SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
333-51653
COMMISSION FILE NUMBER
KNIGHT/TRIMARK GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2096335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
525 Washington Blvd., Jersey City, NJ 07310
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (201) 222-9400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days, Yes ( ) No (X)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
At August 6, 1998, the number of shares outstanding of the registrant's
Class A Stock was 49,062,184, and the number of shares outstanding of the
registrant's Class B common stock was 3,942,698.
KNIGHT/TRIMARK GROUP, INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Income..................... 3
Consolidated Statements of Financial Condition........ 4
Consolidated Statements of Cash Flows................. 5
Notes to Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................. 17
PART II OTHER INFORMATION:
Item 2. Use of Proceeds........................................ 17
Item 6. Exhibits............................................... 18
Signatures 19
UNLESS OTHERWISE INDICATED, REFERENCES TO THE "COMPANY" MEAN
KNIGHT/TRIMARK GROUP, INC. AND SUBSIDIARIES OR ROUNDTABLE PARTNERS,
L.L.C. AND SUBSIDIARIES, AS APPROPRIATE. UPON THE CLOSING OF THE COMPANY'S
INITIAL PUBLIC OFFERING ON JULY 13, 1998, ROUNDTABLE PARTNERS, L.L.C.
BECAME A WHOLLY-OWNED SUBSIDIARY OF KNIGHT/TRIMARK GROUP, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT/TRIMARK GROUP, INC.
(successor to the business of Roundtable Partners, L.L.C. (see Note 6))
Consolidated Statements of Income
(in thousands, except common unit, share, per common unit and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net trading revenue $80,250 $49,656 $143,257 $100,139
Interest, net 297 435 822 931
-------- ------- -------- --------
Total revenues 80,547 50,091 144,079 101,070
-------- ------- -------- --------
Employee compensation and benefits 23,323 12,492 39,491 24,505
Payments for order flow
Affiliates 13,264 13,271 24,578 27,571
Non-affiliates 6,239 3,570 11,181 7,398
Execution and clearance fees
Affiliates 4,870 4,992 12,049 9,604
Non-affiliates 5,319 1,881 8,380 3,679
Communications and data processing 2,470 1,721 4,640 3,040
Depreciation and amortization 1,344 1,062 2,635 1,999
Occupancy and equipment rentals 1,314 565 2,395 1,102
Business development 612 432 989 676
Interest on Preferred Units 262 477 678 1,081
Other 1,073 737 1,822 1,102
-------- ------- --------- --------
Total expenses 60,090 41,200 108,838 81,757
------- -------- --------- --------
Net income $20,457 $8,891 $35,241 $19,313
======= ======== ======= =======
Net income per common unit
Basic $27.85 $12.05 $47.98 $26.17
======== ======== ======== ========
Diluted $27.85 $6.38 $47.98 $12.84
======== ========= ======== =======
Common units outstanding
Basic 734,497 738,097 734,497 738,097
======= ======= ======= =======
Diluted 734,497 1,467,764 734,497 1,588,904
======= ========= ======= =========
Pro forma adjustments (see Note 6):
Net income as reported above $20,457 $8,891 $35,241 $19,313
Pro forma income tax expense 8,797 3,823 15,154 8,305
-------- --------- ---------- --------
Pro forma net income $11,660 $5,068 $20,087 $11,008
======= ======== ========= =======
Pro forma net income per share:
Basic and diluted $0.23 $0.10 $0.39 $0.21
-------- ----- ------ ------
Shares of Class A Stock and
Class B Stock outstanding 51,504,882 51,504,882 51,504,882 51,504,882
---------- ---------- ---------- ----------
</TABLE>
KNIGHT/TRIMARK GROUP, INC.
(successor to the business of Roundtable Partners, L.L.C. (see Note 6))
Consolidated Statements of Financial Condition
(in thousands, except common unit, share, per common unit and per share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, 1998 December 31,
Actual Pro forma 1997
(see Note 6)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $6,690 $108,727 $13,797
Securities owned, at market value 78,089 78,089 61,726
Receivable from clearing brokers 39,429 39,429 30,152
Fixed assets and leasehold improvements,
at cost, less accumulated
depreciation and amortization
of $4,618 at June 30, 1998 and
$3,885 at December 31, 1997 10,282 10,282 7,353
Goodwill, less accumulated amortization of
$5,516 at June 30, 1998 and $4,465
at December 31, 1997 14,725 14,725 14,193
Other assets 2,509 2,509 651
------- -------- -------
Total assets $151,724 $253,761 $127,872
======== ======== ========
LIABILITIES AND MEMBERS' (PRO FORMA STOCKHOLDERS')
EQUITY
Liabilities
Securities sold, not yet purchased,
at market value $51,659 $51,659 $21,061
Short term borrowings 30,000 30,000 -
Distributions on Common Units payable to members - - 8,405
Accrued compensation expense 10,309 10,309 6,113
Accrued execution and clearance fees 2,734 2,734 3,966
Accrued payments for order flow 5,001 5,001 3,764
Accounts payable, accrued expenses and
other liabilities 3,975 3,975 2,181
Interest payable on Preferred Units 230 230 425
Subordinated note 500 - 500
Mandatorily Redeemable Preferred A Units - - 12,484
Mandatorily Redeemable Preferred B Units 13,847 - 15,000
-------- ------ --------
Total liabilities 118,255 103,908 73,899
------- ------- --------
Members' equity
Common units, $10 par value, 734,497 units
issued and outstanding at June 30, 1998 and
December 31, 1997 7,345 - 7,345
Undistributed income 26,124 - 46,628
Pro forma stockholders' equity
Class A Common Stock, $0.01 par value,
200,000,000 shares authorized, 47,562,184
shares issued and outstanding - 475 -
Class B Common Stock, $0.01 par value,
20,000,000 shares authorized, 3,942,698 shares
issued and outstanding - 39 -
Additional paid-in capital - 149,339 -
--------- ------- --------
Total members' (pro forma stock-
holders') equity 33,469 149,853 53,973
--------- ------- --------
Total liabilities and members'
(pro forma stockholders') equity $151,724 $253,761 $127,872
======== ======== =========
</TABLE>
KNIGHT/TRIMARK GROUP, INC.
