UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A Amendment No. 1
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________.
Commission file number: 001-15251
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LaBRANCHE & CO INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4064735
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Exchange Plaza, New York, New York 10006
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(Address of Principal Executive Offices) (Zip Code)
(212) 425-1144
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(Registrant's telephone number, including area code)
Securities registered pursuant
to Section 12(b) of the Act: Common Stock, par value $0.01
New York Stock Exchange
Securities registered pursuant
to Section 12(g) of the Act: None
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 |_|
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the last sale price of the Common Stock reported on
the New York Stock Exchange on March 24, 2000, was approximately $183,400,000.
The number of shares of Common Stock outstanding as of March 24, 2000 was
48,675,352.
DOCUMENTS INCORPORATED BY REFERENCE
As stated in Part III of this Annual Report on Form 10-K, portions of the
registrant's definitive proxy statement for the registrant's 2000 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual Report
on Form 10-K.
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The Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File
No. 001-15251) of LaBranche & Co Inc., as filed with the Commission on March 30,
2000, is hereby amended and restated in its entirety.
PART I
This Annual Report on Form 10-K and the documents incorporated by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations, estimates and
projections about the registrant's industry, management's beliefs and certain
assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Unless required by law, the
registrant undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the registrant files from time to time with the Securities
and Exchange Commission.
Item 1. BUSINESS.
Overview
Founded in 1924, our specialist LaBranche & Co. is one of the oldest and
largest specialist firms on the New York Stock Exchange ("NYSE"). As a NYSE
specialist, our role is to maintain, as far as practicable, a fair and orderly
market in our specialist stocks. In doing so, we provide a service to our listed
companies, and to the brokers, traders and their respective customers who trade
in our specialist stocks. We believe that, as a result of our commitment to
providing high quality specialist services, we have developed a strong
reputation among our constituencies, including investors, members of the Wall
Street community and our listed companies.
Our business has grown considerably during the past five years. Our
revenues increased from approximately $37.1 million in 1995 to $201.0 million in
1999, representing a compound annual growth rate of 52.6%. We have accomplished
our growth both internally and through selective acquisitions. For example,
since the NYSE implemented its new specialist allocation process in March 1997,
as described in "Industry Background--The Specialist", we were selected by 53
new listed companies, resulting from 83 listing interviews. In addition we have
acquired five specialist operations since 1997, adding 278 new common stock
listings to our firm. During the past five years, we have also increased the
scope of our business, as illustrated by the following data obtained from the
NYSE:
o the annual dollar volume on the NYSE of stocks for which we acted as
specialist increased to $1.2 trillion in 1999, as compared to $133.3
billion in 1995. Based on these dollar volumes, we were the second
largest specialist firm in 1999 as compared to the eighth largest in
1995;
o the annual share volume on the NYSE of stocks for which we act as
specialist increased to 25.7 billion in 1999, as compared to 4.0
billion in 1995. Based on these share volumes, we were the second
largest specialist firm in 1999 as compared to the sixth largest in
1995; and
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o the total number of our common stock listings increased to 271 as of
December 31, 1999, as compared to 125 as of December 31, 1995. Based
on the number of our common stock listings, we were the third
largest specialist firm as of December 31, 1999 as compared to the
fifth largest as of December 31, 1995. In addition, we acted as
specialist for 89 other listed securities.
On March 2, 2000 we completed our acquisition of Henderson Brothers
Holdings, Inc. ("Henderson Brothers"), which in turn wholly owns Henderson
Brothers Inc., a specialist on the NYSE. Established in 1861, Henderson Brothers
first registered as a NYSE specialist in 1948 and was the eighth largest
specialist firm on the NYSE in terms of common stock listings at year end 1999.
Henderson Brothers acted as specialist in 113 common stock listings, including
26 companies in the S&P 500 and two companies included in the Dow Jones
Industrial Average. These listings include American Express Company, Ford Motor
Company, J.P. Morgan & Co., Lehman Brothers Holdings, Inc., Morgan Stanley Dean
Witter & Co. and Schering-Plough Corporation. Henderson Brothers had $82.1
million of revenues and $29.1 million of EBITDA for the year ended 1999.
On March 9, 2000 we also acquired, through a merger, Webco Securities,
Inc. ("Webco"), another specialist firm on the NYSE. Established in 1981, Webco
acted as specialist in 34 common stock listings, including First Union
Corporation, Manor Care, Inc. and Nokia Corporation. Webco had $13.7 million of
revenues and $4.2 million of EBITDA for the year ended October 31, 1999.
As of March 24, 2000, our listed companies include:
o 75 of the S&P 500 companies; and
o seven of the 30 companies comprising the Dow Jones Industrial
Average. Our seven Dow stocks are American Express, AT&T,
ExxonMobil, JP Morgan, Merck, Minnesota Mining & Manufacturing and
SBC Communications.
Industry Background
The NYSE
The NYSE is currently the largest securities market in the world. The
market capitalization of all U.S. shares listed on the NYSE increased from
approximately $6.0 trillion at December 31, 1995 to approximately $10.1 trillion
at December 31, 1999, representing a compound annual growth rate of 13.9%. The
number of companies listed on the NYSE increased from 2,675 at the end of 1995
to 3,025 at the end of 1999.
The NYSE's average daily trading volume increased from 91.2 million shares
in 1984 to 809.2 million shares in 1999, as illustrated by the following graph:
NYSE Average Daily Trading Volume from 1984 to 1999
(Share volume in millions)
Edgar Representation of Data Points Used in Printed Graphic
NYSE Average Daily Trading Volume From 1984 to 1999
1984 91.2
1985 109.2
1986 141.0
1987 188.9
1988 161.5
1989 165.5
1990 156.8
1991 178.9
1992 202.3
1993 264.5
1994 291.4
1995 346.1
1996 412.0
1997 526.9
1998 673.6
1999 809.2
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Trading on the NYSE takes place through open bids to buy and open offers
to sell made by NYSE members, acting as principal or as agent for institutions
or individual investors. Buy and sell orders meet directly on the trading floor
through an auction process, and prices are determined by the interplay of supply
and demand in that auction. In order to buy and sell securities on the NYSE, a
person must first be accepted for membership in the NYSE. The number of
memberships, or seats, is presently limited to 1,366, and the price of a
membership depends on supply and demand. Based on recent transfers of
memberships, the market price of a membership on the NYSE is approximately $2.0
million. To become a member, each prospective applicant must also pass an
examination covering NYSE rules and regulations.
NYSE members are generally categorized based upon the activities in which
they engage on the trading floor, such as specialists or brokers. The largest
single membership group is floor brokers, which consists of both commission
brokers and independent brokers. Commission brokers are employed by
broker-dealer firms that are members of the NYSE and earn salaries and
commission. Independent floor brokers are brokers who independently handle
orders for other broker-dealers and financial institutions.
The Specialist
All trading of securities on the NYSE is conducted through an auction
process. The auction process for each security is managed by the specialist for
that security. The specialist is a broker-dealer who applies for and, if
accepted, is assigned the role to maintain a fair and orderly market in its
specialist stocks. The number of specialist units on the NYSE, many of which are
organized as private partnerships, has decreased from 36 at December 31, 1995 to
25 at December 31, 1999. Of these, the three largest specialist units as ranked
by their number of specialist stocks were responsible for approximately 47.4% of
the average daily trading volume (measured by dollar volume) in 1999.
A specialist firm is granted the franchise by the NYSE in a particular
stock to conduct the auction in that security. Specialist firms conduct their
auctions at specific trading posts located on the floor of the NYSE. Because the
specialist firm runs the auction in its specialist stocks, it knows of all bids
and offers in those stocks and gathers orders to price its stocks appropriately.
Specialist firms compete for the original listing of stocks through an
allocation process organized by the NYSE. As part of this allocation process,
companies seeking a listing may select a specialist firm in one of two ways.
Under the first method, the NYSE's allocation committee selects the specialist
firm based on specific criteria. Under the second method, available since March
1997, the listing company requests that the allocation committee select three to
five potential specialist firms suitable for the stock, based on criteria
specified by the listing company. The listing company then has the opportunity
to meet with each specialist firm identified by the allocation committee. Within
one week after meeting the competing specialist firms, the listing company must
select a specialist firm. Currently, substantially all of the companies seeking
a listing on the NYSE are opting to make the final choice of their own
specialist firm under the second allocation method.
When assigned a particular stock, the specialist firm agrees to specific
obligations. The specialist firm's role is to maintain, as far as practicable,
trading in the stock that will be fair and orderly. This implies that the
trading will have reasonable depth and price continuity, so that, under normal
circumstances, a
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customer may buy or sell stock in a manner consistent with market conditions. A
specialist firm helps market participants achieve price improvement in their
trades because the best bids and offers are discovered through the auction
process. In performing its obligations, the specialist firm is exposed to all
transactions that occur in each of its specialist stocks on the NYSE floor. In
any given transaction, the specialist firm may act as:
o an auctioneer by setting opening prices for its specialist stocks
and by matching the highest bids with the lowest offers, permitting
buyers and sellers to trade directly;
o a facilitator bringing together buyers and sellers who do not know
of each other in order to execute a trade which would not otherwise
occur;
o an agent for broker-dealers who wish to execute transactions as
instructed by their customers. Typically, these orders are limit
orders entrusted to the specialist at prices above or below the
current market price; or
o a principal using its own capital to buy or sell stocks for its own
account.
The specialist firm's decision to buy or sell shares of its specialist
stocks as principal for its own account may be based on obligation or
inclination. For example, the specialist firm may be obligated to buy or sell
its specialist stock to counter short-term imbalances in the prevailing market,
thus helping to maintain a fair and orderly market in that stock. At other
times, the specialist firm may be inclined to buy or sell the stock as principal
based on attractive opportunities. The specialist firm may trade at its election
so long as the trade will contribute to a fair and orderly market. In
actively-traded stocks, the specialist firm continually buys and sells its
specialist stocks at varying prices throughout each trading day. The specialist
firm's goal and expectation is to profit from differences between the prices at
which it buys and sells these stocks. In fulfilling its specialist obligations,
however, the specialist firm may, at times, be obligated to trade against the
market, adversely impacting the profitability of the trade. In addition, the
specialist firm's trading practices are subject to a number of restrictions, as
described in "Operations-NYSE Rules Governing Our Specialist Activities."
Recent Trends in NYSE Trading and the Specialist's Role
Specialist firms generate revenues by executing trades, either as agent or
principal, in their specialist stocks. Accordingly, the specialist firms'
revenues are primarily driven by the volume of trading on the NYSE. This volume
has increased significantly in recent years. The increase in trading volume has
resulted from a number of factors, including:
o an increase in the number of households investing in stocks;
o an increase in the amount of assets managed through retirement
plans, mutual funds, annuity and insurance products, index funds and
other institutional investment vehicles;
o the increased popularity and use of computerized trading, hedging
and other derivative strategies;
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o an increase in NYSE-listed stocks due to:
o IPOs and spin-offs;
o transfers from Nasdaq and the American Stock Exchange; and
o an increase in listings of foreign companies;
o higher equity portfolio turnover by individuals and institutional
investors as a result of lower commission rates and other
transaction costs;
o an increase in on-line trading;
o trading in smaller price increments;
o an increase in the market capitalization of growth stocks; and
o an increase in the amount of shares traded due to stock splits and
stock dividends.
These factors have, in turn, been influenced by a strong U.S. economy, low
interest rates and low levels of inflation.
The NYSE has announced that it will implement a pilot program for trading
in decimals in July 2000 and has increased the window for providing
commission-free execution of a trade to five minutes (from the current two
minutes). The NYSE is also considering the following additional changes:
o longer trading days; and
o trading of foreign stocks in ordinary form side by side with their
American depository receipts (ADRs).
These additional changes are being considered for implementation within the next
18 months. We believe that trading in decimals and, if instituted, these
additional changes will likely contribute to additional growth in NYSE trading
volume.
The majority of trades in NYSE-listed stocks take place through NYSE
specialist firms. In 1999, specialist firms handled approximately 82.5% of
trades in NYSE-listed stocks. Trades in NYSE-listed stocks are also generally
effected as follows:
o some stocks are listed on multiple exchanges, such as regional
exchanges, and trades take place on those exchanges;
o NYSE members may trade NYSE-listed stocks off the NYSE in the
over-the-counter market; and
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o non-NYSE members may trade NYSE-listed stocks off the NYSE in
over-the-counter markets.
Technological advances have contributed to the increased trading through
alternative trading systems (ATSs), such as electronic communications networks
(ECNs) and crossing systems. While the first ECN was created in 1969, most of
the others currently in operation were started in the past few years. These
systems electronically facilitate the matching of buy and sell orders that are
entered by their network members. If a match does not occur, some ATSs will
forward unfilled orders to other ATSs or to exchanges such as the NYSE. Some of
these networks also allow limited negotiation between members to facilitate a
match. These ATSs generally limit trades over their systems to their members,
who are typically large financial institutions, well-capitalized traders or
brokerage firms. Additionally, some ATSs are being developed to facilitate
trading by retail investors. In April 1999, the SEC ruled that these networks
are allowed, and in specified cases are required, to register and become subject
to regulation as stock exchanges.
The percentage of annual trading of NYSE listed stocks on the NYSE has
ranged from 82.1% to 84.1% for the past five years. It is unclear, however, how
the alternative trading methods and new technologies just described or that may
be developed will affect the percentage of trading in listed stocks conducted on
the NYSE. The NYSE has indicated that it is studying the possibility of
embracing electronic communications network technology to expand trading. ATSs
may be developed, organized and operated by large brokerage houses and
investment banks with greater capital, better access to technology and direct
access to investors. As a result, these parties may be well positioned to direct
trading to these networks. These alternative trading methods may account for a
growing percentage of the trading volume of NYSE-listed stocks.
The accelerating growth of trading volume and the increase in stock prices
on the NYSE in the 1990s has increased the demands upon specialists. In order to
fulfill their obligations, specialists are required to execute a greater number
of trades in a shorter period of time with greater price volatility. In
addition, specialists are called upon to take larger positions in their
specialist stocks. These factors have led to a consolidation of specialist units
in the past five years. We believe that the specialist market is becoming
increasingly dominated by a number of large, better-capitalized specialist firms
which are able to provide an enhanced level of service.
LaBranche's Competitive Position
We are committed to providing the highest quality service to our various
constituencies. We believe our success is based on the following factors:
o Leading Position in the Specialist Market. We have a long-standing
reputation as one of the leading specialist firms on the NYSE. We
have successfully grown our business and improved our services
through widely varying market conditions. As of December 31, 1999
trading in the stocks for which we acted as specialist during 1999
accounted for 14.5% of the dollar volume on the NYSE and 13.5% of
the share volume. Based on these percentages, we were the second
largest specialist firm on the NYSE. We are continuing to develop
our relationships with ATSs and to embrace new technologies in
trading platforms.
o Diverse and High Quality Specialist Stocks. Our listed companies
operate in a variety of industries including financial services,
media, oil and gas, retail, technology and
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telecommunications. Many of our listed companies are leaders in
their respective fields. We believe that acting as specialist in the
stocks of industry leaders will benefit us as these leading
companies continue to expand their businesses through internal
growth and acquisitions.
o Strong Market-Making Skills. We utilize our strong market-making
skills to actively trade as principal in our specialist stocks. We
believe that we significantly improve liquidity in our specialist
stocks, particularly during periods of market volatility. In 1999,
approximately 32.0% of our trades were as principal as compared to
an average of approximately 26.4% for all NYSE specialists.
o Innovative Customer-Oriented Services. We are committed to providing
our listed companies with a high level of service, in addition to
our specialist functions on the trading floor. We provide our listed
companies with detailed reports on the trading activity of their
stocks. We also maintain frequent contact with a majority of our
listed companies to discuss the trading in their stock. In addition,
we were the first specialist firm to:
o host an annual listed company conference;
o publish a company newsletter; and
o commission customer satisfaction surveys from our listed
companies.
o Completed Acquisitions. Since 1997, we have acquired the following
five specialist operations, solidifying our position as one of the
leading NYSE specialist firms:
o a portion of the specialist operations of Stern Bros., LLC
(July 1997);
o Ernst, Homans, Ware & Keelips (August 1997);
o Fowler, Rosenau & Geary, LLC (July 1998);
o Henderson Brothers, Inc. (March 2000); and
o Webco Securities, Inc. (March 2000).
We have effectively employed our capital resources and skilled personnel
to maximize the synergies created through consolidation. In doing so, we have
succeeded in growing each of our earlier acquired operations and enhancing their
profitability. We believe this experience will assist us in integrating the
businesses of our recent acquisitions, Henderson Brothers and Webco.
Recent Acquisitions
Henderson Brothers
On March 2, 2000, we acquired Henderson Brothers, which owns Henderson
Brothers, Inc., a
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specialist firm on the NYSE, and Henderson Brothers Futures Corporation, an
inactive subsidiary. Under the terms of the agreement, we acquired all the
outstanding capital stock of Henderson Brothers for approximately $230.0 million
in cash. The proceeds of our Senior Subordinated Note Offering were used to
fully fund the acquisition of Henderson Brothers, to partially fund the
acquisition of Webco and to pay fees and expenses related to both acquisitions.
As part of the Henderson Brothers acquisition, we entered into employment
agreements with 14 specialists and an additional employee formerly employed by
Henderson Brothers. We also entered into consulting agreements with two former
Henderson Brothers employees pursuant to which we are paying an aggregate of
$5.0 million over five years.
In connection with the Henderson Brothers acquisition, we:
o acquired an additional 19 NYSE memberships, all of which are owned
by the individual specialists but are financed by LaBranche & Co.;
o hired an additional 84 employees, 19 of which are specialists, 41 of
which are specialist trading assistants and 24 of which are other
administrative, financial and operational personnel; and
o acquired an additional 8,650 feet of office space, which had a
$216,726 annual lease payment in 1999.
In addition, as part of the acquisition, we also acquired and are
continuing the clearing operations of Henderson Brothers. As a clearing broker,
we are responsible for the clearance and settlement of transactions effected by
us or the introducing broker. We only clear and settle transactions executed by
the introducing brokers; we do not execute these transactions.
Webco
On March 9, 2000, we acquired, through a merger, another specialist firm
on the NYSE, for 2.8 million shares of our common stock, $10.9 million in cash
and senior promissory notes in the aggregate principal amount of $3.0 million,
each bearing an interest rate of 10.0% per annum. As part of the acquisition, we
entered into employment agreements with three specialists employed by Webco.
In connection with to the Webco acquisition, we:
o acquired an additional 3 NYSE memberships;
o hired an additional 14 employees, 5 of which are specialists, 8 of
which are specialist trading assistants and one of which performs
administrative functions; and
o acquired an additional 2,057 feet of office space, which had a
$51,425 annual lease payment in 1999.
Following the completion of the acquisitions of Henderson Brothers and
Webco, we are the largest specialist firm on the NYSE in terms of the annual
dollar and share volume traded. We are the specialist for 413 common stock
listings, including 75 of the S&P 500 and seven companies included in the Dow
Jones Industrial Average.
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Simultaneously with the acquisitions of Henderson Brothers and Webco, we
transferred the specialist operations of each of Henderson Brothers and Webco to
our subsidiary LaBranche & Co. The clearing operations of Henderson Brothers are
operated by us as a separate subsidiary.
Operations
NYSE Rules Governing Our Specialist Activities
Under the NYSE rules, a specialist has a duty to maintain, as far as
practicable, a fair and orderly market in its specialist stocks. In order to
fulfill its obligations, the specialist must at times trade for its own account,
even when it may adversely affect the specialist's profitability. In addition,
under some circumstances, the specialist is prohibited from making trades as
principal in its specialist stocks. The specialist's obligations are briefly
described below.
Requirement to Trade as Principal. A specialist must buy and sell
securities as principal when necessary to minimize an actual or reasonably
anticipated short-term imbalance between supply and demand in the auction
market. The specialist must effect these transactions when their absence could
result in an unreasonable lack of continuity and/or depth in their specialist
stocks. The specialist is not expected to act as a barrier in a rising market or
a support in a falling market, but must use its own judgment to try to keep such
price increases and declines equitable and consistent with market conditions.
A specialist must make firm and continuous two-sided quotations that are
timely and that accurately reflect market conditions. In making these
quotations, the specialist's transactions are calculated to contribute to the
maintenance of price continuity with reasonable depth. Following is an
illustration of how a specialist acts as principal to maintain price continuity:
The most recent sale in a listed stock was $50, the best public bid (to
buy) on the specialist's book is $49 3/4, and the best public offer (to
sell) on the book is $50 1/4. A broker who wants to buy 100 shares at the
market in this instance without a specialist would purchase at $50 1/4,
the offer price. Similarly, a broker seeking to sell 100 shares without a
specialist would receive $49 3/4, the bid price. The specialist, who is
expected to provide reasonable price continuity, in this case might narrow
the quote spread by offering or bidding for stock for its own account. In
this instance, the broker who wants to buy 100 shares might buy at $50
1/16 from the specialist, as opposed to buying the same amount of shares
from the best offer of $50 1/4, thereby offering price improvement to the
customer. In the next trade, a broker willing to sell 100 shares might
sell to the specialist at $50, as opposed to selling to the best available
bid of $49 3/4, again achieving price improvement for the customer.
Trading Restrictions. In trading for its own account, the specialist must avoid
initiating a market-destabilizing transaction. All purchases and sales must be
reasonably necessary to permit the specialist to maintain, as far as
practicable, a fair and orderly market in its specialist stocks. In addition,
the specialist must comply with the following trading requirements:
o A specialist must first satisfy a customer's market buy order (an
order to buy at the prevailing market price) before buying any stock
for its own account. Similarly, a specialist must first satisfy a
customer's market sell order (an order to sell at the prevailing
market price) before
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selling any stock for its own account.
o A specialist must first satisfy a customer's limit order held by it
before buying or selling at the same price for its own account. A
limit order is an order either to buy only at or below a specified
price, or to sell only at or above a specified price. A specialist
may not have priority over any customer's limit order. A specialist,
however, may buy or sell at the same price as a customer limit order
as long as that limit order is executed first.
o If a public buyer wants to buy at a particular price and a seller
wants to sell at the same price, the buyer and seller trade directly
with each other, and the specialist should not interfere in the
transaction.
o The specialist does not charge commissions for trades in which it
acts as a principal.
o Except in some circumstances in less active markets, the specialist
may not, without permission from an NYSE official, initiate
destabilizing trades for its own account which cause the stock price
to rise or fall.
o Any transactions by the specialist for its own account must be
effected in a reasonable and orderly manner in relation to the
condition of the general market, the market in the particular stock
and the adequacy of the specialist's position to the immediate and
reasonably anticipated needs of the market.
In addition, the specialist cannot be in a control relationship with any
of its listed companies. This means a specialist may not acquire more than 5% of
any common or preferred issue of its specialist stocks and may not own 10% or
more of any common or preferred stock. A specialist may not hold any position as
an officer or director or receive payments or loans or engage in business
transactions with any of its listed companies.
Risk Management
Because our specialist activities expose our capital to significant risks,
managing these risks is a constant priority for us. Our central role in the
auction process helps us to reduce risks by enabling us to incorporate
up-to-date market information in the management of our inventory, subject to our
specialist obligations. In addition, we have developed a risk management process
which is designed to balance our ability to profit from our specialist
activities with our exposure to potential losses. Our risk management process
includes as participants our executive operating committee, our floor management
committee, our floor team captains and our specialists. These parties' roles are
described as follows:
Executive Operating Committee. Our executive operating committee is composed of
Michael LaBranche, Vincent J. Flaherty, Alfred O. Hayward, Jr., Michael J.
Naughton, James G. Gallagher, Harvey S. Traison and John O. Pickett. This
committee is responsible for approving all risk management policies and trading
guidelines for particular specialist stocks, after receiving input and proposals
by the floor management committee. In addition, our executive operating
committee reviews all unusual situations reported to it by our floor management
committee.
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Floor Management Committee. Our floor management committee is composed of
Messrs. Flaherty Hayward, Naughton, Gallagher and Pickett. This committee is
responsible for formulating and overseeing our overall risk management policies
and risk guidelines for each of our specialist stocks. In arriving at these
policies and guidelines, our floor management committee considers the advice and
input of our floor team captains. Our floor management committee meets with all
floor team captains no less than once a month to review and, if necessary,
revise the risk management policies for our company as a whole and/or for
particular specialist stocks. In addition, a member of our floor management
committee is always available on the trading floor to review and assist with any
unusual situations reported by a captain. Our floor management committee reports
to our executive operating committee about each of these situations.
Floor Team Captains. We have ten floor team captains who monitor the
activities of our specialists throughout the trading day from various positions
at our trading posts. The captains observe trades and constantly review trading
positions in real-time through our information systems. In addition, the
captains are readily available to assist our specialists in determining when to
deviate from our policies and guidelines to react to any unusual situations or
market conditions. The captains must report these unusual situations to
management, including any deviations from our policies and guidelines. Captains
meet with each specialist at least once a week to evaluate the specialist's
adherence to our risk management policies and guidelines. Captains also meet
among themselves at least twice weekly to review risk policies and guidelines
and, if appropriate, make new recommendations to the floor management committee.
Specialists. Our specialists conduct auctions based upon the conditions of the
marketplace. In doing so, specialists should observe our risk management
policies and guidelines as much as practicable. Specialists must immediately
notify a captain of any unusual situations or market conditions requiring a
deviation from our policies and guidelines.
We rely heavily on our information systems in conducting our risk
management. Management members and captains must constantly monitor our
positions and transactions in order to mitigate our risks and identify
troublesome trends as they occur. We have invested substantial capital in
real-time, on-line systems which give management instant access to specific
trading information at any time during the trading day, including:
o our aggregate long and short positions;
o the various positions of any one of our trading professionals;
o our overall position in a particular stock;
o capital and profit-and-loss information on an aggregate, per
specialist or per issue basis; and
o average position size.
Circuit Breaker Rules. The NYSE has instituted certain circuit breaker rules
intended to halt trading in all NYSE-listed stocks in the event of a severe
market decline. The circuit breaker rules impose temporary halts in trading when
the Dow Jones Industrial Average drops a certain number of points. Circuit
breaker levels are set quarterly at 10, 20 and 30 percent of the Dow Jones
Industrial Average closing values of the previous month, rounded to the nearest
50 points.
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<PAGE>
Listed Company Services
We are committed to providing our listed companies with a high level of
service, in addition to our specialist functions on the trading floor. We have a
Corporate Relations Department, consisting of seven full-time employees and one
independent consultant devoted to serving our listed companies. The most
important function of the Corporate Relations Department is to provide current
information to the listed companies. Upon request, our Corporate Relations
Department provides our listed companies with the following reports:
o daily reports on the trading results of their stock;
o real-time data regarding intra-day trading activity in their stock;
and
o weekly, monthly and yearly reports which analyze short and long term
trading trends in their stock.
In addition to providing trading information, we help to educate our
listed companies on general market trends. We organize annual educational
conferences that review trends in the securities industry and NYSE trading. We
also publish for and distribute to our listed companies a periodic newsletter
that reviews market trends. Finally, we survey our specialist companies annually
on the quality of our services, and use the information obtained in these
surveys to continually improve our services.
NYSE Memberships
NYSE memberships are granted only to individuals, and each individual
specialist must own or lease a NYSE membership. As of December 31, 1999, we had
48 specialists. As of March 24, 2000, we had 73 specialists, each of whom owned
or leased a membership under the following arrangements:
o 10 memberships were owned directly by 10 of our specialists;
o 26 were owned by specialists and financed by LaBranche & Co.; and
o 37 were leased by 35 of our specialists from other individual
members, and we pay and guarantee the lease payments.
Our Information and Communications Systems and the NYSE's Super-DOT System
As a self-clearing broker-dealer, we have made significant investments in
our trade processing systems. Our use of and dependence on technology have
allowed us to maintain our significant growth over the past several years. In
addition to using consultants who primarily service the specialist industry, we
have an in-house information technology staff. We currently clear an average of
approximately 60,000 principal trades per day. We have continued the clearing
operations of Henderson Brothers, which included limited clearing of trades for
third parties. Our information systems send and receive data from the NYSE
through a dedicated data feed.
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Our systems enable us to monitor, on a real-time basis, our profits and
losses along with our trading positions. The NYSE supplies us with specialist
position reporting system terminals both on the trading floor and in our
offices. These terminals allow us to monitor our trading profits and losses as
well as our positions. We have also developed software that allows us to monitor
these items in the event that the NYSE-provided systems fail.
We have a back-up disaster recovery center in Hoboken, NJ. The back-up
system operates as a mirror image of our primary computer system in New York
City as we have a direct connection between the two sites which we utilize to
back-up all data on an hourly basis. On a regular basis, we test both systems to
assure that they are fully operational.
In executing trades on the NYSE, we receive electronic orders from the
Super-DOT system, an order routing system operated by the NYSE. The Super-DOT
System is designed to handle individual orders of up to 100,000 shares and is
essentially an electronic broker. Orders that originate through the Super-DOT
system are routed directly to us through our computer system at the NYSE. When
we receive an order from the Super-DOT system, we conduct the same auction
process and we are subject to the same obligations as with any other order.
Our information technology staff has developed software which enables our
corporate relations staff and our specialists to share information with each
other regarding upcoming company and industry conferences. In addition, we
monitor each of our specialist stocks intra-day to see if there are any
significant price and/or volume variances of which we should alert the listed
company. This has proven to be a valuable customer service tool.
Our Proprietary Trading
In 1995, we initiated a proprietary trading program, seeking to leverage
our trading and market experience. Our strategy is short-term oriented, and most
of our positions are intra-day and not held overnight. Four of our traders focus
primarily on stocks listed on the NYSE. A fifth trader focuses entirely on
listed futures and options on both United States Treasury obligations and
Eurodollars. In 1999, we derived 3.3% of our revenues from our proprietary
trading. Our proprietary trading desk utilizes a Windows NT based trade
reporting system which captures all trades executed by the trading desk and
marks all positions to market. We are not permitted to trade in stocks for which
we act as specialist.
We have taken the following actions to manage the risks associated with
our proprietary trading:
o for 2000, we have limited our capital commitment for our proprietary
trading to an aggregate maximum of $19.5 million intra-day and
overnight positions of up to $12.0 million per day;
o each of our proprietary traders have specific trading limits, which
may not be exceeded without the approval of executive management.
Our most experienced trader may invest up to $12.0 million per day
and may hold overnight positions up to $7.5 million. Each of our
other traders have daily investment limits of $5.0 million or less
and overnight investment limits of $3.0 million or less, depending
on their experience;
o the positions of our futures and options traders are monitored by an
in-house model that
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measures potential intra-day risk as well as actual dollar exposure; and
o one of our managing directors oversees all of our proprietary
trading and has the authority to instruct the proprietary trading
desk to liquidate positions or otherwise reduce risk. He reports
directly to Michael LaBranche, our Chairman, Chief Executive Officer
and President.
Specialist Companies
As of December 31, 1999, we acted as specialist for 271 common stocks
listed on the NYSE. As of March 24, 2000, subsequent to our recent acquisitions,
we acted as specialist for 413 common stock listings. Our listed companies
operate in a variety of industries including financial services, media, oil and
gas, retail, technology and telecommunications. They ranged in market
capitalization from some of the smallest on the NYSE to some of its largest and
well-known corporations. We also represented 42 foreign listings on the NYSE as
of December 31, 1999 and 54 foreign listings as of March 24, 2000. The following
is a list of our top 50 listed companies in terms of market capitalization as of
March 24, 2000 in order of their respective global market capitalization (read
in descending order from top to bottom, left to right):
ExxonMobil Corporation Cable & Wireless PLC
Nokia Corp. Ford Motor Company
Lucent Technologies Inc. Compaq Computer Corporation
AT&T Corp. Schlumberger Limited
Toyota Motor Corp. Gap, Inc. (The)
SBC Communications Inc. First Union Corp.
Merck & Co., Inc Minnesota Mining & Manufacturing Company
Morgan Stanley Dean Witter & Co. Qwest Communications International
Glaxo Wellcome plc U.S. West Inc.
HSBC Holdings plc ABN Amro Holding N.V.
TOTAL Fina S.A. Freddie Mac
Tyco International Ltd. News Corp. Ltd.
Taiwan Semiconductor Cable & Wireless Communications, PLC
Manufacturing Company Ltd. Atlantic Richfield Co
SmithKline Beecham plc Clear Channel Communications
Berkshire Hathaway Inc. Diageo PLC
American Express Firstar Corporation
Medtronic, Inc. JP Morgan & Co.
Koninklijke Philips Electronics N.V. San Paolo IMI S.p.A
Philips Electronics Lowes Companies, Inc.
Chevron Corporation Equant NV
Enel S.p.A National Australia Bank, Ltd.
Schering-Plough Corp. First Data Corp.
ING Groep N.V. Suntrust Banks, Inc.
MediaOne Group, Inc. Household International Inc.
Agilent Technologies Inc. News Corporation
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<PAGE>
Marketing
It is a priority for our management to proactively identify potential
listing companies before the allocation process begins. We contact these
companies and commence our marketing efforts upon determining that they are
considering listing on the NYSE. Our marketing efforts typically consist of
members of our management group visiting with the companies that are considering
listing on the NYSE and describing our services. We also provide written
literature describing our operations, our listed companies, our 75-year history
as a specialist firm and our industry in general.
