tenant.
12.6. (a) Landlord agrees that, if obtainable at no additional cost, it
will include in its fire insurance policies appropriate clauses pursuant to
which the insurance companies (i) waive all right of subrogation against Tenant
with respect to losses payable under such policies and/or (ii) agree that such
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policies. But should any additional premiums be exacted for any such clause or
clauses, Landlord shall be released from the obligation hereby imposed unless
Tenant shall agree to pay such additional premium.
(b) Tenant agrees to include, if obtainable at no additional cost, in
its fire insurance policy or policies on its furniture, furnishings, fixtures
and other property removable by Tenant under the provisions of its lease of
space in the Building appropriate clauses pursuant to which the insurance
company or companies (i) waive the right to subrogation against Landlord and/or
any tenant of space in the Building with respect to losses payable under such
policy or policies and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a loss any or all right
of recovery against any party for losses covered by such policy or policies. But
should any additional premium be exacted for any such clause or clauses, Tenant
shall be released from the obligation hereby imposed unless Landlord or the
other tenants shall agree to pay such additional premium.
(c) Provided that Landlord's right of full recovery under its policy
or policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Building and the fixtures, appurtenances and equipment therein, to the
extent the same is covered by Landlord's insurance, notwithstanding that such
loss or damage may result from the negligence or fault of Tenant, its servants,
agents or employees. Provided that Tenant's right of full recovery under its
aforesaid policy or policies is not adversely affected or prejudiced thereby,
Tenant hereby waives any and all right of recovery which it might otherwise have
against Landlord, its servants,
<PAGE>
and employees, and against every other tenant in the Building who shall have
executed a similar waiver as set forth in this Section 12.6(c) for loss or
damage to, Tenant's furniture, furnishings, fixtures and other property
removable by Tenant under the provisions hereof to the extent that same is
covered by Tenant's insurance, notwithstanding that such loss or damage may
result from the negligence or fault of Landlord, its servants, agents or
employees, or such other tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if
the clauses to be included in their respective insurance policies pursuant to
subdivisions 12.6(a) and (b) hereof cannot be obtained. Landlord and Tenant
hereby also agree to notify the other promptly of any cancellation or change of
the terms of any such policy which would affect such clauses.
ARTICLE 13
DESTRUCTION--FIRE OR OTHER CASUALTY
13.1. (a) If the Building shall be partially damaged or destroyed or if the
demised premises shall be partially or totally damaged or destroyed by fire,
casualty or other such cause, then, whether or not the damage or destruction
shall have resulted from the fault or neglect of Tenant, or its servants,
employees, agents, visitors or licensees (and if this Lease shall not have been
cancelled as in this Article hereinafter provided), Landlord will repair the
damage, and restore, replace, and rebuild the Building and the demised premises
at its expense, with reasonable dispatch and continuity after notice to it of
the damage or destruction; provided, however, that Landlord shall not be
required to repair or replace any property installed by Tenant or the prior
tenant. Landlord shall give Tenant an allowance of twelve dollars ($12) per
rentable square foot allocable to such damaged area toward the restoration of
such damaged area. The aforesaid allowance of $12 per rentable square foot shall
be increased to an amount equal to the product obtained by multiplying $12 by a
fraction the numerator of which is the Consumer Price Index (as hereinafter
defined) for the month in which the fire or other casualty occurs and the
denominator of which is the Consumer Price Index for the month of December 1981,
but in no event shall allowance be greater than the cost of repairing such
damaged area. As used in the preceding sentence, the term "Consumer Price Index"
shall mean the Consumer Price Index for All Urban Consumers and New York, N.Y.,
Northeastern, N.J., base year 1967=100, specified for "All Items", as issued or
published by the Bureau of Labor Statistics of the United States Department of
Labor, whether or not the composition of the items upon which such index is
based, their relative effects thereon or the region considered may be changed
from time to time. If the foregoing index shall be converted to a standard
reference base other than "base year 1967=100", the determination of the
percentage increase shall be made by applying a conversion factor, formula or
table for converting such converted or revised index, as may be issued or
published by the Bureau of Labor Statistics of the U.S. Department of Labor or,
if not so issued or published, by application of such other reasonably
comparable index or statistical information as may be issued or published by a
reliable, recognized and non-partisan organization. If the foregoing index shall
no longer be issued or published such issued or published index or statistical
data as would reasonably reflect the consequences that would have resulted if
said index had not been discontinued shall be used.
(b) If the demised premises shall be partially damaged or partially
destroyed, the fixed annual rent and additional rent payable hereunder shall be
abated to the extent that the demised premises shall have been rendered
untenantable or unfit for Tenant's use and Tenant does not occupy such damaged
or destroyed part of the demised premises on other than an emergency basis or
the period from the date of such damage or destruction to the date that the
damage shall be repaired or restored. If the demised premises or a major part
thereof shall be totally, or substantially totally, damaged or destroyed or
rendered completely, or substantially completely, untenantable on account of
fire, casualty or other such cause, the fixed annual rent and additional rent
shall completely abate as of the date of the damage or destruction and until
Landlord shall repair, restore, replace and rebuild the demised premises subject
to the limitations of Section 13.1(a); provided, however, that should Tenant
reoccupy a portion of the demised premises for the purpose of conducting
business during the period the restoration work is taking place and prior to the
date that the same is made completely tenantable, fixed annual rent and
additional rent shall be apportioned and payable by Tenant in proportion to the
part of the demised premises occupied by it. Nevertheless, in case of any
substantial damage or destruction to the demised premises, Tenant, in addition
to and without waiver of any other rights or remedies available to it, may
cancel this Lease by written notice to Landlord, if (i) within one hundred
twenty (120) days from the date of the damage or destruction, Landlord does not
file a proof of loss with its insurer; (ii) within one hundred eighty (180) days
of the date of damage or destruction, Landlord does not let a contract or
contracts which shall provide for the complete restoration of the demised
premises within a period of thirty (30) months from the date of the damage or
destruction; (iii) work under such contract or contracts has not commenced
within one hundred twenty (120) days of the date of said damage or destruction;
or (iv) said work is not prosecuted with reasonable diligence to its completion
within said thirty (30) months provided that Tenant shall not be entitled to
cancel
<PAGE>
this Lease pursuant to this sentence more than thirty (30) days after Landlord
shall have given written notice to Tenant that the state of facts specified in
clause (i), (ii) or (iii) of this sentence, as the case may be, has occurred.
13.2. If the Building shall be so damaged that Landlord shall decide to
demolish or not to rebuild it, then in either of such events Landlord shall,
within one hundred twenty (120) days after such fire or other casualty, give
Tenant a notice in writing of such decision, and thereupon the term of this
Lease shall expire by lapse of time upon the thirtieth day after such notice is
given, and Tenant shall vacate the demised premises and surrender the same to
Landlord.
13.3. In the event of the termination of this Lease pursuant to the
provisions of this Article 13, this Lease shall expire as fully and completely
on the date fixed in such notice of termination as if that were the date
definitely fixed for the expiration of this Lease, but the fixed annual rent and
additional rent shall be apportioned and shall be paid up to and including the
date of such damage or destruction, and any excess prepaid rent or excess
prepaid additional rent shall be refunded to Tenant.
13.4. No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the demised premises or of the Building. Landlord
shall use its best efforts to effect such repair or restoration promptly and in
such manner as not unreasonably to interfere with Tenant's occupancy.
13.5. The provisions of this Article 13 shall be considered an express
agreement governing any case of damage or destruction of the Building or the
demised premises by fire or other casualty and Section 22V of the Real Property
Law of the State of New York, and any other law of like import now or hereafter
in force providing for such contingency shall have no application.
13.6. If the demised premises are not completely restored by Landlord
within the aforesaid thirty (30) month period (as provided in and subject to the
limitations of subsection 13.1(b) hereof), Tenant shall have the right to
terminate this Lease within ten (10) days from the date that such aforesaid
thirty (30) month period expires by giving Landlord ten (10) days prior written
notice of its intention to so terminate this Lease, and if the demised premises
are not completely restored within such 10 day period, this Lease shall
terminate upon the expiration of such ten (10) day period as if such date were
the Expiration Date.
ARTICLE 14
EMINENT DOMAIN
14.1. In the event that the whole of the demised premises shall be lawfully
condemned or taken in any manner for any public or quasi-public use or purpose,
this Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title (hereinafter referred to as the
"date of taking"), and Tenant shall have no claim against Landlord for, or make
any claim for the value of any unexpired term of this Lease, and the fixed
annual rent and additional rent shall be apportioned as of such date.
14.2. In the event that any part of the demised premises shall be so
condemned or taken, then this Lease shall be and remain unaffected by such
condemnation or taking, except that the fixed annual rent and additional rent
allocable to the part so taken shall be apportioned as of the date of taking,
provided, however, that Tenant may elect to cancel this Lease in the event that
more than twenty-five (25%) percent of the demised premises should be so
condemned or taken, provided such notice of election is given by Tenant to
Landlord not later than thirty (30) days after the date when title shall vest in
the condemning authority. Upon the giving of such notice, this Lease shall
terminate on the thirtieth day following the date of such notice and the fixed
annual rent and additional rent shall be apportioned as of such termination
date. Upon such partial taking and this Lease continuing in force as to any part
of the demised premises, the fixed annual rent and additional rent shall be
diminished by an amount representing the part of the fixed annual rent and
additional rent properly applicable to the portion or portions of the demised
premises which may be so condemned or taken. If as a result of the partial
taking (and this Lease continuing in force as to the part of the demised
premises not so taken), any part of the demised premises not taken is damaged,
Landlord agrees with reasonable promptness to commence the work necessary to
restore the damaged portion to the condition existing immediately prior to the
taking, and prosecute the same with reasonable diligence to its completion. In
the event Landlord and Tenant are unable to agree as to the amount by which the
fixed annual rent and additional rent shall be diminished, the matter shall be
determined by arbitration in accordance with the provisions of Article 33 of
this Lease. Pending such determination, Tenant shall pay to Landlord the fixed
annual rent and additional rent as fixed by Landlord, subject to adjustment in
accordance with the arbitration.
