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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0--23644
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INVESTMENT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE IRS NO. 95-2848406
(State of incorporation) (IRS Employer Identification No.)
380 Madison Avenue, New York, New York (212) 588-4000
(Address of principal executive offices) (Registrant's telephone number, including
area code)
10017
(Zip Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
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(Title of class) (Name of exchange on which registered)
Aggregate market value of the voting stock Number of shares outstanding of the
held by non-affiliates of the Registrant at Registrant's Class of common stock at March
March 13, 2000: 13, 2000:
$1,154,946,763 30,849,585
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-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 [ ]
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement relating to the 2000 Annual Meeting of Stockholders
(incorporated, in part, in Form 10-K Part III).
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1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 13
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 22
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 47
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 47
Item 11. Executive Compensation...................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 47
Item 13. Certain Relationships and Related Transactions.............. 47
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................. 48
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QUANTEX IS A REGISTERED TRADEMARK OF INVESTMENT TECHNOLOGY GROUP, INC.
POSIT IS A REGISTERED SERVICE MARK OF THE POSIT JOINT VENTURE.
SMARTSERVER IS A SERVICE MARK OF INVESTMENT TECHNOLOGY GROUP, INC.
TCA IS A TRADEMARK OF INVESTMENT TECHNOLOGY GROUP, INC.
ACE IS A TRADEMARK OF INVESTMENT TECHNOLOGY GROUP, INC.
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FORWARD-LOOKING STATEMENTS
In addition to the historical information contained throughout this Annual
Report on Form 10-K, there are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements regarding our expected future financial
position, results of operations, cash flows, dividends, financing plans,
business strategies, competitive positions, plans and objectives of management
for future operations, and concerning securities markets and economic trends are
forward-looking statements. Although we believe our expectations reflected in
such forward-looking statements are based on reasonable assumptions, there can
be no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, the actions of both current and potential new competitors, rapid changes
in technology, fluctuations in market trading volumes, market volatility,
changes in the regulatory environment, risk of errors or malfunctions in our
systems or technology, cash flows into or redemptions from equity funds, effects
of inflation, customer trading patterns, as well as general economic and
business conditions; securities, credit and financial and market conditions;
adverse changes or volatility in interest rates.
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PART I
ITEM 1. BUSINESS.
Investment Technology Group, Inc. ("ITG" or the "Company") was formed as a
Delaware corporation under the name Jefferies Group, Inc. on July 22, 1983 and
its principal subsidiaries include: (1) ITG Inc., a broker-dealer in equity
securities, (2) Investment Technology Group International Limited, which is a
50% partner in the ITG Europe joint venture, and (3) ITG Australia Holdings Pty
Limited, which is a 50% partner in ITG Pacific Holdings Pty Limited. We provide
equity trading services and transaction research to institutional investors and
brokers.
We are a full service trade execution firm that uses technology to increase
the effectiveness and lower the cost of trading. With an emphasis on ongoing
research, we offer the following services:
- POSIT: an electronic stock crossing system.
- QuantEX: a Unix-based decision-support, trade management and order routing
system.
- SmartServers: offer server-based implementation of trading strategies.
- Electronic Trading Desk: an agency-only trading desk offering clients the
ability to efficiently access multiple sources of liquidity.
- ITG Platform: a PC-based order routing and trade management system.
- ACE and TCA: a set of pre- and post-trade tools for systematically
analyzing and lowering transaction costs.
- ITG/Opt: a computer-based equity portfolio selection system.
- Research: research, development, sales and consulting services to our
clients.
We generate revenues on a "per transaction" basis for all orders executed.
Orders are delivered to us from our "front-end" software products, QuantEX and
ITG Platform, as well as vendors' front-ends and direct computer-to-computer
links to customers. Orders may be executed on or through (1) POSIT, (2) the New
York Stock Exchange, (3) certain regional exchanges, (4) market makers,
(5) electronic communications networks ("ECNs") and (6) alternative trading
systems ("ATSs").
POSIT
POSIT was introduced in 1987 as a technology-based solution to the trade
execution needs of quantitative and passive investment managers. It has since
grown to serve the active trading and broker-dealer community. There are 492
clients currently using POSIT, including corporate and government pension plans,
insurance companies, bank trust departments, investment advisors, broker-
dealers and mutual funds.
POSIT is an electronic stock crossing system through which clients enter buy
and sell orders to trade single stocks and portfolios of equity securities among
themselves in a confidential environment. Orders may be placed in the system
directly via QuantEX, ITG Platform or computer-to-computer links, or indirectly
via the Electronic Trading Desk, which then enters the orders in the central
computer. We also work in partnership with vendors of other popular trading
systems, allowing users the flexibility to route orders directly to POSIT from
trading products distributed by Bridge Information Systems, BRASS, Bloomberg and
others.
POSIT currently accepts orders for approximately 19,600 different equity
securities, but may be modified, as the need arises, to include additional
equity securities. An algorithm is run at scheduled times to find the maximum
possible number of buy and sell orders that match or "cross." Typically, there
is an imbalance between the number of shares available to be bought or sold in
the system.
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When this occurs, shares are allocated pro rata across participants, resulting
in partial executions. In addition, clients may specify constraints on the
portion of a portfolio that trades, such as the requirement that net cash
resulting from buys and sells remain within specified constraints. A client may
also specify a minimum number of shares to be executed for a given order. POSIT
prices trades at the midpoint of the best bid and offer on the primary market
for each security at the time of the cross, based on information provided
directly to the system by a third-party data vendor. There are currently six
scheduled crosses every business day, scheduled hourly, on the hour, between
10:00 a.m. and 3:00 p.m. (Eastern time). Each scheduled cross is normally
executed within a five-minute window selected randomly by the system.
POSIT provides the following significant benefits to clients:
- Confidential matching of buy and sell orders eliminates market impact. In
contrast, participants in traditional or other open markets are constantly
subject to the risk that disclosure of an order will unfavorably affect
price conditions.
- Access to the substantial pool of liquidity represented by POSIT orders.
- Clients pay a low transaction fee on completed transactions relative to
the industry average of approximately 5 cents per share. POSIT generates
revenue from transaction fees charged on each share crossed through the
system.
- Immediately after each cross, the system electronically provides clients
with reports of matched and unmatched (residual) orders. Clients may then
submit the unexecuted portion of their orders to subsequent POSIT matches,
choose to execute residual orders through other means or take advantage of
the Electronic Trading Desk services (described below).
In December 1997, we introduced a new version of POSIT that gives users the
option of customizing their trading objectives and specifying additional
constraints, while preserving the functionality of the existing POSIT system.
This capability is referred to collectively as a "POSIT strategy." This
capability allows orders that might otherwise be ineligible for POSIT to
participate in the match. POSIT strategies include ResRisk, which allows users
to control the risk of the unexecuted "residual" portfolio, and Pairs, which
makes execution of one trade contingent on the execution of another, at or
better than a given relative valuation. Portfolio funding, liquidation,
restructuring and rebalancing are some of the types of transactions that are
appropriate for execution using ResRisk. Risk arbitrage, statistical arbitrage
and portfolio substitution trades are examples of transactions that can be
implemented using the Pairs strategy. We also implement custom applications upon
request. We have obtained a patent on the technology underlying such POSIT
strategies.
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The following graph illustrates the average daily volume of shares crossed
on POSIT since 1994:
AVERAGE DAILY POSIT SHARE VOLUME
(IN MILLIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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SHARE PER DAY
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1994 7.6
1995 9
1996 13.1
1997 14.5
1998 23.2
1999 25.7
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QUANTEX
QuantEX is our Unix-based trade management system, an advanced tool for
technologically sophisticated clients transacting large volumes of orders.
QuantEX helps clients manage efficiently every step in the trading process: from
decision-making to execution to tracking of trade list status. From a dedicated
workstation at their desks, users can access fully-integrated real-time and
historical data and analytics, route and execute orders electronically, and
perform trade management functions. QuantEx is an integrated system that
supports multiple trade-related activities that have traditionally required the
use of several unrelated systems.
QuantEX is a rule-based decision support system that allows traders to
quantify their trading processes to create automated strategies. It is designed
to implement each client's trading styles and strategies and to apply them to
hundreds of stocks, portfolios or industry groups at once. With QuantEX, clients
can flag precisely the same kinds of moment-to-moment opportunities they would
ordinarily want to pursue, but do so much more efficiently and scientifically.
Rule-based strategies can be based on a wide range of quantitative models.
Passive traders can use QuantEx strategies to help minimize slippage from
various benchmarks, reduce tracking errors and achieve desired sector balances.
Active traders can build models to match a wide variety of trading approaches,
from pair trading to market-neutral algorithms to index or risk arbitrage.
QuantEx strategies can involve the human trader in each order decision, or can
fully automate the trading process, depending on the client's preference.
QuantEX analyzes lists of securities based on the individual user's trading
strategy. QuantEX enables clients to have access to our proprietary research,
including pre-trade, post-trade and intra-day analytical tools. QuantEX has
access to the ITG Data Center, which is a comprehensive historical database that
provides a variety of derived analytics based upon raw historical data. Our
support specialists translate the trading criteria developed by the client into
a set of rules for trading securities, which are then loaded into QuantEX.
QuantEX applies the client's proprietary trading rules to a continuous flow of
current market information on the list of securities selected by the user to
generate real-time decision support. A user's rules can be based on a wide range
of quantitative models or strategies, such as liquidity measures, technical
indicators, price benchmarks, tracking to specific
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industries and sectors, pairs or other long or short strategies, index
arbitrage, risk measurements and liquidity parameters for trade urgency, size or
timing. These rules typically serve as a guide in support of a client's trading
decisions. In addition, QuantEX supports the ability to implement these trading
decisions automatically via an auto-trading strategy.
As such, QuantEX can automate the complex trade management requirements
typical of investment strategies that trade large volumes of securities through
multiple sources of liquidity. Orders can be electronically routed to multiple
markets, including the New York Stock Exchange, the American Stock Exchange and
certain regional stock exchanges, the Nasdaq National Market, POSIT, the
Electronic Trading Desk, over-the-counter market-makers, and selected
broker-dealers, ECNs and ATSs. We intend to create links to additional ATSs and
other liquidity sources where appropriate. Trades routed through QuantEX are
automatically tracked and summarized. Each order can be monitored by source of
execution, by trade list, by portfolio or globally with all other orders placed.
QuantEX's built-in trade allocation features provide a facility for automated
back-office clearance and settlement. QuantEX supports the Financial Information
eXchange ("FIX") messaging protocol and can link to other FIX compliant systems.
QuantEX also allows our clients to access our ISIS facility, an equity pre-
and post-trade analysis system. Via the ISIS facility, QuantEX users can request
both aggregate and stock-by-stock liquidity reports for a trade portfolio prior
to and during execution. Clients can generate standard reports or use a report
writer to design custom reports. Certain elements of these reports can also be
displayed directly on the QuantEX execution page and referenced in QuantEX
strategies. These pre-trade analyses help QuantEX users make decisions about how
best to trade a portfolio, for example by helping identify the most difficult
trades for special handling. The ISIS post-trade reporting facility allows
QuantEX users to compare actual executed prices to user-selected benchmark
prices in order to help assess trade execution quality. Available benchmarks
include the volume-weighted average price, closing price and opening price.
Our support specialists install the system, train users and provide ongoing
support for the use of QuantEX's order routing and analysis capabilities. Our
specialists are knowledgeable about portfolio management and trading as well as
the system's hardware and software. Our support team works closely with each
client to develop trading strategies and rules, explore new trading approaches,
provide system integration services and implement system upgrades and
enhancements.
Revenues are generated through commissions and transaction fees charged to
each trade electronically routed through QuantEX to the many destinations
available from the application. We do not derive royalties from the sale or
licensing of the QuantEX software. As of December 31, 1999, there were 103
installations of QuantEX at 52 client sites.
SMARTSERVERS
SmartServers are automated trading destinations that accept orders from
client workstations and execute them using a computerized trading strategy.
Clients may send orders via the ITG Platform or QuantEX, via direct connections
or via our Electronic Trading Desk. Each SmartServer is an automated trading
agent pre-programmed with a particular trading style. By using these agents,
traders can focus their attention on a subset of their orders, letting the
SmartServer trade the rest of the list.
Our first strategy-based server is the VWAP SmartServer. The VWAP
SmartServer is designed to allow clients to direct their orders to us to be
executed in a manner designed to closely track a security's volume-weighted
average price, or VWAP, throughout the trading day. The VWAP SmartServer
analyzes liquidity and market conditions and determines the appropriate order
size and order price to approximate the VWAP. Clients may choose to execute
relative to the VWAP price for the entire trading day, or for some subset of
that trading day.
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ELECTRONIC TRADING DESK
The Electronic Trading Desk is a full-service agency execution group that
specializes in the use of our proprietary products, including extensive use of
POSIT for trade execution. For clients that do not send orders electronically to
POSIT, our account executives receive orders for POSIT matches by telephone, fax
or e-mail. The desk accepts orders until a POSIT match begins and after
completion of the match execution reports are given to clients.
In addition to order management services for POSIT, the Electronic Trading
Desk provides agency execution services. QuantEX and ITG Platform clients
deliver lists of orders electronically to our desk and, as orders are executed
by the desk, reports are automatically delivered electronically to the client's
terminal. Trading desk personnel are thereby able to assist customers with
decision support analyses generated by ITG Platform or QuantEX and with the
execution of trades. Clients give our traders single stock orders or lists of
orders to work throughout the day as well as unfilled orders that remain due to
order imbalances in POSIT matches.
For order completion outside of POSIT match windows, the Electronic Trading
Desk utilizes numerous sources of liquidity to complete trades. The trading desk
will actively seek the contra side of client orders by soliciting interest among
other clients, use QuantEX to route the orders to multiple markets, including
primary exchanges, regional exchanges, over-the-counter market makers, ECNs and
ATSs, or use our active order traders to execute the trade with floor brokers or
over-the-counter brokers.
The Portfolio Trading Group of our desk focuses on agency-only list and
program trading. By employing a step-by-step process that leverages technology
and access to multiple sources of liquidity, the Portfolio Trading Group seeks
to systematically achieve high quality execution for the client. A client
program is evaluated with a pre-trade analysis to determine aggregate portfolio
characteristics, liquidity ranking and market impact, and to quantify risk. The
group implements a number of sophisticated trading strategies using QuantEX to
meet execution objectives on an agency basis. After the execution is completed,
we provide the client with comprehensive reports analyzing execution results
utilizing ITG Research products.
ITG PLATFORM
ITG Platform, introduced in the first quarter of 1996, provides clients with
seamless connectivity from their desktop to a variety of execution destinations,
such as POSIT, the Electronic Trading Desk, our SmartServers, the New York Stock
Exchange and American Stock Exchange via SuperDOT, the Nasdaq National Market,
other over-the-counter market makers and selected ECNs. We intend to create
links to additional liquidity sources where appropriate. Orders may be corrected
or canceled electronically, and all reports are delivered electronically back to
the ITG Platform. The ITG Platform also supports special trading interfaces as
needed by POSIT strategies and SmartServers. Allocation information can be
associated with executions in the ITG Platform and delivered to us
electronically. ITG Platform has access to historical data through the ITG Data
Center, including a wide array of analytics, such as average historical share
volumes, dollar volumes, volatility and historical spread statistics. We
recently released a new version of ITG Platform which provides our clients
enhanced list trading capabilities and access to ECN order types. The new
version of ITG Platform also provides certain clients with access to real time
Nasdaq Level II data as well as the ability to communicate with us via the
Internet as well as through private networks.
The ITG Platform was intended for broad distribution to institutional
clients, so it was designed to run in conventional PC environments alongside
other applications, and be inexpensive to install, maintain and support.
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Many technical features support these goals:
- Other applications can link to the ITG Platform using the FIX data
messaging protocol or the "drag and drop" method.
- ITG Platform incorporates a spreadsheet package, so users can extend their
trade blotter with custom calculations.
- Custom execution reports can be created to fit each user's requirements.
- ITG Platform can access Bridge and ILX quote data if those systems are
used by the client. In addition, we provide the Primark Speed Feed to
selected clients.
- New versions of ITG Platform are distributed automatically to client sites
and are easily installed with little or no user intervention required.
As of December 31, 1999, there were 296 installations of ITG Platform at 188
client sites.
ACE PRE-TRADE AND TCA POST-TRADE TRANSACTION COST ANALYSIS
Accessed through the Internet, ACE and TCA are equity pre- and post-trade
analysis systems. ACE and TCA users can request both aggregate and
stock-by-stock liquidity reports for a trade portfolio prior to and during
execution. Clients can generate standard reports built into the browser-based
applications. Reports can be viewed, printed or saved to a file.
ACE pre-trade analyses help users make decisions about how best to trade a
portfolio, for example by helping identify the most difficult trades for special
handling and by providing a reference point for evaluating principal trade
pricing. The TCA post-trade reporting facility allows users to compare actual
executed prices to user-selected benchmark prices in order to help assess trade
execution quality. Available benchmarks include the volume-weighted average
price, closing price and opening price.
ITG/OPT
ITG/Opt is a computer-based equity portfolio selection system that employs
advanced optimization techniques to help investors construct portfolios that
meet their investment objectives. Special features of the system make it
particularly useful to "long/short" and taxable investors, as well as any
investor seeking to control transaction costs. ITG/Opt is usually delivered as a
"turnkey" system that includes software and, in some cases, hardware and data.
Included in the service is telephone and on-site support to assist in training
and integration of the system with the user's other investment systems and
databases. In addition to its core portfolio construction capabilities, ITG/Opt
has powerful backtesting and batch scheduling features that permit efficient
researching of new or refined investment strategies. The system, which is
targeted at highly sophisticated investment applications, is offered primarily
to our largest clients. Typically, portfolios that are constructed using ITG/Opt
are executed via ITG, using one or more execution services, such as QuantEX, the
Electronic Trading Desk and POSIT.
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ITG RESEARCH
In addition to its role in the firm's overall research and development
effort, Research provides both sales and consulting services to our clients and
prospective clients. Taken together, these activities are a key component of our
overall relationship development and maintenance activities.
In its sales capacity, Research introduces our clients and prospective
clients to the full range of products and services offered by our company and
provides information about features, pricing and technical/functional
specifications. The sales process includes development of an in-depth
understanding of client practices and requirements and the design and
presentation of integrated solutions based on our products.
Consulting encompasses a set of value-added services for the benefit of our
clients. These services break down into three main categories: product support,
development of customized trading strategies and provision of quantitative
analysis. The products supported by Research are QuantEX, ACE, TCA, ITG
Platform, POSIT, and ITG/Opt. Support activities include trading strategy design
and implementation, system integration, training and coordination of technical
support. Strategy development involves building customized QuantEx strategies
that automate the trading styles of specific clients. Quantitative analysis
covers a broad range of activities such as transaction cost analysis, investment
strategy simulations and provision of historical time series of proprietary
analytics. As part of its analysis activities, Research publishes and
distributes studies on topics of interest to our clients. In the same way users
of fundamental research compensate the traditional brokerages that provide such
research (i.e., directing commissions to such brokerage house), our clients
reward the firm for these value-added research services.
ITG EUROPE
We are pursuing the international market in a variety of ways, through
joint-ventures with strategic partners and the development of specially-tailored
versions of our services. In the fourth quarter of 1998, we and Societe Generale
finalized a 50/50 joint venture through the creation of Investment Technology
Group (Europe) Limited. On November 18, 1998, ITG Europe launched a new agency
brokerage operation that includes the operation of a European version of the
POSIT system which currently runs four daily matches of U.K.-listed equities, at
9:30 a.m., 11:00 a.m., 12:00 noon and 3:00 p.m., London time. ITG Europe plans
to begin matching equity securities in seven additional European countries
during the first quarter of 2000.
AUSTRALIAN POSIT
In 1997, we and Burdett, Buckeridge & Young finalized a 50/50 joint venture
through the creation of ITG Australia Limited, a new international brokerage
firm that applies our cost-saving execution and transaction research
technologies to Australian equity trading. ITG Australia is the culmination of
efforts commenced in 1995 when a license to POSIT was granted to Burdett, one of
Australia's leading brokerage firms. Through this joint venture we are pursuing
U.S. business from Australian investors and providing U.S. clients with access
to the Australian marketplace.
CANADIAN QUANTEX
We have developed a version of QuantEX for the Canadian markets. This
software is licensed on a perpetual, non-exclusive, royalty-free basis to VERSUS
Technologies, Inc., a Canadian technology-focused trade automation firm based in
Toronto. Pursuant to this license and a series of transactions with RBC Dominion
Securities, the predecessor owner of the VERSUS assets, we received an equity
interest in VERSUS. We and VERSUS have also entered into three agreements for
trade execution by us in POSIT and other United States markets: (a) a routing
agreement pursuant to which VERSUS routes orders of Canadian registered brokers
to us, (b) an introducing broker agreement pursuant to which VERSUS's registered
broker affiliate sends institutional orders to us and (c) an introducing broker
agreement pursuant to which VERSUS's registered broker affiliate sends retail
orders to us.
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REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. Regulation of
broker-dealers has been primarily delegated to self-regulatory organizations,
principally the National Association of Securities Dealers, Inc. and national
securities exchanges. The National Association of Securities Dealers has been
designated by the SEC as our self-regulatory organization. The self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with rules they have adopted and amended from time to time, subject
to approval by the SEC. Securities firms are also subject to regulation by state
securities administrators in those states in which they conduct business.
ITG Inc. is a registered broker-dealer in 49 states and the District of
Columbia.
Broker-dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure of securities firms, record-keeping and conduct of directors, officers
and employees. Additional legislation, changes in the interpretation or
enforcement of existing laws and rules may directly affect the mode of operation
and profitability of broker-dealers. The SEC, self-regulatory organizations and
state securities commissions may conduct administrative proceedings, which can
result in censure, fine, the issuance of cease-and-desist orders or the
suspension or expulsion of a broker-dealer, its officers or employees. The
principal purpose of regulation and discipline of broker-dealers is the
protection of clients and the securities markets, rather than the protection of
creditors and stockholders of broker-dealers.
ITG Inc. is required by law to belong to the Securities Investor Protection
Corporation. In the event of a broker-dealer's insolvency, the Securities
Investor Protection Corporation fund provides protection for client accounts up
to $500,000 per customer, with a limitation of $100,000 on claims for cash
balances.
REGULATION ATS
Since the formation of the POSIT joint venture, POSIT had operated under a
"no-action" letter from the SEC staff that it would not recommend that the SEC
commence an enforcement action if POSIT were operated without registering as an
exchange. Since effectiveness of Regulation ATS on April 21, 1999, we have
operated POSIT as part of our broker-dealer operations in accordance with
Regulation ATS. Accordingly, POSIT is not registered with the SEC as an
exchange. There can be no assurance that the SEC will not in the future seek to
impose more stringent regulatory requirements on the operation of alternative
trading systems such as POSIT. In addition, certain of the securities exchanges
have actively sought to have more stringent regulatory requirements imposed upon
automated trade execution systems. There can be no assurance that Congress will
not enact legislation applicable to alternative trading systems.
NET CAPITAL REQUIREMENT
As a registered broker-dealer, ITG Inc. is subject to the SEC's uniform net
capital rule. The net capital rule is designed to measure the general integrity
and liquidity of a broker-dealer and requires that at least a minimum part of
its assets be kept in a relatively liquid form.
The net capital rule prohibits a broker-dealer doing business with the
public from allowing the aggregate amount of its indebtedness to exceed 15 times
its adjusted net capital or, alternatively, its adjusted net capital to be less
than 2% of its aggregate debit balances (primarily receivables from clients and
broker-dealers) computed in accordance with the net capital rule. We use the
latter method of calculation.
A change in the net capital rule, imposition of new rules or any unusually
large charge against capital could limit certain operations of ITG Inc., such as
trading activities that require the use of significant amounts of capital.
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As of December 31, 1999, ITG Inc. had net capital of $39.3 million, which
exceeded minimum net capital requirements by $39.1 million. Although we believe
that the combination of our existing net regulatory capital and operating cash
flows will be sufficient to meet regulatory capital requirements, a shortfall in
net regulatory capital would have a material adverse effect on our business and
our results of operations.
CREDIT RISK
Although ITG Inc. is registered as a broker-dealer, we generally do not
perform traditional broker-dealer services. We do not act as a market-maker with
respect to any securities or otherwise act as a principal in any securities
transactions; we act only on an agency basis. Therefore, we do not have exposure
to credit risks in the way that traditional broker-dealers have such exposure.
The relatively low credit risk of our businesses is reflected in the minimal net
capital requirements imposed on ITG Inc. as a broker-dealer.
LICENSE AND RELATIONSHIP WITH BARRA
In 1987, Jefferies & Company, Inc. and BARRA Inc. formed a joint venture for
the purpose of developing and marketing POSIT. In 1993, Jefferies &
Company, Inc. assigned all of its rights relating to the joint venture and the
license agreement, discussed below, to us.
The technology used to operate POSIT is licensed to us pursuant to a
perpetual license agreement between us and the joint venture. The license
agreement grants us the exclusive right to use certain proprietary software
necessary to the continued operation of POSIT and a non-exclusive license to use
proprietary software that operates in conjunction with POSIT. We pay quarterly
royalties to the joint venture to use other proprietary software that operates
in conjunction with POSIT equal to specified percentages of the transaction fees
charged by us on each share crossed through POSIT. For the years ended
December 31, 1999, 1998 and 1997, BARRA received aggregate royalty payments from
the joint venture of $16.9 million, $15.2 million, and $9.8 million,
respectively, under the license agreement. Under the terms of the joint venture,
we and BARRA are prohibited from competing directly or indirectly with POSIT.
The license agreement permits BARRA on behalf of the joint venture to
terminate the agreement upon certain events of bankruptcy or insolvency or upon
an uncured breach by us of certain covenants, the performance of which are all
within our control. Although we do not believe that we will experience
difficulty in complying with our obligations under the license agreement, any
termination of the license agreement resulting from an uncured default would
have a material adverse effect on us.
Under the license agreement and the terms of the joint venture, BARRA
continues to provide certain support services to us in connection with the
operation of POSIT, including computer time, software updates and the
availability of experienced personnel. BARRA also provides support for the
development and maintenance of POSIT.
Under the terms of the joint venture, BARRA generally has the right to
approve any sale, transfer, assignment or encumbrance of our interest in the
joint venture. The POSIT joint venture may earn a royalty from licensing the
POSIT technology to other businesses. The joint venture licensed to us and
Burdett the right to use the POSIT technology for crossing equity securities in
Australia.
In the third quarter of 1997, BARRA finalized a joint venture with Prebon
Yamane to market POSIT-FRA, the first computer-based system for crossing forward
rate agreements. The POSIT joint venture licensed the POSIT software to Prebon.
POSIT-FRA provides a confidential electronic environment where major financial
institutions can match specific sets of forward rate agreements contracts to
offset interest rate risk, a condition that is pervasive in interest rate swap
portfolios.
In the fourth quarter of 1998, we finalized the formation of ITG Europe with
Societe Generale. The POSIT joint venture has licensed the POSIT software to ITG
Europe.
9
<PAGE>
COMPETITION
The automated trade execution and analysis services offered by us compete
with services offered by leading brokerage firms and transaction processing
firms, and with providers of electronic trading and trade order management
systems and financial information services. POSIT also competes with various
national and regional securities exchanges and execution facilities, Nasdaq,
ATSs and ECNs such as Instinet, for trade execution services. Many of our
competitors have substantially greater financial, research and development and
other resources. We believe that our services compete on the basis of access to
liquidity, transaction cost and market impact cost reduction, timeliness of
execution and probability of trade completion. Although we believe that POSIT,
QuantEX, ITG Platform and the Electronic Trading Desk and Research services have
established certain competitive advantages, our ability to maintain these
advantages will require continued investment in the development of our services,
additional marketing activities and customer support services. There can be no
assurance that we will have sufficient resources to continue to make this
investment, that our competitors will not devote significantly more resources to
competing services or that we will otherwise be successful in maintaining our
current competitive advantages. In addition, we cannot predict the effect that
changes in regulation may have on the competitive environment. In particular,
the adoption of Regulation ATS may make it easier for securities exchanges,
Nasdaq or others to establish competing trading systems.
RESEARCH AND PRODUCT DEVELOPMENT
We believe that fundamental changes in the securities industry have
increased the demand for technology-based services. We devote a significant
portion of our resources to the development and improvement of these services.
Important aspects of our research and development effort include enhancements of
existing software, the ongoing development of new software and services and
investment in technology to enhance our efficiency. The software programs which
are incorporated into our services, are subject, in most cases, to copyright
protection. Research and development costs were $9.7 million, $8.6 million and
$5.3 million for 1999, 1998 and 1997, respectively.
In connection with such research and product development and capital
expenditures to improve other aspects of our business, we incur substantial
expenses that do not vary directly, at least in the short term, with
fluctuations in securities transaction volumes and revenues. In the event of a
material reduction in revenues, we may not reduce such expenses quickly and, as
a result, we could experience reduced profitability or losses. Conversely,
sudden surges in transaction volumes can result in increased profit and profit
margin. To ensure that we have the capacity to process projected increases in
transaction volumes, we have historically made substantial capital and operating
expenditures in advance of such projected increases, including during periods of
low transaction volumes. In the event that such growth in transaction volumes
does not occur, the expenses related to such investments could, as they have in
the past, cause reduced profitability or losses.
We work closely with BARRA on the development of POSIT enhancements. We
expect to continue this level of investment to improve existing services and
continue the development of new services.
DEPENDENCE ON PROPRIETARY INTELLECTUAL PROPERTY; RISKS OF INFRINGEMENT
Our success is dependent, in part, upon our proprietary intellectual
property. We generally rely upon patents, copyrights, trademarks and trade
secrets to establish and protect our rights in our proprietary technology,
methods and products. A third party may still try to challenge, invalidate or
circumvent the protective mechanisms that we select. We cannot assure that any
of the rights granted under any patent, copyright or trademark we may obtain
will protect our competitive advantages. In addition, the laws of some foreign
countries may not protect our proprietary rights to the same extent as the laws
of the United States.
In the past several years, there has been a proliferation of so-called
"business method patents" applicable to the computer and financial services
industries. News articles have also reported that there
10
<PAGE>
has been a substantial increase in the number of such patent applications filed.
Under current law, U.S. patent applications remain secret for 18 months and may,
depending upon where else such applications are filed, remain secret until
issuance of a patent. In light of these factors, it is not economically
practicable to determine in advance whether our products or services may
infringe the present or future patent rights of others. We believe that factors
such as technological and creative skills of our personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a
state-of-the-art technological system. There can be no assurance that we will be
able to protect our technology from disclosure or that others will not develop
technologies that are similar or superior to our technology. It is likely that
from time to time, we will receive notices from others of claims or potential
claims of intellectual property infringement or we may be called upon to defend
a joint venture partner, customer, vendee or licensee against such third party
claims. Responding to these kinds of claims, regardless of merit, could consume
valuable time, result in costly litigation or cause delays, all of which could
have a material adverse effect on us. Responding to these claims could also
require us to enter into royalty or licensing agreements with the third parties
claiming infringement. Such royalty or licensing agreements, if available, may
not be available on terms acceptable to us.
In February 1999, we became aware of patents purportedly owned by Belzberg
Financial Markets & News International Inc. and Sydney Belzberg, an officer of
that company (the "Belzberg Patents"). One or more of the Belzberg Patents may
relate to the devices, means and/or methods that we and/or our customers,
licensees or joint venture partners use in the conduct of business. On March 5,
1999, a Canadian licensee of some of our technology, received a letter asserting
that the licensee was infringing one of the Belzberg Patents. The licensee has
denied the claims of infringement and has asserted that the Belzberg Patent at
issue is invalid or unenforceable. Under certain conditions, we may have a duty
to defend or indemnify the licensee for any costs or damages arising out of an
infringing use of the technology we have licensed to them. We are monitoring the
matter and may participate in any challenge to the Belzberg Patent the licensee
may make.
We are unaware of any actual claims of patent infringement leveled against
us or any of our customers or joint venture partners by any of the title owners
of the Belzberg Patents. Based upon our review to date we believe that any such
claims arising out of the Belzberg Patents would be without merit and we would
vigorously defend any such claim, including, if warranted, initiating legal
proceedings. However, intellectual property disputes are subject to inherent
uncertainties and there can be no assurance that any potential claim would be
resolved favorably to us or that it would not have a material adverse affect on
us. We will monitor the Belzberg Patent situation and take action accordingly.
EMPLOYEES
As of December 31, 1999, we employed 318 personnel.
ITEM 2. PROPERTIES
Our principal offices are located at 380 Madison Avenue in New York City. We
currently lease the entire 4(th) floor and part of the 7(th) floor or
approximately 61,024 square feet of office space. In anticipation of future
expansion we have also leased a portion of the 5(th) floor (approximately 12,726
square feet of office space). This additional space on the 5(th) floor and a
portion of the 7(th) floor is currently being sublet. The lease payments as
compared to the rental income for the 5(th) and 7(th) floors, will have an
immaterial effect upon our operating results. The fifteen-year lease terms for
the 4(th) and 5(th) floors and the thirteen-year lease term for the 7(th) floor
expire in January 2013.
We also maintain a research, development and technical support services
facility in Culver City, California where we occupy approximately 48,202 square
feet of office space. We have leased an additional 23,520 square feet in this
facility, which we currently sublet. The lease payments as compared
11
<PAGE>
to the rental income will have an immaterial effect upon our operating results.
We lease the California facility pursuant to lease agreements that expire
between December 2005 and April 2006.
Additionally, we also maintain a "hot" backup and regional office for
Financial Engineering Research and QuantEX support in Boston, Massachusetts
where we occupy approximately 10,588 square feet of office space. The ten-year
lease term for this space expires in April 2005.
During 1999, we opened a research facility in Herzelya, Israel where we
occupy approximately 5,712 square feet of office space. We lease the Israel
space pursuant to a four-year lease agreement that expires in November 2003.
ITEM 3. LEGAL PROCEEDINGS
In 1998, we received a "30-day letter" proposing certain adjustments which,
if sustained, would result in a tax deficiency of approximately $9.6 million
plus interest. The adjustments proposed relate to (i) the disallowance of
deductions taken in connection with the termination of certain compensation
plans at the time of our initial public offering in 1994 and (ii) the
disallowance of tax credits taken in connection with certain research and
development expenditures. We believe that the tax benefits in question were
taken properly and intend to vigorously contest the proposed adjustments. Based
on the facts and circumstances known at this time, we are unable to predict when
this matter will be resolved or the costs associated with its resolution.
In February 1999, we became aware of patents purportedly owned by Belzberg
Financial Markets & News International Inc. and Sydney Belzberg, an officer of
that company (the "Belzberg Patents"). One or more of the Belzberg Patents may
relate to the devices, means and/or methods that we and/or customers, licensees
or joint venture partners use in the conduct of business. On March 5, 1999, a
Canadian licensee of some of our technology, received a letter asserting that
the licensee was infringing one of the Belzberg Patents. The licensee has denied
the claims of infringement and has asserted that the Belzberg Patent at issue is
invalid or unenforceable. Under certain conditions, we may have a duty to defend
or indemnify the licensee for any costs or damages arising out of an infringing
use of the technology we have licensed to them. We are monitoring the matter and
may participate in any challenge to the Belzberg Patent the licensee may make.
We are unaware of any actual claims of patent infringement leveled against
us or any of our customers or joint venture partners by any of the title owners
of the Belzberg Patents. Based upon our review to date we believe that any such
claims arising out of the Belzberg Patents would be without merit and we would
vigorously defend any such claim, including, if warranted, initiating legal
proceedings. However, intellectual property disputes are subject to inherent
uncertainties and there can be no assurance that any potential claim would be
resolved favorably to us or that it would not have a material adverse affect on
us. We will monitor the Belzberg Patent situation and take action accordingly.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter ended December 31, 1999.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK DATA
Our common stock was quoted on the Nasdaq National Market under the symbol
"ITGI" until April 26, 1999. Effective April 27, 1999, and in connection with
our spin-off from Jefferies Group, Inc., our common stock split based upon a
1.5955 to 1 exchange ratio and began trading on the New York Stock Exchange
under the symbol "ITG".
The following table sets forth, for the periods indicated, the range of the
high and low closing sales prices per share of our common stock as reported on
the Nasdaq National Market or the New York Stock Exchange, as applicable.
<TABLE>
<CAPTION>
NASDAQ(1) NYSE
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
First Quarter............................................. $23.50 $15.28 N/A N/A
Second Quarter............................................ 22.25 15.98 N/A N/A
Third Quarter............................................. 21.31 17.08 N/A N/A
Fourth Quarter............................................ 38.90 11.60 N/A N/A
1999
First Quarter............................................. 43.53 22.96 N/A N/A
Second Quarter (through April 26)......................... 43.28 31.91 N/A N/A
Second Quarter (from April 27)............................ N/A N/A $46.98 $29.24
Third Quarter............................................. N/A N/A 35.40 22.31
Fourth Quarter............................................ N/A N/A 28.55 19.27
</TABLE>
- ------------------------
(1) High and low closing sales prices per share of our common stock as
reported on the Nasdaq National Market have been adjusted to reflect our
common stock split in connection with the spin-off at an exchange ratio of
1.5955 to 1.
On March 13, 2000, the closing sales price per share for our common stock as
reported on the New York Stock Exchange was $37.44. On March 13, 2000, we
believe that our common stock was held by approximately 4,700 stockholders of
record or through nominees in street name accounts with brokers.
In connection with our spin-off from Jefferies Group, Inc. we paid a special
cash dividend of $4.00 per share to each stockholder of record as of April 20,
1999. Our dividend policy is to retain earnings to finance the operations and
expansion of our businesses. We do not anticipate paying any cash dividends on
our common stock in the foreseeable future.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected Consolidated Statement of Operations data and the Consolidated
Statement of Financial Condition data presented below as of and for each of the
years in the five-year period ended December 31, 1999, are derived from our
consolidated financial statements, which financial statements have been audited
by KPMG LLP, independent auditors. Earnings per share information prior to 1997
has been retroactively restated to conform with the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, EARNINGS PER SHARE, and earnings per share information prior
to 1999 has been retroactively restated to reflect our spin-off from Jefferies
Group, Inc. See Note 1, ORGANIZATION AND BASIS FOR PRESENTATION--SPIN-OFF FROM
JEFFERIES GROUP, in the Notes to Consolidated Financial Statements on page 31.
Such data should be read in connection with the consolidated financial
statements contained on pages 24 through 46.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Total revenues............................. $232,044 $212,205 $137,042 $111,556 $72,381
Total expenses............................. 149,183 131,270 89,782 70,555 47,493
-------- -------- -------- -------- -------
Income before income taxes................. 82,861 80,935 47,260 41,001 24,888
Income tax expense......................... 37,435 37,541 20,343 17,666 9,983
-------- -------- -------- -------- -------
Net income................................. $ 45,426 $ 43,394 $ 26,917 $ 23,335 $14,905
======== ======== ======== ======== =======
Basic net earnings per share of common
stock.................................... $ 1.48 $ 1.48 $ 0.93 $ 0.80 $ 0.51
======== ======== ======== ======== =======
Diluted net earnings per share of common
stock.................................... $ 1.42 $ 1.41 $ 0.89 $ 0.79 $ 0.51
======== ======== ======== ======== =======
Basic weighted average shares outstanding
(in millions)............................ 30.7 29.3 29.0 29.2 29.5
Diluted weighted average shares and common
stock equivalents outstanding (in
millions)................................ 31.9 30.8 30.2 29.7 29.5
CONSOLIDATED STATEMENT OF FINANCIAL
CONDITION DATA:(1)
Total assets............................... $179,488 $180,706 $113,641 $ 82,798 $55,318
Total stockholders' equity................. $115,652 $143,709 $ 93,763 $ 67,093 $45,479
OTHER SELECTED FINANCIAL DATA:
Revenues per trading day (in thousands).... $ 921 $ 842 $ 542 $ 439 $ 287
Shares executed per day (in millions)...... 46 43 27 22 15
Revenues per average number of employees
(in thousands)........................... $ 802 $ 888 $ 733 $ 814 $ 689
Average number of employees................ 290 239 187 137 105
Total number of customers(1,2)............. 572 535 452 417 354
POSIT(2)................................. 492 490 414 396 330
QuantEX(3)............................... 52 52 43 55 81
ITG Platform(3).......................... 188 140 48 36 N/A
Total number of customer
installations:(1,3)
QuantEX.................................. 103 97 84 109 97
ITG Platform............................. 296 201 69 67 N/A
Return on average stockholders' equity..... 34.4% 37.4% 33.9% 45.5% 39.3%
Book value per share(4).................... $ 3.86 $ 4.85 $ 3.23 $ 2.30 $ 1.46
Tangible book value per share(4)........... $ 3.83 $ 4.80 $ 3.16 $ 2.22 $ 1.36
Price to earnings ratio using diluted net
earnings per share of common stock....... 19.9 27.6 19.7 15.3 11.4
</TABLE>
14
<PAGE>
The following graph represents the number of shares ITG Inc. executed as a
percentage of the market volume in the U.S. market since 1994.(5)
ITG VOLUME AS PERCENTAGE OF MARKET VOLUME
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SHARE PER DAY
<S> <C>
1994 1.7
1995 1.9
1996 2.26
1997 2.24
1998 2.94
1999 2.45
</TABLE>
- ------------------------
(1) Numbers are as of December 31(st) of each year.
(2) Total customers and POSIT customers include those customers who have
generated revenues in excess of $1,000 in each year.
(3) For the years ended December 31, 1999, 1998 and 1997, QuantEx and ITG
Platform customers and customer installations include those customers and
installations that have either (a) traded 100,000 shares in the last quarter
of each calendar year or (b) traded shares on at least 12 different days
during such quarter. For the years ended December 31, 1996 and 1995, QuantEx
and ITG Platform customers and customer installations include those
customers who have generated revenues in excess of $1,000 in each year
(4) The prior years have been restated to reflect the Company's spin-off from
Jefferies Group, Inc. See Note 1, ORGANIZATION AND BASIS FOR
PRESENTATION--SPIN-OFF FROM JEFFERIES GROUP, in the Notes to Consolidated
Financial Statements on page 31.
(5) The percentages on the graph are total ITG shares executed divided by the
"market" volume. Total ITG shares executed includes total POSIT shares,
QuantEX shares and shares executed by the Electronic Trading Desk. Market
volume includes shares executed by and as provided by the New York Stock
Exchange and Nasdaq. Market volume excludes ITG shares executed.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements, including the notes thereto.
GENERAL
REVENUES:
We generate substantially all of our revenues from the following four
products and services, each contributing to our single line of business:
- POSIT: a confidential electronic stock crossing system;
- Electronic Trading Desk: an agency-only trading desk;
- Front End Software;
- QuantEX: a Unix-based front-end software system providing market
analysis, trade management and electronic connectivity to POSIT and
multiple trade execution destinations; and
- ITG Platform: a PC-based front-end software system providing market
analysis, trade management and electronic connectivity to POSIT and
multiple trade execution destinations.
Revenues primarily consist of commissions from customers' use of our trade
execution and analytical services. Because these commissions are paid on a
per-transaction basis, revenues fluctuate from period to period depending on the
volume of securities traded through our services. We record as POSIT revenue any
order that is executed on the POSIT system regardless of the manner in which the
order was submitted to POSIT. ITG collects a commission from each side of a
trade matched on POSIT. We record as Electronic Trading Desk revenue any order
that is handled by our trading desk personnel and executed at any trade
execution destination other than POSIT. We record as Client revenue any order
that is sent by our clients, through ITG's front-end systems but without
assistance from the Electronic Trading Desk, to any third party trade execution
destination. Other revenue includes interest income/expense and market
gains/losses and financing costs resulting from temporary positions in
securities assumed in the normal course of our agency trading business.
EXPENSES:
Expenses consist of compensation and employee benefits, transaction
processing, software royalties, occupancy and equipment, telecommunications and
data processing services, net loss on long-term investments, spin-off costs and
other general and administrative expenses. Compensation and employee benefits
expenses include base salaries, bonuses, employment agency fees, part-time
employee compensation, fringe benefits, including employer contributions for
medical insurance, life insurance, retirement plans and payroll taxes, offset by
capitalized software. Transaction processing expenses consist of floor brokerage
and clearing fees and connection fees for use of certain third party execution
services. Software royalties are payments to our POSIT joint venture partner,
BARRA. Occupancy and equipment expenses include rent, depreciation, amortization
of leasehold improvements, maintenance, utilities, occupancy taxes and property
insurance. Telecommunications and data processing services include costs for
computer hardware, office automation and workstations, data center equipment,
market data services and voice, data, telex and network communications. Net loss
on long-term investments includes gains on the sale of equity investments, as
offset by amortization of goodwill, equity gain/loss and initial start-up costs.
Spin-off costs include legal, accounting, consulting and various other expenses
in connection with the spin-off from Jefferies Group and related transactions.
Other general and administrative expenses include amortization of software and
goodwill, legal, audit, tax, consulting and promotional expenses.
16
<PAGE>
RESULTS OF OPERATIONS
The table below sets forth certain items in the statement of income
expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:................................................... 100.0% 100.0% 100.0%
Commissions
POSIT................................................... 55.7 55.1 55.0
Electronic trading desk................................. 20.5 23.4 22.0
Client.................................................. 22.0 19.9 22.0
Other..................................................... 1.8 1.6 1.0
Expenses:
Compensation and employee benefits........................ 22.3 24.3 22.2
Transaction processing.................................... 13.9 12.7 15.6
Software royalties........................................ 7.3 7.2 7.2
Occupancy and equipment................................... 5.7 5.6 6.7
Telecommunications and data processing services........... 4.1 3.8 4.8
Net loss on long-term investments......................... 1.1 0.1 0.2
Spin-off costs............................................ 2.8 0.9 0.0
Other general and administrative.......................... 7.1 7.3 8.8
Total expenses.......................................... 64.3 61.9 65.5
Income before income tax expense............................ 35.7 38.1 34.5
Income tax expense.......................................... 16.1 17.7 14.8
Net income.................................................. 19.6 20.4 19.6
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
EARNINGS PER SHARE
Basic net earnings per share for both 1999 and 1998 were $1.48. Diluted net
earnings per share increased $0.01, or 1%, from $1.41 to $1.42. Diluted net
earnings per share for 1999 and 1998, excluding non-recurring charges (net of
tax benefits) of $3.9 million and $1.9 million, respectively, incurred in
connection with our spin-off from Jefferies Group, Inc. were $1.54 and $1.47,
respectively.
REVENUES
Total revenues increased $19.8 million, or 9%, from $212.2 million to
$232.0 million. There were 252 trading days in both 1998 and 1999. Revenues per
trading day increased by $79,000, or 9%, from $842,000 to $921,000. Revenues per
employee decreased $83,000, or 10%, from $813,000 to $730,000.
The increases in POSIT and Client revenues were attributable to an increase
in trading volume by existing customers and an increase in the number of
customers. The number of shares crossed on the POSIT system increased
0.7 billion, or 12%, from 5.8 billion to 6.5 billion. The number of shares
crossed on the POSIT system per day increased 2.5 million, or 11%, from
23.2 million to 25.7 million. In addition, on both June 24, and July 15, 1999, a
record breaking 49.7 and 59.9 million shares were crossed on the POSIT system,
respectively. Of Client revenues, ITG Platform revenue increased 169%
representing 55% of the increase in Client revenues. Electronic Trading Desk
revenues decreased due to a number of factors, including, our clients winning
fewer portfolio transitions, increased competition from principal bids and lower
turnover of portfolios for some of our clients. Other revenues increased
primarily due to incremental royalty income from international versions of
POSIT, larger average balances in our investment portfolio and decreased errors
and accommodations. These were partially
17
<PAGE>
offset by increased financing costs resulting from temporary positions in
securities assumed in the normal course of our agency trading business.
EXPENSES
Total expenses excluding income tax expense for 1999 increased
$17.9 million, or 14%, from $131.3 million to $149.2 million.
The following table itemizes expenses by category (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999 1998 CHANGE % CHANGE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Compensation and employee benefits....................... $51,717 $51,462 255 0.5%
Transaction processing................................... 32,282 26,920 5,362 19.9
Software royalties....................................... 16,851 15,247 1,604 10.5
Occupancy and equipment.................................. 13,295 11,886 1,409 11.9
Telecommunications and data processing services.......... 9,428 8,138 1,290 15.9
Net loss on long-term investments........................ 2,674 204 2,470 1,210.8
Spin-off costs........................................... 6,516 1,936 4,580 236.6
Other general and administrative......................... 16,420 15,477 943 6.1
Income taxes............................................. 37,435 37,541 (106) (0.3)
</TABLE>
COMPENSATION AND EMPLOYEE BENEFITS: Salaries, bonuses and related employee
benefits increased primarily due to growth in our employee base of 22% from 261
to 318, and additional compensation necessary to attract and retain quality
personnel. Approximately 70% of the increase in employees were staffed in
technology, product development and production infrastructure. This is
consistent with our ongoing effort to respond to continuous changes in the
securities industry and demand for increased efficiencies by enhancing existing
software and developing new software and services. Average compensation and
employee benefits expenses per person decreased $34,000, or 17%, from $197,000
to $163,000.
TRANSACTION PROCESSING: Transaction processing as a percentage of revenues
increased from 12.7% to 13.9% of revenues. Ticket charges increased 23%,
primarily as a result of customers allocating transactions to a larger number of
accounts. With only a 9% increase in execution volume, we did not realize
significant savings from volume-discounted clearing and execution costs.
SOFTWARE ROYALTIES: Because software royalties are contractually fixed at
13% of POSIT revenues, the increase is wholly attributable to an increase in
POSIT revenues.
OCCUPANCY AND EQUIPMENT: The increase in headcount, infrastructure
enhancements and costs to address potential problems related to the Year 2000
issue resulted in increased equipment purchases and the associated depreciation
and maintenance expenses. In addition, the expansion of our research and
development facility in Culver City, California, in July 1998 resulted in an
increase in rent expense.
TELECOMMUNICATIONS AND DATA PROCESSING SERVICES: The $1.3 million increase
in telecommunications and data processing services stems primarily from fees to
upgrade client data feeds, including market data line connections, increase in
communication charges from linking clients to ITG in New York and Boston, and
increases in dial-up costs related to the increase in ITG Platform
installations. This increase was offset primarily by a decrease in spending on
contingency-related planning and implementation.
NET LOSS ON LONG-TERM INVESTMENTS: The increase in loss on long-term
investment in 1999 over 1998 primarily resulted from the recorded gain on sale
of our equity investment in the LongView Group,
18
<PAGE>
Inc. in 1998 totaling $3.8 million. Excluding the effects of this gain on sale,
losses incurred by our investments in ITG Europe and ITG Australia were
$0.2 million less in 1999 than 1998. In 1999, we also recognized a $0.4 million
deferred gain on the sale of the LongView Group that was held in escrow for one
year.
SPIN-OFF COSTS: The spin-off expenses are attributable to our legal,
accounting, consulting and other expenses incurred for the spin-off
transactions, as discussed in Note 1, ORGANIZATION AND BASIS OF
PRESENTATION--SPIN-OFF FROM JEFFERIES GROUP, in the Notes to Consolidated
Financial Statements on page 31.
OTHER GENERAL AND ADMINISTRATIVE: The increase in other general and
administrative expenses reflects software amortization for certain products that
were released in late 1998 and increased spending on advertisement and
promotion, offset in part by a decline in consulting expenses for projects such
as network migration and strategic market studies.
Additionally, subsequent to our spin-off, specified administrative services
previously provided to us at a fixed monthly fee by Jefferies Group, Inc. were
performed by ITG. This change resulted in higher legal, audit and accounting
fees offset in part by reduced administrative service fees.
INCOME TAX EXPENSE
The decrease in the effective tax rate from 46.4% in 1998 to 45.2% in 1999
was due to decreases in certain non-deductible expenses and an increase in
dividends received deduction.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
EARNINGS PER SHARE
Basic net earnings per share increased $0.55, or 59%, from $0.93 in 1997 to
$1.48 in 1998. Diluted net earnings per share increased $0.52, or 58%, from
$0.89 to $1.41.
REVENUES
Total revenues increased $75.2 million, or 54.9%, from $137.0 million to
$212.2 million. The number of trading days were 252 in 1998 compared to 253 in
1997. Revenues per trading day increased by $300,000, or 55.5%, from $542,000 to
$842,000. Revenues per employee increased $182,000, or 28.8%, from $631,000 to
$813,000. The increases were attributable to increases in the number of our
customers and increases in trading volume by our existing customers. Revenues
from the Electronic Trading Desk increased $19.5 million, or 64.9%, from
$30.1 million to $49.6 million. The number of shares crossed on the POSIT system
increased 2.1 billion, or 56.8%, from 3.7 billion to 5.8 billion. POSIT revenues
in turn increased $41.6 million, or 55.2%, from $75.4 million to
$117.0 million. QuantEX revenues increased $12.0 million, or 39.9%, from
$30.1 million to $42.1 million.
EXPENSES
Total expenses increased $41.5 million, or 46.2%, from $89.8 million to
$131.3 million.
19
<PAGE>
The following table itemizes expenses by category (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998 1997 CHANGE % CHANGE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Compensation and employee benefits...................... $51,462 $30,479 $20,983 68.8%
Transaction processing.................................. 26,920 21,413 5,507 25.7
Software royalties...................................... 15,247 9,848 5,399 54.8
Occupancy and equipment................................. 11,886 9,204 2,682 29.1
Telecommunications and data processing services......... 8,138 6,605 1,533 23.2
Net loss on long-term investments....................... 204 297 (93) (31.3)
Spin-off costs.......................................... 1,936 -- 1,936 N/A
Other general and administrative........................ 15,477 11,936 3,541 29.7
Income taxes............................................ 37,541 20,343 17,198 84.5
</TABLE>
COMPENSATION AND EMPLOYEE BENEFITS. Salaries, bonuses and related employee
benefits increased approximately $21.0 million over the prior year. Such
increases were primarily due to our profitability-based compensation plan,
growth in our employee base of 44 or 20.3%, from 217 to 261 and additional
compensation necessary to attract and retain quality personnel. Over 50% of the
increase in new employees were staffed in technology, product development and
production infrastructure. In addition, our board of directors voted to
accelerate the vesting of the options of our deceased President and Chief
Executive Officer, Scott P. Mason, resulting in a $2.8 million charge to
compensation expense, representing 13% of the increase.
TRANSACTION PROCESSING. The increase in transaction processing is primarily
due to an increase in ticket charges associated with a higher volume of
transactions in 1998. The increase in ticket charges of 28% was not
proportionate with the increase in revenues of 55% due to volume discounts
associated with clearing and execution services. A decrease in specialist fees
of 26% and floor broker fees of 3%, was offset by the volume increases in shares
executed by specialists of 49% and floor brokers of 51%, resulting in a net
increase in transaction processing expenses. Transaction processing as a
percentage of revenues decreased from 15.6% in 1997 to 12.7% in 1998.
SOFTWARE ROYALTIES. As software royalties are contractually fixed at 13% of
POSIT revenues, the increase is wholly attributable to an increase in POSIT
revenues.