Regulatory Matters
General
The securities industry in the United States, including all
broker-dealers, is subject to extensive regulation under both federal and state
laws. In addition, the SEC and the NYSE require strict compliance with their
rules and regulations. As a matter of public policy, regulatory bodies are
charged with safeguarding the integrity of the securities and other financial
markets and with protecting the interests of investors participating in those
markets.
As a broker-dealer, we are subject to regulations concerning operational
and financial aspects of our business. We are subject to extensive registration
requirements with various government entities and self-regulatory organizations,
commonly referred to as SROs, with which we must comply before we can conduct
our business. We are also subject to laws, rules and regulations forcing us to
comply with financial reporting requirements, trade practices, capital structure
requirements, and record retention requirements governing the conduct of our
directors, officers and employees. Failure to comply with any of these laws,
rules or regulations could result in censure, fine, the issuance of
cease-and-desist orders or the suspension or disqualification of our directors,
officers or employees, and other adverse consequences, which could have an
adverse effect on our business.
As a NYSE specialist firm, we are under constant review by the NYSE on all
aspects of our operations and financial condition. As part of the price
discovery mechanism implemented by the NYSE, every specialist transaction is
published immediately on the tape and is broadcast worldwide. The NYSE also
employs sophisticated monitoring and stringent rules approved by the SEC. The
NYSE's Market Surveillance Division examines specialists' trading in all stocks,
every trading day, including specialists' decisions to trade or to not trade as
principal.
Capital Requirements
As a broker-dealer, we are subject to SEC Rule 15c3-1, which requires
minimum net regulatory capital. We are required to maintain minimum net capital,
as defined, equivalent to the greater of $100,000 or 1/15 of our aggregate
indebtedness, as defined. At December 31, 1999, our net capital, as defined by
this rule, was approximately $161.4 million and exceeded minimum requirements by
approximately $159.9 million.
The NYSE also requires members registered as specialists to maintain a
minimum regulatory capital dollar amount to establish that they can meet, with
their own net liquid assets, their position requirement. During November 1999,
subject to SEC approval, the NYSE approved changes to Rule 104, its minimum
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net liquid asset requirements. These changes required specialist units that
currently exceed five percent in any of the NYSE's four concentration measures
to maintain minimum net liquid assets based upon the securities for which they
act as the specialist. The requirements state that the net liquid assets must be
equivalent to $4.0 million for each stock in the Dow Jones Industrial Average,
$2.0 million for each stock in the S&P 100 Stock Price Index, excluding stocks
included in the previous classification, $1.0 million for each stock in the S&P
500 Stock Price Index, excluding stocks included in the previous classification,
$500,00 for each common stock, excluding bond funds and stocks included in the
previous classifications, and $100,000 for each stock not included in any of the
above classifications. In addition, the NYSE has proposed to require any new
specialist entities that result from a merger, acquisition, consolidation or
other combination of specialist assets to maintain net liquid assets equivalent
to the greater of either (1) the aggregate net liquid assets of the specialist
entities prior to their combination or (2) the new capital requirements
prescribed under Rule 104. After the completion of our recent acquisitions of
Henderson Brothers and Webco, the net liquid asset requirement for our combined
entity is $284.3 million, which represents the combined net liquid assets of the
three firms. "Net liquid assets" for a specialist firm that also engages in
transactions other than specialist activities is based upon its excess net
capital as determined in accordance with SEC Rule 15c3-1. As of December 31,
1999, our NYSE minimum required dollar amount of net liquid assets was $93.6
million compared to actual net liquid assets of approximately $175.9 million.
Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.
Competition
We obtain each of our new listings on the NYSE by participating in an
allocation process. As part of this process, either the allocation committee of
the NYSE or the listing company chooses the specialist firm. We compete with
other specialist firms based on a number of factors, including:
o the strength of our capital base;
o our willingness to commit our own capital and trade for our own
account while conducting our specialist operations; and
o the ancillary services we offer our specialist companies, such as
providing information on the trading activities in their stocks.
The following is a list of the top ten specialist units as of December 31,
1999, based on their number of common stock listings:
o Spear, Leeds & Kellogg
o LaBranche & Co.
o Fleet Specialists, Inc.
o Wagner, Stott, Mercator LLC
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o Van Der Moolen Specialists USA, LLC
o Robb Peck McCooey Specialist Corp.
o Bear/Hunter Specialists, LLC
o MJ Meehan & Co., LLC
o Susquehanna Specialists, Inc.
o Jacobson (Benjamin) & Sons, LLC
The competition for obtaining new listed companies is intense. We expect
competition to continue and intensify in the future. Some of our competitors may
have significantly greater financial resources than we have and may also have
greater name recognition. These competitors may be able to respond more quickly
to new or evolving opportunities and listed company requirements. They may also
be able to undertake more extensive promotional activities to attract new
listing companies. In addition, the specialist industry has recently been
consolidating. The combined companies resulting from the consolidation may have
a stronger capital position. This trend has intensified the competition in our
industry. We cannot be sure that we will be able to compete effectively with our
current or future competitors. We also cannot be sure that the competitive
pressures we face will not have an adverse effect on our business, financial
condition and/or operating results.
NYSE-listed stocks may be traded:
o by NYSE members over-the-counter; and
o by non-NYSE members over-the-counter.
Technological advances have also contributed to the recent emergence of
trading through alternative trading systems, such as electronic communication
networks and crossing systems. In April 1999, the SEC ruled that alternative
trading systems can apply and, in specified cases, are required to register as
stock exchanges, subject to regulation as a stock exchange. This would enable
NYSE members to trade all NYSE-listed stocks on these networks, regardless of
when the stocks were originally listed. These networks may be developed,
organized and operated by large brokerage houses and investment banks with
greater capital, better access to technology and direct access to investors. As
a result, these parties may be well-positioned to direct trading to these
networks. These alternative trading systems may adversely affect the trading of
NYSE-listed stock through specialists on the NYSE. That, in turn, would have an
adverse effect on our business.
The NYSE faces competition from Nasdaq for new listings. Nasdaq continues
to grow and gain in popularity, attracting companies which might otherwise have
listed on the NYSE. In recent years in particular, many high technology
companies have opted to be quoted on Nasdaq, even though many of them would have
qualified for NYSE listing. If more companies decide to be quoted on Nasdaq as
opposed to listing their stocks on the NYSE, trading volume on the NYSE could be
adversely affected.
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Employees
As of December 31, 1999, we had 166 full-time employees, including 34
managing directors. As of March 24, 2000 we have 259 full-time employees,
including 46 managing directors with:
o 73 specialists, including managing directors;
o 6 traders in our proprietary trading department;
o 143 trading assistants;
o 7 Corporate Relations Department employees; and
o 30 management, administration and finance staff, including 2
managing directors.
Our employees are not covered by a collective bargaining agreement. We
have never experienced an employment-related work stoppage. We consider our
employee relations to be good.
Item 2. PROPERTIES.
Our offices are located at One Exchange Plaza, New York, New York. We
lease approximately 43,000 square feet under three separate leases, expiring in
October 2001, December 2002 and January 2008. In addition, we lease three
trading posts on the floor of the NYSE. We believe that our current leased space
is suitable and adequate for the operation of our business as presently
conducted and as contemplated to be conducted in the immediate future.
Item 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceeding.
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 of our fiscal year ended December 31, 1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
18
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Market Information and Holders
Our common stock is quoted on the NYSE under the symbol "LAB." The
following table sets forth the range of high and low sales prices for our common
stock on the NYSE for the periods indicated since our initial public offering in
August 19, 1999:
Fiscal 1999 High Low
----------- ---- ---
Third Quarter
(August 19, 1999 to September 30, 1999) $14.8750 $11.1250
Fourth Quarter
(October 1, 1999 to December 31, 1999) $13.5000 $9.0625
Fiscal 2000
-----------
First Quarter
(January 1, 2000 to March 24, 2000) $15.7500 $11.2500
As of March 24, 2000, we had 116 stockholders of record of our common
stock and an estimated 1,800 beneficial owners. The closing sale price of our
common stock on March 24, 2000 was $14.00 per share.
Dividend Policy
We have never paid cash dividends. We do not expect to declare or pay any
dividends on our common stock in the foreseeable future, but instead intend to
retain all earnings, if any, to invest in our operations. The payment of future
dividends is within the discretion of our board of directors and will depend
upon our future earnings, if any, our capital requirements, financial condition
and other relevant factors.
Recent Sales of Unregistered Securities
In August 1999, concurrently with our initial public offering, we effected
the reorganization of our firm from partnership to corporate form. In connection
with this reorganization, we issued an aggregate of 35,375,000 shares of our
common stock to a majority of the limited partners of LaBranche & Co., a limited
partnership and our principal operating subsidiary, and the members of LaB
Investing Co. L.L.C., the general partner of LaBranche & Co., as partial
consideration in exchange for their limited partnership interests in LaBranche &
Co. and their membership interests in LaB Investing Co. L.L.C., respectively.
Our issuance of these securities was not registered under the Securities Act of
1933, as amended (the "Securities Act"), because these securities were offered
and sold in transactions exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act.
Immediately prior to our initial public offering, we awarded options to
purchase our common stock and restricted stock units to various directors,
officers and other employees and will continue to do so from time to time. The
issuance of these employee awards has not been and will not be registered under
the Securities Act because these awards will not involve an offer or sale for
purposes of Section 2(a)(3) of the Securities Act.
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data set forth below for the years
ended December 31, 1997, 1998 and 1999 and as of December 31, 1998 and 1999 have
been derived from our consolidated financial statements, which have been audited
by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this filing. The selected consolidated financial data set forth
below for the years ended December 31, 1995 and 1996 and as of December 31,
1995, 1996 and 1997 have been derived from our consolidated financial
statements, audited by Arthur Andersen LLP, independent public accountants,
which are not included elsewhere in this filing. The selected consolidated
financial data set forth below should be read in conjunction with the
consolidated financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Net gain on principal transactions .................... $150,971 $ 95,048 $ 47,817 $ 37,113 $ 26,290
Commissions ........................................... 37,222 26,576 15,186 10,180 7,736
Other ................................................. 12,844 4,787 4,637 2,643 3,147
-------- -------- -------- -------- --------
Total revenues ........................................ 201,037 126,411 67,640 49,936 37,173
-------- -------- -------- -------- --------
Expenses:
Employee compensation and benefits .................... 34,268 13,921 8,408 11,098 5,817
Lease of exchange memberships ......................... 8,416 6,568 3,727 2,468 2,113
Interest .............................................. 8,286 3,577 1,566 331 116
Amortization of intangibles ........................... 4,623 2,526 737 -- --
Exchange, clearing and brokerage fees ................. 3,709 2,898 2,042 1,514 1,557
Legal and professional fees ........................... 1,622 916 620 170 194
Occupancy ............................................. 1,411 1,121 465 435 156
Communications ........................................ 1,193 964 709 495 367
Other ................................................. 3,041 2,285 1,634 642 599
-------- -------- -------- -------- --------
Total expenses before managing directors'
compensation, limited partners' interest in earnings
of subsidiary and provision for income taxes ......... 66,569 34,776 19,908 17,153 10,919
-------- -------- -------- -------- --------
Income before managing directors' compensation, limited
partners' interest in earnings of subsidiary and
provision for income taxes ........................... 134,468 91,635 47,732 32,783 26,254
Managing directors' compensation ...................... 56,191 58,783 30,008 23,235 16,895
-------- -------- -------- -------- --------
Income before limited partners' interest in earnings of
subsidiary and provision for income taxes ............ 78,277 32,852 17,724 9,548 9,359
Limited partners' interest in earnings of subsidiary .. 25,344 26,292 14,354 9,638 7,046
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes ....... 52,933 6,560 3,370 (90) 2,313
Provision for income taxes ............................ 23,899 3,900 1,881 1,602 1,179
-------- -------- -------- -------- --------
Net income (loss) ..................................... $ 29,034 $ 2,660 $ 1,489 $ (1,692) $ 1,134
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
As of December 31,
------------------
1999 1998 1997 1996 1995
BALANCE SHEET DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Cash and short term investments ........ $109,196 $ 25,822 $ 17,989 $ 16,479 $ 8,971
Working capital ........................ 229,119 104,250 62,562 27,694 32,855
Total assets ........................... 505,125 272,201 157,754 78,918 65,177
Total long-term indebtedness (1) ....... 162,330 48,073 31,423 2,919 1,150
Members' capital/stockholders' equity... 251,972 77,093 37,658 13,735 18,270
</TABLE>
(1) Excludes subordinated liabilities related to contributed exchange
memberships.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
You should read the following discussion of our financial condition and
results of operations together with the financial statements and the notes to
such statements included elsewhere in this filing. This discussion contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections about us and our industry. These forward-looking
statements involve risks and uncertainties including, but not limited to those
discussed in "Risk Factors" attached hereto as Exhibit 99.1. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors. We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
Overview
Founded in 1924, our specialist LaBranche & Co. is one of the oldest and
largest specialist firms on the New York Stock Exchange, Inc. Our business has
grown considerably during the past five years. We have accomplished this growth
both internally and through selective acquisitions. Our revenues increased from
$37.2 million in 1995 to $201.0 million in 1999, representing a compound annual
growth rate of 52.6%. During the same period, we increased the number of our
common stock listings from 125 to 271.
Revenues
Our revenues consist primarily of net gains earned from principal
transactions in securities for which we act as specialist, and commissions
revenue earned from specialist activities. Net gain on principal transactions
represents trading gains net of trading losses and transaction fees, and are
earned by us when we act as principal buying and selling our specialist stocks.
These revenues are primarily affected by changes in share volume and
fluctuations in price in our specialist stocks. Share volume for our specialist
stocks has historically been driven by general trends in NYSE trading volume, as
well as factors particularly affecting our listed companies, including increased
merger and acquisition activity, stock splits, greater frequency of company news
releases (i.e., earnings guidance and reports), heightened research analyst
coverage and investor sentiment. Commissions revenue consists of commissions we
earn when acting as agent to match buyers and sellers for limit orders executed
by us on behalf of brokers after a specified period of time; we do not earn
commissions when we match market orders. Commissions revenue is primarily
affected by share volume of the trades executed by us as agent. Other revenue
consists of proprietary trading revenue, an investment in a hedge fund and
short-term interest income. In 1999, net gain on principal transactions
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represented 75.1% of our total revenues, commissions revenue represented 18.5%
of our total revenues, and other revenue represented 6.4% of our total revenues.
Expenses
Our largest operating expense is compensation and benefits. Employee
compensation and benefits primarily consist of salaries and wages and
profitability-based compensation. Profitability-based compensation includes
compensation and benefits paid to managing directors, trading professionals and
other employees based on our profitability and the employee's overall
performance.
Prior to our reorganization from partnership to corporate form, a large
portion of the compensation payments to our managing directors had not been
presented as part of operating expenses. The aggregate amount of these
compensation payments generally approximated LaB Investing Co. L.L.C.'s interest
in the income of LaBranche & Co., before managing directors' compensation.
Generally, these payments of compensation were allocated among our managing
directors based on their respective percentage interests in the profits of LaB
Investing Co. L.L.C. Subsequent to the reorganization transactions, we include
payments to managing directors in employee compensation and benefits expense.
Therefore, historical income before managing directors' compensation, limited
partnership interest in earnings of subsidiary and provision for income taxes
understates our operating costs.
Reorganization Transactions
On August 24, 1999, we reorganized from partnership to corporate form.
Prior to the reorganization, we operated as LaBranche & Co., a limited
partnership and LaB Investing Co. L.L.C., a limited liability company and the
general partner of LaBranche & Co. As part of the reorganization, we redeemed
limited partnership interests in LaBranche & Co. and redeemed or purchased all
membership interests in LaB Investing Co. L.L.C. in exchange for a combination
of cash, indebtedness and common stock of LaBranche & Co Inc. The redemption of
the limited partnership interests was accounted for as a step acquisition under
the purchase method of accounting. The excess of purchase price over the limited
partners' capital accounts of $127.4 million was allocated to intangible assets.
Following the reorganization, LaBranche & Co Inc. is a holding corporation whose
assets consist primarily of our ownership interests in LaBranche & Co. and LaB
Investing Co. L.L.C.
Simultaneously with the reorganization, we completed an initial public
offering of 10,500,000 shares of our common stock at a price of $14.00 per
share. In addition, we incurred indebtedness of approximately $100.0 million
through our Senior Note offering and $16.0 million through the issuance of other
senior indebtedness. In addition, LaBranche & Co. incurred $350,000 of
subordinated indebtedness. As a result of this increased indebtedness, our
interest expense following the reorganization transactions has been higher than
historical levels.
Income Taxes
As a partnership, we were generally not subject to U.S. federal, state and
local income taxes, apart from the 4% New York City unincorporated business tax.
As part of our restructuring to a corporation, we are subject to U.S. federal,
state and local income taxes.
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Completed Acquisitions
In the third quarter of 1998, we acquired substantially all the assets of
Fowler, Rosenau & Geary, LLC (or "Fowler, Rosenau"). The acquisition was
accounted for under the purchase method and the excess of cost over estimated
fair value of the net assets acquired, totaling $25.8 million, was allocated to
goodwill. The results of the specialist operations formerly conducted by Fowler,
Rosenau have been included in our consolidated financial statements since July
1, 1998.
In August 1997, we admitted Ernst & Company (or "Ernst") as a limited
partner in connection with our acquisition of the joint specialist operations of
Ernst, Homans & Co. (or "Homans") and Ware & Keelips, Inc. (or "Ware &
Keelips"). In connection with these transactions, we also hired as specialists
and admitted as members of LaB Investing Co. L.L.C. several individuals who had
previously worked as specialists for Ernst, Homans and Ware & Keelips. These
transactions were accounted for under the purchase method and the excess of cost
over estimated fair value of the net assets acquired, totaling $17.2 million,
was allocated to goodwill. The results of these specialist operations have been
included in our consolidated financial statements since August 1, 1997.
In July 1997, Thomas Shanley, James Stack and Mark Soltz, formerly
specialists on behalf of Stern Bros., LLC (or "Stern"), were admitted as members
of LaB Investing Co. L.L.C. In connection with their admission, Messrs. Shanley,
Stack and Soltz contributed capital to LaB Investing Co. L.L.C. which was, in
turn, contributed to LaBranche & Co. This transaction was accounted for under
the purchase method and the excess of cost over estimated fair value of the net
assets acquired, totaling $7.8 million, was allocated to goodwill. The results
of these specialist operations have been included in our consolidated financial
statements since July 1, 1997.
Acquisitions Subsequent to Year End
In March 2000, we completed the acquisition of Henderson Brothers in which
we acquired all their outstanding capital stock for approximately $230 million
in cash. In addition, we acquired Webco, through a merger where we were the sole
survivor. Under the terms of the agreement, we acquired Webco for 2.8 million
shares of our common stock, $10.9 million in cash and senior promissory notes in
the aggregate principal amount of $3.0 million, each bearing an interest rate of
10.0% per annum. These acquisitions were accounted for under the purchase method
and the excess of cost over estimated fair value of the net assets acquired,
currently estimated to be $199.4 million for Henderson Brothers and $27.6
million for Webco, will be allocated to intangible assets. The results of
specialist operations of each of the acquired companies will be included in our
consolidated financial statements beginning on the date of completion of the
applicable acquisition.
Following the discussion of our historical results of operations, we have
provided a discussion of the results of operations for 1999 compared to 1998 on
a pro forma basis giving effect to certain transactions.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues
23
<PAGE>
Total revenues increased 59.0% to $201.0 million for 1999, from $126.4
million for 1998, principally due to the increase in revenue from net gain on
principal transactions. Net gain on principal transactions increased 58.9% to
$151.0 million for 1999, from $95.0 million for 1998. This increase was
primarily due to an increase in share volume for our specialist stocks traded on
the NYSE. This increase, in turn, was primarily due to the Fowler, Rosenau
acquisition on July 1, 1998 under which we became the specialist for 76
additional common stock listings, and to increased share volume as principal in
our existing specialist stocks traded on the NYSE. Our share volume as principal
increased 62.7% to 9.6 billion shares for 1999, from 5.9 billion shares for
1998.
Commissions revenue increased 39.8% to $37.2 million for 1999 from $26.6
million for 1998. This increase was due to an increase in share volume in which
we acted as agent. This increase, in turn, was primarily due to the increase in
the number of our common stock listings as a result of the Fowler, Rosenau
acquisition on July 1, 1998 and to increased share volume in our existing
specialist stocks traded on the NYSE. The share volume executed by us as agent
in our specialist stocks increased 41.4% to 4.1 billion shares for 1999, from
2.9 billion shares for 1998.
Other revenue increased 166.7% to $12.8 million for 1999, from $4.8
million for 1998. This increase was primarily due to net gains in proprietary
trading of non-specialist securities and realized gains from a limited
partnership investment in a hedge fund.
Expenses
Total expenses before managing directors' compensation and limited
partners' interest in earnings of subsidiary and provision for income taxes
increased 91.4% to $66.6 million for 1999, from $34.8 million for 1998.
Employee compensation and related benefits increased 146.8% to $34.3
million for 1999, from $13.9 million for 1998. This increase was due to the
Fowler, Rosenau acquisition on July 1, 1998, which resulted in our employment of
36 additional individuals, and to the inclusion of managing director salary,
incentive-based bonus and related benefits in employee compensation from the
date of our reorganization in August 1999. As a percentage of total revenues,
employee compensation increased to 17.0% of total revenues for 1999, from 11.0%
of total revenues for 1998.
Lease of exchange memberships expense increased 27.3% to $8.4 million for
1999, from $6.6 million for 1998. This increase was due to the increase in the
number of leased memberships from 44 to 48, primarily as a result of the hiring
of additional specialists and to an increase in the average annual leasing cost
of the memberships from approximately $180,000 to $192,000 per membership. As a
percentage of total revenues, lease of exchange memberships expense decreased to
4.2% for 1999, from 5.2% for 1998.
Interest expense increased 130.6% to $8.3 million for 1999, from $3.6
million for 1998. This increase was primarily due to the issuance of $116.4
million of indebtedness which began accruing interest from August 24, 1999.
Amortization of intangibles increased 84.0% to $4.6 million for 1999, from
$2.5 million for 1998. Amortization of intangibles increased as a result of the
Fowler, Rosenau acquisition, as well as the $127.4 million of intangible assets
recorded as a result of our acquisition of all of the limited partnership
interests in
24
<PAGE>
LaBranche & Co. in connection with our reorganization transactions.
Exchange, clearing and brokerage fees consist primarily of fees paid by us
as a specialist to the NYSE and to clearing houses. Fees paid by us to the NYSE
include primarily fees based on the volume of transactions executed as principal
and as agent, as well as a flat annual fee. Exchange, clearing and brokerage
fees expense increased 27.6% to $3.7 million for 1999, from $2.9 million for
1998. This increase was primarily attributable to an increase in share volume.
Legal and professional fees increased 74.7% to $1.6 million for 1999, from
$916,000 for 1998. This increase was primarily the result of increased legal and
accounting fees due to our reorganization transactions.
Occupancy expense increased 27.3% to $1.4 million for 1999, from $1.1
million for 1998. This increase was primarily the result of the leasing of
additional office space.
Communications expense increased 20.0% to $1.2 million for 1999, from $1.0
million for 1998. This increase was primarily the result of additional
telephone, data retrieval and informational services utilized due to the growth
of our business.
Other expenses increased 30.4% to $3.0 million for 1999, from $2.3 million
for 1998. The increase was primarily due to an increase in advertising and
promotional expenses.
Income before managing directors' compensation and limited partners'
interest in earnings of subsidiary and provision for income taxes increased
46.8% to $134.5 million for 1999, from $91.6 million for 1998.
Managing directors' compensation decreased 4.4% to $56.2 million for 1999,
from $58.8 million for 1998 as a result of the inclusion of managing director
salary, incentive-based bonus and related benefits in employee compensation from
the date of our reorganization transactions.
Limited partners' interest in earnings of subsidiary decreased 3.8% to
$25.3 million for 1999, from $26.3 million for 1998 as a result of our
reorganization, at which time we acquired all of the limited partnership
interests in LaBranche & Co.
Provision for income taxes increased 512.8% to $23.9 million for 1999,
from $3.9 million for 1998 as a result of an increase in our profitability and
the federal, state and local income taxes to which we are subject as a result of
our reorganization from partnership to corporate form.
Summary Pro Forma Consolidated Financial Data
The following information compares our operating results for the years
ended December 31, 1999 and 1998 on both a historical basis and a pro forma
basis, assuming our acquisition of Fowler, Rosenau had occurred on January 1,
1998, instead of July 1, 1998, and assuming our reorganization from partnership
to corporate form and the related transactions had occurred as of January 1,
1998. This pro forma information does not give effect to our acquisitions of
Henderson Brothers and Webco in March 2000. The following pro forma consolidated
financial information has been prepared by our management
25
<PAGE>
and is not necessarily indicative of the results that would have been achieved
had the above described transactions occurred on the dates indicated or that may
be achieved in the future.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
---------------------------- ----------------------------
Historical Pro Forma Historical Pro Forma (A)
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net gain on principal transactions ...................... $150,971 $150,971 $ 95,048 $ 98,736
Commissions ............................................. 37,222 37,222 26,576 33,963
Other ................................................... 12,844 12,844 4,787 5,151
-------- -------- -------- --------
Total revenues ..................... 201,037 201,037 126,411 137,850
-------- -------- -------- --------
Expenses:
Employee compensation and benefits ...................... 34,268 59,482 (B) 13,921 40,445 (B)
Lease of exchange memberships ........................... 8,416 8,416 6,568 7,064
Interest ................................................ 8,286 15,144 (C) 3,577 14,535 (C)
Amortization of intangibles ............................. 4,623 6,866 (D) 2,256 6,863 (D)
Exchange, clearing and brokerage fees ................... 3,709 3,709 2,898 3,233
Other operating expenses ................................ 7,267 7,267 5,286 6,281
-------- -------- -------- --------
Total operating expenses ........... 66,569 100,884 34,776 78,421
-------- -------- -------- --------
Income before managing directors' compensation,
limited partners interest in earnings of subsidiary and
provision for income taxes ............................ 134,468 100,153 91,635 59,429
Managing directors' compensation ........................ 56,191 -- (E) 58,783 -- (E)
-------- -------- -------- --------
Income before limited partners' interest in earnings of
subsidiary and provision for income taxes ............. 78,277 100,153 32,852 59,429
Limited partners' interest in earnings of subsidiary .... 25,344 -- (F) 26,292 -- (F)
-------- -------- -------- --------
Income before provision for income taxes ................ 52,933 100,153 6,560 59,429
Provision for income taxes .............................. 23,899 46,165 (G) 3,900 27,638 (G)
-------- -------- -------- --------
Net income .............................................. $ 29,034 $ 53,988 $ 2,660 $ 31,791
-------- -------- -------- --------
EBITDA (H) .............................................. $ 91,911 $122,888 $ 12,914 $ 81,321
======== ======== ======== ========
</TABLE>
26
<PAGE>
Notes to Statement of Operations Data
(A) Includes the pro forma pre-acquisition results of Fowler, Rosenau for the
six months ended June 30, 1998.
(B) Employee compensation and benefits was adjusted to reflect managing
directors' compensation based on the revised compensation policies, which
were implemented at the time of the reorganization. Under this policy, a
compensation pool of up to 30% of pre-tax income is set aside for managing
directors. The pro forma compensation adjustment reflects managing
directors' compensation, which is comprised of an annual base salary of
approximately $8.5 million (34 managing directors at $250,000), and the
remaining balance as bonus. The pro forma adjustment also includes
compensation expenses related to employee restricted stock awards of $14.8
million which vest over five years and result in an annual expense of
approximately $3.0 million. The pro forma adjustment does not include any
other compensation expenses related to employees who are not managing
directors.
(C) Reflects pro forma repayment of $5.0 million of subordinated liabilities
owed to a limited partner and reverses the related interest expense.
Reflects the issuance of Senior Notes of $100.0 million, the issuance of a
$16.0 million note and $350,000 of subordinated indebtedness and the
related interest expense.
(D) Reflects amortization of intangibles related to redemption of limited
partners' interests and the Fowler, Rosenau acquisition for a full year of
1998.
(E) Managing directors' compensation was adjusted to reverse the actual
amounts previously recorded.
(F) Reflects reversal of limited partners' interest in earnings of subsidiary.
(G) Reflects federal, state and local income taxes at estimated corporate tax
rates.
(H) EBITDA means net income (loss) before interest expense, taxes,
depreciation and amortization. EBITDA is not a generally accepted
accounting principles measure and may not be comparable to similarly
titled items of other companies. You should not consider EBITDA as an
alternative to net income (loss) or any other generally accepted
accounting principles measure of performance as an indicator of our
operating performance or as a measure of liquidity. EBITDA does not
represent funds available for management's discretionary use because
certain future cash expenditures are not reflected in the EBITDA
presentation. Some investors use these data as an indicator of a company's
ability to service debt.
Results of Operations on a Pro Forma Basis
Revenues
Total revenues increased 45.8% to $201.0 million for 1999, from $137.9
million for 1998, principally due to the increase in revenue from net gain on
principal transactions. Net gain on principal
27
<PAGE>
transactions increased 53.0% to $151.0 million for 1999, from $98.7 million for
1998. This increase was primarily due to an increase in share volume for our
specialist stocks traded on the NYSE. Our share volume as principal increased
62.7% to 9.6 billion shares for 1999, from 5.9 billion shares for 1998.
Commission revenue increased 9.4% to $37.2 million for 1999, from $34.0
million for 1998. This increase was due to an increase in share volume in which
we acted as agent and to increased share volume in our Specialist stocks traded
on the NYSE. The share volume executed by us as agent in our Specialist stocks
increased 41.4% to 4.1 billion shares for 1999, from 2.9 billion shares for
1998.
Other revenue increased 146.2% to $12.8 million for 1999, from $5.2
million for 1998. This increase was primarily due to net gains in proprietary
trading of non-specialist securities and realized gains from a limited
partnership investment in a hedge fund.
Expenses
Employee compensation and related benefits increased 47.3% to $59.5
million for 1999, from $40.4 million for 1998. This increase was due to our
increased profitability which, in turn, led to an increase in our managing
director incentive-based bonus pool as described in Note A above. As a
percentage of total revenues, employee compensation increased to 29.6% of total
revenues for 1999, from 29.3% of total revenues for 1998.
Interest expense increased 4.1% to $15.1 million for 1999, from $14.5
million for 1998. This increase was the result of additional interest on
increased subordinated debt borrowings. For both 1999 and 1998, pro forma
interest expense reflects the issuance of Senior Notes of $100.0 million, the
issuance of a $16.0 million note and $350,000 of subordinated indebtedness and
the related interest expense as described in Note B above.
Provision for income taxes increased 67.4% to $46.2 million for 1999, from
$27.6 million for 1998 as a result of an increase in our profitability.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A majority of our specialist related revenues are derived from trading by
us as principal. These activities involve primarily the purchase, sale or short
sale of securities for our own account. These activities are subject to a number
of risks, including risks of price fluctuations and rapid changes in the
liquidity of markets. In any period, we may incur trading losses in our
specialist stocks for a variety of reasons, including price declines of our
specialist stocks, lack of trading volume in our specialist stocks and the
performance of our specialist obligations. From time to time, we have large
position concentrations in securities of a single issuer or issuers engaged in a
specific industry. In general, because our inventory of securities is marked to
market on a daily basis, any downward price movement in these securities will
result in a reduction of our revenues and operating profits. We also operate a
proprietary trading desk separately from our NYSE specialist operations, which
represented 3.3% of our total revenues in 1999. We may incur trading losses as a
result of these trading activities.
We have developed a risk management process which is intended to balance
our ability to profit from our specialist activities with our exposure to
potential losses. In addition, we have trading limits
28
<PAGE>
relating to our proprietary trading desk.
Although we have adopted risk management policies, we cannot be sure that
these policies have been formulated properly to identify or limit our risks.
Even if these policies are formulated properly, we cannot be sure that we will
successfully implement these policies. As a result, we may not be able to manage
our risks successfully or avoid trading losses.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements and supplementary data required in
this item are set forth at the pages indicated in Item 14(a)(1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on accounting
and financial disclosure during the last two fiscal years.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.
The information set forth under the caption "Directors and Executive
Officers" in our definitive proxy statement to be used in connection with our
2000 Annual Meeting of Stockholders is incorporated by reference.
Item 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" in
our definitive proxy statement to be used in connection with our 2000 Annual
Meeting of Stockholders is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Beneficial Ownership of
Common Stock by Certain Stockholders and Management" in our definitive proxy
statement to be used in connection with our 2000 Annual Meeting of Stockholders
is incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
29
<PAGE>
The information set forth under the caption "Certain Relationships and
Related Transactions" in our definitive proxy statement to be used in connection
with our 2000 Annual Meeting of Stockholders is incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
(2) Financial Statement Schedules:
Schedules have been omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
(3) Exhibits:
The following exhibits are filed as part of this report or incorporated
herein by reference.