14.3. Nothing herein provided shall preclude Tenant from appearing,
claiming, proving and receiving in the
<PAGE>
condemnation proceeding, Tenant's moving expenses, and the value of Tenant's
fixtures, or Tenant's alterations, installments and improvements which do not
become part of the Building, or property of Landlord.
14.4. In the event that more than twenty-five (25%) percent of the demised
premises shall be so taken and Tenant shall not have elected to cancel this
Lease as above provided, the entire award for a partial taking shall be paid to
Landlord, and Landlord, at Landlord's own expense, shall to the extent of the
net proceeds (after deducting reasonable expenses including attorneys' and
appraisers' fees) of the award restore the unaffected part of the demised
premises to substantially the same condition and tenantability as existed prior
to the taking.
Until said unaffected portion is restored, Tenant shall be entitled to a
proportionate abatement of fixed annual rent and additional rent for that
portion of the demised premises which is being restored and is not usable until
the completion of the restoration or until the said portion of the demised
premises is used by Tenant, whichever occurs sooner. Said unaffected portion
shall be restored within a reasonable time but not more than eighteen (18)
months after the taking, provided, however, if Landlord is delayed by strike,
lockout, the elements, or other causes beyond Landlord's control, the time for
completion shall be extended for a period equivalent to the delay. Should
Landlord fail to complete the restoration within the said eighteen (18) months
or the time as extended, Tenant may elect to cancel this Lease and the term
hereby granted in the manner and with the same results as set forth in the next
sentence of this Section 14.4. If Tenant shall so elect to end this Lease and
the term hereby granted, Landlord need not restore any part of the demised
premises and the entire award for partial condemnation shall be paid to
Landlord, and Tenant shall have no claim to any part thereof, except as to the
items set forth in Section 14.3 hereof where same are applicable.
14.5. If the temporary use or occupancy of all or any part of the demised
premises shall be so taken, (a) the demised term shall not be reduced or
affected in any way except as provided in (d) below, (b) Tenant shall continue
to be responsible for all of its obligations hereunder and shall continue to pay
all fixed annual rent and additional rent when due, (c) Tenant shall be entitled
to receive that portion of the award which represents reimbursement for the cost
of restoration of the demised premises, compensation for the use and occupancy
of the demised premises and for any taking of Tenant's property, except that, if
the temporary period of taking shall extend beyond the expiration of the term of
this Lease, the portion of the award representing compensation for the use and
occupancy of the demised premises shall be apportioned between Landlord and
Tenant as of said expiration date of said term and Landlord shall receive that
portion of the award which represents reimbursement for the cost of restoration
of the demised premises.
ARTICLE 15
ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
15.1. Tenant shall not (a) assign or otherwise transfer this Lease or the
term and estate hereby granted, (b) sublet the demised premises or any part
thereof or allow the same to be used or occupied by others or in violation of
Article 2, (c) mortgage, pledge or encumber this Lease or the demised premises
or any part thereof in any manner by reason of any act or omission on the part
of Tenant, or (d) advertise, or authorize a broker to advertise, for a subtenant
or an assignee, without, in each instance, obtaining the prior consent of
Landlord, except as otherwise expressly provided in this Article 15.
15.2. The provisions of Section 15.1 hereof shall not apply to transactions
with a corporation into or with which Tenant is merged or consolidated or with
an entity to which substantially all of Tenant's assets are transferred or, if
Tenant is a partnership, with a successor partnership, nor shall the provisions
of clauses (a) and (b) of Section 15.1 apply to transactions with an entity
which controls or is controlled by Tenant or is under common control with
Tenant.
15.3. Any assignment or transfer, whether made with Landlord's consent as
required by Section 15.1 or without Landlord's consent pursuant to Section 15.2,
shall be made only if, and shall not be effective until, the assignee shall
execute, acknowledge and deliver to Landlord a recordable agreement, in form and
substance reasonably satisfactory to Landlord, whereby the assignee shall assume
the obligations and performance of this Lease and agree to be personally bound
by and upon all of the covenants, agreements, terms, provisions and conditions
hereof on the part of Tenant to be performed or observed and whereby the
assignee shall agree that the provisions of Section 15.1 hereof shall,
notwithstanding such an assignment or transfer, continue to be binding upon it
in the future. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding
<PAGE>
the acceptance of fixed annual rent by Landlord from an assignee or transferee
or any other party, Tenant shall remain fully liable for the payment of the
fixed annual rent due and to become due under this Lease and for the performance
of all of the covenants, agreements, terms, provisions and conditions of this
Lease on the part of Tenant to be performed or observed.
15.4. The liability of Tenant, and the due performance of this Lease on
Tenant's part, shall not be discharged, released or impaired in any respect by
an agreement or stipulation made by Landlord or any grantee or assignee, by way
of mortgage, or otherwise, of Landlord, extending the time of, or modifying any
of the obligations of this Lease, or by any waiver or failure of Landlord to
enforce any of the obligations of this Lease, which shall remain in full force
and effect and Tenant shall continue liable hereunder. If any such agreement or
modification operates to increase the obligations of a tenant under this Lease,
the liability under this Section 15.4 of the tenant named in the Lease or any of
its successors in interest (unless such party shall have expressly consented in
writing to such agreement or modification), shall continue to be no greater than
if such agreement or modification had not been made. To charge Tenant named in
this Lease and its successors in interest, no demand or notice of any default
shall be required, Tenant and each of its successors in interest hereby
expressly waives any such demand or notice.
15.5. Within fifteen (15) business days of receipt from Tenant of a request
to assign or sublet, Landlord shall either consent to or disapprove of such
request to permit an assignment of this Lease or a subletting of the whole or a
part of the demised premises (such consent not to be unreasonably withheld),
provided:
(a) Tenant shall furnish Landlord with the name and business address
of the proposed subtenant or assignee, information with respect to the
nature and character of the proposed subtenant's or assignee's business, or
activities, such references as are reasonably available to Tenant, and an
executed counterpart of the sublease or assignment agreement;
(b) The proposed subtenant or assignee is a reputable party;
(c) The nature and character of the proposed subtenant or assignee,
its business or activities and intended use of the demised premises is in
keeping with the standards of the Building and the floor or floors on which
the demised premises are located;
(d) The proposed subtenant or assignee is not then an occupant of any
part of the Building (other than an existing subtenant of Tenant in the
Building) unless, based on Landlord's good faith Judgment, Landlord does
not or will not have in the six (6) months following such request,
comparable space available in the Building for leasing and if Landlord does
have such comparable space available, Tenant shall not deal with any such
occupant until Landlord shall have had the opportunity to market such
comparable space for at least six (6) months following the request;
(e) Any such subletting or assignment shall not impose any costs on
Landlord except that this condition shall not apply if Tenant shall
reimburse Landlord for all of such costs. All costs incurred with respect
to providing reasonably appropriate means of ingress and egress from the
sublet space shall, subject to the provisions of Article 8 with respect to
alterations, installations, additions or improvements, be borne by Tenant;
(f) Each sublease shall specifically state that (i) it is subject to
all of the terms, covenants, agreements, provisions, and conditions of this
Lease, (ii) the subtenant or assignee, as the case may be, will not have
the right to a further assignment thereof or sublease or assignment
thereunder, or to allow the demised premises to be used by others, without
the consent of Landlord in each instance, which consent shall not be
unreasonably withheld or delayed, (iii) a consent by Landlord thereto shall
not be deemed or construed to modify, amend or affect the terms and
provisions of this Lease, or Tenant's obligations hereunder, which shall
continue to apply to the premises involved, and the occupants thereof, as
if the sublease or assignment had not been made, (iv) if Tenant defaults in
the payment of any rent, Landlord is authorized to collect any rents due or
accruing from any assignee, subtenant or other occupant of the demised
premises and to apply the net amounts collected to the fixed annual rent
and additional rent reserved herein, (v) the receipt by Landlord of any
amounts from an assignee or subtenant, or other occupant of any part of the
demised premises shall not be deemed or construed as releasing Tenant from
Tenant's obligations hereunder or the acceptance of that party as a direct
tenant;
(g) If a subletting is involved, it shall not have the effect (or give
the utility company serving the Building with electricity cause
<PAGE>
to claim) that Landlord may not provide the demised premises, or any part
thereof, or any part thereof, or any other rentable portion of the
Building, with electricity on a "rent inclusion basis", provided, however,
that this clause (g) shall not be applicable in the event Tenant is
obtaining electric current directly from the public utility company
servicing the Building;
(h) Tenant shall together with requesting Landlord's consent hereunder
with respect to any under leases (entered into by Tenant's subtenants) of
all or part of the demised premises (but not with respect to any sublease
between Tenant and its subtenant), have paid Landlord's reasonable out-of-
pocket costs and expenses to review the requested consent; and
(i) The proposed subtenant or assignee is not an (i) employment or
recruitment agency; (ii) school, college, university or educational
institution whether or not for profit; (iii) a government or any
subdivision or agency thereof.