OCCUPANCY AND EQUIPMENT. The increase in occupancy and equipment is
primarily attributable to additional depreciation and amortization of leasehold
improvements (representing 65% of the increase) and rent expense (representing
33% of the increase) related to the relocation and expansion of our corporate
headquarters (occupied in June 1997), combined with increases in headcount and
purchases of additional technologically advanced software.
TELECOMMUNICATIONS AND DATA PROCESSING SERVICES. The increase in
technological and data communications processing expenses stems primarily from
the data feed upgrades for clients, primarily market data line connections, and
expenses relating to a telecommunication network conversion and contingency
planning.
NET LOSS ON LONG-TERM INVESTMENTS. The decrease in net loss on long-term
investments is due to income of $3.8 million recognized from the sale of our
37.4% equity ownership interest in the LongView Group, Inc., offset by initial
start-up costs for ITG Europe of $1.3 million and the combined costs of equity
loss pick-up and amortization of goodwill on ITG Australia of $0.2 million and
the LongView Group, Inc, of $0.8 million.
SPIN-OFF COSTS. The spin-off expenses are attributable to our legal,
accounting, consulting and other expenses incurred for the spin-off
transactions.
20
<PAGE>
OTHER GENERAL AND ADMINISTRATIVE. The increase in other general and
administrative expenses was the result of a write-off of a net receivable from
the former Global POSIT joint venture of approximately $1.0 million, accelerated
software amortization for specific products, increases in business development
costs, such as advertising and active sales efforts, and additional
administrative costs, associated with ITG Europe. Additionally, we had an
increase in consulting expense primarily due to accounting and financial
research of international joint venture opportunities and a major
telecommunication system conversion.
INCOME TAX EXPENSE
The increase in income tax expense is the result of an increase in pretax
income and an increase in the effective tax rate from 43.0% in 1997 to 46.4% in
1998. The increase in the effective rate was due to certain non-deductible
expenses, such as goodwill amortization and spin-off costs and the inability to
offset international losses with United States profits in calculating income tax
expense, that were not present in 1997.
DEPENDENCE ON MAJOR CUSTOMERS
During 1999, revenue from our 10 largest customers accounted for
approximately 33.0% of our total revenue while revenue from each of our three
largest customers accounted for 5.8%, 4.7%, and 4.7%, respectively, of total
revenue. During 1998, revenue from our 10 largest customers accounted for
approximately 30.7% of our total revenue while revenue from each of our three
largest customers accounted for 7.9%, 4.5% and 3.2%, respectively, of total
revenue. During 1997, revenue from our 10 largest customers accounted for
approximately 34.5% of our total revenue while revenue from each of our three
largest customers accounted for 8.8%, 5.9% and 3.4%, respectively, of total
revenue. Customers may discontinue use of our services at any time. The loss of
any significant customers could have a material adverse effect on our results of
operations. In addition, the loss of significant POSIT customers could result in
lower share volumes of securities offered through POSIT, which may adversely
affect the liquidity of the system.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resource requirements result from our working
capital needs, primarily consisting of compensation and benefits, transaction
processing fees and software royalty fees. Historically, cash from operations
has met all working capital requirements. A substantial portion of our assets
are liquid, consisting of cash and cash equivalents or assets readily
convertible into cash.
We believe that our cash flow from operations and existing cash balances
will be sufficient to meet our cash requirements. We generally invest our excess
cash in money market funds and other short-term investments that generally
mature within 90 days or less. Additionally, securities owned at fair value
include highly liquid, variable rate municipal securities, auction rate
preferred stock and common stock. At December 31, 1999, cash equivalents and
securities owned at fair value amounted to $96.7 million and net receivables
from brokers, dealers and other, of $16.6 million were due within 30 days. A
special cash dividend of $74.6 million was paid on April 21, 1999 in connection
with the spin-off from Jefferies Group. See Note 1, ORGANIZATION AND BASIS OF
PRESENTATION--SPIN-OFF FROM JEFFERIES GROUP, in the Notes to Consolidated
Financial Statements on page 31.
We also invest a portion of our excess cash balances in cash enhanced
strategies, which we believe should yield higher returns without any significant
effect on risk. As of December 31, 1999, we had investments in limited
partnerships investing in marketable securities, a hedged convertible managed
account, and a venture capital fund amounting to $21.4 million in the aggregate.
The limited partnerships employ either a hedged convertible strategy or a
long/short strategy to capitalize on short term price movements. Our managed
account is employing a hedged convertible strategy. We classify
21
<PAGE>
the securities under our managed account within securities owned, at fair value
and securities sold, not yet purchased, at fair value.
Historically, all regulatory capital needs of ITG Inc. have been provided by
cash from operations. We believe that cash flows from operations will provide
ITG Inc. with sufficient regulatory capital. As of December 31, 1999, we had net
excess regulatory capital of $39.1 million. We had an agreement with a bank to
borrow up to $20 million on a revolving basis to enable ITG Inc. to satisfy its
regulatory net capital requirements. This commitment expired on March 14, 2000.
Although we believe that the combination of our existing net regulatory capital
and operating cash flows will be sufficient to meet regulatory capital
requirements, a shortfall in net regulatory capital would have a material
adverse effect on us.
In 1998, we established a $2 million credit line with a bank to fund
temporary regulatory capital shortfalls encountered periodically by ITG
Australia. The lender charges us interest at the federal funds rate plus 1%. We
lend amounts borrowed to ITG Australia and charge interest at the federal funds
rate plus 2%. At December 31, 1999, no amounts were outstanding under this bank
credit line and no amounts were owed to us by ITG Australia.
EFFECTS OF INFLATION
We do not believe that the relatively moderate levels of inflation which
have been experienced in North America in recent years have had a significant
effect on our revenue or profitability. However, high inflation may lead to
higher interest rates which might cause investment funds to move from equity
securities to debt securities or cash equivalents.
THE YEAR 2000 ISSUE
We spent an aggregate of $2.8 million, of which we spent $1.3 million in
1999, to upgrade or replace computer and software systems in order to address
potential problems related to the Year 2000 issue.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1 ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 provides guidance on accounting
for the costs of computer software developed or obtained for internal use. It
identifies the characteristics of internal-use software and provides examples to
assist in determining when the computer software is for internal use. The
Company has adopted this SOP effective January 1, 1999 which has had no material
effect on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET PRICE RISK
As part of our full service equity trade execution business we do not engage
in proprietary trading; however, at times we do hold positions overnight due to
client or Company errors. Accordingly, we maintain policies and procedures
regarding the management of our errors and accommodations proprietary trading
accounts. It is our policy to attempt to trade out of all positions arising from
errors and accommodations immediately while balancing our exposure to market
risk which can arise from liquidating such positions. Accordingly, certain
positions may be liquidated over a period of time in an effort to minimize
market impact.
We have established approval policies that include review by the President
(or his designee) and our compliance department of any proprietary trading
activity. Our operations department reviews all open trades intraday in an
effort to ensure that any open issues are addressed and resolved by the
22
<PAGE>
close of the trading day. Additionally, our clearing broker notifies us of all
known trade discrepancies on the day following the trade date.
We employ a cash management strategy which seeks to optimize excess liquid
assets by preserving principal, maintaining liquidity to satisfy capital
requirements, minimizing risk and maximizing our after tax rate of return. For
working capital purposes, we invest only in money market instruments. Cash which
is not needed for normal operations is invested in a tax efficient manner in
instruments with appropriate maturities and levels of risk to correspond to
expected liquidity needs. We currently have investments in municipal bonds,
auction rate preferred bonds, common stock and convertible bonds. To the extent
that we invest in marketable equity securities, we ensure portfolio liquidity by
investing in marketable securities with active secondary or resale markets. We
do not use derivative financial instruments in our investment portfolio. At
December 31, 1999 our cash and cash equivalents and securities owned were
approximately $96.7 million.
We will from time to time, make investments that are considered strategic.
These investments require approval of executive management and/or the board of
directors. This component of our cash management strategy is reevaluated
periodically. At December 31, 1999, investments in limited partnerships, venture
capital investments and securities available for sale were approximately
$15.9 million.
INTEREST RATE RISK
Our exposure to interest rate risk relates primarily to the interest-bearing
portions of our investment portfolio. Our policy is to invest in high quality
credit issuers, limit the amount of credit exposure to any one issuer and invest
in tax efficient strategies. Our first priority is to reduce the risk of
principal loss. We seek to preserve our invested funds by limiting default risk,
market risk, and re-investment risk. We attempt to mitigate default risk by
investing in high quality credit securities that we believe to be low risk and
by positioning our portfolio to respond appropriately to reductions in the
credit rating of any investment issuer or guarantor that we believe is adverse
to our investment strategy.
Our interest-bearing investment portfolio primarily consists of short-term,
high-credit quality money market funds, highly liquid variable rate municipal
securities, convertible bonds and preferred stock. These investments totaled
approximately $92.6 million at December 31, 1999. Our interest-bearing
investments are not insured and because of the short-term high quality nature of
the investments are not likely to fluctuate significantly in market value.
FOREIGN CURRENCY RISK
We are pursuing the international market in a variety of ways, including
joint-ventures in Europe and Australia and the development of specially tailored
versions of our services. Additionally, we maintain development facilities in
Israel which focus on developing services for the European market. Our
investments in these joint-ventures and development activities expose us to
currency exchange fluctuations between the U.S. Dollar and the British Pound
Sterling, Australian Dollar, Canadian Dollar and Israeli New Shekel. To the
extent that our international activities recorded in local currencies increase
in the future, our exposure to fluctuations in currency exchange rates will
correspondingly increase. We have not engaged in foreign currency hedging
activities. However, non-U.S. dollar cash balances held overseas are generally
kept at levels necessary to meet current operating and capitalization needs.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL REPORTS SECTION
<TABLE>
<CAPTION>
PAGES
--------
<S> <C>
Management's Responsibility for Compliance and Financial
Reporting................................................. 25
Independent Auditors' Report................................ 26
Consolidated Statements of Financial Condition.............. 27
Consolidated Statements of Income........................... 28
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 29
Consolidated Statements of Cash Flows....................... 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
24
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR COMPLIANCE AND FINANCIAL REPORTING
TO THE SHAREHOLDERS:
The management of Investment Technology Group, Inc. is responsible for the
integrity and objectivity of the financial information presented in this Annual
Report. Financial information appearing throughout the Annual Report is
consistent with that in the accompanying financial statements. The financial
statements have been prepared by management of our company in conformity with
generally accepted accounting principles in the United States. The financial
statements reflect, where applicable, management's best judgments and estimates.
The management of our company has established and maintains an internal
control structure and monitors that structure for compliance with established
policies and procedures. The objectives of an internal control structure are to
provide reasonable, but not absolute, assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization.
Management also recognizes its responsibility to foster and maintain a
strong ethical environment within our company to ensure that its business
affairs are conducted with integrity and in accordance with high standards of
personal and corporate conduct. This responsibility is characterized and
reflected in our company's Statement of Policy on Standards of Employee Conduct,
which is distributed to all of our employees. As part of the monitoring system,
we maintain Corporate Compliance Personnel, who have oversight responsibilities
for administering and coordinating the application of these standards of
conduct. Senior legal and compliance personnel have been directed to report
compliance concerns directly to the President of our company. Ongoing oversight
of compliance activities is the responsibility of our President.
Our board of directors appoints an audit committee composed solely of
outside directors. The function of the audit committee is to oversee the
accounting, reporting, audit and internal control policies and procedures
established by our management. The committee meets regularly with management and
the internal and independent auditors. The auditors have free access to the
audit committee without the presence of management. The audit committee reports
regularly to our board of directors on its activities, and such other matters as
it deems necessary.
Our company's annual consolidated financial statements have been audited by
KPMG LLP, independent auditors, who were appointed by the board of directors.
Management has made available to KPMG LLP all of our company's financial records
and related data, as well as the minutes of directors' meetings.
Furthermore, management believes that all its representations to KPMG LLP
are valid and appropriate. In addition, KPMG LLP, in determining the nature and
extent of their auditing procedures, considered our company's accounting
procedures and policies and the effectiveness of the related internal control
structure.
Management believes that, as of December 31, 1999, our company's internal
control structure was adequate to accomplish the objectives discussed herein.
<TABLE>
<S> <C> <C>
Raymond L. Killian, Jr. Howard C. Naphtali Angelo Bulone
Chairman, Chief Executive Managing Director Vice President
Officer and President and Chief Financial Officer and Controller
</TABLE>
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Investment Technology Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Investment Technology Group, Inc. and subsidiaries (the "Company")
as of December 31, 1999 and 1998, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Investment
Technology Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
New York, New York
January 19, 2000
26
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 53,081 $ 77,518
Securities owned, at fair value............................. 43,612 39,615
Receivables from brokers, dealers and other, net............ 19,181 24,127
Due from affiliates......................................... -- 722
Investments in limited partnerships......................... 13,922 1,000
Securities, available-for-sale, at fair value............... 2,023 --
Premises and equipment...................................... 20,229 19,662
Capitalized software........................................ 5,629 6,450
Goodwill.................................................... 824 1,373
Deferred taxes.............................................. 13,324 2,784
Other assets................................................ 7,663 7,455
-------- --------
Total assets................................................ $179,488 $180,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... 33,459 24,349
Payable to brokers, dealers and other....................... 3,932 3,015
Software royalties payable.................................. 4,874 4,070
Securities sold, not yet purchased, at fair value........... 5,861 288
Due to affiliates........................................... -- 1,422
Income taxes payable........................................ 15,710 --
Income taxes payable to affiliate........................... -- 3,853
-------- --------
Total liabilities......................................... 63,836 36,997
-------- --------
Commitments and Contingencies (Notes 14 and 16)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01; shares authorized:
1,000,000; shares issued: none.......................... -- --
Common stock, par value $0.01; shares authorized:
100,000,000; shares issued: 32,179,106 in 1999 and
30,961,253 in 1998...................................... 322 310
Additional paid-in capital................................ 96,534 51,395
Retained earnings......................................... 75,727 104,925
Common stock held in treasury, at cost; shares: 2,213,721
in 1999 and 1,300,333 in 1998........................... (58,052) (12,760)
Accumulated other comprehensive income (loss):
Currency translation adjustment......................... (7) (161)
Unrealized gain on securities, available-for-sale, net
of tax................................................ 1,128 --
-------- --------
Total stockholders' equity............................ 115,652 143,709
-------- --------
Total liabilities and stockholders' equity.................. $179,488 $180,706
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are integral parts
of this statement.
27
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Commissions
POSIT................................................... $129,364 $116,950 $ 75,362
Electronic trading desk................................. 47,577 49,613 30,084
Client.................................................. 51,019 42,151 30,136
Other..................................................... 4,084 3,491 1,460
-------- -------- --------
Total revenues........................................ 232,044 212,205 137,042
EXPENSES:
Compensation and employee benefits........................ 51,717 51,462 30,479
Transaction processing.................................... 32,282 26,920 21,413
Software royalties........................................ 16,851 15,247 9,848
Occupancy and equipment................................... 13,295 11,886 9,204
Telecommunications and data processing services........... 9,428 8,138 6,605
Net loss on long-term investments......................... 2,674 204 297
Spin-off costs............................................ 6,516 1,936 --
Other general and administrative.......................... 16,420 15,477 11,936
-------- -------- --------
Total expenses........................................ 149,183 131,270 89,782
-------- -------- --------
Income before income tax expense............................ 82,861 80,935 47,260
Income tax expense.......................................... 37,435 37,541 20,343
-------- -------- --------
NET INCOME.................................................. $ 45,426 $ 43,394 $ 26,917
======== ======== ========
Basic net earnings per share of common stock................ $ 1.48 $ 1.48 $ 0.93
======== ======== ========
Diluted net earnings per share of common stock.............. $ 1.42 $ 1.41 $ 0.89
======== ======== ========
Basic weighted average shares outstanding................... 30,691 29,302 29,004
======== ======== ========
Diluted weighted average shares and common stock equivalents
outstanding............................................... 31,947 30,775 30,219
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are integral parts
of this statement.
28
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON
ADDITIONAL STOCK ACCUMULATED TOTAL
PREFERRED COMMON PAID-IN RETAINED HELD IN COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS TREASURY INCOME (LOSS) EQUITY
--------- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... $ -- $298 $35,944 $34,614 $(3,763) $ -- $ 67,093
Net income............................ -- -- -- 26,917 -- -- 26,917
Issuance of restricted stock (38,641
shares)............................. -- -- 630 -- -- -- 630
Issuance of common stock in connection
with the employee stock option plan
(150,327 shares).................... -- 2 1,868 -- -- -- 1,870
Purchase of common stock for treasury
(242,995 shares).................... -- -- -- -- (2,747) -- (2,747)
---- ---- ------- ------- -------- ------ --------
Balance at December 31, 1997.......... -- 300 38,442 61,531 (6,510) -- 93,763
Issuance of common stock in connection
with the employee stock option plan
(917,377 shares).................... -- 10 12,648 -- -- -- 12,658
Issuance of common stock in connection
with the employee stock purchase
plan (19,010 shares)................ -- -- 305 -- -- -- 305
Purchase of common stock for treasury
(347,021 shares).................... -- -- -- -- (6,250) -- (6,250)
Comprehensive income/(loss):
Net income.......................... -- -- -- 43,394 -- -- 43,394
Other comprehensive loss,
net of tax ($0.00):
Currency translation adjustment... -- -- -- -- -- (161) (161)
--------
Comprehensive income.................. 43,233
---- ---- ------- ------- -------- ------ --------
Balance at December 31, 1998.......... -- 310 51,395 104,925 (12,760) (161) 143,709
Retirement of common stock held in
treasury (1,300,333 shares)......... -- (13) (12,747) -- 12,760 -- --
Purchase of common stock for treasury
(2,213,721 shares).................. -- -- -- -- (58,052) -- (58,052)
Payment of special cash dividend...... -- -- -- (74,624) -- -- (74,624)
Issuance of common stock in connection
with the employee stock option plan
(2,484,665 shares).................. -- 25 57,023 -- -- -- 57,048
Issuance of common stock in connection
with the employee stock purchase
plan (34,206 shares)................ -- -- 863 -- -- -- 863
Comprehensive income:
Net income.......................... -- -- -- 45,426 -- -- 45,426
Other comprehensive income:
Currency translation adjustment... -- -- -- -- -- 154 154
Unrealized holding gain on
securities available-for-sale,
net of tax ($895)............... -- -- -- -- -- 1,128 1,128
--------
Comprehensive income.................. 46,708
---- ---- ------- ------- -------- ------ --------
Balance at December 31, 1999.......... $ -- $322 $96,534 $75,727 $(58,052) $1,121 $115,652
==== ==== ======= ======= ======== ====== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are integral parts
of this statement.
29
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $45,426 $43,394 $26,917
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income tax benefit............................... (11,435) (324) (103)
Depreciation and amortization............................. 12,835 11,599 6,642
Undistributed loss of affiliates.......................... 2,985 3,535 441
Provision for doubtful receivables........................ 228 96 84
Decrease (increase) in operating assets:
Securities owned, at fair value........................... (3,997) (2,258) (12,199)
Receivables from brokers, dealers and other, net.......... 4,718 (14,092) (2,468)
Due from affiliates....................................... 722 643 94
Investments in limited partnerships....................... (422) 9,935 (5,742)
Other assets.............................................. (397) (4,620) (6,930)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses..................... 9,210 11,786 4,118
Payable to brokers, dealers and other..................... 917 2,078 933
Software royalties payable................................ 804 1,407 389
Securities sold, not yet purchased, at fair value......... 5,573 285 (1,223)
Due to affiliates......................................... (1,422) (701) 200
Income taxes payable...................................... 15,710 -- --
Income taxes payable to affiliate......................... (3,853) 2,365 (147)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 77,602 65,128 11,006
------- ------- -------
Cash flows from investing activities:
Purchase of premises and equipment.......................... (8,792) (7,658) (15,679)
Sale of equity investment................................... -- 8,049 --
Purchase of investments in limited partnerships............. (12,500) -- --
Investment in joint venture................................. (2,897) (4,790) --
Capitalization of software development costs................ (3,239) (4,025) (4,422)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES................... (27,428) (8,424) (20,101)
------- ------- -------
Cash flows from financing activities:
Dividends paid.............................................. (74,624) -- --
Purchase of common stock for treasury....................... (58,052) (6,250) (2,747)
Issuance of common stock in connection with employee stock
option plan............................................... 57,911 12,962 2,500
------- ------- -------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES..... (74,765) 6,712 (247)
------- ------- -------
Effect of foreign currency translation on cash and cash
equivalents............................................. 154 (161) --
Net (decrease) increase in cash and cash equivalents.... (24,437) 63,255 (9,342)
Cash and cash equivalents -- beginning of year.............. 77,518 14,263 23,605
------- ------- -------
Cash and cash equivalents -- end of year.................... $53,081 $77,518 $14,263
======= ======= =======
Supplemental cash flow information:
Interest paid............................................. $ 39 $ 20 $ 146
======= ======= =======
Income taxes paid to non-affiliate........................ $ 248 $ -- $ --
======= ======= =======
Income taxes paid to affiliate............................ $ 6,538 $30,296 $19,947
======= ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are integral parts
of this statement.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Investment
Technology Group, Inc. and its wholly-owned subsidiaries ("ITG"), which
principally include: (1) ITG Inc., a broker-dealer in equity securities,
(2) Investment Technology Group International Limited, which is a 50% partner in
the ITG Europe joint venture, and (3) ITG Australia Holdings Pty Limited, which
is a 50% partner in ITG Pacific Holdings Pty Limited. Our investments in the ITG
Europe joint venture and ITG Pacific Holdings Pty Limited are accounted for
using the equity method.
We are a leading financial technology firm that provides a fully integrated
set of value-added electronic equity analysis and trade execution tools. We
provide services that help our clients optimize their portfolio construction and
trading strategies, efficiently access liquidity in multiple markets and achieve
superior, low-cost trade execution. Our clients are major institutional
investors and broker/ dealers. Our products include: POSIT, the world's largest
electronic equity matching system; QuantEX, a Unix-based decision-support, trade
management and order routing system; ITG Platform, a PC-based order routing and
trade management system; ACE and TCA, a set of pre- and post-trade tools for
systematically analyzing and lowering the costs of trading; SmartServers, which
offer server based implementation of trading strategies; ITG/OPT, a
computer-based equity portfolio selection system; and research, development,
sales and consulting services to clients.
SPIN-OFF FROM JEFFERIES GROUP
On April 27, 1999, we were effectively spun off from Jefferies Group, Inc
("Jefferies Group"). The spin-off was effected through a series of transactions
including our merger with and into Jefferies Group, with Jefferies Group
surviving the merger and being renamed Investment Technology Group, Inc. ("New
ITG"). The merger occurred following the transfer by Jefferies Group of
substantially all of its assets and liabilities to its wholly-owned subsidiary
("New Jefferies"), and the pro rata distribution by Jefferies Group to its
stockholders of all of the New Jefferies common stock. After these transactions,
New Jefferies owned all of the assets of Jefferies Group other than Jefferies
Group's equity interest in ITG, and Jefferies Group's existing stockholders
owned all of the equity interest in New Jefferies. Following the merger, New
Jefferies was renamed Jefferies Group, Inc., and, through its subsidiaries,
carries on the businesses of Jefferies Group prior to the transactions (other
than the businesses of our company).
In connection with these transactions, on April 21, 1999, we paid a special
cash dividend of $4.00 per share, payable pro rata to all of our stockholders of
record as of April 20, 1999, including Jefferies Group. The aggregate amount of
the special cash dividend was $74.6 million, of which we paid $60.0 million to
Jefferies Group. As a result of the merger and based upon the number of shares
of Jefferies Group common stock outstanding on the date of the merger
(23,931,814) and the number of shares of the ITG common stock held by Jefferies
Group (15,000,000), ITG's stockholders, other than Jefferies Group, received
1.5955 shares of common stock of New ITG for each share of ITG common stock held
by them. Through December 31, 1999, ITG had incurred spin-off costs of
approximately $8.4 million, consisting of approximately $1.9 million in 1998 and
approximately $6.5 million in 1999. The merger and related transactions resulted
in the stockholders of Jefferies Group becoming direct stockholders of our
company and Jefferies Group ceasing to be our parent company. The merger was
accounted for as a "merger of entities under common control" in accordance with
generally accepted accounting principles and accordingly, reflected the
historical cost basis of assets and liabilities of ITG.
All material intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements reflect all adjustments,
which are in the opinion of management, necessary for the fair statement of
results.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
We have defined cash and cash equivalents as highly liquid investments, with
original maturities of less than ninety days, which are part of our cash
management activities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of our financial instruments are carried at fair value or
amounts approximating fair value. Cash and cash equivalents, securities owned
and certain receivables, are carried at fair value or contracted amounts which
approximate fair value due to the short period to maturity and repricing
characteristics. Similarly, liabilities are carried at amounts approximating
fair value. Securities sold, not yet purchased are valued at quoted market
prices.
SECURITIES TRANSACTIONS
Revenues primarily consist of commissions from customers' use of our trade
execution and analytical services. We record as POSIT revenue any order that is
executed on the POSIT system regardless of the manner in which the order was
submitted to POSIT. We collect a commission from each side of a trade matched on
POSIT. We record as Electronic Trading Desk revenue any order that is handled by
our trading desk personnel and executed at any trade execution destination other
than POSIT. We record as Client revenue any order that is sent by our clients,
through our front-end systems but without assistance from the Electronic Trading
Desk, to any third party trade execution destination. Other revenue primarily
consists of interest income earned on our portfolio of investments, interest
income/expense and market gains/losses resulting from temporary positions in
securities assumed in the normal course of our agency trading business, and fees
earned in developing specially tailored versions of our services for the
international market and the related royalties earned from the usage of these
services.
Receivable from brokers, dealers and other, net consists of commissions
receivable and amounts receivable for securities transactions that have not yet
reached their contractual settlement date, net of an allowance for doubtful
accounts. Transactions in securities, commission revenues and related expenses
are recorded on a trade-date basis.
Securities owned, at fair value as of December 31, 1999 and 1998 consisted
primarily of highly liquid, variable rate municipal securities and auction rate
preferred stock, common stock and convertible bonds.
Investments in limited partnerships consisted of investments in hedge funds
investing in marketable securities and a venture capital fund. The investments
in hedge funds are carried at the market value of the underlying securities.
Gains and losses are recognized in the consolidated statements of income for
changes in market values. The investment in a venture capital fund is carried at
market value.
Securities, available-for-sale, at fair value consisted of a single
investment in marketable equity securities as part of Investment Technology
Group, Inc.'s investing activities. Unrealized gains and losses resulting from
this investment are reported net of tax in other comprehensive income in the
consolidated statements of financial condition. Realized gains or losses are
reflected in the statements of income when the security is ultimately sold.
CAPITALIZED SOFTWARE
We capitalize software development expenses where technological feasibility
of the product has been established. Technological feasibility is established
when we have completed all planning, designing, coding and testing activities
that are necessary to establish that the product can be produced
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to meet design specifications. The assessment of recoverability of capitalized
software development costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies. We are amortizing capitalized software costs using the
straight-line method over the estimated economic useful life, the life of which
is generally under two years. Amortization begins when the product is available
for release to customers.
GOODWILL
In May 1991, Jefferies Group acquired Integrated Analytics Corporation
("IAC") and contributed its business to ITG in 1992. IAC's principal product,
MarketMind, was used to develop our QuantEX product. Goodwill, which represents
the excess of purchase price for IAC over the fair value of the IAC net assets
acquired, is amortized on a straight-line basis over ten years. We assess the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. At
December 31, 1999 and 1998, net goodwill amounted to $0.8 million and
$1.4 million, respectively, net of accumulated amortization of $4.5 million and
$3.9 million, respectively.
INCOME TAXES
Until April 27, 1999, we were a member of Jefferies Group's affiliated tax
group ("Group") for purposes of filing a Federal income tax return (i.e.,
Jefferies Group owned more than 80% of ITG). With respect to tax periods ending
prior to April 28, 1999, our tax liability was determined on a "separate return"
basis. That is, we were required to pay to Jefferies Group our proportionate
share of the Group's consolidated tax liability plus any excess of our
"separate" tax liability (assuming a separate tax return were to be filed by us)
over our proportionate amount of the consolidated Group tax liability.
Alternatively, Jefferies Group was required to pay us an "additional amount" for
the amount by which the consolidated tax liability of the Group was decreased by
reason of our inclusion in the Group.
Income taxes are accounted for on the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (generally
three to five years). Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the
related assets or the non-cancelable lease term.
EXPENSES
COMPENSATION AND EMPLOYEE BENEFITS include base salaries, bonuses,
employment agency fees, part-time employee compensation, capitalized software
(Note 5) and fringe benefits, including employer contributions for medical
insurance, life insurance, retirement plans and payroll taxes. TRANSACTION
PROCESSING consists of floor brokerage and clearing fees and connection fees for
use of certain third
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
party execution services. SOFTWARE ROYALTIES are payments to BARRA, Inc., our
joint venture partner in POSIT. Royalty payments are calculated at an effective
rate of 13% of adjusted POSIT revenues. OCCUPANCY AND EQUIPMENT includes rent,
depreciation, amortization of leasehold improvements, maintenance, utilities,
occupancy taxes and property insurance. TELECOMMUNICATIONS AND DATA PROCESSING
SERVICES include costs for computer hardware, office automation and
workstations, data center equipment, market data services and voice, data, telex
and network communications. NET LOSS ON LONG-TERM INVESTMENTS includes goodwill
amortization, equity (gain) loss, and initial start up costs associated with ITG
Europe and ITG Australia and the net gain on the sale of the investment in the
LongView Group, Inc. SPIN-OFF COSTS include legal, accounting, consulting and
various other expenses related to our spin-off and upstream merger discussed in
Note 1. OTHER GENERAL AND ADMINISTRATIVE includes goodwill and software
amortization, legal, audit, tax, consulting, travel and promotional expenses.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Research and
development costs were $9.7 million, $8.6 million and $5.3 million for 1999,
1998 and 1997, respectively.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' amounts to
conform to the current year's presentation.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE, which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. As of December 31, 1997 we were required
to change the method then used to compute earnings per share and to restate all
prior periods presented. Under the new SFAS, we are required to report both
basic and diluted earnings per share. Basic earnings per share is determined by
dividing earnings by the average number of shares of common stock outstanding,
while diluted earnings per share is determined by dividing earnings by the
average number of shares of common stock adjusted for the dilutive effect of
common stock equivalents.
Net earnings per share of common stock, is based upon an adjusted weighted
average number of shares of common stock outstanding to reflect our spin-off
from Jefferies Group.
DIVIDENDS
Any future payments of dividends will be at the discretion of our Board of
Directors and will depend on our financial condition, results of operations,
capital requirements and other factors deemed relevant.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SECURITIES AVAILABLE FOR SALE
At December 31, 1999, we had securities available for sale representing a
single equity ownership in one issuer. The fair value and total gain was
$2.0 million as we originally had a basis of zero in the investment. The net
unrealized holding gain, net of tax, of $1.1 million is recorded as an item of
accumulated other comprehensive income. There were no securities classified as
available for sale in 1998.
(4) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31,:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures and equipment........................... $36,109 $29,007
Leasehold improvements...................................... 8,195 6,505
------- -------
44,304 35,512
Less: accumulated depreciation and amortization............. 24,075 15,850
------- -------
Total..................................................... $20,229 $19,662
======= =======
</TABLE>
Capital expenditures in the schedule above are primarily for
computer-related equipment.
Depreciation and amortization expense amounted to $8,226,000, $7,502,000,
and $4,614,000 in 1999, 1998, and 1997, respectively.
(5) CAPITALIZED SOFTWARE COSTS
The following is a summary of capitalized software costs at December 31,:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capitalized software costs.................................. $17,474 $14,235
Less: accumulated amortization.............................. 11,845 7,785
------- -------
Total..................................................... $ 5,629 $ 6,450
======= =======
</TABLE>
Approximately $3,239,000 of software costs were capitalized in 1999
primarily for the development of new versions of QuantEX, ITG Platform and TCA.
In addition, approximately $3,105,000 of total capitalized software costs were
not subject to amortization as of December 31, 1999, as certain products have
reached technological feasibility but were not yet available for release to
customers.
Capitalized software costs are being amortized over one to two years, the
life of which is generally less than two years. In 1999, 1998 and 1997, we
included $4,060,000, $3,548,000 and $1,478,000, respectively, of amortized
software costs in other general and administrative expenses.
(6) INCOME TAXES
We account for income taxes on a separate-return basis. During 1999, our
operations were included in the consolidated Federal income tax return of
Jefferies Group and subsidiaries through the spin-off date of April 27, 1999.
All income tax payments due to/from Jefferies for the period through the
spin-off date were made pursuant to a Tax Sharing Agreement (the "Agreement")
between Jefferies Group and ITG. The
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
Agreement provided the method by which the Federal, state and local income or
franchise tax liabilities of subsidiaries of Jefferies were allocated and the
manner in which allocated liabilities were paid.
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal................................................ $33,303 $26,624 $14,220
State.................................................. 15,492 11,241 6,226
Foreign................................................ 75 -- --
------- ------- -------
48,870 37,865 20,446
------- ------- -------
Deferred
Federal................................................ (7,154) (338) (62)
State.................................................. (4,281) 14 (41)
------- ------- -------
(11,435) (324) (103)
------- ------- -------
Total.................................................... $37,435 $37,541 $20,343
======= ======= =======
</TABLE>
Deferred income taxes are provided for temporary differences in reporting
certain items, principally deferred compensation. The tax effects of temporary
differences that gave rise to the deferred tax asset at December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred compensation....................................... $ 5,140 $1,745
Deduction for accrued state and local taxes................. 5,060 1,345
Depreciation................................................ 3,920 (916)
Other....................................................... (796) 610
------- ------
Total....................................................... $13,324 $2,784
======= ======
</TABLE>
Management believes that it is more likely than not that the taxable income
from carryback years, future reversals of existing taxable temporary differences
and anticipated future taxable income will be sufficient to realize the deferred
tax benefit. As a result, at December 31, 1999 and 1998, valuation allowances
have not been recorded against deferred tax assets. Although realization is not
assured, management believes it is more likely than not that the deferred tax
assets will be realized. However, if estimates of future taxable income during
the carryforward period are reduced, the amount of deferred tax asset considered
realizable will also be reduced.
At December 31, 1999 and 1998, we had income taxes payable to Jefferies
Group and state and local agencies of $15,710,000 and $3,853,000, respectively.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The provision for income tax expense differs from the expected Federal
income tax rate of 35% for 1999, 1998 and 1997 for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed expected income tax expense..................... $29,001 $28,327 $16,541
Increase in income taxes resulting from:
State & local income tax expense, net of Federal
income taxes....................................... 7,287 7,316 4,020
Non-deductible foreign losses........................ 854 860 --
Other................................................ 293 1,038 (218)
------- ------- -------
Total income tax expense................................. $37,435 $37,541 $20,343
======= ======= =======
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
ITG PLANS
Effective January 1, 1999, all employees employed as of that date were
immediately eligible to participate in the Investment Technology Group, Inc.
Retirement Savings Plan and the Investment Technology Group, Inc. Money Purchase
Pension Plan (the "Plans"). These Plans include all eligible compensation (base
salary, bonus, commissions, options and overtime) up to the Internal Revenue
Service annual maximum, or $160,000 for 1999. The Plans' features include a
guaranteed Company contribution of 3% of eligible pay to be made to all eligible
employees regardless of participation in the Plans, a discretionary Company
contribution based on total consolidated Company profits between 0% and 8% of
eligible compensation regardless of participation in the Plans and a Company
matching contribution of 66 2/3% of voluntary employee contributions up to a
maximum of 6% of eligible compensation per year. The 1999 cost for the Plans was
$2,782,000 and is included in the consolidated statements of income.
Effective January 1, 1998, selected members of senior management and key
employees participated in the Stock Unit Award Program ("SUA"), a mandatory
tax-deferred compensation program established under the Amended and Restated
1994 Stock Option and Long-term Incentive Plan. Under the SUA, selected
participants of the Company are required to defer receipt of (and thus defer
taxation on) a graduated portion of their total cash compensation for units
representing common stock equal in value to 115% of the compensation deferred.
Each participant is automatically granted units, as of the last day of each
calendar quarter based on participant's actual or assigned compensation
reduction. The units are at all times fully vested and non-forfeitable. The
units are to be settled on or after the third anniversary of the date of grant.
We included the participants' deferral in compensation expense and recognized
additional compensation expense of $405,000 and $477,000 in 1999 and 1998,
respectively, which represents the 15% excess over the amount actually deferred
by the participants. At December 31, 1999 and 1998, we had 106,329 and 190,642
units, respectively, issued to the employees in the SUA. Such units are included
in the calculation of diluted weighted average shares outstanding in order to
determine diluted earnings per share.
In November 1997, our Board of Directors approved the ITG Employee Stock
Purchase Plan ("ESPP"). The ESPP became effective February 1, 1998 and allows
all full-time employees to purchase our Common Stock at a 15% discount through
automatic payroll deductions. The ESPP is qualified as an employee stock
purchase plan under Section 423 of the Internal Revenue Code.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS (CONTINUED)
JEFFERIES GROUP PLANS
All our employees who were citizens or residents of the United States, who
were 21 years of age by December 31, 1997, whose initial date of service was
before January 1, 1998 and who had completed one year of service with us were
covered by the Jefferies Group Employees' Pension Plan (the "Jefferies Pension
Plan"), a defined benefit plan. The plan was subject to the provisions of the
Employee Retirement Income Security Act of 1974. Benefit accruals for our
employees ceased as of February 15, 1999, and the entire benefit of each
employee who was employed on December 31, 1998 vested at that time.
Additionally, participants who had attained age 45 and were credited with at
least 5 years of vesting service as of February 15, 1999 received enhanced
benefits under the Jefferies Pension Plan, and our employees whose initial date
of service was on or after April 1, 1997 and prior to January 1, 1998
retroactively become participants in the Jefferies Pension Plan.
The net periodic pension cost allocated to us was $1,100,000, $819,000 and
$208,000 in 1999, 1998 and 1997, respectively and is included in the
consolidated statements of income.
Jefferies Group incurred expenses related to various benefit plans covering
substantially all ITG employees, including an Employee Stock Purchase Plan
("Jefferies ESPP") and a profit sharing plan, which includes a salary reduction
feature designed to qualify under Section 401(k) of the Internal Revenue Code.
As of February 1, 1998, our employees were no longer eligible to participate in
the Jefferies ESPP and as of December 31, 1998 were no longer eligible to
participate in the profit sharing plan.
Jefferies Group also incurred expenses related to a Capital Accumulation
Plan for certain officers and key employees of Jefferies Group and ITG.
Participation in the plan was optional, with those who elected to participate
agreeing to defer graduated percentages of their compensation. As of January 1,
1998 employees were no longer eligible to defer compensation in Jefferies
Group's Capital Accumulation Plan which was replaced with our SUA as described
above.
For 1999, 1998 and 1997, we expensed and contributed to these plans
$164,000, $2,568,000, and $2,096,000, respectively and these amounts are
included in the consolidated statements of income.
In May 1999, assets of the Jefferies Employee Stock Ownership Plan were
transferred into an ITG Employee Stock Ownership Plan. No new contributions will
be made to the plan and all participants are 100% vested.
38
<PAGE>
(8) RELATED PARTY TRANSACTIONS
Jefferies Group and its affiliates provided various services to us during
1999 as described below. Prior to the spin-off from Jefferies Group on
April 27, 1999, these were related party transactions.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement") dated
as of March 17, 1999 between Jefferies Group and the Company, transaction
expenses, as defined in the Merger Agreement, related to the spin-off were
allocated and shared. Amounts paid to Jefferies Group in 1999 and 1998, were
$4,600,000 and $2,000,000, respectively.
Pursuant to a service agreement, Jefferies & Company provided us specified
administrative services, at fixed monthly costs. Administrative services
included accounting, payroll, compliance services, personnel services, legal
services, data processing and telecommunications. All services were terminated
on December 31, 1998, except for certain personnel and accounting services that
were terminated as of May 31, 1999 and June 30, 1999, respectively. The costs of
such services to us prior to the spin-off in 1999, 1998 and 1997 were $161,000,
$1,186,000 and $1,162,000, respectively.
We paid to Jefferies & Company an aggregate of $47,000, $250,000 and
$247,000 prior to the spin-off in 1999, 1998 and 1997, respectively, as
compensation to Jefferies & Company's account executives for introducing
customers to POSIT pursuant to a revenue sharing agreement. This agreement
terminated according to its terms on March 15, 1999. Such termination did not
affect fees payable in accordance with the above revenue sharing agreement with
respect to customers introduced prior to January 1, 1999.
Jefferies & Company provided substantially all of our clearing services,
pursuant to a Fully Disclosed Clearing Agreement ("Clearing Agreement").
Aggregate costs of such services to us were $4.9 million, $11.9 million and
$9.3 million prior to the spin-off in 1999, 1998 and 1997, respectively, and
included in transaction processing expenses. In addition, included in revenues
are financing costs resulting from temporary positions in securities assumed in
the normal course of business of $665,000, $911,000 and $415,000 prior to the
spin-off in 1999, 1998 and 1997, respectively, paid to Jefferies & Company.
ITG Inc. and Jefferies & Company entered into a new Clearing Agreement on
substantially similar terms as the initial Clearing Agreement with an initial
term of January 2, 1999 to June 30, 2000. The Clearing Agreement renews
automatically for one-year terms and is subject to termination at any time by
either party on 180 days' written notice or upon default by the other party.
W&D Securities, Inc., a subsidiary of Jefferies, performed certain execution
services for us on the New York Stock Exchange and other exchanges. The costs of
these execution services were $5.0 million, $13.6 million and $10.8 million
prior to the spin-off in 1999, 1998 and 1997, respectively, and were primarily
included in transaction processing expense. W&D Securities, Inc. and ITG Inc.
entered into a new execution agreement with an initial term of January 1, 1999
to June 30, 2000. Also, included in revenues, are licensing and consulting fees
paid by W&D Securities, Inc. amounting to $50,000, $165,000 and $150,000 prior
to the spin-off in 1999, 1998 and 1997, respectively.
Included in other general and administrative expenses are fees paid to
Jefferies International Limited of $35,000, $767,000 and $330,000 prior to the
spin-off in 1999, 1998 and 1997, respectively, for various broker and
administrative services.
Jefferies & Company has executed trades in an agency capacity for certain of
its customers using our services. Commission fees of $0.8 million, $4.8 million
and $3.1 million prior to the spin-off in 1999, 1998 and 1997, respectively, and
are included in our revenues.
39
<PAGE>
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
Pursuant to a software license agreement between Investment Technology Group
International Limited ("ITGIL") and Investment Technology Group SG Limited ("ITG
SG"), ITGIL invoiced ITG SG $1.7 million and $2.2 million in 1999 and 1998,
respectively, for development services.
In 1999, ITG Inc. entered into a service agreement with our affiliates,
Investment Technology Group Limited and ITG Australia Ltd., under which
ITG Inc. provides introductory brokerage and related services. Fees for these
services are included in revenues and amounted to $846,000 and $134,000,
respectively.
In 1999, we received royalty revenue from our affiliates, ITG
Australia Ltd. and ITG SG in the amount of $14,000 and $389,000, respectively,
pursuant to software license agreements.
Transactions with affiliates are provided at arms length and are settled in
the normal course of business by ITG Inc. Throughout the Notes to Consolidated
Financial Statements there are other related party transactions (see Notes 7 and
16).
(9) OFF BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, we are involved in the execution of
various customer securities transactions. Securities transactions are subject to
the credit risk of counter party or customer nonperformance. However,
transactions are collateralized by the underlying security, thereby reducing the
associated risk to changes in the market value of the security through
settlement date. Therefore, the settlement of these transactions is not expected
to have a material effect upon our financial statements. It is also our policy
to review, as necessary, the credit worthiness of each counter party and
customer.
(10) NET CAPITAL REQUIREMENT
ITG Inc. is subject to the Uniform Net Capital Rule (Rule 15c3-1) under the
Securities Exchange Act of 1934, which requires the maintenance of minimum net
capital. ITG Inc. has elected to use the alternative method permitted by
Rule 15c3-1, which requires that ITG Inc. maintain minimum net capital, as
defined, equal to the greater of $250,000 or 2% of aggregate debit balances
arising from customer transactions, as defined.
At December 31, 1999, ITG Inc. had net capital of $39.3 million, which was
$39.1 million in excess of required net capital.
(11) STOCK OPTIONS PLAN
At December 31, 1999, we had a non-compensatory stock option plan. All
reported amounts prior to April 27, 1999 have been retroactively restated to
reflect our spin-off from Jefferies Group.
Under the Amended and Restated 1994 Stock Option and Long-term Incentive
Plan (the "1994 Plan"), non-compensatory options to purchase 5,932,000 shares of
our Common Stock are reserved for issuance under the plan. Shares of Common
Stock which are attributable to awards which have expired, terminated or been
canceled or forfeited during any calendar year are generally available for
issuance or use in connection with future awards during such calendar year.
Options that have been granted under the 1994 Plan are exercisable on dates
ranging from May 1997 to June 2009. The 1994 Plan will remain in effect until
March 31, 2007, unless sooner terminated by the Board of Directors. After this
date, no further stock options shall be granted but previously granted stock
options shall remain outstanding in accordance with their applicable terms and
conditions, as stated in the 1994 Plan.
40
<PAGE>
(11) STOCK OPTIONS PLAN (CONTINUED)
In June 1995, the Board of Directors adopted, subject to stockholder
approval, the Non-Employee Directors' Plan. The Non-Employee Directors' Plan
generally provides for an annual grant to each non-employee director of an
option to purchase 4,094 shares of Common Stock. In addition, the Non-Employee
Directors' Plan provides for the automatic grant to a non-employee director, at
the time he or she is initially elected, of a stock option to purchase 16,376
shares of Common Stock. Stock options granted under the Non-Employee Directors'
Plan are non-qualified stock options having an exercise price equal to the fair
market value of the Common Stock at the date of grant. All stock options become
exercisable three months after the date of grant. Stock options granted under
the Non-Employee Directors' Plan expire five years after the date of grant. A
total of 204,700 shares of Common Stock are reserved and available for issuance
under the Non-Employee Directors' Plan.
We apply APB Opinion No. 25 and related Interpretations in accounting for
our non-compensatory stock option plans. Accordingly, no compensation costs have
been recognized for our stock option plan. Had compensation cost for our stock
option plans been determined consistent with SFAS No. 123, our net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net income.................................. As reported $45,426 $43,394 $26,917
Pro forma $43,482 $41,713 $23,375
Basic net earnings per share of common
stock..................................... As reported $ 1.48 $ 1.48 $ 0.93
Pro forma $ 1.42 $ 1.42 $ 0.81
Diluted earnings per share common stock..... As reported $ 1.42 $ 1.41 $ 0.89
Pro forma $ 1.36 $ 1.36 $ 0.77
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option valuation model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively: zero dividend
yield for all years; risk free interest rates of 5.3, 5.5, and 6.6 percent,
respectively; expected volatility of 50, 45, and 54 percent, respectively; and
expected lives of five, seven, and five years, respectively.
A summary of the status of our stock option plan as of December 31, 1999,
1998, and 1997 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------------- ---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 4,729,565 $ 9.90 5,663,178 $ 9.54 3,784,593 $ 7.30
Granted.................................. 1,264,977 36.13 36,846 18.04 2,033,743 13.61
Exercised................................ (2,486,909) 10.40 (930,669) 7.90 (154,342) 7.94
Forfeited................................ (5,294) 11.90 (39,790) 12.47 (816) 7.94
---------- --------- ---------
Outstanding at end of year............... 3,502,339 19.01 4,729,565 9.90 5,663,178 9.54
========== ========= =========
Options exercisable at year-end.......... 2,105,982 9.38 4,458,012 9.63 2,846,025 9.31
Weighted average fair value per share of
options granted during the year........ $ 18.09 $ 9.57 $ 6.57
</TABLE>
41
<PAGE>
(11) STOCK OPTIONS PLAN (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE (YEARS) PRICE 1999 PRICE
- ------------------------ ------------ ------------ -------- ------------ --------
<C> <S> <C> <C> <C> <C> <C>
$ 4.58 9.00.................................. 1,308,717 0.9 $ 6.20 1,308,717 $ 6.20
9.01 15.00................................. 776,458 2.3 13.11 696,389 13.19
15.01 20.00................................. 152,187 7.2 17.07 68,124 16.99
20.01 31.00................................. 174,725 5.3 24.37 -- --
31.01 42.13................................. 1,090,252 4.4 38.01 32,752 39.32
--------- ---------
$ 4.58 42.13................................. 3,502,339 2.8 19.01 2,105,982 9.38
========= =========
</TABLE>
During 1999, we granted 100,247 units representing restricted stock awards
under our Stock Unit Award deferred compensation plan. During 1998, we granted
190,467 units representing restricted stock awards under our Stock Unit Award
deferred compensation plan. See Note 7--EMPLOYEE BENEFIT PLANS. Although the
1994 Plan allows for the granting of performance-based stock options, no such
options were granted during 1999, 1998 and 1997 and no such options were
outstanding at December 31, 1999, 1998 and 1997.
Restricted stock of 38,641 shares was granted in 1997 as part of the
settlement of our equity investment in The LongView Group. The restriction
period was for one year.
In 1997, we granted to Scott P. Mason, our then President and CEO, a
non-qualified stock option to acquire 1,637,601 shares of Common Stock, having
an exercise price of $13.54. During 1997, 655,040 of these options became
exercisable. Upon Mr. Mason's death in 1998, the remaining 982,561 options were
deemed by the board to be exercisable. The effects of such decision resulted in
additional compensation expense of $2.8 million at December 31, 1998. The
options expire in September 2000.
(12) INTEREST EXPENSE
Included in other general and administrative expenses is interest expense of
$58,000, $20,000 and $146,000 for 1999, 1998 and 1997, respectively.
(13) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1999 and 1998
consisted of the following;
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses....................... $12,334 $ 8,633
Deferred compensation....................................... 9,424 3,801
Deferred options............................................ 2,280 2,778
Accrued soft dollar expenses................................ 6,688 6,692
Accrued rent expense........................................ 2,733 2,445
------- -------
Total..................................................... $33,459 $24,349
======= =======
</TABLE>
42
<PAGE>
(14) LEASE COMMITMENTS
We entered into lease and sublease agreements with third parties for certain
offices and equipment, which expire at various dates through 2013. Rent expense
for the years ended December 31, 1999, 1998 and 1997 was $3.5 million,
$3.2 million and $2.6 million, respectively. Minimum future rentals under
non-cancelable operating leases follow (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 4,279
2001........................................................ 4,384
2002........................................................ 4,608
2003........................................................ 4,685
2004........................................................ 4,582
Thereafter.................................................. 30,343
-------
Total..................................................... $52,881
=======
</TABLE>
(15) EARNINGS PER SHARE
Net earnings per share of common stock, is based upon an adjusted weighted
average number of shares of common stock outstanding adjusted to reflect our
spin-off from Jefferies Group. The average number of outstanding shares for the
years ended December 31, 1999, 1998 and 1997 were 30.7 million, 29.3 million and
29.0 million, respectively.
The following is a reconciliation of the basic and diluted earnings per
share computations for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income for basic and diluted earnings per share...... $45,426 $43,394 $26,917
======= ======= =======
Shares of common stock and common stock equivalents:
Average number of common shares........................ 30,691 29,302 29,004
------- ------- -------
Average shares used in basic computation............... 30,691 29,302 29,004
Effect of dilutive securities--options................. 1,256 1,473 1,215
------- ------- -------
Average shares used in diluted computation............. 31,947 30,775 30,219
======= ======= =======
Earnings per share:
Basic.................................................. $ 1.48 $ 1.48 $ 0.93
======= ======= =======
Diluted................................................ $ 1.42 $ 1.41 $ 0.89
======= ======= =======
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
In 1998, we received a "30-day letter" proposing certain adjustments which,
if sustained, would result in a tax deficiency of approximately $9.6 million
plus interest. The adjustments proposed relate to (i) the disallowance of
deductions taken in connection with the termination of certain compensation
plans at the time of our initial public offering in 1994 and (ii) the
disallowance of tax credits taken in connection with certain research and
development expenditures. We believe that the tax benefits in question were
taken properly and intend to vigorously contest the proposed adjustments. Based
on the facts and circumstances known at this time, we are unable to predict when
this matter will be resolved or the costs associated with its resolution.
43
<PAGE>
(16) COMMITMENTS AND CONTINGENCIES (CONTINUED)
In February 1999, we became aware of patents purportedly owned by Belzberg
Financial Markets & News International Inc. and Sydney Belzberg, an officer of
that company (the "Belzberg Patents"). One or more of the Belzberg Patents may
relate to the devices, means and/or methods that we and/or customers, licensees
or joint venture partners use in the conduct of business. On March 5, 1999, a
Canadian licensee of some of our technology, received a letter asserting that
the licensee was infringing one of the Belzberg Patents. The licensee has denied
the claims of infringement and has asserted that the Belzberg Patent at issue is
invalid or unenforceable. Under certain conditions, we may have a duty to defend
or indemnify the licensee for any costs or damages arising out of an infringing
use of the technology we have licensed to them. We are monitoring the matter and
may participate in any challenge to the Belzberg Patent the licensee may make.
We are unaware of any actual claims of patent infringement leveled against
us or any of our customers or joint venture partners by any of the title owners
of the Belzberg Patents. Based upon our review to date we believe that any such
claims arising out of the Belzberg Patents would be without merit and we would
vigorously defend any such claim, including, if warranted, initiating legal
proceedings. However, intellectual property disputes are subject to inherent
uncertainties and there can be no assurance that any potential claim would be
resolved favorably to us or that it would not have a material adverse affect on
us. We will monitor the Belzberg Patent situation and take action accordingly.
We may continue to be liable for certain liabilities of our former parent,
Jefferies Group, despite the express assignment of such liabilities to, and the
express assumption of such liabilities by, New Jefferies. Pursuant to the
distribution agreement, benefits agreement and tax sharing and indemnification
agreement executed in connection with the spin-off, New Jefferies will be
obligated to indemnify us for liabilities related to our former parent and its
subsidiaries, but not for our liabilities. Under those agreements, we will be
obligated to indemnify New Jefferies for liabilities related to our Company. Our
ability to recover any costs under such indemnity will depend upon the future
financial strength of New Jefferies.
At December 31, 1999, we had outstanding capital contribution commitments to
a limited partnership in the amount of $1,500,000.
Until March 31, 1999, we had an intercompany borrowing agreement with
Jefferies Group permitting the Company to borrow up to $15.0 million. No amounts
have ever been borrowed under that agreement. In 1998, we established a
$2 million credit line with a bank to fund temporary regulatory capital
shortfalls encountered periodically by ITG Australia. The lender charges us
interest at the Federal Funds rate plus 1%. We lend amounts borrowed to ITG
Australia and charge interest at the Federal Funds rate plus 2%. At
December 31, 1999 and 1998, no amounts were outstanding under this bank credit
line.
(17) SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth certain unaudited financial data for our
quarterly operations in 1999, 1998 and 1997. The following information has been
prepared on the same basis as the annual information presented elsewhere in this
report and, in the opinion of management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the quarterly periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.