(successor to the business of Roundtable Partners, L.L.C. (see Note 6))
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 35,241 19,313
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,635 1,999
(Increase) decrease in operating assets
Securities owned (16,363) 6,928
Receivable from clearing brokers (9,277) (17,793)
Other assets (1,951) (127)
Increase (decrease) in operating liabilities
Securities sold, not yet purchased 30,598 8,887
Accrued compensation expense 4,196 (37)
Accrued execution and clearance fees (1,232) 69
Accrued payments for order flow 1,237 (969)
Accounts payable, accrued expenses
and other liabilities 2,507 (12)
---------------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,591 18,258
---------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of contingent consideration (1,582) (708)
Purchases of fixed assets and
leasehold improvements (5,134) (2,396)
---------------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,716) (3,104)
---------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short term borrowings 30,000 -
Redemptions of Mandatorily Redeemable
Preferred A Units (12,484) (10,147)
Redemptions of Mandatorily Redeemable
Preferred B Units (1,153) -
Decrease in interest payable on Preferred Units (195) (120)
Distributions on Common Units (64,150) (11,062)
---------------- ---------
NET CASH USED IN FINANCING ACTIVITIES (47,982) (21,329)
---------------- ---------
Decrease in cash and cash equivalents (7,107) (6,175)
Cash and cash equivalents at beginning of period 13,797 15,353
--------------- ---------
Cash and cash equivalents at end of period $ 6,690 $ 9,178
---------------- ---------
</TABLE>
Supplemental disclosure pertaining to noncash investing and
financing activities:
In April 1997, the Company terminated a capital lease
with a remaining obligation of $713. The book value of
the equipment under such lease was $620.
KNIGHT/TRIMARK GROUP, INC.
(Successor to the business of Roundtable Partners, L.L.C. (see Note 6))
Notes to Consolidated Financial Statements
June 30, 1998 (Unaudited)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Roundtable Partners, L.L.C. ("Roundtable"), a Delaware limited
liability company, was initially capitalized on March 27, 1995 to
own and operate the securities market making businesses of Knight
Securities, L.P. and Trimark Securities, L.P. Upon the closing of
an initial public offering on July 13, 1998 (the "Offering"), all
of the membership interests in Roundtable were exchanged for
shares of common stock of Knight/Trimark Group, Inc.
("Knight/Trimark", and hereafter, references to the "Company" will
refer to Roundtable or Knight/Trimark, as appropriate).
Knight/Trimark, as sole member of Roundtable, consented to the
dissolution of Roundtable on August 3, 1998 and commenced winding
up Roundtable's business. On July 31, 1998, the assets and
business activities of Knight Securities, L.P. were transferred to
Knight Securities, Inc., a Delaware corporation, that pursuant to
such transaction became a wholly-owned subsidiary of the Company
(hereafter, references to "Knight" will refer to Knight
Securities, L.P. or Knight Securities, Inc., as appropriate).
Simultaneous to this transaction, the assets and business
activities of Trimark Securities, L.P. were transferred to Trimark
Securities, Inc., a Delaware corporation, that pursuant to such
transaction became a wholly-owned subsidiary of the Company
(hereafter, references to "Trimark" will refer to Trimark
Securities, L.P. or Trimark Securities, Inc., as appropriate) (the
foregoing transactions, collectively, shall be referred to herein
as the "Reorganization").
Knight operates as a market maker in over-the-counter equity
securities ("OTC securities"), primarily those traded in the
NASDAQ stock market and on the OTC Bulletin Board. Trimark
operates as a market maker in the over-the-counter market for
equity securities that are listed on the New York and American
Stock Exchanges ("listed securities"). Knight and Trimark are
registered as broker-dealers with the Securities and Exchange
Commission ("SEC" or the "Commission) and are members of the
National Association of Securities Dealers, Inc. ("NASD").
The accompanying unaudited consolidated financial statements
include the accounts of the Company, Knight and Trimark and, in
the opinion of management, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. All significant
intercompany transactions and balances have been eliminated.
Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
SEC rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The nature of the Company's business is such that the
results of an interim period are not necessarily indicative of the
results for the full year. These consolidated financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's audited financial
statements as of December 31, 1997 included in the Company's
Registration Statement on Form S-1 (No. 333-51653) as filed with
the Commission on July 8, 1998 (the "Registration Statement").
2. NET CAPITAL REQUIREMENTS
As SEC-registered broker-dealers and NASD member firms, Trimark
and Knight are subject to the Commission's Uniform Net Capital
Rule (the "Rule") which requires the maintenance of minimum net
capital. Trimark and Knight have elected to use the basic method,
permitted by the Rule, which requires that they each maintain net
capital equal to the greater of $1,000,000 or 6 2/3% of aggregate
indebtedness, as defined.
As of June 30, 1998, Trimark had net capital of $9,084,853, which
was $8,084,853 in excess of its required net capital of $1,000,000
and Knight had net capital of $20,375,899, which was $19,375,158
in excess of its required net capital of $1,000,741.
3. RELATED PARTY TRANSACTIONS
A substantial portion of Knight's and Trimark's securities
transactions are conducted with broker-dealers that owned
membership interests in Roundtable prior to the closing of the
Offering and own common stock of Knight/Trimark subsequent to the
closing of the Offering. As measured in share volume, such
broker-dealer owners accounted for 40.7% and 39.3% of the
Company's order flow during the three month periods ended June 30,
1998 and 1997, respectively, and 41.0% and 40.0% for the six month
periods ended June 30, 1998 and 1997, respectively. Moreover, five
of these affiliates accounted for 31.8% and 32.7% of the Company's
total order flow for the three and six month periods ended June
30, 1998, respectively. In addition, one of these affiliates
accounted for 9.2% and 10.1% of the Company's total order flow for
the three and six month periods ended June 30, 1998, respectively.