2.1 Plan of Incorporation of LaBranche & Co.*
2.2 Exchange Agreement by and among LaBranche & Co Inc., LaB Investing
Co., L.L.C. and the members of LaB Investing Co. L.L.C. listed on
Schedule A thereto.*
3.1 Amended and Restated Certificate of Incorporation of LaBranche & Co
Inc.*
3.2 Amended and Restated Bylaws of LaBranche & Co Inc.*
4.1 Specimen Stock Certificate.*
4.2 Indenture, dated as of August 24, 1999, among LaBranche & Co Inc.,
as issuer, and Firstar Bank, N.A., as trustee, relating to the 9
1/2% Senior Notes due 2004.**
4.3 Form of 9 1/2% Senior Notes due 2004 of LaBranche & Co Inc.
(included as Exhibit A to the Indenture filed as Exhibit 4.2).**
4.4 Registration Rights Agreement, dated as of August 24, 1999, by and
among LaBranche & Co Inc., as issuer, and Salomon Smith Barney Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation, as initial
purchasers.**
4.5 Indenture, dated as of March 2, 2000, among LaBranche & Co., as
issuer, and Firstar Bank, N.A., as trustee, relating to the 12%
Senior Subordinated Notes due 2007.
4.6 Form of 12% Senior Subordinated Notes due 2007 of LaBranche & Co
Inc. (included as Exhibit A to the Indenture filed as Exhibit 4.5).
4.7 Registration Rights Agreement, dated as of March 2, 2000, by and
among LaBranche & Co Inc., as issuer, and Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Smith Barney Inc. and ABN
AMRO Incorporated, as initial purchasers.
10.1 Agreement of Lease between Aetna Life Insurance Company and
LaBranche & Co.,
30
<PAGE>
dated January 6, 1984, as amended to date.*
10.2 Second Amendment to Lease Agreement by and between Bank of
Communications and LaBranche & Co. dated July 1995, as amended to
date.*
10.3 LaBranche & Co Inc. Equity Incentive Plan.*
10.4 LaBranche & Co Inc. Annual Incentive Plan.*
10.5 Form of Employment Letter between LaBranche & Co Inc. and its
executive officers.*
10.6 Form of Agreement Relating to Noncompetition and Other Covenants.*
10.7 Form of Pledge Agreement.*
10.8 Stockholders' Agreement by and among LaBranche & Co Inc. and the
Stockholders listed on Schedule I thereto.*
10.9 LaBranche & Co. Note Purchase Agreement, dated September 15, 1997,
relating to the issuance of $20,000,000 aggregate principal amount
of 8.17% Subordinated Notes, as amended.*
10.10 LaBranche & Co. Note Purchase Agreement, dated June 3, 1998,
relating to the issuance of $15,000,000 aggregate principal amount
of 7.69% Subordinated Notes.*
10.11 Amendment to Note Purchase Agreements, dated as of August 23, 1999,
relating to the issuance of $20,000,000 aggregate principal amount
of 8.17% Subordinated Notes and $15,000,000 aggregate principal
amount of 7.69% Subordinated Notes.**
10.12 Form of Subordinated Note.*
10.13 Credit Agreement, dated as of June 26, 1998, by and among LaBranche
& Co. and The Bank of New York.*
10.14 Amendment No. 1 to Credit Agreement, dated as of June 23, 1999, by
and among LaBranche & Co. and The Bank of New York.**
10.15 Amendment No. 2 to Credit Agreement, dated as of August 24, 1999,
by and among LaBranche & Co. and The Bank of New York.**
10.16 Amendment No. 3 to Credit Agreement, dated as of February 4, 2000,
by and among LaBranche & Co. and The Bank of New York.***
10.17 Form of Indemnification Agreement.*
10.18 Purchase Agreement, dated February 24, 2000, by and among LaBranche
& Co Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Smith Barney Inc. and ABN AMRO Incorporated, as initial
purchasers, relating to the issuance of $250,000,000 aggregate
principal amount of 12% Senior Subordinated Notes due 2007.
10.19 Amended and Restated Articles of Partnership of LaBranche & Co.**
10.20 LaB Investing Co., L.L.C. Amended and Restated Operating
Agreement.**
10.21 Acquisition Agreement, dated August 16, 1999, by and between Ernst
& Company and LaBranche & Co.**
10.22 Acquisition Agreement, dated August 16, 1999, by and between Mill
Bridge Inc., LaB Investing Co. L.L.C., LaBranche & Co Inc. and
LaBranche & Co.**
10.23 Stock Purchase Agreement, dated as of December 23, 1999, among
LaBranche & Co Inc., Henderson Brothers Holdings, Inc. and the
stockholders listed on Schedule A thereto.****
10.24 Amendment to Stock Purchase Agreement, dated as of February 1,
2000, by and among LaBranche & Co Inc., Henderson Brothers
Holdings, Inc., and the authorized representatives of the persons
listed on Schedule A thereto.****
21 List of Subsidiaries.
31
<PAGE>
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Risk Factors
- -----------
* Incorporated by reference to our Registration Statement on Form S-1
(Registration No. 333-81079), as amended, effective August 18, 1999.
** Incorporated by reference to our Registration Statement on Form S-4
(Registration No. 333-88119), as amended, effective November 3, 1999.
*** Incorporated by reference to our Current Report on Form 8-K, filed
February 8, 2000.
**** Incorporated by reference to our Current Report on Form 8-K, filed March
17, 2000.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
32
<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.
April 4, 2000 LaBRANCHE & CO INC.
By: /s/ George M.L. LaBranche, IV
-----------------------------------------------
George M.L. LaBranche, IV
Chairman, Chief Executive Officer and President
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
LaBRANCHE & CO INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants ........................... F-2
Consolidated Statements of Financial Condition
as of December 31, 1999 and 1998 ................................... F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1999, 1998 and 1997 ....................... F-5
Consolidated Statements of Changes in Stockholders'
Equity/Members' Capital for the Years Ended
December 31, 1999, 1998 and 1997 ................................... F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 ............................. F-7
Notes to Consolidated Financial Statements ......................... F-9
LaBRANCHE & CO INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
Condensed Statements of Financial Condition as of
December 31, 1999 and 1998 ......................................... F-20
Condensed Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997 ............................. F-21
Condensed Statements of Changes in Stockholders'
Equity/Members' Capital for the Years Ended
December 31, 1999, 1998 and 1997 ................................... F-22
Condensed Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 ............................. F-23
Note to Condensed Financial Statements ............................. F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
LaBranche & Co Inc. and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of LaBranche & Co Inc. and Subsidiaries (collectively, the "Company")
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity/members' capital and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements and the condensed financial statements referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of LaBranche & Co Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The parent company only condensed
financial statements appearing on pages F-20 through F-24 are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not part of the basic financial statements. Such statements have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
January 24, 2000
F-2
<PAGE>
LaBRANCHE & CO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(000's omitted, except share data)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS .................................... $ 83,774 $ 4,722
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL .............. 25,422 21,100
RECEIVABLE FROM BROKERS, DEALERS AND CLEARING ORGANIZATIONS .. 33,662 54,808
SECURITIES OWNED, at market value:
Corporate equities ......................................... 148,563 114,994
United States Government obligations ....................... 1,471 1,468
Other ...................................................... 2,515 1,360
COMMISSIONS RECEIVABLE ....................................... 3,835 3,009
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market value .... 20,700 12,250
EXCHANGE MEMBERSHIPS OWNED, at cost (market value
of $9,200 and $4,900, respectively) ........................ 6,300 6,300
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost,
less accumulated depreciation and amortization of
$1,250 and $729, respectively ............................... 1,355 1,647
INTANGIBLE ASSETS, net of accumulated amortization:
Specialist Stock List ...................................... 92,789 --
Trade Name ................................................. 26,340 --
Goodwill ................................................... 51,212 47,532
OTHER ASSETS ................................................. 7,187 3,011
-------- --------
Total assets ........................................ $505,125 $272,201
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL
LIABILITIES:
Payable to brokers and dealers ............................. $ 7,726 $ 3,892
Securities sold, but not yet purchased, at market value .... 36,900 67,896
Accrued compensation ....................................... 12,016 17,735
Accounts payable and other accrued expenses ................ 5,522 6,347
Other liabilities .......................................... 7,959 1,341
-------- --------
70,123 97,211
-------- --------
LONG TERM DEBT ............................................... 115,822 --
-------- --------
COMMITMENTS .................................................. -- --
SUBORDINATED LIABILITIES:
Exchange memberships, at market value ...................... 20,700 12,250
Other subordinated indebtedness ............................ 46,508 48,073
-------- --------
67,208 60,323
-------- --------
LIMITED PARTNERS' INTEREST IN SUBSIDIARY ..................... -- 37,574
-------- --------
STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL:
Preferred Stock ($.01 par value, 10,000,000 shares
authorized; none issued and outstanding) ................... -- --
Common stock (par value $.01 per share; 200,000,000 shares
authorized, 45,875,000 shares
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
issued and outstanding) .................................... 459 --
Additional paid-in-capital ................................. 228,771 --
Retained earnings .......................................... 22,742 --
-------- --------
Stockholders' equity/members' capital ...................... 251,972 77,093
-------- --------
Total liabilities and stockholders' equity/members' capital $505,125 $272,201
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
LaBRANCHE & CO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net gain on principal transactions ........................ $150,971 $ 95,048 $ 47,817
Commissions ............................................... 37,222 26,576 15,186
Other ..................................................... 12,844 4,787 4,637
-------- -------- --------
Total revenues .......................................... 201,037 126,411 67,640
-------- -------- --------
EXPENSES:
Employee compensation and benefits ........................ 34,268 13,921 8,108
Lease of exchange memberships ............................. 8,416 6,568 3,727
Interest .................................................. 8,286 3,577 1,566
Amortization of intangibles ............................... 4,623 2,526 737
Exchange, clearing and brokerage fees ..................... 3,709 2,898 2,042
Legal and professional fees ............................... 1,622 916 620
Occupancy ................................................. 1,411 1,121 465
Communications ............................................ 1,193 964 709
Other ..................................................... 3,041 2,285 1,934
-------- -------- --------
Total expenses before managing directors' compensation,
limited partners' interest in earnings of subsidiary and
provision for income taxes .............................. 66,569 34,776 19,908
-------- -------- --------
Income before managing directors' compensation, limited
partners' interest in earnings of subsidiary and provision
for income taxes ......................................... 134,468 91,635 47,732
MANAGING DIRECTORS' COMPENSATION .......................... 56,191 58,783 30,008
-------- -------- --------
Income before limited partners' interest in earnings of
subsidiary and provision for income taxes ................ 78,277 32,852 17,724
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY ...... 25,344 26,292 14,354
-------- -------- --------
Income before provision for income taxes .................. 52,933 6,560 3,370
PROVISION FOR INCOME TAXES ................................ 23,899 3,900 1,881
-------- -------- --------
Net income ................................................ $ 29,034 $ 2,660 $ 1,489
======== ======== ========
Weighted average shares outstanding ....................... 40,443 24,318 10,329
======== ======== ========
Basic and diluted earnings per share ...................... $ 0.72 $ 0.11 $ 0.14
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LaBRANCHE & CO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY/MEMBERS' CAPITAL
(000's omitted)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Retained Members'
Shares Amount Capital Earnings Capital Total
------ ------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ............. -- $ -- $ -- $ -- $ 13,735 $ 13,735
Net income ............................. -- -- -- -- 1,489 1,489
Contributions to capital ............... -- -- -- -- 28,574 28,574
Distributions of capital ............... -- -- -- -- (6,140) (6,140)
------ --------- --------- --------- --------- ---------
BALANCE, December 31, 1997 ............. -- -- -- -- 37,658 37,658
Net income ............................. -- -- -- -- 2,660 2,660
Contributions to capital ............... -- -- -- -- 66,563 66,563
Distributions of capital ............... -- -- -- -- (29,788) (29,788)
------ --------- --------- --------- --------- ---------
BALANCE, December 31, 1998 ............. -- -- -- -- 77,093 77,093
Net income through August 23, 1999 ..... -- -- -- -- 6,292 6,292
Contributions to capital ............... -- -- -- -- 18,096 18,096
Distributions of capital ............... -- -- -- -- (8,095) (8,095)
------ --------- --------- --------- --------- ---------
BALANCE, pre-reorganization ............ -- -- -- -- 93,386 93,386
Exchange of membership interests for
shares of common stock ................ 35,375 354 93,032 -- (93,386) --
Initial public offering of common stock 10,500 105 134,689 -- -- 134,794
------ --------- --------- --------- --------- ---------
BALANCE, post-reorganization and initial
public offering ....................... 45,875 459 227,721 -- -- 228,180
Net income (August 24, 1999 through
December 31, 1999) ................... -- -- -- 22,742 -- 22,742
Compensation related to restricted
stock units granted ................... -- -- 1,050 -- -- 1,050
------ --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 ............. 45,875 $ 459 $ 228,771 $ 22,742 $ -- $ 251,972
====== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
LaBRANCHE & CO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 29,034 $ 2,660 $ 1,489
Adjustments to reconcile net income to net cash (used in) operating activities-
Depreciation and amortization ................................................ 5,348 3,020 909
Undistributed limited partners interest in earnings of subsidiary ............ -- 3,646 1,241
Compensation related to the restricted stock units ........................... 1,050 -- --
Deferred tax provision ....................................................... 335 -- --
Changes in assets and liabilities-
Securities purchased under agreements to resell .............................. (4,322) (6,100) (8,500)
Receivable from brokers, dealers and clearing organizations .................. 21,146 3,366 (40,188)
Corporate equities ........................................................... (33,569) (77,967) (6,338)
United States government obligations ......................................... (3) 998 1
Other securities owned ....................................................... (1,155) -- --
Commissions receivable ....................................................... (826) -- --
Other assets ................................................................. (4,161) (1,970) (2,047)
Payable to brokers and dealers ............................................... 3,834 2,231 (2,731)
Securities sold, but not yet purchased ....................................... (30,996) 28,569 20,591
Accrued compensation ......................................................... (5,719) 8,891 (5,322)
Accounts payable and other accrued expenses .................................. (2,166) 2,379 1,371
Income taxes payables ........................................................ 7,624 -- --
--------- --------- ---------
Net cash (used in) operating activities ...................................... (14,546) (30,277) (39,524)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of office equipment and leasehold improvements .......... (228) (1,550) (278)
Payments to limited partners for redemption of interests ....................... (140,186) -- --
--------- --------- ---------
Net cash (used in) investing activities ...................................... (140,414) (1,550) (278)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of subordinated debt ................................ 3,435 16,750 28,900
Repayment of subordinated debt ................................................. (5,000) -- (896)
Net proceeds from the initial public offering .................................. 134,794 -- --
Proceeds from the issuance of long term debt ................................... 99,807 -- --
Payments to members upon reorganization ........................................ (9,025) -- --
Proceeds from contributions of capital ......................................... 18,096 46,598 10,948
Payments for distributions of capital .......................................... (8,095) (29,788) (6,140)
--------- --------- ---------
Net cash provided by financing activities .................................... 234,012 33,560 32,812
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ............................. 79,052 1,733 (6,990)
CASH AND CASH EQUIVALENTS, beginning of year ................................... 4,722 2,989 9,979
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ......................................... $ 83,774 $ 4,722 $ 2,989
========= ========= =========
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
PAID FOR:
Interest ...................................................................... $ 4,557 $ 8,788 $ 4,360
Income taxes .................................................................. $ 17,989 $ 2,244 $ 2,161
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES
Excess of purchase price over fair value of assets acquired for
issuance of membership interest and limited partnership
interests in subsidiary ....................................................... $ -- $ 25,815 $ 24,980
Exchange of membership interests for shares of common stock .................... $ 93,386 $ -- $ --
Issuance of subordinated debt and shares of common stock for
redemption of limited partner interests upon reorganization ................... $ 23,821 $ -- $-
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
LaBRANCHE & CO INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of LaBranche &
Co Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries,
LaB Investing Co. L.L.C., a New York limited liability company ("LaB
Investing"), and LaBranche & Co., a New York limited partnership (collectively,
the "Company"). LaB Investing is the sole general partner of LaBranche & Co. and
has a partnership interest in LaBranche & Co. of 84.1%. The Holding Company is
the sole limited partner of LaBranche & Co. and owns the remaining partnership
interest of 15.9%. The Holding Company is also the sole member of LaB Investing,
thereby providing the Holding Company with 100.0% ownership in LaBranche & Co.
LaBranche & Co. operates primarily as a specialist in certain equity securities
listed on the New York Stock Exchange, Inc. ("NYSE").
2. INITIAL PUBLIC OFFERING AND DEBT ISSUANCE
On August 24, 1999, the Company reorganized from partnership to corporate
form, upon the members of LaB Investing exchanging their membership interests
for common stock in the Holding Company, and completed its initial public
offering. In that offering, the Company sold 10,500,000 shares of common stock
and received net proceeds of $134.8 million. Concurrently with the offering, the
Company issued $100.0 million aggregate principal amount of senior notes. See
Note 12 for further information regarding the long term debt.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Management does not believe
that actual results will differ materially from these estimates.
Intangible Assets
Intangible assets are comprised of the Company's specialist stock list,
trade name, and goodwill from acquisitions and the limited partner buyout that
occurred in concurrence with our reorganization to corporate form. The
specialist stock list and trade name are being amortized on a straight-line
basis over 40 years and the goodwill is being amortized on a straight-line basis
over 15 years. The allocation of purchase price and determination of useful
lives were based upon an independent appraisal. The useful life of the
specialist stock list was determined based upon analysis of historical turnover
characteristics of the specialist stocks.
The Company continually evaluates whether later events and circumstances
have occurred that
F-9
<PAGE>
indicate the remaining estimated useful life may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the Company uses an estimate
of undiscounted net income over the remaining life in measuring whether the
assets are recoverable.
Exchange Memberships
Exchange memberships owned by the Company are carried at cost.
Certain members of the Company have contributed the use of 9 memberships
on the NYSE to the Company. These memberships are subordinated to claims of
general creditors and are carried at market value with a corresponding amount
recorded in subordinated liabilities. Lease payments are paid by the Company to
its members for the use of the exchange memberships at a rate that is
commensurate with the rent paid to nonaffiliated parties for the use of their
exchange memberships.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of less than three months.
Securities Transactions
Securities transactions and the related revenues and expenses are recorded
on a trade date basis. Securities owned and securities sold, but not yet
purchased are reflected at market value and unrealized gains and losses are
reflected in net gain on principal transactions. Dividends and Securities and
Exchange Commission ("SEC") fees are also included in net gain on principal
transactions. Dividend income and expense are recognized on the payable date,
which does not differ materially from the ex-date.
Depreciation and Amortization
Depreciation and amortization are calculated using the straight-line
method over the estimated useful lives of office equipment and leasehold
improvements.
Collateralized Financing Transactions
Securities purchased and sold under agreements to resell and repurchase,
as well as securities borrowed and loaned for which cash is deposited or
received, are treated as collateralized financing transactions and are recorded
at contract amount.
Collateral
The Company continues to report assets as owned when they are pledged as
collateral in secured financing arrangements and the secured party cannot sell
or repledge the assets or the Company can substitute collateral or otherwise
redeem it on short notice. The Company continues not to report securities
received as collateral in secured financing arrangements because the debtor
typically has the right to substitute or redeem the collateral on short notice.
F-10
<PAGE>
Reportable Operating Segment
The Company considers its present operations to be one reportable segment
for purposes of presenting consolidated financial information and for evaluating
its performance. The financial statement information presented in the
accompanying consolidated financial statements is consistent with the
preparation of financial information for the purpose of internal use.
Managing Directors' Compensation
Prior to the reorganization on August 24, 1999 the managing directors of
LaBranche & Co. were the members of LaB Investing. LaBranche & Co. paid out
substantially all of its earnings as compensation expense to its managing
directors. Subsequent to August 24, 1999, the managing directors of the Company
are compensated based on an annual salary as well as an incentive based
compensation pool which is determined based upon a certain percentage of pre-tax
income.
New Accounting Pronouncement
The Financial Accounting Standard Board has issued Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which is effective for periods beginning
after June 15, 2000. Management does not believe the impact of the adoption of
SFAS No. 133 on the Company's financial position or results of operations, will
be material.
4. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
The balances presented as receivables from and payables to brokers,
dealers and clearing organizations consists of the following at December 31,
1999 and December 31, 1998:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Receivable from brokers, dealers and clearing organizations:
Pending trades, net $ -- $34,390
Securities borrowed 26,230 17,386
Receivable from clearing organizations 3,373 1,813
Securities failed to deliver 827 1,219
Other receivables from brokers and dealers 3,232 --
------- -------
$33,662 $54,808
======= =======
Payable to brokers and dealers:
Pending trades, net $ 6,435 $ --
Securities failed to receive 1,264 3,892
Other payables to brokers and dealers 27 --
------- -------
$ 7,726 $ 3,892
======= =======
</TABLE>
F-11
<PAGE>
5. INCOME TAXES
Prior to its conversion to corporate form, LaBranche & Co. operated as a
partnership and generally was not subject to U.S. federal and state income
taxes. The earnings of LaBranche & Co., however, were subject to local
unincorporated business taxes. The members were taxed on their proportionate
share of the partnership's taxable income or loss. Effective with its conversion
from partnership to corporate form on August 24, 1999, the Company became
subject to U.S. federal, state and local corporate income taxes. The Company
accounts for taxes in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the
recognition of tax benefits or expenses on temporary differences between the
financial reporting and tax bases of its assets and liabilities. Deferred tax
assets and liabilities relate to stock-based compensation and amortization of
certain intangibles. As a result of its conversion to corporate form, the
Company recognized the tax effect of the change in its income tax rate on the
earnings attributable to the period from August 24, 1999 to December 31, 1999.
The Company's effective tax rate differs from the federal statutory rate
primarily due to its conversion to corporate form and non-deductible
amortization of intangibles. The components of provision for income taxes
reflected on the consolidated statements of operations are set forth below:
<TABLE>
<CAPTION>
Years Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current federal, state and local taxes . $18,346 $ -- $ --
Unincorporated business tax ............ 5,218 3,900 1,881
Deferred tax provision ................. 335 -- --
------- ------- -------
Total provision for income taxes $23,899 $ 3,900 $ 1,881
======= ======= =======
</TABLE>
6. CAPITAL AND NET LIQUID ASSET REQUIREMENTS
LaBranche & Co., as a specialist and member of the NYSE, is subject to SEC
Rule 15c3-1 as adopted and administered by the NYSE and the SEC. LaBranche & Co.
is required to maintain minimum net capital, as defined, equivalent to the
greater of $100,000 or 1/15 of aggregate indebtedness, as defined.
As of December 31, 1999 and 1998, LaBranche & Co.'s net capital, as
defined under SEC Rule 15c3-1, was $161.4 million and $86.5 million,
respectively, and exceeded minimum requirements by $159.9 million and $85.2
million, respectively. LaBranche & Co.'s aggregate indebtedness to net capital
ratio was .13 to 1 and .24 to 1, respectively.
The NYSE also requires members registered as regular specialists to
establish that they can meet, with their own net liquid assets, a minimum dollar
amount which shall be the greater of $1.0 million or 25% of their position
requirement ("Rule 104.2"). In 1998, due to the concentration of LaBranche &
Co.'s specialist book, the NYSE required LaBranche & Co. to maintain minimum net
liquid assets of the greater of 120% of LaBranche & Co.'s Rule 104.2 position
requirement, or $90.0 million, adjusted by the amount of the position
requirement for any new stock allocations. The position requirement is the
ability to assume positions in stocks in which they are registered of 30,000
shares of each S&P 500 common stock, 22,500
F-12
<PAGE>
shares in all other common stocks, 4,500 shares in each convertible preferred
stock and 1,800 shares in each nonconvertible preferred stock. The term "net
liquid assets" for a specialist who also engages in transactions other than
specialist activities is based on its excess net capital determined in
accordance with SEC Rule 15c3-1.
As of December 31, 1999 and 1998, LaBranche & Co.'s NYSE minimum required
dollar amount of net liquid assets, as defined, was $93.6 million and $90.6
million, respectively, compared to actual net liquid assets, as defined, of
$175.9 million and $103.1 million, respectively.
7. ACQUISITIONS
Effective July 1, 1997, LaBranche & Co. acquired a portion of the
specialist operations of Stern Bros., LLC for an aggregate purchase price of
approximately $9.3 million, representing an 8.3% total general partners'
interest in LaBranche & Co. The goodwill associated with the acquisition was
approximately $7.8 million.
Effective August 1, 1997, LaBranche & Co. acquired the specialist
operations of Ernst, Homans, Ware & Keelips for an aggregate purchase price of
approximately $18.5 million, representing general and limited partnership
interests totaling 16.4%. The excess purchase price over fair value of net
assets acquired was approximately $17.2 million.
Effective July 1, 1998, LaBranche & Co. acquired the specialist operations
of Fowler, Rosenau & Geary, L.L.C. ("Fowler") for an aggregate purchase price of
approximately $45.0 million, representing a 22.4% total general and limited
partners' interest in LaBranche & Co. The excess purchase price over fair value
of net assets acquired was approximately $25.8 million.
Effective August 24, 1999, the limited partnership interests of $37.1
million in LaBranche & Co. were acquired at an excess purchase price of $127.4
million over the limited partners' capital balances. The redemption of the
limited partners' interests is accounted for as a step acquisition under the
purchase method of accounting. The excess of purchase price over the limited
partners' capital balances was allocated to intangible assets and assigned lives
as follows:
Original Amount Life
--------------- ----
Specialist Stock List......... $93.6 million 40 years
Trade Name.................... 26.6 million 40 years
Goodwill...................... 7.2 million 15 years
--------------
$127.4 million
==============
8. COMMITMENTS
During 1998, LaBranche & Co. secured a $75.0 million committed line of
credit with a U.S. commercial bank. The agreement matured on June 25, 1999. In
June 1999, the Company amended and extended the committed line of credit to
$100.0 million through June 23, 2000.
F-13
<PAGE>
Minimum rental commitments under existing noncancellable leases for office
space and equipment are as follows:
Year ending December 31:
------------------------
2000............................ $ 673,006
2001............................ 771,750
2002............................ 801,750
2003............................ 807,750
2004............................ 807,750
Thereafter...................... 3,372,000
These leases contain escalation clauses providing for increased rentals
based upon maintenance and tax increases.
9. SUBORDINATED LIABILITIES
LaBranche & Co. is a party to subordinated loan agreements under which it
has indebtedness approved by the NYSE for inclusion as net capital, as defined.
Interest is payable quarterly at various annual rates. Eleven of the agreements
representing $6,823,000 mature within the last six months of 2000 and seven
agreements representing $3,385,000 mature within the first six months of 2001.
These agreements all have automatic rollover provisions, and each scheduled
maturity date will be extended an additional year, unless the lender gives
LaBranche & Co. seven months' advance notice that the maturity date will not be
extended. Interest expense incurred for the years ended December 31, 1999, 1998
and 1997 on these agreements was approximately $1.1 million, $1.3 million and
$1.2 million, respectively. Two of the holders representing $850,000 of
subordinated loan agreements maturing in November 2000 have notified LaBranche &
Co. that the scheduled maturity date will not be extended.
LaBranche & Co. also issued seven notes representing aggregate
indebtedness of $20,000,000 which mature on September 15, 2002 and bear interest
at an annual rate of 8.17% payable on a quarterly basis. LaBranche & Co. also
issued five notes representing aggregate indebtedness of $15,000,000 which
mature on June 3, 2008 and bear interest at an annual rate of 7.69% payable on a
quarterly basis. These notes are senior to all other subordinated notes of
LaBranche & Co. Interest expense incurred for the years ended December 31, 1999,
1998 and 1997 on these notes was approximately $2.8 million, $2.3 million and
$340,000, respectively. The agreements covering these subordinated notes require
the Company to comply with certain covenants that, among other things, restrict
the type of business in which the Company may engage, sets certain net capital
levels and prohibits restricted payments.
LaBranche & Co. also issued a subordinated note for $1,300,000 due March
2, 2001 with an annual rate of 10.0%, payable on a quarterly basis. Interest
expense incurred for the year ended December 31, 1999 on the note was
approximately $123,333. This agreement has an automatic rollover provision, and
the scheduled maturity date will be extended an additional year, unless the
lender gives LaBranche & Co. seven months' advance notice that the maturity date
will not be extended.
Exchange memberships contributed pursuant to subordination agreements in
the amount of $20,700,000 comprise the remaining subordinated liabilities.
F-14
<PAGE>
10. EARNINGS PER SHARE
Earnings per share ("EPS") are computed in accordance with SFAS No. 128,
"Earnings Per Share". Basic EPS is calculated by dividing net income by the
weighted-average number of common shares outstanding. For purposes of
determining weighted average shares outstanding for periods prior to the
Company's reorganization from partnership to corporate form, the outstanding
shares were determined based on the conversion ratio of members' capital to
common stock issued to the members upon reorganization.
The computations of basic and diluted EPS are set forth below (000's
omitted, except per share data):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted earnings per
share-net income ............................. $29,034 $ 2,660 $ 1,489
Denominator for basic and diluted earnings per
share-weighted-average number of common shares 40,443 24,318 10,329
Basic and diluted earnings per share ......... $ 0.72 $ 0.11 $ 0.14
</TABLE>
Under the treasury stock method of accounting, restricted stock units
representing 1,062,600 shares of common stock and options to purchase an
aggregate of 1,200,000 shares of common stock were not included in the
calculation of diluted earnings per share due to their antidilutive effect.
11. EMPLOYEE INCENTIVE PLANS
Equity Incentive Plan
The Company has elected to account for stock-based employee compensation
plans in accordance with Accounting Principles Board Opinion ("APB") No. 25 as
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation". In
accordance with APB No. 25, compensation expense is not recognized for stock
options that have no intrinsic value on the date of grant.
The Company sponsors an Equity Incentive Plan which provides for grants of
incentive stock options, nonqualified stock options, restricted shares of common
stock, restricted stock units, unrestricted shares and stock appreciation
rights.
A maximum of 4,687,500 shares of common stock has been reserved for
issuance under the Equity Incentive Plan. The maximum number of shares of common
stock with respect to which options, restricted stock, restricted stock units or
other equity-based awards may be granted under the Equity Incentive Plan during
any calendar year to any employee may not exceed 500,000 shares, subject to
adjustment upon certain corporate transactions.
F-15
<PAGE>
On August 18, 1999, restricted stock units with respect to 1,059,000
shares of common stock were granted to employees who were not managing directors
with an issue cost of $0 to the employees and a fair market value of $14 per
share. In October 1999, restricted stock units for an additional 3,600 shares of
common stock were issued to an employee with an issue cost of $0. The restricted
stock units, which are subject to continuing service with the Company and other
restrictions, will generally vest in three annual installments commencing on the
third anniversary of the grant date. Compensation expense is being recognized
over the five-year vesting period on a straight-line basis. For the year ended
December 31, 1999, the Company recorded compensation expense and a credit to
additional paid-in capital of approximately $1.1 million related to these
restricted stock units.
Stock Options
On August 18, 1999, options to purchase an aggregate of 1,200,000 shares
of common stock were granted to executive officers of the Company at market
value. Of these options, options to purchase 1,000,000 shares, which are subject
to continuing service with the Company and other restrictions, will become
exercisable in three equal annual installments commencing on the first
anniversary of the date of grant. The options to purchase the remaining 200,000
shares vested on January 7, 2000 and 100,000 shares become exercisable on July
7, 2000 and 100,000 shares on July 7, 2001. As of December 31, 1999, there were
no options exercisable. These options will generally expire ten years from the
date of grant, unless sooner terminated or exercised. Pursuant to APB No. 25, no
compensation expense was recognized since, on the date of grant, these options
had no intrinsic value. As of December 31, 1999, the outstanding options had an
exercise price of $14 and a remaining life of approximately 10 years.
The estimated fair value of options granted was $4.97 per option. Fair
value is estimated as of the grant date based on a binomial option pricing model
using the following assumptions:
Risk-free interest rate.... 5.25%
Expected life.............. 7 yrs
Expected volatility........ 40%
Dividend yield............. 0%
In accordance with SFAS No. 123, compensation expense was not recognized
on the date of the grant of the options since these options had no intrinsic
value. If the Company were to recognize compensation expense under the
fair-value based method of SFAS No. 123, the net income would have decreased by
approximately $843,000 resulting in pro forma net income and earnings per share
as follows:
Year Ended
December 31, 1999
(000s omitted, except per
share data)
Net income, as reported................ $29,034
Pro forma net income................... 28,191
EPS, as reported....................... $ 0.72
F-16
<PAGE>
Pro forma EPS.......................... 0.70
The effect of applying SFAS No. 123 in the pro forma disclosure above may not be
representative of the potential pro forma effect on net income in future
periods.
Annual Incentive Plan
The Company also sponsors an Annual Incentive Plan. Managing directors and
other employees designated by management will be eligible to participate. Under
this plan, a compensation pool of up to 30% of the Company's pre-tax income, or
such lesser percentage determined by the compensation committee, will be set
aside for managing directors and other employees selected by the compensation
committee to participate in this plan. In determining the compensation pool, the
compensation expense relating to the grant of restricted stock units at the time
of the reorganization of the Company to corporate form is deducted. Under the
plan, no individual participant may receive more than 25% of the compensation
pool for any fiscal year.