44
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue...................... $68,540 $54,564 $56,312 $52,628 $62,216 $57,697 $50,905 $41,387
Expenses:
Compensation and employee
benefits....................... 14,400 11,402 13,667 12,248 14,500 14,152 12,225 10,585
Transaction processing........... 9,248 7,677 7,821 7,536 7,639 6,917 6,710 5,654
Software royalties............... 4,742 4,083 4,274 3,752 4,072 4,416 3,774 2,985
Occupancy and equipment.......... 3,685 3,201 3,296 3,113 3,195 3,071 2,823 2,797
Telecommunications and data
processing services............ 2,423 2,701 2,384 1,920 1,853 2,179 2,325 1,781
Net (gain) loss on long-term
investments.................... 1,184 275 329 886 1,749 (3,632) 1,085 1,002
Spin-off costs................... (158) (85) 4,505 2,254 832 479 374 251
Other general and
administrative................. 4,834 4,170 3,734 3,682 4,889 4,384 2,922 3,282
------- ------- ------- ------- ------- ------- ------- -------
Total expenses..................... 40,358 33,424 40,010 35,391 38,729 31,966 32,238 28,337
------- ------- ------- ------- ------- ------- ------- -------
Income before income tax expense... 28,182 21,140 16,302 17,237 23,487 25,731 18,667 13,050
Income tax expense................. 10,610 10,039 7,908 8,878 11,267 11,847 8,739 5,688
------- ------- ------- ------- ------- ------- ------- -------
Net income......................... $17,572 $11,101 $ 8,394 $ 8,359 $12,220 $13,884 $ 9,928 $ 7,362
======= ======= ======= ======= ======= ======= ======= =======
Basic net earnings per share of
common stock..................... $ 0.57 $ 0.35 $ 0.27 $ 0.28 $ 0.41 $ 0.47 $ 0.34 $ 0.25
======= ======= ======= ======= ======= ======= ======= =======
Diluted net earnings per share of
common stock..................... $ 0.56 $ 0.34 $ 0.26 $ 0.26 $ 0.39 $ 0.45 $ 0.32 $ 0.24
======= ======= ======= ======= ======= ======= ======= =======
Basic weighed average shares
outstanding...................... 30,681 31,685 30,670 29,707 29,491 29,389 29,246 29,091
======= ======= ======= ======= ======= ======= ======= =======
Diluted weighted average shares and
common stock equivalents
outstanding...................... 31,528 32,665 32,040 31,563 31,061 30,688 30,647 30,560
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total Revenue...................... $36,272 $33,437 $36,679 $30,654
Expenses:
Compensation and employee
benefits....................... 8,999 7,599 7,007 6,874
Transaction processing........... 5,718 5,110 5,682 4,903
Software royalties............... 2,579 2,306 2,581 2,382
Occupancy and equipment.......... 2,814 2,521 2,010 1,859
Telecommunications and data
processing services............ 1,988 1,504 2,156 957
Net (gain) loss on long-term
investments.................... 297 -- -- --
Spin-off costs................... -- -- -- --
Other general and
administrative................. 3,229 3,071 3,318 2,318
------- ------- ------- -------
Total expenses..................... 25,624 22,111 22,754 19,293
------- ------- ------- -------
Income before income tax expense... 10,648 11,326 13,925 11,361
Income tax expense................. 4,739 4,857 5,917 4,830
------- ------- ------- -------
Net income......................... $ 5,909 $ 6,469 $ 8,008 $ 6,531
======= ======= ======= =======
Basic net earnings per share of
common stock..................... $ 0.20 $ 0.22 $ 0.28 $ 0.22
======= ======= ======= =======
Diluted net earnings per share of
common stock..................... $ 0.19 $ 0.21 $ 0.27 $ 0.22
======= ======= ======= =======
Basic weighed average shares
outstanding...................... 29,019 28,949 28,923 29,124
======= ======= ======= =======
Diluted weighted average shares and
common stock equivalents
outstanding...................... 30,485 30,481 29,839 30,009
======= ======= ======= =======
</TABLE>
Earnings per share for quarterly periods are based on average common shares
outstanding in individual quarters; thus, the sum of earnings per share of the
quarters may not equal the amounts reported for the full year. Earnings per
share information prior to the second quarter of 1999 has been retroactively
restated to reflect our spin-off from Jefferies Group, Inc., and earnings per
share information prior to the fourth quarter of 1997 has been retroactively
restated to conform with Statement of Financial Accounting Standards No. 128,
Earnings per Share.
45
<PAGE>
INVESTMENT TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Compensation and employee
benefits....................... 21.0 20.9 24.3 23.3 23.3 24.5 24.0 25.6
Transaction processing........... 13.5 14.1 13.9 14.3 12.3 12.0 13.2 13.7
Software royalties............... 6.9 7.5 7.6 7.1 6.5 7.7 7.4 7.2
Occupancy and equipment.......... 5.4 5.9 5.9 5.9 5.1 5.3 5.5 6.8
Telecommunications and data
processing services............ 3.5 5.0 4.2 3.6 3.0 3.8 4.6 4.3
Net (gain) loss on investments... 1.7 0.5 0.6 1.7 2.8 (6.3) 2.1 2.4
Spin-off costs................... (0.2) (0.2) 8.0 4.3 1.3 0.8 0.7 0.6
Other general and
administrative................. 7.1 7.6 6.6 7.0 7.9 7.6 5.8 7.9
----- ----- ----- ----- ----- ----- ----- -----
Total expenses................. 58.9 61.3 71.1 67.2 62.2 55.4 63.3 68.5
----- ----- ----- ----- ----- ----- ----- -----
Income before income tax expense... 41.1 38.7 28.9 32.8 37.8 44.6 36.7 31.5
Income tax expense................. 15.5 18.4 14.0 16.9 18.1 20.5 17.2 13.7
----- ----- ----- ----- ----- ----- ----- -----
Net income......................... 25.6% 20.3% 14.9% 15.9% 19.7% 24.1% 19.5% 17.8%
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C>
Total Revenue...................... 100.0% 100.0% 100.0% 100.0%
Expenses:
Compensation and employee
benefits....................... 24.8 22.7 19.1 22.4
Transaction processing........... 15.8 15.3 15.5 16.0
Software royalties............... 7.1 6.9 7.0 7.8
Occupancy and equipment.......... 7.8 7.5 5.5 6.1
Telecommunications and data
processing services............ 5.5 4.5 5.9 3.1
Net (gain) loss on investments... 0.8 0.0 0.0 0.0
Spin-off costs................... 0.0 0.0 0.0 0.0
Other general and
administrative................. 8.9 9.2 9.1 7.6
----- ----- ----- -----
Total expenses................. 70.7 66.1 62.1 63.0
----- ----- ----- -----
Income before income tax expense... 29.3 33.9 37.9 37.0
Income tax expense................. 13.0 14.5 16.1 15.7
----- ----- ----- -----
Net income......................... 16.3% 19.4% 21.8% 21.3%
===== ===== ===== =====
</TABLE>
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants reportable
herein.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item will be contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will be contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will be contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will be contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders, which is incorporated
herein by reference.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)Financial Statements
Included in Part II of this report:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ 26
Consolidated Statements of Financial Condition.............. 27
Consolidated Statements of Income........................... 28
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 29
Consolidated Statements of Cash Flows....................... 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
- ------------------------
(a)(2)Schedules
Schedules are omitted because the required information either is not
applicable or is included in the financial statements or the notes thereto.
(a)(3)Exhibits
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 17, 1999, by
and between Jefferies Group, Inc. and the Company
(incorporated by reference to Exhibit 2.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
2.2 Distribution Agreement, dated as of March 17, 1999, by and
among Jefferies Group, Inc. and JEF Holding Company, Inc.
(incorporated by reference to Exhibit 2.2 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
3.1* Certificate of Incorporation of the Company.
3.2* By-laws of the Company.
4.1* Form of Certificate for Common Stock of the Company.
10.1 Joint Venture Agreement, dated October 1, 1987, between
Jefferies & Company, Inc. and BARRA, Inc. (formerly Barr
Rosenberg Associates, Inc.) (incorporated by reference to
Exhibit 10.1.1 to Registration Statement Number 33-76474 on
Form S-1 as declared effective by the Securities and
Exchange Commission on May 4, 1994 (the "Registration
Statement")).
10.1.1 Exclusive Software License Agreement, dated October 1, 1987,
between the POSIT Joint Venture and Jefferies & Company,
Inc. (incorporated by reference to Exhibit 10.1.2 to
Registration Statement).
10.1.2 Amendment No. 1 to Exclusive Software License Agreement,
dated August 1, 1990, between the POSIT Joint Venture and
Jefferies & Company, Inc. (incorporated by reference to
Exhibit 10.1.3 to Registration Statement).
10.1.3 Consent of BARRA, Inc. to the assignment to the Company of
the interests of Jefferies & Company, Inc. in the Posit
Joint Venture referenced in item 10.1.1 and rights in the
Software License Agreement referenced in item 10.1.2
(incorporated by reference to Exhibit 10.1.4 to Registration
Statement).
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.1.4 Joint Venture Agreement, dated as of November 17, 1998, by
and among Investment Technology Group International Limited,
Societe Generale, Investment Technology Group SG Limited,
Investment Technology Group Limited and Investment
Technology Group Europe Limited (incorporated by reference
to Exhibit 10.1.4 to the Annual Report on Form 10-K for the
year ended December 31, 1998).
10.2 Service Agreement, dated March 15, 1994, by and between
Jefferies & Company, Inc. and ITG Inc. (incorporated by
reference to Exhibit 10.2.2 to Registration Statement).
10.2.1 Amendment No. 1 to Service Agreement, dated as of January 1,
1999, by and between Jefferies & Company, Inc. and ITG Inc.
(incorporated by reference to Exhibit 10.2.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.2.2 Execution Agreement, dated as of January 1, 1999, by and
between W & D Securities, Inc. and ITG Inc. (incorporated by
reference to Exhibit 10.2.2 to the Annual Report on Form
10-K for the year ended December 31, 1998).
10.2.3 Fully Disclosed Clearing Agreement, dated as of January 1,
1999, by and between Jefferies & Company, Inc. and ITG Inc.
(incorporated by reference to Exhibit 10.2.3 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.2.4 Benefits Agreement, dated as of March 17, 1999, by and
between Jefferies Group, Inc. and JEF Holding Company, Inc.
(incorporated by reference to Exhibit 10.2.4 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.2.5 Amended and Restated Tax Sharing Agreement, dated as of
March 17, 1999, by and among Jefferies Group, Inc., JEF
Holding Company, Inc. and the Company (incorporated by
reference to Exhibit 10.2.5 to the Annual Report on Form
10-K for the year ended December 31, 1998).
10.2.6 Tax Sharing and Indemnification Agreement, dated as of March
17, 1999, by and among Jefferies Group, Inc., JEF Holding
Company, Inc. and the Company (incorporated by reference to
Exhibit 10.2.6 to the Annual Report on Form 10-K for the
year ended December 31, 1998).
10.3 Employment Agreement between the Company, ITG Inc. and
Raymond L. Killian, Jr. (incorporated by reference to
Exhibit 10.3.2 to Registration Statement).
10.3.1 Amendment No. 2 to Employment Agreement between Raymond L.
Killian, Jr., the Company and ITG Inc. (incorporated by
reference to Exhibit 10.3.2A to the Annual Report on Form
10-K for the year ended December 31, 1996.)
10.3.2 Amendment to Form of Employment Agreement between the
Company, ITG Inc. and Senior Vice Presidents Electing to
Reprice Stock Options (incorporated by reference to Exhibit
10.3.4A to the Annual Report on Form 10-K for the year ended
December 31, 1996).
10.4 Amended and Restated 1994 Stock Option and Long-Term
Incentive Plan (incorporated by reference to Exhibit A to
the 1997 Annual Meeting Proxy Statement).
10.4.1 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Appendix A to the 1996 Annual Meeting Proxy
Statement).
10.4.2 Form of Stock Option Agreement between the Company and
certain employees of the Company (incorporated by reference
to Exhibit 10.3.3 to Registration Statement).
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.4.3* Amended Form of Stock Option Agreement between the Company
and certain employees of the Company.
10.4.4 Pay-For-Performance Incentive Plan (incorporated by
reference to Exhibit B to the 1997 Annual Meeting Proxy
Statement).
10.4.5 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.3.1A to the Annual Report on Form 10-K for the
year ended December 31, 1997).
10.4.6 1998 Amended and Restated Stock Unit Award Program
(incorporated by reference to Exhibit 10.4.6 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.4.7* Investment Technology Group, Inc. Deferred Compensation
Plan, dated as of January 1, 1999.
10.5 Lease, dated July 11, 1990, between AEW/LBA Acquisition Co.
LLC (as successor to 400 Corporate Pointe, Ltd.) and
Integrated Analytics Corporation, as assigned by Integrated
Analytics Corporation to the Company (incorporated by
reference to Exhibit 10.3.3 to Registration Statement).
10.5.1 First Amendment to Lease, dated as of June 1, 1995, between
AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate
Pointe, Ltd.) and the Company (incorporated by reference to
Exhibit 10.5.7 to Annual Report of Form 10-K for the year
ended December 31, 1996).
10.5.2 Second Amendment to Lease, dated as of December 5, 1996,
between Arden Realty Limited Partnership and the Company
(incorporated by reference to Exhibit 10.5.2 to the Annual
Report on Form 10-K for the year ended December 31, 1997).
10.5.3* Third Amendment to Lease, dated as of March 13, 1998 between
Arden Realty Finance Partnership, L.P. and the Company.
10.5.4* Fourth Amendment to Lease, dated as of February 29, 2000
between Arden Realty Finance Partnership, L.P. and the
Company.
10.5.5* Lease, dated as of February 29, 2000 between Arden Realty
Finance IV, L.L.C. and the Company.
10.5.6 Lease, dated October 4, 1996, between Spartan Madison Corp.
and the Company (incorporated by reference to Exhibit 10.5.3
to the Annual Report on Form 10-K for the year ended
December 31, 1997).
10.5.7 First Supplemental Agreement, dated as of January 29, 1997,
between Spartan Madison Corp. and the Company (incorporated
by reference to Exhibit 10.5.4 to the Annual Report on Form
10-K for the year ended December 31, 1997).
10.5.8 Second Supplemental Agreement, dated as of November 25,
1997, between Spartan Madison Corp. and the Company
(incorporated by reference to Exhibit 10.5.5 to the Annual
Report on Form 10-K for the year ended December 31, 1997).
10.5.9* Third Supplemental Agreement dated as of September 29, 1999
between Spartan Madison Corp. and the Company.
10.5.10 Lease dated March 10, 1995, between Boston Wharf Co. and the
Company. (incorporated by reference to Exhibit 10.5.6 to the
Annual Report on Form 10-K for the year ended December 31,
1997).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.6* Form of QuantEX Software and Hardware License Agreement.
21* Subsidiaries of Company.
23* Consent of KPMG LLP
27.1* Financial Data Schedule.
27.2* Restated Financial Data Schedule
27.3* Restated Financial Data Schedule
27.4* Restated Financial Data Schedule
27.5* Restated Financial Data Schedule
27.6* Restated Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
(b) Reports on Form 8-K.
None.
(c) Index to Exhibits
See list of exhibits at Item 14(a)(3) above and exhibits following.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
INVESTMENT TECHNOLOGY GROUP , INC.
BY: /S/ RAYMOND L. KILLIAN, JR.
-----------------------------------------
Raymond L. Killian, Jr.
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
Dated: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons and on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAYMOND L. KILLIAN, JR. Chairman of the Board, Chief
------------------------------------------- Executive Officer President March 28, 2000
Raymond L. Killian, Jr. and Director
/s/ HOWARD C. NAPHTALI Managing Director and Chief
------------------------------------------- Financial Officer (Principal March 28, 2000
Howard C. Naphtali Financial Officer)
/s/ ANGELO BULONE Vice President and Controller
------------------------------------------- (Principal Accounting March 28, 2000
Angelo Bulone Officer)
/s/ FRANK E. BAXTER Director
------------------------------------------- March 28, 2000
Frank E. Baxter
/s/ NEAL S. GARONZIK Director
------------------------------------------- March 28, 2000
Neal S. Garonzik
/s/ WILLIAM I JACOBS Director
------------------------------------------- March 28, 2000
William I Jacobs
/s/ ROBERT L. KING Director
------------------------------------------- March 28, 2000
Robert L. King
/s/ MARK A. WOLFSON Director
------------------------------------------- March 28, 2000
Mark A. Wolfson
</TABLE>
52
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED
NUMBER DESCRIPTION PAGE
- --------------------- ----------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of March 17, 1999, by
and between Jefferies Group, Inc. and the Company
(incorporated by reference to Exhibit 2.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
2.2 Distribution Agreement, dated as of March 17, 1999, by and
among Jefferies Group, Inc. and JEF Holding Company, Inc.
(incorporated by reference to Exhibit 2.2 to the Annual
Report on Form 10-K for the year ended
December 31, 1998).
3.1* Certificate of Incorporation of the Company.
3.2* By-laws of the Company.
4.1* Form of Certificate for Common Stock of the Company.
10.1 Joint Venture Agreement, dated October 1, 1987, between
Jefferies & Company, Inc. and BARRA, Inc. (formerly Barr
Rosenberg Associates, Inc.) (incorporated by reference to
Exhibit 10.1.1 to Registration Statement Number 33-76474 on
Form S-1 as declared effective by the Securities and
Exchange Commission on May 4, 1994 (the "Registration
Statement")).
10.1.1 Exclusive Software License Agreement, dated October 1, 1987,
between the POSIT Joint Venture and Jefferies & Company,
Inc. (incorporated by reference to Exhibit 10.1.2 to
Registration Statement).
10.1.2 Amendment No. 1 to Exclusive Software License Agreement,
dated August 1, 1990, between the POSIT Joint Venture and
Jefferies & Company, Inc. (incorporated by reference to
Exhibit 10.1.3 to Registration Statement).
10.1.3 Consent of BARRA, Inc. to the assignment to the Company of
the interests of Jefferies & Company, Inc. in the Posit
Joint Venture referenced in item 10.1.1 and rights in the
Software License Agreement referenced in item 10.1.2
(incorporated by reference to Exhibit 10.1.4 to Registration
Statement).
10.1.4 Joint Venture Agreement, dated as of November 17, 1998, by
and among Investment Technology Group International Limited,
Societe Generale, Investment Technology Group SG Limited,
Investment Technology Group Limited and Investment
Technology Group Europe Limited (incorporated by reference
to Exhibit 10.1.4 to the Annual Report on Form 10-K for the
year ended December 31, 1998).
10.2 Service Agreement, dated March 15, 1994, by and between
Jefferies & Company, Inc. and ITG Inc. (incorporated by
reference to Exhibit 10.2.2 to Registration Statement).
10.2.1 Amendment No. 1 to Service Agreement, dated as of January 1,
1999, by and between Jefferies & Company, Inc. and ITG Inc.
(incorporated by reference to Exhibit 10.2.1 to the Annual
Report on Form 10-K for the year ended
December 31, 1998).
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED
NUMBER DESCRIPTION PAGE
- --------------------- ----------- ------------
<C> <S> <C>
10.2.2 Execution Agreement, dated as of January 1, 1999, by and
between W & D Securities, Inc. and ITG Inc. (incorporated by
reference to Exhibit 10.2.2 to the Annual Report on Form
10-K for the year ended December 31, 1998).
10.2.3 Fully Disclosed Clearing Agreement, dated as of January 1,
1999, by and between Jefferies & Company, Inc. and ITG Inc.
(incorporated by reference to Exhibit 10.2.3 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.2.4 Benefits Agreement, dated as of March 17, 1999, by and
between Jefferies Group, Inc. and JEF Holding Company, Inc.
(incorporated by reference to Exhibit 10.2.4 to the Annual
Report on Form 10-K for the year ended
December 31, 1998).
10.2.5 Amended and Restated Tax Sharing Agreement, dated as of
March 17, 1999, by and among Jefferies Group, Inc., JEF
Holding Company, Inc. and the Company (incorporated by
reference to Exhibit 10.2.5 to the Annual Report on Form
10-K for the year ended December 31, 1998).
10.2.6 Tax Sharing and Indemnification Agreement, dated as of March
17, 1999, by and among Jefferies Group, Inc., JEF Holding
Company, Inc. and the Company (incorporated by reference to
Exhibit 10.2.6 to the Annual Report on Form 10-K for the
year ended December 31, 1998).
10.3 Employment Agreement between the Company, ITG Inc. and
Raymond L. Killian, Jr. (incorporated by reference to
Exhibit 10.3.2 to Registration Statement).
10.3.1 Amendment No. 2 to Employment Agreement between Raymond L.
Killian, Jr., the Company and ITG Inc. (incorporated by
reference to Exhibit 10.3.2A to the Annual Report on Form
10-K for the year ended December 31, 1996.)
10.3.2 Amendment to Form of Employment Agreement between the
Company, ITG Inc. and Senior Vice Presidents Electing to
Reprice Stock Options (incorporated by reference to Exhibit
10.3.4A to the Annual Report on Form 10-K for the year ended
December 31, 1996).
10.4 Amended and Restated 1994 Stock Option and Long-Term
Incentive Plan (incorporated by reference to Exhibit A to
the 1997 Annual Meeting Proxy Statement).
10.4.1 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Appendix A to the 1996 Annual Meeting Proxy
Statement).
10.4.2 Form of Stock Option Agreement between the Company and
certain employees of the Company (incorporated by reference
to Exhibit 10.3.3 to Registration Statement).
10.4.3* Amended Form of Stock Option Agreement between the Company
and certain employees of the Company.
10.4.4 Pay-For-Performance Incentive Plan (incorporated by
reference to Exhibit B to the 1997 Annual Meeting Proxy
Statement).
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED
NUMBER DESCRIPTION PAGE
- --------------------- ----------- ------------
<C> <S> <C>
10.4.5 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.3.1A to the Annual Report on Form 10-K for the
year ended December 31, 1997).
10.4.6 1998 Amended and Restated Stock Unit Award Program
(incorporated by reference to Exhibit 10.4.6 to the Annual
Report on Form 10-K for the year ended December 31, 1998).
10.4.7* Investment Technology Group, Inc. Deferred Compensation
Plan, dated as of January 1, 1999.
10.5 Lease, dated July 11, 1990, between AEW/LBA Acquisition Co.
LLC (as successor to 400 Corporate Pointe, Ltd.) and
Integrated Analytics Corporation, as assigned by Integrated
Analytics Corporation to the Company (incorporated by
reference to Exhibit 10.3.3 to Registration Statement).
10.5.1 First Amendment to Lease, dated as of June 1, 1995, between
AEW/LBA Acquisition Co. LLC (as successor to 400 Corporate
Pointe, Ltd.) and the Company (incorporated by reference to
Exhibit 10.5.7 to Annual Report of Form 10-K for the year
ended December 31, 1996).
10.5.2 Second Amendment to Lease, dated as of December 5, 1996,
between Arden Realty Limited Partnership and the Company
(incorporated by reference to Exhibit 10.5.2 to the Annual
Report on Form 10-K for the year ended
December 31, 1997).
10.5.3* Third Amendment to Lease, dated as of March 13, 1998 between
Arden Realty Finance Partnership, L.P. and the Company.
10.5.4* Fourth Amendment to Lease, dated as of February 29, 2000
between Arden Realty Finance Partnership, L.P. and the
Company.
10.5.5* Lease, dated as of February 29, 2000 between Arden Realty
Finance IV, L.L.C. and the Company.
10.5.6 Lease, dated October 4, 1996, between Spartan Madison Corp.
and the Company (incorporated by reference to Exhibit 10.5.3
to the Annual Report on Form 10-K for the year ended
December 31, 1997).
10.5.7 First Supplemental Agreement, dated as of January 29, 1997,
between Spartan Madison Corp. and the Company (incorporated
by reference to Exhibit 10.5.4 to the Annual Report on Form
10-K for the year ended December 31, 1997).
10.5.8 Second Supplemental Agreement, dated as of November 25,
1997, between Spartan Madison Corp. and the Company
(incorporated by reference to Exhibit 10.5.5 to the Annual
Report on Form 10-K for the year ended December 31, 1997).
10.5.9* Third Supplemental Agreement dated as of September 29, 1999
between Spartan Madison Corp. and the Company.
10.5.10 Lease dated March 10, 1995, between Boston Wharf Co. and the
Company. (incorporated by reference to Exhibit 10.5.6 to the
Annual Report on Form 10-K for the year ended December 31,
1997).
10.6* Form of QuantEX Software and Hardware License Agreement.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED
NUMBER DESCRIPTION PAGE
- --------------------- ----------- ------------
<C> <S> <C>
21* Subsidiaries of Company.
23* Consent of KPMG LLP.
27.1* Financial Data Schedule.
27.2* Restated Financial Data Schedule.
27.3* Restated Financial Data Schedule.
27.4* Restated Financial Data Schedule.
27.5* Restated Financial Data Schedule.
27.6* Restated Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith
56
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INVESTMENT TECHNOLOGY GROUP, INC.
ARTICLE ONE
NAME
The name of the Corporation is:
Investment Technology Group, Inc.
ARTICLE TWO
REGISTERED ADDRESS
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THREE
PURPOSE
The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware (the
"DGCL").
<PAGE>
ARTICLE FOUR
CAPITAL STOCK
A. AUTHORIZED STOCK.
The total number of shares of stock which the Corporation shall have
authority to issue is one hundred one million (101,000,000), of which stock one
hundred million (100,000,000) shares of the par value of One Cent ($.01) each,
amounting in the aggregate to One Million Dollars ($1,000,000) shall be Common
Stock and of which one million (1,000,000) shares of the par value of One Cent
($.01) each, amounting in the aggregate to Ten Thousand Dollars ($10,000) shall
be Preferred Stock.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Preferred Stock and Common
Stock are as follows:
B. PREFERRED STOCK.
The Board of Directors is hereby expressly authorized at any time,
and from time to time, to create and provide for the issuance of shares of
Preferred Stock in one or more series (the "Series Preferred Stock") and, by
filing a certificate pursuant to the DGCL (hereinafter referred to as a
"Preferred Stock Designation"), to establish the number of shares to be included
in each such series, and to fix the designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issue
thereof adopted by the Board of Directors, including, but not limited to, the
following:
(i) the designation of and the number of shares constituting such
series, which number the Board of Director may thereafter (except as
otherwise provided in the Preferred Stock Designation) increase or
decrease (but not below the number of shares of such series then
outstanding);
(ii) the dividend rate for the payment of dividends on such series,
if any, the conditions and dates upon which such dividends shall be
payable, the preference or relation which such dividends, if any, shall
bear to the dividends payable on any other class or classes of or any
other series of capital stock, the conditions and dates upon which such
dividends, if any, shall be payable, and whether such dividends, if any,
shall be cumulative or non-cumulative;
(iii) whether the shares of such series shall be subject to redemption
by the Corporation, and, if made subject to such redemption, the times,
prices and other terms and conditions of such redemption;
2
<PAGE>
(iv) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of, any
other series of any class or classes of capital stock of, or any other
security of, the Corporation or any other corporation, and, if provision
be made for any such conversion or exchange, the times, prices, rates,
adjustments and any other terms and conditions of such conversion or
exchange;
(vi) the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with respect to
the election of directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of shares of
the same series or of any other class or series;
(viii) the amounts payable on and the preferences, if any, of the
shares of such series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(ix) any other relative rights, preferences and limitations of that
series.
C. COMMON STOCK.
Each holder of Common Stock shall have one vote in respect of each
share of Common Stock held by such holder of record on the books of the
Corporation for the election of directors and on all other matters on which
stockholders of the Corporation are entitled to vote. Subject to any rights that
may be conferred upon any holders of Preferred Stock or any other series or
class of stock as set forth in this Certificate of Incorporation (excluding
Common Stock), upon dissolution, the holders of Common Stock then outstanding
shall be entitled to receive the net assets of the Corporation. Such net assets
shall be divided among and paid to the holders of Common Stock, on a pro rata
basis, according to the number of shares of Common Stock held by them. Subject
to any rights that may be conferred upon any holders of Preferred Stock or any
other series or class of stock as set forth in this Certificate of Incorporation
(excluding Common Stock), the holders of shares of Common Stock shall be
entitled to receive, as, when and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in stock or otherwise.
ARTICLE FIVE
BOARD OF DIRECTORS AND STOCKHOLDER ACTION
A. Subject to the rights of any holders of any class or series of
capital stock as specified in the resolution providing for such class or series
of capital stock, the business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. The exact
3
<PAGE>
number of directors shall be fixed, and may be increased or decreased from time
to time in such manner as may be prescribed, by the By-laws of the Corporation.
B. The election of directors need not be by written ballot unless
the By-Laws shall so provide.
C. Directors shall be elected and hold such term of office as
provided in the By-laws of the Corporation
D. Subject to the rights of holders of any class or series of
capital stock as specified in the resolution providing for such class or series
of capital stock, no person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in the
By-laws of the Corporation.
E. Except as may be provided in a resolution or resolutions
providing for any class or series of Preferred Stock pursuant to Article Four
hereof, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any written consent in lieu of a meeting by
such holders.
F. Special meetings of the stockholders of the Corporation may be
called only by the secretary of the Corporation at the request of (i) a majority
of the total number of directors which the Corporation at the time would have if
there were no vacancies or (ii) any person authorized by the Board of Directors
(through a vote of a majority of the total number of directors which the
Corporation at the time would have if there were no vacancies). Notwithstanding
the foregoing, stockholders shall have no right to call a special meeting of
stockholders.
G. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of shares
representing at least 66 2/3% of the voting power of the then outstanding stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend, repeal or adopt
any provisions inconsistent with this Article FIVE.
ARTICLE SIX
PERSONAL LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is hereinafter amended to permit a corporation to further eliminate or
limit the liability of a director of a corporation, then the liability of a
director of the Cor-
4
<PAGE>
poration, in addition to the circumstances in which a director is not personally
liable as set forth in the preceding sentence, shall be further eliminated or
limited to the fullest extent permitted by the DGCL as so amended. Any
amendment, repeal, or modification of this Article Six shall not adversely
affect any right or protection of a director of the Corporation for any act or
omission occurring prior to the date when such amendment, repeal or modification
became effective.
ARTICLE SEVEN
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the fullest extent permitted by section
145 of the DGCL, as the same may be amended and supplemented, indemnify each
director and officer of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said section
and the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders, vote of disinterested directors or otherwise,
and shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
persons and the Corporation may purchase and maintain insurance on behalf of any
director or officer to the extent permitted by section 145 of the DGCL.
ARTICLE EIGHT
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
are granted subject to this reservation. The Board of Directors shall have the
power to adopt, change and repeal the By-Laws of the Corporation.
5
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
INVESTMENT TECHNOLOGY GROUP, INC.
(a Delaware corporation)
--------------------------
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by a vote of a majority of the board of
directors in office, and a statement of such change is filed in the manner
provided by statute.
SECTION 1.02. OTHER OFFICES. The corporation may also have offices
at such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. FISCAL YEAR. The fiscal year of the corporation shall
end on the 31st of December in each year.
ARTICLE II
Meetings of Stockholders
SECTION 2.01. PLACE AND TIME. Subject to the laws governing the
corporation, meetings of stockholders of the corporation shall be held at the
registered office of the corporation or at such other place within or without
the State of Delaware and at such time as the Chairman of the board of directors
or the President of the corporation may determine from time to time or as the
Secretary of the corporation may determine within 10 calendar days after receipt
of the written request of a majority of the directors, acting in accordance with
such request. Written notice of the place, date and hour of every meeting of the
stockholders, whether annual or special, shall be given to each stockholder of
record entitled to vote at the meeting not less than ten nor more than sixty
days before the date of the meeting. Every notice of a special meeting shall
state the purpose or purposes thereof.
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SECTION 2.02. SPECIAL MEETINGS. Special meetings of the stockholders
of the corporation may be called only by the secretary of the corporation at the
request of (i) a majority of the total number of directors which the corporation
at the time would have if there were no vacancies or (ii) any person authorized
by the board of directors (through a vote of a majority of the total number of
directors which the corporation at the time would have if there were no
vacancies). Notwithstanding the foregoing, stockholders shall have no right to
call a special meeting of stockholders.
SECTION 2.03. QUORUM, MANNER OF ACTING AND ADJOURNMENT. The holders
of a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these by-laws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute or these by-laws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Except upon those questions governed by the aforesaid express provisions, the
stockholders present in person or by proxy at a duly organized meeting can
continue to do business until adjournment, notwithstanding withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.04. ORGANIZATION. At every meeting of the stockholders,
the chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the executive or senior vice presidents in their order of rank and
seniority, a chairman designated by the board of directors or a chairman chosen
by the stockholders entitled to cast a majority of the votes which all
stockholders present in person or by proxy are entitled to cast, shall act as
chairman, and the secretary, or, in his absence, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 2.05. VOTING. Each stockholder shall, at every meeting of
the stockholders, be entitled to one vote in person or by proxy for each share
of capital stock having voting power held by such stockholder. No proxy shall be
voted on after three years from its date, unless the proxy provides for a longer
period. Every proxy shall be executed in writing by the stockholder or by his
duly authorized attorney-in-fact and filed with the secretary of the
corporation; provided, however, the foregoing clause shall not preclude the
giving of proxies by electronic, telephonic or other means so long as such
procedure is expressly approved by the corporation's board of directors and is
permitted by law. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote
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is counted or the authority is exercised, written notice of such death or
incapacity is given to the secretary of the corporation.
SECTION 2.06. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETING OF STOCKHOLDERS.
(1) Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) by or at the
direction of the board of directors pursuant to a resolution adopted by a
majority of the total number of directors which the corporation at the time
would have if there were no vacancies or (b) by any stockholder of the
corporation who is entitled to vote at the meeting with respect to the election
of directors or the business to be proposed by such stockholder, as the case may
be, who complies with the notice procedures set forth in clauses (2) and (3) of
paragraph (A) of this Section 2.06 and who is a stockholder of record at the
time such notice is delivered to the secretary of the corporation as provided
below.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (b) of paragraph (A) (1)
of this Section 2.06, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation and such business must be a proper
subject for stockholder action under the Delaware General Corporation Law (the
"DGCL"). To be timely, a stockholder's notice shall be delivered to the
secretary of the corporation at the principal executive office of the
corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting (or action taken by consent
in lieu of annual meeting); PROVIDED, HOWEVER, that in the event that the date
of the annual meeting is advanced by more than 30 days, or delayed by more than
30 days, from such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the 90th day prior to such annual meeting and
not later than either the close of business on (a) the 10th day following the
day on which notice of the date of such meeting was mailed or (b) the 10th day
following the day on which public announcement of the date of such meeting is
first made, whichever first occurs in (a) or (b). Such stockholder's notice
shall set forth (x) as to each person whom the stockholder proposes to nominate
for election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (y) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (z) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
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(3) Notwithstanding anything in the second sentence of paragraph (A)
(2) of this Section 2.06 to the contrary, in the event that the number of
directors to be elected to the board of directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased board of directors made by the corporation at least 80
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by paragraph (A) (2) of this Section 2.06 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the secretary of
the corporation at the principal executive offices of the corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the corporation.
(B) SPECIAL MEETING OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting and in accordance
with these By-laws. Nominations of persons for election to the board of
directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the board of directors or (b) provided that the board of
directors has determined that directors shall be elected at such meeting, by any
stockholder of the corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 2.06, who shall be entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Section 2.06. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the board of
directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the corporation's
notice of meeting, if the stockholder's notice required by paragraph (A)(2) of
this Section 2.06 shall be delivered to the secretary at the principal executive
offices of the corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the board of directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholders notice as described above.
(C) GENERAL.
(1) Only persons who are nominated in accordance with the procedures
set forth in this Section 2.06 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 2.06.
(2) Except as otherwise provided by law, the Certificate of
Incorporation or this Section 2.06, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.06 and, if any proposed nomination or business is not in
compliance with this Section 2.06, to declare that such defective nomination or
proposal shall be disregarded.
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(3) For purposes of this Section 2.06, "public announcement" shall
mean disclosure on a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 2.06, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.06. Nothing in this Section 2.06 shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy materials with respect to a meeting of stockholders pursuant
to Rule 14a-8 under Exchange Act or (ii) of the holders of any series of
Preferred Stock or any other series or class of stock (excluding Common Stock)
as set forth in the Certificate of Incorporation to elect directors under
specified circumstances or to consent to specific actions taken by the
corporation.
SECTION 2.07. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE.
Subject to the rights of the holders of any series of Preferred Stock or any
other series or class of stock as set forth in the Certificate of Incorporation
to elect directors under specified circumstances, election of directors at all
meetings of the stockholders at which directors are to be elected shall be by a
plurality of the votes cast. Except as otherwise provided by law, the
Certificate of Incorporation, or these By-Laws, in all matters other than the
election of directors, the affirmative vote of a majority of the stock present
in person or represented by proxy at the meeting and entitled to vote on the
matter shall be the act of the stockholders.
SECTION 2.08. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to
the rights of the holders of any series of Preferred Stock or any other series
or class of stock (excluding Common Stock) set forth in the Certificate of
Incorporation to elect additional directors under specified circumstances or to
consent to specific actions taken by the corporation, any action required or
permitted to be taken by the stockholders of the corporation must be taken at an
annual or special meeting of the stockholders and may not be taken by any
consent in writing by stockholders of the corporation.
SECTION 2.09. VOTING LISTS. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.10. JUDGES OF ELECTION. All elections of directors may be,
but need not be, by written ballot, unless otherwise provided in the certificate
of incorporation; the vote upon any other matter need not be by ballot. In
advance of any meeting of stockholders, the board of directors may appoint
judges of election, who need not be stockholders, to act at such meeting or any
adjourn-
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ment thereof. If judges of election are not so appointed, the chairman of any
such meeting may, and upon the demand of any stockholder or his proxy at the
meeting and before voting begins shall, appoint judges of election. The number
of judges shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as a judge. In case
any person appointed as judge fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the board of directors in advance
of the convening of the meeting, or at the meeting by the chairman of the
meeting.
If judges of election are appointed as aforesaid, they shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there be three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
On request of the chairman of the meeting or of any stockholder or
his proxy, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them.
ARTICLE III
Board of Directors
SECTION 3.01. POWERS. The board of directors shall have full power
to manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these by-laws, are hereby
granted to and vested in the board of directors.
SECTION 3.02. NUMBER AND TERM OF OFFICE. The board of directors
shall consist of such number of directors, not less than 5 nor more than 17, as
may be determined from time to time by (i) a resolution adopted by a majority of
the total number of directors which the corporation at the time would have if
there were no vacancies or (ii) the affirmative vote of the holders of shares
representing at least 66 2/3% of the voting power of the then outstanding stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class. The directors shall be elected at each annual
meeting of stockholders of the corporation and shall hold office for a term
expiring at the annual meeting of stockholders held in the year following the
year of their election, and until their successors are elected and qualified.
All directors of the corporation shall be natural persons, but need not be
residents of Delaware or stockholders of the corporation.
SECTION 3.03. VACANCIES. Vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from
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any increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the board of directors, or stockholders of the corporation at any
annual meeting, and directors so chosen shall hold office for a term expiring at
the annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such director's successor shall
have been duly elected and qualified. No decrease in the number of authorized
directors shall shorten the term of any incumbent director.
SECTION 3.04. RESIGNATIONS. Any director of the corporation may
resign at any time by giving written notice to the president or the secretary of
the corporation. Such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.05. ORGANIZATION. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the executive or senior vice presidents in their
order of rank and seniority, or a chairman chosen by a majority of the directors
present, shall preside, and the secretary, or, in his absence, an assistant
secretary, or in the absence of the secretary and the assistant secretaries, any
person appointed by the chairman of the meeting, shall act as secretary.
SECTION 3.06. PLACE OF MEETING. The board of directors may hold its
meetings, both regular and special, at such place or places within or without
the State of Delaware as the board of directors may from time to time appoint,
or as may be designated in the notice calling the meeting.
SECTION 3.07. ORGANIZATION MEETING. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 3.08. REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the board of directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting. Any notice by telephone shall be deemed effective if a message
regarding the sub-
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stance of the notice is given on a director's behalf to the director's secretary
or assistant or to a member of the director's family.
SECTION 3.09. SPECIAL MEETINGS. Special meetings of the board of
directors shall be held whenever called by the Chairman or by two or more of the
directors. Notice of each such meeting shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone or
facsimile) or 48 hours (in the case of notice by telegram or overnight delivery)
or three days (in the case of notice by mail) before the time at which the
meeting is to be held. Each such notice shall state the time and place of the
meeting to be so held.
SECTION 3.10. QUORUM, MANNER OF ACTING AND ADJOURNMENT. At all
meetings of the board, a majority of the directors shall constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the board.
SECTION 3.11. EXECUTIVE AND OTHER COMMITTEES. The board of directors
may, by resolution adopted by a majority of the whole board, designate an
executive committee and one or more other committees, each committee to consist
of one or more directors and to have such authority as may be specified by the
board of directors, subject to the DGCL. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member, and the alternate or alternates, if any,
designated for such member, of any committee the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member. Any such
committee shall be governed by the procedural provisions of these By-laws that
govern the operation of the full board of directors, including with respect to
notice and quorum, except to the extent specified otherwise by the board of
directors.
SECTION 3.12. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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ARTICLE IV
Notice - Waivers - Meetings
SECTION 4.01. NOTICE, WHAT CONSTITUTES. Whenever, under the
provisions of the statutes of Delaware or the certificate of incorporation or of
these by-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
accordance with Section 3.08 hereof.
SECTION 4.02. WAIVERS OF NOTICE. Whenever any written notice is
required to be given under the provisions of the certificate of incorporation,
these by-laws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any
meeting, shall constitute a waiver of notice of such meeting, except where a
person attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting was not lawfully called or convened.
SECTION 4.03. CONFERENCE TELEPHONE MEETINGS. One or more directors
may participate in a meeting of the board, or of a committee of the board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
SECTION 4.04. PRESUMPTION OF ASSENT. A director of the corporation
who is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
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ARTICLE V
Officers
SECTION 5.01. NUMBER, QUALIFICATIONS AND DESIGNATION. The officers
of the corporation shall be chosen by the board of directors and shall be a
president, one or more managing directors, one or more vice presidents, a
secretary, a treasurer, and such other officers as may be elected in accordance
with the provisions of Section 5.03 of this Article. One person may hold more
than one office. Officers may be, but need not be, directors or stockholders of
the corporation. The board of directors may elect from among the members of the
board a chairman of the board and a vice chairman of the board who shall be
officers of the corporation.
SECTION 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected annually by the board of directors, and
each such officer shall hold his office until his successor shall have been
elected and qualified, or until his earlier resignation, or removal. Any officer
may resign at any time upon written notice to the corporation.
SECTION 5.03. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these by-laws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 5.04. THE CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The
chairman of the board or, in his absence, the vice chairman of the board shall
preside at all meetings of the stockholders and of the board of directors, and
shall perform such other duties as may from time to time be assigned to them by
the board of directors.
SECTION 5.05. THE PRESIDENT. The president shall be the chief
executive officer of the corporation and shall have general supervision over the
business and operations of the corporation, subject, however, to the control of
the board of directors. In the absence of the chairman of the board and the vice
chairman of the board, the president shall preside at all meetings of the
stockholders and of the board of directors. He shall sign, execute, and
acknowledge, in the name of the corporation, deeds, mortgages, bonds, contracts
or other instruments, authorized by the board of directors, except in cases
where the signing and execution thereof shall be expressly delegated by the
board of directors, or by these by-laws, to some other officer or agent of the
corporation; and, in general, shall perform all duties incident to the office of
president, and such other duties as from time to time may be assigned to him by
the board of directors.
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SECTION 5.06. THE MANAGING DIRECTORS. The managing directors,
subject to the direction of the board of directors and reporting to the chairman
of the board and the president, shall assist in the general charge of the
business of the corporation and general supervision of its officers and agents.
In the absence of the chairman of the board, the vice chairman of the board and
the president, at the direction of the board of directors, a managing director
may preside at all meetings of the stockholders and of the board of directors.
At the direction of the board of directors, the chairman of the board or the
president, a managing director may sign, execute, and acknowledge, in the name
of the corporation, deeds, mortgages, bonds, contracts or other instruments,
authorized by the board of directors, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors, or by
these by-laws, to some other officer or agent of the corporation; and, in
general, shall perform such other duties as from time to time may be assigned to
him by the board of directors, the chairman of the board or the president. In
the absence or disability of the president, the managing directors, in order of
rank as fixed by the board of directors, shall perform all duties of the
president, and when so acting, shall have all of the powers of and be subject to
all of the restrictions upon the president.
SECTION 5.07. THE VICE PRESIDENTS. The board of directors may
appoint one or more executive vice presidents, one or more senior vice
presidents and such other vice presidents as the board shall deem proper.
Executive vice presidents and senior vice presidents shall have such other
powers and perform such duties as from time to time may be prescribed for them
respectively by the board of directors or the president. All other vice
presidents shall have only those duties and powers expressly and specifically
authorized by resolution of the board of directors, and, absent such
authorization, no such vice presidents shall have the power to bind the
corporation to any obligation, contractual or otherwise, whether or not in
writing.
SECTION 5.08. THE SECRETARY. The secretary, or an assistant
secretary, shall attend all meetings of the stockholders and of the board of
directors and shall record the proceedings of the stockholders and of the
directors and of committees of the board in a book or books to be kept for that
purpose; see that notices are given and records and reports properly kept and
filed by the corporation as required by law; be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, perform all duties incident
to the office of secretary, and such other duties as may from time to time be
assigned to him by the board of directors or the president.
SECTION 5.09. THE TREASURER. The treasurer or an assistant treasurer
shall have or provide for the custody of the funds or other property of the
corporation and shall keep a separate book account of the same to his credit as
treasurer; collect and receive or provide for the collection and receipt of
moneys earned by or in any manner due to or received by the corporation; deposit
all funds in his custody as treasurer in such banks or other places of deposit
as the board of directors may from time to time designate; whenever so required
by the board of directors, render an account showing his transactions as
treasurer and the financial condition of the corporation; and, in general,
discharge such other duties as may from time to time be assigned to him by the
board of directors or the president.
11
<PAGE>
SECTION 5.10. OFFICERS' BONDS. No officer of the corporation need
provide a bond to guarantee the faithful discharge of his duties unless the
board of directors shall by resolution so require a bond, in which event such
officer shall give the corporation a bond (which shall be renewed if and as
required) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of his
office.
SECTION 5.11. SALARIES. The salaries of the officers and agents of
the corporation elected by the board of directors shall be fixed from time to
time by the board of directors except to the extent that the board of directors
shall have delegated power to officers of the corporation to fix, from time to
time, the salaries of such officers' assistant or subordinate officers.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. ISSUANCE. Each stockholder shall be entitled to a
certificate or certificates for shares of stock of the corporation owned by him
upon his request therefor. The stock certificates of the corporation shall be
numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. They shall be signed by the Chairman of the
board or a vice president and by the secretary or an assistant secretary or the
treasurer or an assistant treasurer. It shall not be necessary for such
certificates to bear the corporate seal, unless required by law. Any of or all
the signatures upon such certificate may be a facsimile, engraved or printed. In
case any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer, transfer agent or registrar, before the certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. TRANSFER. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code--Investment Securities.
SECTION 6.03. STOCK CERTIFICATES. Stock certificates of the
corporation shall be in such form as provided by statute and approved by the
board of directors. The stock record books and the blank stock certificates
books shall be kept by the secretary or by any agency designated by the board of
directors for that purpose.
SECTION 6.04. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or de-
12
<PAGE>
stroyed. When authorizing such issue of a new certificate or certificates, the
board of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6.05. RECORD HOLDER OF SHARES. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
SECTION 6.06. DETERMINATION OF STOCKHOLDERS OF RECORD. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action.
If no record date is fixed:
(1) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(2) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the
adjournment meeting.
ARTICLE VII
General Provisions
SECTION 7.01. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in prop-
13
<PAGE>
erty, or in shares of the capital stock of the corporation, subject to the
provisions of the certificate of incorporation. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interest of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
SECTION 7.02. ANNUAL STATEMENTS. The board of directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
SECTION 7.03. CONTRACTS. Except as otherwise provided in these
by-laws, the board of directors may authorize any officer or officers including
the chairman and vice chairman of the board of directors, or any agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the corporation and such authority may be general or confined to
specific instances.
SECTION 7.04. CHECKS. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors may from time to time designate.
SECTION 7.05. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7.06. DEPOSITS. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 7.07. CORPORATE RECORDS. Every stockholder shall, upon
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, books or records of account, and records of
the proceedings of the stockholders and directors, and make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business. Where the stockholder
seeks to inspect the books and records of the corporation, other than its ledger
or list of stockholders, the stockholder shall first establish (1) compliance
with the provisions of this section respecting the form and manner of making
demand for inspection
14
<PAGE>
of such document; and (2) that the inspection sought is for a proper purpose.
Where the stockholder seeks to inspect the stock ledger or list of stockholders
of the corporation and has complied with the provisions of this section
respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the corporation to establish that
the inspection sought is for an improper purpose.
SECTION 7.08. AMENDMENT OF BY-LAWS. These By-laws may be amended,
added to, rescinded or repealed at any meeting of the board of directors or of
the stockholders, PROVIDED THAT notice of the proposed change was given in the
notice of the meeting and, in the case of the board of directors, in a notice
given no less than twenty-four hours prior to the meeting; PROVIDED, HOWEVER,
that in the case of amendments by stockholders, notwithstanding any other
provisions of these By-laws or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the holders
of any series of Preferred Stock or any other series or class of stock set forth
in the Certificate of Incorporation which is required by law, the Certificate of
Incorporation or these By-laws, the affirmative vote of the holders of shares
representing at least 66 2/3% of the voting power of the then outstanding stock
of the corporation entitled to vote generally in the election of directors,
present or represented by proxy, voting together as a single class, shall be
required to alter, amend or repeal Sections 2.02, 2.06, 2.08, 3.02, 3.03 or this
Section 7.08 of these By-laws.
15
<PAGE>
Exhibit 4.1
ITG
COMMON STOCK
$.01 PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 46145F 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
THE FUTURE OF TRADING
[GRAPHIC OMITTED]
INVESTMENT TECHNOLOGY GROUP, INC.
---------------------------------
INVESTMENT TECHNOLOGY GROUP, INC.
CORPORATE
SEAL
1983
DELAWARE
---------------------------------
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF INVESTMENT
TECHNOLOGY GROUP, INC. TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE
HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED AND
REGISTERED BY THE TRANSFER AGENT AND REGISTRAR.
IN WITNESS WHEREOF THE CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY
THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH
THE FACSIMILE SEAL OF THE CORPORATION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
(NEW YORK, NY)
/s/ Timothy H. Hosking /s/ Raymond L. Killian, Jr.
Transfer Agent and Registrar
- --------------------------------------------------------------------------------
SECRETARY PRESIDENT AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________________Custodian___________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________
(State)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
For Value Received ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________
-------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 10.4.3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into as
of __________________, between INVESTMENT TECHNOLOGY GROUP, INC., a Delaware
corporation (the "Company") and _______________, an employee of the Company
("Employee").
WHEREAS, the Compensation Committee of the Board of Directors of
the Company has determined that it is in the interest of the Company to provide
the Employee with an option to purchase the common stock of the Company:
NOW THEREFORE, the parties agree as follows:
1.1. The Company has granted to the Employee a nonqualified stock
option (the "Option") to purchase ______ shares of the Company's Common Stock
(the "Common Stock"), for a price per share equal to $______per share (the
"Option Price"). The date of grant of the Option is _____________ ("Grant
Date"). This Option is intended to be a nonqualified stock option and shall not
be treated as an incentive stock option under the provisions of the Internal
Revenue Code of 1986, as amended.
1.2. The Option is granted under Section 6.1 of the Company's
1994 Stock Option and Long-Term Incentive Plan (the "Plan"). All of the terms
and conditions of the Plan are hereby incorporated by reference in this
Agreement as though fully set forth herein. Terms defined in the Plan but not in
this Agreement shall have the meanings set forth in the Plan. To the extent of
any conflict between the provisions of this Agreement and those of the Plan, the
provisions of the Plan shall govern. Employee acknowledges receipt of a copy of
the Plan, accepts the Option subject to the terms and conditions set forth in
the Plan and this Agreement, and consents to and agrees to comply with such
terms and conditions.
1.3. This Option is granted for no consideration other than the
services of Employee and Employee's agreements set forth herein.
1.4. The grant of the Option is exempt from the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
pursuant to the provisions of Rule l6b-3, all of the requirements of which have
been satisfied.
2.1. Except as provided herein, the Option will vest and become
exercisable in three equal annual installments, beginning on the second
anniversary of the Grant Date. In the event of termination of Employee's
employment with the Company (including all subsidiaries) by reason of death or
disability, the Option shall become vested and exercisable in full at the time
of such termination. In the event of termination of Employee's employment with
<PAGE>
-2-
the Company (including all subsidiaries) for any other reason, that portion of
the Option that has not yet vested shall be forfeited. Notwithstanding any other
provision of this Agreement to the contrary, the Option will become vested and
exercisable in full immediately prior to a Change of Control (as defined in
Section 3.2 below), provided the Employee's employment with the Company
(including all subsidiaries) has not terminated prior to such time.
2.2. The Option (to the extent not earlier exercised or
forfeited) will expire at 5:00 p.m., Eastern time, on the earliest of (i) the
fifth anniversary of the Grant Date, (ii) if Employee's employment with the
Company (including all subsidiaries) terminates by reason of death or
disability, one year following such termination of employment, or (iii) if
Employee's employment with the Company (including all subsidiaries) terminates
for any other reason, 60 days after the date of such termination.
Notwithstanding any other provision of this Agreement to the contrary, in the
event of a Change of Control at a time when the Employee is an employee of the
Company (including all subsidiaries), the Option will be exercisable until 5:00
p.m., Eastern time, on the fifth anniversary of the Grant Date, without regard
to whether the Employee's employment with the Company or any of its subsidiaries
continues after such Change of Control.
3.1. To the extent the Option is exercisable under the provisions
of Section 2.1 and 2.2 hereof, the Option may be exercised by giving written
notice of exercise of the Option to the Secretary of the Company, and it shall
be deemed to have been received either when delivered personally to the office
of the Secretary or at 11:58 p.m. on the date of any U.S. Postal Service
postmark on the notice, whichever is earlier (the "Exercise Date"). Such notice
shall be irrevocable and must be accompanied by the payment of the purchase
price as provided in Section 4 below. Upon the exercise of the Option, the
Company will transfer or will cause to be issued a certificate or certificates
for the Common Stock being purchased as promptly as practicable.