Included within accrued payments for order flow on the
Consolidated Statements of Financial Condition are the following
amounts payable to the broker-dealer owners and subordinated note
holders:
June 30, 1998........................ $ 2,400,678
December 31, 1997.................... 1,990,045
As of December 31, 1997, Knight and Trimark cleared their
securities transactions through clearing brokers that owned equity
interests in the Company. Effective March 9, 1998, Knight began
clearing its securities transactions through an unaffiliated
clearing broker. Included within accrued clearance and execution
fees on the Consolidated Statements of Financial Condition are the
following amounts payable to the broker-dealer owners:
June 30, 1998........................ $ 1,740,689
December 31, 1997..................... 2,703,657
4. EARNINGS PER COMMON UNIT
Basic and diluted earnings per common unit have been calculated by
dividing earnings applicable to common units (net income) by the
weighted average common units outstanding during each respective
period. Diluted earnings per common unit also includes the
potential dilutive effects of the Mandatorily Redeemable Preferred
A Units, under the "if-converted" method, which are convertible
into Common Units on a one-for-one basis at the holder's option if
outstanding five years from the date of issuance. In determining
diluted EPS, the interest expense applicable to the Mandatorily
Redeemable Preferred A Units during each respective period has
been added back to net income. The following is a reconciliation
of the numerators and denominators of the basic and diluted
earnings per common unit computations (in thousands, except common
unit data):
<TABLE>
<CAPTION>
3 months ended 6/30/98 3 months ended 6/30/97
Numerator / Denominator / Numerator / Denominator /
Income Units Income Units
Basic EPS
<S> <C> <C> <C> <C>
Earnings applicable to Common Units $ 20,457 734,497 $ 8,891 738,097
EFFECT OF DILUTIVE SECURITIES
Mandatorily Redeemable Preferred A
Units - - 477 729,667
----------------------------- -----------------------------
DILUTED EPS $ 20,457 734,497 $ 9,368 1,467,764
----------------------------- ------------------------------
6 months ended 6/30/98 6 months ended 6/30/97
Numerator / Denominator / Numerator / Denominator /
Income Units Income Units
Basic EPS
Earnings applicable to Common Units $ 35,241 734,497 $ 19,313 738,097
EFFECT OF DILUTIVE SECURITIES
Mandatorily Redeemable Preferred A
Units - - 1,081 850,807
----------------------------- ----------------------------
DILUTED EPS
$ 35,241 734,497 $ 20,394 1,588,904
------------------------------- -----------------------------
</TABLE>
5. REDEMPTION OF MANDATORILY REDEEMABLE PREFERRED UNITS
On April 15, 1998, the Company redeemed and retired all
outstanding Mandatorily Redeemable Preferred A Units for
$12,483,610 and redeemed and retired 115,290 Mandatorily
Redeemable Preferred B Units for $1,152,900.
On July 17, 1998, Roundtable redeemed and retired all outstanding
Mandatorily Redeemable Preferred B Units for $13,847,100.
6. REORGANIZATION OF ROUNDTABLE AND PRO FORMA ADJUSTMENTS TO THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
Knight/Trimark was organized in April 1998 for the purpose of
succeeding to the business of Roundtable. Concurrent with the
closing of the Offering on July 13, 1998, based on an Offering
price of $14.50 per share, all of the member interests of
Roundtable were exchanged for 36,662,415 voting shares of Class A
Common Stock, par value $0.01 per share, of Knight/Trimark (the
"Class A Stock") and 3,942,698 shares of Class B Common Stock, par
value $0.01 per share, of Knight/Trimark (the "Class B Stock").
The holders of the Class B Stock are not entitled to vote;
however, upon sale or transfer, shares of Class B Stock are
exchangeable for shares of Class A Stock. Management of Roundtable
elected to receive 1,513,000 shares of Class A Stock valued at the
Offering price for all of their share of the undistributed profits
of Roundtable through March 31, 1998. Certain non-management
members, who had so elected, received 288,636 additional shares of
Class A Stock valued at the Offering price with respect to their
share of the undistributed income of Roundtable through March 31,
1998. Certain non-management investors, who had so elected,
received a cash distribution during June of $26,521,237 for their
respective undistributed income in Roundtable through March 31,
1998. Roundtable received no additional consideration in
connection with such conversion of member interests into shares of
Class A and Class B Stock. Before the effective date of the
Registration Statement relating to the Offering, the members of
Roundtable received a cash distribution of an estimate of its
respective share of the total amount of undistributed income of
Roundtable accruing between April 1, 1998 and the closing of the
Offering. This estimate was paid during June and amounted to
$21,273,237. Additionally, Brown & Company Securities Corporation,
a subordinated note holder, exercised its option to purchase 7,143
Common Units of Roundtable (the "Brown Option") by purchasing the
equivalent shares of Class A Stock of the Corporation (394,887
shares) at the closing of the Offering.
The Pro Forma Consolidated Statement of Financial Condition as of
June 30, 1998 has been presented to give effect to the
Reorganization and Offering as if they had occurred as of the
close of business on June 30, 1998. The specific pro forma
transactions are as follows:
o Exchange of 734,497 Common Units of Roundtable for
36,662,415 shares of Class A Stock and 3,942,698 shares of
Class B Stock;
o Purchase of 1,801,636 shares of Class A Stock by members of
Roundtable for $26,123,719 from undistributed income of
Roundtable through March 31, 1998;
o Repayment of the subordinated note;
o Redemption of all outstanding Mandatorily Redeemable
Preferred B Units for $13,847,100;
o Exercise of the Brown Option to purchase 394,887 shares of
Class A Stock at a total exercise price of $71,430 and the
application of the estimated net proceeds therefrom; and
o The Offering of 10,000,000 shares of Class A Stock (not
including an underwriters' over-allotment option of shares)
comprised of 8,688,246 newly-issued shares and 1,311,754
shares from a selling shareholder at an initial public
offering price of $14.50 per share, less the applicable
underwriting discounts and assumed offering expenses.
Before the Reorganization, Roundtable was a limited liability
company and was not subject to federal or state income taxes.
Subsequent to the Reorganization, the Company is subject to
federal income taxes and state income taxes in New York, New
Jersey and other states. Pro forma income tax expense includes pro
forma amounts relating to federal income taxes, as well as pro
forma amounts relating to state income taxes in New York, New
Jersey and other states. Roundtable's pro forma effective tax rate
of 43% for the periods presented differs from the federal
statutory rate of 35% primarily due to state income taxes (6%), as
well as nondeductible expenses, including the amortization of
goodwill and a portion of business development expenses (2%). The
pro forma net income per share calculations utilize pro forma
shares outstanding subsequent to the Reorganization and Offering.