15.6. If Tenant shall assign its interest in this Lease or sublet all or
any portion of the demised premises, in accordance with this Lease, other than
an assignment or sublease contemplated by Section 15.2 hereof, then (i) if an
assignment is involved, Tenant shall pay Landlord, as and when received, fifty
(50%) percent of any consideration received by Tenant in connection with such
assignment, after deducting reasonable brokerage commissions, reasonable
advertising fees, reasonable legal fees, rent concessions and rent abatements
(at Tenant's then rental costs), Tenant's rental costs under the Lease allocable
to any portion of the demised premises during the period when such space is
vacant while Tenant is intending to sublet same, the unamortized cost of any
improvements allocable to the space involved amortized over the remaining term
of this Lease, and the costs of any improvements incurred by Tenant to prepare
the demised premises for such assignee's occupancy and (ii) if a subletting is
involved, and the rents received by Tenant under a sublease shall exceed the
rents reserved hereunder that are allocable to the premises sublet, the excess
shall be applied by Tenant to reasonable brokerage commissions, reasonable
advertising fees, reasonable legal fees, rent concessions and rent abatements
(at Tenant's then rental costs), the unamortized cost of any improvements
allocable to the space involved amortized on a fifteen year straight line basis,
and the costs of any improvements incurred by Tenant in connection with and
allocable to the subletting, and fifty (50%) percent of the balance of such
excess shall be paid by Tenant to Landlord as and when received.
ARTICLE 16
ACCESS TO DEMISED PREMISES; CHANGES
16.1. Tenant shall permit Landlord to erect, use and maintain pipes, ducts
and conduits in and through the demised premises, provided the same are
installed adjacent to or concealed behind walls and ceilings of the demised
premises and are installed by such methods and at such locations as will not
materially interfere with or impair Tenant's layout or use of the demised
premises. Landlord or its agents or designees shall have the right, but only
upon 12 hours' prior request, except in the case of an emergency, made to Tenant
or any authorized employee of Tenant at the demised premises to enter the
demised premises, other than vaults or other enclosures where money, securities
or other valuables or confidential documents are kept, at reasonable times
during business hours, for the making of such repairs or alterations as Landlord
may deem necessary for the Building or which Landlord shall be required to or
shall have the right to make by the provisions of this Lease or any other lease
in the Building and, subject to the foregoing, shall also have the right to
enter the demised premises for the purpose of inspecting them or exhibiting them
to prospective purchasers or lessees of the entire Building or to prospective
mortgagees of the fee or of Landlord's interest in the property of which the
demised premises are a part or to prospective assignees of any such mortgages or
to the holder of any mortgage on Landlord's interest in the property, its agents
or designees. Landlord shall be allowed to take all material into and upon the
demised premises that may be required for the repairs or alterations above
mentioned as the same is required for such purpose without the same constituting
an eviction of Tenant in whole or in part, and the rent reserved shall in no
wise abate, except as otherwise provided in this Lease, while said repairs or
alterations are being made, by reason of loss or interruption of the business of
Tenant because of the prosecution of any such work, provided Landlord diligently
proceeds therewith. Landlord shall exercise reasonable diligence so as to
minimize the disturbance.
16.2. Landlord reserves the right, without the same constituting an
eviction and without incurring liability to Tenant therefor, to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairways, toilets and other public parts of the Building;
provided, however, that access to the Building shall not be cut off and that
there shall be no unreasonable obstruction of access to the demised premises or
unreasonable interference with the use or enjoyment thereof.
<PAGE>
16.3. If Tenant shall not be personally present to open and permit an entry
into the demised premises at any time when for any reason an entry therein shall
be urgently necessary by reason of fire or other emergency, Landlord or
Landlord's agents may forcibly enter the same without rendering Landlord or such
agents liable therefor (if during such entry Landlord's or Landlord's agents
shall accord reasonable care to Tenant's property) and without in any manner
affecting the obligations and covenants of this Lease.
16.4. Tenant reserves the right to require, except in an emergency, that
Landlord or any representative, agent or employee of Landlord shall be
accompanied by a representative, agent or employee of Tenant while examining the
demised premises.
ARTICLE 17
CERTIFICATE OF OCCUPANCY
17.1. Tenant will not at any time use or occupy the demised premises in
violation of the Certificate of Occupancy issued for the Building. Landlord will
make no changes in the Certificate of Occupancy of the Building that will
prevent Tenant from using the demised premises for general and executive
offices.
ARTICLE 18
BANKRUPTCY
18.1. Subject to the provisions of Section 18.3 hereof, if at any time
prior to the Commencement Date there shall be filed by or against Tenant in any
court pursuant to any statute either of the United States or of any State a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or a trustee of all or a portion of Tenant's property,
or if Tenant makes an assignment for the benefit of creditors, or petitions for
or enters into an arrangement with creditors, this Lease shall ipso facto be
cancelled and terminated, in which event neither Tenant nor any person claiming
through or under Tenant or by virtue of any statute or of an order of any court
shall be entitled to possession of the demised premises and Landlord, in
addition to the other rights and remedies given by Section 18.4 hereof and by
virtue of any other provision herein or elsewhere in this Lease contained or by
virtue of any statute or rule of law, may retain as liquidated damages any rent,
security deposit or monies received by it from Tenant or others in behalf of
Tenant.
18.2. Subject to the provisions of Section 18.3 hereof, if at the
Commencement Date or if at any time during the term hereby demised there shall
be filed by or against Tenant in any court pursuant to any statute either of the
United States or of any State a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, or if Tenant makes an assignment for the benefit
of creditors, or petitions for or enters into an arrangement with creditors,
Landlord may at Landlord's option, serve upon Tenant or any such trustee,
receiver, or assignee, a notice in writing stating that this Lease and the term
hereby granted shall cease and expire on the date specified in said notice,
which date shall be not less than ten (10) days after the serving of said
notice, and this Lease and the term hereof shall then expire on the date so
specified as if that date had originally been fixed in this Lease as the
expiration date of the term herein granted. Thereupon, neither Tenant nor any
person claiming through or under Tenant by virtue of any statute or of an order
of any court shall be entitled to possession or to remain in possession of the
demised premises but shall forthwith quit and surrender the demised premises,
and Landlord, in addition to the other rights and remedies given by Section 18.4
hereof and by virtue of any other provision herein or elsewhere in this Lease
contained or by virtue of any statute or rule of law, may retain as liquidated
damages any fixed annual rent, additional rent, security deposit or monies
received by it from Tenant or others in behalf of Tenant.
18.3. In the event that during the periods set forth in Sections 18.1 and
18.2 hereof there shall be instituted against Tenant an involuntary proceeding
for bankruptcy, insolvency, reorganization or any other relief described in
Section 18.1 and/or 18.2 hereof, Tenant shall have ninety (90) days in which to
vacate or stay the same before this Lease shall terminate or before Landlord
shall have any right to terminate this Lease, provided the fixed annual rent and
additional rent then in arrears, if any, are paid within fifteen (15) days after
the institution of such proceeding, and further provided that the fixed annual
rent and additional rent which shall thereafter become due and payable are paid
when due, and Tenant shall not otherwise be in default in the performance of the
terms and covenants of this Lease.
18.4. In the event of the termination of this Lease pursuant to Section
18.1, 18.2 or 18.3 hereof, Landlord shall forthwith,
<PAGE>
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the then fair and reasonable rental value of the demised
premises for the same period, if lower than the rent reserved at the time of
termination. If such demised premises or any part thereof be re-let by Landlord
for the unexpired term of said Lease, or any part thereof, before presentation
of proof of such liquidated damages to any court, compression or tribunal, the
amount of rent reserved upon such re-letting shall be prima facie the fair and
reasonable rental value for the part or the whole of the demised premises so re-
let during the term of the re-letting. Nothing herein contained shall limit or
prejudice the right of Landlord to prove for and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which such damages are to be proved, whether or not such amount be greater,
equal to, or less than the amount of the difference referred to above.
ARTICLE 19
DEFAULT
(i) Tenant shall default in the payment of the fixed annual rent reserved
herein or any item of additional rent herein provided or any other payment
herein provided, or if Tenant shall be in default with respect to any other
lease between Landlord or any affiliate of Landlord and Tenant, then upon
Landlord serving a written fifteen (15) days' notice upon Tenant specifying the
nature of said default and upon expiration said fifteen (15) day period, if
Tenant shall have failed to remedy such default, or
(ii) Tenant defaults in fulfilling any of the covenants of this Lease,
other than the payment of fixed annual rent or additional rent (for default of
which clause (i) of this Section 19.1 is applicable), or if the demised premises
are abandoned, then, in any one or more of such events, upon Landlord serving a
written thirty (30) days' notice upon Tenant specifying the nature of said
default and upon the expiration of said thirty (30) days, if Tenant shall have
failed to comply with or remedy such default, or if the said default or omission
complained of shall be of such a nature that the same cannot be completely cured
or remedied within said thirty (30) day period and if Tenant shall not have
diligently commenced to take action towards curing such default within such
thirty (30) day period and shall not thereafter with reasonable diligence and in
good faith proceed to remedy or cure such default (the aforesaid thirty (30)
days' notice and time to cure shall be ten (10) days rather than thirty (30),
with respect to default by Tenant under Article 17 hereof, Certificate of
Occupancy, or Article 36 hereof, Certificate of Tenant), or
(iii) any execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the demised premises shall be occupied by someone
other than Tenant and such occupancy shall continue for a period of thirty (30)
days after written notice from Landlord, or
(iv) any default shall occur under that certain lease between Landlord and
Tenant entered into as of December 31, 1994 for the retail space in the Building
(the "Retail Space Lease"), then Landlord may serve a written five (5) days'
notice of cancellation of this Lease upon Tenant, and, upon the expiration of
said five (5) days, this Lease and the term hereunder shall end and expire as
fully and completely as if the date of expiration of such five (5) day period
were the day herein definitely fixed for the end and expiration of this Lease
and the term hereof and Tenant shall then quit and surrender the demised
premises to Landlord but Tenant shall remain liable as hereinafter provided.
19.2. If the notices provided for in Section 19.1 hereof shall have been
given, and the term shall expire as aforesaid, Landlord may, without notice, re-
enter the demised premises either by force or otherwise, and dispossess Tenant,
the legal representatives of Tenant or other occupant of the demised premises,
by summary proceedings or otherwise, and remove their effects and hold the
demised premises as if this Lease had not been made, and Tenant hereby waives
the service of notice of intention to re-enter or to institute legal proceedings
to that end.