3.2. "Change of Control" means and shall be deemed to have
occurred if:
(a) any person (within the meaning of the Exchange Act), other
than the Company or a Related Party, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting
Securities representing 30% percent or more of the total voting power of all the
then-outstanding Voting Securities; or
(b) the individuals who, as of the Grant Date, constitute the
Board, together with those who first become directors subsequent to such date
and whose recommendation, election or nomination for election to the Board was
approved by a vote of at least a majority of the directors then still in office
who either were directors as of the Grant Date or whose recommendation, election
or nomination for election was previously so approved, cease for any reason to
constitute a majority of the members of the Board; or
<PAGE>
-3-
(c) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or one of its
subsidiaries, reverse split of any class of Voting Securities, or an acquisition
of securities or assets by the Company or one of its subsidiaries, or
consummation of any such transaction if stockholder approval is not obtained,
other than (I) any such transaction in which the holders of outstanding Voting
Securities immediately prior to the transaction receive (or retain), with
respect to such Voting Securities, voting securities of the surviving or
transferee entity representing more than 50 percent of the total voting power
outstanding immediately after such transaction, with the voting power of each
such continuing holder relative to other such continuing holders not
substantially altered in the transaction, or (II) any such transaction which
would result in a Related Party beneficially owning more than 50 percent of the
voting securities of the surviving or transferee entity outstanding immediately
after such transaction; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets other than any such
transaction which would result in a Related Party owning or acquiring more than
50 percent of the assets owned by the Company immediately prior to the
transaction.
"Related Party" means (a) a majority-owned subsidiary of the
Company; (b) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; (c) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
majority-owned subsidiary of the Company; or (d) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of Voting Securities.
"Voting Securities or Security" means any securities of the
Company which carry the right to vote generally in the election of directors.
4.1. The purchase price of Common Stock purchased by the Employee
upon exercise of the Option (the "Option Shares") shall be paid in full to the
Company at the time of such exercise in cash (including by check) or by the
surrender of Common Stock of the Company or a combination thereof, in accordance
with Section 9.3 of the Plan, provided that Common Stock held for less than six
months may be surrendered only with the approval of the Committee.
5.1. The number and kind of shares purchasable upon exercise of
the Option, and other terms of the Option, may be appropriately adjusted, in the
discretion of the Committee, in accordance with Section 5.5 of the Plan, in
order to prevent dilution or enlargement of the rights of the Employee.
<PAGE>
-4-
6.1. The Employee represents and warrants that the Employee is
acquiring the Option for his own account and not with a view to distribution of
this Option or the Option Shares. As a condition to the exercise of the Option,
and in the event that the Option Shares have not yet been registered under the
Securities Act of 1933, as amended (the "Act") at the time they are issued, the
Company may require the Employee to make any representation and/or warranty to
the Company as may, in the judgment of counsel to the Company, be required under
any applicable law or regulation, including but not limited to a representation
and warranty that the Option Shares are being acquired only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required under the
Act or any other applicable law, regulation or rule of any governmental agency.
7.1. Neither the Employee nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey the Option or any amounts
payable pursuant to the provisions of this Agreement, which Option and amounts
are, and all rights under this Agreement are, expressly declared to be
unassignable and nontransferable, other than by will or under the laws of
descent and distribution. No part of the Option or such amounts payable shall be
subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by the Employee or any other person, nor be
transferable by operation of law in the event of the Employee's or any other
person's bankruptcy or insolvency.
8.1. Neither the Employee nor any other person shall acquire by
reason of the Option or the Option Shares any right in or title to any assets,
funds or property of the Company whatsoever including, without limiting the
generality of the foregoing, any specific funds or assets which the Company, in
its sole discretion, may set aside in anticipation of a liability. No trust
shall be created in connection with or by the granting of the Option or the
purchase of any Option Shares, and any benefits which become payable hereunder
shall be paid from the general assets of the Company. The Employee shall have
only a contractual right to the amounts, if any, payable pursuant to this
Agreement, unsecured by any asset of the Company or any of its affiliates.
9.1. Nothing herein will limit the Company's right to issue
Common Stock, or options or other rights to purchase Common Stock, to its
employees, subject to vesting, expiration and other terms and conditions deemed
appropriate by the Company and its affiliates.
10.1. The Employee authorizes the Company to withhold, in
accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state or local law upon the issuance
of Option Shares or the payment of money pursuant to the exercise of the Option.
The Employee may elect to have the Company
<PAGE>
-5-
withhold Option Shares to pay any applicable withholding taxes resulting from
the exercise of the Option, in accordance with any rules or regulations of the
Committee then in effect.
11.1. Shares issued pursuant to exercise of the Options shall be
shares of Common Stock, the issuance of which is registered under the Act.
12.1. The terms of this Agreement shall be binding upon the
executors, administrators, heirs, successors, transferees and assignees of the
Employee and the Company.
13.1. In any action at law or in equity to enforce any of the
provisions or rights under this Agreement, including any arbitration proceedings
to enforce such provisions or rights, the unsuccessful party to such litigation
or arbitration, as determined by the court in a final judgment or decree, or by
the panel of arbitrators in its award, shall pay the successful party or parties
all costs, expenses and reasonable attorneys' fees incurred by the successful
party or parties (including without limitation costs, expenses and fees on any
appeals), and if the successful party recovers judgment in any such action or
proceeding such costs, expenses and attorneys' fees shall be included as part of
the judgment.
14.1. The Employee agrees to perform all acts and execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
15.1. For convenience, this Agreement may be executed in any
number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purposes without the production of any other counterparts.
16.1. This Agreement shall be construed and enforced in
accordance with Section 10 of the Plan.
17.1. This Agreement, together with the Plan, sets forth the
entire agreement between the parties with reference to the subject matter
hereof, and there are no agreements, understandings, warranties, or
representations, written, express, or implied, between them with respect to the
Option other than as set forth herein or therein, all prior agreements,
promises, representations and understandings relative thereto being herein
merged.
18.1. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
<PAGE>
-6-
19.1. This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived
only by a written instrument executed by the parties hereto or, in the case of a
waiver, by the party waiving compliance. Any such written instrument must be
approved by the Committee to be effective as against the Company. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of the breach of any term or provision contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
20.1. Any notice to be given hereunder shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
and, if to the Company, addressed to it at 380 Madison Avenue, New York, New
York 10017, Attn: General Counsel, and, if to the Employee, addressed to him at
the address set forth below his signature hereto, or to such other address of
such party as that party may designate by written notice to the other.
21.1. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22.1 Neither this Agreement nor any action taken hereunder shall
be construed as giving Employee the right to be retained in the employ of the
Company (or any of its subsidiaries) nor shall it interfere in any way with the
right of the Company (or any of its subsidiaries) to terminate Employee's
employment at any time.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Option Agreement as of the date first above written.
INVESTMENT TECHNOLOGY
GROUP, INC.
By
-------------------------------------
EMPLOYEE
-----------------------------------------
<PAGE>
Exhibit 10.4.7
INVESTMENT TECHNOLOGY GROUP, INC.
DEFERRED COMPENSATION PLAN
The Investment Technology Group, Inc. Deferred Compensation Plan
is effective as of January 1, 1999 (the "Effective Date").
SECTION 1
DEFINITIONS
When used herein, the following terms shall have the following
meanings:
"Account" means the bookkeeping account maintained by the Company
for the Participant which is credited with Benefits and earnings (or debited to
reflect losses) attributable to the Investment Options selected by the
Participant in respect of his Benefits, and which is debited to reflect
distributions.
"Account Balance" means the total amount credited to the
Participant's Account at any time.
"Affiliate" means any company controlling, controlled by, or
under common control with, the Company.
"Beneficiary" means the beneficiary or beneficiaries designated
in accordance with Section 9 to receive the amount, if any, payable upon the
death of the Participant.
"Benefits" means the benefits described in Section 3.1 of the
Plan.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of
Directors.
"Company" means Investment Technology Group, Inc. a Delaware
corporation, or any successor under the provisions of Section 10.1.
"Investment Option" means the measure of investment return
pursuant to which Benefits credited to the Participant's Account shall be
further credited with earnings (or charged with losses) from the date such
Benefits are originally credited. The Investment Options available under the
Plan shall be determined from time to time by the Committee.
<PAGE>
-2-
"Participant" means Raymond L. Killian, Jr.
"Plan" means the Investment Technology Group, Inc. Deferred
Compensation Plan as set forth herein and as amended from time to time.
"Plan Year" means the 12-month period commencing each January 1
and ending on December 31.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. The Participant shall participate in the
Plan, beginning as of the Effective Date, and no other person shall be entitled
to participate in the Plan.
SECTION 3
BENEFITS
3.1. BENEFITS. Subject to the provisions of Section 5, for each
Plan Year the following Benefits shall be credited to the Account of the
Participant:
(i) The amount of the Participant's benefits under the Jefferies
Group Inc. Capital Accumulation Plan which were assumed by the
Company, credited as of the date of the assumption;
(ii) The amount of the Participant's bonus for calendar year 1998
which was deferred by the Board of Directors, credited as of the date
of deferral;
(iii) Any other amount of salary, bonus or other incentive
compensation payable to the Participant which is deferred by the Board
of Directors or any committee thereof and directed by the Board of
Directors or such committee to be payable pursuant to the terms of
this Plan, credited as of the date of deferral; and
(iv) earnings or losses attributable to the Investment Options
for the Participant's Account Balance pursuant to Section 4 below.
<PAGE>
-3-
SECTION 4
EARNINGS
4.1. CREDITING OF EARNINGS. Earnings shall be credited (or losses
shall be charged) to a Participant's Account based on the Investment Option or
Options to which the Participant's Account has been allocated from the date the
Benefits are credited to the Participant's Account. Any amount distributed from
a Participant's Account shall be credited with earnings (or charged with losses)
through the day on which the distribution is made. The Investment Options shall
be determined and communicated to the Participant by the Committee; PROVIDED,
HOWEVER, that the Investment Options may not be changed retroactively. Earnings
will be credited quarterly or at such other intervals as the Committee shall
determine.
4.2. SELECTION OF INVESTMENT OPTIONS. The amounts credited to the
Participant's Account under this Plan shall be allocated among the Investment
Options as elected in writing from time to time by the Participant. The
Participant may allocate and reallocate his Account Balance among the Investment
Options no more than once per calendar quarter by written notice from the
Participant to the Company not less than two weeks prior to the beginning of the
calendar quarter in which the change will be effective (or otherwise in
accordance with the procedures established from time to by the Committee).
SECTION 5
VESTING AND PAYMENT
5.1. VESTING. The Participant's Benefits will be vested in full
at all times.
5.2. DISTRIBUTION OPTIONS. Except as otherwise provided in this
Section 5, Benefits shall be paid to the Participant, in accordance with his
election pursuant to Section 5.3 hereof, either:
(i) in a single cash lump sum as soon as practicable after the
first date on which the Participant is no longer employed by the
Company or any subsidiary or Affiliate of the Company (with the
payment including all deemed earnings or losses calculated in
accordance with the Investment Options through such date); or
<PAGE>
-4-
(ii) in annual, monthly or quarterly cash installments for up to
ten years following termination of the Participant's employment, as
elected by the Participant in accordance with the provisions of
Section 5.3. The first such installment shall be payable as soon as
practicable following the first date on which the Participant is no
longer employed by the Company or any subsidiary or Affiliate of the
Company. The amount of each such installment shall be determined by
dividing the Participant's Account Balance under the Plan at such date
(including all deemed earnings or losses, calculated in accordance
with the Investment Options, credited through such date) by the number
of installments remaining to be paid.
5.3. ELECTION. The Participant may elect to be paid under the
Plan in accordance with one of the alternatives set forth in Section 5.2 above.
Such an election must be made in the form designated by the Committee from time
to time, must be made within 30 days after the Participant first becomes
eligible to participate in the Plan, and shall be irrevocable once filed with
the Company; PROVIDED, HOWEVER, that the Participant may file a new election as
to the form of payment if such election is filed at least six months in advance
of termination of the Participant's employment. In the absence of a timely
election by the Participant pursuant to this Section 5.3, the Participant shall
be deemed to have elected to be paid in a lump sum at termination of employment
under Section 5.2(i).
5.4. BENEFICIARY PAYMENTS. Upon the death of the Participant, the
Participant's Account Balance shall be paid in a single lump sum to the
Participant's Beneficiary as soon as practicable following the Participant's
death.
SECTION 6
SOURCE OF PAYMENT
6.1. GENERAL COMPANY FUNDS. All payments provided for under the
Plan shall be paid in cash from the general funds of the Company. To the extent
that the Participant or any Beneficiary acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
SECTION 7
ADMINISTRATION AND INTERPRETATION OF THE PLAN
7.1. COMMITTEE. The Plan shall be administered by the Committee.
The Committee shall have full discretion, power and authority to interpret,
construe and administer the Plan, to provide for claims review procedures, and
to review claims for benefits under the Plan. The Committee's interpretations
and constructions of the Plan and the actions taken
<PAGE>
-5-
thereunder by the Committee shall be binding and conclusive on all persons and
for all purposes.
7.2. ADVISORS. The Committee shall establish and maintain Plan
records and may arrange for the engagement of such accounting, actuarial or
legal advisors, who may be advisors to the Company, and make use of such agents
and clerical or other personnel as it shall require or may deem advisable for
purposes of the Plan. The Committee may rely upon the written opinion of such
advisors engaged by the Committee. The Committee may appoint a subcommittee to
assist it in carrying out its administrative duties under the Plan.
7.3. HOLD HARMLESS. To the maximum extent permitted by law, no
member of the Board of Directors, the Committee or any subcommittee appointed
pursuant to Section 7.2 hereof shall be personally liable by reason of any
contract or other instrument executed by him or her or on his or her behalf in
his or her capacity as a member of the Board of Directors, the Committee or such
subcommittee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless, directly from its own assets (including the
proceeds of any insurance policy the premiums of which are paid from the
Company's own assets), each member of the Board of Directors, the Committee, and
any subcommittee appointed pursuant to Section 7.2 hereof and each other
officer, employee, or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan or to the management or
control of the assets of the Plan may be delegated or allocated, against any
cost or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any act
or omission to act in connection with the Plan unless arising out of such
person's own fraud or bad faith.
SECTION 8
AMENDMENT AND TERMINATION
8.1. AMENDMENT AND TERMINATION. The Plan may be amended,
suspended or terminated, in whole or in part, by the Board of Directors, but no
such action shall retroactively impair or otherwise adversely affect the rights
of any person to benefits under the Plan which have accrued prior to the date of
such action, as determined by the Board of Directors.
<PAGE>
-6-
SECTION 9
DESIGNATION OF BENEFICIARIES
9.1. BENEFICIARY DESIGNATION. The Participant shall file with the
Company a written designation of one or more persons or trusts as the
Beneficiary who shall be entitled to receive the amount, if any, payable under
the Plan upon his death. The Participant may, from time to time, revoke or
change his Beneficiary designation without the consent of any prior Beneficiary
by filing a new designation with the Company. The last such designation received
by the Company shall be controlling; PROVIDED, HOWEVER, that no designation, or
change or revocation thereof, shall be effective unless received by the Company
prior to the Participant's death, and in no event shall it be effective as of a
date prior to such receipt.
9.2. ESTATE. If no such Beneficiary designation is in effect at
the time of the Participant's death, or if no designated Beneficiary survives
the Participant, or if such designation conflicts with law, the Participant's
estate shall be deemed to have been designated his Beneficiary and shall receive
the payment of the amount, if any, payable under the Plan upon his death. If the
Committee is in doubt as to the right of any person to receive such amount, the
Committee may retain such amount until the rights thereto are determined, or the
Committee may pay such amount into any court of appropriate jurisdiction and
such payment shall be a complete discharge of the liability of the Plan and the
Company therefor.
SECTION 10
GENERAL PROVISIONS
10.1. BINDING ON SUCCESSORS. This Plan shall be binding upon and
inure to the benefit of the Company, its subsidiaries and Affiliates, and their
successors and assigns and the Participant, his Beneficiary or designees and his
estate. Nothing in this Plan shall preclude the Company from consolidating or
merging into or with, or transferring all or substantially all of its assets to,
another corporation which assumes this Plan and all obligations of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" shall refer to such other corporation and this
Plan shall continue in full force and effect.
10.2. NO RIGHT OF EMPLOYMENT. Neither the Plan nor any action
taken hereunder shall be construed as giving to the Participant or any employee
the
<PAGE>
-7-
right to be retained in the employ of the Company or any subsidiary or Affiliate
of the Company or as affecting the right of the Company or such a subsidiary or
Affiliate to dismiss the Participant with or without cause.
10.3. WITHHOLDING. The Company may provide for the withholding
from any benefits payable under this Plan all Federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
10.4. NOT ASSIGNABLE. No right to any amount payable at any time
under the Plan may be assigned, transferred, pledged, or encumbered, either
voluntarily or by operation of law, except as provided expressly herein as to
payments to a Beneficiary or as may otherwise be required by law.
10.5. INCAPACITY. If the Committee shall find that any person to
whom any amount is or was payable hereunder is unable to care for his or her
affairs because of illness or accident, or has died, then the Committee, if it
so elects, may direct that any payment due him or her or his or her estate
(unless a prior claim therefore has been made by a duly appointed legal
representative) or any part thereof be paid or applied for the benefit of such
person or to or for the benefit of his or her spouse, children or other
dependents, an institution maintaining or having custody of such person, any
other person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment, or any of them, in such manner and
proportion as the Committee may deem proper. Any such payment shall be in
complete discharge of the liability therefor of the Company, the Plan or the
Committee or any member, officer or employee thereof.
10.6. COMMUNICATIONS TO COMMITTEE. All elections, designations,
requests, notices, instruction, and other communications from a Participant,
Beneficiary or other person to the Committee or the Company pursuant to the Plan
shall be in such form as is prescribed from time to time by the Committee, shall
be mailed by first-class mail or delivered to such location as shall be
specified by the Committee, and shall be deemed to have been given and delivered
only upon actual receipt thereof at such location.
10.7. OTHER BENEFITS. Except as otherwise expressly provided, the
benefits payable under this Plan shall be in addition to all other benefits
provided for employees of the Company.
10.8. CAPTIONS. The captions preceding the sections and articles
hereof have been inserted solely as a matter of convenience and in no way define
or limit the scope or intent of any provisions of the Plan.
<PAGE>
-8-
10.9. GOVERNING LAW. To the extent not preempted by Federal law,
this Plan shall be governed by the laws of the State of New York, without regard
to the principles of conflict of laws thereof, as from time to time in effect.
<PAGE>
Exhibit 10.5.3
THIRD AMENDMENT TO LEASE
(400 CORPORATE POINTE)
THIS THIRD AMENDMENT TO LEASE ("THIRD AMENDMENT") is made and entered
into as of the 13th day of March, 1998, by and between ARDEN REALTY FINANCE
PARTNERSHIP, L.P., a California limited partnership ("LANDLORD") and INVESTMENT
TECHNOLOGY GROUP, INC., a Delaware corporation ("TENANT").
R E C I T A L S :
A. 400 Corporate Pointe, Ltd., a California general partnership ("400
CORPORATE") and Integrated Analytics Corporation, a California corporation
("IAC") entered into that certain Standard Form Office Lease dated as of July
11, 1990 ("ORIGINAL LEASE"), whereby 400 Corporate leased to IAC and IAC leased
from 400 Corporate certain office space located in that certain building located
and addressed at 400 Corporate Pointe, Culver City, California 90230 (the
"BUILDING"). The Original Lease was subsequently amended by that certain First
Amendment to Lease dated June 1, 1995, by and between AEW/LBA Acquisition Co.
LLC, a California limited liability company ("AEW") as successor-in-interest to
400 Corporate, and Tenant, as successor-in-interest to IAC (the "FIRST
AMENDMENT") and by that certain Second Amendment to Lease dated December 5, 1996
by and between Arden Realty Limited Partnership, a Maryland limited partnership
("ARLP") as successor-in-interest to AEW and Tenant ("SECOND AMENDMENT").
Landlord is successor-in-interest to ARLP. The Original Lease, as amended by the
First Amendment and the Second Amendment, is referred to herein as the "LEASE".
Pursuant to the Lease, Tenant currently occupies 13,696 rentable square feet
located on the eighth (8th) floor of the Building and known as Suite 855 and
5,295 rentable square feet located on the seventh (7th) floor of the Building
and known as Suite 750 and 1,263 rentable square feet located on the seventh
(7th) floor of the Building known as Suite 725, for a total of 20,254 rentable
square feet (collectively, the "EXISTING PREMISES").
B. By this Third Amendment, Landlord and Tenant desire to add certain
additional space on the sixth (6th) floor of the Building to the Existing
Premises, and to otherwise modify the Lease as provided herein.
C. Unless otherwise defined herein, capitalized terms as used herein
shall have the same meaning as given thereto in the Original Lease.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
A G R E E M E N T :
1. EXPANSION OF EXISTING PREMISES. Effective as of the Additional Space
Effective Date (as defined below) and continuing until the expiration of the
Lease Term, the Existing Premises shall be modified to add the sixth (6th) floor
of the Building which the parties stipulate to contain 20,347 rentable (18,331
usable) square feet as outlined on the floor plan attached to this Third
Amendment as Exhibit "A" and incorporated herein by this reference ("ADDITIONAL
SPACE"). Accordingly, effective as of the Additional Space Effective Date,
Tenant shall lease an aggregate of 40,601 rentable square feet of space in the
Building consisting of the Existing Premises and the Additional Space, which
shall be referred to collectively as the "PREMISES." The term "ADDITIONAL SPACE
EFFECTIVE DATE" shall mean the first Monday following the date the Additional
Space is Ready for Occupancy (as defined in Section 5.1 of the Tenant Work
Letter attached to this Third Amendment as Exhibit "B"). The Additional Space
Effective Date is anticipated to be July 1, 1998. Tenant's lease of the
Additional Space shall expire co-terminously with Tenant's lease of the Existing
Premises on December 31, 2005, subject to extension as provided in Section 10
below. Following the Additional Space Effective Date, the term
<PAGE>
"Premises" as used in the Lease as amended by this Third Amendment shall refer
to the Existing Premises and the Additional Space. Promptly after the Additional
Space Effective Date, Landlord and Tenant shall execute a Confirmation of Lease
Term Dates in a form similar to Exhibit "C" attached hereto and made a part
hereof.
2. BASE RENT FOR THE ADDITIONAL SPACE. Effective as of the Additional
Space Effective Date and continuing until the expiration of the Lease Term,
Tenant shall pay, in accordance with the provisions of this Section 2, Base Rent
for the Additional Space as follows:
<TABLE>
<CAPTION>
MONTHLY INSTALLMENT OF MONTHLY BASIC RENT PER
MONTH BASIC RENT RENTABLE SQUARE FOOT
----- ---------- --------------------
<S> <C> <C>
1-24 $32,962.14 $1.62
25-48 $37,031.54 $1.82
49-- December 31, 2005 $42,728.70 $2.10
</TABLE>
Concurrently with Tenant's execution of this Third Amendment, Tenant
shall pay to Landlord an amount equal to Basic Rent for the first full month of
Tenant's lease of the Additional Space.
3. TENANT'S PERCENTAGE OF TOTAL RENTABLE AREA. Commencing as of the
Additional Space Effective Date, Tenant's Percentage of Total Rentable Area with
regard to the Additional Space only shall be 12.36%, and the Base Year (as
defined in Section 1.7 of the First Amendment) with regard to the Additional
Space only shall be calendar year 1998.
4. IMPROVEMENTS TO ADDITIONAL SPACE. Landlord shall construct the tenant
improvements to the Additional Space pursuant to the terms and conditions of the
Tenant Work Letter attached hereto as Exhibit "B," and the initial construction
of such tenant improvements shall be governed by the Tenant Work Letter rather
than by the provisions of Article 14 of the Original Lease. Except as
specifically set forth in the Tenant Work Letter, Tenant hereby acknowledges
that Landlord shall not be obligated to provide or pay for any improvement work
or services related to the improvement of the Additional Space. Tenant also
acknowledges that, except as provided in Section 1 of the Tenant Work Letter,
Landlord has made no representation or warranty regarding the condition of the
Additional Space.
5. PARKING. Landlord and Tenant hereby acknowledge and agree that
pursuant to Section 1(w) of the Original Lease, Tenant is entitled to lease
parking spaces at a ratio of four (4) parking spaces per one thousand (1000)
rentable square feet contained within the Premises from time to time. Therefore,
in addition to the parking spaces currently rented by Tenant pursuant to Section
1.10 of the First Amendment and Section 5 of the Second Amendment, commencing as
of the Additional Space Effective Date, Tenant shall be entitled to the use and
rental of an allocation of up to eighty-one (81) additional parking spaces (some
of which may, at Tenant's election, be reserved spaces, subject to the
percentage limitation set forth in Paragraph 56 of the Original Lease)
(collectively, the "ADDITIONAL SPACES") located in the Building's on-site
parking facilities. Tenant shall pay to Landlord for such Additional Spaces the
prevailing rate applicable to such parking in the Building's on-site parking
facility; provided, however, that the rate charged by Landlord for such parking
during each calendar year after calendar year 1998 shall not increase by more
than five percent (5%) over the maximum rate chargeable in the immediately
preceding calendar year (whether or not such maximum rate was actually charged).
The maximum rate during calendar year 1998 shall be Fifty-five Dollars ($55.00)
per unreserved space per month and Seventy-five Dollars ($75.00) per reserved
space per month, plus applicable parking taxes (if any).
6. STAIRWELL ACCESS. Section 12 of the Second Amendment is hereby
amended to provide that, commencing upon the Additional Space Effective Date,
Landlord agrees to allow Tenant access to the stairwells between the sixth
(6th), seventh (7th) and eighth (8th) floors of the Building during normal
business hours. In connection therewith, Tenant hereby acknowledges that Tenant
shall be required to install and maintain a time clock and associated locking
device at each of the two (2) stairwell doors on the sixth (6th) floor, at each
of the two
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<PAGE>
(2) stairwell doors on the seventh (7th) floor, and at each of the two (2)
stairwell doors on the eighth (8th) floor of the Building. Such time clocks and
associated locking devices shall be installed by the Building-designated
locksmith as a component of the Tenant Improvements to be constructed by
Landlord pursuant to the Tenant Work Letter.
7. BROKERS. Each party represents and warrants to the other that no
broker, agent or finder negotiated or was instrumental in negotiating or
consummating this Third Amendment other than CB Commercial Real Estate Group,
Inc., who shall be compensated by Landlord pursuant to a separate agreement.
Each party further agrees to defend, indemnify and hold harmless the other party
from and against any claim for commission or finder's fee by any entity who
claims or alleges that they were retained or engaged by the first party or at
the request of such party.
8. OPTION TO CANCEL. The parties hereby acknowledge and agree that
Tenant's Cancellation Option specified in Section 1.11 of the First Amendment
and as amended pursuant to Section 9 of the Second Amendment, shall continue to
apply with respect to the Existing Premises (as defined in Recital A of this
Third Amendment), but shall not apply to the Additional Space (as defined in
Section 1 of this Third Amendment).
9. RIGHTS OF FIRST AND SECOND OFFER. Section 14 of Rider No. 1 to the
Original Lease and Section 1.21 of the First Amendment (as amended by Section 10
of the Second Amendment) shall be null and void and of no force or effect. In
lieu thereof, Landlord hereby grants to Tenant a right of first offer with
respect to all space in the Building not leased by Tenant pursuant to the Lease
(as amended by this Third Amendment) ("FIRST OFFER SPACE"). Notwithstanding the
foregoing (i) such first offer right of Tenant shall commence only following the
expiration or earlier termination of (A) any existing lease pertaining to the
First Offer Space, and (B) as to any First Offer Space which is vacant as of the
date of this Third Amendment, the first lease pertaining to any portion of such
First Offer Space entered into by Landlord after the date of this Lease
(collectively, the "SUPERIOR LEASES"), including any renewal or extension of
such existing or future lease, whether or not such renewal or extension is
pursuant to an express written provision in such lease, and regardless of
whether any such renewal or extension is consummated pursuant to a lease
amendment or a new lease, and (ii) such first offer right shall be subordinate
and secondary to all rights of expansion, first refusal, first offer or similar
rights (A) granted as of the date of this Third Amendment to any other tenant of
the Building, and (B) granted after the date of this Third Amendment (with
respect to any floor in the Building other than the seventh (7th) and eighth
(8th) floors) to any other tenant of the Building who is not a tenant as of the
date of this Third Amendment and who, at the time such tenant enters into its
lease, leases more rentable square feet in the Building than Tenant (the rights
described in items (i) and (ii), above to be known collectively as "SUPERIOR
RIGHTS"). Tenant's right of first offer shall be on the terms and conditions set
forth in this Section 9.
(i) PROCEDURE FOR OFFER. Landlord shall notify Tenant (the "FIRST
OFFER NOTICE") from time to time when Landlord determines that Landlord shall
commence the marketing of any First Offer Space because such space shall become
available for lease to third parties, where no holder of a Superior Right
desires to lease such space. The First Offer Notice shall describe the space so
offered to Tenant and shall set forth Landlord's proposed economic terms and
conditions applicable to Tenant's lease of such space (collectively, the
"ECONOMIC TERMS"). Notwithstanding the foregoing, Landlord's obligation to
deliver the First Offer Notice shall not apply during (A) the last nine (9)
months of the initial Lease Term or the First Option Term unless Tenant has
exercised the upcoming Option to Renew pursuant to Section 10 of this Third
Amendment, and (B) the last nine (9) months of the second (2nd) Option Term.
(ii) PROCEDURE FOR ACCEPTANCE. On or before the date which is
five (5) business days after Tenant's receipt of the First Offer Notice (the
"ELECTION DATE"), Tenant shall deliver written notice to Landlord ("TENANT'S
ELECTION NOTICE") pursuant to which Tenant shall elect either to (A) lease the
entire First Offer Space described in the First Offer Notice upon the Economic
Terms set forth in the First Offer Notice and the same non-Economic Terms as set
forth in the Lease (as then amended), (B) refuse to lease such First Offer Space
identified in the First Offer Notice, specifying that such refusal is not based
upon the Economic Terms set forth by Landlord in the First Offer Notice, but
upon Tenant's lack of need for such First Offer Space,
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<PAGE>
in which event Landlord may lease such First Offer Space to any entity on any
terms Landlord desires (the "SUBSEQUENT LEASE") and Tenant's right of first
offer with respect to the First Offer Space specified in Landlord's First Offer
Notice shall thereupon terminate and be of no further force or effect until such
space once again becomes available after expiration of the Subsequent Lease
including any renewal or extension of such Subsequent Lease, whether or not such
renewal or extension is pursuant to an express written provision in such
Subsequent Lease, and regardless of whether any such renewal or extension is
consummated pursuant to a lease amendment or a new lease, or (C) refuse to lease
the First Offer Space, specifying that such refusal is based upon the Economic
Terms set forth in the First Offer Notice, in which event Tenant shall also
specify in Tenant's Election Notice revised Economic Terms upon which Tenant
would be willing to lease such First Offer Space from Landlord. If Tenant does
not so respond in writing to Landlord's First Offer Notice by the Election Date,
Tenant shall be deemed to have elected the option described in clause (ii)(B)
above. If Tenant timely delivers to Landlord Tenant's Election Notice pursuant
to clause (ii)(C) above, Landlord may elect either to: (a) lease such First
Offer Space to Tenant upon the revised Economic Terms specified by Tenant in
Tenant's Election Notice, and the same non-Economic Terms as set forth in the
Lease (as then amended); or (b) lease the First Offer Space to any person or
entity upon any terms Landlord desires; provided, however, if the Economic Terms
of Landlord's proposed lease to said third party are not less favorable to the
third party than those Economic Terms proposed by Tenant in Tenant's Election
Notice, before entering into such third party lease, Landlord shall notify
Tenant of such no less favorable Economic Terms and Tenant shall have the right
to lease the First Offer Space upon such no less favorable Economic Terms by
delivering written notice thereof to Landlord within three (3) business days
after Tenant's receipt of Landlord's notice. If Tenant does not elect to lease
such space from Landlord within said three (3) business-day period, Tenant shall
be deemed to have elected the option described in clause (ii)(B) above. In
determining whether the Economic Terms of Landlord's proposed lease to a third
party are no less favorable to the third party than those Economic Terms
proposed by Tenant in Tenant's Election Notice, all concessions shall be blended
into an effective rental rate over the term of the proposed lease to said third
party and such effective rental rate shall be compared with the effective rental
rate of the Economic Terms proposed by Tenant in Tenant's Election Notice.
(iii) LEASE OF FIRST OFFER SPACE. If Tenant timely exercises
Tenant's right to lease the First Offer Space as set forth herein, Landlord and
Tenant shall execute an amendment adding such First Offer Space to the Premises
upon the same non-economic terms and conditions as applicable to the Premises,
and the economic terms and conditions as provided in this Section 9. Tenant
shall commence payment of rent for the First Offer Space and the Lease Term of
the First Offer Space shall commence upon the date of delivery of such space to
Tenant (except as otherwise specified in the Economic Terms). The Lease Term for
the First Offer Space shall expire co-terminously with Tenant's lease of the
Premises.
(iv) NO DEFAULTS. The rights contained in this Section 9 shall be
personal to the Tenant named in this Third Amendment ("ORIGINAL TENANT") and any
successor to Tenant by merger, consolidation or otherwise ("SUCCESSOR"), and may
only be exercised by the Original Tenant or such Successor (and not any other
assignee, sublessee or other transferee of the Original Tenant) if Tenant or
such Successor occupies the entire Premises as of the date of the First Offer
Notice. Tenant shall not have the right to lease First Office Space as provided
in this Section 9 if, as of the date of the First Offer Notice, or, at
Landlord's option, as of the scheduled date of delivery of such First Offer
Space to Tenant, Tenant is in default under the Lease (as amended) beyond any
applicable cure period.
10. OPTIONS TO RENEW. Section 1.12(a) of the First Amendment (as
previously amended pursuant to Section 11 of the Second Amendment) is hereby
amended in its entirety to read as follows:
"(a) Landlord hereby grants to Tenant two (2) separate
options to renew (the "OPTIONS TO RENEW") the Lease for (i) the
entire sixth (6th) floor of the Building and/or any other full
floors added to the Premises pursuant to Section 9 above (subject
to the next sentence below), and/or (ii) a minimum of 5,000
rentable square feet of the remaining portion of the Premises on
the seventh
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<PAGE>
(7th), eighth (8th) and/or any other multi-Tenant floors of the
Building on which a portion of the Premises is then located
(subject to Landlord's prior reasonable approval of such 5,000
rentable square foot portion(s), which approval right shall be
limited to the issue of whether the remaining space on such
floors of the Building is in a configuration which is leasable to
a third party) for terms (the "OPTION TERMS") of five (5) years
each. Notwithstanding the foregoing, if at the time Tenant
exercises its Option to Renew Tenant occupies three (3) or more
full floors in the Building, Tenant may not exercise its Option
to Renew as to any full floor unless Tenant also exercises its
Option to Renew for either all of the full floors (if any) then
leased by Tenant above such full floor or all of the full floors
(if any) then leased by Tenant below such full floor. The first
(1st) Option Term would extend the Term scheduled to expire on
December 31, 2005 and the second (2nd) Option Term would extend
the first Option Term. In no event shall Tenant be entitled to
exercise an Option to Renew for any portion of the Premises for
the second (2nd) Option Term unless Tenant timely and properly
exercises the corresponding Option to Renew for the first Option
Term. The Annual Basic Rent payable during the Option Terms shall
be equal to 95% of the Fair Market Rental Rate (defined in
Section 1.12(b) of the First Amendment) for the applicable
portion of the Premises as of the date of such exercise for the
first (1st) Option Term and 100% of the Fair Market Rental Rate
for the applicable portion of the Premises as of the date of such
exercise for the second (2nd) Option Term; however, (1) in no
event shall the Annual Basic Rent for the first (1st) Option Term
be below $2.10 per rentable square foot per month (after taking
into consideration the concessions described in the definition of
Fair Market Rental Rate), and (2) in no event shall the Annual
Basic Rent for the second (2nd) Option Term be below that
applicable during the last year of the first (1st) Option Term
(after taking into consideration the concessions described in the
definition of Fair Market Rental Rate). All other terms and
conditions of the Lease, as then amended, shall continue to apply
during the Option Terms. Each Option to Renew shall be exercised,
if at all, by written notice from Tenant to Landlord delivered
not later than nine (9) months prior to the expiration of the
then-existing Lease Term."
11. SIGNING AUTHORITY. Concurrently with Tenant's execution of this
Third Amendment, Tenant shall provide to Landlord a copy of a resolution of the
Board of Directors of Tenant authorizing the execution of this Third Amendment
on behalf of such corporation, which copy of resolution shall be duly certified
by the secretary or an assistance secretary of the corporation to be a true copy
of the resolution duly adopted by the Board of Directors of said corporation and
shall be in the form of Exhibit "D" attached hereto and made a part hereof, or
in some other form reasonably acceptable to Landlord.
12. NO FURTHER MODIFICATION. Except as set forth in this Third
Amendment, all of the terms and provisions of the Lease shall apply to the
Additional Space and shall remain unmodified and in full force and effect. From
and after the date of this Third Amendment, all references in the Lease to the
"Premises" shall refer to the Existing Premises and the Additional Space.
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<PAGE>
IN WITNESS WHEREOF, this Third Amendment has been executed as of the day
and year first above written.
"Landlord":
ARDEN REALTY FINANCE PARTNERSHIP,
L.P., a California limited partnership
By: ARDEN REALTY FINANCE, INC.,
a California corporation
Its sole general partner
By:
----------------------
VICTOR J. COLEMAN
Its: President and COO
By:
----------------------
Its:
------------------
"Tenant":
INVESTMENT TECHNOLOGY GROUP, INC., a
Delaware corporation
By:
------------------------
Its:
--------------------
By:
------------------------
Its:
--------------------
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<PAGE>
EXHIBIT "A"
FLOOR PLAN OF ADDITIONAL SPACE
<PAGE>
EXHIBIT "B"
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the construction of the Additional Space. This Tenant Work Letter is
essentially organized chronologically and addresses the issues of the
construction of the Additional Space, in sequence, as such issues will arise
during the actual construction of the Additional Space. The Additional Space may
be referred to herein as the "IMPROVED SPACE." All references in this Tenant
Work Letter to Articles or Sections of "this Third Amendment" shall mean the
relevant portions of the Third Amendment to Lease to which this Tenant Work
Letter is attached as Exhibit B, and all references in this Tenant Work Letter
to Sections of "this Tenant Work Letter" shall mean the relevant portions of
Sections 1 through 5 of this Tenant Work Letter.
SECTION 1
DELIVERY OF THE IMPROVED SPACE
Except as provided in this Section 1 below, the cost of any improvements
to the Additional Space shall be charged to the Tenant Improvement Allowance and
the Additional Space will be delivered for renovation in its presently existing
"as is" condition. However, Landlord shall, at Landlord's sole cost and expense,
perform the following work in the Additional Space prior to the Additional Space
Effective Date: (i) ensure that the Building systems, including the HVAC and
electrical systems are in good working order and condition, and (ii) perform any
work in the elevator lobby, corridors and restrooms on the sixth (6th) floor of
the Building required to bring such areas into compliance with all code
requirements in existence as of the Additional Space Effective Date. In
addition, if, as a result of applicable code requirements, Tenant is required to
make any life safety improvements on the sixth (6th) floor of the Building and
if, as a result of such life safety improvements installed by Tenant, any
modifications to the "backbone" base Building life safety system is required,
Landlord agrees to perform such modifications at Landlord's sole cost and
expense. Tenant shall be entitled to add supplemental HVAC units to the Improved
Space, subject to Landlord's review and reasonable approval of plans and
specifications for such installation and Tenant's compliance with the terms and
provisions of Article 14 of the Original Lease in connection with such
installation and Tenant's payment, pursuant to Section 18 of the Original Lease,
for any extraordinary usage of utilities resulting from such supplemental HVAC
units. If Tenant does so install any supplemental HVAC units, Tenant shall
maintain, at Tenant's sole cost and expense, a repair and maintenance contract
with a contractor reasonably approved by Landlord throughout the Lease Term in
order to provide repair and maintenance services for such equipment.
SECTION 2
TENANT IMPROVEMENTS
2.1 TENANT IMPROVEMENT ALLOWANCE. Tenant shall be entitled to a one-time
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of $458,275.00 (i.e., $25.00 per usable square foot of the Additional Space) for
the costs relating to the design and construction of Tenant's improvements which
are permanently affixed to the Additional Space (the "TENANT IMPROVEMENTS");
provided, however, that up to an amount equal to Two Dollars ($2.00) per usable
square foot of the Additional Space of the Tenant Improvement Allowance may be
used by Tenant, at Tenant's discretion, for Tenant Improvements to space leased
by Tenant in the Building other than the Additional Space. In addition to the
Tenant Improvement Allowance, Landlord shall make available to Tenant an
allowance of up to ten cents ($0.10) per usable square foot of the Additional
Space for costs relating to the preparation of a preliminary space plan for the
Additional Space. In no event shall Landlord be obligated to make disbursements
pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant
Improvement Allowance.
<PAGE>
2.2 DISBURSEMENT OF THE TENANT IMPROVEMENT ALLOWANCE.
2.2.1 TENANT IMPROVEMENT ALLOWANCE ITEMS. Except as otherwise set
forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord only for the following items and costs (collectively the
"TENANT IMPROVEMENT ALLOWANCE Items"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter and of other engineers and consultants which Tenant may reasonably
require for the design and construction of the Tenant Improvements (including,
without limitation, lighting, acoustic and ergonomic consultants), and payment
of the out-of-pocket costs (if any) incurred by Landlord and Landlord's
consultants in connection with documents and materials supplied by Landlord (if
any) and/or the review of the "Construction Drawings," as that term is defined
in Section 3.1 of this Tenant Work Letter;
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant
Improvements, including, without limitation, testing and inspection costs,
after-hours freight elevator usage, trash removal costs, and contractors' fees
and general conditions (provided, however, the Contractor and any subcontractors
shall not be charged for parking);
2.2.1.4 The cost of any changes to the Construction
Drawings or Tenant Improvements required by applicable code; and
2.2.1.5 Sales and use taxes and Title 24 fees.
2.2.2 DISBURSEMENT OF TENANT IMPROVEMENT ALLOWANCE. Landlord
shall make payment of the Tenant Improvement Allowance for the Tenant
Improvement Allowance Items pursuant to Landlord's standard draw cycle
throughout the course of construction of the Tenant Improvements. If the total
amount of the Tenant Improvement Allowance Items exceeds the amount of the
Tenant Improvement Allowance, Tenant shall pay such excess on a pro-rata basis
throughout the course of construction of the Tenant Improvements as such costs
are incurred. Such payment shall be deemed to constitute additional rent
pursuant to the Lease (as amended) and shall be made within ten (10) days after
Tenant's receipt of invoice therefore from Landlord. Landlord shall only be
obligated to make disbursements from the Tenant Improvement Allowance to the
extent costs are incurred for Tenant Improvement Allowance Items. All Tenant
Improvement Allowance Items for which the Tenant Improvement Allowance has been
made available shall be deemed Landlord's property. Tenant shall not be entitled
to any portion of the Tenant Improvement Allowance not used by Tenant on or
before the date which is six (6) months after the Additional Space Effective
Date.
2.3 SPECIFICATIONS. Landlord has established specifications (the
"Specifications") for the Building standard components to be used in the
construction of the Tenant Improvements in the Improved Space (collectively, the
"STANDARD IMPROVEMENT Package"). The quality of Tenant Improvements shall be
equal to or of greater quality than the quality of the Specifications, provided
that the Tenant Improvements shall comply with certain Specifications as
designated by Landlord. Landlord may make changes to the Specifications for the
Standard Improvement Package from time to time. However, Landlord's approval of
the Final Working Drawings (as defined in Section 3.3 of this Tenant Work
Letter) shall be conclusive as to the compliance of the Final Working Drawings
with the Specifications (to the extent Specifications are expressly delineated
in the Final Working Drawings) and Tenant shall not be obligated thereafter to
modify the Approved Working Drawings or the Tenant Improvements by reason of any
changes in the Specifications or any other failure of such drawings to comply
with the Specifications (to the extent items to which the Specifications apply
are expressly delineated in the Approved Working Drawings).
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<PAGE>
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain an
architect/space planner reasonably approved by Landlord (the "ARCHITECT") to
prepare the "Construction Drawings," as that term is defined in this Section
3.1. Tenant shall retain the engineering consultants designated by Landlord (the
"ENGINEERS") to prepare all plans and engineering working drawings relating to
the structural, mechanical, electrical, plumbing, HVAC and lifesafety work in
the Improved Space, which work is not part of the Landlord Work. Landlord shall
ensure that the charges of the Engineers are competitive (although not
necessarily the lowest available). The plans and drawings to be prepared by
Architect and the Engineers hereunder (consisting of the Final Space Plan and
the Final Working Drawings (as those terms are defined below)) shall be known
collectively as the "CONSTRUCTION DRAWINGS." All Construction Drawings shall
comply with the drawing format and specifications determined by Landlord, and
shall be subject to Landlord's approval, which Landlord shall not unreasonably
withhold or delay. Tenant and Architect shall verify, in the field, the
dimensions and conditions as shown on the relevant portions of the base building
plans, and Tenant and Architect shall be solely responsible for the same, and
Landlord shall have no responsibility in connection therewith. Landlord's review
of the Construction Drawings as set forth in this Section 3, shall be for its
sole purpose and shall not imply Landlord's review of the same, or obligate
Landlord to review the same, for quality, design, Code compliance or other like
matters. Accordingly, notwithstanding that any Construction Drawings are
reviewed by Landlord or its space planner, architect, engineers and consultants,
and notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's space planner, architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith and shall
not be responsible for any omissions or errors contained in the Construction
Drawings, and Tenant's waiver and indemnity set forth in Section 20 of the
Original Lease shall specifically apply to the Construction Drawings.
3.2 FINAL SPACE PLAN. On or before March 9, 1998, Tenant shall supply
Landlord with two (2) copies signed by Tenant of its final space plan for the
Improved Space before any architectural working drawings or engineering drawings
have been commenced. The final space plan (the "FINAL SPACE PLAN") shall include
a layout and designation of all offices, rooms and other partitioning, their
intended use, and equipment to be contained therein. Landlord may request
clarification or more specific drawings for special use items not included in
the Final Space Plan. Landlord shall advise Tenant within five (5) business days
after Landlord's receipt of the Final Space Plan for the Improved Space if the
same is unsatisfactory or incomplete in any respect and Landlord's failure to
give Tenant written notice of any such objection within said five (5)
business-day period shall be deemed approval by Landlord of the Final Space
Plan. If Tenant is so advised, Tenant shall within three (3) business days
thereafter cause the Final Space Plan to be revised to correct any deficiencies
or other matters Landlord may reasonably require.
3.3 FINAL WORKING DRAWINGS. After the Final Space Plan has been approved
by Landlord, Tenant shall supply the Engineers with a complete listing of
standard and non-standard equipment and specifications, including, without
limitation, B.T.U. calculations, electrical requirements and special electrical
receptacle requirements for the Improved Space, to enable the Engineers and the
Architect to complete the "Final Working Drawings" (as that term is defined
below) in the manner as set forth below. Within twenty-eight (28) days after
approval of the Final Space Plan by Landlord, Tenant shall promptly cause the
Architect and the Engineers to complete the architectural and engineering
drawings for the Improved Space, and Architect shall compile a fully coordinated
set of architectural, structural, mechanical, electrical and plumbing working
drawings in a form which is complete to allow subcontractors to bid on the work
and to obtain all applicable permits (collectively, the "FINAL WORKING
DRAWINGS") and shall submit the same to Landlord for Landlord's approval.
However, if Tenant reasonably determines that the Engineers are not reasonably
responsive to Tenant's requirements, Tenant may so notify Landlord in writing
and if Landlord does not cause such Engineers to be so responsive within one (1)
business day after receipt of Tenant's notice, then said twenty-eight (28) day
period shall be extended for each day after the expiration of said one (1)
business day cure period that completion of the Final Working Drawings are so
delayed as a result of the failure of the
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<PAGE>
Engineers to be reasonably responsive. Tenant shall supply Landlord with two (2)
copies signed by Tenant of such Final Working Drawings. Landlord shall advise
Tenant within five (5) business days after Landlord's receipt of the Final
Working Drawings for the Improved Space if the same is unsatisfactory or
incomplete in any respect and Landlord's failure to give Tenant written notice
of any such objection within said five (5) business-day period shall be deemed
approval by Landlord of the Final Working Drawings. If Tenant is so advised,
Tenant shall within five (5) business days thereafter revise the Final Working
Drawings in accordance with such review and any disapproval of Landlord in
connection therewith.
3.4 APPROVED WORKING DRAWINGS. The Final Working Drawings shall be
approved by Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement
of construction of the Improved Space by Landlord. After approval by Landlord of
the Final Working Drawings, Landlord shall submit the same to the appropriate
municipality for all applicable building permits. No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which consent may not be unreasonably withheld or
delayed. If Tenant proposes a change, modification or alteration to the Approved
Working Drawings, Landlord shall advise Tenant of the potential cost associated
with such change, modification or alteration and the potential Tenant Delay
which may result therefrom.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 SELECTION OF CONTRACTOR. The contractor which shall construct the
Tenant Improvements shall be a contractor selected pursuant to the following
procedure. The Final Working Drawings shall be submitted by Landlord to (i) two
(2) general contractors selected by Landlord and (ii) two (2) general
contractors selected by Tenant on or before the date the Final Working Drawings
are approved by Landlord and which contractors so selected by Tenant shall be
subject to Landlord's reasonable approval. Each such contractor shall submit a
sealed, fixed price contract bid (on such bid form as Landlord shall designate)
to construct the Tenant Improvements. Each contractor shall be notified in the
bid package of the time schedule for construction of the Tenant Improvements.
The subcontractors utilized by the Contractor shall be subject to Landlord's
reasonable approval and the bidding instructions shall provide that as to work
affecting the structure of the Building and/or the systems and equipment of the
Building, Landlord shall be entitled to designate the subcontractors. The bids
shall be submitted promptly to Landlord and a reconciliation shall be performed
by Landlord to adjust inconsistent or incorrect assumptions so that a like-kind
comparison can be made and a low bidder determined. Within ten (10) days after
the Final Working Drawings are approved by Landlord, Tenant shall select the
contractor who shall be the lowest bidder and who states that it will be able to
meet Landlord's reasonable construction schedule. The parties acknowledge that,
for purposes of the immediately preceding sentence, Landlord's reasonable
construction schedule shall not include any scheduled overtime. The contractor
selected may be referred to herein as the "CONTRACTOR". Landlord shall retain
the Contractor to construct the Tenant Improvements in accordance with the
Approved Working Drawings.
4.2 WARRANTIES. Landlord shall require that the Contractor and all
subcontractors provide industry-standard warranties for defects in workmanship
and materials.
4.3 MEETINGS. Commencing upon the execution of this Third Amendment,
Landlord and Tenant shall hold regular periodic meetings at a reasonable time
with the Architect and the Contractor regarding the progress of the preparation
of Construction Drawings and the construction of the Tenant Improvements, which
meetings shall be held at a location reasonably designated by Landlord.
SECTION 5
MISCELLANEOUS
5.1 READY FOR OCCUPANCY. For purposes of this Third Amendment, the
Additional Space shall be deemed "READY FOR OCCUPANCY" upon the Substantial
Completion of the Tenant
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<PAGE>
Improvements in the Additional Space. For purposes of this Third Amendment,
"SUBSTANTIAL COMPLETION" of the Tenant Improvements in the Additional Space
shall occur upon the completion of construction of the Tenant Improvements in
the Additional Space pursuant to the Approved Working Drawings, with the
exception of any punch list items and any tenant fixtures, work-stations,
built-in furniture, or equipment to be installed by Tenant.
5.2 DELAY OF THE SUBSTANTIAL COMPLETION. If there shall be a delay or
there are delays in the Substantial Completion of the Tenant Improvements in the
Additional Space as a result of any of the following (collectively, "TENANT
DELAYS "):
5.2.1 Tenant's failure to comply with any of the time periods set
forth in the Tenant Work Letter;
5.2.2 Tenant's failure to timely approve any matter requiring
Tenant's approval;
5.2.3 A breach by Tenant of the terms of this Tenant Work Letter
or the Lease;
5.2.4 Changes in any of the Construction Drawings after
reasonable disapproval of the same by Landlord or because the same do not comply
with Code or other applicable laws (provided, however, that changes required to
the first Final Space Plan and/or the first set of Final Working Drawings
submitted to Landlord due to Landlord's disapproval thereof (but not any
subsequent disapproval) shall not constitute a Tenant Delay hereunder provided
that Tenant resubmits revised Construction Drawings within the time periods
specified in Sections 3.2 or 3.3 above (as applicable));
5.2.5 Tenant's request for changes in the Approved Working
Drawings;
5.2.6 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
anticipated date of Substantial Completion of the Tenant Improvements in the
Additional Space, or which are different from, or not included in, the Standard
Improvement Package;
5.2.7 Any other acts or omissions of Tenant, or its agents, or
employees; then, notwithstanding anything to the contrary set forth in the Third
Amendment or this Tenant Work Letter and regardless of the actual date of the
Substantial Completion of the Tenant Improvements in the Additional Space, the
date of Substantial Completion thereof shall be deemed to be the date that
Substantial Completion would have occurred if no Tenant Delay or Delays, as set
forth above, had occurred.
5.3 TENANT'S REPRESENTATIVE. Tenant has designated Mark Wright as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Tenant Work Letter.
5.4 LANDLORD'S REPRESENTATIVE. Landlord has designated Herbert Porter
and Kimberly Harris as its sole representatives with respect to the matters set
forth in this Tenant Work Letter, each of whom, until further notice to Tenant,
shall have full authority and responsibility to act on behalf of the Landlord as
required in this Tenant Work Letter.
5.5 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by Landlord,
the procedure for preparation of the document and approval thereof shall be
repeated until the document is approved by Landlord.
5.6 TENANT'S LEASE DEFAULT. Notwithstanding any provision to the
contrary contained in this Lease, if an event of default as described in Section
25(a) of the Original Lease or this Tenant Work Letter has occurred at any time
on or before the Substantial Completion of the Improved Space, then (i) in
addition to all other rights and remedies granted to Landlord pursuant to this
Lease, Landlord may cause Contractor to cease the construction of the Improved
Space (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Improved Space caused by such work stoppage), and
(ii) all other obligations of Landlord under
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<PAGE>
the terms of this Tenant Work Letter shall be forgiven until such time as such
default is cured pursuant to the terms of the Lease, as amended by this Third
Amendment (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Improved Space caused by such inaction by
Landlord).
Page 6
<PAGE>
EXHIBIT "C"
NOTICE OF LEASE TERM DATES
AND TENANT'S PROPORTIONATE SHARE
TO:_____________________________________ DATE:_________________
_____________________________________
_____________________________________
RE: Third Amendment to Lease dated March __, 1998, between ARDEN REALTY
FINANCE PARTNERSHIP, L.P., a California limited partnership
("LANDLORD"), and INVESTMENT TECHNOLOGY GROUP, INC., a Delaware
corporation ("TENANT"), concerning the sixth (6th) floor ("ADDITIONAL
SPACE") of the building located at 400 Corporate Pointe, Culver City,
California.
Ladies and Gentlemen:
In accordance with the Third Amendment, Landlord wishes to advise and/or
confirm the following:
1. That the Additional Space has been accepted herewith by the
Tenant as being substantially complete in accordance with the Third Amendment
and that, to Tenant's knowledge, there is no deficiency in construction.
2. That the Tenant has taken possession of the Additional Space
and acknowledges that under the provisions of the Third Amendment the Term of
Tenant's lease of such space shall commence as of ____________ for a term ending
on December 31, 2005 (subject to extension as provided in Section 10 of the
Third Amendment).