Such pro forma amounts assume that the 30-day option to purchase
an additional 1,500,000 shares of Class A Stock granted to the
underwriters of the Company's initial public offering was not
exercised. Such option was exercised on August 3, 1998. The effect
on the pro forma adjustments to the Consolidated Statements of
Income of including this option would have been to decrease pro
forma basic and diluted earnings by $.01 per share to $0.22 and
$0.38 for the three and six month periods ended June 30, 1998,
respectively (the option would not have had any effect on the pro
forma basic and diluted earnings per share calculations for the
three and six month periods ended June 30, 1997, respectively).
The effect on the pro forma adjustments to the Consolidated
Statements of Financial Condition of including this option would
have been to increase assets (cash) and stockholders' equity by
$20.3 million, respectively.
The above transactions are more fully described in the
Registration Statement.
7. LONG-TERM INCENTIVE PLAN
In connection with the Reorganization and Offering, the Company
established the Knight/Trimark Group, Inc. 1998 Long Term
Incentive Plan and the Knight/Trimark Group, Inc. 1998
Non-employee Stock Option Plan (together, the "Plans") to provide
long-term incentive compensation to selected employees and
directors of Knight/Trimark and its subsidiaries. The Plans are
administered by the compensation committee of the Company's Board
of Directors, and allow for the grant of options, restricted
stock and restricted stock units, as defined by the Plans. The
maximum number of shares of stock reserved for the grant of awards
under the Plans is 7,409,500, subject to adjustment. In addition,
the Plans limit the number of shares which may be granted to a
single individual, and the Plans also limit the number of shares
of restricted stock which may be awarded.
In connection with the closing of the Offering, the Company issued
to employees and directors of the Company options to purchase
approximately 5,097,000 shares of Class A Common Stock at an
exercise price of $14.50 per share, the Offering price, and 15,000
shares of restricted stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
The following discussion of the results of operations of the
Company should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's audited financial
statements as of December 31, 1997 included within the Registration
Statement.
The Company is a leading market maker in NASDAQ securities, other
OTC securities, and New York Stock Exchange ("NYSE") and American Stock
Exchange ("AMEX") listed equity securities in the third market. Through its
wholly-owned subsidiary, Knight, the Company makes markets in approximately
6,700 equity securities in NASDAQ and on the NASD's OTC Bulletin Board at
the end of June 1998. Through its wholly-owned subsidiary, Trimark, the
Company makes markets in all NYSE- and AMEX-listed equity securities in the
Third Market.
VARIABILITY OF RESULTS
The Company has experienced and expects to continue to experience,
significant fluctuations in quarterly operating results due to a variety of
factors, including the value of the Company's securities positions and the
Company's ability to manage the risks attendant thereto, the volume of its
market-making activities, volatility in the securities markets, its ability
to manage personnel, overhead and other expenses, the amount of revenue
derived from limit orders as a percentage of total revenues, changes in
payments for order flow, clearing costs, the addition or loss of sales and
trading professionals, regulatory changes, the amount and timing of capital
expenditures, the incurrence of costs associated with acquisitions and
general economic conditions. If demand for the Company's market making
services declines and the Company is unable to adjust its cost structure on
a timely basis, the Company's operating results could be materially and
adversely affected. The Company has experienced, and may experience in the
future, significant seasonality in its business.
Due to all of the foregoing factors, period-to-period comparisons
of the revenues and operating results of the Company are not necessarily
meaningful and such comparisons cannot be relied upon as indicators of
future performance. There also can be no assurance that the Company will be
able to sustain the rates of revenue growth that it has experienced in the
past, that it will be able to improve its operating results or that it will
be able to sustain its profitability on a quarterly basis.
REVENUES
The Company's revenues consist principally of net trading revenue
from market-making activities and, to a much lesser extent, net interest
income from the Company's cash and securities positions held at banks and
in trading accounts at clearing brokers. To date, the Company has only
traded equity securities. Net trading revenue, which represents trading
gains net of trading losses, is primarily affected by changes in trade and
share volumes from customers, the Company's ability to derive trading gains
by taking proprietary positions to facilitate customer transactions, by
regulatory changes and by evolving industry customs and practices. The
Company's net trading revenue per trade for OTC securities has historically
exceeded the net revenue per trade for listed securities.
EXPENSES
The Company's operating expenses largely consist of payments for
order flow, execution and clearance fees and employee compensation and
benefits. A substantial portion of these expenses are variable in nature.
Payments for order flow fluctuate based on share volume, the mix of market
orders and limit orders and the mix of orders received from broker-dealers
compared to other institutional customers. Execution and clearance fees
fluctuate primarily based on changes in trade and share volume, the mix of
trades of OTC securities compared to listed securities and the clearance
fees charged by clearing brokers. Employee compensation and benefits
expense, which is largely profitability based, fluctuates, for the most
part, based on changes in net trading revenue and the Company's
profitability.
Payments for order flow represent customary payments to
broker-dealers, in the normal course of business, for directing their order
flow to the Company. The Company does not pay for order flow from
non-broker-dealer customers. As a result of the new Order Handling Rules
implemented by the SEC in 1997, the Company changed its order flow payment
policy from paying broker-dealers for substantially all order executions,
to paying broker-dealers only for orders which provide the Company with a
profit opportunity. For example, the Company makes payments on market
orders, but does not pay on limit orders. As a result of these changes, the
average order flow payment per transaction has declined.
Execution and clearance fees primarily represent clearance fees
paid to clearing brokers for OTC and listed securities, transaction fees
paid to NASDAQ for OTC securities, and execution fees paid to third
parties, primarily for executing trades in listed securities on the NYSE
and AMEX and for executing orders through Electronic Communications
Networks ("ECNs").
Execution and clearance fees are higher for listed securities than
for OTC securities. Due to the Company's significant growth in share and
trade volume, the Company has been able to negotiate favorable rates and
volume discounts from clearing brokers and providers of execution services.
As a result of these lower rates and discounts and the increase in trade
volume of OTC securities as a percentage of total trade volume, execution
and clearance fees per trade have decreased.