12. LONG TERM DEBT
Effective August 24, 1999, the Holding Company issued $100.0 million
aggregate principal amount of senior notes. The notes bear interest at a rate of
9.5% annually and mature on August 15, 2004. The carrying value of the senior
notes as of December 31, 1999 is $99.8 million. The discount on the bond is
being amortized as an adjustment to interest expense over the life of the senior
notes. Debt issuance costs incurred as a result of the senior note offering are
approximately $2.5 million, which are being amortized as on a straight line
basis over the life of the senior notes. Interest expense incurred for the year
ended December 31, 1999 was approximately $3.3 million. The indenture covering
the senior notes includes certain covenants that, among other things, limits the
Company's ability to: borrow money; pay dividends or repurchase stock; make
investments; engage in transactions with stockholders and affiliates; create
liens on assets; and sell assets or engage in mergers and consolidations except
in accordance with certain specified conditions, as defined.
In addition, in connection with the reorganization of the Company from
partnership to corporate form on August 24, 1999 the Holding Company issued a
note in an aggregate principal amount of $16.0 million as partial payment for
the acquisition of a limited partner interest. Of the $16.0 million total, $6.0
million is payable on the first anniversary of issuance, $5.0 million is payable
on the second anniversary of issuance and $5.0 million is payable on the third
anniversary of issuance. The note bears interest at the annual rate of 9.5%.
Interest expense incurred for the year ended December 31, 1999 was approximately
$538,000.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires companies to report the fair
value of financial instruments for certain assets and liabilities. Substantially
all of the Company's financial instruments are short-term in nature or carry
market interest rates and, accordingly, approximate fair value.
F-17
<PAGE>
The fair value of the fixed rate debt at December 31, 1999, in millions,
is as follows:
Carrying Value Fair Value
-------------- ----------
Senior Debt........... $99.8 $97.0
Fixed Rate Note....... $16.0 $15.9
The fair value of the senior notes was determined based upon its market value as
of December 31, 1999. The fair value of the fixed rate note was determined using
current market rates to discount its cash flows.
14. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET
RISK
As a specialist on the NYSE, LaBranche & Co. is engaged in various
securities trading and lending activities. In connection with its activities as
a specialist, LaBranche & Co. assumes positions in stocks for which it is
responsible. LaBranche & Co. is exposed to credit risk associated with the
nonperformance of counterparties in fulfilling their contractual obligations
pursuant to these securities transactions. LaBranche & Co. is exposed to market
risk associated with the sale of securities not yet purchased, which can be
directly impacted by volatile trading on the NYSE. Additionally, in the event of
nonperformance and unfavorable market price movements, LaBranche & Co. may be
required to purchase or sell financial instruments, which may result in a loss
to LaBranche & Co.
LaBranche & Co. enters into collateralized financing agreements in which
it extends short-term credit to major financial institutions. LaBranche & Co.
controls access to the collateral pledged by the counterparties, which generally
consists of U.S. equity and government securities. The value and adequacy of the
collateral are continually monitored. Consequently, the risk of credit loss from
counterparties' failure to perform in connection with collateralized lending
activities is minimal.
15. PRO FORMA FINANCIAL INFORMATION (Unaudited)
The 1998 pro forma consolidated results give effect to LaBranche & Co.'s
July 1998 acquisition of Fowler and its reorganization from partnership to
corporate form and related transactions, which include the acquisition of
LaBranche & Co.'s limited partnership interests, and the application of the net
proceeds from the Company's August 1999 initial public offering and senior note
offering (the "Reorganization Transactions") as if the Reorganization
Transactions occurred as of January 1, 1998. The 1999 pro forma consolidated
results give effect to the Reorganization Transactions as if they occurred as of
January 1, 1999. The pro forma impact on revenues, pre-tax income and earnings
are as follows (000's omitted, except per share data):
Years Ended
December 31,
------------
1999 1998
---- ----
(Pro-forma) (Pro-forma)
Revenues ............... $201,037 $137,850
Pre-Tax Income ......... 100,153 59,429
F-18
<PAGE>
Net Income ............. 53,988 31,791
EPS .................... $ 1.18 $ 0.69
16. SUBSEQUENT EVENTS (Unaudited)
Subsequent to year-end the Company acquired Henderson Brothers Holdings,
Inc. ("Henderson"), a specialist firm on the NYSE. Under the terms of the
acquisition, the Company will acquire all of the outstanding capital stock of
Henderson for approximately $230 million in cash. In addition, the Company has
acquired Webco Securities Inc. ("Webco"), another specialist firm on the NYSE.
Under the terms of the acquisition, the Company acquired Webco for $10.9 million
in cash, an aggregate of approximately $3 million in senior promissory notes and
approximately 2.8 million shares of the Company's common stock. Both of these
acquisitions will be accounted for under the purchase method.
During February 2000, a U.S. commercial bank increased and extended its
committed line of credit to LaBranche & Co. from $100.0 million to $200.0
million through February 2, 2001.
F-19
<PAGE>
LaBRANCHE & CO INC.
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(000's omitted, except share data)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS............................................ $ 46,872 $ 21
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL ...................... 1,422 --
INVESTMENT IN SUBSIDIARIES, AT EQUITY VALUE ......................... 321,370 77,072
OTHER ............................................................... 14,041 --
-------- --------
Total Assets .................................................. $383,705 $ 77,093
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL
LIABILITIES:
Income taxes payable ............................................ $ 7,960 $-
Accounts payable and other liabilities .......................... 7,951 --
-------- --------
15,911 --
-------- --------
LONG TERM DEBT ...................................................... 115,822 --
-------- --------
STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL:
Preferred stock ($.01 par value, 10,000,000 shares
authorized; none issued and outstanding) ........................ -- --
Common stock (par value $.01 per share; 200,000,000 shares
authorized, 45,875,000 shares issued and outstanding) ........... 459 --
Additional paid-in-capital .......................................... 228,771 --
Retained earnings ................................................... 22,742 --
-------- --------
Stockholders' equity/members' capital ............................... 251,972 77,093
-------- --------
Total liabilities and stockholders' equity/members' capital .... $383,705 $ 77,093
======== ========
</TABLE>
See accompanying note to condensed financial statements.
F-20
<PAGE>
LaBRANCHE & CO INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
(000's omitted)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Equity earnings from investment in subsidiaries $ 31,476 $ 2,663 $ 1,480
Investment income ............................. 910 -- --
-------- -------- --------
Total revenue .............................. 32,386 2,663 1,480
-------- -------- --------
EXPENSES:
Interest ...................................... 3,879 -- --
Employee compensation and related benefits .... 1,050 -- --
Other expenses ................................ 504 3 1
-------- -------- --------
Total expenses ............................. 5,433 3 1
-------- -------- --------
Income before income tax benefit .............. 26,953 2,660 1,479
-------- -------- --------
INCOME TAX BENEFIT ................................. (2,081) -- (10)
Net income .................................... $ 29,034 $ 2,660 $ 1,489
======== ======== ========
</TABLE>
See accompanying note to condensed financial statements.
F-21
<PAGE>
LaBRANCHE & CO INC.
(Parent Company Only)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY/MEMBERS' CAPITAL
(000's omitted)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained Members'
Shares Amount Capital Earnings Capital Total
------ ------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ............... -- $ -- $ -- $ -- $ 13,735 $ 13,735
Net income ............................... -- -- -- -- 1,489 1,489
Contributions to capital ................. -- -- -- -- 28,574 28,574
Distributions of capital ................. -- -- -- -- (6,140) (6,140)
------ --------- --------- --------- --------- ---------
BALANCE, December 31, 1997 ............... -- -- -- -- 37,658 37,658
Net income ............................... -- -- -- -- 2,660 2,660
Contributions to capital ................. -- -- -- -- 66,563 66,563
Distributions of capital ................. -- -- -- -- (29,788) (29,788)
------ --------- --------- --------- --------- ---------
BALANCE, December 31, 1998 ............... -- -- -- -- 77,093 77,093
Net income through August 23, 1999 ....... -- -- -- -- 6,292 6,292
Contributions to capital ................. -- -- -- -- 18,096 18,096
Distributions of capital ................. -- -- -- -- (8,095) (8,095)
------ --------- --------- --------- --------- ---------
BALANCE, pre-reorganization .............. -- -- -- -- 93,386 93,386
Exchange of membership interest for shares
of common stock .......................... 35,375 354 93,032 -- (93,386) --
Initial public offering of common stock .. 10,500 105 134,689 -- -- 134,794
------ --------- --------- --------- --------- ---------
BALANCE post-reorganization and initial
public offering .......................... 45,875 459 227,721 -- -- 228,180
Net income (August 24, 1999 through
December 31, 1999) ....................... -- -- -- 22,742 -- 22,742
Compensation related to restricted stock
units granted ............................ -- -- 1,050 -- -- 1,050
------ --------- --------- --------- --------- ---------
BALANCE, December 31, 1999 ............... 45,875 $ 459 $ 228,771 $ 22,742 $ -- $ 251,972
====== ========= ========= ========= ========= =========
</TABLE>
See accompanying note to condensed financial statements.
F-22
<PAGE>
LaBRANCHE & CO INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOW
(000's omitted)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 29,034 $ 2,660 $ 1,489
Adjustments to reconcile net income to net cash used in operating activities
Amortization of debt issuance costs and bond discount ................... 203 -- --
Compensation expense related to restricted stock units .................. 1,050 -- --
Equity earnings from investment in subsidiaries ......................... (31,476) (19,477) (6,343)
Deferred tax benefit .................................................... (2,081) -- --
Changes in assets and liabilities-
Securities purchased under agreements to resell ......................... (1,422) -- --
Other assets ............................................................ (11,559) 13 26
Accounts payable and other liabilities .................................. 13,911 -- (10)
--------- --------- ---------
Net cash used in operating activities ........................................ (2,340) (16,804) (4,838)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return of capital from subsidiary........................................... 20,000 46,598 10,948
Payments for investment in subsidiary....................................... (51,199) (29,788) (6,140)
Payments to limited partners for redemption of interests and
repayment of subordinated debt upon reorganization ......................... (145,186) -- --
--------- --------- ---------
Net cash provided by (used in) investing activities ........................ (176,385) 16,810 4,808
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long term debt ............................... 99,807 -- --
Net proceeds from the initial public offering .............................. 134,794 -- --
Payments to members upon reorganization .................................... (9,025) -- --
--------- --------- ---------
Net cash provided by financing activities .................................. 225,576 -- --
--------- --------- ---------
Net change in cash ........................................................... 46,851 6 (30)
CASH AND CASH EQUIVALENTS, beginning of year ................................. 21 15 45
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ....................................... $ 46,872 $ 21 $ 15
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Income taxes $ 11,750 $ 3 $ 11
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Membership interests issued for acquisitions ............................... $ -- $ 19,965 $ 17,626
Exchange of membership interests for shares of common stock ................ $ 93,386 $ -- $ --
Issuance of subordinated debt and shares of common stock for redemption of
limited partner interests upon reorganization .............................. $ 23,821 $ -- $ --
</TABLE>
See accompanying note to condensed financial statements.
F-23
<PAGE>
LaBRANCHE & CO INC.
(Parent Company Only)
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. NOTE TO CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of LaBranche & Co Inc. (Parent Company
Only) should be read in conjunction with the consolidated financial statements
of LaBranche & Co Inc. and Subsidiaries and the notes thereto contained
elsewhere in this filing.
F-24
<PAGE>
Exhibit 4.5
EXECUTION COPY
LaBRANCHE & CO INC.,
as Issuer
and
FIRSTAR BANK, N.A.,
as Trustee
--------------------
INDENTURE
Dated as of March 2, 2000
--------------------
12% Senior Subordinated Notes due 2007
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE .................................. 1
Section 1.1. Definitions ............................................................... 1
Section 1.2. Other Definitions ......................................................... 26
Section 1.3. Incorporation by Reference of Trust Indenture Act ......................... 27
Section 1.4. Rules of Construction ..................................................... 27
ARTICLE II. THE NOTES .................................................................. 28
Section 2.1. Form and Dating ........................................................... 28
Section 2.2. Execution and Authentication .............................................. 28
Section 2.3. Registrar and Paying Agent ................................................ 30
Section 2.4. Paying Agent to Hold Money in Trust ....................................... 30
Section 2.5. Holder Lists .............................................................. 31
Section 2.6. Global Note Provisions .................................................... 31
Section 2.7 Legends ................................................................... 32
Section 2.9. Mutilated, Destroyed, Lost or Stolen Notes ................................ 35
Section 2.10. Temporary Notes ........................................................... 36
Section 2.11. Cancellation .............................................................. 36
Section 2.12. Defaulted Interest ........................................................ 36
Section 2.13. Additional Amounts Under Registration Rights Agreements ................... 37
ARTICLE III. SUBORDINATION OF THE NOTES ................................................ 37
Section 3.1. Agreement to Subordinate .................................................. 37
Section 3.2. Liquidation, Dissolution, Bankruptcy ...................................... 38
Section 3.3. Default on Designated Senior Debt of the Company .......................... 38
Section 3.4. Acceleration of Payment of Notes .......................................... 39
Section 3.5. When Distribution Must Be Paid Over ....................................... 39
Section 3.6. Subrogation ............................................................... 39
Section 3.7. Relative Rights ........................................................... 39
Section 3.8. Subordination May Not Be Impaired by Company .............................. 40
Section 3.9. Rights of Trustee and Paying Agent ........................................ 40
Section 3.10. Distribution or Notice to Representative .................................. 40
Section 3.11. Article III Not to Prevent Events of Default or Limit Right to Accelerate . 40
Section 3.12. Trust Moneys Not Subordinated ............................................. 40
Section 3.13. Trustee Entitled to Rely .................................................. 41
Section 3.14. Trustee to Effectuate Subordination ....................................... 41
Section 3.15. Trustee Not Fiduciary for Holders of Senior Debt .......................... 41
Section 3.16. Reliance by Holders of Senior Debt on Subordination Provisions ............ 41
ARTICLE IV. COVENANTS ................................................................. 42
Section 4.1. Payment of Notes .......................................................... 42
Section 4.2. SEC Reports ............................................................... 42
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.3. Waiver of Stay, Extension or Usury Laws.............................................43
Section 4.4. Compliance Certificate..............................................................43
Section 4.5. Taxes...............................................................................44
Section 4.6. Limitation on Incurrence of Additional Indebtedness.................................44
Section 4.7. Limitation on Restricted Payments...................................................44
Section 4.8. Limitation on Asset Sales...........................................................47
Section 4.9. Limitation on Distributions and Other Restrictions Affecting Subsidiaries...........49
Section 4.10. Limitation on Issuance and Sale of Capital Interests in Restricted Subsidiaries.....50
Section 4.11. Limitations on Liens................................................................50
Section 4.12. Limitations on Transactions with Affiliates.........................................52
Section 4.13. Limitation On Designations of Unrestricted Subsidiaries.............................53
Section 4.14. Change of Control...................................................................54
Section 4.15 Limitation on Layered Indebtedness..................................................55
Section 4.16. Maintenance of Office or Agency.....................................................56
Section 4.17. Maintenance of Properties and Insurance.............................................56
Section 4.18. Excess Cash Flow Offer..............................................................56
ARTICLE V. SUCCESSOR CORPORATION...............................................................59
Section 5.1. Limitation on Merger, Consolidation and Sale of Assets..............................59
Section 5.2. Successor Person Substituted........................................................61
ARTICLE VI. DEFAULTS AND REMEDIES...............................................................61
Section 6.1. Events of Default...................................................................61
Section 6.2. Acceleration........................................................................63
Section 6.3. Other Remedies......................................................................65
Section 6.4. Waiver of Past Defaults and Events of Default.......................................65
Section 6.5. Control by Majority.................................................................65
Section 6.6. Limitation on Suits.................................................................65
Section 6.7. Rights of Holders To Receive Payment................................................66
Section 6.8. Collection Suit by Trustee..........................................................66
Section 6.9. Trustee May File Proofs of Claim....................................................66
Section 6.10. Priorities..........................................................................67
Section 6.11. Undertaking for Costs...............................................................67
Section 6.12. Restoration of Rights and Remedies..................................................67
ARTICLE VII. TRUSTEE.............................................................................68
Section 7.1. Duties of Trustee...................................................................68
Section 7.2. Rights of Trustee...................................................................69
Section 7.3. Individual Rights of Trustee........................................................70
Section 7.4. Trustee's Disclaimer................................................................70
Section 7.5. Notice of Defaults..................................................................70
Section 7.6. Reports by Trustee to Holders.......................................................70
Section 7.7. Compensation and Indemnity..........................................................70
Section 7.8. Replacement of Trustee..............................................................71
Section 7.9. Successor Trustee by Consolidation, Merger or Conversion............................72
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.10. Eligibility; Disqualification............................................72
Section 7.11. Preferential Collection of Claims Against Company........................72
Section 7.12. Paying Agents............................................................73
ARTICLE VIII. AMENDMENT, SUPPLEMENT AND WAIVER.........................................73
Section 8.1. Without Consent of Holders...............................................73
Section 8.2. With Consent of Holders..................................................74
Section 8.3. Compliance with Trust Indenture Act......................................75
Section 8.4. Revocation and Effect of Consents........................................75
Section 8.5. Notation on or Exchange of Notes.........................................76
Section 8.6. Trustee To Sign Amendments, etc..........................................76
ARTICLE IX. DISCHARGE OF INDENTURE; DEFEASANCE.......................................76
Section 9.1. Discharge of Indenture...................................................76
Section 9.2. Legal Defeasance.........................................................77
Section 9.3. Covenant Defeasance......................................................77
Section 9.4. Conditions to Legal Defeasance or Covenant Defeasance....................78
Section 9.5. Deposited Money and U.S. Government Obligations To Be Held in Trust;
Other Miscellaneous Provisions...........................................79
Section 9.6. Reinstatement............................................................80
Section 9.7. Moneys Held by Paying Agent..............................................80
Section 9.8. Moneys Held by Trustee...................................................80
ARTICLE X. MISCELLANEOUS............................................................81
Section 10.1. Trust Indenture Act Controls.............................................81
Section 10.2. Notices..................................................................81
Section 10.3. Communications by Holders with Other Holders.............................82
Section 10.4. Certificate and Opinion as to Conditions Precedent.......................82
Section 10.5. Statements Required in Certificate and Opinion...........................82
Section 10.6. When Treasury Notes Disregarded..........................................83
Section 10.7. Rules by Trustee and Agents..............................................83
Section 10.8. Business Days; Legal Holidays............................................83
Section 10.9. Governing Law............................................................83
Section 10.10. No Adverse Interpretation of Other Agreements............................84
Section 10.11. No Recourse Against Others...............................................84
Section 10.12. Successors...............................................................85
Section 10.13. Multiple Counterparts....................................................85
Section 10.14. Qualification of Indenture...............................................85
Section 10.15. Table of Contents, Headings, etc.........................................85
Section 10.16. Separability.............................................................85
</TABLE>
EXHIBIT A FORM OF NOTE
EXHIBIT B-1 FORM OF NON-U.S. BENEFICIAL OWNERSHIP CERTIFICATION BY
EUROCLEAR AND CLEARSTREAM
iii
<PAGE>
EXHIBIT B-2 FORM OF NON-U.S. BENEFICIAL OWNERSHIP CERTIFICATION BY
MEMBER ORGANIZATION
EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO QIB
EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFER PURSUANT TO REGULATION S
EXHIBIT E FORM OF RULE 144 CERTIFICATION
iv
<PAGE>
CROSS-REFERENCE TABLE
TIA Section Indenture Section
310 (a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(a)(5) 7.10
(b) 7.8; 7.10
(b)(1) 7.10
(b)(9) 7.10
(c) N.A.
311 (a) 7.11
(b) 7.11
(c) N.A.
312 (a) 2.5
(b) 10.3
(c) 10.3
313 (a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(c) 7.6; 10.2
(d) 7.6
314 (a) 4.2; 4.4; 10.2
(b) N.A.
(c)(1) 10.4; 10.5
(c)(2) 10.4; 10.5
(c)(3) N.A.
(d) N.A.
(e) 10.5
(f) N.A.
315 (a) 7.1; 7.2
(b) 7.5; 10.2
(c) 7.1
(d) 6.5; 7.1; 7.2
(e) 6.11
316 (a)(last sentence) 10.6
(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N.A.
(b) 6.7
(c) 8.4
317 (a)(1) 6.8
(a)(2) 6.9
(b) 7.12
318 (a) 10.1
N.A. means Not Applicable
- ----------
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
v
<PAGE>
INDENTURE, dated as of March 2, 2000, between LaBranche & Co Inc., a
Delaware corporation, as Issuer (the "Company"), and Firstar Bank, N.A., as
Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 12% Senior
Subordinated Notes due 2007 (the "Series A Notes").
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed by the Company or any Restricted Subsidiary in
connection with the acquisition of assets from such Person and in each case
whether or not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Agent" means any Registrar, Paying Agent, co-registrar or agent for
service of notices and demands.
"Annual Incentive Plan" means the LaBranche & Co Inc. Annual
Incentive Plan as in effect on the Issue Date or as amended from time to time as
approved by majority of the disinterested members of the Board of Directors (or
a majority of the disinterested members of a committee thereof).
"Asset Acquisition" means:
(a) an Investment by the Company or any Restricted Subsidiary in any
other Person pursuant to which such Person shall become a Restricted Subsidiary
or shall be merged with or into the Company or any Restricted Subsidiary, or
(b) the acquisition by the Company or any Restricted Subsidiary of
the assets of any Person (other than a Restricted Subsidiary) that constitute
all or substantially all of the assets of such Person or comprises any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
1
<PAGE>
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, lease, assignment or other transfer (other than the granting of a
Lien in accordance with this Indenture) for value by the Company or any of the
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than the Company or a Restricted Subsidiary of:
(a) any Capital Stock of any Restricted Subsidiary; or
(b) any other property or assets (excluding Capital Stock) of the
Company or any Restricted Subsidiary;
provided, however, that "Asset Sale" shall not include:
(i) a transaction or series of related transactions for which
the Company or the Restricted Subsidiaries receive aggregate consideration of
less than $2 million;
(ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under Section 5.1 hereof;
(iii) any Restricted Payment made in accordance with the
covenant described under Section 4.7 hereof;
(iv) the sale or lending of Investment Securities in the
ordinary course of business of the Company and its Restricted Subsidiaries;
(v) Sale and Leaseback Transactions involving up to $15.0
million in the aggregate after the Issue Date; or
(vi) the disposition of obsolete or worn-out equipment or
entering into operating leases for real property or equipment or subleases in
respect thereof, in each case in the ordinary course of business.
"Bankruptcy Custodian" means any receiver, trustee, assignee,
liquidator, sequestrator or similar official under any Bankruptcy Law.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the secretary or an assistant secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Expenditures" means, for any period, the aggregate of all
expenditures made by the Company and its Restricted Subsidiaries during such
period on a consolidated basis
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which, as determined in accordance with GAAP, are required to be included in
property, plant or equipment or a similar fixed asset.
"Capital Stock" means:
(a) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of Common Stock
and Preferred Stock of such Person; and
(b) with respect to any Person that is not a corporation, any and
all partnership, limited liability company interests or other equity interests
of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(a) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing
within one year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within twelve months from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's.
(c) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-l from Moody's;
(d) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $500,000,000;
(e) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (a) entered into with
any bank meeting the qualifications specified in clause (d) above; and
(f) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (a) through (e)
above.
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"Certificated Note" means any Note issued in fully-registered
certificated form (other than a Global Note), which shall be substantially in
the form of Exhibit A hereto, with appropriate legends as specified in Section
2.7 and Exhibit A hereto.
"Change of Control" means the occurrence of one or more of the
following events:
(a) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company (determined on a consolidated basis) to any Person or group of
related Persons for purposes of Section 13(d) of the Exchange Act (a "Group")
(whether or not otherwise in compliance with the provisions of this Indenture);
(b) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of this Indenture);
(c) any Person or Group, other than the Permitted Holders, becomes
the beneficial owner (as defined by Section 13(d) of the Exchange Act), directly
or indirectly, of more than 35% of the total voting power of the Capital Stock
of the Company, and the Permitted Holders beneficially own, directly or
indirectly in the aggregate, a lesser percentage of the total voting power of
the Capital Stock of the Company than such Person or Group and do not have the
right or ability by voting power, contract, or otherwise to elect or designate
for election a majority of the Board of Directors (or any analogous governing
body) of the Company; or
(d) the replacement of a majority of the Board of Directors of the
Company over a consecutive 24-month period from the directors who constituted
the Board of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors of the Company, then still in office, who either were members
of such Board of Directors at the beginning of such period or whose election as
a member of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning set forth in the
definition of "Change of Control Offer to Purchase".
"Change of Control Offer to Purchase" means a written notice (the
"Change of Control Offer") sent by first class mail, postage prepaid, to each
Holder at his address appearing in the security register on the date of the
Change of Control Offer, with a copy to the Trustee, offering to purchase the
Notes held by such Holder at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
Purchase Date (as defined below) (the "Change of Control Purchase Price").
Unless otherwise required by applicable law, the Change of Control Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be, subject to any contrary requirements of applicable law, not less
than 30 days or more than 60 days after the date of mailing of such Change of
Control Offer and a settlement date (the "Change of Control Purchase Date") for
the purchase of Notes which must be within three Business Days after the
Expiration Date. The Change of Control Offer shall contain all instructions and
materials necessary to enable such
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Holders to tender Notes pursuant to the Change of Control Offer to Purchase. The
Change of Control Offer shall also state:
(1) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note tendered
must be tendered in an integral multiple of $1,000 principal amount;
(2) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(3) that, unless the Company defaults in making such purchase, any
Note accepted for purchase pursuant to the Change of Control Offer to Purchase
will, after the Change of Control Purchase Date, cease to accrue interest but
that any Note not tendered or tendered but not purchased by the Company pursuant
to the Change of Control Offer to Purchase will continue to accrue interest at
the same rate;
(4) that, on the Change of Control Purchase Date, the Change of
Control Purchase Price will become due and payable upon each Note accepted for
payment pursuant to the Change of Control Offer to Purchase;
(5) that each Holder electing to tender a Note pursuant to the
Change of Control Offer to Purchase will be required to surrender such note at
the place or places set forth in the Change of Control Offer prior to the close
of business on the Expiration Date (such Note being accompanied by a written
instrument of transfer in the form provided in the form of Notes attached as
Exhibit A hereto duly executed by the Holder thereof or his attorney duly
authorized in writing);
(6) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its paying agent) receives, not later than the
close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the aggregate
principal amount of the Notes the Holder tendered, the certificate number of the
Note the Holder tendered and a statement that such Holder is withdrawing all or
a portion of his tender; and
(7) that, in the case of any Holder whose Note is tendered only in
part, the Company shall execute, and the Trustee shall authenticate and deliver
to the Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in the aggregate principal
amount equal to and in exchange for the untendered portion of the aggregate
principal amount of the Notes so tendered.
Any Change of Control Offer to Purchase shall be governed by and
effected in accordance with the Offer for such Offer to Purchase.
"Change of Control Purchase Date" has the meaning set forth in the
definition of "Change of Control Offer to Purchase."
"Change of Control Purchase Price" has the meaning set forth in the
definition of "Change of Control Offer to Purchase."
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"Clearstream" means Clearstream, Luxembourg, societe anonyme, or its
successor in such capacity. "Code" means the Internal Revenue Code of 1986, as
amended.
"Code" means Internal revenue Code of 1986, as amended.
"Commission Net Capital" means, at any time, the "net capital" of
LaBranche computed in accordance with Rule 15c3-1.
"Commission Required Net Capital" means, at any time, the minimum
amount to which Commission Net Capital must be equal pursuant to Rule 15c3-1 in
order to remain in compliance with all provisions thereof.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in the first paragraph of
this Indenture until a successor(s) replaces such party pursuant to Article V of
this Indenture and, thereafter, means the successor.
"Company Order" means any written request signed in the name of the
Company by an Officer of the Company.
"Consolidated EBITDA" means, with respect to the Company, for any
period, the sum (without duplication) of:
(a) Consolidated Net Income; and
(b) to the extent Consolidated Net Income has been reduced thereby;
(i) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary or
nonrecurring gains or taxes attributable to Asset Sales outside the
ordinary course of business);
(ii) Consolidated Interest Expense; and
(iii) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as
determined on a consolidated basis for the Company and the
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to
the Company, the ratio of Consolidated EBITDA of the Company during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and
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without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to:
(a) the Incurrence or repayment of any Indebtedness of the Company
or any of the Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any Incurrence or
repayment of other Indebtedness (and the application of the proceeds thereof),
other than the Incurrence or repayment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period; and
(b) any Asset Sales, any disposition of assets excluded from the
definition of Asset Sale pursuant to (b)(iii) thereof or any Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Company or one of the Restricted
Subsidiaries (including any Person that becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale or other disposition during the Four Quarter Period, provided that
such Consolidated EBITDA shall be included only to the extent includible
pursuant to the definition of "Consolidated Net Income") occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date as if such Asset Sale,
other disposition or Asset Acquisition (including the Incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If the Company or any of the Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the Incurrence of such guaranteed Indebtedness as
if the Company or any Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of the "Consolidated Fixed
Charge Coverage Ratio":
(i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue
to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date;
(ii) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect
during the Four Quarter Period; and
(iii) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by
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<PAGE>
agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for
any period, the sum, without duplication, of:
(a) Consolidated Interest Expense; plus
(b) the product of:
(i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or
accrued during such period times; and
(ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of the
Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company
for any period, the sum of, without duplication:
(a) the aggregate of the interest expense of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation, whether or not constituting
interest expense in accordance with GAAP:
(i) any amortization of debt discount,
(ii) the net costs under Interest Swap Obligations,
(iii) all capitalized interest and
(iv) the interest portion of any deferred payment obligation;
and
(b) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for
any period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains (but not losses) from Asset Sales or reserves
relating thereto;
(b) extraordinary gains or losses;
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<PAGE>
(c) for purposes of calculating Consolidated Net Income pursuant to
clause (C) of paragraph (a) of Section 4.7 hereof only, the net income of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary or is merged or consolidated with the
Company or any Restricted Subsidiary;
(d) the net income (but not loss) of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation of
law or otherwise;
(e) any increase (but not decrease) in net income attributable to
minority interests in Restricted Subsidiaries;
(f) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to the
Company or to a Restricted Subsidiary by such Person;
(g) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date;
(h) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, for purposes of calculating
Consolidated Net Income pursuant to clause (C) of paragraph (a) of Section 4.7
hereof only, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets; and
(i) the cumulative effect of changes in accounting principles.
"Consolidated Non-cash Charges" means, with respect to the Company,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of the Company and the Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charge that requires an accrual of or a
reserve for cash charges for any future period).
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is:
Firstar Bank, N.A., Corporate Trust Services, 425 Walnut Street, 6th Floor ML CN
WN 06CT Cincinnati, OH 45202.
"Credit Agreement" means the Credit Agreement between LaBranche and
The Bank of New York, dated June 26, 1998, as amended.
"Credit Facilities" means one or more debt facilities (including,
without limitation, the Credit Agreement) or commercial paper facilities, in
each case with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
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<PAGE>
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Custodian" means the custodian with respect to any Global Note
appointed by the Depository, or any successor Person thereto, and shall
initially be the Trustee.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depositary institution
hereinafter appointed by the Company that is a clearing agency registered under
the Exchange Act.
"Designated Senior Debt" means (1) Obligations under the Credit
Agreement and (2) any other Senior Debt permitted under this Indenture the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt" pursuant to an Officer's Certificate
delivered to the Trustee.
"Disqualified Capital Stock" means that portion of any Capital Stock
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is mandatorily exchangeable for Indebtedness, or is redeemable, or
exchangeable for Indebtedness, at the sole option of the holder thereof on or
prior to the 91st day after the final maturity date of the Notes.
"Distribution Compliance Period" means, in respect of any Regulation
S Global Note, the 40 consecutive days beginning on and including the later of
(a) the day on which any Notes represented thereby are offered to persons other
than distributors (as defined in Regulation S under the Securities Act) pursuant
to Regulation S and (b) the issue date for such Notes.
"DTC" means The Depository Trust Company, its nominees and their
respective successors and assigns, or such other depositary institution
hereinafter appointed by the Company that is a clearing agency registered under
the Exchange Act.
"Equity Incentive Plan" means the LaBranche & Co. Inc. Equity
Incentive Plan as in effect on the Issue Date or as amended from time to time as
approved by a majority of the disinterested members of the Board of Directors
(or a majority of the disinterested members of a committee thereof).
"Equity Interests" means Capital Stock and all warrants, options or
other right to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
10
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"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System, or its successor in such
capacity.