19.3. Notwithstanding any expiration or termination prior to the Lease
expiration date as set forth in this Article 19, Tenant's obligation to pay any
and all fixed annual rent and additional rent under this Lease shall continue to
and cover all periods up to
<PAGE>
the date provided in this Lease for the expiration of the term hereof.
19.4. Notwithstanding the provisions of Section 9.1 hereof, Tenant, at its
own cost and expense, in its name and/or (wherever necessary) Landlord's name,
may contest, in any manner permitted by law (including appeals to a court, or
governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any governmental act, regulation or directive
with which Tenant is required to comply pursuant to this Lease, and may defer
compliance therewith, provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the land and/or Building of the building project to
lien or sale;
(b) if such deferral of compliance could result in loss or injury to
Landlord, such non-compliance shall not be in violation of any fee
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) if such deferral of compliance could result in loss or injury to
Landlord, Tenant shall first deliver to Landlord a surety bond issued by a
surety company of recognized responsibility, or other security satisfactory
to Landlord, indemnifying and protecting Landlord against any loss or
injury by reason of such non-compliance; and
(d) Tenant shall promptly and diligently prosecute such contest.
Landlord, without expense or liability to it, shall cooperate with Tenant
and execute any documents or pleadings required for such purpose, provided that
Landlord shall reasonably be satisfied that the facts set forth in any such
documents or pleadings are accurate.
19.5. If Tenant shall not pay fixed annual rent or additional rent owed
under Articles 4, 5, 6 and 7 hereof within three (3) days after the same shall
be due hereunder, or the fourth day after same shall be due hereunder if a
holiday occurs during such three day periods (such third day hereinafter called
"Third Day Notice Date"), Tenant shall pay to Landlord a late charge in an
amount equal to the Prime Rate (as that term is defined in Section 25.7 hereof)
for the period from the date on which the fixed annual rent or additional rent
payment was due until the date of payment thereof, provided however, that
Landlord shall have given to Tenant either oral or written notice of such
failure to pay such fixed annual rent or additional rent on the Third Day Notice
Date after such amounts are due hereunder. In the event that Landlord fails to
give such oral or written notice to Tenant, then there shall be credited against
the aforesaid late charge an amount equal to the number of days occurring
between the Third Day Notice Date and the day such notice is actually given.
19.6. In the event that Tenant disputes the amount of additional rent owed
to Landlord under Articles 4, 5, 6 or 7 hereof, and it is determined that Tenant
has in fact overpaid such additional rent under such aforesaid provisions of the
Lease, the amount of such overpayment shall be repaid to Tenant with interest at
the Prime Rate for the period from the date of such overpayment to the date of
its repayment.
ARTICLE 20
REMEDIES OF LANDLORD; WAVER OF REDEMPTION
20.1. In case of any such re-entry, expiration and/or dispossess by summary
proceedings or otherwise as set forth in Article 19 hereof (a) the rent shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, together with such expenses, as Landlord may incur for legal
expenses, reasonable attorneys' fees, brokerage, and/or putting the demised
premises in good order, or for preparing the same for re-rental; (b) Landlord
may re-let the demised premises or any part or parts thereof, either in the name
of Landlord or otherwise, for a term or terms, which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the term of this Lease and may grant concessions or free rent; and
(c) Tenant shall also pay Landlord as liquidated damages for the failure of
Tenant to observe and perform said Tenant's covenants herein contained, the
amounts provided for in either item (1) or, at the election of Landlord, item
(2) and, in addition thereto, the amounts provided for in item (3). Said items
are as follows:
(1) A sum which, at the time of such expiration or re-entry, as the
case may be, represents the then value (using a
<PAGE>
discount rate of ten (10%) percent per annum) of the excess of the
aggregate of the fixed annual rent and any regularly payable additional
rent hereunder which would have been payable by Tenant for the period
commencing with such expiration or re-entry, as the case may be, and ending
on the originally fixed expiration date of the term of this Lease, over the
aggregate rental value of the demised premises for the same period (which
sum is sometimes hereinafter called "the lump sum payment").
(2) Sums equal to any deficiency between the rent hereby reserved
and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for
each month of the period which would otherwise have constituted the balance
of the term of this Lease. The failure or refusal of Landlord to re-let the
demised premises or any parts thereof shall not release or affect Tenant's
liability for damages. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent days specified in this Lease and any
suit or proceeding brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month by a similar suit or proceeding.
(3) In computing such liquidated damages there shall be added to the
said deficiency, or lump sum payment, as the case may be, such expenses as
Landlord may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, and for keeping the demised premises
in good order or for preparing the same for re-letting.
If Landlord elects to physically occupy and use all or any part of the
demised premises for Landlord's own business use for a period in excess of
fifteen (15) days, there shall be allowed as a credit against Tenant's
obligation to pay rent or damages hereunder the reasonable value of such use for
the period of time of any such occupancy.
In no event shall Tenant be entitled to receive the excess, if any, of any
rentals from re-letting over the sums payable by Tenant to Landlord hereunder,
nor shall Tenant be entitled in any suit for the collection of damages pursuant
to this Article 20 to a credit in respect of rentals from re-letting except to
the extent that such rentals are actually received by Landlord. No such re-
letting shall constitute or be deemed to constitute a surrender or the
acceptance of a surrender.
Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the demised premises as Landlord, in
Landlord's sole judgment, considers advisable and necessary for the purpose of
re-letting the demised premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for failure or refusal to re-let the demised premises or any parts
thereof, or, in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this Lease of any particular
remedy, shall not preclude Landlord from any other remedy, in law or in equity.
20.2. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of the demised premises, by reason of the violation by Tenant of any
of the covenants and conditions of this Lease or otherwise.
ARTICLE 21
FEES AND EXPENSE; INTEREST
21.1. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any Article of this Lease, (a) Landlord may
remedy such default for the account of Tenant, immediately and without notice in
case of emergency, or in any other case only provided that Tenant shall fail to
remedy such default with all reasonable dispatch after Landlord shall have
notified Tenant in writing of such default and the applicable grace period for
curing such default shall have expired; and (b) if Landlord makes any reasonable
expenditures or incurs any reasonable obligations for the payment of money in
connection with such default including, but not limited to, reasonable
attorneys' fees in instituting, prosecuting or defending any action or
proceeding, such sums paid or obligations incurred, with interest at the Prime
Rate, shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Landlord upon rendition of a bill to Tenant therefor.
<PAGE>
ARTICLE 22
NO REPRESENTATIONS BY LANDLORD
22.1. Landlord or Landlord's agents have made no representations or
promises with respect to the said Building or demised premises except as herein
expressly set forth. ARTICLE 23
23.1. Upon the expiration or other termination of the term of this Lease,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear and tear and damage by fire, the
elements or other casualty excepted, and Tenant shall remove all of its property
as herein provided. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease. If
said termination date shall not fall on a business day, Tenant's obligation
under the first sentence of this Section shall be performed on the next
succeeding business day.
ARTICLE 24
QUIET ENJOYMENT
24.1. Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this Lease, and to the ground leases, underlying
leases and mortgages referred to in this Lease .ARTICLE 25
DEFINITIONS
25.1. The term "Landlord" as used in this Lease means only the owner, or
the mortgagee in possession, for the time being of the land and Building (or the
owner of a lease of the Building or of the land and Building), so that in the
event of any transfer of title to said land and Building or said lease; or in
the event of a lease of the Building, or of the land and Building, upon
notification to Tenant of such transfer or lease the said transferor landlord
shall be and hereby is entirely freed and relieved of all existing or future
covenants, obligations and liabilities of Landlord hereunder, and it shall be
deemed and construed as a covenant running with the land without further
agreement between the parties or their successors in interest, or between the
parties and the transferee of title to said land and Building or said lease, or
the said lessee of the Building, or of the land and Building, that the
transferee or the lessee has assumed and agreed to carry out any and all such
covenants, obligations and liabilities of Landlord hereunder.
25.2. The words "re-enter" and "re-entry" as used in this Lease are not
restricted to their technical legal meaning.
25.3. The term "business days" as used in this Lease shall exclude
Saturdays, Sundays and all days observed by the Federal, State or local
governments as legal holidays as well as all other days recognized as holidays
under applicable union contracts.
25.4. Except as otherwise specifically provided in this Lease, whenever
payment of interest is required by the terms hereof, it shall be computed as
provided in Section 25.7.
25.5. Intentionally Omitted.
25.6. The term 'Business Hours" shall mean the hours from 8 A.M. to 6 P.M.
on business days, as that term is hereinabove defined.
25.7. The term "Prime Rate' shall mean the prime commercial loan rate of
Chemical Bank, to large business borrowers for short-term borrowings as in
effect from time to time, which Prime Rate shall change as and when said prime
commercial loan rate shall change.
<PAGE>
ARTICLE 26
ADJACENT EXCAVATION- - SHORING
26.1. If an excavation or other substructure work shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
shall be necessary to preserve the wall of or the Building of which the demised
premises form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Landlord, or
diminution or abatement of rent.
ARTICLE 27
RULES AND REGULATIONS
27.1. Tenant and Tenant's servants, employees and agents shall observe
faithfully and comply strictly with the Rules and Regulations set forth in
Exhibit C attached hereto and made a part hereof entitled "Rules and
Regulations" and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt; provided, however,
that in case of any conflict or inconsistency between the provisions of this
Lease and of any of the Rules and Regulations as originally or as hereafter
adopted, the provisions of this Lease shall control. Reasonable written notice
of any additional Rules and Regulations shall be given to Tenant.
Nothing in this Lease contained shall be construed to impose upon Landlord
any duty or obligation to enforce the Rules and Regulations or the terms,
covenants or conditions in any other lease, against any other tenant of the
Building, and Landlord shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
Landlord will enforce the Rules and Regulations so that they will not be applied
in a discriminatory manner against Tenant.