Employee compensation and benefits expense primarily consists of
salaries and wages paid to administrative and customer service personnel
and profitability based compensation, which includes compensation and
benefits paid to market-making and sales personnel based on their
individual performance, and incentive compensation paid to all other
employees based on the overall profitability of the Company ("Profitability
Based Compensation").
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Net trading revenue increased 61.6% to $80.3 million for the three
months ended June 30, 1998, from $49.7 million for the comparable period in
1997. This increase was primarily due to higher trading volume,
particularly higher trade volume for OTC securities, which was offset in
part by lower average net trading revenue per trade. Total trade volume
increased 117.7% to 9.0 million trades for the three months ended June 30,
1998, from 4.1 million trades for the comparable period in 1997. Total
share volume increased 163.7% to 9.5 billion shares traded for the three
months ended June 30, 1998, from 3.6 billion shares traded for the
comparable period in 1997. Average net trading revenue per trade decreased
25.9% to $8.88 per trade for three months ended June 30, 1998, from $11.99
per trade for the comparable period in 1997. The decrease in average net
trading revenue per trade was primarily due to the SEC's new Order Handling
Rules, which were implemented between January 1997 and October 1997, and,
to a lesser extent, the move to securities being quoted in sixteenths of a
dollar rather than eighths of a dollar.
Interest, net decreased 31.9% to $297,000 for the three months
ended June 30, 1998, from $435,000 for the comparable period in 1997. This
decrease was primarily due to lower cash balances held at banks and the
Company's clearing brokers from changes in the levels of securities owned
and securities sold, not yet purchased, and increased transaction-related
interest expense resulting from a higher level of securities sold, not yet
purchased.
EXPENSES
Employee compensation and benefits expense increased 86.7% to
$23.3 million for the three months ended June 30, 1998, from $12.5 million
for the comparable period in 1997. As a percentage of net trading revenue,
employee compensation increased to 29.1% for the three months ended June
30, 1998, from 25.2% for the comparable period in 1997. The increase on a
dollar basis and as a percentage of net trading revenue was primarily due
to the Company's increased profitability and an increase in the number of
employees. Due to increased net trading revenue and profitability,
Profitability Based Compensation increased 89.9% to $17.9 million for the
three months ended June 30, 1998, from $9.4 million for the comparable
period in 1997. The number of employees increased to 398 employees as of
June 30, 1998, from 252 employees as of June 30, 1997.
Payments for order flow increased 15.8% to $19.5 million for the
three months ended June 30, 1998, from $16.8 million for the comparable
period in 1997. As a percentage of net trading revenue, payments for order
flow decreased to 24.3% for the three months ended June 30, 1998 from 33.9%
for the comparable period in 1997. The decrease in payments for order flow
as a percentage of net trading revenue resulted from changes in the
Company's order flow payment policy, changes in the mix of market orders
versus limit orders, and changes in customer mix. Payments for order flow
made to broker-dealer owners and the subordinated note holder of Roundtable
represented 68.0% of total payments for order flow for the three months
ended June 30, 1998, as compared to 78.8% for the comparable period in 1997
due to the expansion of the Company's non-owner customer base.
Execution and clearance fees increased 48.2% to $10.2 million for
the three months ended June 30, 1998, from $6.9 million for the comparable
period in 1997. As a percentage of net trading revenue, execution and
clearance fees decreased to 12.7% for the three months ended June 30, 1998,
from 13.8% for the comparable period in 1997. The increase on a dollar
basis was primarily due to a 117.7% increase in trades for the comparable
period in 1997, which was offset, in part, by a decrease in clearance rates
charged by clearing brokers and higher growth in the volume of OTC
securities transactions, which have lower execution costs than transactions
in listed securities. The decrease in execution and clearance fees as a
percentage of net trading revenue was primarily due to a decrease in
clearance rates charged by clearing brokers.
Communications and data processing expense increased 43.5% to $2.5
million for the three months ended June 30, 1998, from $1.7 million for the
comparable period in 1997. This increase was generally attributable to
higher trading volumes, and an increase in the number of employees.
Depreciation and amortization expense increased 26.5% to $1.3
million for the three months ended June 30, 1998, from $1.1 million for the
comparable period in 1997. This increase was primarily due to the purchase
of additional fixed assets and leasehold improvements during 1997 and the
second quarter of 1998 to support the Company's expanded operations, and,
to a lesser extent, the amortization of goodwill recognized as part of
Trimark's acquisition of Tradetech Securities, L.P., which was completed in
November 1997.
Occupancy and equipment rental expense increased 132.5% to $1.3
million for the three months ended June 30, 1998, from $565,000 for the
comparable period in 1997. This increase was primarily attributable to
additional office space and increased computer equipment lease expense. The
Company occupied 75,768 square feet of office space at June 30, 1998, up
from 49,032 square feet of office space at June 30, 1997.
Business development expense increased 41.8% to $612,000 for the
three months ended June 30, 1998, from $432,000 for the comparable period
in 1997. This increase was primarily the result of higher travel and
entertainment costs consistent with the growth in the business of the
Company.
Interest on Mandatorily Redeemable Preferred Units decreased 45.2%
to $262,000 for the three months ended June 30, 1998, from $477,000 for the
comparable period in 1997. This decrease was primarily due to the
redemption and retirement of $12.5 million Mandatorily Redeemable Preferred
A Units and $1.2 million Mandatorily Redeemable Preferred B Units by the
Company in April 1998.
Other expenses increased 45.7% to $1.1 million for the three
months ended June 30, 1998, from $737,000 for the comparable period in
1997. This was the result of increased fees for computer programming
and systems consultants.