"Excess Cash Flow" means, with respect to the Company, for any
fiscal year, forty percent (40%) of the amount by which Consolidated EBITDA
exceeds the sum of:
(a) Consolidated Interest Expense, plus
(b) all taxes of the Company and the Restricted Subsidiaries paid or
accrued in accordance with GAAP for such fiscal year, plus
(c) the amount of any increases in Commission Required Net Capital,
NYSE Required Net Capital and/or NYSE Required Regulatory Capital funded by the
Company with retained earnings in such fiscal year, plus
(d) Capital Expenditures of the Company and its Restricted
Subsidiaries in such fiscal year, plus
(e) all cash amounts (excluding any cash generated or otherwise
derived from any debt or equity financing or refinancing transaction) paid or
committed to be paid (as evidenced by an executed definitive agreement with a
third party seller) by the Company or any of its Restricted Subsidiaries in
connection with an Asset Acquisition relating to a NYSE specialist in such
fiscal year; provided, however, that the aggregate amount of such cash amounts
shall not exceed $40 million, plus
(f) all cash amounts (excluding any cash generated or otherwise
derived from any debt or equity financing or refinancing transaction) paid in
such fiscal year by the Company or any of its Restricted Subsidiaries in respect
of principal made on the scheduled maturity (including any mandatory redemption)
of (i) any Indebtedness existing on the Issue Date, (ii) Senior Debt or (iii)
Indebtedness the documentation for which expressly provides that (a) it is on
parity with Senior Debt or (b) senior in right of payment to the Notes, other
than cash amounts paid in respect of the $20 million Note Purchase Agreement,
and, to the extent applicable, "Excess Cash Flow" shall also include any amounts
excluded from an Excess Cash Flow Offer in previous fiscal years pursuant to
Section 4.18(d).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto, and the rules and
regulations of the SEC promulgated thereunder.
"Expiration Date" has the meaning set forth in the definition of
"Change of Control Offer to Purchase."
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the
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<PAGE>
Company acting reasonably and in good faith and shall be evidenced by a Board
Resolution of the Board of Directors of the Company delivered to the Trustee.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accounts and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"Global Notes" means any Note issued in fully-registered
certificated form to the Depository (or its nominee), as depositary for the
beneficial owners thereof, which shall be substantially in the form of Exhibit A
hereto, with appropriate legends as specified in Section 2.7 hereof and Exhibit
A hereto.
"Holder" means a Person in whose name a Note is registered in the
security register.
"Incur" means, with respect to any Indebtedness or other obligation
of any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable, contingently or
otherwise, in respect of such Indebtedness or other obligation on the balance
sheet of such Person. Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means, with respect to any Person, without
duplication:
(a) all Obligations of such Person for borrowed money;
(b) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(c) all Capitalized Lease Obligations of such Person;
(d) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all Obligations
under any title retention agreement (but excluding trade accounts payable and
other accrued liabilities arising in the ordinary course of business that are
not overdue by 90 days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted);
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(e) all letters of credit, banker's acceptances or similar credit
transactions (including any Obligations for reimbursement in respect thereof);
(f) guarantees and other contingent obligations in respect of
Indebtedness of any other Person referred to in clauses (a) through (e) above
and clause (h) below;
(g) all Obligations of any other Person of the type referred to in
clauses (a) through (e) that are secured by any Lien on any property or asset of
such Person, the amount of such Obligation being deemed to be the lesser of the
fair market value of such property or asset or the amount of the Obligation so
secured;
(h) all Obligations under Currency Agreements and Interest Swap
Obligations of such Person; and
(i) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
Notwithstanding anything to the contrary herein, "Indebtedness" shall not
include any overnight borrowings by the Company or any Restricted Subsidiary
Incurred in connection with the lending of Investment Securities which does not
constitute indebtedness under GAAP.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the Company of such Disqualified Capital
Stock.
"Indenture" means this Indenture as amended, restated or
supplemented from time to time.
"Independent Financial Advisor" means a qualified accounting,
appraisal or investment banking firm of national standing that does not, and
whose directors, officers and employees and Affiliates do not, have a direct or
indirect financial interest in the Company.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
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"Investment" means, with respect to any Person:
(a) any direct or indirect advance, loan or other extension of
credit (including, without limitation, a guarantee) or capital contribution to
any other Person (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others); or
(b) any purchase or acquisition by such Person of any Capital Stock
(or warrants, rights or options to purchase Capital Stock) bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
Person.
"Investment" shall exclude extensions of trade credit by the Company
and the Restricted Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of the Company or such Restricted Subsidiary, as the
case may be. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Capital Stock of any Restricted Subsidiary (the "Referent
Subsidiary") such that, after giving effect to any such sale or disposition the
Referent Subsidiary shall cease to be a Restricted Subsidiary, the Company shall
be deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Capital Stock of the Referent Subsidiary
not sold or disposed of.
"Investment Securities" means marketable securities of a Person
(other than an Affiliate or joint venture of the Company or any Restricted
Subsidiary) acquired by the Company or any of its Restricted Subsidiaries in the
ordinary course of its specialist or related businesses.
"Issue Date" means March 2, 2000.
"LaBranche" means LaBranche & Co., a New York limited partnership,
or any other Wholly-Owned Subsidiary registered as a broker-dealer under the
Exchange Act which succeeds to the business of LaBranche & Co.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature hereof and any
agreement to give any security interest).
"Liquidated Damages" means the amount of additional interest to be
paid as liquidated damages by the Company to each Holder of Notes under certain
circumstances in accordance with the terms of the Registration Rights Agreement.
"Maturity Date" means March 2, 2007.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest), received by the Company or any of the Restricted Subsidiaries from
such Asset Sale net of:
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(a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees, sales commissions and relocation expenses);
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements;
(c) repayments of Indebtedness secured by the property or assets
subject to such Asset Sale that is required to be repaid in connection with such
Asset Sale; and
(d) appropriate amounts to be determined by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
"Notes" means any of the Company's Series A Notes and any
replacement Series A Notes and Series B Notes issued therefor in accordance with
this Indenture.
"NYSE" means the New York Stock Exchange, Inc. or any successor
operator of the New York Stock Exchange.
"NYSE Net Capital" means, at any time, the "net capital" of
LaBranche computed in accordance with Rule 326(a) of the NYSE (or any successor
provision).
"NYSE Required Net Capital" means, at any time, the minimum amount
of NYSE Net Capital necessary at such time in order to permit LaBranche to
"expand its business" pursuant to Rule 326(a) of the NYSE (or any successor
provision).
"NYSE Required Regulatory Capital" means, at any time, the minimum
net capital requirements prescribed under Rule 104 of the NYSE (or any successor
provision).
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any indebtedness.
"Offering" means the offering of the Notes as described in the
Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum dated February
24, 2000, pursuant to which the Series A Notes were offered.
"Officer" means, (i) with respect to the Company, the Chairman and
the Chief Executive Officer, any Vice President, the chief financial officer,
the controller, the chief accounting officer, the treasurer or the secretary of
the Company, and (ii) with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice
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President, the chief financial officer, the controller, the chief accounting
officer, the treasurer or secretary of such Person (or, in the case of a Person
that is a partnership or a limited liability company, a general partner or
managing member of such Person in such capacity, as the case may be), and (iii)
with respect to the Trustee, a Trust Officer.
"Officers' Certificate" means, (i) with respect to the Company, a
certificate signed by the Chairman and the Chief Executive Officer or any Vice
President and the chief financial officer, the controller or the chief
accounting officer of the Company and (ii) with respect to any Person, a
certificate signed by the Chairman of the Board, Chief Executive Officer, or
President and the chief financial officer, the controller or the chief
accounting officer, that shall comply with applicable provisions of this
Indenture, and (iii) with respect to the Trustee, a certificate signed by a
Trust Officer. "Opinion of Counsel" means a written opinion from legal counsel,
who may be an employee of the Company, which counsel is reasonably acceptable to
the Trustee.
"Opinion of Counsel" means written opinion from legal Counsel, who
may be an employee of the Company, which counsel is reasonably acceptable to the
Trustee.
"Permitted Holders" means:
(a) individually or a combination of any of the following
individuals: George M.L. LaBranche, IV, James G. Gallagher, Alfred O. Hayward,
Jr., Vincent J. Flaherty or Michael J. Naughton;
(b) a spouse of any of the Persons referred to in clause (a) or any
of his or her lineal descendants;
(c) the trustee(s) of any trust established solely for the benefit
of Persons referred to in clause (a) or (b) above;
(d) any organization to which contributions by any of the Persons
referred to in clause (a), (b) or (c) above are deductible for federal income,
estate or gift tax purposes or any split-interest trust described in Section
4947 of the Internal Revenue Code of 1986, as amended, provided that, in each
case, such Person is a trustee or a member of the board of directors, trustees
or other governing body or group having the ultimate authority, inter alia, to
vote, dispose or direct the voting or distribution of Capital Stock of the
Company held by such Person; and
(e) a corporation of which a majority of the voting power of its
outstanding Capital Stock is beneficially owned by, or a partnership or limited
liability company of which a majority of the partnership or limited liability
company interests entitled to vote and participate in the management of the
partnership or limited liability company are beneficially owned by, a Person
described in clause (a), (b), (c) or (d) of this definition.
"Permitted Indebtedness" means, without duplication, each of the
following:
(a) Indebtedness under the Series A Notes (including Series B Notes
issued therefor);
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(b) Indebtedness of the Company and the Restricted Subsidiaries
Incurred pursuant to working capital facilities (including, without limitation,
the Credit Agreement) in an amount not to exceed 70% of the market value of the
Investment Securities securing such facilities constituting equity securities
listed on the NYSE or the NASDAQ National Market System, less the amount of any
permanent prepayments or reductions of commitments in respect of any such
Indebtedness made pursuant to Section 4.8 hereof;
(c) Indebtedness of the Company and the Restricted Subsidiaries
outstanding on the Issue Date (excluding Indebtedness under the Credit
Agreement) reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions thereon;
(d) Permitted Subordinated Indebtedness Incurred after the Issue
Date not to exceed $50.0 million at any one time outstanding;
(e) Interest Swap Obligations of the Company covering Indebtedness
of the Company and Interest Swap Obligations of any Restricted Subsidiary
covering Indebtedness of such Restricted Subsidiary; provided, however, that
such Interest Swap Obligations are entered into to protect the Company and the
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional principal
amount of such Interest Swap Obligations does not exceed the principal amount of
the indebtedness to which such Interest Swap Obligations relates;
(f) Indebtedness under Currency Agreements; provided that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(g) Indebtedness of a Restricted Subsidiary to the Company or
another Restricted Subsidiary for so long as the Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by a
Person other than the Company or a Restricted Subsidiary; provided that if as of
any date any Person other than the Company or a Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such Indebtedness,
such Indebtedness shall be deemed to be Incurred on such date and not constitute
Permitted Indebtedness under this clause (g);
(h) Indebtedness of the Company to a Restricted Subsidiary, provided
that:
(i) any Indebtedness of the Company to any Restricted
Subsidiary is subordinate in right of payment to the Notes; and
(ii) if as of any date any Person other than a Restricted
Subsidiary owns or holds any such Indebtedness or any Person holds a
Lien in respect of such Indebtedness, such date shall be deemed the
date of Incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
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(i) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar installment inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such indebtedness is
extinguished within five Business Days of Incurrence;
(j) Indebtedness of the Company or any of the Restricted
Subsidiaries represented by letters of credit for the account of the Company or
such Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation clams, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(k) Refinancing Indebtedness;
(l) Purchase Money Indebtedness and Capitalized Lease Obligations
(and any Indebtedness incurred to Refinance such Purchase Money Indebtedness or
Capitalized Lease Obligations) of the Company or any Restricted Subsidiary not
to exceed $20.0 million at any one time outstanding;
(m) additional Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount not to exceed $25.0 million at any
one time outstanding; and
(n) the senior promissory notes to be issued to the stockholders of
Webco Securities, Inc. ("Webco") as part of the consideration in the acquisition
(through a merger) of Webco by the Company pursuant to the Agreement and Plan of
Merger, dated as of January 26, 2000, by and among the Company, Webco and the
stockholders of Webco.
"Permitted Investments" means:
(a) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Company or a Restricted
Subsidiary;
(b) Investments in the Company by any Restricted Subsidiary;
provided that any Indebtedness evidencing such Investment is unsecured and
subordinate to the Notes;
(c) Investments in cash and Cash Equivalents;
(d) loans and advances to employees, officers and directors of the
Company and the Restricted Subsidiaries in the ordinary course of business for
bona fide business purposes not in excess of $5.0 million at any time
outstanding in the aggregate;
(e) Currency Agreements and Interest Swap Obligations entered into
in the ordinary course of the Company's or a Restricted Subsidiary's businesses
and otherwise in compliance with this Indenture;
(f) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
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(g) Investments made by the Company or the Restricted Subsidiaries
as a result of noncash consideration received in connection with an Asset Sale
made in compliance with Section 4.8 hereof;
(h) Investments in Investment Securities (including borrowings or
loans of Investment Securities) in the ordinary course of business of the
Company and its Restricted Subsidiaries; or
(i) additional Investments not to exceed $10.0 million at any one
time outstanding in the aggregate.
"Permitted Junior Securities" means:
(a) Equity Interests in the Company; or
(b) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt under this Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either:
(i) not delinquent; or
(ii) contested in good faith by appropriate proceedings and as
to which the Company or any Restricted Subsidiary shall have set
aside on its books such reserves as may be required pursuant to
GAAP;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law or pursuant to customary reservations or retentions of title, in
each case arising in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in respect
thereof;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be initiated
shall not have expired;
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(e) easements, rights-of-way, zoning restrictions, minor defects or
irregularities in title and other similar charges or encumbrances in respect of
real property not impairing in any material respect the ordinary conduct of the
business of the Company or any Restricted Subsidiary;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(g) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and set-off;
(j) leases or subleases in respect of real property or equipment
granted to others not interfering in any material respect with the ordinary
conduct of the business of the Company or any Restricted Subsidiary;
(k) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(l) normal and customary rights of setoff upon deposits of cash in
favor of banks or other depositary institutions.
"Permitted Subordinated Indebtedness" means Indebtedness of the
Company Incurred at a time when no Default or Event of Default has occurred and
is continuing:
(a) which matures at least 91 days after the final maturity date for
the Notes and is not prior to that time (i) mandatorily redeemable, or (ii)
exchangeable for Indebtedness other than Permitted Subordinated Indebtedness,
pursuant to a sinking fund obligation or otherwise or upon the occurrence of any
event;
(b) which has a Weighted Average Life greater than that of the
Notes;
(c) which is subordinate in right of payment to the Notes with
payment blockage rights in favor of the Holders of the Notes equivalent to those
set forth in this Indenture for the Senior Debt; and
(d) the proceeds of which are loaned by the Company to LaBranche
pursuant to clause (g) of the definition of "Permitted Indebtedness" and a
subordinated loan agreement (as
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defined in Appendix D to Rule 15c3-1) for use by LaBranche for net capital
purposes and properly accounted for by LaBranche as Commission Net Capital and
NYSE Net Capital; provided that any subordination of the loan by the Company
will apply only to the extent required to permit the loan to qualify as
Commission Net Capital and NYSE Net Capital.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"Pro Rata Share" means, with respect to a Holder, a fraction equal
to the quotient of (x) the aggregate principal amount of Notes then held by such
Holder divided by (y) the aggregate principal amount of Notes then outstanding.
"Purchase Money Indebtedness" means Indebtedness of the Company or
any Restricted Subsidiary incurred for the purpose of financing all or any part
of the purchase price or the cost of construction or improvement of any
property, provided that the aggregate principal amount of such Indebtedness does
not exceed such purchase price or cost.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning set
forth in Rule 144A.
"Refinance" means in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or
any Restricted Subsidiary of Indebtedness incurred in accordance with Section
4.6 hereof (other than Permitted Indebtedness) or clause (a) or (c) of the
definition of "Permitted Indebtedness," in each case that does not:
(a) result in an increase in the aggregate principal amount of any
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium reasonably necessary to Refinance such Indebtedness
and plus the amount of reasonable expenses incurred by the Company in connection
with such Refinancing); or
(b) create Indebtedness with:
(i) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being
Refinanced, or
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(ii) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that if such Indebtedness
being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the
Company.
"Registered Exchange Offer" means an exchange offer by the Company
registered under the Securities Act pursuant to which Series A Notes originally
issued pursuant to an exemption from registration under the Securities Act are
exchanged for Series B Notes of like principal amount not bearing the private
placement legend.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Issue Date by and among the Company and Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Smith Barney Inc. and ABN AMRO
Incorporated, as the initial purchasers.
"Registration Statement" means an effective shelf registration
statement under the Securities Act that registers the resale by Holders (or
beneficial owners) of Series A Notes (or beneficial interests therein)
originally issued pursuant to an exemption from registration under the
Securities Act.
"Regulation S" means Regulation S under the Securities Act (or any
successor regulation thereto), as it may be amended from time to time.
"Replacement Assets" means assets and property that will be used in
the business of the Company and/or its Restricted Subsidiaries (including
Capital Stock of a Person that becomes a Wholly Owned Restricted Subsidiary).
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"Resale Restriction Termination Date" means, for any Restricted Note
(or beneficial interest therein), two years (or such other period specified in
Rule 144(k)) from the Issue Date.
"Restricted Note" means any Note (or beneficial interest therein)
other than the Regulation S Global Note or any Exchange Note, until such time
as:
(a) such Note (or beneficial interest therein) has been transferred
pursuant to a Registration Statement;
(b) the Resale Restriction Termination Date therefor has passed; or
(c) the Private Placement Legend therefor has otherwise been removed
pursuant to Section 2.8(c) or, in the case of a beneficial interest in a Global
Note, such beneficial interest has been exchanged for an interest in a Global
Note not bearing a Private Placement Legend.
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"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.13 hereof. Any such Designation may be revoked
by a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Rule 15c3-1" means Rule 15c3-1 under the Exchange Act (or any
successor provision).
"Rule 144" means Rule 144 under the Securities Act (or any successor
rule).
"Rule 144A" means Rule 144A under the Securities Act (or any
successor rule).
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of this Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute or statues thereto, and the rules and regulations of the
SEC promulgated thereunder.
"Senior Debt" means:
(a) all Indebtedness outstanding under Credit Facilities and all
Interest Swap Obligations with respect thereto;
(b) any other Indebtedness permitted to be incurred by the Company
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right payment to the Notes; and
(c) all Obligations with respect to the items listed in the
preceding clauses (a) and (b).
Notwithstanding anything to the contrary in the preceding, Senior
Debt shall not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company or any of its Subsidiaries;
(2) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates;
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(3) any trade payables;
(4) any Indebtedness that is incurred in violation of this
Indenture;
(5) Disqualified Capital Stock; or
(6) any Indebtedness that, when Incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company.
"Senior Note Indenture" means the indenture between the Company and
Firstar Bank, N.A., as Trustee, dated as of August 24, 1999, relating to the 9
1/2% Senior Notes due 2004, as amended or supplemented.
"Series A Notes" means any of the Company's 12% Senior Subordinated
Notes due 2007 originally issued on the Issue Date, and any replacement Notes.
"Series B Notes" means Notes issued in a Registered Exchange Offer
in exchange for a like principal amount of the Series A Notes originally issued
pursuant to an exemption from registration under the Securities Act, and
replacement Notes issued therefor in accordance with this Indenture.
"SIPA" means the Securities Investor Protection Act of 1970, as
amended, or any successor statute or statutes thereto, and the rules and
regulations of promulgated thereunder.
"SIPC" means the Securities Investor Protection Corporation and any
successor organization discharging the responsibilities of the Securities
Investor Protection Corporation.
"Significant Subsidiary" means, with respect to any Person, any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Securities Act as in effect on the Issue Date, except that all references to 10%
in Section 1.02(w) shall be changed to 5%.
"S &P" means Standard & Poor's Ratings Group and its successors.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subsidiary" with respect to any Person, means:
(a) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of directors
under ordinary circumstances shall at the time be owned, directly or indirectly,
by such Person; or
(b) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
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"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture
(except as provided in Section 8.3 hereof).
"Transaction Date" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Trust Officer" when used with respect to the Trustee, means any
officer or assistant officer of the Trustee assigned to the corporate trust
administration department or similar department performing corporate trust work
of the Trustee or any successor to such department or, in the case of a
successor Trustee, any officer of such successor Trustee performing corporate
trust functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.13 hereof. Any
such designation may be revoked by a Board Resolution of the Company delivered
to the Trustee, subject to the provisions of Section 4.13 hereof.
"U.S. Government Obligations" means (i) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the Company thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or a specific payment of principal or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained dividing:
(a) the then outstanding aggregate principal amount of such
Indebtedness into
(b) the sum of the total of the products obtained by multiplying:
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(i) the amount of each then remaining installment, sinking
fund, serial maturity or other required payment of principal,
including payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of
such payment.
"Wholly Owned Restricted Subsidiary" of the Company means any
Restricted Subsidiary of which all the outstanding voting securities (other than
in the case of a Subsidiary not organized under the laws of a State of the
United States, directors' qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable law) are owned by
the Company or any Wholly Owned Restricted Subsidiary.
Section 1.2. Other Definitions.
The definitions of the following terms may be found in the Sections
indicated as follows:
Term Defined in Section
- ---- ------------------
"Affiliate Transaction" .................................... 4.12
"Agent Members" ............................................ 2.6
"Authenticating Agent" ..................................... 2.2
"Business Day" ............................................. 10.8
"Company Order" ............................................ 2.2
"Covenant Defeasance" ...................................... 9.3
"Defaulted Interest" ....................................... Exhibit A
"Designation" .............................................. 4.13
"Designation Amount" ....................................... 4.13
"Excess Cash Flow Offer" ................................... 4.18
"Excess Cash Flow Payment Date" ............................ 4.18
"Excess Cash Flow Purchase Price" .......................... 4.18
"Event of Default" ......................................... 6.1
"Legal Defeasance" ......................................... 9.2
"Net Proceeds Offer" ....................................... 4.8
"Net Proceeds Offer Amount" ................................ 4.8
"Net Proceeds Offer Payment Date" .......................... 4.8
"Net Proceeds Offer Trigger Date" .......................... 4.8
"Non-U.S. Beneficial Ownership Certification" .............. 2.1
"Non-U.S. Person" .......................................... 2.8
"Note Purchase Agreements" ................................. 4.18
"Paying Agent" ............................................. 2.3
"Payment Blockage Notice" .................................. 3.3
"pay the Notes" ............................................ 3.3
"Private Placement Legend" ................................. 2.7
"Reference Date" ........................................... 4.7
"Registrar" ................................................ 2.3
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"Regulation S Global Note" ................................. 2.1
"Required Filing Dates" .................................... 4.2
"Restricted Payment" ....................................... 4.7
"Revocation" ............................................... 4.13
"Rule 144A Global Note" .................................... 2.1
"Special Record Date" ...................................... 2.12
"Surviving Entity" ......................................... 5.1
"$15 million Note Purchase Agreement" ...................... 4.18
"$20 million Note Purchase Agreement" ...................... 4.18
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
portion of such provision required to be incorporated herein in order for this
Indenture to be qualified under the TIA is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"indenture securities" means the Notes.
"indenture securityholder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the Indenture securities" means the Company or any other
obligor on the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined in the TIA by reference to another statute or defined by SEC rule have
the meanings therein assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it herein, whether defined
expressly or by reference;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) words used herein implying any gender shall apply to every
gender;
(d) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
Subdivision, unless expressly stated otherwise; and
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(e) the term "interest" shall include all additional interest as
provided in the Registration Rights Agreement for purposes of this Indenture and
the Notes.
ARTICLE II.
THE NOTES
Section 2.1. Form and Dating.
(a) The Series A Notes are being originally offered and sold by the
Company pursuant to a purchase agreement, dated February 24, 2000 among the
Company, Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith
Barney Inc. and ABN AMRO Incorporated. The Company may issue up to $250,000,000
aggregate principal amount of the Notes as provided in this Indenture. The Notes
will be issued in fully-registered form without coupons, and only in
denominations of $1,000 and any integral multiple thereof. The Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A hereto.
(b) The terms and provisions of the Notes, the form of which is in
Exhibit A hereto, shall constitute, and are hereby expressly made, a part of
this Indenture, and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby. Except as otherwise expressly permitted
in this Indenture, all Notes shall be identical in all respects. Notwithstanding
any differences among them, all Notes issued under this Indenture shall vote and
consent together on all matters as one class.
(c) The Notes may have notations, legends or endorsements as
specified in Section 2.7 or as otherwise required by law, stock exchange rule or
the Depository rule or usage. The Company and the Trustee shall approve the form
of the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication.
(d) Series A Notes originally offered and sold to QIBs in reliance
on Rule 144A will be issued on the issue date therefor in the form of a
permanent Global Note ("Rule 144A Global Notes").
(e) Series A Notes originally offered and sold outside the United
States of America will be issued in the form of a permanent Global Note (the
"Regulation S Global Notes").
Section 2.2. Execution and Authentication.
(a) The Chairman, Chief Executive Officer and President and the
chief financial officer shall sign the Notes for the Company by manual or
facsimile signature. If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note, the Note shall be
valid nevertheless.
(b) A Note shall not be valid until an authorized signatory of the
Trustee manually authenticates the Note. The signature of the Trustee on a Note
shall be conclusive evidence that such Note has been duly and validly
authenticated and issued under this Indenture.
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(c) At any time and from time to time after the execution and
delivery of this Indenture, the Trustee shall authenticate and make available
for delivery Notes, upon a written order of the Company signed by two Officers
or by an Officer and either an Assistant Treasurer or an Assistant Secretary of
the Company (the "Company Order"). A Company Order shall specify the amount of
the Notes to be authenticated and the date on which the original issue of Notes
is to be authenticated. The aggregate principal amount of Notes that may be
authenticated and delivered under this Indenture is limited to $250,000,000.00.
The Trustee or an Authenticating Agent shall upon receipt of a Company Order
authenticate for original issue Series A Notes in the aggregate principal amount
of $250,000,000 plus any Series B Notes that may be issued pursuant to the
Registration Rights Agreement; provided that the Trustee shall receive an
Officers' Certificate and an Opinion of Counsel of the Company in connection
with such authentication of Notes. The Opinion of Counsel shall be to the effect
that:
(i) the form and terms of such Notes have been established by
or pursuant to a Board Resolution or, if applicable, an indenture
supplemental hereto in conformity with the provisions of this
Indenture;
(ii) such supplemental indenture, if any, when executed and
delivered by the Company and the Trustee, will constitute a valid
and binding obligation of the Company;
(iii) such Notes, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute
valid and binding obligations of the Company in accordance with
their terms and will be entitled to the benefits of this Indenture,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equitable
principles; and
(iv) that the Company has been duly incorporated in, and is a
validly existing corporation in good standing under the laws of, the
State of Delaware.
(d) The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Notes. Unless limited
by the terms of such appointment, any such Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by the Authenticating
Agent.
(e) In event that the Company:
(i) shall be consolidated with or merged into any other
Person, or
(ii) shall convey, transfer, lease or otherwise dispose of its
properties and assets substantially as an entirety to any Person,
and the Surviving Entity resulting from such consolidation, or surviving such
merger, or which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article V; then any of
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the Notes authenticated or delivered prior to such transaction may, from time to
time, at the request of the Surviving Entity, be exchanged for other Notes
executed in the name of the Surviving Entity with such changes in phraseology
and form as may be appropriate, but otherwise identical to the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Order of the Surviving Entity, shall authenticate and deliver Notes as specified
in such order for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a Surviving Entity pursuant to
this Section 2.2 in exchange or substitution for or upon registration of
transfer of any Notes, such Surviving Entity, at the option of the Holders but
without expense to them, shall provide for the exchange of all Notes at the time
outstanding for Notes authenticated and delivered in such new name.
Section 2.3. Registrar and Paying Agent.
(a) The Company shall maintain an office or agency in the Borough of
Manhattan, City of New York, where Notes may be presented for registration of
transfer or for exchange (the "Registrar"), where Notes may be presented for
payment (the "Paying Agent") and for the service of notices and demands to or
upon the Company in respect of the Notes and this Indenture. The Registrar shall
keep a register of the Notes and of their transfer and exchange. The Company may
have one or more co-Registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent.
(b) The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-Registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7 hereof.
The Company may act as Paying Agent, Registrar, co-Registrar or transfer agent.
(c) The Company initially appoints the Trustee at its principal
Corporate Trust Office as Registrar, Paying Agent and agent for service of
demands and notices in connection with the Notes and this Indenture, until such
time as the Trustee has resigned or a successor Trustee has been appointed.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent (other than the Trustee)
to agree in writing that such Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all money held by such Paying Agent for the payment of
principal of or interest on the Notes and shall notify the Trustee in writing of
any default by the Company in making any such payment. If the Company acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
(other than the Trustee) to pay all money held by it to the Trustee and to
account for any funds disbursed by such Paying Agent. Upon complying with this
Section 2.4, the Paying Agent (if other than the Company) shall have no further
liability for the money delivered to the Trustee. Upon any proceeding under any
Bankruptcy Law with respect to the Company or any Affiliate
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of the Company, if the Company is then acting as Paying Agent, the Trustee shall
replace the Company as Paying Agent.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, or to the extent otherwise
required under the TIA, the Company shall furnish to the Trustee, in writing at
least seven Business Days before each Interest Payment Date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders.
Section 2.6. Global Note Provisions.
(a) Each Global Note initially shall: (i) be registered in the name
of the Depository or the nominee of the Depository, (ii) be delivered to the
Custodian, and (iii) bear the appropriate legend, as set forth in Section 2.7
and Exhibit A hereto. Any Global Note may be represented by more than one
certificate. The aggregate principal amount of each Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Custodian, as provided in this Indenture.
(b) Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository or by the Custodian under such Global Note,
and the Depository may be treated by the Company, the Trustee, the Paying Agent
and the Registrar and any of their agents as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee, the Paying Agent or the Registrar or any
of their agents from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices of the Depository
governing the exercise of the rights of an owner of a beneficial interest in any
Global Note. The registered Holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action that a Holder is
entitled to take under this Indenture or the Notes.
(c) Except as provided in Section 2.8 and below, owners of
beneficial interests in Global Notes will not be entitled to receive
Certificated Notes. Certificated Notes shall be issued to all owners of
beneficial interests in a Global Note in exchange for such interests if:
(i) the Depository notifies the Company that it is unwilling
or unable to continue as depositary for such Global Note or the
Depository ceases to be a clearing agency registered under the
Exchange Act, at a time when the Depository is required to be so
registered in order to act as depositary, and in each case a
successor depositary is not appointed by the Company within 90 days
of such notice, or
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(ii) the Company executes and delivers to the Trustee and
Registrar an Officers' Certificate stating that such Global Note
shall be so exchangeable.
In connection with the exchange of an entire Global Note for Certificated Notes
pursuant to this subsection (c), such Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
upon Company Order the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in such Global Note, an equal aggregate principal amount of
Certificated Notes of authorized denominations.
(d) In connection with the exchange of a portion of a Certificated
Note for a beneficial interest in a Global Note, the Trustee shall cancel such
Certificated Note, and the Company shall execute, and upon Company Order the
Trustee shall authenticate and deliver, to the exchanging Holder a new
Certificated Note representing the principal amount not so exchanged.
Section 2.7 Legends.
(a) Each Global Note shall bear the legend specified therefor in
Exhibit A on the face thereof.
(b) Each Restricted Note shall bear the private placement legend
specified therefor in Exhibit A on the face thereof (the "Private Placement
Legend").
Section 2.8 Transfers and Exchanges.
(a) The following provisions shall apply with respect to any
proposed transfer of an interest in a Rule 144A Global Note that is a Restricted
Note:
(i) If (1) the owner of a beneficial interest in a Rule 144A Global
Note wishes to transfer such interest (or portion thereof) to a Non-U.S.
Person pursuant to Regulation S and (2) such Non-U.S. Person wishes to
hold its interest in the Notes through a beneficial interest in the
Regulation S Global Note, (x) upon receipt by the Custodian and Registrar
of:
(A) instructions from the Holder of the Rule 144A Global Note
directing the Custodian and Registrar to credit or cause to be
credited a beneficial interest in the Regulation S Global Note
equal to the principal amount of the beneficial interest in
the Rule 144A Global Note to be transferred, and
(B) a certificate in the form of Exhibit D from the
transferor,
and (y) subject to the rules and procedures of DTC, the Custodian and
Registrar shall increase the Regulation S Global Note and decrease the
Rule 144A Global Note by such amount in accordance with the foregoing.
(b) Other Transfers. Any transfer of Restricted Notes not described
above (other than a transfer of a beneficial interest in a Global Note that does
not involve an exchange of such
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interest for a Certificated Note or a beneficial interest in another Global
Note, which must be effected in accordance with applicable law and the rules and
procedures of DTC, but is not subject to any procedure required by this
Indenture) shall be made only upon receipt by the Registrar of such opinions of
counsel, certificates and/or other information reasonably required by and
satisfactory to it in order to ensure compliance with the Securities Act or in
accordance with Section 2.8(c).
(c) Use and Removal of Private Placement Legends. Upon the transfer,
exchange or replacement of Certificated Notes (or beneficial interests in a
Global Note) not bearing a Private Placement Legend, the Registrar (and the
Custodian, in the case of beneficial interests in a Global Note) shall exchange
such Notes (or beneficial interests) for Certificated Notes (or beneficial
interests in a Global Note) that do not bear a Private Placement Legend. Upon
the transfer, exchange or replacement of Certificated Notes (or beneficial
interests in a Global Note) bearing a Private Placement Legend, the Registrar
(and the Custodian, in the case of beneficial interests in a Global Note) shall
deliver only Certificated Notes (or beneficial interests in a Global Note) that
bear a Private Placement Legend unless:
(i) such Notes (or beneficial interests) are exchanged in a
Registered Exchange Offer;
(ii) such Notes (or beneficial interests) are transferred
pursuant to a Registration Statement;
(iii) such Notes (or beneficial interests) are transferred
pursuant to Rule 144 upon delivery to the Registrar of a certificate
of the transferor in the form of Exhibit E hereto, and an Opinion of
Counsel reasonably satisfactory to the Registrar;
(iv) such Notes (or beneficial interests) are transferred,
replaced or exchanged after the Resale Restriction Termination Date
therefor; or
(v) in connection with such transfer, exchange or replacement
the Registrar shall have received an Opinion of Counsel and other
evidence reasonably satisfactory to it to the effect that neither
such Private Placement Legend nor the related restrictions on
transfer are required in order to maintain compliance with the
provisions of the Securities Act.