Landlord shall not unreasonably withhold from Tenant any approval provided
for in the Rules and Regulations and shall exercise its judgment in good faith.
ARTICLE 28
NO WAIVER
28.1. No agreement to accept a surrender of this Lease shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of the demised premises prior to
the termination of this Lease. The delivery of keys to any employee of Landlord
or of Landlord's agent shall not operate as a termination of this Lease or a
surrender of the demised premises. In the event of Tenant at any time desiring
to have Landlord sublet the premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease. Except as
provided in Section 27.1 hereof, the failure of Landlord to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease or any of the Rules and Regulations set forth herein, or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all the force and effect of
an original violation. The receipt by Landlord of rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such
breach. The failure of Landlord to enforce any of the Rules and Regulations set
forth herein, or hereafter adopted, against Tenant and/or any other tenant in
the Building shall not be deemed a waiver of any such Rules and Regulations. No
provision of this Lease shall be deemed to have been waived by Landlord, unless
such waiver be in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on the account of the earliest stipulated rent, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment of rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or pursue any other remedy in this Lease provided.
28.2. This Lease contains the entire agreement between the parties, and any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing
<PAGE>
and signed by the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
ARTICLE 29
WAIVER OF TRIAL BY JURY
29.1. Landlord and Tenant do hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other 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
demised premises, and/or any other claims (except claims for personal injury or
property damage), and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Landlord commences any summary
proceeding for non-payment of rent, Tenant will not interpose and does hereby
waive the right to interpose any counterclaim of whatever nature or description
in any such proceeding.
ARTICLE 30
INABILITY TO PERFORM
30.1. If, by reason of (1) strike, (2) labor troubles, (3) governmental
pre-emption in connection with a national emergency, (4) any rule, order or
regulation of any governmental agency, (5) conditions of supply or demand which
are affected by war or other national, state or municipal emergency, or (6) any
cause beyond Landlord's reasonable control, Landlord shall be unable to fulfill
its obligations under this Lease or shall be unable to supply any service which
Landlord is obligated to supply, this Lease and Tenant's obligation to pay rent
hereunder shall in no wise be affected, impaired or excused; provided that upon
the learning of the happening of any of the foregoing conditions, Landlord shall
notify Tenant within a reasonable period of time of such event and, if
ascertainable, its estimated duration.
ARTICLE 31
NOTICES
31.1. Any notice or demand, consent, approval or disapproval, or statement
required to be given by the terms and provisions of this Lease, or by any law or
governmental regulation, either by Landlord to Tenant or by Tenant to Landlord,
shall be in writing. Unless otherwise required by Such law or regulation, such
notice or demand shall be deemed to have been served and given by Landlord and
received by Tenant when Landlord shall have deposited such notice or demand by
registered or certified mail enclosed in a securely closed post-paid wrapper, in
a United States Government general or branch post office, or official depository
with the exclusive care and custody thereof, addressed to Tenant, at the address
set forth after Tenant's name on page I of this Lease. After Tenant shall occupy
the demised premises, the address of Tenant for notices, demands, consents,
approvals or disapprovals shall be the Building. Such notice, demand, consent,
approval or disapproval shall be deemed to have been served and given by Tenant
and received by Landlord when Tenant shall have deposited such notice or demand
by registered or certified mail enclosed in a securely closed post-paid wrapper,
in a United States Government general or branch post office or, official
depository with the exclusive care and custody thereof, addressed to Landlord,
c/o Fisher Brothers at 299 Park Avenue, New York, New York with a copy to Fisher
Brothers, 299 Park Avenue, New York, New York, Attention: Counsel. Either party
may, by notice as aforesaid, designate a different address or addresses for
notices, demands, consents, approvals or disapprovals.
31.2. In addition to the foregoing, either Landlord or Tenant may, from
time to time, request in writing that the other party serve a copy of any notice
or demand, consent, approval or disapproval, or statement, on one other person
or entity designated in such request, such service to be effected as provided in
Section 31.1 hereof.
<PAGE>
ARTICLE 32
SERVICES
32.1. Landlord shall provide necessary elevator facilities including access
to the demised premises by passenger elevators and reasonable freight elevator
service, on business days from 8:00 A.M. to 6:00 P.M. and shall have sufficient
passenger elevators available at all other times. At Landlord's option, the
elevators shall be operated by automatic control or by manual control, or by a
combination of both of such methods. Landlord will provide Tenant with after-
hours freight elevator service at Landlord's then established rates in the
Building for same (which Landlord covenants shall be reasonable) and pursuant to
Landlord's Rules and Regulations.
32.2. (a) Landlord shall, through the air-conditioning system of the
Building, furnish such air-conditioning, ventilation and heating to the demised
premises, on an all-year-round basis, as Tenant shall require (subject to the
design limitations of the systems) for the comfortable occupancy of the demised
premises, and which air-conditioning, heating and ventilating standard shall be
no less than the standard presently being maintained in the Building during such
hours on business days as Landlord shall from time to time determine, by notice
to Tenant, to be the regular hours of operation of such systems. Such regular
hours of operation shall be the hours from 8:00 A.M. to 6:00 P.M. and shall
exclude the hours between 9:00 P.M. and 8:00 A.M.
(b) Landlord will maintain the air-conditioning system in a manner
befitting a first class building and will use all reasonable care to keep
the same in proper and efficient operating condition.
(c) Tenant agrees to keep and cause to be kept closed all the windows
in the demised premises at all times, and Tenant agrees to cooperate
reasonably with Landlord and to abide by all the regulations and
requirements which Landlord may reasonably prescribe for the proper
functioning and protection of said air-conditioning systems.
(d) Tenant acknowledges it has been advised that the Building has
sealed windows and that therefore, the air in the demised premises can
become stale and even unbreathable when the ventilating, air-conditioning,
and heating system is not operating. Tenant agrees that Landlord shall not
be obligated to operate such ventilating, air-conditioning, and heating
system after or before Landlord's regular hours of operation as provided in
subsection 32.2 (a) hereof, except after prior written notice from and
payment by Tenant as hereinafter specified. Tenant agrees that Landlord's
failure to operate such system in the absence of such notice and payment
shall not be deemed a partial or other eviction, or disturbance of Tenant's
use, enjoyment, or possession of the demised premises, and shall not render
Landlord liable for damages, by abatement of rent or otherwise, and Tenant
shall not be relieved from any obligation under this Lease.
Landlord will upon reasonable advance notice provide Tenant with
ventilation, air-conditioning, or heating at times other than Landlord's regular
hours of operation of said systems as provided in subsection 32.2 at the
following current rate: $700 per hour per air conditioning zone in the Building
for air conditioning, and $312 per hour per air conditioning zone in the
Building for heating (which charges shall be increased annually based upon the
percentage increase in Expenses over and above the Expenses for the 1994
calendar year), payable by Tenant as additional rent when billed.
32.3. Subject to its obligations under Section 30.1 hereof, Landlord
reserves the right to stop services on the air-conditioning, elevator, plumbing,
electric and other systems when necessary by reason of accident or emergency or
for repairs, alterations, replacements or improvements, provided that except in
case of emergency, Landlord will notify Tenant in advance, if possible, of any
such stoppage and, if ascertainable, its estimated duration, and will proceed
diligently with the work necessary to resume such service as promptly as
possible and in a manner so as to minimize interference with the Tenant's use
and enjoyment of the demised premises.
32.4. Landlord will supply Tenant at Landlord's expense with an adequate
quantity of hot and cold water for ordinary lavatory, drinking, cleaning and
pantry purposes. Should Tenant require or consume water for any additional
purpose, Tenant shall pay Landlord a reasonable charge therefor and for any
required pumping or heating thereof, as well as any taxes, sewer rents or other
charges which may be imposed by any governmental authority based on the quantity
of water so used by Tenant. Landlord may elect to install a water meter, at
Tenant's expense and thereby measure Tenant's water consumption for all such
additional purposes, said meter to be maintained at Tenant's expense.
<PAGE>
32.5. It is expressly agreed that only Landlord or any one or more persons,
firms or corporations authorized in writing by landlord will be permitted to
furnish: laundry, linen, towels, drinking water and ice to tenants and licensees
in the Building.
Landlord may fix, in its own absolute discretion, at any time and from time
to time, the hours during which and regulations under which such supplies and
services are to be furnished. Landlord expressly reserves the right to act as or
to designate, at any time and from time to time, an exclusive supplier of all or
any one or more of the said supplies and services, provided that the quality
thereof and the charges therefor are reasonably comparable to that of other
suppliers; and Landlord furthermore expressly reserves the right to exclude from
the Building any person, firm or corporation attempting to furnish any of said
supplies or services not so designated by Landlord.
32.6. It is agreed that Landlord and Tenant shall cooperate and consult
with each other with respect to the designation of one or more persons, firms or
corporations as exclusive suppliers or otherwise, to sell, deliver or furnish
any food or beverages for consumption within the demised premises and to exclude
from the demised premises any person, firm or corporation attempting to deliver
or purvey any such food or beverages not so designated by Landlord. It is
understood, however, that Tenant or regular office employees of Tenant who are
not employed by any supplier of such food or beverages or by any person, firm or
corporation engaged in the business of purveying such food or beverages, may
personally bring food or beverages into the Building for consumption within the
demised premises by Tenant or employees of Tenant, but not for resale to or for
consumption by any other tenant, or the employees or guests of any other tenant.
Landlord and Tenant will cooperate to fix from time to time, the hours during
which, and the regulations under which food and beverages may be brought into
the Building by Tenant or its regular employees, taking into consideration the
needs of the Building and the desires of the other tenants at the Building. The
provisions of this section 32.6 shall not apply to food and beverages for
Tenant's kitchen, pantries or cafeterias.