INCOME TAX
Before the Reorganization, Roundtable was a limited liability
company and was not subject to federal or state income taxes. After the
Reorganization, the Company is subject to federal income taxes and state
income taxes in New York, New Jersey and other states. Pro forma income tax
expense includes pro forma amounts relating to federal income taxes, as
well as pro forma amounts relating to state income taxes in New York, New
Jersey and other states. Pro forma income tax expense was determined using
an effective tax rate of 43% for the three months ended June 30, 1998 and
1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Net trading revenue increased 43.1% to $143.3 million for the six
months ended June 30, 1998, from $100.1 million for the comparable period
in 1997. This increase was primarily due to higher trading volume,
particularly higher trade volume for OTC securities, which was offset in
part by lower average net trading revenue per trade. Total trade volume
increased 109.4% to 16.6 million trades during the six-month period ended
June 30, 1998, from 7.9 million trades in 1997. Total share volume
increased 141.6% to 16.9 billion shares traded in the six month period
ended June 30, 1998, from 7.0 billion shares traded in the comparable 1997
period. Average net trading revenue per trade decreased 31.6% to $8.64 per
trade during the six months ended June 30, 1998, from $12.64 per trade
during the six months ended June 30, 1997, principally as a result of the
SEC's new Order Handling Rules, which were implemented during 1997, and the
move to securities being quoted in sixteenths of a dollar rather than
eighths of a dollar.
Interest, net decreased 11.7% to $822,000 during the six months
ended June 30, 1998, from $931,000 during the comparable 1997 period. This
decrease was primarily due to lower cash balances held at banks and the
Company's clearing brokers from changes in the levels of securities owned
and securities sold, not yet purchased, and from increased
transaction-related interest expense resulting from a higher level of
securities sold, not yet purchased.
EXPENSES
Employee compensation and benefits expense increased 61.2% to
$39.5 million during the six months ended June 30, 1998, from $24.5 million
during the six months ended June 30, 1997. As a percentage of net trading
revenue, employee compensation and benefits expense increased to 27.6%
during the six months ended June 30, 1998, from 24.5% during the comparable
1997 period. The increase on a dollar basis and as a percentage of net
trading revenue was primarily due to the Company's increased profitability
and growth in the number of employees. Due to increased net trading revenue
and profitability, Profitability Based Compensation increased 57.5% to
$29.7 million, from $18.9 million in the comparable 1997 period. The number
of employees increased to 398 employees as of June 30, 1998, from 252
employees as of June 30, 1997.
Payments for order flow increased 2.3% to $35.8 million during the
six months ended June 30, 1998, from $35.0 million in the comparable 1997
period. As a percentage of net trading revenue, payments for order flow
decreased to 25.0% for the six months ended June 30, 1998, compared to
34.9% during the six months ended June 30, 1997. The decrease in payments
for order flow as a percentage of net trading revenue resulted from changes
in the Company's order flow payment policy, changes in the mix of market
orders versus limit orders, and changes in customer mix. Payments for order
flow made to broker-dealer owners and the subordinated note holder of the
Company represented 68.7% of total payments for order flow for the six
months ended June 30, 1998, from 78.8% during the comparable 1997 period.
Execution and clearance fees increased 53.8% to $20.4 million
during the six-month period ended June 30, 1998, from $13.3 million in the
comparable 1997 period. As a percentage of net trading revenue, execution
and clearance fees increased to 14.3% for the six months ended June 30,
1998 from 13.3% during the six months ended June 30, 1997. The increase on
a dollar basis was primarily due to increased trade volume, which was
offset, in part, by a decrease in clearance rates charged by clearing
brokers, and growth in the volume of OTC securities transactions, which
have lower execution costs than transactions in listed securities. The
increase in execution and clearance fees as a percentage of net trading
revenue was primarily due to the decrease in the average net trading
revenue per trade.
Communications and data processing expense increased 52.6% to $4.6
million during the six months ended June 30, 1998, from $3.0 million during
the comparable 1997 period. This increase was generally attributable to
higher trading volumes, and an increase in the number of employees.
Depreciation and amortization expense increased 31.9% to $2.6
million during the six-month period ended June 30, 1998, from $2.0 million
during the six-month period ended June 30, 1997. This increase was
primarily due to the purchase of approximately $5.1 million of additional
fixed assets and leasehold improvements during the period and, to a lesser
extent, the amortization of goodwill recognized as part of Trimark's
acquisition of Tradetech Securities, L.P., which was completed in November
1997.
Occupancy and equipment rental expense increased 117.4% to $2.4
million during the six-month period ended June 30, 1998, from $1.1 million
in the comparable 1997 period. This increase was primarily attributable to
additional office space and increased computer equipment lease expense. The
Company occupied 75,768 square feet of office space at June 30, 1998, up
from 49,032 square feet of office space at June 30, 1997.
Business development expense increased 46.3% to $989,000 for the
six months ended June 30, 1998, from $676,000 during the six months ended
June 30, 1997. This increase was primarily the result of higher travel and
entertainment costs consistent with the growth in the business of the
Company.
Interest on Mandatorily Redeemable Preferred Units decreased 37.3%
to $678,000 during the six months ended June 30, 1998, from $1.1 million
during the six months ended June 30, 1997. This decrease was primarily due
to the redemption and retirement of 1,248,361 Mandatorily Redeemable
Preferred A Units by the Company in April 1998 for $12.5 million and the
redemption and retirement of 115,290 Mandatorily Redeemable Preferred B
Units by the Company for $1.2 million in April 1998.
Other expenses increased 65.2% to $1.8 million during the six
months ended June 30, 1998, from $1.1 million during the comparable 1997
period. This increase was primarily due to increased professional fees for
computer programming and systems consultants.
INCOME TAX
Pro forma income tax expense was determined using an effective tax
rate of 43% for the six months ended June 30, 1998 and 1997.
LIQUIDITY
Before the Offering, the Company financed its business primarily
through cash generated by operations, as well as the private placement of
preferred and common units and borrowings under subordinated notes. As of
June 30, 1998, the Company had $151.7 million in assets, 82% of which
consisted of cash or assets readily convertible into cash (principally
receivables from clearing brokers and securities owned). Receivables from
clearing brokers include interest-bearing cash balances held with clearing
brokers and net receivables for transactions that have not yet reached
their contracted settlement date, which is generally within three business
days of the trade date. Securities owned principally consist of equity
securities which trade in The NASDAQ Stock Market and on the NYSE and AMEX
markets.