3. That in accordance with the Third Amendment, Basic Rental for
the Additional Space commenced to accrue on ________________________.
4. If the Additional Space Effective Date is other than the first
day of the month, the first billing will contain a prorata adjustment. Each
billing thereafter shall be for the full amount of the monthly installment as
provided for in the Third Amendment.
5. Rent is due and payable in advance on the first day of each
and every month during the Term of said Lease. Your rent checks should be made
payable to ________________________ at
_____________________________________________.
6. The exact number of rentable square feet within the Additional
Space is 20,347 rentable square feet.
7. Tenant's Proportionate Share, as adjusted based upon the exact
number of rentable square feet within the Additional Space is 12.36%.
AGREED AND ACCEPTED:
TENANT:
___________________________,
a__________________________
By: ______________________
Its:__________________
<PAGE>
EXHIBIT "D"
CERTIFIED COPY OF
BOARD OF DIRECTORS RESOLUTIONS
OF
INVESTMENT TECHNOLOGY GROUP, INC.
The undersigned, being the duly elected Corporate Secretary of
Investment Technology Group, Inc., a Delaware corporation ("CORPORATION"),
hereby certifies that the following is a true, full and correct copy of the
resolutions adopted by the Corporation by unanimous written consent in lieu of a
special meeting of its Board of Directors, and that said resolutions have not
been amended or revoked as of the date hereof.
RESOLVED, that the Corporation, is hereby authorized to execute, deliver
and fully perform that certain document entitled Third Amendment to Lease
("AMENDMENT") by and between the Corporation and Arden Realty Finance
Partnership, L.P., a California limited partnership, for the lease of space at
400 Corporate Pointe, Culver City, California.
RESOLVED FURTHER, that the Corporation is hereby authorized and directed
to make, execute and deliver any and all, consents, certificates, documents,
instruments, amendments, confirmations, guarantees, papers or writings as may be
required in connection with or in furtherance of the Amendment (collectively
with the Amendment, the "DOCUMENTS") or any transactions described therein, and
to do any and all other acts necessary or desirable to effectuate the foregoing
resolution.
RESOLVED FURTHER, that the following officers acting together:
_______________ as _____________ and ____________ as _______________ are
authorized to execute and deliver the Documents on behalf of the Corporation,
together with any other documents and/or instruments evidencing or ancillary to
the Documents, and in such forms and on such terms as such officer(s) shall
approve, the execution thereof to be conclusive evidence of such approval and to
execute and deliver on behalf of the Corporation all other documents necessary
to effectuate said transaction in conformance with these resolutions.
Date: _____________, 1998
_____________________________________
________________, Corporate Secretary
<PAGE>
Exhibit 10.5.4
FOURTH AMENDMENT TO LEASE
(400 CORPORATE POINTE)
THIS FOURTH AMENDMENT TO LEASE ("FOURTH AMENDMENT") is made and entered
into as of the 29th day of February, 2000, by and between ARDEN REALTY FINANCE
PARTNERSHIP, L.P., a California limited partnership ("LANDLORD") and INVESTMENT
TECHNOLOGY GROUP, INC., a Delaware corporation ("TENANT").
R E C I T A L S:
A. 400 Corporate Pointe, Ltd., a California general partnership ("400
CORPORATE") and Integrated Analytics Corporation, a California corporation
("IAC") entered into that certain Standard Form Office Lease dated as of July
11, 1990 ("ORIGINAL LEASE"), whereby 400 Corporate leased to IAC and IAC leased
from 400 Corporate certain office space located in that certain building located
and addressed at 400 Corporate Pointe, Culver City, California 90230 (the
"BUILDING"). The Original Lease was subsequently amended by that certain First
Amendment to Lease dated June 1, 1995, by and between AEW/LBA Acquisition Co.
LLC, a California limited liability company ("AEW") as successor-in-interest to
400 Corporate, and Tenant, as successor-in-interest to IAC (the "FIRST
AMENDMENT"); by that certain Second Amendment to Lease dated December 5, 1996 by
and between Arden Realty Limited Partnership, a Maryland limited partnership
("ARLP") as successor-in-interest to AEW and Tenant ("SECOND AMENDMENT"); and by
that certain Third Amendment to Lease dated as of March 13, 1998 by and between
Landlord as successor-in-interest to ARLP and Tenant ("THIRD AMENDMENT"). The
Original Lease, as amended by the First Amendment, the Second Amendment, and the
Third Amendment is referred to herein as the "LEASE". Pursuant to the Lease,
Tenant currently occupies 13,696 rentable square feet located on the eighth
(8th) floor of the Building and known as Suite 855 and 5,295 rentable square
feet located on the seventh (7th) floor of the Building and known as Suite 750
and 1,263 rentable square feet located on the seventh (7th) floor of the
Building known as Suite 725, and 20,347 rentable square feet consisting of the
sixth (6th) floor of the Building, for a total of 40,601 rentable square feet
(collectively, the "EXISTING PREMISES"). B. By this Fourth Amendment, Landlord
and Tenant desire to expand the Existing Premises and to otherwise modify the
Lease as provided herein. C. Unless otherwise defined herein, capitalized terms
as used herein shall have the same meanings as given thereto in the Original
Lease.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
A G R E E M E N T:
1. EXPANSION OF THE EXISTING PREMISES. That certain space located on the
seventh (7th) floor of the Building outlined on the floor plan attached hereto
as Exhibit "A" and made a part hereof, may be referred to herein as the
"EXPANSION SPACE." Landlord and Tenant hereby stipulate that the Expansion Space
contains 7,601 rentable (6,610 usable) square feet. Effective as of the date
("EXPANSION COMMENCEMENT DATE") that is the earlier of (a) the date Tenant
commences business operations in the Expansion Space, and (b) the date of
"Substantial Completion" of the "Tenant Improvements" (as those terms are
defined in the Tenant Work Letter attached hereto as Exhibit "B") in the
Expansion Space, Tenant shall lease from Landlord and Landlord shall lease to
Tenant the Expansion Space. Landlord and Tenant hereby agree and acknowledge
that construction of the Improvements in the Expansion Space shall not commence
until the existing tenant of the Expansion Space has vacated the Expansion
Space; provided that in the event the current tenant has not vacated the
Expansion Space on or before August 31, 2000, Landlord shall immediately
commence, and thereafter diligently prosecute, unlawful
<PAGE>
detainer proceedings against such existing tenant. Except as provided in the
immediately preceding sentence, Landlord makes no representation or guaranty as
to when the existing tenant will vacate the Expansion Space and Landlord shall
not be liable in the event the existing tenant fails to vacate the Expansion
Space upon the expiration of the existing tenant's lease. Landlord and Tenant
hereby agree that such addition of the Expansion Space to the Existing Premises
shall, effective as of the Expansion Commencement Date, increase the number of
rentable square feet leased by Tenant in the Building to a total of 48,202
rentable square feet. Effective as of the Expansion Commencement Date, all
references to the "Premises" shall mean and refer to the Existing Premises as
expanded by the Expansion Space.
2. TERM AND MONTHLY BASE RENT FOR THE EXPANSION SPACE. The Lease Term
for Tenant's lease of the Expansion Space ("EXPANSION SPACE TERM") shall
commence on the Expansion Commencement Date and shall expire co-terminously with
Tenant's lease of the Existing Premises on December 31, 2005, subject to
extension as provided in Section 10 of the Third Amendment. During the Expansion
Space Term, Tenant shall pay in accordance with the provisions of this Section
2, Monthly Base Rent for the Expansion Space as follows:
<TABLE>
<CAPTION>
MONTHLY BASE RENT PER
MONTH OF EXPANSION SPACE TERM MONTHLY BASE RENT RENTABLE SQUARE FOOT
----------------------------- ----------------- --------------------
<S> <C> <C>
1-30 $16,722.20 $2.20
31 - 12/31/05 $17,482.30 $2.30
</TABLE>
3. TENANT'S PERCENTAGE OF TOTAL RENTABLE AREA. Notwithstanding anything
to the contrary in the Lease, during the Expansion Space Term, Tenant's
Percentage of Total Rentable Area for the Expansion Space only shall be 4.62%
and the Base Year (as defined in Section 1.7 of the First Amendment) for the
Expansion Space only shall be the calendar year 2000. The Base Year shall remain
the calendar year 1998 as to the space leased by Tenant on the sixth (6th) floor
of the Building, 1997 as to Suites 725 and 750, and 1995 as to the remainder of
the Premises.
4. TENANT IMPROVEMENTS. Tenant Improvements in the Expansion Space shall
be installed and constructed in accordance with the terms of the Tenant Work
Letter attached hereto as Exhibit "B" and made a part hereof.
5. PARKING. Effective as of the Expansion Commencement Date and
continuing throughout the Expansion Space Term, Tenant may rent from Landlord up
to an additional thirty (30) unreserved parking passes for use in the Building's
parking facility. Tenant may convert up to twenty-five percent (25%) of its
unreserved parking passes to reserved parking passes at a location in the
Building's parking facility reasonably designated by Landlord. Tenant's rental
and use of the additional parking passes shall be in accordance with, and
subject to, all provisions of Section 1(w) of the Original Lease, as amended,
including, without limitation, payment of the prevailing monthly parking rate
for such passes.
6. OPTION TO CANCEL. The parties hereby agree and acknowledge that
Tenant's Cancellation Option pursuant to Section 1.11 of the First Amendment as
amended by Section 9 of the Second Amendment shall not apply to the Expansion
Space.
7. NOTICE OF LEASE TERM DATES. Landlord shall deliver to Tenant a
commencement letter in a form substantially similar to that attached hereto as
Exhibit "C" and made a part hereof at any time within thirty (30) days after the
Expansion Commencement Date, accurately stating the Expansion Commencement Date
and otherwise completed in accordance with the terms of this Fourth Amendment.
Tenant agrees to execute and return to Landlord said commencement letter within
five (5) days after Tenant's receipt thereof.
8. BROKERS. Each party represents and warrants to the other that no
broker, agent or finder negotiated or was instrumental in negotiating or
consummating this Fourth Amendment, other than CB Richard Ellis, Inc., which
shall be compensated by Landlord pursuant to a separate agreement. Each party
further agrees to defend, indemnify and hold harmless the other party from and
against any claim for commission or finder's fee by any entity who claims or
alleges
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<PAGE>
that they were retained or engaged by the first party or at the request of such
party in connection with this Fourth Amendment.
9. DEFAULTS. Tenant hereby represents and warrants to Landlord that, as
of the date of this Fourth Amendment, Tenant is in full compliance with all
terms, covenants and conditions of the Lease and that there are no breaches or
defaults under the Lease by Landlord or Tenant, and that Tenant knows of no
events or circumstances which, given the passage of time, would constitute a
default under the Lease by either Landlord or Tenant.
10. SIGNING AUTHORITY. Concurrently with Tenant's execution of this
Fourth Amendment, Tenant shall provide to Landlord reasonable evidence that the
individuals executing this Fourth Amendment on behalf of Tenant are authorized
to bind the Tenant.
11. NO FURTHER MODIFICATION. Except as set forth in this Fourth
Amendment, all of the terms and provisions of the Lease shall apply with respect
to the Expansion Space and shall remain unmodified and in full force and effect.
Effective as of the Expansion Commencement Date, all references to the "Lease"
shall refer to the Lease as amended by this Fourth Amendment.
IN WITNESS WHEREOF, this Fourth Amendment has been executed as of the
day and year first above written.
"LANDLORD" ARDEN REALTY FINANCE PARTNERSHIP, L.P.,
a California limited partnership
By: ARDEN REALTY FINANCE, INC.,
a California corporation
Its: sole general partner
By:
----------------------
VICTOR J. COLEMAN
Its: President and COO
By:
----------------------
Its:
------------------
"TENANT" INVESTMENT TECHNOLOGY GROUP, INC., a
Delaware corporation
By:
------------------------
Print Name:
--------------------
Its:
--------------------
By:
------------------------
Print Name:
--------------------
Its:
--------------------
-3-
<PAGE>
EXHIBIT "A"
OUTLINE OF EXPANSION SPACE
<PAGE>
EXHIBIT "B"
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the renovation of the tenant improvements in the Expansion Space.
This Tenant Work Letter is essentially organized chronologically and addresses
the issues of the renovation of the Expansion Space, in sequence, as such issues
will arise.
SECTION 1
LANDLORD'S INITIAL CONSTRUCTION IN THE EXPANSION SPACE
Landlord has constructed, at its sole cost and expense, the base, shell
and core (i) of the Expansion Space, and (ii) of the floor of the Building on
which the Expansion Space is located (collectively, the "BASE, SHELL AND CORE").
Tenant has inspected and hereby approves the condition of the Base, Shell and
Core, and agrees that the Base, Shell and Core shall be delivered to Tenant in
its current "as-is" condition. The improvements to be initially installed in the
Expansion Space shall be designed and constructed pursuant to this Tenant Work
Letter. Any costs of initial design and construction of any improvements to the
Expansion Space shall be an "Improvement Allowance Item", as that term is
defined in Section 2.2 of this Tenant Work Letter.
SECTION 2
IMPROVEMENTS
2.1 IMPROVEMENT ALLOWANCE. Tenant shall be entitled to a one-time
improvement allowance (the "IMPROVEMENT ALLOWANCE") in the amount of $132,200.00
(based upon $20.00 per usable square foot of the Expansion Space) for the costs
relating to the initial design and construction of Tenant's improvements which
are permanently affixed to the Expansion Space (the "IMPROVEMENTS"). In no event
shall Landlord be obligated to make disbursements pursuant to this Tenant Work
Letter in a total amount which exceeds the Improvement Allowance and in no event
shall Tenant be entitled to any credit for any unused portion of the Improvement
Allowance not used by Tenant by the date which is six (6) months after the date
the existing tenant vacates the Expansion Space.
2.2 DISBURSEMENT OF THE IMPROVEMENT ALLOWANCE. Except as otherwise set
forth in this Tenant Work Letter, the Improvement Allowance shall be disbursed
by Landlord (each of which disbursements shall be made pursuant to Landlord's
standard draw cycle and disbursement process, substantially similar to that
followed with respect to the construction of improvements pursuant to the Third
Amendment) for costs related to the construction of the Improvements and for the
following items and costs (collectively, the "IMPROVEMENT ALLOWANCE ITEMS"): (i)
payment of the fees of the "Architect" and the "Engineers," as those terms are
defined in Section 3.1 of this Tenant Work Letter and of other engineers and
consultants which Tenant may reasonably require for the design and construction
of the Improvements (including, without limitation, lighting, acoustic and
ergonomic consultants), and payment of the out of pocket fees incurred by, and
the out of pocket cost of documents and materials supplied by, Landlord and
Landlord's consultants in connection with the preparation and review of the
"Construction Drawings," as that term is defined in Section 3.1 of this Tenant
Work Letter; (ii) the cost of plan check, permit and license fees relating to
construction of the Tenant Improvements; (iii) the cost of construction of the
Improvements, including, without limitation, testing and inspection costs, trash
removal costs, and contractors' fees and general conditions (provided, however,
the Contractor and any subcontractors shall not be charged for parking); (iv)
the cost of any changes in the Base, Shell and Core required by the Construction
Drawings; (v) the cost of any changes to the Construction Drawings or
Improvements required by applicable building codes (the "CODE"); (vi) the fees
of any project manager retained by Tenant to supervise the construction of the
Improvements; and (vii) the "Landlord Supervision Fee", as that term is defined
in Section 4.3.2 of this Tenant Work Letter. However, in no event shall more
than Three and 00/100 Dollars ($3.00) per usable square foot of the Tenant
Improvement Allowance be used for the items described in (i) and (ii) above; any
additional amount incurred as a result of (i) and (ii) above shall be deemed to
constitute an Over-Allowance Amount.
<PAGE>
2.3 STANDARD IMPROVEMENT PACKAGE. Landlord has established
specifications (the "SPECIFICATIONS") for the Building standard components to be
used in the construction of the Improvements in the Expansion Space
(collectively, the "STANDARD IMPROVEMENT PACKAGE"), which Specifications are
available upon request. The quality of Improvements shall be equal to or of
greater quality than the quality of the Specifications, provided that Landlord
may, at Landlord's option, require the Improvements to comply with certain
Specifications. However, Landlord's approval of the Final Working Drawings (as
defined in Section 3.3 of this Tenant Work Letter) shall be conclusive as to the
compliance of the Final Working Drawings with the Specifications (to the extent
Specifications are expressly delineated in the Final Working Drawings) and
Tenant shall not be obligated thereafter to modify the Approved Working Drawings
or the Tenant Improvements by reason of any changes in the Specifications or any
other failure of such drawings to comply with the Specifications (to the extent
items to which the Specifications apply are expressly delineated in the Approved
Working Drawings).
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain an
architect/space planner reasonably approved by Landlord (the "ARCHITECT") to
prepare the "Construction Drawings," as that term is defined in this Section
3.1. Tenant shall also retain the engineering consultants designated by Landlord
(the "ENGINEERS") to prepare all plans and engineering working drawings relating
to the structural, mechanical, electrical, plumbing, HVAC and lifesafety work of
the Tenant Improvements. Landlord shall ensure that the charges of the Engineers
are competitive (although not necessarily the lowest available). The plans and
drawings to be prepared by Architect and the Engineers hereunder shall be known
collectively as the "CONSTRUCTION DRAWINGS." All Construction Drawings shall
comply with the drawing format and specifications as reasonably determined by
Landlord, and shall be subject to Landlord's reasonable approval. Tenant and
Architect shall verify, in the field, the dimensions and conditions as shown on
the relevant portions of the base building plans, and Tenant and Architect shall
be solely responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings.
3.2 FINAL SPACE PLAN. On or before the date set forth in Schedule 1,
attached hereto, Tenant and the Architect shall prepare the final space plan for
Improvements in the Expansion Space (collectively, the "FINAL SPACE PLAN"),
which Final Space Plan shall include a layout and designation of all offices,
rooms and other partitioning, their intended use, and equipment to be contained
therein, and shall deliver the Final Space Plan to Landlord for Landlord's
approval. Landlord shall advise Tenant within five (5) business days after
Landlord's receipt of the Final Space Plan for the Expansion Space if the same
is unsatisfactory or incomplete in any respect and Landlord's failure to give
Tenant written notice of any such objection within said five (5) business-day
period shall be deemed approval by Landlord of the Final Space Plan. If Landlord
notifies Tenant that the Final Space Plan is deficient in any respect, Tenant
shall within three (3) business days thereafter cause the Final Space Plan to be
revised to correct any deficiencies or other matters Landlord may reasonably
require.
3.3 FINAL WORKING DRAWINGS. On or before the date set forth in Schedule
1, Tenant, the Architect and the Engineers shall complete the architectural and
engineering drawings for the Expansion Space, and the final architectural
working drawings in a form which is complete to allow subcontractors to bid on
the work and to obtain all applicable permits (collectively, the "FINAL WORKING
DRAWINGS") and shall submit the same to Landlord for Landlord's approval.
However, if Tenant reasonably determines that the Engineers are not reasonably
responsive to Tenant's requirements, Tenant may so notify Landlord in writing
and if Landlord does not cause such Engineers to be so responsive within one (1)
business day after receipt of Tenant's notice, then the time period set forth in
Schedule 1 shall be extended for each day after the expiration of said one (1)
business day cure period that completion of the Final Working Drawings are so
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<PAGE>
delayed as a result of the failure of the Engineers to be reasonably responsive.
Landlord shall advise Tenant within five (5) business days after Landlord's
receipt of the Final Working Drawings for the Expansion Space if the same is
unsatisfactory or incomplete in any respect and Landlord's failure to give
Tenant written notice of any such objection within said five (5) business-day
period shall be deemed approval by Landlord of the Final Working Drawings. If
Landlord notifies Tenant that the Final Working Drawings are deficient in any
respect, Tenant shall within five (5) business days thereafter revise the Final
Working Drawings in accordance with such review and any disapproval of Landlord
in connection therewith.
3.4 PERMITS. The Final Working Drawings shall be approved by Landlord
(the "APPROVED WORKING DRAWINGS") prior to the commencement of the construction
of the Improvements. Tenant shall cause the Architect to immediately submit the
Approved Working Drawings to the appropriate municipal authorities for all
applicable building permits necessary to allow "Contractor," as that term is
defined in Section 4.1, below, to commence and fully complete the construction
of the Improvements (the "PERMITS"). No changes, modifications or alterations in
the Approved Working Drawings may be made without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. If Tenant proposes a
change, modification or alteration to the Approved Working Drawings, Landlord
shall advise Tenant of the potential cost associated with such change,
modification or alteration and the potential Tenant Delay which may result
therefrom.
3.5 TIME DEADLINES. Tenant shall use its best, good faith efforts and
all due diligence to cooperate with the Architect, the Engineers, and Landlord
to complete all phases of the Construction Drawings and the permitting process
and to receive the permits, and with Contractor for approval of the "Cost
Proposal," as that term is defined in Section 4.2 of this Tenant Work Letter, as
soon as possible after the execution of the Fourth Amendment and vacation of the
Expansion Space by the existing tenant. The applicable dates for approval of
items, plans and drawings as described in this Section 3, Section 4 below, and
in this Tenant Work Letter are set forth and further elaborated upon in Schedule
1 (the "TIME DEADLINES"), attached hereto. Tenant agrees to comply with the Time
Deadlines.
SECTION 4
CONSTRUCTION OF THE IMPROVEMENTS
4.1 CONTRACTOR. The contractor which shall construct the Improvements
shall be a contractor selected pursuant to the following procedure. The Final
Working Drawings shall be submitted by Landlord to three (3) general
contractors: one (1) such general contractor shall be selected by Landlord and
the other two (2) general contractors shall be selected by Tenant on or before
the date the Final Working Drawings are approved by Landlord and Tenant and
which contractor so selected by Tenant shall be subject to Landlord's reasonable
approval. Each such contractor shall submit a sealed, fixed price contract bid
(on such bid form as Landlord shall designate) to construct the Improvements.
Each contractor shall be notified in the bid package of the time schedule for
construction of the Improvements. The subcontractors utilized by the Contractor
shall be subject to Landlord's reasonable approval and the bidding instructions
shall provide that as to work affecting the structure of the Project and/or the
systems and equipment of the Project, Landlord shall be entitled to designate
the subcontractors. The bids shall be submitted promptly to Landlord and a
reconciliation shall be performed by Landlord to adjust inconsistent or
incorrect assumptions so that a like-kind comparison can be made and a low
bidder determined. Landlord shall select the contractor who shall be the lowest
bidder and who states that it will be able to meet Landlord's reasonable
construction schedule. The contractor selected may be referred to herein as the
"CONTRACTOR".
4.2 COST PROPOSAL. After the Approved Working Drawings are signed by
Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in
accordance with the Approved Working Drawings, which cost proposal shall
include, as nearly as possible, the cost of all Improvement Allowance Items to
be incurred by Tenant in connection with the construction of the Improvements
(the "COST PROPOSAL"). Tenant shall approve and deliver the Cost Proposal to
Landlord within three (3) business days of the receipt of the same, and upon
receipt of the same by Landlord, Landlord shall be released by Tenant to
purchase the items set forth in the Cost Proposal and to commence the
construction relating to such items. The date by which Tenant must approve and
deliver the Cost Proposal to Landlord shall be known hereafter as the "COST
PROPOSAL DELIVERY DATE."
-3-
<PAGE>
4.3 CONSTRUCTION OF IMPROVEMENTS BY CONTRACTOR UNDER THE SUPERVISION OF
LANDLORD.
4.3.1 OVER-ALLOWANCE AMOUNT. On the Cost Proposal Delivery Date,
Landlord and Tenant shall determine the amount (the "OVER-ALLOWANCE AMOUNT")
equal to the difference between (i) the amount of the Cost Proposal and (ii) the
amount of the Improvement Allowance (less any portion thereof already disbursed
by Landlord, or in the process of being disbursed by Landlord, on or before the
Cost Proposal Delivery Date). Tenant shall pay such Over-Allowance Amount on a
pro-rata basis throughout the course of construction of the Improvements as such
costs are incurred. Such payment shall be deemed to constitute additional rent
pursuant to the Lease (as amended) and shall be made within ten (10) days after
Tenant's receipt of invoice therefore from Landlord. Any Over-Allowance Amount
paid to Landlord shall be disbursed by Landlord prior to the disbursement of any
then remaining portion of the Improvement Allowance, and such disbursement shall
be pursuant to the same procedure as the Improvement Allowance. In the event
that, after the Cost Proposal Delivery Date, any revisions, changes, or
substitutions shall be made to the Construction Drawings or the Improvements,
any additional costs which arise in connection with such revisions, changes or
substitutions or any other additional costs shall be paid by Tenant to Landlord
immediately upon Landlord's request as an addition to the Over-Allowance Amount.
4.3.2 LANDLORD'S RETENTION OF CONTRACTOR. Landlord shall
independently retain Contractor to construct the Improvements in accordance with
the Approved Working Drawings and the Cost Proposal and Landlord shall supervise
the construction by Contractor, and Tenant shall pay a construction supervision
and management fee (the "LANDLORD SUPERVISION FEE") to Landlord in an amount
equal to the product of (i) five percent (5%) and (ii) an amount equal to the
Improvement Allowance plus the Over-Allowance Amount (as such Over-Allowance
Amount may increase pursuant to the terms of this Tenant Work Letter).
Notwithstanding the foregoing, Landlord shall waive the Landlord Supervision Fee
in the event Tenant retains a construction manager reasonably approved by
Landlord, which construction manager may be paid from the Improvement Allowance.
4.4 WARRANTIES. Landlord shall require that the Contractor and all
subcontractors provide industry-standard warranties for defects in workmanship
and materials.
4.5 MEETINGS. Commencing upon the execution of this Fourth Amendment,
Landlord and Tenant shall hold regular periodic meetings at a reasonable time
with the Architect and the Contractor regarding the progress of the preparation
of Construction Drawings and the construction of the Improvements, which
meetings shall be held at a location reasonably designated by Landlord.
SECTION 5
COMPLETION OF THE IMPROVEMENTS
5.1 SUBSTANTIAL COMPLETION. For purposes of this Fourth Amendment,
"SUBSTANTIAL COMPLETION" of the Improvements in the Expansion Space shall occur
upon the completion of construction of the Improvements in the Expansion Space
pursuant to the Approved Working Drawings, with the exception of any punch list
items and any tenant fixtures, work-stations, built-in furniture, or equipment
to be installed by Tenant.
5.2 DELAY OF THE SUBSTANTIAL COMPLETION OF THE EXPANSION SPACE. Except
as provided in this Section 5, the Expansion Commencement Date and Tenant's
obligation to pay rent for the Expansion Space shall occur as set forth in the
Fourth Amendment. However, if there shall be a delay or there are delays in the
Substantial Completion of the Improvements in the Expansion Space as a result of
the following (collectively, "TENANT DELAYS"):
5.2.1 Tenant's failure to comply with the Time Deadlines;
5.2.2 Tenant's failure to timely approve any matter requiring Tenant's
approval;
5.2.3 A breach by Tenant of the terms of this Tenant Work Letter or the
Lease, as amended;
5.2.4 Changes in any of the Construction Drawings after disapproval of
the same by Landlord or because the same do not comply with Code or other
applicable laws (provided,
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<PAGE>
however, that changes required to the first Final Space Plan and/or the first
set of Final Working Drawings submitted to Landlord due to Landlord's
disapproval thereof (but not any subsequent disapproval) shall not constitute a
Tenant Delay hereunder provided that Tenant resubmits revised Construction
Drawings within the time periods specified in Sections 3.2 or 3.3 above (as
applicable));
5.2.5 Tenant's request for changes in the Approved Working Drawings;
5.2.6 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
anticipated date of Substantial Completion of the Improvements in the Expansion
Space, or which are different from, or not included in, the Standard Improvement
Package;
5.2.7 Changes to the Base, Shell and Core required by the Approved
Working Drawings; or
5.2.8 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Fourth Amendment
or this Tenant Work Letter and regardless of the actual date of the Substantial
Completion of Improvements in the Expansion Space, the date of Substantial
Completion thereof shall be deemed to be the date that Substantial Completion
would have occurred if no Tenant Delay or Delays, as set forth above, had
occurred.
SECTION 6
MISCELLANEOUS
6.1 TENANT'S REPRESENTATIVE. Tenant has designated Susan Nelson as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Tenant Work
Letter.
6.2 LANDLORD'S REPRESENTATIVE. Prior to commencement of construction of
Improvements, Landlord shall designate a representative with respect to the
matters set forth in this Tenant Work Letter, who, until further notice to
Tenant, shall have full authority and responsibility to act on behalf of the
Landlord as required in this Tenant Work Letter.
6.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days.
6.4 OUTSIDE DATE. In the event that the Substantial Completion of the
Improvements in the Expansion Space has not occurred by the "OUTSIDE DATE,"
which shall be March 15, 2001, as such March 15, 2001 date may be extended by
the number of days of Tenant Delays and by the number of days of "Force Majeure
Delays" (as defined below), then the sole remedy of Tenant shall be the right to
deliver a notice to Landlord (the "OUTSIDE DATE TERMINATION NOTICE") electing to
terminate Tenant's lease of the Expansion Space only (but not the Existing
Premises) effective upon receipt of the Outside Date Termination Notice by
Landlord (the "EFFECTIVE DATE"). Except as provided hereinbelow, the Outside
Date Termination Notice must be delivered by Tenant to Landlord, if at all, not
earlier than the Outside Date and not later than five (5) business days after
the Outside Date. If Tenant delivers the Outside Date Termination Notice to
Landlord, then Landlord shall have the right to suspend the Effective Date for a
period ending thirty (30) days after the original Effective Date. In order to
suspend the Effective Date, Landlord must deliver to Tenant, within five (5)
business days after receipt of the Outside Date Termination Notice, a
certificate of the Contractor certifying that it is such Contractor's best good
faith judgment that Substantial Completion of the Improvements in the Expansion
Space will occur within thirty (30) days after the original Effective Date. If
Substantial Completion of the Improvements in the Expansion Space occurs within
said thirty (30) day suspension period, then the Outside Date Termination Notice
shall be of no further force and effect; if, however, Substantial Completion of
the Improvements in the Expansion Space does not occur within said thirty (30)
day suspension period, then Tenant's lease of the Expansion Space only (but not
the Existing Premises) shall terminate as of the date of expiration of such
thirty (30) day period. If prior to the Outside Date Landlord determines that
Substantial Completion of the Improvements
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<PAGE>
in the Expansion Space will not occur by the Outside Date, Landlord shall have
the right to deliver a written notice to Tenant stating Landlord's opinion as to
the date by which Substantial Completion of the Improvements in the Expansion
Space shall occur and Tenant shall be required, within five (5) business days
after receipt of such notice, to either deliver the Outside Date Termination
Notice (which will mean that Tenant's lease of the Expansion Space only (but not
the Existing Premises) shall thereupon terminate and shall be of no further
force and effect) or agree to extend the Outside Date to that date which is set
by Landlord. Failure of Tenant to so respond in writing within said five (5)
business day period shall be deemed to constitute Tenant's agreement to extend
the Outside Date to that date which is set by Landlord. If the Outside Date is
so extended, Landlord's right to request Tenant to elect to either terminate or
further extend the Outside Date shall remain and shall continue to remain, with
each of the notice periods and response periods set forth above, until the
Substantial Completion of the Improvements in the Expansion Space or until
Tenant's lease of the Expansion Space only (but not the Existing Premises) is
terminated. For purposes of this Section 6.4, "FORCE MAJEURE DELAYS" shall mean
and refer to a period of delay or delays encountered by Landlord affecting the
work of construction of the Improvements because of delays due to excess time in
obtaining governmental permits or approvals beyond the time period normally
required to obtain such permits or approvals for similar space, similarly
improved, in commercial office buildings in Culver City, California; fire,
earthquake or other acts of God; acts of the public enemy; riot; public unrest;
insurrection; governmental regulations of the sales of materials or supplies or
the transportation thereof; strikes or boycotts; shortages of material or labor
or any other cause beyond the reasonable control of Landlord.
6.5 EXTENSION OF TIME DEADLINES. Landlord and Tenant hereby agree and
acknowledge that the Time Deadlines attached as Schedule 1 hereto are based upon
the current tenant of the Expansion Space vacating the Expansion Space no later
than July 1, 2000. In the event Landlord is notified by the existing tenant, or
otherwise determines that such existing tenant will be vacating the Expansion
Space later than July 1, 2000, Landlord shall promptly notify Tenant of such
revised date (the "VACATION DATE") and the May 1, 2000 date set forth in Section
A of Schedule 1 shall be postponed by one day for each day from July 1, 2000
until the Vacation Date; provided that if such Vacation Date is after August 31,
2000, the Vacation Date shall be deemed to be the date Landlord reasonably
estimates it will regain possession of the Expansion Space through unlawful
detainer proceedings.
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<PAGE>
SCHEDULE 1
TIME DEADLINES
Dates Actions to be Performed
----- -----------------------
A. May 1, 2000 (as such date Tenant to deliver Final Space Plan
may be extended pursuant to to Landlord.
Section 6.5 of the Tenant
Work Letter).
B. Thirty (30) days after Tenant to deliver Final Working
Landlord approves the Final Drawings to Landlord.
Space Plan
C. Three (3) business days Tenant to approve Cost Proposal
after the receipt of the and deliver Cost Proposal to
Cost Proposal by Tenant. Landlord.
<PAGE>
EXHIBIT "C"
NOTICE OF LEASE TERM DATES
TO:_____________________________________ DATE:_________________, 2000
_____________________________________
_____________________________________
Attention: _________________
RE: Fourth Amendment dated ________________, 2000, between ARDEN REALTY
FINANCE PARTNERSHIP, L.P., a California limited partnership
("LANDLORD"), and _________________________, a ________________________
("TENANT"), concerning Suite ____ (the "EXPANSION SPACE"), located at
________________________, California.
Dear Mr. [or Ms.] ____________:
In accordance with the Fourth Amendment, Landlord wishes to advise
and/or confirm the following:
1. That the Tenant is in possession of the Expansion Space and
acknowledges that under the provisions of the Fourth Amendment, the Expansion
Space Term commenced as of ________________, 200_ and shall expire on
_________________________.
2. That in accordance with the Fourth Amendment, Monthly Base Rent for
the Expansion Space Term commenced to accrue on ________________, 200_.
3. The exact number of rentable square feet within the Expansion Space
is _________ square feet.
4. Tenant's Percentage of Total Rentable Area, as adjusted based upon
the number of rentable square feet within the Expansion Space, is _______%.
AGREED AND ACCEPTED:
TENANT:
__________________________________,
a_________________________________
By:_______________________________
Print Name:_______________________
Its:___________________________
By:_______________________________
Print Name:_______________________
Its:___________________________
<PAGE>
Exhibit 10.5.5
STANDARD OFFICE LEASE
This Standard Office Lease ("LEASE") is made and entered into as of this
29th day of February, 2000, by and between ARDEN REALTY FINANCE IV, L.L.C., a
Delaware limited liability company ("LANDLORD"), and INVESTMENT TECHNOLOGY
GROUP, INC., a Delaware corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the premises described as Suite No. 1200, as designated on the plan attached
hereto and incorporated herein as Exhibit "A" ("PREMISES"), of the project
("PROJECT") whose address is 600 Corporate Pointe, Culver City, California for
the Term and upon the terms and conditions hereinafter set forth, and Landlord
and Tenant hereby agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
A. TERM: Five (5) years, nine (9) months
and seventeen (17) days
COMMENCEMENT DATE: March 15, 2000.
EXPIRATION DATE: December 31, 2005.
B. SQUARE FOOTAGE: 23,520 rentable (22,206 usable)
square feet
C. Basic Rental:
<TABLE>
<CAPTION>
Annual Monthly Monthly Basic Rental
Lease Month Basic Rental Basic Rental Per Rentable Square Foot
----------- ------------ ------------ ------------------------
<S> <C> <C> <C>
1-30* $635,040.00 $52,920.00 $2.25
31-69 $663,264.00 $55,272.00 $2.35
</TABLE>
*Including the partial month at the beginning of the Term
D. BASE YEAR: 2000
E. TENANT'S PROPORTIONATE SHARE: 8.60%
F. SECURITY DEPOSIT: A security deposit of
$55,272.00 shall be due and
payable by Tenant to Landlord
upon Tenant's execution of this
Lease.
G. PERMITTED USE: General office use
H. BROKERS: CB Richard Ellis, Inc.
I. PARKING PASSES: Tenant shall have the
use of up to four (4)
unreserved parking passes for
each 1,000 usable square feet
contained in the Premises,
which equals eighty-nine (89)
passes, at the rate provided in
Article 23 hereof.
J. FIRST MONTH'S RENT: The first full month's rent of
$52,920.00 shall be due and
payable by Tenant to Landlord
upon Tenant's execution of this
Lease.
ARTICLE 2
TERM/PREMISES
The Term of this Lease shall commence on the Commencement Date as set
forth in Article 1.A. of the Basic Lease Provisions and shall end on the
Expiration Date set forth in Article 1.A. of the Basic Lease Provisions. For
purposes of this Lease, the term "LEASE YEAR"
<PAGE>
shall mean each consecutive twelve (12) month period during the Lease Term, with
the first Lease Year commencing on the Commencement Date; however, (a) if the
Commencement Date falls on a day other than the first day of a calendar month,
the first Lease Year shall end on the last day of the eleventh (11th) month
after the Commencement Date and the second (2nd) and each succeeding Lease Year
shall commence on the first day of the next calendar month, and (b) the last
Lease Year shall end on the Expiration Date. Landlord and Tenant hereby agree
and acknowledge that this Lease is hereby made expressly contingent upon
Landlord's successful consummation of a lease termination agreement with the
existing tenant of the Premises. In the event Landlord does not consummate a
lease termination agreement with the existing tenant on or before April 15,
2000, Tenant shall have the right to terminate this Lease upon written notice to
Landlord given at any time prior to the time such termination agreement has been
consummated and written notice thereof has been delivered to Tenant. In
addition, in the event the current tenant has not actually vacated the Premises
on or before May 15, 2000, Tenant shall have the right to terminate this Lease
upon written notice to Landlord given at any time prior to the time such
existing tenant vacates the Premises and Landlord makes possession of the
Premises available to Tenant. If Landlord is unable to deliver possession of the
Premises to Tenant on or before the anticipated Commencement Date, Landlord
shall not be subject to any liability for its failure to do so, and, except as
set forth above, such failure shall not affect the validity of this Lease nor
the obligations of Tenant hereunder. Landlord and Tenant hereby stipulate that
the Premises contains the number of square feet specified in Article 1.B. of the
Basic Lease Provisions. Within thirty (30) days after the Commencement Date,
Landlord shall deliver to Tenant a Commencement Letter in a form substantially
similar to that attached hereto as Exhibit "C", accurately stating the
Commencement Date and otherwise completed in accordance with the terms of this
Lease. Within ten (10) days after receipt of the Commencement Letter, Tenant
shall execute and return to Landlord the Commencement Letter after making any
changes necessary to make such letter factually accurate. Failure of Tenant to
timely execute and deliver the Commencement Letter shall constitute
acknowledgment by Tenant that the statements included in such notice in good
faith are true and correct, without exception.
ARTICLE 3
RENTAL
(a) BASIC RENTAL. Tenant agrees to pay to Landlord during the Term
hereof, at Landlord's office or to such other person or at such other place as
directed from time to time by written notice to Tenant from Landlord, the
initial monthly and annual sums as set forth in Article 1.C of the Basic Lease
Provisions, payable in advance on the first day of each calendar month, without
demand, setoff or deduction, except as otherwise expressly provided in this
Lease and in the event this Lease commences or the date of expiration of this
Lease occurs other than on the first day or last day of a calendar month, the
rent for such month shall be prorated. Notwithstanding the foregoing, the first
full month's rent shall be paid to Landlord in accordance with Article 1.J. of
the Basic Lease. On the first day of the first full calendar month after the
Commencement Date, Tenant shall pay a prorated amount of Basic Rental, which
amount shall be prorated based upon the length of time from the Commencement
Date through the last day of the calendar month in which the Commencement Date
occurred.
(b) INCREASE IN DIRECT COSTS. The term "BASE YEAR" means the calendar
year set forth in Article 1.D. of the Basic Lease Provisions. If, in any
calendar year during the Term of this Lease, the "Direct Costs" (as hereinafter
defined) paid or incurred by Landlord shall be higher than the Direct Costs for
the Base Year, Tenant shall pay an additional sum for such and each subsequent
calendar year equal to the product of the amount set forth in Article 1.E. of
the Basic Lease Provisions multiplied by such increased amount of "Direct
Costs." In the event either the Premises and/or the Project is expanded or
reduced, then Tenant's Proportionate Share shall be appropriately adjusted, and
as to the calendar year in which such change occurs, Tenant's Proportionate
Share for such year shall be determined on the basis of the number of days
during that particular calendar year that such Tenant's Proportionate Share was
in effect. In the event this Lease shall terminate on any date other than the
last day of a calendar year, the additional sum payable hereunder by Tenant
during the calendar year in which this Lease terminates shall be prorated on the
basis of the relationship which the number of days which have elapsed from the
commencement of said calendar year to and including said date on which this
Lease terminates bears to three hundred sixty-five (365). Any and all amounts
due and payable by
-2-
<PAGE>
Tenant pursuant to Article 3(b),(c) and (d) hereof shall be deemed "ADDITIONAL
RENT" and Landlord shall be entitled to exercise the same rights and remedies
upon default in these payments as Landlord is entitled to exercise with respect
to defaults in monthly Basic Rental payments.
(c) DEFINITIONS. As used herein the term "DIRECT COSTS" shall mean the
sum of the following:
(i) "TAX COSTS", which shall mean any and all real estate taxes and
other similar charges on real property or improvements, assessments, water and
sewer charges, and all other charges assessed, reassessed or levied upon the
Project and appurtenances thereto and the parking or other facilities thereof,
or the real property thereunder (collectively the "REAL PROPERTY") or
attributable thereto or on the rents, issues, profits or income received or
derived therefrom which are assessed, reassessed or levied by the United States,
the State of California or any local government authority or agency or any
political subdivision thereof, and shall include Landlord's reasonable legal
fees, costs and disbursements incurred in connection with proceedings for
reduction of Tax Costs or any part thereof; provided, however, if at any time
after the date of this Lease the methods of taxation now prevailing shall be
altered so that in lieu of or as a supplement to or a substitute for the whole
or any part of any Tax Costs, there shall be assessed, reassessed or levied (a)
a tax, assessment, reassessment, levy, imposition or charge wholly or partially
on the rents, or (b) a tax, assessment, reassessment, levy (including but not
limited to any municipal, state or federal levy), imposition or charge measured
by or based in whole or in part upon the Real Property and imposed upon
Landlord, or (c) a license fee measured by the rent payable under this Lease,
then all such taxes, assessments, reassessments or levies or the part thereof so
measured or based, shall be deemed to be included in the term "Direct Costs." In
no event shall Tax Costs included in Direct Costs for any year subsequent to the
Base Year be less than the amount of Tax Costs included in Direct Costs for the
Base Year (i.e., in the event Tax Costs for any comparison year are lower than
the Base Year Tax Costs, Tenant's Proportionate Share of Tax Costs for such
comparison year shall be zero). In addition, when calculating Tax Costs for the
Base Year, special assessments shall only be deemed included in Tax Costs for
the Base Year to the extent that such special assessments are included in Tax
Costs for the applicable subsequent calendar year during the Term.
Notwithstanding anything to the contrary contained in this Section 3(c)(i),
there shall be excluded from Tax Costs (i) all excess profits taxes, franchise
taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate
taxes, federal and state income taxes, and other taxes to the extent applicable
to Landlord's general or net income (as opposed to rents or receipts
attributable to operations at the Project), (ii) any items included as Operating
Costs, and (iii) any items paid by Tenant under Article 6 of this Lease.
(ii) "OPERATING COSTS", which shall mean all costs and expenses
incurred by Landlord in connection with the maintenance, operation, replacement,
ownership and repair of the Project, the equipment, the intrabuilding network
cable, adjacent walks, malls and landscaped and common areas and the parking
structure, areas and facilities of the Project, including, but not limited to,
salaries, wages, medical, surgical and general welfare benefits and pension
payments, payroll taxes, fringe benefits, employment taxes, workers'
compensation, uniforms and dry cleaning thereof for all persons who perform
duties connected with the operation, maintenance and repair of the Project, its
equipment, the intrabuilding network cable and the adjacent walks and landscaped
areas, including janitorial, gardening, security, parking, operating engineer,
elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air
conditioning, window washing, hired services, a reasonable allowance for
depreciation of the cost of acquiring or the rental expense of personal property
used in the maintenance, operation and repair of the Project, accountant's fees
incurred in the preparation of rent adjustment statements, legal fees, real
estate tax consulting fees, personal property taxes on property used in the
maintenance and operation of the Project, fees, costs, expenses or dues payable
pursuant to the terms of any covenants, conditions or restrictions or owners'
association pertaining to the Project, capital expenditures incurred to effect
economies of operation of, or stability of services to, the Project and capital
expenditures required by government regulations, laws, or ordinances not in
effect as of the Commencement Date (provided that any capital costs shall be
amortized over their useful life in accordance with Landlord's standard
accounting practices); the cost of all charges for electricity, gas, water and
other utilities furnished to the Project, including any taxes thereon; the cost
of all charges for fire and extended coverage, liability and all other insurance
for the Project carried by Landlord (provided, however, that if Landlord does
not carry earthquake insurance for the
-3-
<PAGE>
Project during any part of the Base Year, but subsequently obtains earthquake
insurance for the Project during the Lease Term, then from and after the date
upon which Landlord obtains such earthquake insurance and continuing throughout
the period during which Landlord maintains such insurance, Operating Costs for
the Base Year shall be deemed to be increased by the amount of the premium
Landlord reasonably estimates it would have incurred had Landlord maintained
such insurance for the same period of time during the Base Year as such
insurance was maintained by Landlord during such subsequent calendar year); the
cost of all building and cleaning supplies and materials; the cost of all
charges for cleaning, maintenance and service contracts and other services with
independent contractors and administration fees; a property management fee
(which fee may be imputed if Landlord has internalized management or otherwise
acts as its own property manager, but which fees shall be comparable to fees
charged by comparable landlords for comparable services in the vicinity of the
Project) and license, permit and inspection fees relating to the Project. In the
event, during any calendar year, the Project is less than ninety-five percent
(95%) occupied at all times, Operating Costs shall be adjusted to reflect the
Operating Costs of the Project as though ninety-five percent (95%) were occupied
at all times, and the increase or decrease in the sums owed hereunder shall be
based upon such Operating Costs as so adjusted. Notwithstanding anything to the
contrary set forth in this Article 3, when calculating Operating Costs for the
Base Year, unless Operating Costs for the applicable subsequent calendar year
include the following items, Operating Costs shall exclude (a) market-wide
labor-rate increases due to extraordinary circumstances including, but not
limited to, boycotts and strikes, (b) utility rate increases due to
extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages, and (c) amortization of any
capital items including, but not limited to, capital improvements, capital
repairs and capital replacements (including such amortized costs where the
actual improvement, repair or replacement was made in prior years). Similarly,
in calculating Operating Costs for the Base Year, there shall be added, to the
extent Operating Costs for the applicable subsequent year are increased due to
such items, the following extraordinary or non-recurring reductions in Operating
Costs for the Base Year (to the extent applicable), (i) credits, refunds or
rebates related to overpayments in prior years, (ii) "teaser" rates and one-time
discounts, and (iii) delays or deferrals in assessment or billing for property
tax increases due to a change of ownership or improvements occurring or
completed during or prior to the Base Year.
Notwithstanding anything above to the contrary, Operating Costs shall
not include (1) the cost of providing any service directly to and paid directly
by any tenant (outside of such tenant's Direct Cost payments); (2) the cost of
any items for which Landlord is reimbursed by insurance proceeds, condemnation
awards, a tenant of the Project, or otherwise to the extent so reimbursed; (3)
any real estate brokerage commissions or other costs incurred in procuring
tenants, or any fee in lieu of commission; (4) depreciation, amortization of
principal and interest on mortgages or ground lease payments (if any); (5) costs
of items considered capital repairs, replacements, improvements and equipment
under generally accepted accounting principles consistently applied except as
expressly included in Operating Costs pursuant to the definition above; (6)
costs incurred by Landlord due to the violation by Landlord or any tenant of the
terms and conditions of any lease of space in the Project or any law, code,
regulation, ordinance or the like; (7) Landlord's general corporate overhead and
general and administrative expenses; (8) any compensation paid to clerks,
attendants or other persons in commercial concessions operated by Landlord
(other than in the parking facility for the Project); (9) costs incurred in
connection with upgrading the Project to comply with disability, life, seismic,
fire and safety codes, ordinances, statutes, or other laws in effect prior to
the Commencement Date, including, without limitation, the Americans with
Disabilities Act ("ADA"), including penalties or damages incurred due to such
non-compliance; (10) bad debt expenses and interest, principal, points and fees
on debts (except in connection with the financing of items which may be included
in Operating Costs) or amortization on any ground lease, mortgage or mortgages
or any other debt instrument encumbering the Project (including the land on
which the Project is situated); (11) marketing costs, including leasing
commissions, attorneys' fees in connection with the negotiation and preparation
of letters, deal memos, letters of intent, leases, subleases and/or assignments,
space planning costs, and other costs and expenses incurred in connection with
lease, sublease and/or assignment negotiations and transactions with present or
prospective tenants or other occupants of the Project, including attorneys' fees
and other costs and expenditures incurred in connection with disputes with
present or prospective tenants or other occupants of the Project; (12) real
estate brokers' leasing commissions; (13) costs, including permit, license and
inspection costs, incurred with respect to the installation of other tenants' or
occupants' improvements made for tenants or other occupants in the Project or
incurred in renovating or otherwise improving,
-4-
<PAGE>
decorating, painting or redecorating vacant space for tenants or other occupants
in the Project; (14) any costs expressly excluded from Operating Costs elsewhere
in this Lease; (15) costs of any items (including, but not limited to, costs
incurred by Landlord for the repair of damage to the Project) to the extent
Landlord receives reimbursement from insurance proceeds or from a third party
(except that any deductible amount under any insurance policy shall be included
within Operating Costs); (16) rentals and other related expenses for leasing an
HVAC system, elevators, or other items (except when needed in connection with
normal repairs and maintenance of the Project) which if purchased, rather than
rented, would constitute a capital improvement not included in Operating Costs
pursuant to this Lease; (17) depreciation, amortization and interest payments,
except as specifically included in Operating Costs pursuant to the terms of this
Lease and except on materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services Landlord might
otherwise contract for with a third party, where such depreciation, amortization
and interest payments would otherwise have been included in the charge for such
third party's services, all as determined in accordance with generally accepted
accounting principles, consistently applied, and when depreciation or
amortization is permitted or required, the item shall be amortized over its
reasonably anticipated useful life; (18) costs incurred by Landlord for
alterations (including structural additions), repairs, equipment and tools which
are of a capital nature and/or which are considered capital improvements or
replacements under generally accepted accounting principles, consistently
applied, except as specifically included in Operating Costs pursuant to the
terms of this Lease; (19) expenses in connection with services or other benefits
which are not offered to Tenant or for which Tenant is charged for directly but
which are provided to another tenant or occupant of the Project, without charge;
(20) electric power costs or other utility costs for which any tenant directly
contracts with the local public service company (but Landlord shall have the
right to "gross up" as if such space was vacant); (21) costs incurred in
connection with the operation of retail stores selling merchandise and
restaurants in the Project to the extent such costs are in excess of the costs
Landlord reasonably estimates would have been incurred had such space been used
for general office use; (22) costs (including in connection therewith all
attorneys' fees and costs of settlement, judgments and/or payments in lieu
thereof) arising from claims, disputes or potential disputes in connection with
potential or actual claims litigation or arbitrations pertaining to Landlord
and/or the Project, other than such claims or disputes respecting any services
or equipment used in the operation of the Building by Landlord, the cost of
which are included in Operating Costs; (23) costs associated with the operation
of the business of the partnership which constitutes Landlord as the same are
distinguished from the costs of operation of the Project; (24) costs incurred in
connection with the original construction of the Project; (25) costs of
correcting defects in or inadequacy of the initial design or construction of the
Project; (26) costs incurred to (i) comply with laws relating to the removal of
any "Hazardous Material," as that term is defined in Article 28 of this Lease,
which was in existence on the Project prior to the Commencement Date, and was of
such a nature that a federal, state or municipal governmental authority, if it
had then had knowledge of the presence of such Hazardous Material, in the state,
and under the conditions that it then existed on the Project, would have then
required the removal of such Hazardous Material or other remedial or containment
action with respect thereto, and (ii) to remove, remedy, contain, or treat any
Hazardous Material, which Hazardous Material is brought onto the Project after
the date hereof by Landlord or any other tenant of the Project and is of such a
nature, at that time, that a federal, state or municipal governmental authority,
if it had then had knowledge of the presence of such Hazardous Material, in the
state, and under the conditions, that it then exists on the Project, would have
then required the removal of such Hazardous Material or other remedial or
containment action with respect thereto; and (27) costs incurred in connection
with the buying, selling, mortgaging or financing of the Project (provided that
the foregoing shall not apply to any reassessment under Proposition 13); (28)
costs and expenses otherwise includable in Operating Costs to the extent the
same arise from the gross negligence or tortious acts of Landlord or any of
Landlord's agents, employees or contractors; (29) any overhead and/or profit
increment paid to Landlord or to subsidiaries or affiliates or Landlord for
services in the Project to the extent the same exceed the amount which would
generally be expected to be the cost of such services rendered by comparably
qualified unaffiliated third parties; and (30) any item to the extent the costs
thereof has already been included in Direct Costs under another category.
(d) DETERMINATION OF PAYMENT.
(i) If for any calendar year ending or commencing within the
Term, Tenant's Proportionate Share of Direct Costs for such calendar year
exceeds Tenant's Proportionate Share
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<PAGE>
of Direct Costs for the Base Year, then Tenant shall pay to Landlord, in the
manner set forth in Sections 3(d)(ii) and (iii), below, and as additional rent,
an amount equal to the excess (the "EXCESS").