32.7. Tenant acknowledges and understands that the cleaning contractor for
the Building is an entity under common control with Landlord and Tenant agrees
to employ said contractor or such other contractor as Landlord may from time to
time designate for all waxing, polishing, shampooing, overhead lamp replacement,
porter and matron service and other special cleaning or maintenance work of the
demised premises and of Tenant's furniture, fixtures and equipment. Landlord
represents that the quality thereof and the charges therefor shall be generally
comparable to that of other contractors doing comparable work in comparable
buildings in the area of the Building using personnel of the same union, if any,
as the cleaning contractor uses for the Building with equivalent supervision and
security. Tenant shall not employ any other such contractor or individual
without Landlord's prior written consent, but nothing herein contained shall
prohibit Tenant from performing such work for itself by use of its own regular
employees if the cleaning contractor cannot accommodate Tenant by performing
such work.
32.8. Landlord will not be required to furnish any other services, except
as provided in this Article 32, and except that Landlord agrees to provide on
business days the cleaning set forth in Exhibit D hereof. Landlord shall have no
obligation to perform cleaning services in those portions of the demised
premises which are below grade, bank space, or which are used for the
preparation, dispensing or consumption of food or beverages, for storage,
filing, shipping or mailing purposes, for the operation of computer, data and
word processing, reproduction or similar equipment or as private lavatories or
toilets, all of which portions Tenant shall cause to be kept clean at Tenant's
cost and expense. Tenant shall pay to Landlord, on demand, a reasonable charge
for the removal from the demised premises of any (i) refuse and rubbish of
Tenant as shall not be contained in waste receptacles of customary office size,
(ii) for the removal of refuse and rubbish of Tenant's vending machines and of
eating facilities requiring special handling (known as wet garbage) and (iii)
wet refuse or waste (including bottles and cans) required by law to be placed in
special receptacles for recycling. Landlord, its cleaning contractor and their
employees shall have after-hours access to the demised premises and the use of
Tenant's light, power and water in the demised premises as may be reasonably
required for the purpose of cleaning the demised premises.
If Tenant is permitted hereunder to and does have a separate area for the
preparation or consumption of food in the demised premises, Tenant shall pay to
Landlord the cost of employing on a regular basis, an exterminator to keep the
demised premises free from vermin; and Tenant shall provide a refrigerated
garbage storage room (the plans and specifications thereof to be approved by
Landlord such approval not to be unreasonably withheld) or other means of
disposing of garbage reasonably satisfactory to Landlord.
Notwithstanding anything to the contrary contained in the Section 32.8,
Landlord shall not be obligated and shall not
<PAGE>
provide any cleaning services to the demised premises during the term of this
Lease unless the Cleaning Agreement is terminated and Landlord is obligated to
clean the demised premises and Tenant pays for such cleaning, all as more
particularly set forth in Section 6.2 and Section 6.3 hereof and the provisions
of this Section 32.8 as the same relate to cleaning and rubbish removal shall
not apply to Tenant as long as Tenant is receiving cleaning services pursuant to
the Cleaning Agreement.
32.9. Landlord shall manage and maintain the Building as a first class
office building. Tenant and its employees shall occupy and use the demised
premises in a manner befitting such building.
32.10. Landlord agrees to supply Tenant with condenser water for the
operation of air-conditioning equipment installed by Tenant to the extent such
condenser water is available considering the fulfillment of commitments to other
tenants of the Building. Tenant shall pay charges for such condenser water as
mutually agreed between Landlord and Tenant.
ARTICLE 33
ARBITRATION
33.1. In each case specified in this Lease in which resort to arbitration
shall be required, such arbitration (unless otherwise specifically provided in
other Sections of this Lease) shall be in New York City in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and the
provisions of this Lease, and Judgment upon the award rendered by the
arbitrators may be entered in any court having Jurisdiction thereof.
ARTICLE 34
CONSENTS AND APPROVALS
34.1. Except as may otherwise herein be provided, in any case where the
provisions of this Lease, including any Exhibit hereto and the Rules and
Regulations hereunder, require the consent or approval of either Landlord or
Tenant and provide that such consent or approval shall not be unreasonably
withheld, refused and/or delayed, and in any case where Tenant or Landlord is
required to do anything to the satisfaction of the other with such expression of
satisfaction not to be unreasonably withheld, refused or delayed, then with
respect to any dispute which shall arise as to the reasonableness of either
party not withholding, refusing or delaying such consent, approval or expression
of satisfaction, such dispute shall be determined by arbitration as provided in
Article 33 of this Lease.
The determination by the arbitrators (i) if they find a party unreasonably
withheld, refused or delayed such consent or approval, shall be deemed to be the
consent or approval of that party, and (ii) shall be applicable only with
respect to the particular action or matter to which the consent, approval or
expression of satisfaction of the other to any other action or matter.
34.2. Wherever in this Lease Landlord's consent or approval is required
(whether or not Landlord has agreed to be reasonable), if Landlord shall delay
or refuse such consent or approval, Tenant in no event shall be entitled to
make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for
money damages (nor shall Tenant claim any money damages by way of set-off,
counterclaim or defense) based upon any claim or assertion by Tenant that
Landlord unreasonably withheld or unreasonably delayed its consent or approval.
The provisions of this Section shall not prohibit an action or proceeding to
enforce any such provision, by specific performance, injunction or declaratory
judgment.
ARTICLE 35
INDEMNITY
35.1. Tenant shall indemnify, defend and save Landlord harmless from and
against any liability or expense which is not the result of Landlord's
negligence, willful act or willful omission and which arises from the use or
occupation of the demised premises by Tenant or anyone in the demised premises
with Tenant's permission, or from any breach of this Lease by Tenant.
<PAGE>
ARTICLE 36
CERTIFICATE OF TENANT
36.1. Tenant shall, without charge, at any time and from time to time,
within ten (10) days after request by Landlord, deliver a written instrument to
Landlord or any other person, firm or corporation specified by Landlord, duly
executed and acknowledged, certifying:
(a) that this Lease is unmodified and in full force and effect or, if
there has been any modification, that the same is in full force and effect
as modified and stating any such modification;
(b) whether the term of this Lease has commenced and rent become
payable thereunder; and whether Tenant has accepted possession of the
demised premises;
(c) whether or not, to the best of Tenant's knowledge, there are then
existing any defenses or offsets which are not claims under paragraph (e)
of this Section 36.1 against the enforcement of any of the agreements,
terms, covenants, or conditions of this Lease and any modification thereof
upon the part of Tenant to be performed or complied with, and, if so,
specifying the same; except that with respect to the certification to be
given to the mortgagee under the original first institutional permanent
mortgage on the fee or leasehold of the Building, Tenant shall affirm that
any dispute with the Landlord is a claim under this Lease and subordinate
to the rights of the holder of the said mortgage and that any such claim is
not an offset or defense to the enforcement of this Lease, and Tenant shall
assert no offset to or defense against the enforcement of the Lease or its
validity with respect to matters in existence at the time Tenant took
possession of the demised premises and which were known to or which were
then readily ascertainable by Tenant, any such matter to be the basis of a
claim only, which claim shall be enforced solely by money judgment and/or
specific performance against the Landlord named herein;
(d) the dates to which the fixed annual rent, and additional rent, and
other charges hereunder, have been paid; and
(e) whether or not Tenant has made any claim against Landlord under
this Lease and, if so, the nature thereof and the dollar amount, if any, of
such claim.
36.2. Tenant agrees that, except for the first month's rent paid pursuant
to Section 1.1 hereof, it will pay no rent under this Lease more than thirty
(30) days in advance of its due date, if so restricted by any existing or future
ground lease or mortgage to which this Lease is subordinated or by an assignment
of this Lease to the ground lessor or the holder of such mortgage, and, in the
event of any act or omission by Landlord, Tenant will not exercise any right to
terminate this Lease or to remedy the default and deduct the cost thereof from
rent due hereunder until Tenant shall have given written notice of such act or
omission to the ground lessor and to the holder of any mortgage on the fee or
the ground lease who shall have furnished such lessor's or holder's last address
to Tenant, and until a reasonable time for remedying such act or omission shall
have elapsed following the giving of such notices, during which time such lessor
or holder shall have the right, but shall not be obligated, to remedy or cause
to be remedied such act or omission.
ARTICLE 37
NAME OF BUILDING; SIGNAGE
37.1. Landlord shall have the right to change the name of the Building or
change the designated address of the Building, subject, however, to the rights
of existing tenants of the Building.
37.2. (a) Upon Tenant's occupation of the demised premises, Tenant shall
have the right to (i) affix brass identification plaques on two (2) of the
exterior columns of the Building in a size, content and location reasonably
acceptable to Alliance Capital Management L.P. ("Alliance") and Landlord or (ii)
place other means of identification as is reasonably acceptable to Alliance and
Landlord.
<PAGE>
(b) At such time as Tenant occupies the Retail Space in the Building
under the Retail Space Lease or if Tenant does not occupy the Retail Space
in the Building within two (2) years after it becomes available for
occupancy by Tenant, Tenant shall remove any signage installed in
accordance with this Section 37.2 and restore the location where such
signage was placed to its original condition.
ARTICLE 38
MEMORANDUM OF LEASE
38.1. Tenant and Landlord shall each, at the request of the other, execute
and deliver a statutory form of memorandum of this Lease for the purpose of
recording, but said memorandum of this Lease shall not in any circumstances be
deemed to modify or to change any of the provisions of this Lease. Said
memorandum shall not specify the rent but shall contain such other provisions as
either party shall reasonably request. Tenant shall not record this Lease
without the consent of Landlord.
ARTICLE 39
BROKERAGE
39.1. Tenant represents and warrants that it neither consulted nor
negotiated with any broker or finder with regard to the demised premises other
than Fisher Brothers -Management Company and Cushman & Wakefield, Inc. Tenant
agrees to indemnify, defend and save Landlord harmless from and against any
claims for fees or commissions by anyone other than Fisher Brothers -Management
Company and Cushman & Wakefield, Inc. with whom Tenant has dealt in connection
with the demised premises or this Lease and which are the result of the acts of
Tenant.