The Company used a portion of its capital resources before the
Offering to pay interest on its issued and outstanding Mandatorily
Redeemable Preferred A and B Units, and to make quarterly distributions to
its members to meet their estimated income tax obligations on their share
of the Company's taxable income. The Mandatorily Redeemable Preferred A and
B Units bore interest at a rate approximating the Federal Funds rate. All
outstanding Mandatorily Redeemable Preferred A Units were redeemed and
retired in their entirety in April 1998 for approximately $12.5 million in
cash. In April 1998, the Company redeemed a portion of the Mandatorily
Redeemable Preferred B Units for approximately $1.2 million in cash. The
Company used $13.8 million of the proceeds of the Offering to redeem all of
the remaining outstanding Mandatorily Redeemable Preferred B Units on July
17, 1998.
PaineWebber Capital Inc., an affiliate of PaineWebber, has loaned
$30,000,000 to Roundtable pursuant to a loan agreement dated as of June 19,
1998 (the "PaineWebber Loan"). Roundtable used the proceeds from the
PaineWebber Loan to make distributions of undistributed profits to the
members of Roundtable before the Reorganization. In connection with the
dissolution of Roundtable, Knight/Trimark assumed all of Roundtable's
obligations under the PaineWebber Loan.
The Company and its subsidiaries currently anticipate that net
proceeds from this Offering together with their available cash resources
and credit facilities will be sufficient to meet their anticipated working
capital and capital expenditure requirements for at least the next 12
months.
YEAR 2000
Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field. These
date code fields will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, in less than two years,
computer systems and/or software used by many companies, including
computers involved in the securities industry, may need to be upgraded to
comply with such "Year 2000" requirements. The Company has undertaken a
project to identify, modify and test non-year 2000 compliant communications
and data processing systems in anticipation of the Year 2000. The Company's
main trading-related systems are currently Year 2000 compliant. The Company
plans to have its other computer systems certified by the end of the first
quarter of 1999. However, there can be no assurance that such schedule will
be met or the systems of other companies on which the Company's business is
dependent also will be converted timely or that any such failure to convert
by another company would not have an adverse effect on the Company's
business. Although the Company believes that its systems will be Year 2000
compliant, there can be no assurance that they will be, and if not, it may
have a material adverse effect on the Company's business, financial
condition and operating results. In addition, the Company is in the process
of establishing contingency plans in the event of material adverse effects
caused by non-Year 2000 compliant systems. The Company's progress under its
Year 2000 compliance plan is reviewed and monitored by senior management.
The success of the Company's plan depends heavily on parallel
efforts being undertaken by other entities with which the Company's systems
interact, most notably the Company's clearing brokers and the major
securities industry service organizations, and therefore, the Company is
taking steps to determine the status of these other entities' Year 2000
compliance and to test them individually. The Company's plan includes
participating in industry-wide testing during the fourth quarter of 1998
and first quarter of 1999.
The total cost of the Year 2000 project is currently estimated to
be approximately $500,000. This amount primarily represents the total
estimated man-hour costs of internal Company resources working on the Year
2000 project. Costs related to the project are expensed as incurred, and
the Company has incurred approximately $250,000 of such costs as of June
30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On January 28, 1997, the SEC adopted new rules (Securities Act
Release No. 7386) that require disclosures about the policies used to
account for derivatives, and certain quantitative and qualitative
information about market risk exposures. Since its inception, neither the
Company nor its subsidiaries have traded or otherwise transacted in
derivatives.
In the normal course of its market-making business, the Company
maintains inventories of listed and OTC securities. The fair value of these
securities at June 30, 1998 was $78.1 and $51.7 million, respectively, in
long positions and short positions. The potential loss in fair value, using
a hypothetical 10.0% decline in prices, is estimated to be approximately
$2.6 million as of June 30, 1998 due to the offset of losses in long
positions with gains in short positions.
For working capital purposes, the Company invests in money market
funds or maintains interest bearing balances in its trading accounts with
clearing brokers, which are classified as cash equivalents and receivable
from clearing brokers, respectively in the Consolidated Statements of
Financial Condition. These amounts do not have maturity dates or present a
material market risk, as the balances are short-term in nature and subject
to daily repricing.
PART II. OTHER INFORMATION
ITEM 2. USE OF PROCEEDS
On July 8, 1998, the Registration Statement was declared effective
by the SEC, pursuant to which 8,688,246 shares of the Company's Class A
Stock were offered and sold for the account of the Company at a price of
$14.50 per share, generating gross offering proceeds of $126.0 million. An
additional 1,311,754 shares of the Company's Common Stock were offered and
sold for the account of a selling stockholder at a price of $14.50 per
share, generating gross offering proceeds to the selling shareholder of
$19.0 million. The managing underwriters of the Offering were BancAmerica
Robertson Stephens; Merrill Lynch, Pierce Fenner & Smith Incorporated;
PaineWebber Incorporated; ABN AMRO Incorporated; and Southwest Securities,
Inc.
The net proceeds to the Company from the sales of the 8,688,246
shares of Class A Stock offered by the Company were approximately $116.3
million at the Offering price of $14.50 per share after deducting
underwriting discounts and commissions of approximately $8.2 million and
estimated Offering expenses of approximately $1.5 million payable by the
Company. On August 3, 1998, the underwriters' exercised an over-allotment
option to purchase 1.5 million shares at the Offering price of $14.50.
Before deducting underwriting discounts and commissions, the underwriters'
exercise of the overallotment option generated gross proceeds of
approximately $21.7 million for the Company. The net proceeds to the
Company from the overallotment option were approximately $20.3 million
after deducting underwriting discounts and commissions of $1.4 million.
Additionally, the Company has issued options to employees and directors of
the Company to purchase approximately 5,097,000 shares of Class A Common
Stock at an exercise price equal to the Offering price. See the Company's
Registration Statement on Form S-1 dated July 8, 1998 as filed with the
Commission for a more complete description of these transactions.
The principal purposes of the Offering were to increase the
Company's working capital and equity base, to provide a public market for
its Class A Stock, to permit future acquisitions using cash or publicly
tradable Class A Stock, and to facilitate future access to capital markets.