(ii) Landlord shall give Tenant a yearly expense estimate
statement (the "ESTIMATE STATEMENT") which shall set forth Landlord's reasonable
estimate (the "ESTIMATE") of what the total amount of Direct Costs for the
then-current calendar year shall be and the estimated Excess (the "ESTIMATED
EXCESS") as calculated by comparing Tenant's Proportionate Share of Direct Costs
for such calendar year, which shall be based upon the Estimate, to Tenant's
Proportionate Share of Direct Costs for the Base Year. The failure of Landlord
to timely furnish the Estimate Statement for any calendar year shall not
preclude Landlord from enforcing its rights to collect any Estimated Excess
under this Article 3. If pursuant to the Estimate Statement an Estimated Excess
is calculated for the then-current calendar year, Tenant shall pay, with its
next installment of Monthly Basic Rental due, a fraction of the Estimated Excess
for the then-current calendar year (reduced by any amounts paid pursuant to the
last sentence of this Section 3(d)(ii)). Such fraction shall have as its
numerator the number of months which have elapsed in such current calendar year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the Monthly Basic Rental installments, an amount equal to
one-twelfth (1/12) of the total Estimated Excess set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
(iii) In addition, Landlord shall endeavor to give to Tenant
on or before the first day of April following the end of each calendar year, a
statement (the "STATEMENT") which shall state the Direct Costs incurred or
accrued for such preceding calendar year, and which shall indicate the amount,
if any, of the Excess. Upon receipt of the Statement for each calendar year
during the Term, if amounts paid by Tenant as Estimated Excess are less than the
actual Excess as specified on the Statement, Tenant shall pay, with its next
installment of Monthly Basic Rental due, the full amount of the Excess for such
calendar year, less the amounts, if any, paid during such calendar year as
Estimated Excess. If, however, the Statement indicates that amounts paid by
Tenant as Estimated Excess are greater than the actual Excess as specified on
the Statement, such overpayment shall be credited against Tenant's next
installments of Estimated Excess. The failure of Landlord to timely furnish the
Statement for any calendar year shall not prejudice Landlord from enforcing its
rights under this Article 3. Even though the Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's
Proportionate Share of the Direct Costs for the calendar year in which this
Lease terminates, if an Excess is present, Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of this Article
3(d). In the event the Statement shows that an overpayment has been made,
Landlord will refund such overpayment to Tenant within thirty (30) days after
delivery of the Statement by Landlord. The provisions of this Section 3(d)(iii)
shall survive the expiration or earlier termination of the Term.
(iv) Within one hundred twenty (120) days after receipt of a
Statement by Tenant ("REVIEW PERIOD"), if Tenant disputes the amount set forth
in the Statement, Tenant's employees or an independent certified public
accountant (which accountant is a member of a nationally or regionally
recognized accounting firm and is hired on a non-contingency fee basis),
designated by Tenant, may, after reasonable notice to Landlord and at reasonable
times, inspect Landlord's records at Landlord's offices, provided that Tenant is
not then in default after expiration of all applicable cure periods of any
obligation under this Lease (including, but not limited to, the payment of the
amount in dispute) and provided further that Tenant and such accountant or
representative shall, and each of them shall use their commercially reasonable
efforts to cause their respective agents and employees to, maintain all
information contained in Landlord's records in strict confidence.
Notwithstanding the foregoing, Tenant shall only have the right to review
Landlord's records one (1) time during any twelve (12) month period. Tenant's
failure to dispute the amounts set forth in any Statement within the Review
Period shall be deemed to be Tenant's approval of such Statement and Tenant,
thereafter, waives the right or ability to dispute the amounts set forth in such
Statement. If after such inspection, but within thirty (30) days after the
Review Period, Tenant notifies Landlord in writing that Tenant still disputes
such amounts, a certification as to the proper amount shall be made in
accordance with Landlord's standard accounting practices, at Tenant's expense,
by an independent certified public accountant selected by Landlord, and
reasonably approved by Tenant, and who is a member of a nationally or regionally
recognized accounting firm, which certification shall be binding upon
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<PAGE>
Landlord and Tenant. Landlord shall cooperate in good faith with Tenant and the
accountant to show Tenant and the accountant the information upon which the
certification is to be based. However, if such certification by the accountant
proves that the Direct Costs set forth in the Statement were overstated by more
than five percent (5%), then the cost of both accountants and the cost of such
certification shall be paid for by Landlord, within thirty (30) days after
invoicing by Tenant. Promptly following the parties receipt of such
certification, the parties shall make such appropriate payments or
reimbursements, as the case may be, to each other, as are determined to be owing
pursuant to such certification. Tenant agrees that this section shall be the
sole method to be used by Tenant to dispute the amount of any Direct Costs
payable by Tenant pursuant to the terms of this Lease, and Tenant hereby waives
any other rights at law or in equity relating thereto.
(v) If the Project is a party of a multi-building development
those Direct Costs attributable to such development as a whole (and not
attributable solely to any individual building therein) shall be allocated by
Landlord to the Project and to the other buildings within such development on an
equitable and consistent basis.
ARTICLE 4
SECURITY DEPOSIT
Tenant has deposited with Landlord the sum set forth in Article 1.F. of
the Basic Lease Provisions as security for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant breaches any
provision of this Lease, including but not limited to the payment of rent,
Landlord may use all or any part of this security deposit for the payment of any
rent or any other sums in default, or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. Tenant agrees
that Landlord shall not be required to keep the security deposit in trust,
segregate it or keep it separate from Landlord's general funds but Landlord may
commingle the security deposit with its general funds and Tenant shall not be
entitled to interest on such deposit. At the expiration of the Lease Term, and
provided there exists no default by Tenant hereunder, the security deposit or
any balance thereof shall be returned to Tenant (or, at Landlord's option, to
Tenant's assignee), provided that subsequent to the expiration of this Lease,
Landlord may retain from said security deposit (i) an amount reasonably
estimated by Landlord to cover potential Direct Cost reconciliation payments due
with respect to the calendar year in which this Lease terminates or expires
(such amount so retained shall not, in any event, exceed ten percent (10%) of
estimated Direct Cost payments due from Tenant for such calendar year through
the date of expiration or earlier termination of this Lease and any amounts so
retained and not applied to such reconciliation shall be returned to Tenant
within thirty (30) days after Landlord's delivery of the Statement for such
calendar year), (ii) any and all amounts reasonably estimated by Landlord to
cover the anticipated costs to be incurred by Landlord to remove any signage
provided to Tenant under this Lease and to repair any damage caused by such
removal (in which case any excess amount so retained by Landlord shall be
returned to Tenant within thirty (30) days after such removal and repair), and
(iii) any and all amounts permitted by law or this Article 4. Tenant hereby
waives the provisions of Section 1950.7 of the California Civil Code and all
other provisions of law, now or hereafter in effect, to the extent the same are
inconsistent with Landlord's right to claim those sums specified in this Article
4 above and/or those sums reasonably necessary to compensate Landlord for any
other loss or damage, foreseeable or unforeseeable, caused by the acts or
omissions of Tenant or any officer, employee, agent, contractor or invitee of
Tenant.
ARTICLE 5
HOLDING OVER
Should Tenant, without Landlord's written consent, hold over after
termination of this Lease, Tenant shall become a tenant from month to month,
only upon each and all of the terms herein provided as may be applicable to a
month to month tenancy and any such holding over shall not constitute an
extension of this Lease. During such holding over, Tenant shall pay in advance,
monthly, Basic Rental at one hundred fifty percent (150%) of the rate in effect
for the
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last month of the Term of this Lease, in addition to, and not in lieu
of, all other payments required to be made by Tenant hereunder including but not
limited to Tenant's Proportionate Share of any increase in Direct Costs. Nothing
contained in this Article 5 shall be construed as consent by Landlord to any
holding over of the Premises by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or earlier termination of the Term.
If Landlord notifies Tenant in writing at least thirty (30) days prior to the
Lease Expiration Date that Landlord has a signed proposal from a succeeding
tenant to lease the Premises, and if Tenant fails to surrender the Premises upon
the expiration or termination of this Lease, Tenant agrees to indemnify, defend
and hold Landlord harmless from all costs, loss, expense or liability, including
without limitation, claims made by any succeeding tenant and real estate brokers
claims and attorney's fees and costs.
ARTICLE 6
PERSONAL PROPERTY TAXES
Tenant shall pay, prior to delinquency, all taxes assessed against or
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant located in the Premises. In the event any or all of Tenant's
trade fixtures, furnishings, equipment and other personal property shall be
assessed and taxed with property of Landlord, or if the cost or value of any
leasehold improvements in the Premises exceeds the cost or value of a
Project-standard buildout as determined by Landlord and, as a result, real
property taxes for the Project are increased, Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to Tenant by Landlord of
a statement in writing setting forth the amount of such taxes applicable to
Tenant's property or above-standard improvements. Tenant shall assume and pay to
Landlord at the time of paying Basic Rental any excise, sales, use, rent,
occupancy, garage, parking, gross receipts or other taxes (other than net income
taxes) which may be imposed on or on account of letting of the Premises or the
payment of Basic Rental or any other sums due or payable hereunder, and which
Landlord may be required to pay or collect under any law now in effect or
hereafter enacted. Tenant shall pay directly to the party or entity entitled
thereto all business license fees, gross receipts taxes and similar taxes and
impositions which may from time to time be assessed against or levied upon
Tenant, as and when the same become due and before delinquency. Notwithstanding
anything to the contrary contained herein, any sums payable by Tenant under this
Article 6 shall not be included in the computation of "Tax Costs."
ARTICLE 7
USE
Tenant shall use and occupy the Premises only for the use set forth in
Article 1.G. of the Basic Lease Provisions and shall not use or occupy the
Premises or permit the same to be used or occupied for any other purpose without
the prior written consent of Landlord, which consent may be given or withheld in
Landlord's sole and absolute discretion, and Tenant agrees that it will use the
Premises in such a manner so as not to interfere with or infringe the rights of
other tenants in the Project. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental regulations
or requirements now in force or which may hereafter be in force relating to or
affecting (i) the condition, use or occupancy of the Premises or the Project
excluding structural changes to the Project not related to Tenant's particular
use of the Premises, and (ii) improvements installed or constructed in the
Premises by or for the benefit of Tenant. Tenant shall not do or permit to be
done anything which would invalidate or increase the cost of any fire and
extended coverage insurance policy covering the Project and/or the property
located therein and Tenant shall comply with all rules, orders, regulations and
requirements of any organization which sets out standards, requirements or
recommendations commonly referred to by major fire insurance underwriters.
Tenant shall promptly upon demand reimburse Landlord for any additional premium
charges for any such insurance policy assessed or increased by reason of
Tenant's failure to comply with the provisions of this Article. Landlord
represents that Landlord has taken or shall take the necessary steps to comply
with what Landlord reasonably believes are the requirements of ADA in effect as
of the date of this Lease as it pertains to the common areas within the Project.
Operating Costs shall not include any cost incurred by Landlord in connection
with upgrading the Project to comply with the requirements
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of the ADA that are in effect as of the date of this Lease, including penalties
or damages incurred due to such noncompliance.
ARTICLE 8
CONDITION OF PREMISES
The parties acknowledge that until the "Start Date," as the term is
defined in the Tenant Work Letter, the Premises shall be leased to Tenant in its
"as is" condition. Thereafter, the Premises shall be renovated as provided in,
and subject to, the Tenant Work Letter attached hereto as Exhibit "D" and made a
part hereof. The existing leasehold improvements in the Premises as of the date
of this Lease, together with the Improvements (as defined in the Tenant Work
Letter) may be collectively referred to herein as the "TENANT IMPROVEMENTS." The
taking of possession of the Premises by Tenant shall conclusively establish that
the Premises and the Project were at such time in satisfactory condition;
provided, however, that the foregoing shall not be deemed to relieve Landlord of
any repair obligations otherwise set forth in this Lease. Tenant hereby waives
subsection 1 of Section 1932 and Sections 1941 and 1942 of the Civil Code of
California or any successor provision of law.
Landlord reserves the right from time to time, but subject to payment by
and/or reimbursement from Tenant as otherwise provided herein: (i) to install,
use, maintain, repair, replace and relocate for service to the Premises and/or
other parts of the Project pipes, ducts, conduits, wires, appurtenant fixtures,
and mechanical systems, wherever located in the Premises or the Project, (ii) to
alter, close or relocate any facility in the Premises or the Common Areas or
otherwise conduct any of the above activities for the purpose of complying with
a general plan for fire/life safety for the Project or otherwise and (iii) to
comply with any federal, state or local law, rule or order with respect thereto
or the regulation thereof not currently in effect. Landlord shall attempt to
perform any such work with the least inconvenience to Tenant as possible, but in
no event shall Tenant be permitted to withhold or reduce Basic Rental or other
charges due hereunder as a result of same, make any claim for constructive
eviction or otherwise make claim against Landlord for interruption or
interference with Tenant's business and/or operations.
ARTICLE 9
REPAIRS AND ALTERATIONS
Landlord shall maintain the structural portions of the Project including
the foundation, floor/ceiling slabs, roof, curtain wall, exterior glass,
columns, beams, shafts, stairs, stairwells, elevator cabs and common areas and
shall also maintain and repair the basic mechanical, electrical, lifesafety,
plumbing, sprinkler systems and heating, ventilating and air-conditioning
systems. Except as expressly provided as Landlord's obligation in this Article
9, Tenant shall keep the Premises in good condition and repair. All damage or
injury to the Premises or the Project resulting from the act or negligence of
Tenant, its employees, agents or visitors, guests, invitees or licensees or by
the use of the Premises shall be promptly repaired by Tenant, at its sole cost
and expense, to the satisfaction of Landlord; provided, however, that for damage
to the Project as a result of casualty or for any repairs that may impact the
mechanical, electrical, plumbing, heating, ventilation or air-conditioning
systems of the Project, Landlord shall have the right (but not the obligation)
to select the contractor and oversee all such repairs. Landlord may make any
repairs which are not promptly made by Tenant after Tenant's receipt of written
notice and the reasonable opportunity of Tenant to make said repair within ten
(10) business days from receipt of said written notice, and charge Tenant for
the cost thereof, which cost shall be paid by Tenant within five (5) business
days from invoice from Landlord. Tenant shall be responsible for the design and
function of all non-standard improvements of the Premises, whether or not
installed by Landlord at Tenant's request. Tenant waives all rights to make
repairs at the expense of Landlord, or to deduct the cost thereof from the rent.
Tenant shall make no alterations, changes or additions in or to the Premises
(collectively, "ALTERATIONS") without Landlord's prior written consent, and then
only by contractors or mechanics approved by Landlord in writing and upon the
approval by Landlord in writing of fully detailed and dimensioned plans and
specifications pertaining to the Alterations in question, to be prepared and
submitted by Tenant at its sole cost and expense. Tenant shall at its sole cost
and expense obtain all necessary approvals and permits pertaining to any
Alterations. Tenant shall construct such Alterations in a good and workmanlike
manner, in conformance with all applicable federal, state, county and
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municipal laws, rules and regulations, pursuant to a valid building permit, and
in conformance with Landlord's construction rules and regulations. If Landlord,
in approving any Alterations, specifies a commencement date therefor, Tenant
shall not commence any work with respect to such Alterations prior to such date.
Notwithstanding anything to the contrary contained herein, Tenant may make
strictly cosmetic changes to the finish work in the Premises (the "COSMETIC
ALTERATIONS") without Landlord's consent, provided that the aggregate cost of
any such alterations does not exceed $75,000.00 in any twelve (12) month period,
and further provided that such alterations do not (i) require any structural or
other substantial modifications to the Premises, (ii) require any changes to,
nor adversely affect, the systems and equipment of the Project, and (iii) affect
the exterior appearance of the Project. Tenant shall give Landlord at least
fifteen (15) days prior notice of such Cosmetic Alterations, which notice shall
be accompanied by reasonably adequate evidence that such changes meet the
criteria contained in this Article 9. Tenant hereby indemnifies, defends and
agrees to hold Landlord free and harmless from all liens and claims of lien, and
all other liability, claims and demands arising out of any work done or material
supplied to the Premises by or at the request of Tenant in connection with any
Alterations. Prior to the commencement of any Alterations, Tenant shall provide
Landlord with evidence that Tenant carries "Builder's All Risk" insurance in an
amount approved by Landlord covering the construction of such Alterations, and
such other insurance as Landlord may reasonably require, it being understood
that all such Alterations shall be insured by Tenant pursuant to Article 14 of
this Lease immediately upon completion thereof. In addition, Landlord may, in
its discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien free completion of such Alterations and naming Landlord as a
co-obligee. If permitted Alterations are made, they shall be made at Tenant's
sole cost and expense and shall be and become the property of Landlord, except
that Landlord may, by written notice to Tenant given at the time of Tenant's
request for consent to such Alterations (provided Tenant requests that Landlord
make such a determination at the time of Tenant's request for consent), require
Tenant at Tenant's expense to remove all partitions, counters, railings and
other Alterations installed by Tenant, and to repair any damages to the Premises
caused by such removal. Any and all costs attributable to or related to the
applicable building codes of the city in which the Project is located (or any
other authority having jurisdiction over the Project) arising from Tenants
plans, specifications, improvements, alterations or otherwise shall be paid by
Tenant at its sole cost and expense. With regard to repairs, Alterations or any
other work arising from or related to this Article 9, Landlord shall be entitled
to receive an administrative/supervision fee (which fee shall vary depending
upon whether or not Tenant orders the work directly from Landlord, but which fee
shall not exceed five percent (5%) of the cost of such Alterations; provided
that if Tenant hires a construction supervisor reasonably approved by Landlord,
such supervision fee shall be waived) sufficient to compensate Landlord for all
overhead, general conditions, fees and other costs and expenses arising from
Landlord's involvement with such work. The construction of initial improvements
to the Premises shall be governed by the terms of the Tenant Work Letter and not
the terms of this Article 9.
ARTICLE 10
LIENS
Tenant shall keep the Premises and the Project free from any mechanics'
liens, vendors liens or any other liens arising out of any work performed,
materials furnished or obligations incurred by Tenant, and agrees to defend,
indemnify and hold harmless Landlord from and against any such lien or claim or
action thereon, together with costs of suit and reasonable attorneys' fees
incurred by Landlord in connection with any such claim or action. Before
commencing any work of alteration, addition or improvement to the Premises,
Tenant shall give Landlord at least ten (10) business days' written notice of
the proposed commencement of such work (to afford Landlord an opportunity to
post appropriate notices of non-responsibility). In the event that there shall
be recorded against the Premises or the Project or the property of which the
Premises is a part any claim or lien arising out of any such work performed,
materials furnished or obligations incurred by Tenant and such claim or lien
shall not be removed or discharged within twenty (20) days of filing, Landlord
shall have the right but not the obligation to pay and discharge said lien
without regard to whether such lien shall be lawful or correct or to require
that Tenant deposit with Landlord in cash, lawful money of the United States,
one hundred fifty percent (150%) of the amount of such claim, which sum may be
retained by Landlord until such claim shall have been removed of record or until
judgment shall have been rendered on such
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claim and such judgment shall have become final, at which time Landlord shall
have the right to apply such deposit in discharge of the judgment on said claim
and any costs, including attorneys' fees and costs incurred by Landlord, and
shall remit the balance thereof to Tenant.
ARTICLE 11
PROJECT SERVICES
(a) Landlord agrees to furnish to the Premises, at a cost to be
included in Operating Costs, from 7:00 a.m. to 6:00 p.m. Mondays through Fridays
and 9:00 a.m. to 1:00 p.m. on Saturdays, excepting local and national holidays,
air conditioning and heat all in such reasonable quantities as in the judgment
of Landlord is reasonably necessary for the comfortable occupancy of the
Premises. In addition, Landlord shall provide electric current for normal
lighting and normal office machines, elevator service and water on the same
floor as the Premises for lavatory and drinking purposes in such reasonable
quantities as in the judgment of Landlord is reasonably necessary for general
office use. Janitorial and maintenance services shall be furnished five (5) days
per week, excepting local and national holidays. Tenant shall comply with all
rules and regulations which Landlord may reasonably establish for the proper
functioning and protection of the common area air conditioning, heating,
elevator, electrical intrabuilding network cable and plumbing systems. Except as
provided in Section 11(g) below, Landlord shall not be liable for, and there
shall be no rent abatement as a result of, any stoppage, reduction or
interruption of any such services caused by governmental rules, regulations or
ordinances, riot, strike, labor disputes, breakdowns, accidents, necessary
repairs or other cause. Except as specifically provided in this Article 11,
Tenant agrees to pay for all utilities and other services utilized by Tenant and
additional building services furnished to Tenant not uniformly furnished to all
tenants of the Project at the rate generally charged by Landlord to tenants of
the Project.
(b) Tenant will not, without the prior written consent of Landlord, use
any apparatus or device in the Premises which will in any way increase the
amount of electricity or water usually furnished or supplied for use of the
Premises as general office space; nor connect any apparatus, machine or device
with water pipes or electric current (except through existing electrical outlets
in the Premises), for the purpose of using electric current or water.
(c) If Tenant shall require electric current in excess of that which
Landlord is obligated to furnish under Article 11(a) above, Tenant shall first
obtain the written consent of Landlord, which Landlord may refuse in its sole
and absolute discretion, to the use thereof and Landlord may cause an electric
current meter or submeter to be installed in the Premises to measure the amount
of such excess electric current consumed by Tenant in the Premises. The cost of
any such meter and of installation, maintenance and repair thereof shall be paid
for by Tenant and Tenant agrees to pay to Landlord, promptly upon demand
therefor by Landlord, for all such excess electric current consumed by any such
use as shown by said meter at the rates charged for such service by the city in
which the Project is located or the local public utility, as the case may be,
furnishing the same, plus any additional expense incurred by Landlord in keeping
account of the electric current so consumed.
(d) If any lights, machines or equipment (including but not limited to
computers) are used by Tenant in the Premises which materially affect the
temperature otherwise maintained by the air conditioning system, or generate
substantially more heat in the Premises than would be generated by the building
standard lights and usual office equipment, Landlord shall have the right to
install any machinery and equipment which Landlord reasonably deems necessary to
restore temperature balance, including but not limited to modifications to the
standard air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand by Landlord. Landlord
shall not be liable under any circumstances for loss of or injury to property or
injury to, or interference with, Tenant's business (including, but not limited
to, loss of profits), however occurring, through or in connection with or
incidental to failure to furnish any of the services or utilities specified in
this Article 11.
(e) If Tenant requires heating, ventilation and/or air conditioning
during times other than the times provided in Article 11(a) above, Tenant shall
give Landlord such advance notice as Landlord shall reasonably require and shall
pay Landlord's reasonable and standard charge for such after-hours use.
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(f) Landlord may impose a reasonable charge for any utilities or
services (other than electric current and heating, ventilation and/or air
conditioning which shall be governed by Articles 11(c) and (e) above) utilized
by Tenant in excess of the amount or type that Landlord reasonably determines is
typical for general office use.
(g) An "ABATEMENT EVENT" shall be defined as an event that prevents
Tenant from using the Premises or any portion thereof, as a result of any
failure to provide services or access to the Premises, where (i) Tenant does not
actually use the Premises or such portion thereof, and (ii) such event is not
caused by the negligence or willful misconduct of Tenant, its agents, employees
or contractors. Tenant shall give Landlord notice ("ABATEMENT NOTICE") of any
such Abatement Event, and if such Abatement Event continues beyond the
"Eligibility Period" (as that term is defined below), then the Basic Rental and
Tenant's Proportionate Share of Direct Costs and Tenant's obligation to pay for
parking shall be abated entirely or reduced, as the case may be, after
expiration of the Eligibility Period for such time that Tenant continues to be
so prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the rentable area of the portion of the Premises that Tenant
is prevented from using, and does not use, bears to the total rentable area of
the Premises; provided, however, in the event that Tenant is prevented from
using, and does not use, a portion of the Premises for a period of time in
excess of the Eligibility Period and the remaining portion of the Premises is
not sufficient to allow Tenant to effectively conduct its business therein, and
if Tenant does not conduct its business from such remaining portion, then for
such time after expiration of the Eligibility Period during which Tenant is so
prevented from effectively conducting its business therein, the Basic Rental and
Tenant's Proportionate Share of Direct Costs and Tenant's obligation to pay for
parking for the entire Premises shall be abated entirely for such time as Tenant
continues to be so prevented from using, and does not use, the Premises. If,
however, Tenant reoccupies any portion of the Premises during such period, the
Basic Rental and Tenant's Proportionate Share of Direct Costs allocable to such
reoccupied portion, based on the proportion that the rentable area of such
reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date Tenant reoccupies such
portion of the Premises. The term "ELIGIBILITY PERIOD" shall mean a period of
five (5) consecutive business days after Landlord's receipt of any Abatement
Notice(s). Such right to abate Basic Rental and Tenant's Proportionate Share of
Direct Costs shall be Tenant's sole and exclusive remedy at law or in equity for
an Abatement Event.
ARTICLE 12
RIGHTS OF LANDLORD
Landlord and its agents shall have the right to enter the Premises at
all reasonable times for the purpose of cleaning the Premises, examining or
inspecting the same, serving or posting and keeping posted thereon notices as
provided by law, or which Landlord deems necessary for the protection of
Landlord or the Property, showing the same during normal business hours to
prospective tenants, lenders or purchasers of the Project (during the last nine
(9) months of the Term only), in the case of an emergency, and for making such
alterations, repairs, improvements or additions to the Premises or to the
Project as Landlord may deem necessary or desirable. If Tenant shall not be
personally present to open and permit an entry into the Premises at any time
when such an entry by Landlord is necessary or permitted hereunder, Landlord may
enter by means of a master key or may enter forcibly, only in the case of an
emergency, without liability to Tenant and without affecting this Lease.
ARTICLE 13
INDEMNITY; EXEMPTION OF LANDLORD FROM LIABILITY
(a) INDEMNITY. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims arising from Tenant's use of the Premises or
the Project including Tenant's Signage rights set forth in Article 33 or from
the conduct of its business or from any activity, work or thing which may be
permitted or suffered by Tenant in or about the Premises or the Project and
shall further indemnify, defend and hold Landlord harmless from and against any
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under this Lease or arising from any
negligence or intentional misconduct of Tenant or any of its agents,
contractors, employees or invitees, patrons, customers
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or members in or about the Project and from any and all costs, attorneys' fees
and costs, expenses and liabilities incurred in the defense of any claim or any
action or proceeding brought thereon, including negotiations in connection
therewith. However, notwithstanding the foregoing, Tenant shall not be required
to indemnify and/or hold Landlord harmless from any loss, cost, liability,
damage or expense, including, but not limited to, penalties, fines, attorneys'
fees or costs (collectively, "CLAIMS"), to any person, property or entity to the
extent resulting from the negligence or intentional misconduct of Landlord or
its agents, contractors, or employees (except for damage to the Improvements and
Tenant's personal property, fixtures, furniture and equipment in the Premises in
which case Tenant shall be responsible to the extent Tenant is required to
obtain the requisite insurance coverage pursuant to this Lease). Landlord hereby
indemnifies Tenant and holds Tenant harmless from any Claims to the extent
resulting from the negligence or willful misconduct of Landlord or its agents,
contractors or employees; provided, however, that because Landlord maintains
insurance on the Project and Tenant compensates Landlord for such insurance as
part of Tenant's Proportionate Share of Direct Costs and because of the
existence of waivers of subrogation set forth in Article 14 of this Lease,
Landlord hereby indemnifies and holds Tenant harmless from any Claims with
respect to any property outside of the Premises to the extent such Claim is
covered by such insurance, even if resulting from the negligent acts or
omissions of Tenant or those of its agents, contractors, or employees.
Similarly, since Tenant must carry insurance pursuant to Article 14 to cover its
personal property within the Premises and the Improvements, Tenant hereby
indemnifies and holds Landlord harmless from any Claim with respect to any
property within the Premises, to the extent such Claim is covered by such
insurance, even if resulting from the negligent acts or omissions of Landlord or
those of its agents, contractors, or employees. Tenant hereby assumes all risk
of damage to property or injury to persons in or about the Premises from any
cause, and Tenant hereby waives all claims in respect thereof against Landlord,
excepting where the damage is caused solely by the gross negligence or
intentional misconduct of Landlord.
(b) EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable
for injury to Tenant's business, or loss of income therefrom, or, except in
connection with damage or injury resulting from the gross negligence or willful
misconduct of Landlord, or its authorized agents, for damage that may be
sustained by the person, goods, wares, merchandise or property of Tenant, its
employees, invitees, customers, agents, or contractors, or any other person in,
on or about the Premises directly or indirectly caused by or resulting from
fire, steam, electricity, gas, water, or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, light fixtures, or mechanical or electrical systems or from
intrabuilding network cable, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Project or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant. Landlord
shall not be liable to Tenant for any damages arising from any act or neglect of
any other tenant of the building.
Landlord shall not be liable for losses due to theft, vandalism, or
like causes.
ARTICLE 14
INSURANCE
(a) TENANT'S INSURANCE. Tenant, shall at all times during the Term of
this Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage: (i) Commercial General Liability Insurance with a
combined single limit for bodily injury and property damages of not less than
Two Million Dollars ($2,000,000) per occurrence and Three Million Dollars
($3,000,000) in the annual aggregate, including products liability coverage if
applicable, covering the insuring provisions of this Lease and the performance
of Tenant of the indemnity and exemption of Landlord from liability agreements
set forth in Article 13 hereof; (ii) a policy of standard fire, extended
coverage and special extended coverage insurance (all risks), including a
vandalism and malicious mischief endorsement, sprinkler leakage coverage and
earthquake sprinkler leakage where sprinklers are provided in an amount equal to
the full replacement value new without deduction for depreciation of all (A)
Tenant Improvements, Alterations, fixtures and other improvements in the
Premises and (B) trade fixtures, furniture, equipment and other personal
property installed by or at the expense of Tenant; (iii) Worker's Compensation
coverage as required by law; and (iv) business interruption, loss of income and
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extra expense insurance covering failure of Tenant's telecommunications
equipment and covering all other perils, failures or interruptions. Tenant shall
carry and maintain during the entire Lease Term (including any option periods,
if applicable), at Tenant's sole cost and expense, increased amounts of the
insurance required to be carried by Tenant pursuant to this Article 14 and such
other reasonable types of insurance coverage and in such reasonable amounts
covering the Premises and Tenant's operations therein, as may be reasonably
required by Landlord, so long as such increased amounts and/or other types of
insurance coverage are then generally required by comparable landlords of
comparable first-class, institutional quality office buildings in the vicinity
of the Project.
(b) FORM OF POLICIES. The aforementioned minimum limits of policies and
Tenant's procurement and maintenance thereof shall in no event limit the
liability of Tenant hereunder. The Commercial General Liability Insurance policy
shall name Landlord, Landlord's property manager, Landlord's lender(s) and such
other persons or firms as Landlord specifies from time to time, as additional
insureds with an appropriate endorsement to the policy(s). All such insurance
policies carried by Tenant shall be with companies having a rating of not less
than A-VIII in Best's Insurance Guide. Tenant shall furnish to Landlord, from
the insurance companies, or cause the insurance companies to furnish,
certificates of coverage. No such policy shall be cancelable or subject to
reduction of coverage or cancellation except after thirty (30) days prior
written notice to Landlord by the insurer. All such policies shall be endorsed
to agree that Tenant's policy is primary as to Claims arising within the
Premises and that any insurance carried by Landlord is excess and not
contributing with any Tenant insurance requirement hereunder. Tenant shall, at
least twenty (20) days prior to the expiration of such policies, furnish
Landlord with renewals or binders. Tenant agrees that if Tenant does not take
out and maintain such insurance or furnish Landlord with renewals or binders,
Landlord may (but shall not be required to), upon prior notice to Tenant and the
expiration of a five (5) day cure period, procure said insurance on Tenant's
behalf and charge Tenant the cost thereof, which amount shall be payable by
Tenant upon demand with interest (at the rate set forth in Section 20(e) below)
from the date such sums are extended. Tenant shall have the right to provide
such insurance coverage pursuant to blanket policies obtained by Tenant,
provided such blanket policies expressly afford coverage to the Premises and to
Tenant as required by this Lease.
(c) LANDLORD'S INSURANCE. Landlord shall, as a cost to be included in
Operating Costs, procure and maintain at all times during the Term of this
Lease, a policy or policies of insurance covering loss or damage to the Project
in the amount of the full replacement costs without deduction for depreciation
thereof (exclusive of Tenant's trade fixtures, inventory, personal property and
equipment), providing protection against all perils included within the
classification of fire and extended coverage, vandalism coverage and malicious
mischief, sprinkler leakage, water damage, and special extended coverage on
building. Additionally, Landlord may (but shall not be required to) carry: (i)
Bodily Injury and Property Damage Liability Insurance and/or Excess Liability
Coverage Insurance; and (ii) Earthquake and/or Flood Damage Insurance; and (iii)
Rental Income Insurance at its election or if required by its lender from time
to time during the Term hereof, in such amounts and with such limits as Landlord
or its lender may deem appropriate. The costs of such insurance shall be
included in Operating Costs.
(d) WAIVER OF SUBROGATION. Landlord and Tenant each agree to have their
respective insurers issuing the insurance described in Sections 14(a)(ii),
14(a)(iv) and the first sentence of Section 14(c) waive any rights of
subrogation that such companies may have against the other party. Tenant hereby
waives any right that Tenant may have against Landlord and Landlord hereby
waives any right that Landlord may have against Tenant as a result of any loss
or damage to the extent such loss or damage is insurable under such policies.
(e) COMPLIANCE WITH LAW. Tenant agrees that it will not, at any time,
during the Term of this Lease, carry any stock of goods or do anything in or
about the Premises that will in any way tend to increase the insurance rates
upon the Project. Tenant agrees to pay Landlord forthwith upon demand the amount
of any increase in premiums for insurance against loss by fire that may be
charged during the Term of this Lease on the amount of insurance to be carried
by Landlord on the Project resulting from the foregoing, or from Tenant doing
any act in or about said Premises that does so increase the insurance rates,
whether or not Landlord shall have consented to such act on the part of Tenant.
If Tenant installs upon the Premises any electrical equipment which constitutes
an overload of electrical lines of the Premises, Tenant shall at its own cost
and expense in accordance with all other Lease provisions, and subject to the
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provisions of Article 9, 10 and 11, hereof, make whatever changes are necessary
to comply with requirements of the insurance underwriters and any governmental
authority having jurisdiction thereover, but nothing herein contained shall be
deemed to constitute Landlord's consent to such overloading. Tenant shall, at
its own expense, comply with all requirements of the insurance authority having
jurisdiction over the Project necessary for the maintenance of reasonable fire
and extended coverage insurance for the Premises, including without limitation
thereto, the installation of fire extinguishers or an automatic dry chemical
extinguishing system.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
Tenant shall have no power to, either voluntarily, involuntarily, by
operation of law or otherwise, sell, assign, transfer or hypothecate this Lease,
or sublet the Premises or any part thereof, or permit the Premises or any part
thereof to be used or occupied by anyone other than Tenant or Tenant's employees
without the prior written consent of Landlord which shall not be unreasonably
withheld. Tenant may transfer its interest pursuant to this Lease only upon the
following express conditions, which conditions are agreed by Landlord and Tenant
to be reasonable:
(a) That the proposed transferee shall be subject to the prior written
consent of Landlord, which consent will not be unreasonably withheld but,
without limiting the generality of the foregoing, it shall be reasonable for
Landlord to deny such consent if:
(i) The use to be made of the Premises by the proposed
transferee is (a) not generally consistent with the character and nature of all
other tenancies in the Project, or (b) a use which conflicts with any so-called
"exclusive" then in favor of, or for any use which is the same as that stated in
any percentage rent lease to, another tenant of the Project or any other
buildings which are in the same complex as the Project, or (c) a use which would
be prohibited by any other portion of this Lease (including but not limited to
any Rules and Regulations then in effect);
(ii) The financial responsibility of the proposed transferee
is not reasonably satisfactory to Landlord;
(iii) The proposed transferee is either a governmental agency
or instrumentality thereof; or
(iv) Either the proposed transferee or any person or entity
which directly or indirectly controls, is controlled by or is under common
control with the proposed transferee is negotiating with Landlord to lease space
in the Project.
(b) Whether or not Landlord consents to any such transfer, Tenant shall
pay to Landlord Landlord's then standard processing fee and reasonable
attorneys' fees and costs incurred in connection with the proposed transfer up
to the aggregate sum of $1,500.00;
(c) That the proposed transferee shall execute an agreement pursuant to
which it shall agree to perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease applicable to
that portion of the Premises so transferred; and
(d) That an executed duplicate original of said assignment and
assumption agreement or other transfer on a form reasonably approved by
Landlord, shall be delivered to Landlord within five (5) days after the
execution thereof, and that such transfer shall not be binding upon Landlord
until the delivery thereof to Landlord and the execution and delivery of
Landlord's consent thereto. It shall be a condition to Landlord's consent to any
subleasing, assignment or other transfer of part or all of Tenant's interest in
the Premises (hereinafter referred to as a "TRANSFER") that (i) upon Landlord's
consent to any Transfer, Tenant shall pay and continue to pay fifty percent
(50%) of any "Transfer Premium" (defined below), received by Tenant from the
transferee; (ii) any sublessee of part or all of Tenant's interest in the
Premises shall agree that in the event Landlord gives such sublessee notice that
Tenant is in default under this Lease, such sublessee shall thereafter make all
sublease or other payments directly to Landlord, which will be received by
Landlord without any liability whether to honor the sublease or otherwise
(except to credit such payments against sums due under this Lease), and any
sublessee shall agree to attorn
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to Landlord or its successors and assigns at their request should this Lease be
terminated for any reason, except that in no event shall Landlord or its
successors or assigns be obligated to accept such attornment; (iii) any such
Transfer and consent shall be effected on forms supplied by Landlord and/or its
legal counsel; (iv) Landlord may require that Tenant not then be in default
hereunder in any respect; and (v) Tenant or the proposed subtenant or assignee
(collectively, "TRANSFEREE") shall agree to pay Landlord, upon demand, as
additional rent, a sum equal to the additional costs, if any, incurred by
Landlord for maintenance and repair as a result of any change in the nature of
occupancy caused by such subletting or assignment. "TRANSFER PREMIUM" shall mean
all rent, additional rent or other consideration payable by a Transferee in
connection with a Transfer in excess of the rent and Additional Rent payable by
Tenant under this Lease during the term of the Transfer and if such Transfer is
less than all of the Premises, the Transfer Premium shall be calculated on a
rentable square foot basis. In any event, the Transfer Premium shall be
calculated after deducting the reasonable expenses incurred by Tenant for (1)
any changes, alterations and improvements to the Premises paid for by Tenant in
connection with the Transfer, (2) any other out-of-pocket monetary concessions
provided by Tenant to the Transferee, and (3) any brokerage commissions paid for
by Tenant in connection with the Transfer. "Transfer Premium" shall also
include, but not be limited to, key money, bonus money or other cash
consideration paid by a transferee to Tenant in connection with such Transfer,
and any payment in excess of fair market value for services rendered by Tenant
to the Transferee and any payment in excess of fair market value for assets,
fixtures, inventory, equipment, or furniture transferred by Tenant to the
Transferee in connection with such Transfer. Any sale, assignment,
hypothecation, transfer or subletting of this Lease which is not in compliance
with the provisions of this Article 15 shall be void and shall, at the option of
Landlord, terminate this Lease. In no event shall the consent by Landlord to an
assignment or subletting be construed as relieving Tenant, any assignee, or
sublessee from obtaining the express written consent of Landlord to any further
assignment or subletting, or as releasing Tenant from any liability or
obligation hereunder whether or not then accrued and Tenant shall continue to be
fully liable therefor. No collection or acceptance of rent by Landlord from any
person other than Tenant shall be deemed a waiver of any provision of this
Article 15 or the acceptance of any assignee or subtenant hereunder, or a
release of Tenant (or of any successor of Tenant or any subtenant).
Notwithstanding anything to the contrary in this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent under this Article 15 or otherwise has breached or acted
unreasonably under this Article 15, their sole remedies shall be a declaratory
judgment, an injunction for the relief sought and/or monetary damages, and
Tenant hereby waives any right at law or equity to terminate this Lease.
Notwithstanding anything to the contrary contained in this Article 15,
Landlord shall have the option, by giving written notice to Tenant within thirty
(30) days after Landlord's receipt of a request for consent to a proposed
Transfer, to terminate this Lease as to the portion of the Premises that is the
subject of the Transfer. If this Lease is so terminated with respect to less
than the entire Premises, the Basic Rental and Tenant's Proportionate Share
shall be prorated based on the number of rentable square feet retained by Tenant
as compared to the total number of rentable square feet contained in the
original Premises, and this Lease as so amended shall continue thereafter in
full force and effect, and upon the request of either party, the parties shall
execute written confirmation of the same.
Notwithstanding anything in this Article 15, Tenant shall be permitted,
without obtaining Landlord's prior written consent but upon notice to Landlord,
to sublease all or any portion of the Premises to Archive.com. Landlord's right
of recapture and Tenant's obligation to pay any Transfer Premium shall not apply
to Tenant's sublease to Archive.com. For purposes of this Lease, a sublease to a
third party other than Archive.com which sublease commences prior to Tenant's
occupancy of any portion of the Premises pursuant to this Lease, shall be
referred to as the "INITIAL SUBLEASE." In the event Tenant enters into an
Initial Sublease of the Premises, such Initial Sublease shall not trigger the
recapture right set forth above, nor shall the Initial Sublease trigger the
obligation to pay any Transfer Premium to Landlord (so long as such Initial
Sublease is not more than ten percent (10%) higher than the rent which would
have been payable by Archive.com), but the Initial Sublease will be subject to
all other provisions of this Article 15.
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ARTICLE 16
DAMAGE OR DESTRUCTION
Within sixty (60) days after the date Landlord learns of the necessity
for repairs as a result of damage, Landlord shall notify Tenant ("DAMAGE REPAIR
ESTIMATE") of Landlord's estimated assessment of the period of time in which the
repairs will be completed. If the Project is damaged by fire or other insured
casualty and the insurance proceeds have been made available therefor by the
holder or holders of any mortgages or deeds of trust covering the Premises or
the Project, the damage shall be repaired by Landlord to the extent such
insurance proceeds are available therefor and provided the Damage Repair
Estimate indicates that repairs can be completed within one hundred eighty (180)
days after the necessity for repairs as a result of such damage becomes known to
Landlord without the payment of overtime or other premiums, and until such
repairs are completed rent shall be abated in proportion to the part of the
Premises which is unusable by Tenant in the conduct of its business (but there
shall be no abatement of rent by reason of any portion of the Premises being
unusable for a period equal to one (1) day or less). However, if the damage is
due to the fault or neglect of Tenant, its employees, agents, contractors,
guests, invitees and the like, there shall be no abatement of rent, unless and
to the extent Landlord receives rental income insurance proceeds. Upon the
occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to
any party designated by Landlord) all insurance proceeds payable to Tenant under
Section 14(a)(ii)(A) above; provided, however, that if the cost of repair of
improvements within the Premises by Landlord exceeds the amount of insurance
proceeds received by Landlord from Tenant's insurance carrier, as so assigned by
Tenant, such excess costs shall be paid by Tenant to Landlord prior to
Landlord's repair of such damage. If, however, the Damage Repair Estimate
indicates that repairs cannot be completed within one hundred eighty (180) days
after the necessity for repairs as a result of such damage becomes known to
Landlord without the payment of overtime or other premiums, Landlord may, at its
option, either (i) make them in a reasonable time and in such event this Lease
shall continue in effect and the rent shall be abated, if at all, in the manner
provided in this Article 16, or (ii) elect not to effect such repairs and
instead terminate this Lease, by notifying Tenant in writing of such termination
within sixty (60) days after Landlord learns of the necessity for repairs as a
result of damage, such notice to include a termination date giving Tenant sixty
(60) days to vacate the Premises, and rent shall be abated during such time to
the extent permitted by this Article 16. In addition, Landlord may elect to
terminate this Lease if the Project shall be damaged by fire or other casualty
or cause, whether or not the Premises are affected, and the damage is not fully
covered, except for deductible amounts, by Landlord's insurance policies.
However, if Landlord does not elect to terminate this Lease pursuant to
Landlord's termination right as provided above, and the Damage Repair Estimate
indicates that repairs cannot be completed within two hundred ten (210) days
after the necessity for repairs as a result of such damage becomes known to
Landlord without the payment of overtime or other premiums, Tenant may elect,
not later than thirty (30) days after Tenant's receipt of the Damage Repair
Estimate, to terminate this Lease by written notice to Landlord effective as of
the date specified in Tenant's notice. Finally, if the Premises or the Project
is damaged to any substantial extent during the last twelve (12) months of the
Term, then notwithstanding anything contained in this Article 16 to the
contrary, Landlord shall have the option to terminate this Lease by giving
written notice to Tenant of the exercise of such option within sixty (60) days
after Landlord learns of the necessity for repairs as the result of such damage.
In the event that the Premises or the Project is destroyed or damaged to any
substantial extent during the last twelve (12) months of the Lease Term and if
such damage shall take longer than sixty (60) days to repair and if such damage
is not the result of the negligence or willful misconduct of Tenant or Tenant's
employees, licensees, invitees or agents, then notwithstanding anything in this
Article 16 to the contrary, Tenant shall have the option to terminate this Lease
by written notice to Landlord of the exercise of such option within sixty (60)
days after Tenant learns of the necessity for repairs as the result of such
damage. A total destruction of the Project shall automatically terminate this
Lease. Except as provided in this Article 16, there shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business or property arising from such damage or destruction or
the making of any repairs, alterations or improvements in or to any portion of
the Project or the Premises or in or to fixtures, appurtenances and equipment
therein. Tenant understands that Landlord will not carry insurance of any kind
on Tenant's furniture, furnishings, trade fixtures or equipment, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same. Except for proceeds relating to Tenant's furniture, furnishings, trade
fixtures and equipment, Tenant
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acknowledges that Tenant shall have no right to any proceeds of insurance
relating to property damage. With respect to any damage which Landlord is
obligated to repair or elects to repair, Tenant, as a material inducement to
Landlord entering into this Lease, irrevocably waives and releases its rights
under the provisions of Sections 1932 and 1933 of the California Civil Code.
ARTICLE 17
SUBORDINATION
Landlord hereby agrees to use commercially reasonable efforts to obtain
a commercially reasonable non-disturbance agreement in favor of Tenant from the
current lender for the Project. This Lease is subject and subordinate to all
ground or underlying leases, mortgages and deeds of trust which affect the
property or the Project, including all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, if the lessor under any
such lease or the holder or holders of any such mortgage or deed of trust shall
advise Landlord that they desire or require this Lease to be prior and superior
thereto, upon written request of Landlord to Tenant, Tenant agrees to promptly
execute, acknowledge and deliver any and all documents or instruments which
Landlord or such lessor, holder or holders deem necessary or desirable for
purposes thereof. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all ground or underlying
leases, mortgages or deeds of trust which may hereafter be executed covering the
Premises, the Project or the property or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided, however, that Landlord obtains from
the lender or other party in question a written undertaking in favor of Tenant
to the effect that such lender or other party will not disturb Tenant's right of
possession under this Lease if there does not then or thereafter exist an Event
of Default by Tenant under this Lease beyond any applicable cure period. Tenant
agrees, within ten (10) days after Landlord's written request therefor, to
execute, acknowledge and deliver upon request any and all documents or
instruments requested by Landlord or necessary or proper to assure the
subordination of this Lease to any such mortgages, deed of trust, or leasehold
estates. Tenant agrees that in the event any proceedings are brought for the
foreclosure of any mortgage or deed of trust or any deed in lieu thereof, to
attorn to the purchaser or any successors thereto upon any such foreclosure sale
or deed in lieu thereof as so requested to do so by such purchaser and to
recognize such purchaser as the lessor under this Lease; Tenant shall, within
ten (10) days after request execute such further instruments or assurances as
such purchaser may reasonably deem necessary to evidence or confirm such
attornment. Tenant agrees to provide copies of any notices of Landlord's default
under this Lease to any mortgagee or deed of trust beneficiary whose address has
been provided to Tenant and Tenant shall provide such mortgagee or deed of trust
beneficiary a commercially reasonable time after receipt of such notice within
which to cure any such default. Tenant waives the provisions of any current or
future statute, rule or law which may give or purport to give Tenant any right
or election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 18
EMINENT DOMAIN
If the whole of the Premises or the Project or so much thereof as to
render the balance unusable by Tenant shall be taken under power of eminent
domain, or is sold, transferred or conveyed in lieu thereof, this Lease shall
automatically terminate as of the date of such condemnation, or as of the date
possession is taken by the condemning authority, at Landlord's option. No award
for any partial or entire taking shall be apportioned, and Tenant hereby assigns
to Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and trade
fixtures belonging to Tenant and removable by Tenant at the expiration of the
Term hereof as provided hereunder or for the interruption of, or damage to,
Tenant's business. In the event of a partial taking described in this Article
18, or a sale, transfer or conveyance in lieu thereof, which does not result in
a termination of this Lease, the rent shall be apportioned
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according to the ratio that the part of the Premises remaining useable by Tenant
bears to the total area of the Premises. Tenant hereby waives any and all rights
it might otherwise have pursuant to Section 1265.130 of the California Code of
Civil Procedure.
ARTICLE 19
DEFAULT
(a) TENANT'S DEFAULT. Each of the following acts or omissions of Tenant
or of any guarantor of Tenant's performance hereunder, or occurrences, shall
constitute an "EVENT OF DEFAULT":
(i) Failure or refusal to pay Basic Rental, Additional Rent or
any other amount to be paid by Tenant to Landlord hereunder within five (5)
business days after notice that the same is due or payable hereunder; said five
(5) business day period shall be in lieu of, and not in addition to, the notice
requirements of Section 1161 of the California Code of Civil Procedure or any
similar or successor law;
(ii) Except as set forth in items (i) above and (iii) below,
failure to perform or observe any other covenant or condition of this Lease to
be performed or observed within thirty (30) days following written notice to
Tenant of such failure; however, if the nature of such default is such that the
same cannot be reasonably cured within a thirty (30) day period, Tenant shall
not be deemed to be in default if Tenant diligently commences such cure within
such period and thereafter diligently proceeds to rectify and cure said default.
Such thirty (30) day notice shall be in lieu of, and not in addition to, any
required under Section 1161 of the California Code of Civil Procedure or any
similar or successor law; or
(iii) Tenant's failure to observe or perform according to the
provisions of Articles 7, 17 or 25 within five (5) business days after notice
from Landlord; provided that as to Article 7 only, if the nature of such default
is such that the same cannot be reasonably cured within a five (5) business day
period, Tenant shall not be deemed to be in default if Tenant diligently
commences such cure within such period and thereafter diligently proceeds to
rectify and cure said default.
(b) LANDLORD'S DEFAULT. Notwithstanding anything to the contrary set
forth in this Lease, Landlord shall be in default in the performance of any
obligation required to be performed by Landlord pursuant to this Lease if
Landlord fails to perform such obligation within thirty (30) days after the
receipt of notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, 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 in default under this Lease if it shall commence such performance within
such thirty (30) day period and thereafter diligently pursue the same to
completion. Upon any such default by Landlord under this Lease, Tenant may,
except as otherwise specifically provided in this Lease to the contrary,
exercise any of its rights provided at law or in equity.
ARTICLE 20
REMEDIES
(a) Upon the occurrence of an Event of Default under this Lease as
provided in Article 19 hereof, Landlord may exercise all of its remedies as may
be permitted by law, including but not limited to the remedy provided by Section
1951.4 of the California Civil Code, and including without limitation,
terminating this Lease, reentering the Premises and removing all persons and
property therefrom, which property may be stored by Landlord at a warehouse or
elsewhere at the risk, expense and for the account of Tenant. If Landlord elects
to terminate this Lease, Landlord shall be entitled to recover from Tenant the
aggregate of all amounts permitted by law, including but not limited to (i) the
worth at the time of award of the amount of any unpaid rent which had been
earned at the time of such termination; plus (ii) the worth at the time of award
of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iv) any
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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 therefrom; and (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law. The term
"rent" as used in this Article 20(a) shall be deemed to be and to mean all sums
of every nature required to be paid by Tenant pursuant to the terms of this
Lease, whether to Landlord or to others. As used in items (i) and (ii), above,
the "worth at the time of award" shall be computed by allowing interest at the
rate set forth in item (e), below, but in no case greater than the maximum
amount of such interest permitted by law. As used in item (iii), above, the
"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
(b) Nothing in this Article 20 shall be deemed to affect Landlord's
right to indemnification for liability or liabilities arising prior to the
termination of this Lease for personal injuries or property damage under the
indemnification clause or clauses contained in this Lease. (c) Notwithstanding
anything to the contrary set forth herein, Landlord's re-entry to perform acts
of maintenance or preservation of or in connection with efforts to relet the
Premises or any portion thereof, or the appointment of a receiver upon
Landlord's initiative to protect Landlord's interest under this Lease shall not
terminate Tenant's right to possession of the Premises or any portion thereof
and, until Landlord does elect to terminate this Lease, this Lease shall
continue in full force and effect and Landlord may enforce all of Landlord's
rights and remedies hereunder including, without limitation, the remedy
described in California Civil Code Section 1951.4 (lessor may continue lease in
effect after lessee's breach and abandonment and recover rent as it becomes due,
if lessee has the right to sublet or assign, subject only to reasonable
limitations). Accordingly, if Landlord does not elect to terminate this Lease on
account of any default by Tenant, Landlord may, from time to time, without
terminating this Lease, enforce all of its rights and remedies under this Lease,
including the right to recover all rent as it becomes due.
(d) All rights, powers and remedies of Landlord hereunder and under any
other agreement now or hereafter in force between Landlord and Tenant shall be
cumulative and not alternative and shall be in addition to all rights, powers
and remedies given to Landlord by law, and the exercise of one or more rights or
remedies shall not impair Landlord's right to exercise any other right or
remedy.
(e) Any amount due from Tenant to Landlord hereunder which is not paid
when due shall bear interest at the lower of twelve percent (12%) per annum or
the maximum lawful rate of interest from the due date until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any default by Tenant under this Lease. In addition to such
interest: (i) if Basic Rental is not paid within ten (10) days after Landlord
delivers notice to Tenant that the same is due, a late charge equal to five
percent (5%) of the amount overdue shall be assessed and shall accrue for each
calendar month or part thereof until such rental, including the late charge, is
paid in full, which late charge Tenant hereby agrees is a reasonable estimate of
the damages Landlord shall suffer as a result of Tenant's late payment and (ii)
an additional charge of $25 shall be assessed for any check given to Landlord by
or on behalf of Tenant which is not honored by the drawee thereof; which damages
include Landlord's additional administrative and other costs associated with
such late payment and unsatisfied checks and the parties agree that it would be
impracticable or extremely difficult to fix Landlord's actual damage in such
event. Such charges for interest and late payments and unsatisfied checks are
separate and cumulative and are in addition to and shall not diminish or
represent a substitute for any or all of Landlord's rights or remedies under any
other provision of this Lease.
ARTICLE 21
TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer or termination of Landlord's interest in
the Premises or the Project by sale, assignment, transfer, foreclosure,
deed-in-lieu of foreclosure or otherwise whether voluntary or involuntary,
Landlord shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord from and after the date of such transfer or
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termination, including furthermore without limitation, the obligation of
Landlord under Article 4 and California Civil Code 1950.7 above to return the
security deposit, provided said security deposit is transferred to said
transferee. Tenant agrees to attorn to the transferee upon any such transfer and
to recognize such transferee as the lessor under this Lease and Tenant shall,
within ten (10) days after request, execute such further instruments or
assurances as such transferee may reasonably deem necessary to evidence or
confirm such attornment.
ARTICLE 22
BROKER
In connection with this Lease, Tenant warrants and represents that it
has had dealings only with firm(s) set forth in Article 1.H. of the Basic Lease
Provisions and that it knows of no other person or entity who is or might be
entitled to a commission, finder's fee or other like payment in connection
herewith and does hereby indemnify and agree to hold Landlord, its agents,
members, partners, representatives, officers, affiliates, shareholders,
employees, successors and assigns harmless from and against any and all loss,
liability and expenses that Landlord may incur should such warranty and
representation prove incorrect, inaccurate or false.