ARTICLE 40
INVALIDITY OF ANY PROVISION
40.1. If any term, covenant, condition or provision of this Lease or the
application thereof to any circumstance or to any person, firm or corporation
shall be invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Lease or the application thereof to any
circumstances or to any person, firm or corporation other than those as to which
any term, covenant, condition or provision is held invalid or unenforceable,
shall not be affected thereby and each remaining term, covenant, condition and
provision of this Lease shall be valid and shall be enforceable to the fullest
extent permitted by law.
40.2. If any term, covenant, condition or provision of this Lease is found
invalid or unenforceable to any extent, by a final judgment or award which shall
not be subject to change by any appeal, then either party to this Lease may
initiate an arbitration in accordance with the provisions of Article 33 hereof,
which arbitration shall be by three (3) arbitrators each of whom shall be
knowledgeable in the operation and management of major office buildings in
Manhattan. Said arbitrators shall devise a valid and enforceable substitute
term, covenant, condition or provision for this Lease which shall as nearly as
possible carry out the intention of the parties with respect to the term,
covenant, condition or provision theretofore found invalid or unenforceable.
Such substitute term, covenant, condition or provision, as determined by the
arbitrators, shall thereupon be deemed a part of this Lease.
ARTICLE 41
MISCELLANEOUS
41.1. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
41.2. It is understood and agreed that this Lease is submitted to Tenant on
the understanding that it shall not be considered an offer and shall not bind
Landlord in any way whatsoever until (i) Tenant has duly executed and delivered
duplicate originals to Landlord, and (ii) Landlord has executed and delivered
one of said fully executed originals to Tenant.
<PAGE>
41.3. If the demised premises shall not be available and ready for
occupancy by Tenant on the specific date hereinbefore designated for the
commencement of the term of this Lease for any reason whatsoever, then this
Lease shall not be affected thereby but, in such case, said specific date shall
be deemed to be postponed until the date when the demised premises shall be
available for occupancy by Tenant, and Tenant shall not be entitled to
possession of the demised premises until the same are available and ready for
occupancy by Tenant, provided, however, that Tenant shall have no claim against
Landlord, and Landlord shall have no liability to Tenant by reason of any such
postponement of said specific date, and the parties hereto further agree that
any failure to have the demised premises available and ready for occupancy by
Tenant on said specific date or on the Commencement Date shall in no wise affect
the obligations of Tenant hereunder nor shall the sale be construed in any wise
to extend the term of this Lease and furthermore, this Section 41.3 shall be
deemed to be an express provision to the contrary of Section 223-a of the Real
Property Law of the State of New York and any other law of like import now or
hereafter in force.
41.4. Landlord shall make arrangements with the operator of the garage in
the Building to make available to Tenant, at no cost to Tenant, pursuant to such
garage operators standard terms, parking for up to two (2) automobiles by Tenant
and Tenant's employees and at a discount of twenty-five (25%) percent off such
garage operator's regular posted rates and pursuant to its standard terms,
parking for up to eight (8) automobiles by Tenant and Tenant's employees.
41.5. Notwithstanding anything to the contrary contained in this Lease, if,
by reason of Landlord's failure to make any repairs Landlord is obligated to
make pursuant to Article 9, or Landlord's failure to supply any services
provided for in Article 32, or Landlord's failure to supply electricity as
provided for in Article 7, other than a public utility failure, or if by reason
of any act or omission of Landlord, or its agents, employees, contractors or
invitees any portion of the demised premises, other than a de minimis portion,
----------
shall become Untenantable (as hereinafter defined) and such Untenantability
shall exist for a period of fifteen (15) consecutive days after Tenant has given
Landlord written notice of such Untenantability (it being expressly understood
and agreed that no portion of the demised premises shall be considered
Untenantable unless and until Tenant shall have delivered the aforesaid notice
to Landlord indicating such Untenantability) and if such Untenantability
continues after the end of said fifteen (15) day period, then, provided Tenant
shall not have continued to use such portion of the demised premises for the
substantially normal conduct of its business during said period, the fixed
annual rent and additional rent payable hereunder shall be abated for the period
commencing on the sixteenth (16th) day of such period of Untenantability in the
proportion which the Untenantable portion of the rentable area of the demised
premises bears to the total rentable area of the demised premises and shall
continue only until the earlier of the date on which the affected portion of the
demised premises shall no longer be Untenantable or Tenant shall occupy such
portion for the substantially normal conduct of its business, regardless of any
delay by Tenant in resuming the operation of its business. As used in this
Section 41.5, the term "Untenantable" or "Untenantability" shall mean the extent
to which Tenant is actually unable to, and actually does not, use any or all of
the demised premises (other than a de minimis portion thereof) for the
substantially normal conduct of its business.
ARTICLE 42
RESTRICTIONS UPON USE
42.1. It is expressly understood that no portion of the demised premises
shall be used as, by or for a public stenographer or typist, barber shop, beauty
shop, beauty-parlor or shop, telephone or telegraph agency, telephone or
secretarial service, messenger service, travel or tourist agency, employment
agency, public restaurant or bar, commercial document reproduction or offset
printing service, public vending machines, retail, wholesale or discount shop
for sale of merchandise, retail service shop, labor union, school or classroom,
governmental or quasi-governmental bureau, department or agency, including an
autonomous governmental corporation, an advertising agency, a firm whose
principal business is real estate brokerage, or a company engaged in the
business of renting office or desk space.
<PAGE>
ARTICLE 43
SUCCESSORS AND ASSIGNS
43.1. The covenants, conditions and agreements contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, distributees, executors, administrators, successors, and, except as
otherwise provided in this Lease their assigns.
ARTICLE 44
LANDLORD MORE THAN ONE PERSON
44.1. Notwithstanding that Landlord is comprised of Fisher and Hawaiian (i)
all payments of fixed annual rent, additional rent and other charges hereunder,
and all notices, demands, consents and other written communications required or
permitted to be given by Tenant to Landlord hereunder, shall (unless otherwise
directed in writing by both Fisher and Hawaiian) be given to Fisher or any agent
designated in writing by both Fisher and Hawaiian, and (ii) all notices,
demands, consents and other written communications required or permitted to be
given by Landlord to Tenant hereunder (including without limitation notices of
default pursuant to Article 19) shall be given by Fisher or any agent designated
in writing by both Fisher and Hawaiian. Tenant shall be entitled to rely upon
and act upon any consent, notice, waiver, amendment, modification, discharge or
other action permitted or required of Landlord under this Lease, if and to the
extent the same shall be done or performed by Fisher or any agent designated in
writing by both Fisher and Hawaiian. Tenant, however, shall serve Fisher and
Hawaiian in order to effect service of process in any action or proceeding
(including arbitration). All such payments, notices, demands, consents, and
other written communications and other actions shall be conclusively binding
upon all of the persons constituting Landlord and upon their respective heirs,
executors, administrators, legal representatives, successors and assigns if sent
to Fisher or any agent designated in writing by both Fisher and Hawaiian.
ARTICLE 45
EFFECTIVE DATE
45.1. Notwithstanding anything contained herein to the contrary, this
Agreement and all of the terms, provisions and conditions hereof shall be
effective as of the date (the "Effective Date") this Agreement is consented to
and approved of by the Bankers Trust Company, as trustee. If the Effective Date
shall not have occurred by February 15, 1995 Landlord or Tenant may terminate
this Agreement thereafter upon written notice to the other party, provided the
Effective Date shall not have occurred prior to the sending of the notice.
ARTICLE 46
RETAIL SPACE LEASE
46.1. Landlord and Tenant have simultaneously entered into the Retail Space
Lease covering the retail space (the "Retail Space") occupied by "Labels for
Less" on the south side of the Building. Landlord understands that Tenant would
like to occupy the Retail Space on or about January 1, 1996. Accordingly,
Landlord agrees to use its best efforts to secure the Retail Space by January 1,
1996 and agrees to offer the occupant of such space up to One Million
($1,000,000) Dollars to vacate such space by January 1, 1996. If Landlord is
unable to obtain the Retail Space for Tenant's occupancy by January 1, 1996,
then Tenant shall be entitled to a credit against the fixed annual rent payable
by Tenant hereunder in an amount equal to $2 per square foot per annum
multiplied by the rentable square feet contained in the demised premises for
calendar year 1996, $4 per square foot per annum multiplied by the rentable
square feet contained in the demised premises for calendar year 1997, $6 per
square foot per annum multiplied by the rentable square feet contained in the
demised premises for calendar year 1998 and an amount equal to $50,000 per month
for the first seven months of calendar year 1999. The foregoing credit shall be
given to Tenant, monthly, commencing January 1, 1996.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
THE FISHER-SIXTH AVENUE COMPANY,
Landlord
By:
HAWAIIAN SIXTH AVENUE CORP.,
Landlord
By:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH, Tenant
<PAGE>
FIRST SUPPLEMENTAL AGREEMENT
----------------------------
FIRST SUPPLEMENTAL AGREEMENT dated as of the 30th day of April, 1995,
between THE FISHER-SIXTH AVENUE COMPANY, a New York partnership ("Fisher") with
its office c/o Fisher Brothers at 299 Park Avenue, New York, New York 10171 and
HAWAIIAN SIXTH AVE. CORP., a New York corporation ("Hawaiian") with its office
at 1345 Avenue of the Americas, New York, New York 10105 (hereinafter Fisher and
Hawaiian are collectively called "Landlord"), and UNION BANK OF SWITZERLAND, NEW
YORK BRANCH, a Swiss banking corporation having an office at 299 Park Avenue,
New York, New York 10171 ("Tenant").