The Private Placement Legend on any Note shall be removed at the request of the
Holder on or after the Resale Restriction Termination Date therefor. The Holder
of a Global Note may exchange an interest therein for an equivalent interest in
a Global Note not bearing a Private Placement Legend upon transfer of such
interest pursuant to any clauses (i)-(v) above. The Company shall deliver to the
Trustee an Officers' Certificate promptly upon effectiveness, withdrawal or
suspension of any Registration Statement.
(d) Consolidation of Global Notes and Exchange of Certificated Notes
for Beneficial Interest in Global Notes. If a Global Note not bearing a Private
Placement Legend (other than a Regulation S Global Note) is outstanding at the
time of a Registered Exchange
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Offer, any interests in a Global Note exchanged in such Registered Exchange
Offer shall be exchanged for interests in such outstanding Global Note.
(e) Retention of Documents. The Registrar shall retain copies of all
letters, notices and other written communications received pursuant to this
Article II. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Registrar.
(f) Execution, Authentication of Notes, etc.
(i) Subject to the other provisions of this Section 2.8, when
Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Notes or to exchange such
Notes for an equal principal amount of Notes of other authorized
denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its requirements for
such transaction are met; provided that any Notes presented or
surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Registrar or co-Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfers and exchanges and subject to the other
terms and conditions of this Article II, the Company will execute
and upon Company Order the Trustee will authenticate Certificated
Notes and Global Notes at the Registrar's or co-Registrar's request.
In accordance with the Registration Rights Agreement, the Company
will execute and upon Company Order the Trustee will authenticate
Series B Notes in exchange for Notes.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax, assessments,
or similar governmental charge payable in connection therewith
(other than any such transfer taxes, assessments or similar
governmental charges payable upon exchange or transfer pursuant to a
Registered Exchange Offer, or Section 4.8, Section 4.14, Section 5.1
or Section 9.5).
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Note for a period
beginning: (A) 15 days before the mailing of a notice of an offer to
repurchase or redeem Notes and ending at the close of business on
the day of such mailing or (B) 15 days before an Interest Payment
Date and ending on such Interest Payment Date.
(iv) Prior to the due presentation for registration of
transfer of any Note, the Company, the Trustee, the Paying Agent,
the Registrar or any co-Registrar may deem and treat the person in
whose name a Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and interest on
such Note and for all other purposes whatsoever, whether or not such
Note is overdue, and none of the Company, the Trustee, the Paying
Agent, the Registrar or any co-Registrar shall be affected by notice
to the contrary.
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(v) All Notes issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall
be entitled to the same benefits under this Indenture as the Notes
surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of interest in a Global Note, a member of, or a
participant in, the Depository or other Person with respect to the
accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership
interest in the Notes or with respect to the delivery to any
participant, member, beneficial owner or other Person (other than
the Depository) of any notice or the payment of any amount or
delivery of any Notes (or other security or property) under or with
respect to such Notes. All notices and communications to be given to
the Holders and all payments to be made to Holders in respect of the
Notes shall be given or made only to or upon the order of the
registered Holders (which shall be the Depository or its nominee in
the case of a Global Note). The Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository
with respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with
respect to any transfer of any interest in any Note (including any
transfers between or among the Depository participants, members or
beneficial owners in any Global Note) other than to require delivery
of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required
by, the terms of this Indenture, and to examine the same to
determine substantial compliance as to form with the express
requirements hereof.
Section 2.9. Mutilated, Destroyed, Lost or Stolen Notes.
(a) If a mutilated Note is surrendered to the Registrar or if the
Holder of a Note claims that the Note has been lost, destroyed or stolen, the
Company shall execute and upon Company Order the Trustee shall authenticate a
replacement Note if the requirements of Section 8-405 of the Uniform Commercial
Code are met and the Holder satisfies any other reasonable requirements of the
Trustee. If required by the Trustee or the Company, such Holder shall furnish an
affidavit of loss and indemnity bond sufficient in the judgment of the Company
and the Trustee to protect the Company, the Trustee, the Paying Agent, the
Registrar and any co-Registrar from any loss that any of them may suffer if a
Note is replaced, and, in the absence of notice to the Company or the Trustee
that such Note has been acquired by a bona fide purchaser, the Company shall
execute and upon Company Order the Trustee shall authenticate and make available
for delivery, in exchange for any such mutilated Note or in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount,
bearing a number not contemporaneously outstanding.
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(b) Upon the issuance of any new Note under this Section 2.9, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
(c) Every new Note issued pursuant to this Section in exchange for
any mutilated Note, or in lieu of any destroyed, lost or stolen Note, shall
constitute an original additional contractual obligation of the Company and any
other obligor upon the Notes, whether or not the mutilated, destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
execute and upon Company Order the Trustee will authenticate temporary Notes.
Temporary Notes will be substantially in the form of definitive Notes but may
have variations that the Company consider appropriate for temporary Notes.
Without unreasonable delay, the Company will prepare and execute and upon
Company Order the Trustee will authenticate definitive Notes. After the
preparation of definitive Notes, the temporary Notes will be exchangeable for
definitive Notes representing an equal principal amount upon surrender of the
temporary Notes at any office or agency maintained by the Company for that
purpose and such exchange shall be without charge to the Holder. Until so
exchanged, the Holder of temporary Notes shall in all respects be entitled to
the same benefits under this Indenture as a Holder of definitive Notes.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel and return to the Company all Notes
surrendered for registration of transfer, exchange or payment. The Company may
not issue new Notes to replace Notes that have been paid or delivered to the
Trustee for cancellation for any reason other than in connection with a transfer
or exchange.
Section 2.12. Defaulted Interest.
When any installment of interest becomes Defaulted Interest (as
defined in the form of Note), such installment shall forthwith cease to be
payable to the Holders in whose names the Notes were registered on the record
date applicable to such installment of interest. Defaulted Interest, and any
interest payable on such Defaulted Interest, may be paid by the Company, at its
election, as provided in clause (i) or (ii) below.
(i) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to
the Holders in whose names the Notes are registered at the close of
business on a special record date for the payment of such Defaulted
Interest (a "Special Record Date"), which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on the Notes
and
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the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Holders
entitled to such Defaulted Interest as provided in this clause (i).
Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest, which shall be not more than 15
calendar days and not less than ten calendar days prior to the date
of the proposed payment and not less than ten calendar days after
the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be sent, first-class mail, postage
prepaid, to each Holder at such Holder's address as it appears in
the registration books of the Registrar, not less than ten calendar
days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Holders in whose names the Notes are registered
at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (ii); or
(ii) The Company may make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, on the Notes in
any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon
such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant
to this clause (ii), such manner of payment shall be deemed
practicable by the Trustee.
Section 2.13. Additional Amounts Under Registration Rights
Agreements.
Under certain circumstances, the Company may be obligated to pay
additional interest to Holders, all as and to the extent set forth in the
Registration Rights Agreement. The terms thereof are hereby incorporated herein
by reference and such additional interest is deemed to be interest for purposes
of this Indenture.
ARTICLE III.
SUBORDINATION OF THE NOTES
Section 3.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article III, to the prior payment
in full in cash of all Senior Debt of the Company whether outstanding on the
Issue Date or thereafter incurred and that the subordination
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is for the benefit of and enforceable by the holders of such Senior Debt. Only
Senior Debt of the Company shall rank senior to the Notes in accordance with the
provisions set forth herein. The Notes shall in all respects rank pari passu
with, or be senior to, all other Indebtedness of the Company. All provisions of
this Article III shall be subject to Section 3.12.
Section 3.2. Liquidation, Dissolution, Bankruptcy.
Upon any payment or distribution of the assets of the Company to
creditors upon a total or partial liquidation or dissolution of the Company, in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, an assignment by the Company for the
benefit of its creditors or the marshaling of the assets and liabilities of the
Company:
(1) holders of Senior Debt of the Company shall be
entitled to receive payment in full in cash of all Obligations due in
respect thereof (including interest after the commencement of any
bankruptcy proceeding at the rate specified in the applicable Senior Debt,
whether or not allowed as a claim in such proceeding) before Holders shall
be entitled to receive any payment of principal or interest on the Notes;
and
(2) until such Senior Indebtedness is paid in full, any
distribution to which Holders would be entitled but for this Article III
shall be made to holders of such Senior Debt as their interests may
appear;
except that Holders may receive (a) Permitted Junior Securities and (b) payments
and other distributions made from any defeasance trust created pursuant to
Article IX.
Section 3.3. Default on Designated Senior Debt of the Company.
The Company may not pay the principal of or interest on the Notes or
make any deposit pursuant to Article IX and may not repurchase, redeem or
otherwise retire any Notes (collectively, "pay the Notes"), other than payments
and other distributions in the form of Permitted Junior Securities or from any
defeasance trust created pursuant to Article IX if:
(i) a payment default on Designated Senior Debt of the Company
occurs and is continuing beyond any applicable grace period; or
(ii) any other default occurs and is continuing on Designated
Senior Debt of the Company that permits the holders thereof to
accelerate its maturity and the Trustee receives a notice of that
default (a "Payment Blockage Notice") from the Company or the
holders of such Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(x) in the case of a Payment Blockage Notice relating to a
payment default, upon the date on which it is cured or waived; and
(y) in case of a Payment Blockage Notice relating to a
nonpayment default, the earlier of the date on which it is cured or
waived or 179 days after the
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date on which such Payment Blockage Notice is received, unless the
maturity of the relevant Designated Senior Debt of the Company has
been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless that default shall have
been cured or waived for a period of not less than 180 days.
Section 3.4. Acceleration of Payment of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of the
Senior Debt of the Company (or their Representative) of the acceleration.
Section 3.5. When Distribution Must Be Paid Over.
If a distribution is made to Holders that because of this Article
III should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Senior Debt of the Company and pay it over
to them as their interests may appear.
Section 3.6. Subrogation.
After all Senior Debt of the Company is paid in full and until the
Notes are paid in full, Holders shall be subrogated to the rights of holders of
such Senior Debt to receive distributions applicable to such Senior Debt. A
distribution made under this Article III to holders of such Senior Debt which
otherwise would have been made to Holders is not, as between the Company and
Holders, a payment by the Company on such Senior Debt.
Section 3.7. Relative Rights.
This Article III defines the relative rights of Holders and holders
of Senior Debt of the Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the
obligation of the Company, which is absolute and unconditional, to pay its
Obligations in respect of this Indenture and the Notes in accordance with
their terms; or
(2) prevent the Trustee or any Holder from exercising
its available remedies upon a Default, subject to the rights of holders of
Senior Debt of the Company to receive distributions otherwise payable to
Holders as provided in this Article III.
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Section 3.8. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt of the Company to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or by its failure to comply with this
Indenture.
Section 3.9. Rights of Trustee and Paying Agent.
(a) Notwithstanding Section 3.3, the Trustee or Paying Agent (other
than the Company) may continue to make payments on the Notes and shall not be
charged with knowledge of the existence of facts that would prohibit the making
of any such payments unless, not less than two Business Days prior to the date
of such payment, a Trust Officer of the Trustee receives notice satisfactory to
it that payments may not be made under this Article III. The Company, the
Registrar or co-registrar, the Paying Agent, a Representative or a holder of
Senior Debt may give the notice; provided, however, that, if the holders of an
issue of Senior Debt of the Company have a Representative, only the
Representative may give the notice.
(b) The Trustee in its individual or any other capacity may hold
Senior Debt of the Company with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article III with respect to any Senior Debt of the Company which may at any
time be held by it, to the same extent as any other holder of such Senior Debt,
and nothing in Article VII shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article III shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 7.7.
Section 3.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders
of Senior Debt of the Company, the distribution may be made and the notice given
to their Representative (if any).
Section 3.11. Article III Not to Prevent Events of Default or Limit
Right to Accelerate.
The failure to make a payment pursuant to the Notes by reason of any
provision in this Article III shall not be construed as preventing the
occurrence of a Default. Nothing in this Article III shall have any effect on
the right of the Holders or the Trustee to accelerate the maturity of the Notes.
Section 3.12. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments
from money or the proceeds of U.S. Government Obligations held in trust under
Article IX by the Trustee for the payment of principal of and interest on the
Notes shall not be subordinated to the prior payment of any Senior Debt or
subject to the restrictions set forth in this Article III, and none of the
Holders shall be obligated to pay over any such amount to the Company or any
holder of Senior Debt of the Company or any other creditor of the Company.
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Section 3.13. Trustee Entitled to Rely.
Upon any payment or distribution pursuant to this Article III, the
Trustee and the Holders shall be entitled to rely (i) upon any order or decree
of a court of competent jurisdiction in which any proceedings of the nature
referred to in Section 3.2 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Holders or (iii) upon the Representative for the
holders of Senior Debt of the Company for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Senior Debt and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article III. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Debt of the Company to participate in any
payment or distribution pursuant to this Article III, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of such Senior Debt held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article III, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.1 and 7.2 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article III.
Section 3.14. Trustee to Effectuate Subordination.
Each Holder by accepting a Note authorizes and directs the Trustee
on such Holder's behalf to take such action as may be necessary or appropriate
to acknowledge or effectuate the subordination between the Holders and the
holders of Senior Debt of the Company as provided in this Article III and
appoints the Trustee as attorney-in-fact for any and all such purposes.
Section 3.15. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Holders or the Company or any other Person,
money or assets to which any holders of Senior Debt of the Company shall be
entitled by virtue of this Article III or otherwise.
Section 3.16. Reliance by Holders of Senior Debt on Subordination
Provisions.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Debt of the Company, whether
such Senior Debt was created or acquired before or after the issuance of the
Notes, to acquire and continue to hold, or to continue to hold, such Senior Debt
and such holder of such Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt.
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ARTICLE IV.
COVENANTS
Section 4.1. Payment of Notes.
The Company shall pay or cause to be paid the principal, Change of
Control Purchase Price or Excess Cash Flow Purchase Price of, and any accrued
interest, as the case may be (which shall include any Liquidated Damages as
provided in the Registration Rights Agreement) on, the Notes on the dates and in
the manner provided in the Notes and this Indenture. The Company shall deposit
with the Paying Agent in immediately available funds an amount sufficient to
make cash payments due on such Interest Payment Date or Maturity Date, as the
case may be. If the Company is acting as Paying Agent, the Company shall, on
each Interest Payment Date and the Maturity Date, segregate and hold in trust an
amount sufficient to make cash payments due on such Interest Payment Date or
Maturity Date, as the case may be. An installment of principal, Change of
Control Purchase Price or Excess Cash Flow Purchase Price of, or accrued
interest on, the Notes shall be considered paid on the date it is due if the
Trustee or a Paying Agent (other than the Company) holds on that date money
designated for and sufficient to pay such installment and is not prohibited from
paying such money to the Holders on that date pursuant to the terms of this
Indenture. The Company shall pay interest on overdue principal, Change of
Control Purchase Price and Excess Cash Flow Purchase Price (including
post-petition interest in a proceeding under any Bankruptcy Law) and overdue
interest, to the extent lawful, at the rate specified in the Notes.
Section 4.2. SEC Reports.
(a) Whether or not the Company is subject to Section 13(a) or 15(d)
of the Exchange Act, or any successor provision thereto, the Company will, to
the extent accepted by the SEC and not prohibited under the Exchange Act, file
with the SEC the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to such Section
13(a) or 15(d) or any successor provision thereto if the Company was subject
thereto, on or prior to the respective dates by which the Company would have
been required to file them (the "Required Filing Dates"). The Company will also,
in any event, (i) within 15 days of each Required Filing Date (A) transmit by
mail to all Holders, as their names and addresses appear in the Security
register maintained by the Registrar, without cost to such Holders copies of
those annual reports, quarterly reports and other documents which the Company
files with the SEC, and (B) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company files with the SEC and
(ii) if filing such documents by the Company with the SEC is not accepted by the
SEC or is prohibited under the Exchange Act, promptly upon written request,
supply copies of such documents to any Holder.
(b) The Company will, upon request, provide to any Holder of Notes
or any prospective transferee of any such Holder any information concerning the
Company (including financial statements) necessary in order to permit such
Holder to sell or transfer Notes in compliance with Rule 144A under the
Securities Act, if applicable; provided, however, that the Company shall not be
required to furnish such information in connection with any request made
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on or after the date which is two years from the later of (i) the date such Note
(or any predecessor Note) was acquired from the Company or (ii) the date such
Note (or any predecessor Note) was last acquired from an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act.
Section 4.3. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead (as a defense or otherwise) or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, or accrued interest on,
the Notes as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture. The Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during such fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions hereof (or, if a Default or Event of
Default shall have occurred, describing all Defaults or Events of Default of
which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal, Change of Control Purchase Price or Excess
Cash Flow Purchase Price of, and accrued interest on, the Notes are prohibited
or, if such event has occurred, a description of the event and what action each
of the Company is taking or proposes to take with respect thereto.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.2 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of this Article IV or Article V of this
Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly for any failure to obtain knowledge of any such
violation.
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(c) The Company will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.5. Taxes.
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
Section 4.6. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness, other than
Permitted Indebtedness; provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a consequence
of the Incurrence of any such Indebtedness, the Company may Incur Indebtedness
and the Restricted Subsidiaries may Incur Acquired Indebtedness, in each case if
on the date of the Incurrence of such Indebtedness, after giving effect to the
Incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.75 to 1.
Section 4.7. Limitation on Restricted Payments.
(a) The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution,
other than dividends or distributions payable in Qualified Capital
Stock of the Company, on or in respect of shares of the Company's
Capital Stock;
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any warrants, rights or options
to purchase or acquire shares of any class of such Capital Stock;
(iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Indebtedness which is subordinated in right of payment to the Notes,
except a payment of interest or any principal payment at the Stated
Maturity thereof;
(iv) make any Investment, other than a Permitted Investment;
or
(v) make compensation or consulting payments in excess of base
salaries limited to $350,000 to managing directors and other
executive officers (as defined in Rule 3b-7 under the Exchange Act)
of the Company or any of its Restricted Subsidiaries, except to the
extent authorized under the Annual Incentive Plan or the Equity
Incentive Plan or otherwise approved by a majority of the
disinterested members of the Board of Directors of the Company or a
duly
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authorized committee thereof comprised of individuals who are not
managing directors or other executive officers of the Company or any
of its Affiliates;
(each of the foregoing actions set forth in clauses (i), (ii), (iii), (iv) and
(v) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto:
(A) a Default or an Event of Default shall have occurred
and be continuing; or
(B) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in
compliance with the covenant described under Section 4.6 hereof; or
(C) the aggregate amount of Restricted Payments,
including the proposed Restricted Payment, made subsequent to the
Issue Date (the amount expended for such purpose, if other than in
cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of:
(1) 50% of the cumulative Consolidated Net Income
(or if cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss) of the Company earned from the
beginning of the first full fiscal quarter following the Issue
Date and through the end of the most recent fiscal quarter for
which financial statements are available prior to the date
such Restricted Payment occurs (the "Reference Date"),
treating such period as a single accounting period; plus
(2) 100% of the aggregate net cash proceeds
received by the Company from any Person, other than a
Subsidiary of the Company, from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company or of other
securities that have been converted into Qualified Capital
Stock of the Company; plus
(3) without duplication of any amounts included in
clause (C)(2) above, 100% of the aggregate net cash proceeds
of any contribution to the common equity capital of the
Company received by the Company from a holder of the Company's
Qualified Capital Stock; excluding, in the case of clauses
(C)(2) and (3), any net proceeds from a sale of Qualified
Capital Stock received from a Subsidiary of the Company or
applied in accordance with clause (ii)(B) of paragraph (b) of
this Section 4.7; plus
(4) an amount equal to the lesser of:
(x) the sum of the fair market value of the
Capital Stock of an Unrestricted Subsidiary owned by the
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Company and/or the Restricted Subsidiaries and the
aggregate amount of all Indebtedness of such
Unrestricted Subsidiary owed to the Company and each
Restricted Subsidiary on the date of Revocation of such
Unrestricted Subsidiary as an Unrestricted Subsidiary in
accordance with Section 4.13 hereof; and
(y) the Designation Amount treated as a
Restricted Payment pursuant to clause (iv) above with
respect to such Unrestricted Subsidiary on the date of
the Designation of such Subsidiary as an Unrestricted
Subsidiary in accordance with the covenant described
under Section 4.13 hereof; plus
(5) in the case of the disposition of an
Investment treated as a Restricted Payment pursuant to clause
(iv) above to a Person other than the Company or one of its
Subsidiaries, an amount equal to the lesser of:
(x) the amount of such Investment treated as
a Restricted Payment pursuant to clause (iv) above, and
(y) the amount in cash received by the
Company or any Restricted Subsidiary upon such
disposition; plus
(F) $15.0 million.
(b) The provisions set forth in paragraph (a) do not prohibit:
(i) the payment of any dividend within 60 days after the date
of declaration of such dividend if the dividend would have been
permitted on the date of declaration;
(ii) the redemption, repurchase, retirement, defeasance or
other acquisition of Indebtedness of the Company or any Restricted
Subsidiary or of Capital Stock of the Company, in each case to the
extent constituting a Restricted Payment pursuant to clause (ii) or
(iii) of paragraph (a) of this Section 4.7 either:
(A) solely in exchange for shares of Qualified Capital
Stock of the Company, or
(B) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of shares of Qualified Capital Stock of the Company
or of any contribution to the common equity capital of the Company
received by the Company from a holder of the Company's Qualified
Capital Stock;
(iii) the defeasance, redemption, repurchase or other
acquisition of Indebtedness of the Company or any Restricted
Subsidiary with the net cash proceeds from an Incurrence of
Permitted Refinancing Indebtedness therefor; and
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(iv) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases of Capital Stock (or options
therefor) of the Company from officers, directors, employees,
consultants or former officers, directors, employees or consultants
of the Company (or any of its Subsidiaries) pursuant to equity
ownership or compensation plans or stockholders agreements not to
exceed $5.0 million in any year.
(c) In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii)(C) of paragraph (a)
of this Section 4.7, amounts expended pursuant to clauses (i) and (iv) of
paragraph (b) of this Section 4.7 shall be included in the calculation.
Section 4.8. Limitation on Asset Sales.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of the Asset
Sale at least equal to the fair market value of the assets sold or
otherwise disposed of as determined in good faith by the Board of
Directors of the Company;
(ii) at least 75% of the consideration received by the Company
or the Restricted Subsidiary, as the case may be, from the Asset
Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such Asset Sale; and
(iii) upon the consummation of the Asset Sale, the Company may
apply, or cause such Restricted Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 360 days of receipt
thereof either:
(A) to repay Senior Debt of the Company or Indebtedness
of any Restricted Subsidiary, in each case for borrowed money or
constituting a Capitalized Lease Obligation, and permanently reduce
the commitments with respect thereto without Refinancing;
(B) to repay any Indebtedness of a Wholly Owned
Restricted Subsidiary owed to any Person other than the Company or
any of its Affiliates and effect a permanent reduction in any
availability in respect of the Indebtedness (without refinancing the
Indebtedness);
(C) to acquire Replacement Assets; or
(D) a combination of prepayment and investment permitted
by the preceding clauses (iii)(A), (B) and (C).
The assumption by the transferee in an Asset Sale (and release of the Company
and its Restricted Subsidiaries of further liability) of Indebtedness for
borrowed money of the Company or any Restricted Subsidiary other than
Disqualified Capital Stock or Indebtedness subordinated in right
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of payment to the Notes shall be deemed to be cash applied in accordance with
this covenant. The receipt by the Company or the applicable Restricted
Subsidiary of marketable securities of a company subject to and then current in
its obligations as a reporting company under Section 13 or 15 under the Exchange
Act, which are resold for cash or Cash Equivalents by the Company or the
Restricted Subsidiary within 120 days of the relevant Asset Sale and applied in
accordance with this covenant, shall be deemed to be cash received pursuant to
clause (ii) of this paragraph (a).
(b) On the 361st day after an Asset Sale or such earlier date, if
any, as the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to the Asset Sale as set
forth in clause (iii) of paragraph (a) of this Section 4.8 (each, a "Net
Proceeds Offer Trigger Date"), the aggregate amount of Net Cash Proceeds that
have not been applied on or before the Net Proceeds Offer Trigger Date as
permitted in that clause (iii) (a "Net Proceeds Offer Amount") shall be applied
by the Company to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis, that principal amount of Notes equal to the Net Proceeds Offer Amount at
a price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest, if any, thereon to the date of purchase; provided
that the Company may make a concurrent offer to repurchase on a pro rata basis
Indebtedness of a Wholly Owned Restricted Subsidiary or Indebtedness of the
Company ranking pari passu with the Notes.
(c) If at any time any non-cash consideration received by the
Company or any Restricted Subsidiary, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration) or Cash
Equivalents, then such conversion or disposition shall be deemed to constitute
an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in
accordance with this Section 4.8. Pending application in accordance with this
Section 4.8, Net Cash Proceeds may be used to repay revolving credit borrowings
without reducing commitments thereunder.
(d) The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5.0
million resulting from one or more Asset Sales or deemed Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5.0 million, shall be applied as required pursuant to this Section
4.8).
(e) In the event of the transfer of substantially all (but not all)
of the property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.1 hereof, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and the Restricted Subsidiaries not transferred for purposes of this
Section 4.8 and shall comply with the provisions of this Section 4.8 with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value (as determined in good faith by the Board of Directors of the
Company) of such properties and assets of the Company or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.8.
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(f) Each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a pro rata basis based on the principal amount of
Notes (and other Indebtedness for which a concurrent offer is being made as
permitted by this Section 4.8) tendered. A Net Proceeds Offer shall remain open
for a period of 20 Business Days or such longer period as may be required by
law.
(g) The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section 4.8,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section 4.8 by
virtue thereof.
Section 4.9. Limitation on Distributions and Other Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect
of its Capital Stock;
(b) make loans or advances or pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or any
other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reasons of:
(i) applicable law or regulation or NYSE regulations;
(ii) this Indenture;
(iii) customary non-assignment provisions of any contract or
any lease governing a leasehold interest of any Restricted
Subsidiary;
(iv) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired;
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(v) agreements existing on the Issue Date to the extent and in
the manner such agreements are in effect on the Issue Date;
(vi) any other agreement entered into after the Issue Date
that contains encumbrances and restrictions that are not materially
more restrictive with respect to any Restricted Subsidiary than
those in effect with respect to such Restricted Subsidiary pursuant
to agreements as in effect on the Issue Date so long as any such
restrictions expressly permit scheduled payments on the Notes;
(vii) customary restrictions on the transfer of any property
or assets arising under a security agreement governing a Lien
permitted under this Indenture; and
(viii) any agreement governing Refinancing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (ii), (iv) or (v)
above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Refinancing
Indebtedness are not materially more restrictive than the provisions
relating to such encumbrance or restriction contained in agreements
referred to in such clause (ii), (iv) or (v) and expressly permit
dividends and other distributions for scheduled payments on the
Notes.
Section 4.10. Limitation on Issuance and Sale of Capital Interests
in Restricted Subsidiaries.
The Company will not permit:
(a) any Restricted Subsidiary to issue any Capital Stock other than
to the Company or a Restricted Subsidiary; or
(b) any Person (other than the Company or a Restricted Subsidiary)
to own or control any Capital Stock of any Restricted Subsidiary (other than
directors' qualifying shares or as may be required by law);
provided that clauses (a) and (b) will not prohibit:
(1) any sale of 100% of the shares of the Capital Stock of any
Restricted Subsidiary owned by the Company or any Restricted Subsidiary effected
in accordance with Section 4.8 hereof; or
(2) any sale of 100% of the shares of the Capital Stock of any
Restricted Subsidiary owned by the Company or any Restricted Subsidiary effected
in accordance with Section 5.1 hereof.
Section 4.11. Limitations on Liens.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens
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of any kind (except for Liens securing Senior Debt and Permitted Liens) against
or upon, or enter into or otherwise become liable in respect of, a Sale and
Leaseback Transaction with respect to, any property or assets of the Company or
any of the Restricted Subsidiaries, whether owned on the Issue Date or acquired
after the Issue Date, or any proceeds therefrom or assign or otherwise convey
any right to receive income or profit therefrom unless:
(a) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens; and
(b) in all other cases, the Notes are equally and ratably secured,
except for:
(i) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date;
(ii) Liens on Investment Securities securing Indebtedness
incurred pursuant to clause (b) of the definition of "Permitted
Indebtedness" and Interest Swap Obligations and Currency Agreements
related thereto;
(iii) Liens securing Purchase Money Indebtedness (or
Refinancing Indebtedness in respect thereof) or Sale and Leaseback
Transactions involving Capitalized Lease Obligations, in each case,
Incurred pursuant to clause (1) of the definition of "Permitted
Indebtedness"; provided, however, that:
(A) the Purchase Money Indebtedness (or Refinancing
Indebtedness) or Capitalized Lease Obligation shall not exceed the
cost of the property or assets to be acquired or which is the
subject of the Sale and Leaseback Transaction, and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets to be acquired or
which is the subject of the Sale and Leaseback Transaction, and
(B) the Lien securing any Purchase Money Indebtedness
shall be created within 90 days of such acquisition;
(iv) Liens securing Acquired Indebtedness (and any Refinancing
Indebtedness in respect thereof); provided that:
(A) the Liens secured the Acquired Indebtedness at the
time of and prior to the Incurrence of the Acquired Indebtedness by
the Company or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of the Incurrence of the
Acquired Indebtedness by the Company or a Restricted Subsidiary, and
(B) the Liens do not extend to or cover any property or
assets of the Company or of any of the Restricted Subsidiaries other
than the property or assets that secured the Acquired Indebtedness
prior to the time the Indebtedness became Acquired Indebtedness of
the Company or a Restricted Subsidiary;
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(v) Liens securing the Notes;
(vi) Liens in favor of the Company; and
(vii) Liens securing Refinancing Indebtedness incurred to
Refinance any Indebtedness, which Refinanced Indebtedness had been
secured by a Lien permitted under this Indenture; provided, however,
that such Liens do not extend to or cover any property or assets of
the Company or any of the Restricted Subsidiaries not securing the
Indebtedness so Refinanced.
Section 4.12. Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction") unless the Affiliate Transaction is on terms that are not
materially less favorable than those that would have reasonably been expected in
a comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company or such Restricted Subsidiary. Prior to
the consummation by the Company or any Restricted Subsidiary of any Affiliate
Transactions (or series of related Affiliate Transactions which are similar or
part of a common plan) involving aggregate payments or other property with a
fair market value in excess of:
(i) $5.0 million, the Company or such Restricted Subsidiary,
as the case may be, shall obtain the approval of its Board of
Directors (including a majority of the independent directors) of
such transaction or series of related transactions evidenced by a
Board Resolution stating that such Board of Directors (including a
majority of the independent directors) has determined that such
transaction complies with the foregoing provisions, and
(ii) $10.0 million, the Company or such Restricted Subsidiary,
as the case may be, shall obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to
the Company or the relevant Restricted Subsidiary, as the case may
be, from a financial point of view, from an Independent Financial
Advisor, and file it with the Trustee.
(b) The restrictions set forth in paragraph (a) above shall not
apply to:
(i) employment, stock option, consulting, agency or other
compensation or benefit plans, arrangements and agreements of the
Company or any Restricted Subsidiary in accordance with the Annual
Incentive Plan or the Equity Incentive Plan or as approved by a
majority of the disinterested members of the Board of Directors (or
a majority of the disinterested members of a committee thereof);
(ii) reasonable fees and compensation paid to directors, and
reasonable indemnity provided on behalf of officers, directors,
employees, consultants or
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agents, of the Company or any Restricted Subsidiary as determined in
good faith by the Company's Board of Directors or senior management;
(iii) transactions exclusively between or among the Company
and any Restricted Subsidiaries or exclusively between or among
Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by this Indenture; and
(iv) Restricted Payments permitted to be made pursuant to
Section 4.7 hereof.
Section 4.13. Limitation On Designations of Unrestricted
Subsidiaries.
(a) The Company may designate after the Issue Date any Subsidiary of
the Company, other than LaBranche or a Person holding Capital Stock of
LaBranche, as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; and
(ii) the Company would be permitted under this Indenture to
make an Investment at the time of Designation assuming the
effectiveness of the Designation in an amount (the "Designation
Amount") equal to the sum of:
(A) the fair market value of the Capital Stock of the
Subsidiary owned by the Company and/or any of the Restricted
Subsidiaries on such date and
(B) the aggregate amount of Indebtedness of the
Subsidiary owed to the Company and the Restricted Subsidiaries on
that date; and
(iii) the Company would be permitted to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to the covenant described under Section 4.6 hereof at the time of
Designation assuming the effectiveness of the Designation.