ARTICLE 23
PARKING
Within one (1) year after the date Archive.com (or the subtenant under
the Initial Sublease of the Premises) vacates the Premises, Tenant shall, by
written notice ("PARKING NOTICE") to Landlord, indicate the number of parking
passes to which Tenant is entitled hereunder and to which Tenant shall commit to
lease for the remainder of the Term of this Lease. If Tenant fails to deliver a
Parking Notice to Landlord within twelve (12) months after the above date,
Tenant shall be deemed to have committed to lease all of the parking passes
specified in Section 1(I) of the Basic Lease Provisions. If Tenant's Parking
Notice indicates that Tenant commits to lease less than the entire number of
parking passes to which Tenant is entitled, any such parking passes which Tenant
does not commit to lease shall be subsequently available to Tenant only if, at
the time Tenant wishes to lease such additional parking passes, Landlord
reasonably determines that such parking passes are then available. Tenant shall
pay to Landlord for automobile parking passes the prevailing rate charged from
time to time at the location of such parking passes. In addition to the rates
described above, Tenant shall be responsible for the full amount of any taxes
imposed by any governmental authority in connection with the renting of such
parking passes by Tenant or the use of the parking facility by Tenant. Tenant
shall have the right, upon prior written notice to Landlord, to convert from the
allotment set forth in Section 1(I) of the Basic Lease Provisions up to one (1)
parking pass per 1,000 usable square feet of the Premises into reserved parking,
and Tenant shall pay the prevailing parking rate charged by Landlord for such
reserved parking (plus any applicable taxes). The reserved parking shall be at a
location in the Project parking facility reasonably designated by Landlord.
Tenant's continued right to use the parking passes is conditioned upon Tenant
abiding by all rules and regulations which are prescribed from time to time for
the orderly operation and use of the parking facility where the parking passes
are located, including any sticker or other identification system established by
Landlord, Tenant's cooperation in seeing that Tenant's employees and visitors
also comply with such rules and regulations, and Tenant not being in default
under this Lease. Landlord specifically reserves the right to change the size,
configuration, design, layout and all other aspects of the Project parking
facility at any time and Tenant acknowledges and agrees that Landlord may,
without incurring any liability to Tenant and without any abatement of rent
under this Lease, from time to time, close-off or restrict access to the Project
parking facility for purposes of permitting or facilitating any such
construction, alteration or improvements. Landlord may relocate any reserved
parking spaces rented by Tenant to another location in the Parking project
facility. Landlord may delegate its responsibilities hereunder to a parking
operator or a lessee of the parking facility in which case such parking operator
or lessee shall have all the rights of control attributed hereby to the
Landlord. The parking passes rented by Tenant pursuant to this Article 23 are
provided to Tenant solely for use by Tenant's own personnel and such passes may
not be transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval, except in connection with the Initial Sublease of the
Premises or in connection with a Transfer which is approved by Landlord pursuant
to Article 15.
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Tenant may validate visitor parking by such method or methods as the Landlord
may establish, at the validation rate from time to time generally applicable to
visitor parking.
ARTICLE 24
WAIVER
No waiver by Landlord or Tenant of any provision of this Lease shall be
deemed to be a waiver of any other provision hereof or of any subsequent breach
of the same or any other provision. No provision of this Lease may be waived by
Landlord or Tenant, except by an instrument in writing executed by Landlord and
Tenant. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act of Tenant,
whether or not similar to the act so consented to or approved. No act or thing
done by Landlord or Landlord's agents during the Term of this Lease shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
such surrender shall be valid unless in writing and signed by Landlord. The
subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. Any payment by Tenant or receipt by Landlord of
an amount less than the total amount then due hereunder shall be deemed to be in
partial payment only thereof and not a waiver of the balance due or an accord
and satisfaction, notwithstanding any statement or endorsement to the contrary
on any check or any other instrument delivered concurrently therewith or in
reference thereto. Accordingly, Landlord may accept any such amount and
negotiate any such check without prejudice to Landlord's right to recover all
balances due and owing and to pursue its other rights against Tenant under this
Lease, regardless of whether Landlord makes any notation on such instrument of
payment or otherwise notifies Tenant that such acceptance or negotiation is
without prejudice to Landlord's rights.
ARTICLE 25
ESTOPPEL CERTIFICATE
Tenant shall, at any time and from time to time, upon not less than ten
(10) days' prior written notice from Landlord, execute, acknowledge and deliver
to Landlord a statement in writing certifying the following information, (but
not limited to the following information in the event further information is
requested by Landlord): (i) that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as modified, is in full force and effect); (ii) the dates to
which the rental and other charges are paid in advance, if any; (iii) the amount
of Tenant's security deposit, if any; and (iv) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
and no events or conditions then in existence which, with the passage of time or
notice or both, would constitute a default on the part of Landlord hereunder, or
specifying such defaults, events or conditions, if any are claimed. It is
expressly understood and agreed that any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Real
Property. Tenant's failure to deliver such statement within such time shall
constitute an admission by Tenant that all statements contained therein are true
and correct. In connection with a proposed Transfer, corporate financing or
corporate reorganization by Tenant, Landlord agrees to, within twenty (20) days
after written request from Tenant, execute and deliver to Tenant a statement in
writing prepared by Tenant and edited by Landlord as reasonably necessary,
stating (i) that the Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and specifying such modifications), (ii) the dates to which Tenant has
paid Rent, adjustments to Rent, and other charges paid by Tenant in advance, if
any, and (iii) whether or not, to the best of Landlord's knowledge, Tenant is in
default in the performance of any covenant, agreement or condition contained in
the Lease or whether there are events or conditions in existence which, with the
passage of time or notice or both, would constitute a default by Tenant
hereunder, and, if so, specifying each such default of which Landlord may have
knowledge.
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ARTICLE 26
LIABILITY OF LANDLORD
Notwithstanding anything in this Lease to the contrary, any 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 default by Landlord
hereunder or any claim, cause of action or obligation, contractual, statutory or
otherwise by Tenant against Landlord concerning, arising out of or relating to
any matter relating to this Lease and all of the covenants and conditions or any
obligations, contractual, statutory, or otherwise set forth herein, shall be
limited solely and exclusively to an amount which is equal to the lesser of (i)
the interest of Landlord in and to the Project, and (ii) the interest Landlord
would have in the Project if the Project were encumbered by third party debt in
an amount equal to ninety percent (90%) of the then current value of the
Project. No other property or assets of Landlord, or any member, officer,
director, shareholder, partner, trustee, agent, servant or employee of Landlord
(the "REPRESENTATIVE") shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with respect to
this Lease, Landlord's obligations to Tenant, whether contractual, statutory or
otherwise, the relationship of Landlord and Tenant hereunder, or Tenant's use or
occupancy of the Premises. Tenant further understands that any liability, duty
or obligation of Landlord to Tenant, shall automatically cease and terminate as
of the date that Landlord or any of Landlord's Representatives no longer have
any right, title or interest in or to the Project. Notwithstanding anything to
the contrary in this Lease, Landlord shall not be liable under any circumstances
for injury or damage to, or interference with, Tenant's business, including but
not limited to, loss of profits, loss of rents or other revenues, loss of
business opportunity, loss of goodwill or loss of use, in each case, however
occurring.
ARTICLE 27
INABILITY TO PERFORM
This Lease and the obligations of both parties hereunder shall not be
affected or impaired because such party is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of any prevention, delay, stoppage due to strikes, lockouts,
acts of God, or any other cause previously, or at such time, beyond the
reasonable control or anticipation of such party (collectively, a "FORCE
MAJEURE") and both parties' obligations under this Lease shall be forgiven and
suspended by any such Force Majeure; provided, however, that this Article 27 is
not intended to, and shall not, extend the time period for the payment of any
monetary amounts due (including, without limitation, rent payments from Tenant)
from either party to the other under this Lease nor relieve either party from
their monetary obligations to the other under this Lease.
ARTICLE 28
HAZARDOUS WASTE
(a) Tenant shall not cause or permit any Hazardous Material (as defined
in Article 28(c) below) to be brought, kept or used in or about the Project by
Tenant, its agents, employees, contractors, or invitees. Tenant indemnifies
Landlord from and against any breach by Tenant of the obligations stated in the
preceding sentence, and agrees to defend and hold Landlord harmless from and
against any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses (including, without limitation, diminution in value of
the Project, damages for the loss or restriction or use of rentable or usable
space or of any amenity of the Project, damages arising from any adverse impact
or marketing of space in the Project, and sums paid in settlement of claims,
attorneys' fees and costs, consultant fees, and expert fees) which arise during
or after the Term of this Lease as a result of such breach. This indemnification
of Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Project. Without limiting the foregoing, if the
presence of any Hazardous Material on the Project caused or permitted by Tenant
results in any contamination of the Project and subject to the provisions of
Articles 9, 10 and 11, hereof, Tenant shall promptly take all actions at its
sole expense as are necessary to
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return the Project to the condition existing prior to the introduction of any
such Hazardous Material and the contractors to be used by Tenant for such work
must be approved by Landlord, which approval shall not be unreasonably withheld
so long as such actions would not potentially have any material adverse
long-term or short-term effect on the Project and so long as such actions do not
materially interfere with the use and enjoyment of the Project by the other
tenants thereof.
(b) It shall not be unreasonable for Landlord to withhold its consent
to any proposed Transfer if (i) the proposed transferee's anticipated use of the
Premises involves the generation, storage, use, treatment, or disposal of
Hazardous Material; (ii) the proposed Transferee has been required by any prior
landlord, lender, or governmental authority to take remedial action in
connection with Hazardous Material contaminating a property if the contamination
resulted from such Transferee's actions or use of the property in question; or
(iii) the proposed Transferee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of a
Hazardous Material.
(c) As used herein, the term "HAZARDOUS MATERIAL" means any hazardous
or toxic substance, material, or waste which is or becomes regulated by any
local governmental authority, the State of California or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as "Hazardous Waste," "Extremely
Hazardous Waste," or "Restricted Hazardous Waste" under Sections 25115, 25117 or
25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "Hazardous Substance" under Section 25316 of the California Health
and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substance Account Act), (iii) defined as a "Hazardous Material," "Hazardous
Substance," or "Hazardous Waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response
Plans and Inventory), (iv) defined as a "Hazardous Substance" under Section
25281 of the California Health and Safety Code, Division 20, Chapter 6.7
(Underground Storage of Hazardous Substances), (v) petroleum, (vi) asbestos,
(vii) listed under Article 9 or defined as Hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20, (viii) designated as a "Hazardous Substance" pursuant to
Section 311 of the Federal Water Pollution Control Act (33 U.S.C. ss. 1317),
(ix) defined as a "Hazardous Waste" pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq. (42 U.S.C.
ss. 6903), or (x) defined as a "Hazardous Substance" pursuant to Section 101 of
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss. 9601 et seq. (42 U.S.C. ss. 9601). Notwithstanding anything to the
contrary contained herein, the term "Hazardous Materials" shall not be deemed to
include (A) general office supplies typically used in the ordinary course of
business (e.g., copier toner, liquid paper, glue, ink, and cleaning solvents) or
(B) gasoline or diesel fuel contained in the fuel tanks of motor vehicles parked
within the Project parking facility, so long as in each case of (A) and (B)
above, such materials are incidental to Tenant's use of the Premises for the
Permitted Use and are used in compliance with all applicable Laws.
(d) As used herein, the term "LAWS" mean any applicable federal, state
or local laws, ordinances, or regulations relating to any Hazardous Material
affecting the Project, including, without limitation, the laws, ordinances, and
regulations referred to in Article 28(c) above.
ARTICLE 29
SURRENDER OF PREMISES; REMOVAL OF PROPERTY
(a) The voluntary or other surrender of this Lease by Tenant to
Landlord, or a mutual termination hereof, shall not work a merger, and shall at
the option of Landlord, operate as an assignment to it of any or all subleases
or subtenancies affecting the Premises.
(b) Upon the expiration of the Term of this Lease, or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order and condition as the same are now and
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 from the Premises all debris and
rubbish, all furniture, equipment, business and trade fixtures, free-standing
cabinet work, moveable partitioning, telephone and data cabling and other
articles of personal property owned by Tenant
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or installed or placed by Tenant at its own expense in the Premises, and all
similar articles of any other persons claiming under Tenant unless Landlord
exercises its option to have any subleases or subtenancies assigned to it, and
Tenant shall repair all damage to the Premises resulting from the installation
and removal of such items to be removed.
(c) Whenever Landlord shall reenter the Premises as provided in Article
12 hereof, or as otherwise provided in this Lease, any property of Tenant not
removed by Tenant upon the expiration of the Term of this Lease (or within
forty-eight (48) hours after a termination by reason of Tenant's default), as
provided in this Lease, shall be considered abandoned and Landlord may remove
any or all of such items and dispose of the same in any manner or store the same
in a public warehouse or elsewhere for the account and at the expense and risk
of Tenant, and if Tenant shall fail to pay the cost of storing any such property
after it has been stored for a period of ninety (90) days or more, Landlord may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in its sole discretion, may deem proper,
without notice or to demand upon Tenant, for the payment of all or any part of
such charges or the removal of any such property, and shall apply the proceeds
of such sale as follows: first, to the cost and expense of such sale, including
reasonable attorneys' fees for services rendered; second, to the payment of the
cost of or charges for storing any such property; third, to the payment of any
other sums of money which may then or thereafter be due to Landlord from Tenant
under any of the terms hereof; and fourth, the balance, if any, to Tenant.
(d) All fixtures, equipment, leasehold improvements, Alterations and/or
appurtenances attached to or built into the Premises prior to or during the
Term, whether by Landlord or Tenant and whether at the expense of Landlord or
Tenant, or of both, shall be and remain part of the Premises and shall not be
removed by Tenant at the end of the Term unless otherwise expressly provided for
in, or requested by Landlord in accordance with, this Lease or unless such
removal is required by Landlord. Such fixtures, equipment, leasehold
improvements, Alterations, additions, improvements and/or appurtenances shall
include but not be limited to: all floor coverings, drapes, paneling, built-in
cabinetry, molding, doors, vaults (including vault doors), plumbing systems,
security systems, electrical systems, lighting systems, silencing equipment,
communication systems, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations.
ARTICLE 30
MISCELLANEOUS
(a) SEVERABILITY; ENTIRE AGREEMENT. Any provision of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof and such other provisions shall remain in
full force and effect. This Lease and the Exhibits and any Addendum attached
hereto constitute the entire agreement between the parties hereto with respect
to the subject matter hereof, and no prior agreement or understanding pertaining
to any such matter shall be effective for any purpose. No provision of this
Lease may be amended or supplemented except by an agreement in writing signed by
the parties hereto or their successor in interest.
(b) ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
(i) In any action to enforce the terms of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum for
attorneys' fees and costs in such suit and such attorneys' fees and costs shall
be deemed to have accrued prior to the commencement of such action and shall be
paid whether or not such action is prosecuted to judgment.
(ii) EACH PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION SEEKING SPECIFIC PERFORMANCE OF ANY PROVISION OF THIS LEASE, FOR
DAMAGES FOR ANY BREACH UNDER THIS LEASE, OR OTHERWISE FOR ENFORCEMENT OF ANY
RIGHT OR REMEDY HEREUNDER.
(c) TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.
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(d) HEADINGS; JOINT AND SEVERAL. The article headings contained in this
Lease are for convenience only and do not in any way limit or amplify any term
or provision hereof. The terms "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular, the neuter shall include the
masculine and feminine genders and the obligations herein imposed upon Tenant
shall be joint and several as to each of the persons, firms or corporations of
which Tenant may be composed.
(e) RESERVED AREA. Tenant hereby acknowledges and agrees that the
exterior walls of the Premises and the area between the finished ceiling of the
Premises and the slab of the floor of the project thereabove have not been
demised hereby and the use thereof together with the right to install, maintain,
use, repair and replace pipes, ducts, conduits and wires leading through, under
or above the Premises in locations which will not materially interfere with
Tenant's use of the Premises and serving other parts of the Project are hereby
excepted and reserved unto Landlord. Notwithstanding the foregoing, Tenant shall
have the right to use the plenum space above the ceiling, subject to obtaining
all required approvals of Landlord pursuant to this Lease.
(f) NO OPTION. THE SUBMISSION OF THIS LEASE BY LANDLORD, ITS AGENT OR
REPRESENTATIVE FOR EXAMINATION OR EXECUTION BY TENANT DOES NOT CONSTITUTE AN
OPTION OR OFFER TO LEASE THE PREMISES UPON THE TERMS AND CONDITIONS CONTAINED
HEREIN OR A RESERVATION OF THE PREMISES IN FAVOR OF TENANT, IT BEING INTENDED
HEREBY THAT THIS LEASE SHALL ONLY BECOME EFFECTIVE UPON THE EXECUTION HEREOF BY
LANDLORD AND TENANT AND DELIVERY OF A FULLY EXECUTED LEASE TO TENANT.
(g) USE OF PROJECT NAME; IMPROVEMENTS. Tenant shall not be allowed to
use the name, picture or representation of the Project, or words to that effect,
in connection with any business carried on in the Premises or otherwise (except
as Tenant's address) without the prior written consent of Landlord. In the event
that Landlord undertakes any additional improvements on the Real Property
including but not limited to new construction or renovation or additions to the
existing improvements, Landlord shall not be liable to Tenant for any noise,
dust, vibration or interference with access to the Premises or disruption in
Tenant's business caused thereby; provided that Landlord shall use commercially
reasonable efforts to minimize any disruption of Tenant's use caused by such
construction or renovation, and shall not block Tenant's access to the Premises.
(h) RULES AND REGULATIONS. Tenant shall observe faithfully and comply
strictly with the Rules and Regulations attached to this Lease as Exhibit "B"
and made a part hereof, and such other Rules and Regulations as Landlord may
from time to time reasonably adopt for the safety, care and cleanliness of the
Project, the facilities thereof, or the preservation of good order therein.
Landlord shall not be liable to Tenant for violation of any such Rules and
Regulations, or for the breach of any covenant or condition in any lease by any
other tenant in the Project. A waiver by Landlord of any Rule or Regulation for
any other tenant shall not constitute nor be deemed a waiver of the Rule or
Regulation for this Tenant. Landlord shall not enforce the Rules and Regulations
in a discriminatory manner, or so as to deprive Tenant of any material right or
benefit provided to Tenant by this Lease.
(i) QUIET POSSESSION. Upon Tenant's paying the Basic Rent, Additional
Rent and other sums provided hereunder and observing and performing all of the
covenants, conditions and provisions on Tenant's part to be observed and
performed hereunder, Tenant shall have quiet possession of the Premises for the
entire Term hereof, subject to all of the provisions of this Lease.
(j) RENT. All payments required to be made hereunder to Landlord shall
be deemed to be rent, whether or not described as such.
(k) SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 15
hereof, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
(l) NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal service evidenced by a signed
receipt or sent by registered
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or certified mail, return receipt requested, or via overnight courier, and shall
be effective upon proof of delivery, addressed to Tenant at 44 Farnsworth
Street, 9th floor, Boston, Massachusetts 02210, Attention: Susan Nelson, Vice
President of Administration, with a courtesy copy to Investment Technology
Group, Inc., 380 Madison Avenue, 4th Floor, New York, New York 10017, Attention:
Saul Sarrett, Esq., Associate General Counsel or to Landlord at the management
office for the Project, with a copy to Landlord, c/o Arden Realty, Inc., 11601
Wilshire Boulevard, Fourth Floor, Los Angeles, California 90025, Attn: Legal
Department. Either party may by notice to the other specify a different address
for notice purposes except that, upon Tenant's taking possession of the
Premises, the Premises shall constitute Tenant's address for notice purposes. A
copy of all notices to be given to Landlord hereunder shall be concurrently
transmitted by Tenant to such party hereafter designated by notice from Landlord
to Tenant.
(m) INTENTIONALLY OMITTED.
(n) RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of rent. If
Tenant shall fail to pay any sum of money, other than rent, required to be paid
by it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue beyond any applicable cure
period set forth in this Lease, Landlord may, but shall not be obligated to,
without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such other act on Tenant's part to be made or
performed as is in this Lease provided. All sums so paid by Landlord and all
reasonable incidental costs, together with interest thereon at the rate of ten
percent (10%) per annum from the date of such payment by Landlord, shall be
payable to Landlord on demand and Tenant covenants to pay any such sums, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of the rent.
(o) ACCESS, CHANGES IN PROJECT, FACILITIES, NAME.
(i) Every part of the Project except the inside surfaces of
all walls, windows and doors bounding the Premises (including exterior building
walls, core corridor walls and doors and any core corridor entrance), and any
space in or adjacent to the Premises used for shafts, stacks, pipes, conduits,
fan rooms, ducts, electric or other utilities, sinks or other building
facilities, and the use thereof, as well as access thereto through the Premises
for the purposes of operation, maintenance, decoration and repair, are reserved
to Landlord.
(ii) Tenant shall permit Landlord to install, use and maintain
pipes, ducts and conduits within the walls, columns and ceilings of the
Premises.
(iii) Landlord reserves the right, without incurring any
liability to Tenant therefor, to make such changes in or to the Project and the
fixtures and equipment thereof, as well as in or to the street entrances, halls,
passages, elevators, stairways and other improvements thereof, as it may deem
necessary or desirable.
(iv) Landlord may adopt any name for the Project and Landlord
reserves the right to change the name or address of the Project at any time.
(p) SIGNING AUTHORITY. Concurrently with Tenant's execution of this
Lease, Tenant shall provide to Landlord reasonably satisfactory evidence that
the individuals executing this Lease on behalf of Tenant are authorized to bind
Tenant and to enter into this Lease.
(q) INTENTIONALLY OMITTED.
(r) INTENTIONALLY OMITTED.
(s) SURVIVAL OF OBLIGATIONS. Any obligations of Landlord or Tenant
occurring prior to the expiration or earlier termination of this Lease shall
survive such expiration or earlier termination.
(t) INTENTIONALLY OMITTED.
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(u) GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of California. No conflicts of law rules
of any state or country (including, without limitation, California conflicts of
law rules) shall be applied to result in the application of any substantive or
procedural laws of any state or country other than California. All
controversies, claims, actions or causes of action arising between the parties
hereto and/or their respective successors and assigns, shall be brought, heard
and adjudicated by the courts of the State of California, with venue in the
County of Los Angeles. Each of the parties hereto hereby consents to personal
jurisdiction by the courts of the State of California in connection with any
such controversy, claim, action or cause of action, and each of the parties
hereto consents to service of process by any means authorized by California law
and consent to the enforcement of any judgment so obtained in the courts of the
State of California on the same terms and conditions as if such controversy,
claim, action or cause of action had been originally heard and adjudicated to a
final judgment in such courts. Each of the parties hereto further acknowledges
that the laws and courts of California were freely and voluntarily chosen to
govern this Lease and to adjudicate any claims or disputes hereunder.
(v) EXHIBITS AND ADDENDUM. The Exhibits and Addendum, if applicable,
attached hereto are incorporated herein by this reference as if fully set forth
herein.
(w) REASONABLE CONSENT. Except for matters for which there is a
standard of consent or approval specifically set forth in this Lease (other than
a reasonableness standard), and except for matters which could affect (i) the
systems and equipment of the Project; (ii) structural aspects of the Project or
(iii) the exterior appearance of the Project, in which case Landlord shall have
the right to act in its sole and absolute discretion (but at all times in good
faith), any time the consent or approval of Landlord or Tenant is required under
this Lease, such consent or approval shall not be unreasonably withheld,
conditioned or delayed.
(x) COMMUNICATION EQUIPMENT. If Tenant desires to use the roof of the
Project to install communication equipment to be used from the Premises, Tenant
may negotiate with Landlord's rooftop management company (currently APEX) for a
license to install such equipment. Any communication equipment installed by
Tenant shall not exceed two (2) feet in height or diameter, shall be at a
location reasonably designated by Landlord and shall be subject to all
governmental laws, rules and regulations and covenants, conditions and
restrictions. Tenant's communication equipment license will be memorialized
pursuant to a separate license agreement between Tenant and such management
company. Tenant's rights pursuant to this Section 30(x) are contingent upon
availability of space on the roof of the Project and the negotiation of a
mutually acceptable license agreement. The rent payable by Tenant for such
rooftop communication equipment shall be the prevailing rate charged by Apex for
such communication equipment.
ARTICLE 31
DIRECTORY
Provided Tenant is not in default hereunder, Tenant, at Tenant's sole
cost and expense, shall have the right to ten (10) lines in the lobby directory
during the Lease Term.
ARTICLE 32
OPTION TO EXTEND
(a) OPTION RIGHT. Landlord hereby grants the Tenant named in this Lease
(the "ORIGINAL TENANT") two (2) options (each, an "OPTION") to extend the Lease
Term for the entire Premises for a period of five (5) years each (each, an
"OPTION TERM"), which option shall be exercisable only by written notice
delivered by Tenant to Landlord set forth below. The second Option shall be
exercisable only in the event Tenant has exercised the first Option pursuant to
this Article 32. The rights contained in this Article 32 shall be personal to
the Original Tenant and may only be exercised by the Original Tenant (and not
any assignee, sublessee or other transferee of the Original Tenant's interest in
this Lease) if the Original Tenant occupies the entire Premises as of the date
of Tenant's Acceptance (as defined in Section 32(c) below).
(b) OPTION RENT. The rent payable by Tenant during the Option Term
("OPTION RENT") shall be equal to the "Market Rent" (defined below), but in no
event shall the Option Rent
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be less than Tenant is paying under the Lease on the month immediately preceding
the applicable Option Term for monthly Basic Rental, including all escalations,
Direct Costs, additional rent and other charges. Notwithstanding the foregoing,
in the event Tenant exercises the first Option to extend granted pursuant to
this Article 32, and also exercises Tenant's option to extend for all of the
premises currently leased by Tenant from Landlord's affiliate at 400 Corporate
Pointe, which space consists of approximately 48,202 rentable square feet, the
rent payable by Tenant during the Option Term shall be equal to ninety-five
percent (95%) of the Market Rent; provided that, as to the second Option,
regardless of whether Tenant exercises its Option to extend its lease of space
at 400 Corporate Pointe, the rent payable during the second Option Term shall be
one hundred percent (100%) of the Market Rent. "MARKET RENT" shall mean the
applicable Monthly Basic Rental, including all escalations, Direct Costs,
additional rent and other charges at which tenants, as of the time of Landlord's
"Option Rent Notice" (as defined below), are entering into leases with
comparable landlords of comparable buildings in the vicinity of the Project for
non-sublease, non-equity (i.e., not being offered equity in the building),
non-expansion, and non-affiliated tenants for comparable space, for a comparable
use, and for a comparable term, with the determination of Market Rent to take
into account all relevant factors, including, without limitation, the following
to the extent applicable: (i) rental abatement (exclusive of construction
periods), (ii) lease takeovers/ assumptions by the landlord, (iii)
relocation/moving allowances, (iv) tenant improvement allowances, and (v) any
other concessions or inducements.
(c) EXERCISE OF OPTION. The Options shall be exercised by Tenant only
in the following manner: (i) Tenant shall not be in default, and shall not have
been in default under this Lease more than once, on the delivery date of the
Interest Notice and Tenant's Acceptance; (ii) Tenant shall deliver written
notice ("INTEREST NOTICE") to Landlord not more than fifteen (15) months nor
less than nine (9) months prior to the expiration of the Lease Term (or the
first Option Term, as applicable), stating that Tenant is interested in
exercising the Option, (iii) within fifteen (15) business days of Landlord's
receipt of Tenant's written notice, Landlord shall deliver notice ("OPTION RENT
NOTICE") to Tenant setting forth the Option Rent; and (iv) if Tenant desires to
exercise such Option, Tenant shall provide Landlord written notice within five
(5) business days after receipt of the Option Rent Notice ("TENANT'S
ACCEPTANCE") and upon, and concurrent with such exercise, Tenant may, at its
option, object to the Option Rent contained in the Option Rent Notice. Tenant's
failure to deliver the Interest Notice or Tenant's Acceptance on or before the
dates specified above shall be deemed to constitute Tenant's election not to
exercise the Option. If Tenant timely and properly exercises its Option, the
Lease Term (or the first Option Term, as applicable) shall be extended for the
Option Term upon all of the terms and conditions set forth in this Lease, except
that the rent for the Option Term shall be as indicated in the Option Rent
Notice unless Tenant, concurrently with Tenant's Acceptance, objects to the
Option Rent contained in the Option Rent Notice, in which case the parties shall
follow the procedure and the Option Rent shall be determined, as set forth in
Section 32(d) below.
(d) DETERMINATION OF MARKET RENT. If Tenant timely and appropriately
objects to the Market Rent in Tenant's Acceptance, Landlord and Tenant shall
attempt to agree upon the Market Rent using their best good-faith efforts. If
Landlord and Tenant fail to reach agreement within twenty-one (21) days
following Tenant's Acceptance ("OUTSIDE AGREEMENT Date"), then each party shall
make a separate determination of the Market Rent which shall be submitted to
each other and to arbitration in accordance with the following items (i) through
(vii):
(i) Landlord and Tenant shall each appoint, within ten (10)
days of the Outside Agreement Date, one arbitrator who shall by profession be a
current real estate broker or appraiser of commercial high-rise properties in
the immediate vicinity of the Project, and who has been active in such field
over the last five (5) years. The determination of the arbitrators shall be
limited solely to the issue of whether Landlord's or Tenant's submitted Market
Rent is the closest to the actual Market Rent as determined by the arbitrators,
taking into account the requirements of item (b), above.
(ii) The two arbitrators so appointed shall within five (5)
business days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two arbitrators.
(iii) The three arbitrators shall within fifteen (15) days of
the appointment of the third arbitrator reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted Market Rent, and shall notify
Landlord and Tenant thereof.
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(iv) The decision of the majority of the three arbitrators
shall be binding upon Landlord and Tenant.
(v) If either Landlord or Tenant fails to appoint an
arbitrator within ten (10) days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, notify Landlord and
Tenant thereof, and such arbitrator's decision shall be binding upon Landlord
and Tenant.
(vi) If the two arbitrators fail to agree upon and appoint a
third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and the
matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instruction set forth in this item (d).
(vii) The cost of arbitration shall be paid by Landlord and
Tenant equally.
IN WITNESS WHEREOF, the parties have executed this Lease, consisting of
the foregoing provisions and Articles, including all exhibits and other
attachments referenced therein, as of the date first above written.
"LANDLORD" ARDEN REALTY FINANCE IV, L.L.C.,
a Delaware limited liability company
By:
---------------------------------
VICTOR J. COLEMAN
Its: President and COO
By:
---------------------------------
Its:
-----------------------------
"TENANT" INVESTMENT TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:
---------------------------------
Print Name:
-------------------------
Title:
--------------------
By:
---------------------------------
Print Name:
-------------------------
Title:
--------------------
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<PAGE>
EXHIBIT "A"
PREMISES
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be displayed, printed or
affixed on or to the Premises or to the outside or inside of the Project or so
as to be visible from outside the Premises or Project without Landlord's prior
written consent. Landlord shall have the right to remove any non-approved sign,
advertisement or notice, without notice to and at the expense of Tenant, and
Landlord shall not be liable in damages for such removal. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Tenant by Landlord or by a person selected by Landlord and in a
manner and style acceptable to Landlord.
2. Tenant shall not obtain for use on the Premises ice, waxing,
cleaning, interior glass polishing, rubbish removal, towel or other similar
services, or accept barbering or bootblackening, or coffee cart services, milk,
soft drinks or other like services on the Premises, except from persons
authorized by Landlord and at the hours and under regulations fixed by Landlord.
No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without Landlord's prior written
consent.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used for any purpose other than
for ingress and egress from Tenant's Premises. Under no circumstances is trash
to be stored in the corridors. Notice must be given to Landlord for any large
deliveries. Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Project only at times and in the manner
designated by Landlord, and always at Tenant's sole responsibility and risk.
Landlord may impose reasonable charges for use of freight elevators after or
before normal business hours. All damage done to the Project by moving or
maintaining such furniture, freight or articles shall be repaired by Landlord at
Tenant's expense. Tenant shall not take or permit to be taken in or out of
entrances or passenger elevators of the Project, any item normally taken, or
which Landlord otherwise reasonably requires to be taken, in or out through
service doors or on freight elevators. Tenant shall move all supplies, furniture
and equipment as soon as received directly to the Premises, and shall move all
waste that is at any time being taken from the Premises directly to the areas
designated for disposal.
4. Toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, ceilings or floor or in any way
deface the Premises. Tenant shall not place typed, handwritten or computer
generated signs in the corridors or any other common areas. Should there be a
need for signage additional to the Project standard tenant placard, a written
request shall be made to Landlord to obtain approval prior to any installation.
All costs for said signage shall be Tenant's responsibility.
6. In no event shall Tenant place a load upon any floor of the Premises
or portion of any such flooring exceeding the floor load per square foot of area
for which such floor is designed to carry and which is allowed by law, or any
machinery or equipment which shall cause excessive vibration to the Premises or
noticeable vibration to any other part of the Project. Prior to bringing any
heavy safes, vaults, large computers or similarly heavy equipment into the
Project, Tenant shall inform Landlord in writing of the dimensions and weights
thereof and shall obtain Landlord's consent thereto. Such consent shall not
constitute a representation or warranty by Landlord that the safe, vault or
other equipment complies, with regard to distribution of weight and/or
vibration, with the provisions of this Rule 6 nor relieve Tenant from
responsibility for the consequences of such noncompliance, and any such safe,
vault or other equipment which Landlord determines to constitute a danger of
damage to the Project or a nuisance to other tenants, either alone or in
combination with other heavy and/or vibrating objects and equipment, shall be
promptly removed by Tenant, at Tenant's cost, upon Landlord's written notice of
such determination and demand for removal thereof.
7. Tenant shall not use or keep in the Premises or Project any kerosene,
gasoline or inflammable, explosive or combustible fluid or material, or use any
method of heating or air-conditioning other than that supplied by Landlord.
<PAGE>
8. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
9. Tenant shall not install or use any blinds, shades, awnings or
screens in connection with any window or door of the Premises and shall not use
any drape or window covering facing any exterior glass surface other than the
standard drapes, blinds or other window covering established by Landlord.
10. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing window coverings when the sun's
rays fall directly on windows of the Premises. Tenant shall not obstruct, alter,
or in any way impair the efficient operation of Landlord's heating, ventilating
and air-conditioning system. Tenant shall not tamper with or change the setting
of any thermostats or control valves.
11. The Premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the permitted use of
the Premises. Tenant shall not, without Landlord's prior written consent, occupy
or permit any portion of the Premises to be occupied or used for the manufacture
or sale of liquor or tobacco in any form, or a barber or manicure shop, or as an
employment bureau. The Premises shall not be used for lodging or sleeping or for
any improper, objectionable or immoral purpose. No auction shall be conducted on
the Premises.
12. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises, or disturb or interfere with occupants of Project or
neighboring buildings or premises or those having business with it by the use of
any musical instrument, radio, phonographs or unusual noise, or in any other
way.
13. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the Premises, and no cooking shall be done or permitted by
any tenant in the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for tenants, their employees and visitors shall be
permitted. No tenant shall cause or permit any unusual or objectionable odors to
be produced in or permeate from or throughout the Premises. The foregoing
notwithstanding, Tenant shall have the right to use a microwave and to heat
microwavable items typically heated in an office. No hot plates, toasters,
toaster ovens or similar open element cooking apparatus shall be permitted in
the Premises.
14. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Project shall not be covered or obstructed by any tenant, nor shall any bottles,
parcels or other articles be placed on the window sills.
15. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanisms thereof unless Landlord is first notified thereof, gives
written approval, and is furnished a key therefor. Each tenant must, upon the
termination of his tenancy, give to Landlord all keys and key cards of stores,
offices, or toilets or toilet rooms, either furnished to, or otherwise procured
by, such tenant, and in the event of the loss of any keys so furnished, such
tenant shall pay Landlord the cost of replacing the same or of changing the lock
or locks opened by such lost key if Landlord shall deem it necessary to make
such change. If more than two keys for one lock are desired, Landlord will
provide them upon payment therefor by Tenant. Tenant shall not key or re-key any
locks. All locks shall be keyed by Landlord's locksmith only.
16. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Project or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from and discontinue such advertising.
17. Landlord reserves the right to control access to the Project by all
persons after reasonable hours of generally recognized business days and at all
hours on Sundays and legal holidays. Each tenant shall be responsible for all
persons for whom it requests after hours access and shall be liable to Landlord
for all acts of such persons. Landlord shall have the right from time to time to
establish reasonable rules pertaining to freight elevator usage, including the
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allocation and reservation of such usage for tenants' initial move-in to their
premises, and final departure therefrom.
18. Any person employed by any tenant to do janitorial work shall, while
in the Project and outside of the Premises, be subject to and under the control
and direction of the Office of the Project or its designated representative such
as security personnel (but not as an agent or servant of Landlord, and the
Tenant shall be responsible for all acts of such persons).
19. All doors opening on to public corridors shall be kept closed,
except when being used for ingress and egress. Tenant shall cooperate and comply
with any reasonable safety or security programs, including fire drills and air
raid drills, and the appointment of "fire wardens" developed by Landlord for the
Project, or required by law. Before leaving the Premises unattended, Tenant
shall close and securely lock all doors or other means of entry to the Premises
and shut off all lights and water faucets in the Premises.
20. The requirements of tenants will be attended to only upon
application to the Office of the Project.
21. Canvassing, soliciting and peddling in the Project are prohibited
and each tenant shall cooperate to prevent the same.
22. All office equipment of any electrical or mechanical nature shall be
placed by tenants in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.
23. No air-conditioning unit or other similar apparatus shall be
installed or used by any tenant without the prior written consent of Landlord.
Tenant shall pay the cost of all electricity used for air-conditioning in the
Premises if such electrical consumption exceeds normal office requirements,
regardless of whether additional apparatus is installed pursuant to the
preceding sentence.
24. There shall not be used in any space, or in the public halls of the
Project, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
25. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Project must be fluorescent and/or of a quality, type, design
and bulb color approved by Landlord. Tenant shall not permit the consumption in
the Premises of more than 2 1/2 watts per net usable square foot in the Premises
in respect of office lighting nor shall Tenant permit the consumption in the
Premises of more than 1 1/2 watts per net usable square foot of space in the
Premises in respect of the power outlets therein, at any one time. In the event
that such limits are exceeded, Landlord shall have the right to require Tenant
to remove lighting fixtures and equipment and/or to charge Tenant for the cost
of the additional electricity consumed.
26. Parking.
(a) Project parking facility hours shall be 7:00 a.m. to 7:00
p.m., Monday through Friday, and closed on weekends, state and federal holidays
excepted, as such hours may be revised from time to time by Landlord.
(b) Automobiles must be parked entirely within the stall lines on
the floor.
(c) All directional signs and arrows must be observed.
(d) The speed limit shall be 5 miles per hour.
(e) Parking is prohibited in areas not striped for parking.
(f) Parking cards or any other device or form of identification
supplied by Landlord (or its operator) shall remain the property of Landlord (or
its operator). Such parking identification device must be displayed as requested
and may not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable or
assignable and any device in the possession of an unauthorized holder will be
void. There will be a replacement charge to the Tenant or person designated by
Tenant of
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<PAGE>
$25.00 for loss of any parking card. There shall be a security deposit of $25.00
due at issuance for each card key issued to Tenant.
(g) The monthly rate for parking is payable one (1) month in
advance and must be paid by the third business day of each month. Failure to do
so will automatically cancel parking privileges and a charge at the prevailing
daily rate will be due. No deductions or allowances from the monthly rate will
be made for days parker does not use the parking facilities.
(h) Tenant may validate visitor parking by such method or methods
as the Landlord may approve, at the validation rate from time to time generally
applicable to visitor parking.
(i) Landlord (and its operator) may refuse to permit any person
who violates the within rules to park in the Project parking facility, and any
violation of the rules shall subject the automobile to removal from the Project
parking facility at the parker's expense. In either of said events, Landlord (or
its operator) shall refund a prorata portion of the current monthly parking rate
and the sticker or any other form of identification supplied by Landlord (or its
operator) will be returned to Landlord (or its operator).
(j) Project parking facility managers or attendants are not
authorized to make or allow any exceptions to these Rules and Regulations.
(k) All responsibility for any loss or damage to automobiles or
any personal property therein is assumed by the parker.
(l) Loss or theft of parking identification devices from
automobiles must be reported to the Project parking facility manager
immediately, and a lost or stolen report must be filed by the parker at that
time.
(m) The Parking facilities are for the sole purpose of parking
one automobile per space. Washing, waxing, cleaning or servicing of any vehicles
by the parker or his agents is prohibited.
(n) Landlord (and its operator) reserves the right to refuse the
issuance of monthly stickers or other parking identification devices to any
Tenant and/or its employees who refuse to comply with the above Rules and
Regulations and all City, State or Federal ordinances, laws or agreements.
(o) Tenant agrees to acquaint all employees with these Rules and
Regulations.
(p) No vehicle shall be stored in the Project parking facility
for a period of more than one (1) week.
27. The Project is a non-smoking Project. Smoking or carrying lighted
cigars or cigarettes in the Premises or the Project, including the elevators in
the Project, is prohibited.
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<PAGE>
EXHIBIT "C"
NOTICE OF LEASE TERM DATES
AND TENANT'S PROPORTIONATE SHARE
TO:_____________________________________ DATE:_________________
________________________________________
________________________________________
RE: Lease dated ________________, 2000, between ____________________________
____________________________ "LANDLORD"), and _________________________
____________________________ ("TENANT"), concerning Suite ________,
located at ____________________________.
Ladies and Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or confirm
the following:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the Lease and that there is no
deficiency in construction.
2. That the Tenant has taken possession of the Premises and acknowledges
that under the provisions of the Lease the Term of said Lease shall commence as
of ____________ for a term of ________________________ ending on
________________________.
3. That in accordance with the Lease, Basic Rental commenced to accrue
on ____________________________.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a prorata adjustment. Each billing
thereafter shall be for the full amount of the monthly installment as provided
for in said Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the Term of said Lease. Your rent checks should be made payable to
________________________ at ________________________________________________.
6. The exact number of rentable square feet within the Premises is
__________ square feet.
7. Tenant's Proportionate Share, as adjusted based upon the exact number
of rentable square feet within the Premises is _______%.
AGREED AND ACCEPTED:
TENANT:
____________________________,
a___________________________
By:_________________________
Its:_____________________
<PAGE>
EXHIBIT "D"
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the renovation of the tenant improvements in the Premises. This
Tenant Work Letter is essentially organized chronologically and addresses the
issues of the renovation of the Premises, in sequence, as such issues will
arise.
SECTION 1
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
Landlord has constructed, at its sole cost and expense, the base, shell
and core (i) of the Premises, and (ii) of the floor of the Project on which the
Premises is located (collectively, the "BASE, SHELL AND CORE"). Tenant has
inspected and hereby approves the condition of the Base, Shell and Core, and
agrees that the Base, Shell and Core shall be delivered to Tenant in its current
"as-is" condition. The improvements to be initially installed in the Premises
shall be designed and constructed pursuant to this Tenant Work Letter.
SECTION 2
IMPROVEMENTS
2.1 IMPROVEMENT ALLOWANCE. Tenant shall be entitled to a one-time
improvement allowance (the "IMPROVEMENT ALLOWANCE ") in the amount of
$444,120.00 (based upon $20.00 per usable square foot of the Premises) for the
costs relating to the initial design and construction of Tenant's improvements
which are permanently affixed to the Premises (the "IMPROVEMENTS"). In no event
shall Landlord be obligated to make disbursements pursuant to this Tenant Work
Letter in a total amount which exceeds the Improvement Allowance and in no event
shall Tenant be entitled to any credit for any unused portion of the Improvement
Allowance not used by Tenant by the date which is (i) the last day of the
calendar month which is thirty-six (36) full calendar months after the
Commencement Date, in the event Tenant enters into a sublease with Archive.com
or another Initial Sublease, or (ii) one (1) year after the Commencement Date in
the event Archive.com does not enter into a sublease for the Premises and there
is no other Initial Sublease.
2.2 DISBURSEMENT OF THE IMPROVEMENT ALLOWANCE. Except as otherwise set
forth in this Tenant Work Letter, the Improvement Allowance shall be disbursed
by Landlord (each of which disbursements shall be made pursuant to Landlord's
disbursement process provided below) for costs related to the construction of
the Improvements and for the following items and costs (collectively, the
"IMPROVEMENT ALLOWANCE ITEMS "): (i) payment of the fees of the "Architect" and
the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter and of other engineers and consultants which Tenant may reasonably
require for the design and construction of the Improvements (including, without
limitation, lighting, acoustic and ergonomic consultants), and payment of the
out of pocket fees incurred by, and the out of pocket cost of documents and
materials supplied by, Landlord and Landlord's consultants in connection with
the preparation and review of the "Construction Drawings," as that term is
defined in Section 3.1 of this Tenant Work Letter; (ii) the cost of plan check,
permit, license fees and construction supervision fees relating to the
construction of the Improvements; (iii) the cost of construction of the
Improvements, including, without limitation, testing and inspection costs, trash
removal costs, and contractors' fees and general conditions (provided, however,
the Contractor and any subcontractors shall not be charged for parking); (iv)
the cost of any changes in the Base, Shell and Core required by the Construction
Drawings; (v) the cost of any changes to the Construction Drawings or
Improvements required by applicable building codes (the "CODE "); (vi) the fees
of any project manager retained by Tenant to supervise the construction of the
Improvements; and (vii) the "Landlord Coordination Fee", as that term is defined
in Section 4.3 of this Tenant Work Letter. However, in no event shall more than
Three and 00/100 Dollars ($3.00) per usable square foot of the Improvement
Allowance be used for the items described in (i) and (ii) above; any additional
amount incurred as a result of (i) and (ii) above shall be deemed to constitute
an Over-Allowance Amount. During the construction of the Improvements, Landlord
shall make monthly disbursements of the Improvement Allowance for Improvement
<PAGE>
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.1 MONTHLY DISBURSEMENTS. On or before the first day of each
calendar month during the construction of the Improvements (or such other date
as Landlord may designate), Tenant shall deliver to Landlord: (i) a request for
payment of the "Contractor," as that term is defined in Section 4.1 of this
Tenant Work Letter, approved by Tenant, in a form to be provided by Landlord,
showing the schedule, by trade, of percentage of completion of the Improvements
in the Premises, detailing the portion of the work completed and the portion not
completed; (ii) invoices from all of "Tenant's Agents," as that term is defined
in Section 4.2 of this Tenant Work Letter, for labor rendered and materials
delivered to the Premises; (iii) executed mechanic's lien releases from all of
Tenant's Agents which shall comply with the appropriate provisions, as
reasonably determined by Landlord, of California Civil Code Section 3262(d); and
(iv) all other information reasonably requested by Landlord. Tenant's request
for payment shall be deemed Tenant's acceptance and approval of the work
furnished and/or the materials supplied as set forth in Tenant's payment
request. Thereafter, Landlord shall deliver a check to Tenant in payment of the
lesser of: (A) the amounts so requested by Tenant, as set forth in this Section
2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such
retentions to be known as the "FINAL RETENTION"), and (B) the balance of any
remaining available portion of the Improvement Allowance (not including the
Final Retention), provided that Landlord does not dispute any request for
payment based on non-compliance of any work with the "Approved Working
Drawings," as that term is defined in Section 3.4 below, or due to any
substandard work, or for any other reason. Landlord's payment of such amounts
shall not be deemed Landlord's approval or acceptance of the work furnished or
materials supplied as set forth in Tenant's payment request.
2.2.2 FINAL RETENTION. Subject to the provisions of this Tenant
Work Letter, a check for the Final Retention payable to Tenant shall be
delivered by Landlord to Tenant following the completion of construction of the
Premises, provided that (i) Tenant delivers to Landlord properly executed
mechanics lien releases in compliance with both California Civil Code Section
3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii) Landlord
has determined that no substandard work exists which adversely affects the
mechanical, electrical, plumbing, heating, ventilating and air conditioning,
life-safety or other systems of the Project, the curtain wall of the Project,
the structure or exterior appearance of the Project, or any other tenant's use
of such other tenant's leased premises in the Project and (iii) Architect
delivers to Landlord a certificate, in a form reasonably acceptable to Landlord,
certifying that the construction of the Improvements in the Premises has been
substantially completed.
2.2.3 OTHER TERMS. Landlord shall only be obligated to make
disbursements from the Improvement Allowance to the extent costs are incurred by
Tenant for Improvement Allowance Items. All Improvement Allowance Items for
which the Improvement Allowance has been made available shall be deemed
Landlord's property.
2.3 STANDARD IMPROVEMENT PACKAGE. Landlord has established
specifications (the "SPECIFICATIONS ") for the Project standard components to be
used in the construction of the Improvements in the Premises (collectively, the
"STANDARD IMPROVEMENT PACKAGE "), which Specifications are available upon
request. The quality of Improvements shall be equal to or of greater quality
than the quality of the Specifications, provided that Landlord may, at
Landlord's option, require the Improvements to comply with certain
Specifications.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain an
architect/space planner reasonably approved by Landlord (the "ARCHITECT ") to
prepare the "Construction Drawings," as that term is defined in this Section
3.1. Tenant shall also retain the engineering consultants designated by Landlord
(the "ENGINEERS ") to prepare all plans and engineering working drawings
relating to the structural, mechanical, electrical, plumbing, HVAC and
lifesafety work of the Tenant Improvements. Landlord shall ensure that the
charges of the Engineers are competitive (although not necessarily the lowest
available). The plans and drawings to be prepared by Architect and the Engineers
hereunder shall be known collectively as the "CONSTRUCTION DRAWINGS ." All
Construction Drawings shall comply with the drawing
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format and specifications as reasonably determined by Landlord, and shall be
subject to Landlord's reasonable approval. Tenant and Architect shall verify, in
the field, the dimensions and conditions as shown on the relevant portions of
the base building plans, and Tenant and Architect shall be solely responsible
for the same, and Landlord shall have no responsibility in connection therewith.
Landlord's review of the Construction Drawings as set forth in this Section 3,
shall be for its sole purpose and shall not imply Landlord's review of the same,
or obligate Landlord to review the same, for quality, design, Code compliance or
other like matters. Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's space planner, architect, engineers, and
consultants, Landlord shall have no liability whatsoever in connection therewith
and shall not be responsible for any omissions or errors contained in the
Construction Drawings.
3.2 FINAL SPACE PLAN. Tenant and the Architect shall prepare the final
space plan for Improvements in the Premises (collectively, the "FINAL SPACE
PLAN"), which Final Space Plan shall include a layout and designation of all
offices, rooms and other partitioning, their intended use, and equipment to be
contained therein, and shall deliver the Final Space Plan to Landlord for
Landlord's approval. Landlord shall advise Tenant within five (5) business days
after Landlord's receipt of the Final Space Plan for the Premises if the same is
unsatisfactory or incomplete in any respect and Landlord's failure to give
Tenant written notice of any such objection within said five (5) business-day
period shall be deemed approval by Landlord of the Final Space Plan. If Landlord
notifies Tenant that the Final Space Plan is deficient in any respect, Tenant
shall within three (3) business days thereafter cause the Final Space Plan to be
revised to correct any deficiencies or other matters Landlord may reasonably
require.
3.3 FINAL WORKING DRAWINGS. After Landlord approves the Final Space
Plan, Tenant, the Architect and the Engineers shall complete the architectural
and engineering drawings for the Premises, and the final architectural working
drawings in a form which is complete to allow subcontractors to bid on the work
and to obtain all applicable permits (collectively, the "FINAL WORKING DRAWINGS
") and shall submit the same to Landlord for Landlord's approval. However, if
Tenant reasonably determines that the Engineers are not reasonably responsive to
Tenant's requirements, Tenant may so notify Landlord in writing and if Landlord
does not cause such Engineers to be so responsive within one (1) business day
after receipt of Tenant's notice, then the thirty (30) day period set forth
above shall be extended for each day after the expiration of said one (1)
business day cure period that completion of the Final Working Drawings are so
delayed as a result of the failure of the Engineers to be reasonably responsive.
Landlord shall advise Tenant within five (5) business days after Landlord's
receipt of the Final Working Drawings for the Premises if the same is
unsatisfactory or incomplete in any respect and Landlord's failure to give
Tenant written notice of any such objection within said five (5) business-day
period shall be deemed approval by Landlord of the Final Working Drawings. If
Landlord notifies Tenant that the Final Working Drawings are deficient in any
respect, Tenant shall within five (5) business days thereafter revise the Final
Working Drawings in accordance with such review and any disapproval of Landlord
in connection therewith.
3.4 PERMITS. The Final Working Drawings shall be approved by Landlord
(the "APPROVED WORKING DRAWINGS ") prior to the commencement of the construction
of the Improvements. Tenant shall cause the Architect to immediately submit the
Approved Working Drawings to the appropriate municipal authorities for all
applicable building permits necessary to allow "Contractor," as that term is
defined in Section 4.1, below, to commence and fully complete the construction
of the Improvements (the "PERMITS "). No changes, modifications or alterations
in the Approved Working Drawings may be made without the prior written consent
of Landlord, which consent shall not be unreasonably withheld.
SECTION 4
CONSTRUCTION OF THE IMPROVEMENTS
4.1 CONTRACTOR. The contractor which shall construct the Improvements
shall be a contractor selected pursuant to the following procedure. The Final
Working Drawings shall be submitted by Tenant to three (3) general contractors:
one (1) such general contractor shall be selected by Landlord and the other two
(2) general contractors shall be selected by Tenant on or before the date the
Final Working Drawings are approved by Landlord and Tenant and which contractor
so selected by Tenant shall be subject to Landlord's reasonable approval. Each
such
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<PAGE>
contractor shall submit a sealed, fixed price contract bid (on such bid form as
Landlord shall designate) to construct the Improvements. Each contractor shall
be notified in the bid package of the time schedule for construction of the
Improvements. The subcontractors utilized by the Contractor shall be subject to
Landlord's reasonable approval and the bidding instructions shall provide that
as to work affecting the structure of the Project and/or the systems and
equipment of the Project, Landlord shall be entitled to designate the
subcontractors. The bids shall be submitted promptly to Tenant and a
reconciliation shall be performed by Tenant to adjust inconsistent or incorrect
assumptions so that a like-kind comparison can be made and a low bidder
determined. Tenant shall select the contractor who shall be the lowest bidder
and who states that it will be able to meet Tenant's reasonable construction
schedule. The contractor selected may be referred to herein as the "CONTRACTOR".
4.2 TENANT'S AGENTS. All subcontractors, laborers, materialmen, and
suppliers used by the Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "TENANT'S AGENTS")
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed. If Landlord does not approve any of the
Tenant's proposed subcontractors, laborers, materialmen or suppliers, the Tenant
shall submit other proposed subcontractors, laborers, materialmen or suppliers
for Landlord's written approval. Notwithstanding the foregoing, the Tenant shall
be required to utilize subcontractors designated by Landlord for any mechanical,
electrical, plumbing, life-safety, sprinkler, structural and air-balancing work.