From the proceeds of the Offering, the Company used $13.8 million to redeem
all of the outstanding Mandatorily Redeemable Preferred B Units of
Roundtable. The Company intends to use the remaining proceeds of the
Offering for working capital and for general corporate purposes. The
Company may also use a portion of the proceeds of the Offering to pursue
acquisitions of or investments in businesses, products or technologies that
are complementary to those of the Company. The Company currently does not
have any commitments or agreements with respect to any such transactions.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in short-term, investment-grade, interest-bearing securities.
ITEM 6. EXHIBITS
10.1 Assumption Agreement between Roundtable Partners, L.L.C.
and Knight/Trimark Group, Inc., dated as of July 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto until duly authorized.
Knight/Trimark Group, Inc.
By: /s/ Robert I. Turner
------------------------------
Name: Robert I. Turner
Title: Treasurer, Executive Vice
President, Chief Financial
and Accounting Officer
Date: August 21, 1998
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, between Roundtable Partners, L.L.C., a Delaware
limited liability company (the "Borrower"), and Knight/Trimark Group, Inc.,
a Delaware corporation (the "Guarantor").
Pursuant to Section 5.1 (b) and Section 5.2 (a) of the Loan Agreement,
dated as of June 19, 1998 (the "Loan Agreement"), between PaineWebber
Capital Inc., a Delaware corporation (the "Lender"), and the Borrower, the
Borrower may liquidate or dissolve (the "Liquidation"), so long as the
Guarantor has agreed to assume all of the Borrower's obligations under the
Loan Agreement and the Note (as defined in the Loan Agreement) and all of
the assets of the Borrower are distributed to the Guarantor. The terms
defined in the Loan Agreement are used herein as therein defined.
In order to consummate the Liquidation, the Borrower and the Guarantor
hereby agree as follows:
1. The Borrower hereby transfers and assigns to the Guarantor (and
its successors and assigns) all of its obligations under the Loan
Agreement and the Note and the Guarantor hereby accepts such
assignment and assumes all of the obligations of the Borrower under
the Loan Agreement and the Note.
2. The Borrower represents and warrants that:
a) it has all requisite power and authority, corporate or
otherwise, and all material governmental authorizations to
execute and deliver, and to perform its obligations under, this
Assumption Agreement;
b) the execution, delivery and performance by the Borrower of
this Assumption Agreement has been duly authorized by all
necessary corporate action on the part of the Borrower, and does
not and will not (i) require any consent or approval of the
members of the Borrower, (ii) violate any provision of any law
(including, without limitation, the Securities Act), rule,
regulation (including, without limitation, Regulations T, U and
X), order, writ, judgment, injunction, decree, determination or
award applicable to the Borrower, (iii) violate the certificate
of formation or operating agreement of the Borrower, (iv) result
in the breach of, or constitute a default or an event which,
with notice or lapse of time or both, would constitute a
default under, any indenture, loan or credit agreement or any
agreement, lease or instrument to which the Borrower or any
of its Significant Subsidiaries is a party or by which it or
any of its properties or the properties of any of its
Significant Subsidiaries may be bound or affected or (v)
result in or require the creation or imposition of any Lien,
upon or with respect to any of the properties of the Borrower
or any of its Significant Subsidiaries, except in the cases
of clauses (ii), (iv) and (v), where such violation, breach,
default or Lien could not reasonably be expected to have a
Material Adverse Effect; and
c) that this Assumption Agreement has been duly executed and
delivered by the Borrower and will be a legal, valid and
binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally (whether considered
in a proceeding in equity or at law).
3. The Guarantor represents and warrants that:
a) it has all requisite power and authority, corporate or
otherwise, and all material governmental authorizations to
execute and deliver, and to perform its obligations under,
this Assumption Agreement;
b) the execution, delivery and performance by the Guarantor of
this Assumption Agreement has been duly authorized by all
necessary corporate action on the part of the Guarantor, and
does not and will not (i) require any consent or approval of
the stockholders of the Guarantor, (ii) violate any provision
of any law (including, without limitation, the Securities
Act), rule, regulation (including, without limitation,
Regulations T, U and X), order, writ, judgment , injunction,
decree, determination or award applicable to the Guarantor,
(iii) violate the certificate of incorporation or by-laws of
the Guarantor, (iv) result in the breach of, or constitute a
default or an event which, with notice or lapse of time or
both, would constitute a default under, any indenture, loan
or credit agreement or any agreement, lease or instrument to
which the Guarantor or any of its Significant Subsidiaries is
a party or by which it or any of its properties or the
properties of any of its Significant Subsidiaries may be
bound or affected or (v) result in or require the creation or
imposition of any Lien, upon or with respect to any of the
properties of the Guarantor or any of its Significant
Subsidiaries, except in the cases of clauses (ii), (iv) and
(v), where such violation, breach, default or Lien could not
reasonably be expected to have a Material Adverse Effect; and
c) that this Assumption Agreement has been duly executed and
delivered by the Guarantor and will be a legal, valid and
binding obligation of the Guarantor enforceable against the
Guarantor in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally (whether considered
in a proceeding in equity or at law).
4. The covenants and agreements set forth herein shall be binding
upon, and shall inure to the benefit of, the respective
successors and assigns of the Borrower and the Guarantor.
5. The Lender shall be a third-party beneficiary to this Assumption
Agreement and shall be entitled to enforce the provisions
hereof.
6. This Assumption Agreement may not be modified, changed or
supplemented, nor may any obligations hereunder be deemed
waived, except (i) by written instrument signed by the party to
be charged and (ii) with the written consent of the Lender.
7. This Assumption Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without
regard to conflict of laws principles.
8. (A) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO
THE EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN
NEW YORK, NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS ASSUMPTION AGREEMENT, OR FOR RECOGNITION
OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH
OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.
(B) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OR ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS ASSUMPTION
AGREEMENT IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTTED BY LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
9. EACH OF THE BORROWER AND THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS ASSUMPTION AGREEMENT OR THE
ACTIONS OF EACH PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
IN WITNESS WHEREOF, each of the parties has caused this
Assumption Agreement to be duly executed and delivered as of July 31, 1998.
ROUNTABLE PARTNERS, L.L.C.
By: /s/ Kenneth Pasternak
_______________________
Kenneth Pasternak
President
KNIGHT/TRIMARK GROUP, INC.
By: /s/ Walter Raquet
_______________________
Walter Raquet
Executive Vice President
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