(b) In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment in the
Designation Amount pursuant to Section 4.7 hereof for all purposes of this
Indenture. Furthermore, the Company shall not, and shall not permit any
Restricted Subsidiary to, at any time:
(i) provide direct or indirect credit support for or a
guarantee of any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or
(iii) be directly or indirectly liable for any Indebtedness
that provides that the holder thereof may (upon notice, lapse of
time or both) declare a default
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thereon or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity upon the occurrence of a
default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against
the Unrestricted Subsidiary).
(c) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary ("Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default shall have occurred and be continuing at the
time and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiaries outstanding immediately following such Revocation
would, if incurred at such time, have been permitted to be incurred
for all purposes of this Indenture.
(d) All Designations and Revocations must be evidenced by an
Officers' Certificate of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.
Section 4.14. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall
make a Change of Control Offer to Purchase all of the outstanding Notes at the
Change of Control Purchase Price.
For purposes of the foregoing, a Change of Control Offer to Purchase shall be
deemed to have been made if:
(i) within 30 days following the date of the consummation of a
transaction or series of transactions that constitutes a Change of Control, the
Company commences a Change of Control Offer to Purchase for all outstanding
Notes at the Change of Control Purchase Price (provided that the running of such
30-day period shall be suspended, for up to a maximum of 30 days, during any
period when the commencement of such Change of Control Offer to Purchase is
delayed or suspended by reason of any court's or governmental authority's review
of or ruling on any materials being employed by the Company to effect such
Change of Control Offer to Purchase, so long as the Company has used and
continues to use its best efforts to make and conclude such Change of Control
Offer to Purchase promptly); and
(ii) all Notes properly tendered pursuant to the Change of
Control Offer to Purchase are purchased on the terms of such Change of Control
Offer to Purchase.
(b) The Company will not be required to make a Change of Control
Offer to Purchase upon a Change of Control if a third party makes a Change of
Control Offer to Purchase contemporaneously with or upon a Change of Control in
the manner, at the times and otherwise in compliance with the requirements of
this Indenture and purchases all Notes validly tendered and not withdrawn under
its Change of Control Offer to Purchase.
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(c) On the Change of Control Purchase Date, the Company shall, to
the extent lawful, (i) accept for payment Notes or portions thereof or
beneficial interests under a Global Note properly tendered pursuant to the Offer
to Purchase, (ii) deposit with the Paying Agent (by no later than 11:00 a.m. on
such date) money sufficient to pay the Change of Control Purchase Price of all
Notes or portions thereof or beneficial interests so tendered and (iii) deliver
or cause to be delivered to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly (1) mail to each holder of Notes so
accepted and (2) remit to the Depository for crediting to the respective
accounts of the Holders under a Global Note of beneficial interest so accepted,
payment in an amount equal to the purchase price for such Notes (which payment
shall, in the case of the Holders of beneficial interests in a Global Note, be
through the facilities of the Depository), and the Company shall execute and
issue, and the Trustee shall promptly authenticate and mail to such holder, a
new Note equal in principal amount to any untendered portion of the Notes
surrendered and shall issue a Global Note equal in principal amount to any
untendered portion of beneficial interest so surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
(d) If the Company or any Subsidiary thereof has issued any
outstanding Indebtedness that is subordinated in right of payment to the Notes,
and the Company or such Subsidiary is required to make an offer to purchase upon
a Change of Control or to make a distribution with respect to such subordinated
Indebtedness or Preferred Stock in the event of a Change of Control, the Company
shall not consummate any such offer or distribution with respect to such
subordinated Indebtedness or Preferred Stock until such time as the Company
shall have paid the Change of Control Purchase Price in full to the holders of
Notes that have accepted the Company's Change of Control Offer to Purchase and
shall otherwise have consummated the Change of Control Offer to Purchase made to
holders of the Notes. The Company will not issue Indebtedness that is
subordinated in right of payment to the Notes or Preferred Stock with change of
control provisions requiring the payment of such Indebtedness or Preferred Stock
prior to making and consummating an offer to purchase the Notes in the event of
a Change of Control under this Indenture.
(e) The Company will comply, to the extent applicable, with the
requirements of Rule l4e-1 under the Exchange Act and any other securities laws
and regulations to the extent such laws and regulations are applicable in
connection with any repurchase of the Notes as described above. To the extent
that the provisions of any securities laws or regulations conflict with any
repurchase of the Notes as described above, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.14 by virtue thereof.
Section 4.15 Limitation on Layered Indebtedness.
The Company shall not, directly or indirectly, incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of the Company and
senior in any respect in right to the Notes.
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Section 4.16. Maintenance of Office or Agency.
The Company shall maintain in New York, New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee as set forth in Section
10.2. The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations, provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in New York, New York for such
purposes. The Company shall give prompt written notice to the Trustee of such
designation or rescission and of any change in the location of any such other
office or agency. The Company hereby initially designates the Corporate Trust
Office of the Trustee as such office of the Company.
Section 4.17. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties used or useful
to the conduct of its business or the business of any of its Restricted
Subsidiaries to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all equipment deemed
necessary in the good faith judgment of the Officers of the Company and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof; provided, however, that nothing in this Section 4.17 shall
prevent the Company or any Restricted Subsidiary from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is in the good faith judgment of the Board of
Directors of the Company or the Restricted Subsidiary concerned, as the case may
be, desirable in the conduct of the business of the Company or such Restricted
Subsidiary, as the case may be, and is not adverse in any material respect to
the Holders.
(b) The Company shall provide or cause to be provided, for itself
and each of its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that are adequate and
appropriate for the conduct of the business of the Company and such Restricted
Subsidiaries in a prudent manner, with reputable insurers or with the government
of the United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the good faith judgment of the Company, for corporations similarly situated in
the industry.
Section 4.18. Excess Cash Flow Offer
(a) If the Company has Excess Cash Flow for any fiscal year
(commencing with fiscal year 2000), the Company shall make an offer to purchase
(the "Excess Cash Flow Offer") on a Business Day (the "Excess Cash Flow Payment
Date") not later than 150 days following the end of such fiscal year, from each
Holder, up to a maximum principal amount
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(expressed as a multiple of $1,000) of Notes equal to the Holder's Pro Rata
Share of such Excess Cash Flow in such fiscal year. The purchase price (the
"Excess Cash Flow Purchase Price") of Notes to be purchased pursuant to the
Excess Cash Flow Offer shall be equal to 103% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the Excess Cash Flow
Payment Date. Notice of an Excess Cash Flow Offer shall be given to Holders not
less than 30 Business Days before the Excess Cash Flow Payment Date and shall be
sent by first class mail, postage prepaid, to each Holder at his address
appearing in the security register on the date of five Business Days prior to
the date of such notice. The Excess Cash Flow Offer is required to remain open
for 20 Business Days and payment pursuant to the Excess Cash Flow Offer will be
made on the Excess Cash Flow Payment Date. The Excess Cash Flow Offer shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the terms of the Excess Cash Flow Offer. The Excess
Cash Flow Offer shall also state:
(i) that the Holder may tender Notes registered in the name of
such Holder in the maximum principal amount of such Holder's Pro Rata Share of
Excess Cash Flow and that any portion of a Note tendered must be tendered in an
integral multiple of $1,000 principal amount;
(ii) the place or places where Notes are to be surrendered for
tender pursuant to the Excess Cash Flow Offer;
(iii) that, unless the Company defaults in making such
purchase, the portion of the aggregate principal amount of any Note tendered and
accepted for purchase pursuant to the Excess Cash Flow Offer shall, after the
Excess Cash Flow Purchase Date, cease to accrue interest but that the remaining
aggregate principal amount of any Note not tendered or tendered but not
purchased by the Company pursuant to the Excess Cash Flow Offer shall continue
to accrue interest at the same rate;
(iv) that, on the Excess Cash Flow Purchase Date, the Excess
Cash Flow Purchase Price will become due and payable upon each Note accepted for
payment pursuant to the Excess Cash Flow Offer;
(v) that each Holder electing to tender a Note pursuant to the
Excess Cash Flow Offer shall be required to surrender such Note at the place or
places set forth in the Excess Cash Flow Offer prior to the close of business on
the Excess Cash Flow Purchase Date (such Note being accompanied by a written
instrument of transfer in the form provided in the form of Notes attached as
Exhibit A hereto duly executed by the Holder thereof or his attorney duly
authorized in writing);
(vi) that each Holder will be entitled to withdraw all or any
portion of any Note tendered if the Company (or its paying agent) receives, not
later than the close of business on the expiration date of the Excess Cash Flow
Offer, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the aggregate principal amount of the Notes the Holder
tendered, the certificate number of the Note the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender; and
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(vii) that, in the case of any Holder whose Note is tendered
only in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder, in the aggregate
principal amount equal to and in exchange for the untendered portion of the
aggregate principal amount of the Notes so tendered.
(b) On the Excess Cash Flow Payment Date, the Company shall, to the
extent lawful, (i) accept for payment Notes or portions thereof or beneficial
interests under a Global Note properly tendered pursuant to the Excess Cash Flow
Offer, (ii) deposit with the Paying Agent (by no later than 11:00 a.m. on such
date) money sufficient to pay the Excess Cash Flow Purchase Price of all Notes
or portions thereof or beneficial interests so tendered and (iii) deliver or
cause to be delivered to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly (1) mail to each holder of Notes so
accepted and (2) remit to the Depository for crediting to the respective
accounts of the Holders under a Global Note of beneficial interest so accepted,
payment in an amount equal to the purchase price for such Notes (which payment
shall, in the case of the Holders of beneficial interests in a Global Note, be
through the facilities of the Depository), and the Company shall execute and
issue, and the Trustee shall promptly authenticate and mail to such holder, a
new Note equal in principal amount to any untendered portion of the Notes
surrendered and shall issue a Global Note equal in principal amount to any
untendered portion of beneficial interest so surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
(c) If the Company or any Subsidiary thereof has issued any
outstanding Indebtedness that is subordinated in right of payment to the Notes
or Preferred Stock, and the Company or such Subsidiary is required to make an
offer to purchase in respect of any excess cash flow for any fiscal year, the
Company shall not consummate any such offer or distribution with respect to such
subordinated Indebtedness until such time as the Company shall have paid the
Excess Cash Flow Purchase Price in full to the holders of Notes that have
accepted the Company's Excess Cash Flow Offer and shall otherwise have
consummated the Excess Cash Flow Offer made to holders of the Notes. The Company
will not issue Indebtedness that is subordinated in right of payment to the
Notes or Preferred Stock with distribution provisions requiring the payment of
such Indebtedness or Preferred Stock prior to making and consummating an Excess
Cash Flow Offer under this Indenture.
(d) Notwithstanding the foregoing:
(i) the amount of Excess Cash Flow included in any Excess Cash
Flow Offer shall not exceed:
(A) the amount that the Company is permitted to use to
repurchase Notes in such Excess Cash Flow Offer pursuant to the
Senior Note Indenture as in effect on the Issue Date; or
(B) the amount that LaBranche is permitted to distribute
to the Company pursuant to the note purchase agreement relating to
LaBranche's series
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of outstanding unsecured subordinated notes in the aggregate
principal amount of $15 million (the "$15 million Note Purchase
Agreement") and the note purchase agreement relating to LaBranche's
series of outstanding unsecured senior subordinated notes in the
aggregate principal amount of $20.0 million (the "$20 million Note
Purchase Agreement" together with the $15 million Note Purchase
Agreement, the "Note Purchase Agreements"), each as in effect on the
Issue Date;
and
(ii) the Company will not be required to make an Excess Cash
Flow Offer for any fiscal year if the amount of such Excess Cash Flow Offer
would be less than $5.0 million;
provided that any amounts excluded from an Excess Cash Flow Offer
pursuant to clause (i) or (ii) above shall be carried forward for purposes
of determining whether an Excess Cash Flow Offer is required with respect
to subsequent fiscal years and the amount thereof.
(e) To the extent an Excess Cash Flow Offer is not fully subscribed
to by the Holders, the unsubscribed portion of such Excess Cash Flow may be
retained by the Company and/or used for any purpose, subject to the covenants
contained in the Indenture, and shall be excluded from the calculation of Excess
Cash Flow for any subsequent period.
(f) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and other applicable laws or
regulations in connection with the purchase of the Notes pursuant to this
covenant. To the extent that the provisions of any applicable laws or
regulations conflict with the provisions of the Indenture, the Company will
comply with the applicable laws and regulations and shall not be deemed to have
breached its obligations described in the Indenture by virtue thereof.
(g) The Company's ability to make an Excess Cash Flow Offer is
subject to compliance with the restricted payments covenants in the Senior Note
Indenture and the Note Purchase Agreements, and no Default hereunder will occur
on the Notes if the Company fails to make an Excess Cash Flow Offer in order to
comply with these covenants.
ARTICLE V.
SUCCESSOR CORPORATION
Section 5.1. Limitation on Merger, Consolidation and Sale of Assets.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets
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(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:
(i) either:
(A) the Company shall be the surviving or continuing
corporation; or
(B) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and the
Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity"):
(x) shall be a corporation organized and validly
existing under the laws of the United States or any Sate
thereof or the District of Columbia; and
(y) shall expressly assume, by supplemental
indenture (in form and substance reasonably satisfactory to
the Trustee), executed and delivered to the Trustee, the due
and punctual payment of the principal of, and premium, if any,
and interest on all of the Notes and the performance of every
covenant of the Notes, this Indenture and the Registration
Rights Agreement on the part of the Company to be performed or
observed;
(ii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(B)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred in connection with or in respect of
such transaction), the Company or such Surviving Entity, as the case
may be, shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under Section 4.6 hereof;
(iii) immediately before and immediately after giving effect
to such transaction and the assumption contemplated by clause
(i)(B)(y) of this paragraph (a) (including, without limitation,
giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection
with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and
(iv) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable
provisions of this Indenture and that all conditions precedent in
this Indenture relating to such transaction have been satisfied.
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(b) Paragraph (a) of this Section 5.1 will not apply to a merger or
consolidation between the Company and a Restricted Subsidiary in which the
Company is the surviving company or between one or more Restricted Subsidiaries
to the extent that a Person that is a Restricted Subsidiary immediately before
and after the transaction is the surviving entity, or to the sale of
substantially all of the assets of a Restricted Subsidiary to the Company or to
a Person that is a Restricted Subsidiary immediately before and after the
transaction. For purposes of this Section 5.1, the transfer by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions, of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Section 5.2. Successor Person Substituted.
Upon any transaction or series of transactions that are of the type
described in and effected in accordance with, Section 5.1, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such Surviving
Entity had been named as the Company herein; and when a Surviving Entity duly
assumes all of the obligations and covenants of the Company pursuant to this
Indenture and the Notes, except in the case of a lease, the predecessor Person
shall be relieved of all such obligations.
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
(a) Each of the following is an "Event of Default":
(i) the failure to pay interest (including any Liquidated
Damages payable under the Registration Rights Agreement) on any
Notes when the same becomes due and payable and the default
continues for a period of 30 days, whether or not such payment shall
be prohibited by the subordination provision of this Indenture;
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer, a Net Proceeds Offer or an
Excess Cash Flow Offer), whether or not such payment shall be
prohibited by the subordination provision of this Indenture;
(iii) a default in the observance or performance of the
covenant described under Section 5.1 hereof;
(iv) a default in the observance or performance of any other
covenant or agreement contained in this Indenture, which default
continues for a period of 45 calendar days after the Company
receives written notice specifying the default
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from the Trustee or the Holders of at least 25% of the outstanding
principal amount of the Notes;
(v) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or of any Restricted
Subsidiary (or the payment of which is guaranteed by the Company or
any Restricted Subsidiary), whether such Indebtedness now exists or
is created after the Issue Date, which default:
(A) is caused by failure to pay principal of such
Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default (a "payment default"), or
(B) results in the acceleration of such Indebtedness
prior to its express maturity,
and the aggregate principal amount of any Indebtedness to which
clause (A) or (B) applies at the relevant time, exceeds $10.0
million;
(vi) one or more judgments in an aggregate amount in excess of
$10.0 million shall have been rendered against the Company or any of
the Restricted Subsidiaries and such judgements remain undischarged,
unpaid or unstayed for a period of 45 calendar days after such
judgment or judgments become final and nonappealable;
(vii) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Significant Subsidiary of the Company in an involuntary case or
proceeding under the SIPA or any Bankruptcy Law or (B) a decree or
order (1) adjudging the Company or any Significant Subsidiary of the
Company bankrupt or insolvent, (2) approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of, or in respect of, the Company or any Significant
Subsidiary of the Company under any Bankruptcy Law, (3) appointing a
Bankruptcy Custodian of the Company or any Significant Subsidiary of
the Company or of any substantial part of the property of the
Company or any Significant Subsidiary of the Company, or (4)
ordering the winding-up or liquidation of the affairs of the Company
or any Significant Subsidiary of the Company, and in each case, the
continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60
consecutive calendar days;
(viii) (A) the commencement by the Company or any Significant
Subsidiary of the Company of a voluntary case or proceeding under
the SIPA or any Bankruptcy Law or of any other case or proceeding to
be adjudicated bankrupt or insolvent, (B) the consent by the Company
or any Significant Subsidiary of the Company to the entry of a
decree or order for relief in respect of the Company or any
Significant Subsidiary of the Company in an involuntary case or
proceeding under the SIPA or any Bankruptcy Law or to the
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commencement of any bankruptcy or insolvency case or proceeding
against the Company or any Significant Subsidiary of the Company,
(C) the filing by the Company or any Significant Subsidiary of the
Company of a petition or answer or consent seeking reorganization or
relief under the SIPA or any Bankruptcy Law, (D) the consent by the
Company or any Significant Subsidiary of the Company to the filing
of such petition or to the appointment of or taking possession by a
Bankruptcy Custodian of the Company or any Significant Subsidiary of
the Company or of any substantial part of the property of the
Company or any Significant Subsidiary of the Company, (E) the making
by the Company or any Significant Subsidiary of the Company of an
assignment for the benefit of creditors, (F) the admission by the
Company or any Significant Subsidiary of the Company in writing of
its inability to pay its debts generally as they become due, (G) the
approval by stockholders of the Company or any Significant
Subsidiary of the Company of any plan or proposal for the
liquidation or dissolution of the Company or any Significant
Subsidiary of the Company, or (H) the taking of corporate action by
the Company or any Significant Subsidiary of the Company in
furtherance of any such action;
(ix) the making of an application by the SIPC for a decree
adjudicating that customers of the Company are in need of protection
under the SIPA and the failure of the Company to obtain the
dismissal of such application within 30 calendar days;
(x) LaBranche is not a specialist broker in good standing with
the NYSE;
(xi) the SEC revokes the registration of LaBranche as a
broker-dealer under the Exchange Act or LaBranche fails to maintain
such registration; or
(xii) the Examining Authority (as defined in Rule 15c3-1) for
the Company shall suspend (and not reinstate within 10 calendar
days) or revoke LaBranche's status as a member organization thereof.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
(b) The Company shall deliver to the Trustee upon becoming aware of
any Default or Event of Default written notice in the form of an Officers'
Certificate of any Default or Event of Default that has occurred and, if
applicable, the Company shall also describe such Default or Event of Default and
the status thereof (provided that the Company shall provide such certification
at least annually whether or not it knows of any Default or Event of Default).
Section 6.2. Acceleration.
(a) If an Event of Default (other than an Event of Default specified
in clauses (vii), (viii) or (ix) of Section 6.1) shall occur and be continuing,
the Trustee or the
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Holders of at least 25% in principal amount of outstanding Notes may declare the
principal of, and accrued interest on, all the Notes to be due and payable by
notice in writing to the Company and (if given by the Holders) the Trustee,
specifying the respective Events of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable. If an
Event of Default specified in clauses (vii), (viii) or (ix) of Section 6.1
occurs and is continuing, then all unpaid principal of, and accrued and unpaid
interest on, all of the outstanding Notes shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
(b) At any time after a declaration of acceleration with respect to
the Notes as described in the preceding paragraph, the Holders of a majority in
principal amount of the then outstanding Notes may rescind and cancel such
declaration and its consequences:
(i) if the rescission would not conflict with any judgment or
decree;
(ii) if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become
due solely because of the acceleration;
(iii) to the extent payment of such interest is lawful, if
interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of
acceleration, has been paid;
(iv) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses,
disbursements and advances; and
(v) in the event of the cure or waiver of an Event of Default
of the type described in clauses (vii), (viii) or (ix) of Section
6.1, the Trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or
waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
(c) The Holders of a majority in principal amount of the then
outstanding Notes may waive any existing Default or Event of Default under this
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Notes.
(d) Holders of the Notes may not enforce this Indenture or the Notes
except as provided in this Indenture and under the TIA. Subject to the
provisions of this Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under this
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of this Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
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Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal, Change of Control Purchase Price or Excess Cash Flow
Purchase Price of, and accrued interest on, the Notes or to enforce the
performance of any provision of the Notes or this Indenture and may take any
necessary action requested of it as Trustee to settle, compromise, adjust or
otherwise conclude any proceedings to which it is a party. The Trustee may
maintain a proceeding even if it does not possess any of the Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or any
Holder in exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults and Events of Default.
Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of not less
than a majority in aggregate principal amount of the outstanding Notes may on
behalf of the Holders of all the Notes waive any past Default under this
Indenture and its consequences, except a Default (1) in any payment in respect
of the principal, Change of Control Purchase Price or Excess Cash Flow Purchase
Price of, and accrued interest on, any Notes (including any Note or portion
thereof which is required to have been purchased pursuant to a Change of Control
Offer to Purchase or Excess Cash Flow Offer which has been made by the Company),
or (2) in respect of a covenant or provision hereof which under this Indenture
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Indenture, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereto.
Section 6.5. Control by Majority.
The Holders of a majority in principal amount of the Notes then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee by this Indenture. The Trustee, however, may refuse to
follow any direction that conflicts with law or this Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Holder not
taking part in such direction, and the Trustee shall have the right to decline
to follow any such direction if the Trustee, being advised by counsel,
determines that the action so directed may not lawfully be taken or if the
Trustee in good faith shall, by a Trust Officer, determine that the proceedings
so directed, or the exercise of such trust or power, may involve it in personal
liability; provided that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Section 6.6. Limitation on Suits.
Subject to Section 6.7 hereof, no Holder of any Note will have any
right to institute any proceeding with respect to this Indenture or for any
remedy thereunder, unless such
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Holder shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and the Trustee shall have failed to institute such proceeding
within 60 calendar days. A Holder may not use this Indenture to prejudice the
rights of another Holder or to obtain a preference or priority over another
Holder.
Section 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, Change of Control Purchase
Price or Excess Cash Flow Purchase Price of, and accrued interest on, the Note
on or after the respective due dates expressed in the Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, is
absolute and unconditional and shall not be impaired or affected without the
consent of the Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default in payment of principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, or accrued interest on,
the Notes specified in Section 6.1(a)(i) or (ii) hereof occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company (or any other obligor on the Notes) for the
whole amount of unpaid principal, Change of Control Purchase Price or Excess
Cash Flow Purchase Price of, and accrued interest on, the Notes remaining
unpaid, together with interest on overdue principal, Change of Control Purchase
Price or Excess Cash Flow Purchase Price, and, to the extent that payment of
such interest is lawful, interest on overdue installments of interest, in each
case at the rate then borne by the Notes, and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, including all sums due and owing to the Trustee pursuant
to Section 7.7.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), their creditors or their property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same after
deduction of its reasonable charges and expenses to the extent that any such
charges and expenses are not paid out of the estate in any such proceedings and
any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
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and counsel, and any other amounts due the Trustee under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder any plan or
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceedings.
Section 6.10. Priorities.
(a) If the Trustee collects any money pursuant to this Article VI,
it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.7
hereof;
SECOND: if the Holders proceed against the Company
directly without the Trustee in accordance with this Indenture, to
Holders for their collection costs;
THIRD: to Holders for amounts due and unpaid on the
Notes for principal, Change of Control Purchase Price or Excess Cash
Flow Purchase Price of, and accrued interest (which shall include
any Liquidated Damages as provided in the Registration Rights
Agreement) as to each, ratably, without preference or priority of
any kind, according to the amounts due and payable on, the Notes;
and
FOURTH: to the Company.
(b) The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
Section 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
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ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the same circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no
implied covenants or obligations shall be read into this Indenture
against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture but, in the case of any such certificates or
opinions which by any provision hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or investigate
the accuracy of mathematical calculations or other facts stated
therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b)
of this Section 7.1.
(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.2 and 6.5 hereof.
(iv) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity satisfactory to it against such risk or
liability is not reasonably assured to it.
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(d) Whether or not therein expressly so provided, paragraphs (a),
(b), (c), (e), (f) and (g) of this Section 7.1 shall govern every provision of
this Indenture that in any way relates to the Trustee.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity reasonably satisfactory to it against any
loss, liability, expense or fee.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by the law.
(g) The Trustee shall not be deemed to have notice of any fact or
matter with respect hereto, including without limitation, the occurrence of a
Default or Event of Default, unless such fact or matter is actually known by a
Trust Officer charged with responsibility for administering this Indenture or
unless in writing received by a Trust Officer and making specific reference to
this Indenture.
Section 7.2. Rights of Trustee.
Subject to Section 7.1 hereof:
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document (including without limitation any
Company Order or Officers' Certificate) reasonably believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in any document.
(b) Before the Trustee acts or refrains from acting, including
whenever the Trustee deems it desirable that a matter be proved or established
prior to it acting or refraining from acting, it may require an Officers'
Certificate or an Opinion of Counsel, or both, which shall conform to the
provisions of Section 10.5 hereof. The Trustee shall be protected and shall not
be liable for any action it takes or omits to take in good faith in reliance on
such certificate or opinion.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent (other than the negligence or
willful misconduct of an agent who is an employee of the Trustee) appointed by
it with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers; provided that the Trustee's conduct does not constitute
negligence or bad faith.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
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Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may make loans to, accept deposits from, perform
services for or otherwise deal with the Company, or any Affiliates thereof, with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. The Trustee, however, shall be subject to Sections 7.10 and
7.11 hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Notes, it shall not be accountable for the Company' use
of the proceeds from the sale of Notes or any money paid to the Company pursuant
to the terms of this Indenture and it shall not be responsible for any statement
in the Notes or any document used in connection with the sale of the Notes other
than its certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Holder notice of the Default within 90
calendar days after it occurs. Except in the case of a Default in payment of the
principal or Purchase Price of, and accrued interest on, any Note, the Trustee
may withhold the notice if and so long as the board of directors of the Trustee,
the executive committee or any trust committee of such board and/or its Trust
Officers in good faith determine(s) that withholding the notice is in the
interest of the Holders.
Section 7.6. Reports by Trustee to Holders.
If required by TIA ss.313(a), within 60 calendar days after May 15
of any year, commencing the May 15th following the date of this Indenture, the
Trustee shall mail to each Holder a brief report dated as of such May 15 that
complies with TIA ss.313(a). The Trustee also shall comply with TIA
ss.313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss.313(c) and TIA ss.313(d). A copy of each report at the time of its
mailing to Holders shall be filed with the SEC and each stock exchange on which
the Notes are listed. The Company shall promptly notify the Trustee when the
Notes are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
(a) The Company shall pay to the Trustee from time to time such
reasonable compensation as shall be agreed in writing between the Company and
the Trustee for its services hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust). The Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in connection with
its duties under this Indenture, including the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
(b) The Company agrees to indemnify each of the Trustee and any
predecessor Trustee for, and hold it harmless against, any and all loss, damage,
claim, liability, reasonable expense (including but not limited to reasonable
attorneys' fees and expenses) or
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taxes (other than taxes based on the income of the Trustee) incurred by it in
connection with the acceptance or performance of its duties under this Indenture
including the reasonable costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder (including, without limitation, settlement costs).
The Trustee shall notify the Company in writing promptly of any claim asserted
against the Trustee for which it may seek indemnity. However, the failure by the
Trustee to so notify the Company shall not relieve the Company of their
obligations hereunder unless and to the extent such failure results in the
forfeiture by the Company of substantial rights and defenses.
(c) Notwithstanding the foregoing, the Company need not reimburse
the Trustee for any expense or indemnify it against any loss or liability
incurred by the Trustee through its negligence or bad faith. To secure the
payment obligations of the Company in this Section 7.7, the Trustee shall have a
lien prior to the Notes on all money or property held or collected by the
Trustee in its capacity as such, except such money or property held in trust to
pay principal, Change of Control Purchase Price or Excess Cash Flow Purchase
Price of, and accrued interest on, particular Notes. The obligations of the
Company under this Section 7.7 to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall survive the satisfaction
and discharge of this Indenture, including the termination or rejection hereof
in any bankruptcy proceeding to the extent permitted by law.
(d) When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(a)(vii), (viii) or (ix) hereof occurs,
the expenses and the compensation for the services are intended to constitute
expenses of administration under the SIPA or any Bankruptcy Law.
(e) For purposes of this Section 7.7, the term "Trustee" shall
include any trustee appointed pursuant to Article IX.
Section 7.8. Replacement of Trustee.
(a) The Trustee may resign by so notifying the Company in writing,
such resignation to become effective upon the appointment of a successor
Trustee. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee by notifying the removed Trustee in writing and may
appoint a successor Trustee with the Company's written consent which consent
shall not be unreasonably withheld. The Company may remove the Trustee at its
election if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
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(b) If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
(c) If a successor Trustee does not take office within 60 calendar
days after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or any Holder of outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee. If the Trustee fails to
comply with Section 7.10 hereof, any Holder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(d) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company.
(e) Immediately following such delivery, the retiring Trustee shall,
subject to its rights under Section 7.7 hereof, transfer all property held by it
as Trustee to the successor Trustee, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder. Notwithstanding
replacement of the Trustee pursuant to this Section 7.8, the Company'
obligations under Section 7.7 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.9. Successor Trustee by Consolidation, Merger or
Conversion.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation or national banking association, subject to Section 7.10 hereof, the
successor corporation or national banking association without any further act
shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5) in every respect. The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA ss.310(b), including the provision in TIA ss.310(b)(1); provided
that there shall be excluded from the operation of TIA ss.310(b)(1) any
indenture or indentures under which other securities, or conflicts of interest
or participation in other securities, of the Company are outstanding if the
requirements for exclusion set forth in TIA ss.310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss.311(a), excluding any creditor
relationship listed in TIA ss.311(b). A Trustee who has resigned or been removed
shall be subject to TIA ss.311(a) to the extent indicated therein.
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Section 7.12. Paying Agents.
The Company shall cause each Paying Agent other than the Trustee or
an Affiliate of the Trustee to execute and deliver to it and the Trustee an
instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section 7.12:
(a) that it will hold all sums held by it as agent for the payment
of principal, Change of Control Purchase Price or Excess Cash Flow Purchase
Price of, and accrued interest on, the Notes (whether such sums have been paid
to it by the Company or by any obligor on the Notes) in trust for the benefit of
Holders of the Notes or the Trustee;
(b) that it will at any time during the continuance of any Event of
Default, upon written request from the Trustee, deliver to the Trustee all sums
so held in trust by it together with a full accounting thereof; and
(c) that it will give the Trustee written notice within three
Business Days of any failure of the Company (or by any obligor on the Notes) in
the payment of any installment of the principal, Change of Control Purchase
Price or Excess Cash Flow Purchase Price of, and accrued interest on, the Notes
when the same shall be due and payable.
ARTICLE VIII.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 8.1. Without Consent of Holders.
(a) Without the consent of any Holders, the Company, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental to this Indenture for any of the following purposes:
(i) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company in this Indenture and in the Notes; or
(ii) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred
upon the Company; or
(iii) to add additional Events of Default; or
(iv) to provide for uncertificated Notes in addition to or in
place of the certificated Notes; or
(v) to evidence and provide for the acceptance of appointment
under this Indenture by a successor Trustee; or
(vi) to secure the Notes; or
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(vii) to cure any ambiguity, to correct or supplement any
provision in this Indenture which may be defective or inconsistent
with any other provision in this Indenture, or to make any other
provisions with respect to matters or questions arising under this
Indenture, provided that such actions pursuant to this clause shall
not adversely affect the interests of the Holders in any material
respect; or
(viii) to provide for the issuance of the Series B Notes,
which will have terms substantially identical to the other
outstanding Notes except for the requirement of a Private Placement
Legend and related transfer restrictions under the Securities Act
and this Indenture and as to the applicability of additional
interest payable as provided in Section 2.13, and which will be
treated, together with any other outstanding Notes, as a single
issue of securities; or
(ix) to comply with any requirements of the SEC in order to
effect and maintain the qualification of this Indenture under the
Trust Indenture Act.
(b) The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
which may be therein contained, but the Trustee shall not be obligated to enter
into any such supplemental indenture which adversely affects its own rights,
duties or immunities under this Indenture.
Section 8.2. With Consent of Holders.
(a) With the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes, the Company and the Trustee
may enter into an indenture or indentures supplemental to this Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders under this Indenture, including the definitions therein; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each outstanding Note affected thereby:
(i) change the Stated Maturity of any Note or of any
installment of interest on any Note, or reduce the amount payable in
respect of the principal thereof or the rate of interest thereon or
any premium payable thereon, or reduce the amount that would be due
and payable on acceleration of the maturity thereof, or change the
place of payment where, or the coin or currency in which, any Note
or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof; or
(ii) reduce the percentage in aggregate principal amount of
the outstanding Notes, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture; or
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(iii) modify in a manner adverse to the Holders the
obligations of the Company to make a Change of Control Offer to
Purchase upon a Change of Control, an Excess Cash Flow Offer or a
Net Proceed Offer upon an Asset Sale; or
(iv) subordinate, in right of payment, the Notes to any other
Indebtedness of the Company; or
(v) modify any of the provisions of this proviso to Section
8.2 or provisions relating to waiver of defaults or certain
covenants contained in Section 6.2, 6.4 or 6.7 hereof, except to
increase any such percentage required for such actions or to provide
that certain other provisions of this Indenture cannot be modified
or waived without the consent of the Holder of each outstanding Note
affected thereby.