4.3 CONSTRUCTION OF IMPROVEMENTS BY CONTRACTOR. The Tenant shall
independently retain, in accordance with Section 4.1 above, Contractor to
construct the Improvements in accordance with the Approved Working Drawings. The
Tenant shall pay a logistical coordination fee (the "LANDLORD COORDINATION FEE
") to Landlord in an amount equal to three percent (3%) of the total amount of
the construction contract and general conditions between the Tenant and the
Contractor. The Landlord Coordination Fee shall be waived in the event Tenant
hires a construction manager reasonably approved by Landlord.
4.4 INDEMNIFICATION & INSURANCE.
4.4.1 INDEMNITY. Tenant's indemnity of Landlord as set forth in
Article 13 of the Lease shall also apply with respect to any and all costs,
losses, damages, injuries and liabilities related in any way to any act or
omission of Tenant or Tenant's Agents.
4.4.2 REQUIREMENTS OF TENANT'S AGENTS. Each of Tenant's Agents
shall guarantee to Tenant and for the benefit of Landlord that the portion of
the Improvements for which it is responsible shall be free from any defects in
workmanship and materials for a period of not less than one (1) year from the
date of completion thereof. All such warranties or guarantees as to materials or
workmanship of or with respect to the Improvements shall be contained in the
contract or subcontract and shall be written such that such guarantees or
warranties shall inure to the benefit of both Landlord and Tenant, as their
respective interests may appear, and can be directly enforced by either. Tenant
covenants to give to Landlord any assignment or other assurances which may be
necessary to effect such right of direct enforcement.
4.4.3 INSURANCE REQUIREMENTS.
4.4.3.1 ENERAL COVERAGES. All of Tenant's Agents shall
carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in Article 14 of this Lease.
4.4.3.2 PECIAL COVERAGES. Tenant shall carry "Builder's
All Risk" insurance in an amount approved by Landlord covering the construction
of the Improvements, and such other insurance as Landlord may require. Such
insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord.
4.4.3.3. GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4.4.3 shall be delivered to Landlord before the
commencement of construction of the Improvements and before the Contractor's
equipment is moved onto the site. In the event that the Improvements are damaged
by any cause during the course of the construction thereof,
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<PAGE>
Tenant shall immediately repair the same at Tenant's sole cost and expense.
Landlord may, in its discretion, require Tenant to obtain a lien and completion
bond or some alternate form of security satisfactory to Landlord in an amount
sufficient to ensure the lien-free completion of the Improvements and naming
Landlord as a co-obligee.
SECTION 5
MISCELLANEOUS
5.1 TENANT'S REPRESENTATIVE. Tenant has designated Susan Nelson as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Tenant Work
Letter.
5.2 LANDLORD'S REPRESENTATIVE. Prior to commencement of construction of
Improvements, Landlord shall designate a representative with respect to the
matters set forth in this Tenant Work Letter, who, until further notice to
Tenant, shall have full authority and responsibility to act on behalf of the
Landlord as required in this Tenant Work Letter.
5.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days.
5.4 COMPLETION OF IMPROVEMENTS DURING THE TERM. Tenant hereby agrees and
acknowledges that the Improvements in the Premises shall be constructed during
the Term of this Lease and that the performance of such work shall not be deemed
a constructive eviction nor shall Tenant be entitled to any abatement of rent in
connection therewith. Further, until substantial completion of the construction
of the Improvements, Tenant shall not be entitled to occupy the Premises;
provided, however, that Tenant will remain responsible for the payment of Basic
Rental and all Additional Rent during such non-occupancy period. Tenant shall be
entitled to occupy the Premises upon the date of substantial completion of the
Improvements in the Premises, which date shall occur upon the completion of
construction of the Improvements in the Premises pursuant to the Approved
Working Drawings, with the exception of any punch list items.
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<PAGE>
STANDARD OFFICE LEASE
BY AND BETWEEN
ARDEN REALTY FINANCE IV, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY,
AS LANDLORD,
AND
INVESTMENT TECHNOLOGY GROUP, INC,
A DELAWARE CORPORATION
AS TENANT
SUITE 1200
600 CORPORATE POINTE
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 BASIC LEASE PROVISIONS..........................................1
ARTICLE 2 TERM/PREMISES...................................................2
ARTICLE 3 RENTAL..........................................................2
(a) Basic Rental....................................................2
(b) Increase in Direct Costs........................................2
(c) Definitions.....................................................3
(d) Determination of Payment........................................6
ARTICLE 4 SECURITY DEPOSIT................................................7
ARTICLE 5 HOLDING OVER....................................................8
ARTICLE 6 PERSONAL PROPERTY TAXES.........................................8
ARTICLE 7 USE.............................................................8
ARTICLE 8 CONDITION OF PREMISES...........................................9
ARTICLE 9 REPAIRS AND ALTERATIONS.........................................9
ARTICLE 10 LIENS..........................................................10
ARTICLE 11 PROJECT SERVICES...............................................11
ARTICLE 12 RIGHTS OF LANDLORD.............................................12
ARTICLE 13 INDEMNITY; EXEMPTION OF LANDLORD FROM LIABILITY................13
(a) Indemnity......................................................13
(b) Exemption of Landlord from Liability...........................13
ARTICLE 14 INSURANCE......................................................13
(a) Tenant's Insurance.............................................13
(b) Form of Policies...............................................14
(c) Landlord's Insurance...........................................14
(d) Waiver of Subrogation..........................................14
(e) Compliance with Law............................................15
ARTICLE 15 ASSIGNMENT AND SUBLETTING......................................15
ARTICLE 16 DAMAGE OR DESTRUCTION..........................................17
ARTICLE 17 SUBORDINATION..................................................18
ARTICLE 18 EMINENT DOMAIN.................................................18
ARTICLE 19 DEFAULT........................................................19
(a) Tenant's Default. ............................................19
(b) Landlord's Default.............................................19
ARTICLE 20 REMEDIES.......................................................19
ARTICLE 21 TRANSFER OF LANDLORD'S INTEREST................................21
ARTICLE 22 BROKER.........................................................21
ARTICLE 23 PARKING........................................................21
ARTICLE 24 WAIVER.........................................................22
(i)
<PAGE>
PAGE
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ARTICLE 25 ESTOPPEL CERTIFICATE...........................................22
ARTICLE 26 LIABILITY OF LANDLORD..........................................23
ARTICLE 27 INABILITY TO PERFORM...........................................23
ARTICLE 28 HAZARDOUS WASTE................................................23
ARTICLE 29 SURRENDER OF PREMISES; REMOVAL OF PROPERTY.....................24
ARTICLE 30 MISCELLANEOUS..................................................25
(a) Severability; Entire Agreement.................................25
(b) Attorneys' Fees; Waiver of Jury Trial..........................25
(c) Time of Essence................................................26
(d) Headings; Joint and Several. .................................26
(e) Reserved Area..................................................26
(f) NO OPTION .....................................................26
(g) Use of Project Name; Improvements..............................26
(h) Rules and Regulations..........................................26
(i) Quiet Possession...............................................26
(j) Rent...........................................................26
(k) Successors and Assigns.........................................27
(l) Notices........................................................27
(m) Intentionally Omitted..........................................27
(n) Right of Landlord to Perform...................................27
(o) Access, Changes in Project, Facilities, Name...................27
(p) Signing Authority..............................................27
(q) Intentionally Omitted..........................................27
(r) Intentionally Omitted..........................................27
(s) Survival of Obligations. .....................................28
(t) Intentionally Omitted..........................................28
(u) Governing Law..................................................28
(v) Exhibits and Addendum..........................................28
(w) Reasonable Consent. ..........................................28
(x) Communication Equipment........................................28
ARTICLE 31 DIRECTORY......................................................28
ARTICLE 32 OPTION TO EXTEND...............................................28
(a) Option Right...................................................28
(b) Option Rent....................................................29
(c) Exercise of Option.............................................29
(d) Determination of Market Rent...................................29
Exhibit "A" Premises
Exhibit "B" Rules and Regulations
Exhibit "C" Notice of Lease Term Dates and Tenant's Proportionate Share
Exhibit "D" Tenant Work Letter
(ii)
<PAGE>
INDEX
PAGE(S)
-------
Abatement Event...............................................................12
Abatement Notice..............................................................12
ADA............................................................................4
Additional Rent................................................................3
Alterations....................................................................9
Approved Working Drawings..............................................EXHIBIT D
Architect..............................................................EXHIBIT D
Base Year......................................................................1
Base, Shell and Core...................................................EXHIBIT D
Basic Rental...................................................................1
Brokers........................................................................1
Claims........................................................................13
Code...................................................................EXHIBIT D
Commencement Date..............................................................1
Construction Drawings..................................................EXHIBIT D
Contractor.............................................................EXHIBIT D
Cosmetic Alterations..........................................................10
Damage Repair Estimate........................................................16
Direct Costs...................................................................3
Eligibility Period............................................................12
Engineers..............................................................EXHIBIT D
Estimate.......................................................................6
Estimate Statement.............................................................6
Estimated Excess...............................................................6
Event of Default..............................................................19
Excess.........................................................................6
Expiration Date................................................................1
Final Retention........................................................EXHIBIT C
Final Space Plan.......................................................EXHIBIT D
Final Working Drawings.................................................EXHIBIT D
First Month's Rent.............................................................1
Force Majeure.................................................................23
Hazardous Material............................................................24
Improvement Allowance..................................................EXHIBIT D
Improvement Allowance Items............................................EXHIBIT D
Improvements...........................................................EXHIBIT D
Initial Sublease..............................................................16
Interest Notice...............................................................29
Landlord.......................................................................1
Landlord Coordination Fee..............................................EXHIBIT D
Laws..........................................................................24
Lease..........................................................................1
Lease Year.....................................................................1
Market Rent...................................................................29
Option........................................................................28
Option Rent...................................................................28
Option Rent Notice............................................................29
Option Term...................................................................28
Original Tenant...............................................................28
Outside Agreement Date........................................................29
Parking Notice................................................................21
Parking Passes.................................................................1
Permits................................................................EXHIBIT D
Permitted Use..................................................................1
Premises.......................................................................1
Project........................................................................1
Real Property..................................................................3
Representative................................................................23
(iii)
<PAGE>
PAGE(S)
-------
Review Period..................................................................6
Security Deposit...............................................................1
Specifications.........................................................EXHIBIT D
Square Footage.................................................................1
Standard Improvement Package...........................................EXHIBIT D
Statement......................................................................6
Tenant.........................................................................1
Tenant Improvements............................................................9
Tenant's Acceptance...........................................................29
Tenant's Agents........................................................EXHIBIT D
Tenant's Proportionate Share...................................................1
Term...........................................................................1
Transfer Premium..............................................................16
Transferee....................................................................16
(iv)
<PAGE>
EXHIBIT 10.5.9
THIRD SUPPLEMENTAL AGREEMENT
THIRD SUPPLEMENTAL AGREEMENT (hereinafter called this
"Agreement"), dated as of the _____ day of September, 1999, between SPARTAN
MADISON CORP., a Delaware corporation, having an address c/o HRO International
Ltd., Tower 56, 126 East 56th Street, New York, New York 10022 (hereinafter
referred to as "Landlord"), and INVESTMENT TECHNOLOGY GROUP, INC., a Delaware
corporation, having an address at 380 Madison Avenue, New York, New York 10017
(hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS:
A. Landlord and Tenant heretofore entered into a certain lease
dated as of October 4, 1996, as amended by that certain First Supplemental
Agreement dated January 29, 1997, Added Space Agreement dated as of September 4,
1997, and Second Supplemental Agreement dated as of November 25, 1997 (such
lease, as the same has been and may hereafter be amended, is hereinafter called
the "Lease") with respect to the entire fourth (4th) floor and a portion of the
fifth (5th) floor and basement (hereinafter called the "Demised Premises") in
the building known as 380 Madison Avenue, New York, New York (hereinafter called
the "Building"), for a term ending on January 31, 2013, or on such earlier date
upon which said term may expire or be terminated pursuant to any conditions of
limitation or other provisions of the Lease or pursuant to law; and
<PAGE>
B. The parties hereto desire to modify the Lease to provide for
the inclusion therein of additional space and the extension of term thereof,
upon the terms, provisions and conditions as are more particularly hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to modify said Lease as follows:
1. All capitalized terms contained in this Agreement shall, for
the purposes hereof, have the same meanings ascribed to them in the Lease unless
otherwise defined herein.
2. Effective as of the date hereof (hereinafter called the "7th
Floor Added Space Date"), and for the remainder of the term of the Lease, there
shall be added to and included in the Demised Premises, the following additional
space in the Building, to wit:
The portion of the seventh (7th) floor of the Building
substantially as shown hatched on the floor plan annexed hereto
as Exhibit A (hereinafter called the "7th Floor Added Space"),
which the parties hereto agree for purposes of this Agreement
shall be deemed to contain approximately 25,520 rentable square
feet.
Landlord does hereby lease to Tenant and Tenant does hereby hire from Landlord,
the 7th Floor Added Space subject and subordinate to all superior leases and
superior mortgages as provided in the Lease and upon and subject to all the
covenants, agreements, terms and conditions of the Lease, as supplemented by
this Agreement, other than the provisions of Sections 1.05, 2.02, 2.03, 2.05,
25.06, and Articles 24, 43 of the Lease and Schedules N and Q which shall be
deemed inapplicable to the 7th Floor Added Space.
3. Effective during the period commencing on the 7th Floor Added
Space Date and ending on the Expiration Date:
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<PAGE>
(a) The fixed annual rent payable by Tenant to Landlord pursuant
to Section 1.01(b) of the Lease (as modified by Paragraph 3 of the Added Space
Agreement and by Paragraph 3(a) of the Second Supplemental Agreement,
respectively) shall be increased on account of the inclusion of the 7th Floor
Added Space, by the following amounts during the following periods:
(i) ONE MILLION FORTY SIX THOUSAND THREE HUNDRED TWENTY AND
00/100 ($1,046,320.00) DOLLARS per annum during the period
beginning on the 7th Floor Added Space Date and ending on
April 30, 2003;
(ii) ONE MILLION ONE HUNDRED FORTY-EIGHT THOUSAND FOUR HUNDRED
AND 00/100 ($1,148,400.00) DOLLARS per annum during the
period beginning on May 1, 2003 and ending on September 30,
2008; and
(iii) ONE MILLION TWO HUNDRED TWENTY-FOUR THOUSAND NINE HUNDRED
SIXTY AND 00/100 ($1,224,960.00) DOLLARS per annum during
the period beginning on October 1, 2008 and ending on the
Expiration Date.
(b) With respect to the adjustments of rent set forth in Article
3 of the Lease (hereinafter called the "Basic Escalations") there shall be
computed, in addition to the Basic Escalations, adjustments of rent with respect
to increases of Taxes and Expenses attributable to the 7th Floor Added Space.
Adjustments of rent with respect to Taxes and Expenses with respect to the 7th
Floor Added Space will be computed in the same manner as adjustments of rent
with respect to Taxes and Expenses for the purpose of the Basic Escalations
under the Lease, except that for the purpose of such computations with respect
to the 7th Floor Added Space only:
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<PAGE>
(i) The term "Base Tax" (as defined in subsection 3.01.A(a) of
the Lease) with respect to the 7th Floor Added Space shall mean the
Taxes, as finally determined, for the Tax Year commencing July 1, 1998
and ending June 30, 1999;
(ii) The term "Tenant's Tax Share" (as defined in subsection
3.01.A(d) of the Lease) with respect to the 7th Floor Added Space shall
mean 3.0273%, calculated as a fraction, the numerator of which is
25,520, reflecting the number of rentable square feet which Landlord and
Tenant agree comprises the 7th Floor Added Space and the denominator of
which is 842,997, reflecting the number of rentable square feet which
Landlord and Tenant agree comprises the rentable square footage of the
office and retail area of the Building. If the physical size of the
rentable area of the Building shall increase, Tenant's Tax Share shall
be appropriately recalculated;
(iii) The term "Expense Base Factor" (as defined in subsection
3.02.A(a) of the Lease) with respect to the 7th Floor Added Space shall
mean the Expenses for the Operating Year 1999;
(iv) The term "Tenant's Expense Share" (as defined in subsection
3.02.A(c) of the Lease) with respect to the 7th Floor Added Space shall
mean 3.2601%, calculated as a fraction, the numerator of which is
25,520, reflecting the number of rentable square feet which Landlord and
Tenant agree comprises the 7th Floor Added Space and the denominator of
which is 782,787, reflecting the number of rentable square feet which
Landlord and Tenant agree comprises the rentable square footage of the
office area of the Building. If the physical size of the rentable area
of the Building shall increase, Tenant's Expense Share shall be
appropriately recalculated;
4
<PAGE>
(v) The date "July 1, 1997" set forth in the third line of
subsection 3.01.B of the Lease shall be changed to "July 1, 1999" with
respect only to the 7th Floor Added Space; and
(vi) The term "Base Operating Year" (as defined in subsection
3.02.A(b) of the Lease) with respect only to the 7th Floor Added Space
shall mean the calendar year 1999.
(vii) Landlord confirms that the representation with respect to
the definition of Expenses set forth in the final paragraph of Section 3.02A of
the Lease is true and accurate as of the date hereof.
(c) The provisions of Article 4 of the Lease shall apply with
respect to the furnishing of electricity to the 7th Floor Added Space,
including, without limitation, the provisions of Section 4.07 thereof with
respect to the electrical capacity of the 7th Floor Added Space, provided that
in accordance with Section 4.03(a) thereof, Landlord shall charge Tenant its
proportionate share of the charges for Common Area Electric with respect to the
seventh (7th) floor of the Building, plus any sales tax and the administrative
fee referred to therein.
(d) For purposes of this Agreement, subsection 21.01(b) of the
Lease shall not apply with respect to HVAC service to the 7th Floor Added Space
and in lieu thereof, the following provisions shall apply with respect thereto:
"Maintain in good repair the Base building air conditioning,
heating and ventilating systems in and serving the 7th Floor Added
Space. Such air conditioning, heating and ventilation systems will
function when seasonably required (subject to the design criteria,
including occupancy and connected electric load design criteria, set
forth on Schedule O, and except for any special requirements of Tenant
arising from its particular use of the 7th Floor Added Space) on
business days from 7:00 a.m. to 6:00 p.m. as more fully described in,
and subject to the conditions of, the specifications set forth in
Schedule O of the Lease. The core air-conditioning system (as it relates
to the 7th Floor Added Space) shall be activated by use of a telephone
dial access number which Landlord
5
<PAGE>
shall provide and may be activated by Tenant as required by Tenant. The
perimeter heat pump system (as it relates to the 7th Floor Added Space)
shall have separate controls for each unit in the 7th Floor Added Space
and may be operated by Tenant as required by Tenant. Landlord has
informed Tenant that the windows of the 7th Floor Added Space and the
Building are sealed, and that the 7th Floor Added Space may become
uninhabitable and the air therein may become unbreathable during the
hours or days when the aforesaid systems do not function automatically
as described herein or when Tenant does not operate the perimeter heat
pump units or activate the core air conditioning system. Any use or
occupancy of the 7th Floor Added Space under the conditions set forth in
the immediately preceding sentence shall be at the sole risk,
responsibility and hazard of Tenant, and Landlord shall have no
responsibility or liability therefor. Such condition of the 7th Floor
Added Space shall not constitute nor be deemed to be a breach or a
violation of this Lease or of any provision thereof, nor shall it be
deemed an actual or constructive eviction nor shall Tenant claim or be
entitled to claim any abatement of rent nor make any claim for any
damages or compensation by reason of such condition of the 7th Floor
Added Space. Tenant shall cause and keep entirely unobstructed all the
vents, intakes, outlets and grilles, at all times and shall comply with
and observe all regulations and requirements prescribed by Landlord for
the proper functioning of the heating, ventilating and air-conditioning
systems serving the 7th Floor Added Space. Nothing contained herein
shall be deemed to require Landlord to furnish at Landlord's expense
such electric energy as is required to operate the air conditioning,
heating and ventilating systems serving the 7th Floor Added Space.
Subject to the provisions of Article 4 of this Lease, all such electric
energy shall be furnished to Tenant at Tenant's cost and expense. All
tenants who require air-conditioning from the core system during the
hours or days when the core system does not function automatically as
described herein shall have the responsibility of activating the core
air-conditioning system by use of the core air-conditioning telephone
system (which will be activated by use of a telephone dial access number
which Landlord shall provide). All tenants who require air conditioning,
heat or ventilating from the perimeter heat pump system during the hours
or days when the perimeter heat pump system does not function
automatically as described herein shall have the responsibility of
operating the perimeter heat pump units by use of the separate controls
provided with each unit."
At Tenant's request, Landlord will permit Tenant to tap into the
Building condenser water system, without charge to Tenant (except that
the initial hook-up shall be performed by Tenant at Tenant's expense)
for up to fifty (50) additional tons of condenser water to operate
supplemental air-conditioning units installed by Tenant in or serving
the 7th Floor Added Space. Such units shall be installed in accordance
with the provisions of this Lease. In the event Tenant installs
supplementary air-conditioning units serving the 7th Floor Added Space,
Tenant covenants and agrees, at its sole cost and expense, to maintain
in full force and effect for so long as such air-conditioning unit
remains in the Building, a maintenance agreement for the periodic
maintenance of such unit on customary terms with a contractor reasonably
acceptable to Landlord and to furnish a
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copy of said contract and all extensions thereof to Landlord within ten
(10) days after demand. Landlord shall perform routine testing and
maintenance of such Building condenser water tower and shall give Tenant
reasonable prior notice of such testing. Landlord shall cooperate with
Tenant in order to schedule such testing so as to minimize material
interference with the conduct of Tenant's business.
In addition, Landlord shall permit Tenant to penetrate the facade of the
Building for the purposes of installing louvers for supplemental
air-cooled air-conditioning units installed in the 7th Floor Added Space
provided and on condition that such louvers shall be installed in the
same locations on the seventh (7th) floor facade as those installed by
Tenant on the fourth (4th) and fifth (5th) floor facades of the Building
in accordance with Schedule P of the Lease, and such installation shall
be performed in accordance with the provisions of the Lease."
(e) Section 25.06 of the Lease shall be deemed inapplicable to
the 7th Floor Added Space and shall be replaced by the following with respect to
the 7th Floor Added Space:
"25.06.(a) Landlord represents that as of the date of the Third
Supplemental Agreement the following is a comprehensive list of all
Superior Instruments:
(i) a certain mortgage, as modified by a certain
Mortgage Modification Agreement, dated as of June 20, 1991
between Mortgagee and Landlord's predecessor in interest and a
further Project Loan Agreement, dated December 20, 1991 between
Mortgagee and Landlord,
(ii) a certain ground lease dated January 26, 1989
between ComMet 380, Inc. ("Ground Lessor"), as ground lessor and
Landlord's predecessor in interest, as ground lessee,
(iii) a certain Agreement of Consolidation,
Extension and Modification of Mortgages, dated as of July 1, 1997
between GMAC Commercial Mortgage Corporation and Ground Lessor."
(b) Landlord represents that as of the date of the Third
Supplemental Agreement all the Superior Instruments are in full force
and effect and Landlord has received no notices of defaults thereunder
which have remained uncured beyond the applicable grace period set
forth in the applicable Superior Instrument."
(f) Notwithstanding anything to the contrary contained in the
Lease, including without limitation Section 8.01 thereof, (i) Landlord shall
have no liability for, and Tenant shall be solely responsible for compliance
with, the Disabilities Act in the 7th Floor
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Added Space to the extent that the requirement for such compliance arises from a
condition existing in the 7th Floor Added Space as of the date hereof and/or to
the extent that Tenant shall make any alterations or improvements in the 7th
Floor Added Space, and (ii) the provisions of the third sentence of Section 8.01
of the Lease shall not apply to the 7th Floor Added Space, but, as of the date
hereof, Landlord covenants that Landlord has received no notice of any violation
of Legal Requirements in the 7th Floor Added Space which remains uncured.
(g) Tenant shall have the right to exclusive use of up to four
(4) of the existing vacant sleeves in the Building's communications closet on
the fourth (4th) and seventh (7th) floors of the Building for purpose of
connecting Tenant's communications and electrical facilities between the 7th
Floor Added Space and the balance of the Demised Premises. Landlord agrees that
Tenant shall have the right, at Tenant's sole cost and expense, to core drill
(and thereafter have exclusive use of) two (2) additional sleeves in the
Building's electricity closets extending from the fourth (4th) to seventh (7th)
floors of the Building in locations first approved by Landlord, such approval
not to be unreasonable withheld or delayed; provided and on condition that all
such work shall be performed in accordance with plans and specifications first
approved by Landlord (such approval not to be unreasonably withheld or delayed)
and otherwise in accordance with the provisions of the Lease regarding Tenant
work, including, without limitation, Articles 6 and 42 thereof, and all such
work shall be performed only at such times and in such manner as reasonably
designated by Landlord for the performance of such work. With respect to
Tenant's cabling and wiring installed within the foregoing sleeves as to which
Tenant has exclusive use, Tenant shall have the right to encase same with
conduit of up to three (3") inches in diameter. In addition, Tenant may run such
cabling and wiring through the ceiling
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plenum of the common areas of the 7th floor provided and on condition that: (i)
sufficient space exists in such plenum for such installation, in Landlord's
reasonable judgment (and Landlord makes no representation with respect thereto)
and Landlord shall reasonably designate the location of such installation, and
(ii) Landlord shall approve Tenant's plans for such installation, such approval
not to be unreasonably withheld or delayed.
4. Tenant agrees to accept the 7th Floor Added Space on the 7th
Floor Added Space Date in the "as is" condition in which it exists on the date
hereof and understands and agrees that Landlord is not obligated to perform any
work, supply any materials or incur any expense in connection with preparing the
7th Floor Added Space for Tenant's occupancy, except that Tenant shall be
entitled to the "Added Space Work Credit" (as hereinafter defined in
subparagraph 5(b) hereof). Landlord shall deliver the 7th Floor Added Space to
Tenant in broom clean condition and free of tenancies, other than the "Existing
Tenant" (as such term is hereinafter defined) as hereinafter set forth;
provided, however, that Tenant acknowledges that it is currently negotiating
with the current occupant of the 7th Floor Added Space (the "Existing Tenant")
to sublet a portion of the 7th Floor Added Space to the Existing Tenant, and in
the event of the consummation of a written sublease between Tenant and the
Existing Tenant, the Existing Tenant shall continue in occupancy of the portion
of the 7th Floor Added Space so sublet.
5. (a) Tenant hereby covenants and agrees that Tenant will, at
Tenant's own cost and expense (except that Tenant shall be entitled to the Added
Space Work Credit), and in a good and workmanlike manner, make and complete the
initial work and installations in and to the 7th Floor Added Space set forth
below in such manner so that the 7th Floor Added Space will be administrative
and general offices of a standard which is generally consistent with the
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nature and quality of Tenant's existing installations in the Building (such work
is hereinafter called "Tenant's Added Space Work"). Tenant shall perform
Tenant's Added Space Work in accordance with the provisions of Article 6 and
Article 42 of the Lease, except that for purposes hereof, all references in the
Lease to "Tenant's Work" shall be deemed to mean Tenant's Added Space Work, and
all references therein to the "demised premises" shall be deemed to mean the 7th
Floor Added Space.
(b) Landlord shall allow Tenant a credit in an amount of up to
Five Hundred Eighty-Six Thousand Nine Hundred Sixty and 00/100 ($586,960.00)
Dollars (the "Added Space Work Credit"), which shall be applied against the cost
and expense of the construction work in connection with Tenant's Added Space
Work and Tenant's actual and reasonable out-of-pocket expenses incurred for
architectural, engineering, design and other professional fees and relocation
costs. In the event that the cost and expense of Tenant's Added Space Work shall
exceed the amount of the Added Space Work Credit, Tenant shall be entirely
responsible for such excess. If Tenant does not use all or any part of the Added
Space Work Credit for Tenant's Added Space Work (or for Tenant's relocation
costs in connection therewith), then the Added Space Work Credit shall be
reduced accordingly.
(c) The Added Space Work Credit shall be payable by Landlord to
Tenant upon written requisition to Landlord, in installments as Tenant's Added
Space Work progresses, but no more frequently than monthly. The amount of each
such installment shall be an amount equal to the product obtained by multiplying
ninety (90%) percent of the Added Space Work Credit by a fraction, the numerator
of which is equal to the actual costs paid or incurred by Tenant for completed
portions of Tenant's Added Space Work referenced in such requisition (as
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evidenced by paid or incurred invoices delivered to Landlord in accordance with
the next sentence) and the denominator of which is equal to the total estimated
cost of Tenant's Added Space Work, which estimate shall be made, and certified
to, by Tenant's architect in good faith based on the final plan for Tenant's
Added Space Work. Prior to the payment of any such installment, Tenant shall
deliver to Landlord a written request for disbursement which shall be
accompanied by (1) paid or incurred invoices for the portion of Tenant's Added
Space Work performed since the last disbursement of the Added Space Work Credit,
(2) a certificate signed by Tenant's architect and an officer of Tenant
certifying that the portion of Tenant's Added Space Work referenced in said
requisition and represented by the aforesaid invoices has been satisfactorily
completed in accordance with Tenant's final plan for Tenant's Added Space Work,
and (3) partial lien waivers (in form reasonably satisfactory to Landlord) from
contractors, subcontractors and all materialmen who shall have performed any
such work and services incurred up to and including the last disbursement of the
Added Space Work Credit releasing Landlord and Tenant from all liability for
Tenant's Added Space Work. Tenant acknowledges and agrees that the final ten
(10%) percent of the Added Space Work Credit shall be held back by Landlord, and
shall not be paid to Tenant, until after the completion of Tenant's Added Space
Work and upon Landlord's receipt from Tenant of all Building Department
sign-offs, inspection certificates and any permits required to be issued by any
governmental entities having jurisdiction thereover. Such final payment of the
Added Space Work Credit shall be due ten (10) Business Days after Tenant submits
its requisition with accompanying documentation as hereinbefore set forth in the
preceding sentence.
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(c) At any and all times during the progress of Tenant's Added
Space Work, representatives of Landlord shall have the right of access to the
7th Floor Added Space and inspection thereof and Landlord shall have the right
to withhold payment of all or any portion of the Added Space Work Credit as
shall equal the cost of correcting any portions of Tenant's Added Space Work
which shall not have been performed in a manner reasonably satisfactory to
Landlord; PROVIDED, HOWEVER, that Landlord shall incur no liability, obligation
or responsibility to Tenant or any third party by reason of such access and
inspection, and provided further that Landlord's inspection shall not interfere
with the performance of Tenant's Added Space Work except to a de minimis extent.
(d) The Added Space Work Credit is being given for the benefit of
Tenant only. No third party shall be permitted to make any claims against
Landlord or Tenant with respect to any portion of the Added Space Work Credit.
6. Intentionally omitted.
7. Notwithstanding the foregoing provisions of Paragraph 3(a)
hereof, Tenant shall be entitled to free rent in the amount of Two Hundred
Forty-Five Thousand, Six Hundred Twenty-Nine and 99/00 ($245,629.99) Dollars,
which free rent amount shall be applied by Landlord against the fixed annual
rent payable by Tenant under the Lease with respect to the 7th Floor Added
Space.
8. Tenant covenants, represents and warrants that Tenant has had
no dealings or communications with any broker or agent other than Landlord's
leasing agent, if any, and Newmark & Company Real Estate, Inc. (hereinafter
called the "Broker") in connection with the consummation of this Agreement.
Landlord and Tenant covenant and agree to pay, hold
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harmless and indemnify each other from and against any and all cost, expense
(including reasonable attorneys' fees and court costs), loss and liability for
any compensation, commissions or charges claimed by any broker or agent, other
than the brokers specifically set forth in this Paragraph, with respect to this
Agreement or the negotiation thereof if such claim or claims by any such broker
or agent are based in whole or in part on dealing with the indemnifying party or
its representatives. Landlord agrees to pay to Landlord's leasing agent and the
Broker such compensation, commissions or charges to which they are entitled
pursuant to a separate agreement between said broker and Landlord.
9. Except as modified by this Agreement, the Lease and all
covenants, agreements, terms and conditions thereof shall remain in full force
and effect and are hereby in all respects ratified and confirmed.
10. The covenants, agreements, terms 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 legal successors and assigns.
11. This Agreement may not be changed or terminated orally but
only by a writing signed by the party against whom enforcement thereof is
sought.
12. This Agreement shall not be binding upon Landlord unless and
until it is signed by Landlord and a fully executed counterpart thereof is
delivered to Tenant.
13. This Agreement may be executed in any number of counterparts,
each of which shall, when executed, be deemed to be an original and all of which
shall be deemed to be one and the same instrument. In addition, the parties may
execute separate signature pages, and such signature pages (and/or signature
pages which have been detached from one or more
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duplicate original copies of this Agreement) may be combined and attached to one
or more copies of this Agreement so that such copies shall contain the
signatures of all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Witness: SPARTAN MADISON CORP., Landlord
By:
- ------------------------------- --------------------------------
Name:
Title:
Witness: INVESTMENT TECHNOLOGY GROUP, INC.,
Tenant
- ------------------------------- --------------------------------
Name:
Title:
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State of New York )
):ss
County of )
On the ____ day of ____________ in the year 19__, before me, the undersigned, a
Notary Public in and for said state, personally appeared
________________________ personally known to me or proved to me on the basis or
satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
---------------------------------
Notary Public
State of New York )
):ss
County of )
On the ____ day of ____________ in the year 19__, before me, the undersigned, a
Notary Public in and for said state, personally appeared
________________________ personally known to me or proved to me on the basis or
satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
---------------------------------
Notary Public
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EXHIBIT A
Floor Plan of 7th Floor Added Space
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Exhibit 10.6
QUANTEX(R) HARDWARE AND SOFTWARE LICENSE AGREEMENT
This Hardware and Software License Agreement ("Agreement") is made and
entered into on the date set forth below by and between ITG Inc. ("ITG") and
________________________ ("Customer").
Subject to the terms of this Agreement, Customer agrees to license from
ITG, and ITG agrees to license to Customer (i) certain software which services a
workstation-based analytics, information and routing system known as QUANTEX(R)
and the user documentation describinG the operation and use of such system
(collectively, the "Software") and (ii) a workstation, terminal, PC or other
hardware and related modem (the "Hardware") for use with a phone line for
communication with ITG.
1. INSTALLATION. ITG will, free of charge, deliver and install the
Hardware and Software (the "Installation") on Customer's premises. The Hardware
and Software shall remain the property of ITG.
2. LICENSE TO HARDWARE AND SOFTWARE. Subject to the terms of this
Agreement, ITG hereby grants Customer a revocable, non-assignable,
non-transferable, nonexclusive license to use the Software in object code form
but solely for use in direct connection with ITG's brokerage services on the
Hardware. Customer will use the Software only under the terms and conditions of
this Agreement and all rights not expressly granted hereunder are reserved by
ITG. Customer shall use the Software only on the Hardware provided by ITG, and
shall not use the Software on any other computer system or make the Software
available over a network or otherwise permit use of the Software by more than
one user at a time without the prior written consent of ITG. Customer shall
grant ITG access to the Hardware during normal business hours.
3. PROHIBITED USES. CUSTOMER SHALL NOT AND SHALL NOT PERMIT ANY OTHER
PARTY other than ITG to: (a) copy, modify, alter, print, list, decompile,
disassemble or otherwise seek to reverse engineer the Software whether in whole
or in part or to attach or otherwise connect the Software to any computer
hardware other than the Hardware or other computer software without ITG's prior
written consent given in its sole discretion; (b) allow anyone other than its
employees to access or have access to the Software or the Hardware; (c) sell,
rent, lease, license, sublicense, transfer or assign the Software or permit a
timesharing, service bureau or similar arrangement using the Software; (d) write
or develop any derivative software or any other software program based on the
Software or any Proprietary Information (as defined in Section 9); (e) use the
Software or the analytical data derived from the Software (the "Information") to
execute securities trades of any kind, directly or indirectly, on any electronic
trade execution system other than the Software without the prior written consent
of ITG, given in its sole discretion, or for any purposes other than in
connection with its own trading via ITG's brokerage services; or (f) remove the
Software from the Hardware, central
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processing unit or any other location of original installation without the prior
written consent of ITG in each instance; provided that Customer may move the
Software to other like hardware in the same location solely in the event of a
Hardware failure.
Customer further agrees to strictly comply with all governmental, stock
exchange and NASD laws, rules and regulations in connection with the use of the
Software, including, but not limited to, any applicable SEC or NYSE regulations.
4. TERM AND EFFECT OF TERMINATION.
(a) This Agreement will take effect immediately upon execution of this
Agreement and will remain in force until terminated in accordance with this
Agreement.
(b) ITG may terminate this license at any time and for any reason,
including, without limitation, if ITG discontinues the QuantEX(R) service, if
the Customer ceases to be a customer oF ITG, or if Customer breaches any term or
condition of this Agreement or the Addendum hereto.
(c) If ITG terminates the license for any reason, Customer shall permit
ITG to remove the Installation from the Customer's premises. Customer shall also
deliver to ITG all copies of the Software (including, without limitation, any
documentation related thereto) in the Customer's possession within ten days of
such termination. Upon termination of the license, ITG shall have no further
liability to Customer hereunder.
(d) The provisions of Sections 7, 8 and 9 shall survive the termination
of this Agreement.
5. MAINTENANCE, SOFTWARE SUPPORT AND TECHNICAL ASSISTANCE. As a service
to its customers, ITG intends to provide maintenance for the Hardware, support
of the Software and technical assistance as and when determined appropriate by
ITG. If Customer requires an increased level of maintenance, response time or
level of qualification for technical support, or additional support or
maintenance beyond the maintenance, support or technical assistance determined
appropriate by ITG, separate arrangements must be made in writing and a fee may
be charged by ITG. Absent such separate arrangements, ITG does not guarantee any
particular level of software support or technical support or time for response
by its personnel or subcontractors.
6. EXCLUSION OF WARRANTIES. While ITG has tested prior versions of the
Software, as with any state-of-the-art product, the Software and any updates
thereto may have features that do not perform according to their specifications,
or which cause loss of data, cause the Software to terminate, or cause the
Hardware or its operating system to crash (collectively, "Bugs"). Moreover, the
Software may not always be updated to
2
<PAGE>
reflect the changing financial markets, which can lead to Bugs which did not
originally exist in the Software. There can be changes in the data feeds that
could cause problems in the Software that were not originally anticipated.
Accordingly, THE HARDWARE IS PROVIDED TO THE CUSTOMER AND THE SOFTWARE IS
LICENSED TO CUSTOMER ON AN "AS IS" BASIS WITHOUT WARRANTY OF ANY KIND. ITG MAKES
NO EXPRESS OR IMPLIED WARRANTY CONCERNING THE PERFORMANCE OF THE HARDWARE OR
SOFTWARE, AND ITG EXPRESSLY EXCLUDES ANY IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE HARDWARE AND SOFTWARE.
NEITHER ITG NOR ANY THIRD PARTY FURNISHING INFORMATION TO ITG GUARANTEES
OR MAKES ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER (A) WITH RESPECT TO THE
SEQUENCE, ACCURACY, CURRENCY OR COMPLETENESS OF ANY QUOTATIONS OR DERIVED DATA,
MARKET INFORMATION OR ANY OTHER INFORMATION FURNISHED HEREUNDER, OR (B) THAT ANY
DATA DISSEMINATED MAY BE RELIED ON FOR TRADING PURPOSES, AND CUSTOMER AGREES TO
INDEPENDENTLY DETERMINE MARKET PRICES THROUGH CUSTOMARY TRADING CHANNELS.
Notwithstanding the foregoing, if Customer suffers a loss due to a
Hardware defect or failure, to the extent such warranties are assignable, ITG
will, on request, make reasonable efforts to assign its rights against the
vendors of such Hardware to Customer.
7. LIMITATION OF DAMAGES. NEITHER ITG NOR ANY THIRD PARTY PROVIDER OF
INFORMATION OR HARDWARE SHALL IN ANY EVENT BE LIABLE FOR ANY CONSEQUENTIAL,
SPECIAL OR INDIRECT DAMAGES OR OTHER ALLEGED BREACH OF WARRANTY OR ACTION
BROUGHT IN TORT OR STRICT LIABILITY OR UNDER ANY OTHER THEORY OF LIABILITY FROM
ANY BUG, THE PERFORMANCE OF THE INSTALLATION, THE OPERATION OF THE SOFTWARE, OR
ITG'S SUPPORT PERSONNEL, INCLUDING ANY TRADING LOSSES, FOREGONE GAINS OR FAILURE
TO SUCCESSFULLY IMPLEMENT ANY INVESTMENT STRATEGY. IN ADDITION, THE AMOUNT OF
ANY DAMAGES SHALL BE LIMITED IN ALL CASES TO THE COMMISSIONS CHARGED BY ITG IN
THE TWO WEEKS PRECEDING THE DAMAGE INCURRED BY THE CUSTOMER.
3
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8. INDEMNITY.
(a) Customer agrees to indemnify, defend, and hold ITG harmless of and
from any demands, claims or suits by any third party (other than claims that use
of the Software infringes upon the proprietary rights of a third party) arising
out of or related to Customer's use of the Hardware, Software or any portion
thereof.
(b) ITG shall defend, or at its option settle, any suit or proceeding
brought against Customer based upon a claim that the Software constitutes an
infringement of any United States patent, trademark or copyright of any third
party existing prior to the date of this Agreement, and shall pay any final
judgment or settlement amount in any such suit or proceeding. ITG shall not be
responsible for any cost, expense or compromise incurred or made by Customer
without ITG's prior written consent. ITG shall have no obligation hereunder for
or with respect to claims, actions or demands alleging infringement which arise
by reason of the combination of the Software with any product not supplied by
ITG or use of Software in a manner other than its intended use. The foregoing
indemnities are conditioned on (i) prompt notice of any claim, action, or demand
for which indemnity is claimed, (ii) complete control of the defense and
settlement thereof by ITG, (iii) and the cooperation of Customer in such
defense.
(c) The foregoing provisions of this Section 8 state the entire
liability and obligations of ITG and the exclusive remedy of Customer with
respect to any alleged infringement of patents, copyrights, trademarks or other
intellectual property rights by the Software, Hardware or the Installation.
9. PROPRIETARY RIGHTS; CONFIDENTIALITY.
(a) Customer agrees that (i) Customer has no right, title or interest in
the Hardware or Software except as expressly set forth in this Agreement, (ii)
the Hardware, including its operating system, and the Software contain
proprietary information and trade secrets of ITG and/or third parties (the "ITG
Proprietary Information") and (iii) Customer shall not publish, disclose, or
otherwise make available any of the ITG Proprietary Information to any person
other than its employees authorized to use the ITG Proprietary Information.
Customer shall advise each authorized employee as to the confidential nature of
the ITG Proprietary Information and the restrictions placed upon its use and
disclosure, and does hereby agree to indemnify ITG against any loss, damage and
expense due to any disclosure of confidential material by any employee or agent
of Customer. Customer agrees to notify ITG immediately should it become aware of
the unauthorized possession or use of the ITG Proprietary Information or any
portion thereof by any person not authorized by this Agreement to such
possession or use. Customer agrees to promptly furnish full details of such
possession or use to ITG, and to cooperate with ITG in any litigation against
third parties deemed necessary by ITG to protect ITG's proprietary rights.
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(b) "Confidential Information" means any proprietary information,
technical data, or know-how, including, but not limited to, that which relates
to specifications, research, product plans, products, services, orders,
strategies, forecasts, forecast assumptions, methodologies, models, customers,
markets, software, developments, inventions, processes, designs, drawings,
engineering, hardware configuration information, marketing or finances,
disclosed by one party (the "Disclosing Party") to the other (the "Receiving
Party"). Confidential Information shall not include information, technical data
or know-how which: (i) was in the possession of, or demonstrably known by, the
Receiving Party prior to its receipt from the Disclosing Party; (ii) is in the
public domain at the time of disclosure, not as a result of any inaction or
action of the Receiving Party; (iii) is approved for release by the Disclosing
Party in writing or (iv) is independently developed by the Receiving Party
without reliance on or use of the Confidential Information.
(c) Each party agrees to maintain the confidentiality of the
Confidential Information using procedures no less rigorous than those used to
protect and preserve the confidentiality of its own similar proprietary
information, and shall not, directly or indirectly, (i) transfer or disclose any
Confidential Information to any third party, (ii) use any Confidential
Information other than as contemplated under this Agreement or (iii) take any
other action with respect to Confidential Information inconsistent with the
confidential and proprietary nature of such information. In the event that
either party or their respective directors, officers, employees, consultants or
agents are requested or required by legal process to disclose any of the
Confidential Information of the other party, the party required to make such
disclosure shall, to the extent permitted by law, give prompt notice so that the
other party may seek a protective order or other appropriate relief. In the
event that such protective order is not obtained, the party required to make
such disclosure shall disclose only that portion of the Confidential Information
which its counsel advises that it is legally required to disclose.
10. TIME FOR COMPLAINTS, LIMITATION OF ACTIONS. ITG can only remedy a
Bug or service problem, subject to the limitations set forth in Paragraph 5
above, if it knows of the problem, and ITG relies on its customers to promptly
notify ITG of any such problem. Accordingly, Customer agrees to promptly notify
ITG of any such problem as soon as Customer becomes aware of the same. Subject
to the limitations set forth above in Section 5, in no instance shall ITG have
any obligation with respect to any Bug or service complaint unless the Customer
has notified ITG of the Bug or service complaint in writing within 7 days of
discovery by the Customer.
11. ARBITRATION. IN CONNECTION WITH THE FOLLOWING AGREEMENT TO
ARBITRATE, CUSTOMER UNDERSTANDS THAT:
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a. ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
b. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO A JURY TRIAL.
c. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDINGS;
d. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING, AND ANY PARTY'S RIGHT TO APPEAL OR
TO SEEK MODIFICATION OF THE RULING BY THE ARBITRATORS IS
STRICTLY LIMITED; AND
e. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
ACKNOWLEDGING THE PRECEDING DISCLOSURES, CUSTOMER AGREES THAT ANY AND
ALL CONTROVERSIES WHICH MAY ARISE BETWEEN CUSTOMER AND ITG CONCERNING CUSTOMER
ACCOUNTS, ANY TRANSACTION OR THE CONSTRUCTION, PERFORMANCE OR BREACH OF THIS OR
ANY OTHER AGREEMENT BETWEEN CUSTOMER AND ITG, WHETHER ENTERED INTO ON, PRIOR OR
SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION. ANY
ARBITRATION UNDER THIS AGREEMENT SHALL BE DETERMINED BEFORE THE NASD OR AN
EXCHANGE OF WHICH ITG IS A MEMBER IN ACCORDANCE WITH THE RULES OF THAT
PARTICULAR REGULATORY AGENCY OR EXCHANGE THEN IN EFFECT. CUSTOMER MAY ELECT IN
THE FIRST INSTANCE WHETHER ARBITRATION SHALL BE BY THE NASD OR ANOTHER
APPROPRIATE SPECIFIC NATIONAL SECURITIES EXCHANGE, BUT IF CUSTOMER FAILS TO MAKE
SUCH ELECTION BY REGISTERED LETTER OR TELEGRAM WITHIN FIVE (5) DAYS AFTER
CUSTOMER RECEIVES A WRITTEN REQUEST FROM ITG THAT CUSTOMER MAKES SUCH ELECTION,
THEN ITG SHALL MAKE THE ELECTION AS TO THE ARBITRATION FORUM WHICH WILL HAVE
JURISDICTION OVER THE DISPUTE. JUDGMENT UPON ARBITRATION AWARDS MAY BE ENTERED
IN ANY COUNTY, STATE OR FEDERAL COURT, HAVING JURISDICTION.
No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement against
any person who has initiated in court a putative class action; or who is a
member of a putative class who has not opted out of the class with respect to
any claims encompassed by the putative class action until: (i) the class
certification is denied; or (ii) the class is decertified; or (iii) the customer
is excluded from the class by the court. Such forbearance to enforce an
Agreement to arbitrate shall not constitute a waiver of any rights under this
agreement except to the extent stated herein.
6
<PAGE>
12. EQUITABLE RELIEF. Notwithstanding anything contained in Paragraph
11 to the contrary, ITG shall have the right to institute judicial proceedings
against Customer or anyone acting by, through or under Customer in order to
enforce ITG's rights hereunder through specific performance, injunction or
similar equitable relief. In addition, Customer acknowledges and agrees that the
obligations contained in Paragraphs 3 and 9 hereof are of special and unique
character which give them peculiar value to ITG and ITG cannot be adequately
compensated in damages in an action at law in the event Customer breaches such
obligations. Customer therefore agrees that, in addition to any other remedies
which ITG may possess, ITG shall be entitled to specific performance, injunctive
or other equitable relief in the form of preliminary and permanent injunctions
or other appropriate or similar equitable remedies, without bond or other
security, in the event of an actual or threatened breach of said obligations by
Customer, and Customer agrees in advance to waive its rights to contest ITG's
pursuit of such remedies. Customer further agrees that the United States
District Court for the Southern District of New York, or any state court located
in New York, shall have jurisdiction to enter such specific performance,
injunctive or other equitable relief as may be requested by ITG pursuant to this
Paragraph. Customer hereby agrees to submit to, and not to contest, the
jurisdiction of such state or Federal courts in connection with any suit brought
by ITG to obtain such relief.
13. FILING OF FINANCING STATEMENTS. ITG or its affiliates may, at their
option, file a financing statement with respect to the Hardware or the Software
pursuant to the Uniform Commercial Code and, by executing this Agreement,
Customer irrevocably appoints ITG as its attorney-in-fact in making such filing.
14. ASSIGNMENT: This Agreement and the license granted hereunder are
personal in nature and may not be assigned by Customer without the prior written
consent of ITG. Any attempt to sublicense, assign or transfer this Agreement or
any of the rights, licenses, duties or obligations under this Agreement, whether
by operation of law or otherwise, shall be null and void AB INITIO.
15. MISCELLANEOUS. A waiver or breach of any provision of this
Agreement shall not be construed as a continuing waiver of other breaches of the
same or other provisions of this Agreement. There are no prior representations,
warranties or agreements between the parties not contained in this Agreement.
All headings contained herein are for directory purposes only and are not part
of this Agreement. This Agreement may be signed in any number of counterparts,
all of which taken together shall constitute one and the same document. This
Agreement shall be governed by the laws of the State of New York without giving
effect to conflict of laws principles. The whole or partial invalidity of any
provision of this Agreement shall not affect the validity of any other provision
of this Agreement.
7
<PAGE>
THIS AGREEMENT EXCLUDES ALL WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS IN PARAGRAPH 6 ON PAGE 3.
THIS AGREEMENT CONTAINS A PREDISPUTE ARBITRATION CLAUSE IN PARAGRAPH 11
ON PAGES 5-6.
BY SIGNING THIS AGREEMENT, YOU ACKNOWLEDGE THAT YOU HAVE RECEIVED A COPY
OF IT.
ITG INC.
By:
--------------------------------
Name:
Title:
Date:
[Insert Customer Name]
By:
--------------------------------
Name:
Title:
Date:
<PAGE>
Exhibit 21
Subsidiaries of the Company
ITG Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Investment Technology Group, Inc.:
We consent to incorporation by reference in the registration statements
(No. 333-78309, No. 333-42725 and No. 333-26309) on Form S-8 of Investment
Technology Group, Inc. of our report dated January 19, 2000, relating to the
consolidated statements of financial condition of Investment Technology
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999,
which report appears in the December 31, 1999 annual report on Form 10-K of
Investment Technology Group, Inc.
/s/ KPMG LLP
New York, New York
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF DECEMBER
31, 1999 AND FOR THE YEAR THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1999
INVESTMENT TECHNOLOGY GROUP, INC. ANNUAL 10-K FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 53,081
<RECEIVABLES> 19,181
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 59,557
<PP&E> 20,229
<TOTAL-ASSETS> 179,488
<SHORT-TERM> 0
<PAYABLES> 42,265
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 5,861
<LONG-TERM> 0
0
0
<COMMON> 322
<OTHER-SE> 115,330
<TOTAL-LIABILITY-AND-EQUITY> 179,488
<TRADING-REVENUE> (4,478)
<INTEREST-DIVIDENDS> 4,331
<COMMISSIONS> 227,960
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 4,231
<INTEREST-EXPENSE> 58
<COMPENSATION> 51,717
<INCOME-PRETAX> 82,861
<INCOME-PRE-EXTRAORDINARY> 82,861
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,426
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.42
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF DECEMBER
31, 1998 AND FOR THE YEAR THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1999
INVESTMENT TECHNOLOGY GROUP, INC. ANNUAL 10-K FILING.
</LEGEND>
<RESTATED>
<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> 77,324
<RECEIVABLES> 24,849
<SECURITIES-RESALE> 0
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<INSTRUMENTS-OWNED> 40,615
<PP&E> 19,662
<TOTAL-ASSETS> 180,512
<SHORT-TERM> 0
<PAYABLES> 30,105
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 288
<LONG-TERM> 0
0
0
<COMMON> 310
<OTHER-SE> 143,399
<TOTAL-LIABILITY-AND-EQUITY> 180,512
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 3,635
<COMMISSIONS> 208,570
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 20
<COMPENSATION> 51,462
<INCOME-PRETAX> 80,935
<INCOME-PRE-EXTRAORDINARY> 80,935
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,394
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.41
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-25-1998
<CASH> 97,702
<RECEIVABLES> 17,630
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 11,580
<PP&E> 19,270
<TOTAL-ASSETS> 166,652
<SHORT-TERM> 0
<PAYABLES> 35,666
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 306
<OTHER-SE> 127,059
<TOTAL-LIABILITY-AND-EQUITY> 166,652
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 2,411
<COMMISSIONS> 147,578
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 8
<COMPENSATION> 36,962
<INCOME-PRETAX> 57,448
<INCOME-PRE-EXTRAORDINARY> 57,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,174
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.02
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-26-1998
<CASH> 79,011
<RECEIVABLES> 15,877
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 11,416
<PP&E> 20,054
<TOTAL-ASSETS> 149,078
<SHORT-TERM> 0
<PAYABLES> 28,927
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 303
<OTHER-SE> 114,448
<TOTAL-LIABILITY-AND-EQUITY> 149,078
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,679
<COMMISSIONS> 90,613
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 14
<COMPENSATION> 22,810
<INCOME-PRETAX> 31,717
<INCOME-PRE-EXTRAORDINARY> 31,717
<EXTRAORDINARY> 0
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<NET-INCOME> 17,290
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.57
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-27-1998
<CASH> 64,460
<RECEIVABLES> 12,607
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 11,153
<PP&E> 18,753
<TOTAL-ASSETS> 126,940
<SHORT-TERM> 0
<PAYABLES> 21,989
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 301
<OTHER-SE> 101,903
<TOTAL-LIABILITY-AND-EQUITY> 126,940
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 800
<COMMISSIONS> 40,587
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 13
<COMPENSATION> 10,585
<INCOME-PRETAX> 13,050
<INCOME-PRE-EXTRAORDINARY> 13,050
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> 0.25
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 51,263
<RECEIVABLES> 11,367
<SECURITIES-RESALE> 0
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<PP&E> 19,506
<TOTAL-ASSETS> 113,641
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<PAYABLES> 15,388
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<INSTRUMENTS-SOLD> 3
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0
0
<COMMON> 300
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<TOTAL-LIABILITY-AND-EQUITY> 113,641
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<COMPENSATION> 30,479
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</TABLE>