W I T N E S S E T H :
--------------------
WHEREAS:
A. Landlord and Tenant have entered into a certain lease with respect
to the entire rentable areas on the 47th through 50th floors (the "47-50 Lease")
in the building known as 1345 Avenue of the Americas, New York, New York 10105
(hereinafter called the "Building") dated as of December 31, 1994 and a certain
lease with respect to a portion of the ground floor of the Building (the "Retail
Lease") dated as of December 31, 1994 (the 47-50 Lease and the Retail Lease, as
the same have been or may hereafter be amended, are hereinafter sometimes
collectively referred to as the "Leases") each for a term commencing and ending
as met forth in the respective lease.
B. The parties hereto desire to further modify the Leases and to
provide for (i) the inclusion in the 47-50 Lease of additional space to be
demised to Tenant consisting of the 46th floor of the Building and (ii) certain
other modifications, all as are more particularly set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. DEFINED TERMS. Except as otherwise defined herein, all terms used
-------------
in this Agreement shall have the same meanings provided in the 47-50 Lease or
the Retail Lease, as the case may be.
2. DEMISE OF ADDED SPACE. (a) Effective May 1, 1995 (the "Adjustment
---------------------
Date") and for the entire remaining term of the 47-50 Lease there shall be added
to and included in the demised premises the following additional space in the
Building, to wit:
All of the rentable space on the 46th floor of the Building (herein
called the "Added Space") as shown on the floor plan annexed hereto as Exhibit
A.
(b) Landlord does hereby lease to Tenant and Tenant does hereby lease
from Landlord the Added Space, subject and subordinate to all superior leases
and superior mortgages as provided in the 47-50 Lease and upon and subject to
all covenants, agreements, terms and conditions of the 47-50 Lease, as
supplemented by this Agreement.
3. FIXED ANNUAL RENT AND ADDITIONAL RENT.
-------------------------------------
(a) (i) In addition to the fixed annual rent payable under Section
1.l and the other provisions of the 47-50 Lease with respect to the 47th through
50th floors (the "Original Space"), Tenant shall pay fixed annual rent with
respect to the Added Space in the amount of ONE MILLION FOUR HUNDRED NINETY-TWO
THOUSAND TWO HUNDRED SIXTY DOLLARS ($1,492,260.75) per annum during the period
commencing on the Adjustment Date and ending on December 31, 2000; ONE MILLION
SIX HUNDRED EIGHTEEN THOUSAND EIGHTY SIX DOLLARS ($ 1,618,086.75) per annum
commencing January 1, 2001 and ending on December 31, 2005;ONE MILLION SEVEN
HUNDRED FORTY THREE THOUSAND NINE HUNDRED NINE DOLLARS ($1,743,909.75) per annum
commencing January 1, 2006 and ending December 31, 2010 and ONE MILLION EIGHT
HUNDRED SIXTY NINE THOUSAND SEVEN HUNDRED THIRTY TWO DOLLARS ($1,869,732.75) per
annum commencing January 1, 2011 and ending on the Expiration Date.
<PAGE>
(b) The percentage :"7.164 percent (7.164%)" appearing in subsection
4.1(a)(ii) of the 47-50 Lease shall be changed to read "9.305 percent (9.305%)."
(c) The percentage "7.454 percent (7.454%)" appearing in subsection
5.1(a) (iv) of the 47-50 Lease shall be changed to read "9.675 percent
(9.675%)."
(d) The percentage "7.454 percent (7.454%)" appearing in subsection
6.3(a)(iv) of the 47-50 Lease shall be changed to read "9.675 percent (9.675%)."
(e) Notwithstanding anything to the contrary in this Section 3, the
fixed annual rent and additional rent payable by Tenant hereundcr shall be
abated for the period commencing on the Adjustment Date and ending on December
31, 1995. In addition, provided Tenant is not in default under the Leases,
beyond any applicable grace or cure periods, fixed annual rent shall be further
abated for the month of January in the years 1997, 1998 and 1999.
(a) Article 46 of the 47-50 Lease is hereby deemed deleted from the
47-50 Lease in its entirety.
(b) Section 1.2 of the Retail Lease is hereby deemed deleted in its
entirety.
5. BROKERAGE. Tenant represents and warrants that it neither consulted
---------
nor negotiated with any broker or finder with regard to this Agreement, other
than Fisher Brothers Management Company and Cushman & Wakefield, Inc. Tenant
agrees to indemnify, defend and save Landlord harmless from and against any
claims for fees or commissions from anyone other than Fisher Brothers Management
Company and Cushman & Wakefield, Inc. with whom Tenant has dealt in connection
with this Agreement and which are the result of the acts of Tenant.
6. EFFECTIVE DATE OF-AGREEMENT. This Agreement and all of the terms,
---------------------------
provisions and conditions hereof, shall be effective as of the date (the
"Effective Date") on which (a) a fully executed eleventh supplement ("Alliance
Amendment") of that certain lease between landlord and Alliance Capital
Management, L.P. ("Alliance") covering certain space in the Building is
unconditionally delivered by both Landlord and Alliance, and (b) the Bankers
Trust Company, as Trustee (the "Trustee") has consented to and approved of this
Agreement and the Alliance Amendment. If the Effective Date has not occurred by
May 1, 1995, Tenant may terminate this Agreement by written notice to Landlord
by May 15, 1995, in which event this Agreement shall automatically terminate
unless the Effective Date occurs by May 15, 1995, in which event any such notice
to terminate shall be deemed voided.
7. MISCELLANEOUS.
-------------
(a) Except as modified, amended and supplemented by this Agreement,
the Lease and all covenants, agreements, terms and conditions thereof shall
continue in full force and effect and are hereby in all respects ratified and
confirmed.
(b) This Agreement shall not be binding upon Landlord and Tenant
unless and until it is signed by both parties hereto and a signed copy thereof
is delivered by Landlord to Tenant.
(c) This Agreement constitutes the entire agreement among the parties
hereto with respect to the matters stated herein and may not be amended or
modified unless such amendment or modification shall be in writing and signed by
the party against whom enforcement is sought.
(d) The terms, covenants and conditions contained in this Agreement
shall bind and inure to the benefit of the parties hereto and except as
otherwise provided in the Lease as hereby supplemented, their respective
successors and assigns.
(e) This Agreement shall be governed in all respects by the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
By: THE FISHER-SIXTH AVENUE COMPANY
By: HAWAIIAN SIXTH AVENUE CORP.
By: UNION BANK OF SWITZERLAND, NEW YORK BRANCH
<PAGE>
Exhibit 21
Subsidiaries of Registrant
PIMCO Advisors L.P., a Delaware limited partnership
Blairlogie Capital Management, a United Kingdom limited partnership
Blairlogie Holdings Limited, United Kingdom Liability Company
Cadence Capital Management, a Delaware general partnership
Cadence Capital Management Inc., a Delaware corporation
Columbus Circle Investors, a Delaware general partnership
Columbus Circle Investors Management Inc., a Delaware corporation
Columbus Circle Trust Company, a Connecticut Trust Company
Columbus Circle Asset Management Ltd., a Cayman Islands limited company
225 Liberty Street Advisers, L.P., a Delaware limited partnership
NFJ Investment Group, a Delaware general partnership
NFJ Management Inc., a Delaware corporation
Oppenheimer Capital, a Delaware general partnership
Oppenheimer Capital Trust Company, a New York Trust Company
Oppenheimer Group Inc., a Delaware corporation
Opcap Advisors, a Delaware general partnership
OCC Distributors, a New York company
Pacific Investment Management Company, a Delaware general partnership
PIMCO Management Inc., a Delaware corporation
Parametric Portfolio Associates, a Delaware general partnership
Parametric Management Inc., a Delaware corporation
PIMCO Funds Distributors LLC, a Delaware limited liability company
PIMCO Funds Advertising Agency Co., a Delaware corporation
PIMCO Global Advisors LLC, a Delaware limited liability company
PIMCO Global Advisors (Australia) Limited, a Australian Proprietary company
PIMCO Global Advisors (Europe) Limited, a British company
PIMCO Global Advisors (Ireland), Ltd., an Irish company
PIMCO Global Advisors (Japan) Limited, a British Virgin Islands company
PIMCO Global Advisors (Resources) Limited, a Cayman Islands Exempted company
PIMCO Global Advisors (Singapore) Pte Ltd., a Singapore limited company
StocksPLUS, L.P., a Delaware limited partnership
StocksPLUS Management Inc., a Delaware corporation
StocksPLUS Sub-Fund B, LLC, a California limited liability company
Value Advisors LLC, a Delaware limited liability company
<PAGE>
Exhibit 23.1
Consent of PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (No. 333-47417) of
our reports dated January 29, 1999, as identified on the index to financial
statements included as Item 8 of PIMCO Advisors Holdings L.P.'s 1998 Annual
Report on Form 10-K (Form 10-K) which appear in this Form 10-K. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
We also consent to the incorporation by reference to those reports in the
Registration Statement on Form S-4 (No. 333-53055). We also consent to the
reference to us under the heading "Experts" in such Prospectus.
We also consent to the incorporation by reference to those reports in the
Registration Statement on Form S-8 (No. 333-43201).
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
LOS ANGELES, CALIFORNIA
MARCH 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PIMCO
ADVISORS HOLDINGS L.P. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,580
<SECURITIES> 0
<RECEIVABLES> 31,993
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,613
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 503,996
<CURRENT-LIABILITIES> 42,377
<BONDS> 0
0
0
<COMMON> 461,619<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 503,996
<SALES> 0<F2>
<TOTAL-REVENUES> 90,682
<CGS> 0<F2>
<TOTAL-COSTS> 0<F2>
<OTHER-EXPENSES> 14,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,145
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,145
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.52
<FN>
<F1>ENTITY IS A PARTNERSHIP. AMOUNT SHOWN REPRESENTS PARTNERS' CAPITAL.
<F2>THE PARTNERSHIP IS IN THE SERVICE BUSINESS AND HAS NO SALES OR COST OF GOOD
SOLD ON TANGIBLE PRODUCTS.
</FN>
</TABLE>