(b) After a modification, amendment, supplement or waiver under this
Section 8.2 becomes effective, the Company shall mail to the Holders a notice
briefly describing the modification, amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such modification,
amendment, supplement or waiver.
(c) It shall not be necessary for the consent of the Holders under
this Section 8.2 to approve the particular form of any proposed amendment,
modification, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
Section 8.3. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect.
Section 8.4. Revocation and Effect of Consents.
(a) Until a modification, amendment, supplement, waiver or other
action becomes effective, a consent to it by a Holder of a Note is a continuing
consent conclusive and binding upon such Holder and every subsequent Holder of
the same Note or portion thereof, and of any Note issued upon the transfer
thereof or in exchange therefor or in place thereof, even if notation of the
consent is not made on any such Note. Any such Holder or subsequent Holder,
however, may revoke the consent as to his Note or portion of a Note, if the
Trustee receives the notice of revocation before the date the modification,
amendment, supplement, waiver or other action becomes effective.
(b) The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
modification, amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such modification, amendment, supplement, or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 120
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calendar days after such record date unless the consent of the
requisite number of Holders has been obtained. After a modification, amendment,
supplement, waiver or other action becomes effective, it shall bind every
Noteholder.
Section 8.5. Notation on or Exchange of Notes.
If a modification, amendment, supplement or waiver changes the terms
of a Note, the Trustee may request the Holder of the Note to deliver it to the
Trustee. In such case, the Trustee shall place an appropriate notation on the
Note about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determine, the Company in exchange for the Note shall
issue and the Trustee shall authenticate a new Note that reflects the changed
terms. Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such modification, amendment, supplement or
waiver.
Section 8.6. Trustee To Sign Amendments, etc.
The Trustee shall sign any modification, amendment, supplement or
waiver authorized pursuant to this Indenture if the modification, amendment,
supplement or waiver does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such modification, amendment, supplement or
waiver, the Trustee shall be entitled to receive and, subject to Section 7.1
hereof, shall be fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel stating that such modification, amendment, supplement or
waiver is authorized or permitted by this Indenture and such supplemental
indenture constitutes the legal, valid and binding obligation of the Company
enforceable against each of them in accordance with its terms (subject to
customary exceptions). The Company may not sign a modification, amendment or
supplement until the Board of Directors of the Company approves it.
ARTICLE IX.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.1. Discharge of Indenture.
(a) The Company may terminate its obligations under this Indenture,
except the obligations referred to in the last paragraph of this Section 9.1
when (i) either: (A) all Notes theretofore authenticated and delivered have been
delivered to the Trustee for cancellation, or (B) all such Notes not theretofore
delivered to the Trustee for cancellation (1) have become due and payable, or
(2) will become due and payable within 60 calendar days, and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes, not
theretofore delivered to the Trustee for cancellation, for principal of, and
accrued interest on, the Notes to the Stated Maturity; (ii) the Company has paid
or caused to be paid all other sums then due and payable hereunder by the
Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent under this Indenture relating to the satisfaction and discharge of
this Indenture have been complied with.
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(b) After such delivery the Trustee upon request shall acknowledge
in writing the satisfaction and discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations specified below.
(c) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company in Sections 2.2, 2.3, 2.4, 2.5, 2.6,
2.7, 2.8, 2.9, 2.13, 4.16, 9.5, 9.6 and 9.8, the rights, powers, duties and
immunities of the Trustee hereunder (including claims of, or payments to, the
Trustee under or pursuant to Section 7.7 hereof), the provisions of Article III
and the Trustee's and Paying Agent's obligations in Section 9.8 shall survive
until the Notes are no longer outstanding. Upon such satisfaction and discharge,
only the obligations of the Company in Sections 2.9, 7.7, 9.5, 9.6 and 9.8
hereof shall survive.
Section 9.2. Legal Defeasance.
The Company may at its option be discharged from its obligations
with respect to the Notes on the date the conditions set forth in Section 9.4
below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Notes and to have
satisfied all its other obligations under such Notes and this Indenture insofar
as such Notes are concerned (and the Trustee, at the expense of the Company,
shall, subject to Section 9.6 hereof, execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of Holders of outstanding
Notes to receive solely from the trust funds described in Section 9.4 hereof and
as more fully set forth in such Section, payments in respect of the principal or
Purchase Price of, and accrued interest on, such Notes when such payments are
due, (ii) the Company's obligations with respect to such Notes under Sections
2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 4.16 hereof, (iii) the rights, powers, trusts,
duties and immunities of the Trustee hereunder (including claims of, or payments
to, the Trustee under or pursuant to Section 7.7 hereof), (iv) Article III and
(v) this Article IX. Subject to compliance with this Article IX, the Company may
exercise their option under this Section 9.2 with respect to the Notes
notwithstanding the prior exercise of its option under Section 9.3 below with
respect to the Notes.
Section 9.3. Covenant Defeasance.
At the option of the Company, the Company shall be released from
their respective obligations under Sections 4.2 through 4.15 hereof, inclusive,
Sections 4.17 and 4.18, clause (a)(ii) of Section 5.1 hereof (with respect to
Sections 4.2 through 4.15 hereof, inclusive, and Sections 4.17 and 4.18),
Section 6.1(a)(iii) only to the extent related to compliance with clause (a)(ii)
of Section 5.1 and Section 6.1(a)(vi), with respect to the outstanding Notes on
and after the date the conditions set forth in Section 9.4 hereof are satisfied
(hereinafter, "Covenant Defeasance"), any omission to comply with such
obligations shall not constitute a Default or Event of Default, and the Notes
shall thereafter be deemed not to be outstanding for purposes of any direction,
waiver, consent, declaration or act of the Holders (and the consequences
thereof) in connection with such covenants but shall continue to be outstanding
for all other purposes hereunder. For this purpose, such Covenant Defeasance
means that the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such specified
Section or portion thereof, whether directly or indirectly by reason of any
reference elsewhere herein to any such specified Section or portion thereof or
by reason of any
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reference in any such specified Section or portion thereof to any other
provision herein or in any other document, but the remainder of this Indenture
and the Notes shall be unaffected thereby.
Section 9.4. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of Section 9.2
or Section 9.3 hereof to the outstanding Notes:
(1) the Company must irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.10 hereof who shall agree to comply with the provisions of this
Article IX applicable to it) as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to the benefits of the Holders of such Notes: (A) money in an amount, or
(B) U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide, not
later than the due date of any payment, money in an amount, or (C) a combination
thereof, in each case sufficient without reinvestment, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the entire indebtedness in respect of the principal, Change of
Control Purchase Price or Excess Cash Flow Purchase Price of, and accrued
interest on, such Notes on the Stated Maturity thereof in accordance with the
terms of this Indenture and such Notes;
(2) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (A) the Company have
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case (A) or (B) to the effect that,
and based thereon such opinion shall confirm that, the Holders of such Notes
will not recognize gain or loss for federal income tax purposes as a result of
the Legal Defeasance to be effected with respect to such Notes and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would be the case if such Legal Defeasance were not to occur;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel (i) to the effect that the
Holders of such outstanding Notes will not recognize gain or loss for federal
income tax purposes as a result of the Covenant Defeasance to be effected with
respect to such Notes and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
Covenant Defeasance were not to occur or (ii) that the Company has received
from, or there has been published by, the Internal Revenue Service a ruling to
the foregoing effect;
(4) no Default or Event of Default with respect to the outstanding
Notes shall have occurred and be continuing at the time of such deposit after
giving effect thereto or, in the case of Legal Defeasance, either: (A) the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that, based upon existing precedents, if the matter were properly briefed, a
court should hold that the deposit of moneys and/or U.S. Government Obligations
as
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provided in clause (1) of this Section 9.4 would not constitute a preference
voidable under Section 547 or 548 of the federal bankruptcy laws; or (B) no
Default or Event of Default relating to bankruptcy or insolvency shall have
occurred and be continuing at any time on or prior to the 91st day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st day);
(5) such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the TIA (assuming
all Notes are in default within the meaning of such Act);
(6) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound;
(7) such Legal Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Legal Defeasance or Covenant Defeasance have been
complied with.
Section 9.5. Deposited Money and U.S. Government Obligations To Be
Held in Trust; Other Miscellaneous Provisions.
(a) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 9.4 hereof in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal, Change of Control Purchase Price or Excess Cash
Flow Purchase Price of, and accrued interest on, the Notes, but such money need
not be segregated from other funds except to the extent required by law. The
Trustee shall be under no duty to invest such money or U.S. Government
Obligations. The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 9.4 hereof or the principal, Change of
Control Purchase Price or Excess Cash Flow Purchase Price of, and accrued
interest on, the Notes received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
(b) Anything in this Article IX to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Order any money or U.S. Government Obligations held by it as
provided in Section 9.4 hereof which, in the opinion of a nationally-recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent Legal Defeasance
or Covenant Defeasance.
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Section 9.6. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.1, 9.2 or 9.3 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the obligations of the Company under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to this Article IX until such time as the Trustee or Paying Agent is permitted
to apply all such money or U.S. Government Obligations in accordance with
Section 9.1, 9.2 or 9.3 hereof; provided, however, that if the Company has made
any payment of principal or Purchase Price of, and accrued interest on, any
Notes because of the reinstatement of its Obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
Section 9.7. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.1 or 9.4 hereof, to the
Company, and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
Section 9.8. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or then
held by the Company in trust for the payment of the principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, and accrued interest on,
any Note that are not applied but remain unclaimed by the Holder of such Note
for two years after the date upon which the principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, and accrued interest on,
such Note shall have respectively become due and payable shall be repaid to the
Company upon Company Order, or if such moneys are then held by the Company in
trust, such moneys shall be released from such trust; and the Holder of such
Note entitled to receive such payment shall thereafter, as an unsecured general
creditor, look only to the Company for the payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that the Trustee or any such Paying Agent,
before being required to make any such repayment, may, at the expense of the
Company either mail to each Holder affected, at the address shown in the
register of the Notes maintained by the Registrar pursuant to Section 2.3
hereof, or cause to be published once a week for two successive weeks, in a
newspaper published in the English language, customarily published each Business
Day and of general circulation in The City of New York, New York, a notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 calendar days from the date of such mailing or
publication, any unclaimed balance of such moneys then remaining will be repaid
to the Company. After payment to the Company or the release of any money held in
trust by the Company, Holders entitled to the money must look only to the
Company for payment as general creditors unless applicable abandoned property
law designates another person.
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ARTICLE X.
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls.
If any provision of this Indenture, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 10.2. Notices.
(a) Any notice or communication shall be given in writing and
delivered in person, sent by facsimile, delivered by commercial courier service
or mailed by first-class mail, postage prepaid, addressed as follows:
If to the Company:
LaBranche & Co Inc.
One Exchange Plaza
New York, New York 10006
Attention: Chief Financial Officer
If to the Trustee:
Firstar Bank, N.A.
Attention: Keith A. Maurmeier
Corporate Trust Services
425 Walnut Street, 6th Floor ML CN WN 06CT
Cincinnati, OH 45202
Such notices or communications shall be effective when received and
shall be sufficiently given if so given within the time prescribed in this
Indenture.
(b) The Company or the Trustee by written notice to the others may
designate additional or different addresses for subsequent notices or
communications.
(c) Any notice or communication mailed to a Holder shall be mailed
to him by first-class mail, postage prepaid, at his address shown on the
register kept by the Registrar. If a notice or communication to a Holder is
mailed in the manner provided above, it shall be deemed duly given on the date
so deposited in the mail, whether or not the addressee receives it. Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders. In case by reason of the
suspension of regular mail service, or by reason of any other cause, it shall be
impossible to mail any notice as required by this Indenture, then such method of
notification as shall be made with the approval of the Trustee shall constitute
a sufficient mailing of such notice.
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Section 10.3. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA ss.312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
Section 10.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:
(a) an Officers' Certificate (which shall include the statements set
forth in Section 10.5 below) in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set
forth in Section 10.5 below) in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Section 10.5. Statements Required in Certificate and Opinion.
(a) Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, it or
he has made such examination or investigation as is necessary to enable it or
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
Person, such covenant or condition has been complied with.
(b) In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(c) Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by,
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counsel, unless such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to the
matters, upon which his certificate or opinion is based are erroneous. Any such
certificate or opinion of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of an Company stating that the information with respect to such factual
matters is in the possession of such Company, unless such counsel knows or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
(d) Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 10.6. When Treasury Notes Disregarded.
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver or consent,
Notes owned by the Company or by any Affiliate of the Company shall be
disregarded as though they were not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which the Trustee actually knows are so
owned shall be so disregarded. Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to the Notes.
Section 10.7. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or meetings of
Holders and any Registrar or Paying Agent may make reasonable rules for their
functions provided that no such rule shall conflict with the terms of this
Indenture or the TIA.
Section 10.8. Business Days; Legal Holidays.
A "Business Day" is a day that is not a Saturday, a Sunday, a
federally-recognized holiday or a day on which banking institutions are not
required to be open in the State of New York or the state in which the Corporate
Trust Office is located. If a payment date is not a Business Day at a place of
payment, payment may be made at that place on the next succeeding day that is a
Business Day, and no interest shall accrue for the intervening period.
Section 10.9. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATION LAW, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW
RULES. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW
YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR
ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING
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ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE NOTES, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE
LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE NOTES TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
Section 10.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan,
security or debt agreement of the Company or any Subsidiary thereof. No such
indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 10.11. No Recourse Against Others.
No recourse for the payment of the principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, and accrued interest on,
any of the Notes, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture or in any supplemental indenture, or in any of the
Notes, or because of the creation of any Indebtedness represented thereby, shall
be had against any stockholder, officer, director, partner, affiliate,
beneficiary or employee, as such, past, present or future, of the Company or of
any successor corporation or against the property or assets of any such
stockholder, officer, employee, partner, affiliate, beneficiary or director,
either directly or through the Company, or any successor corporation thereof,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the Notes are solely obligations of the
Company, and that no such personal liability whatever shall attach to, or is or
shall be incurred by, any stockholder, officer, employee, partner, affiliate,
beneficiary or director of the Company, or any successor corporation or
partnership thereof, because of the creation of the Indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or the Notes or implied therefrom, and that any and
all such personal liability of, and any and all claims against every
stockholder, officer, employee, partner, affiliate, beneficiary and director,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture, and the issuance of the
Notes. It is understood that this limitation on recourse is made expressly for
the benefit of any such shareholder, employee, officer, partner, affiliate,
beneficiary or director and may be enforced by any one or all of them.
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<PAGE>
Section 10.12. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its respective successors. All agreements of the Trustee, any additional
trustee and any Paying Agents in this Indenture shall bind its successor.
Section 10.13. Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 10.14. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all reasonable costs and expenses (including attorneys' fees and expenses for
the Company, the Trustee and the Holders) incurred in connection therewith,
including, but not limited to, costs and expenses of qualification of this
Indenture and the Notes and printing this Indenture and the Notes. The Trustee
shall be entitled to receive from the Company any such Officers' Certificates,
Opinions of Counsel or other documentation as it may reasonably request in
connection with any such qualification of this Indenture under the TIA.
Section 10.15. Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 10.16. Separability.
Each provision of this Indenture shall be considered separable and
if for any reason any provision which is not essential to the effectuation of
the basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
[Rest of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date and year first written above.
LaBranche & Co Inc.
By /s/ George M. L. LaBranche, IV
---------------------------------------
Name: George M. L. LaBranche, IV
Title: Chairman, Chief Executive Officer
and President
Firstar Bank, N.A.,
as Trustee
By /s/ Keith A. Maurmeier
-----------------------------
Name: Keith A. Maurmeier
Title: Vice President & Trust Officer
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<PAGE>
EXHIBIT A
FORM OF NOTE
LaBRANCHE & CO INC.
12% Senior Subordinated Notes due 2007
[Include the following legend for Global Notes only:
"THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE REFERRED TO
HEREINAFTER.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF."]
[Include the following legend on all Notes that are Restricted Notes:]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A ADOPTED UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S ADOPTED UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
A-1
<PAGE>
BUYER IN COMPLIANCE WITH RULE 144A ADOPTED UNDER THE SECURITIES ACT, (C) OUTSIDE
THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 ADOPTED UNDER
THE SECURITIES ACT (IF AVAILABLE) OR ANOTHER AVAILABLE EXEMPTION UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT; AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS NOTE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS MAY BE REQUIRED PURSUANT TO THIS INDENTURE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
BY ITS ACQUISITION HEREOF, THE HOLDER FURTHER REPRESENTS THAT, ON EACH DAY FROM
THE DATE ON WHICH SUCH HOLDER ACQUIRES THE NOTE THROUGH AND INCLUDING THE DATE
ON WHICH SUCH HOLDER DISPOSES OF ITS INTEREST IN THE NOTE, EITHER THAT (A) IT IS
NOT A PLAN, AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH
PLAN, OR A GOVERNMENT PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW
THAT IS SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE OR (B) ITS PURCHASE, HOLDING AND DISPOSITION OF SUCH NOTE WILL NOT RESULT
IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE (OR, IN THE CASE OF A GOVERNMENT PLAN, ANY SIMILAR FEDERAL, STATE OR LOCAL
LAW) FOR WHICH AN EXEMPTION IS NOT AVAILABLE.]
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<PAGE>
No. [___] Principal Amount $[ ]
[If the Note is a Global Note include the following two lines:
as revised by the Schedule of Increases and
Decreases in Global Note attached hereto]
NOTE CUSIP NO. . 505447AC6
UNIT CUSIP NO. . ________
[If the Note is a Regulation S Global Note, delete the
reference to CUSIP No. and replace it with:
ISIN No. U49848AB7
LaBranche & Co Inc., a Delaware corporation, promises to pay to
[___________], or its registered assigns, the principal sum of
[__________________] Dollars [If the Note is a Global Note, add the following,
as revised by the Schedule of Increases and Decreases in Global Note attached
hereto], on March 2, 2007.
Interest Payment Dates: March 1 and September 1 (except that the
final Interest Payment Date shall be the
date of maturity instead of March 1, 2007)
Record Dates: February 15 and August 15
Additional provisions of this Note are set forth on the other side
of this Note.
LaBranche & Co Inc.
By: ____________________________
Name: George M.L. LaBranche, IV
Title: Chairman, Chief Executive
Officer and President
By: ____________________________
Name: S. Lawrence Prendergast
Title: Executive Vice President,
Finance
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
Firstar Bank, N.A., Trustee, certifies
that this is one of the Notes referred to in the Indenture.
By: _______________________ Date: _____________, 2000
Authorized Signatory
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<PAGE>
FORM OF REVERSE SIDE OF NOTE
12% Senior Subordinated Notes due 2007
1. Interest
LaBranche & Co Inc., a Delaware corporation (the "Company"),
promises, subject to the preceding sentence, to pay interest on the principal
amount of this Note at the rate per annum shown above.
The Company will pay interest semiannually in arrears on each
Interest Payment Date of each year commencing September 1, 2000. Interest on the
Notes will accrue from the most recent date to which interest has been paid on
the Notes or, if no interest has been paid, from the Issue Date. The Company
shall pay interest on overdue principal or premium, if any (plus interest on
such interest to the extent lawful), at the rate borne by the Notes to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and, to the extent
such payments are lawful, interest on overdue installments of interest, without
regard to any applicable grace periods ("Defaulted Interest") at a rate equal to
the rate shown on this Note, as provided in the Indenture.
2. Method of Payment
By at least 10:00 a.m. (New York City time) on the date on which any
principal of, premium, if any, or interest on any Note is due and payable, the
Company shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Company
will pay interest (except Defaulted Interest) to the Persons who are registered
Holders of Notes at the close of business on the Record Date preceding the
interest payment date even if Notes are canceled, repurchased or redeemed after
the record date and on or before the relevant Interest Payment Date. Holders
must surrender Notes to a Paying Agent to collect principal payments and premium
payments, if any. The Company will pay principal and interest in U.S. legal
tender.
Payments in respect of Notes represented by a Global Note (including
principal, premium, if any, and interest) will be made by the transfer of
immediately available funds to the accounts specified by the Depository Trust
Company. The Company will make all payments in respect of a Certificated Note
(including principal, premium, if any, the Liquidated Damages, if any, and
interest) at the office or agency of the Company in The City of New York
maintained for such purposes, which, initially, will be the office of the
Trustee or an agent thereof; provided, however, that payment of interest (which
shall include any Liquidated Damages), if any, may be made at the option of the
Company by check mailed to the Person entitled thereto as shown on the register
of the Notes maintained by the Registrar.
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<PAGE>
3. Paying Agent and Registrar
Initially, Firstar Bank, N.A. (the "Trustee"), will act as Trustee,
Paying Agent and Registrar. The Company may appoint and change any Paying Agent,
Registrar or co-registrar without notice to any Holder. The Company may act as
Paying Agent, Registrar or co-registrar.
4. Indenture
The Company has issued this Note pursuant to an Indenture dated as
of March 2, 2000 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of this Note include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Notes are subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms. Each Holder by accepting a Note, agrees to be bound by all of the terms
and provisions of the Indenture.
This Note is a general unsecured senior subordinated obligation of
the Company. The Indenture imposes certain limitations on, among other things
the ability of the Company and its Restricted Subsidiaries to: incur
Indebtedness, make Restricted Payments, incur Liens, issue or sell Capital
Interests of Restricted Subsidiaries, consummate Asset Sales, enter into
transactions with Affiliates, enter into Sale and Leaseback transactions, create
Unrestricted Subsidiaries, create layered indebtedness or consolidate or merge
or transfer or convey all or substantially all of the Company's and its
Restricted Subsidiaries' assets.
5. Subordination
The payment of principal, premium, if any, and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Senior Debt of the Company, whether outstanding
on the Issue Date or thereafter incurred.
6. Repurchase Provisions
Repurchase Upon a Change of Control. Upon the occurrence of a Change
of Control, the Company will make a Change of Control Offer to Purchase all of
the outstanding Notes at a purchase price in cash equal to 101% of the principal
amount at Stated Maturity thereof, together with accrued and unpaid interest, if
any. For purposes of the foregoing, a Change of Control Offer to Purchase shall
be deemed to have been made if: (i) within 30 days following the date of the
consummation of a transaction or series of transactions that constitutes a
Change of Control, the Company commences a Change of Control Offer to Purchase
all outstanding Notes at the Change of Control Purchase Price (provided that the
running of such 30-day period shall be suspended, for up to a maximum of 30
days, during any period when the commencement of such Change of Control Offer to
Purchase is delayed or suspended by reason of any court's or governmental
authority's review of or ruling on any materials being employed by the Company
to effect such Change of Control Offer to Purchase, so long as the Company has
used and continues to use its best efforts to make and conclude such Change of
Control Offer to
A-5
<PAGE>
Purchase promptly) and (ii) all Notes properly tendered pursuant to the Change
of Control Offer to Purchase are purchased on the terms of such Change of
Control Offer to Purchase.
Excess Cash Flow Offer. Subject to terms and conditions set forth in
the Indenture, if the Company has Excess Cash Flow for any fiscal year
(commencing with fiscal year 2000), the Company shall make an offer to purchase
(the "Excess Cash Flow Offer"), on a Business Day (the "Excess Cash Flow Payment
Date") not later than 150 days following the end of such fiscal year, from all
holders of Senior Subordinated Notes, up to maximum principal amount (expressed
as a multiple of $1,000) of Senior Subordinated Notes equal to the Holder's Pro
Rata Share of such Excess Cash Flow in such fiscal year. The purchase price of
Senior Subordinated Notes to be purchased pursuant to the Excess Cash Flow Offer
shall be equal to 103% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Excess Cash Flow Payment Date. Notice of an
Excess Cash Flow Offer shall be given to Holders not less than 30 Business Days
before the Excess Cash Flow Payment Date. The Excess Cash Flow Offer is required
to remain open for 20 Business Days and payment pursuant to the Excess Cash Flow
Offer will be made on the Excess Cash Flow Payment Date.
Repurchase With Proceeds from Asset Sales. Any Net Cash Proceeds
from any Asset Sale that are not used to reinvest in Replacement Assets and/or
repay certain Indebtedness of the Company or a Restricted Subsidiary within 360
days after an Asset Sale shall be applied to the repurchase of the Notes. When
the aggregate amount of unutilized Net Cash Proceeds (the "Net Proceeds Offer
Amount") exceeds $5,000,000, the Company shall make a Net Proceeds Offer to
purchase from all Holders, Notes in an aggregate principal amount equal to the
Net Proceeds Offer Amount, at a purchase price in cash equal to 100% of the
principal amount thereof, together with accrued interest, if any, to the date of
purchase. If the aggregate purchase price of Notes surrendered by Holders
exceeds the amount equal to the Net Proceeds Offer Amount, the Trustee shall
select the Notes to be purchased on a pro rata basis.
The Company will comply, to the extent applicable, with the
requirements of Rule 14e-1 under the Exchange Act and other securities laws or
regulations in connection with a Change of Control Offer to Purchase, an Excess
Cash Flow Offer or a Net Proceeds Offer.
7. Denominations; Transfer; Exchange
The Notes are in fully-registered form without coupons in
denominations of principal amount of $1,000 and any integral multiple thereof. A
Holder may transfer or exchange Notes only in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange any Notes for a period beginning 15 days before an interest payment
date and ending on such interest payment date.
8. Persons Deemed Owners
The registered holder of this Note may be treated as the owner of it
for all purposes.
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<PAGE>
9. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
10. Discharge Prior to Maturity
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of their obligations under the
Notes and the Indenture if the Company deposits with the Trustee U.S. legal
tender or U.S. Government Obligations for the payment of principal of, and
interest on, the Notes to maturity.
11. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the then outstanding Notes and (ii)
any default (other than with respect to nonpayment or in respect of a provision
that cannot be amended without the written consent of each Holder affected) or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the then outstanding Notes. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Holder, the Company and the Trustee may amend the Indenture or the Notes to,
among other things, to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company in the
Indenture and in the Notes; to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power herein conferred upon
the Company; to add additional Events of Default; to provide for uncertificated
Notes in addition to or in place of the certificated Notes; to evidence and
provide for the acceptance of appointment under the Indenture by a successor
Trustee; to secure the Notes; to cure any ambiguity, to correct or supplement
any provision in the Indenture which may be defective or inconsistent with any
other provision in the Indenture, or to make any other provisions with respect
to matters or questions arising under the Indenture, provided that such actions
pursuant to this clause shall not adversely affect the interests of the Holders
in any material respect; to issue Series B Notes; or to comply with any
requirements of the SEC in order to effect and maintain the qualification of the
Indenture under the Trust Indenture Act.
12. Defaults and Remedies
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at Stated Maturity of the
outstanding Notes may declare all the Notes to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Notes being due and payable immediately upon the occurrence of
such Events of Default.
Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in
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<PAGE>
principal amount at Stated Maturity of the outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
13. Trustee Dealings with the Company
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with and collect
obligations owed to it by the Company or their Affiliates and may otherwise deal
with the Company or their affiliates with the same rights it would have if it
were not Trustee.
14. No Recourse Against Others
No recourse for the payment of the principal, Change of Control
Purchase Price or Excess Cash Flow Purchase Price of, and accrued interest on,
any of the Notes, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or in any supplemental indenture, or in any of the
Notes, or because of the creation of any Indebtedness represented thereby, shall
be had against any stockholder, officer, director, partner, affiliate,
beneficiary or employee, as such, past, present or future, of the Company or of
any successor corporation or against the property or assets of any such
stockholder, officer, employee, partner, affiliate, beneficiary or director,
either directly or through the Company, or any successor corporation thereof,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that the Indenture and the Notes are solely obligations of the
Company, and that no such personal liability whatever shall attach to, or is or
shall be incurred by, any stockholder, officer, employee, partner, affiliate,
beneficiary or director of the Company, or any successor corporation or
partnership thereof, because of the creation of the Indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in the Indenture or the Notes or implied therefrom, and that any and
all such personal liability of, and any and all claims against every
stockholder, officer, employee, partner, affiliate, beneficiary and director,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of the Indenture, and the issuance of the
Notes. It is understood that this limitation on recourse is made expressly for
the benefit of any such shareholder, employee, officer, partner, affiliate,
beneficiary or director and may be enforced by any one or all of them.
15. Authentication
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Note.
16. Abbreviations
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint
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<PAGE>
tenants with rights of survivorship and not as tenants in common), CUST
(=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
17. Governing Law
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATION LAW, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW
RULES.
The Company will furnish to any Holder upon written request and without
charge to the Holder a copy of the Indenture which has in it the text of this
Note in larger type. Requests may be made to:
LaBranche & Co Inc.
One Exchange Place
New York, New York 10006
Attention: Secretary
Telephone: (212) 425-1144
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on the books of the
Company. The agent may substitute another to act for him.
Date:____________________ Your Signature:___________________
Signature Guarantee:_________________________________________
(Signature must be guaranteed)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
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.
A-10
<PAGE>
[To be attached to Global Notes only:
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been made:
<TABLE>
Date of Amount of decrease in Amount of increase in Principal Amount of Signature of
Exchange Principal Amount of Principal Amount of this Global Note authorized signatory
this Global Note this Global Note following such of Trustee or Custodian
decrease or increase
<S> <C> <C> <C> <C>
- ----------- --------------------- ---------------------- -------------------- -----------------------]
</TABLE>
A-11
<PAGE>
EXHIBIT B-1
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.8, 4.14 or 4.18 of the Indenture, check either box:
4.8 4.14 4.18
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.8, 4.14 or 4.18 of the Indenture, state the amount
in principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ___________________________________________
(Sign exactly as your name appears on the
other side of the Note)
Signature Guarantee: _________________________________________________________
(Signature must be 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.
B1-1
<PAGE>
EXHIBIT B-2
FORM OF NON-U.S. BENEFICIAL OWNERSHIP
CERTIFICATION BY MEMBER ORGANIZATION
[Date]
[Euroclear or Clearstream as applicable]
Re: LaBranche & Co Inc. (the "Issuer" or "Company")
12% Senior Subordinated Notes due 2007 (the "Notes")
This is to certify that as of the date hereof, and except as set
forth below, the Notes held by you for our account are beneficially owned by (a)
non-U.S. person(s) or (b) U.S. person(s) who purchased the Notes in transactions
which did not require registration under the Securities Act of 1933, as amended
(the "Act"). As used in this paragraph the term "U.S. person" has the meaning
given to it by Regulation S under the Act.
We undertake to advise you promptly by tested telex on or prior to
the date on which you intend to submit your certification relating to the Notes
held by you for our account in accordance with your operating procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
This certification excepts and does not relate to $________ of such
interest in the above Notes in respect of which we are not able to certify and
as to which we understand exchange and delivery of definitive Notes (or, if
relevant, exercise of any rights or collection of any interest) cannot be made
until we do so certify.
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you, the Company or the Trustee or Registrar for the Notes to produce this
certification to any interested party in such proceedings.
Date: _____________, 20 ___. (Not earlier than 15 days prior to the end of the
Distribution Compliance Period).
By: ______________________________________
[Agent Member]
As, or as agent for, the Beneficial Owner(s) of the Notes to which this
certificate relates.
B2-1
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO QIB
[Date]
Firstar Bank, N.A.
Attention: Keith A. Maurmeier
Corporate Trust Services
425 Walnut Street, 6th Floor ML CN WN 06CT
Cincinnati, OH 45202
Re: LaBranche & Co Inc. (the "Issuer" or "Company")
12% Senior Subordinated Notes due 2007 (the "Notes")
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of March 2, 2000
(as amended and supplemented from time to time, the "Indenture"), among the
Company, as issuer and Firstar Bank, N.A., as Trustee. Capitalized terms used
but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $___________ aggregate principal amount of
Notes [in the case of a transfer of an interest in a Regulation S Global Note:
which represents an interest in a Regulation S Global Note beneficially owned
by] the undersigned (the "Transferor") to effect the transfer of such Notes in
exchange for an equivalent beneficial interest in the Rule 144A Global Note.
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act of 1933, as amended ("Rule
144A"), to a transferee that the Transferor reasonably believes is purchasing
the Notes for its own account or an account with respect to which the transferee
exercises sole investment discretion, and the transferee, as well as any such
account, is a "qualified institutional buyer" within the meaning of Rule 144A,
in a transaction meeting the requirements of Rule 144A and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferor]
By:____________________________
_______________________________
Authorized Signature
C-1
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
[Date]
Firstar Bank, N.A.
Attention: Keith A. Maurmeier
Corporate Trust Services
425 Walnut Street, 6th Floor ML CN WN 06CT
Cincinnati, OH 45202
Re: LaBranche & Co Inc. (the "Issuer" or "Company")
12% Senior Subordinated Notes due 2007 (the "Notes")
Ladies and Gentlemen:
Reference is hereby made to this Indenture, dated as of March 2,
2000 (as amended and supplemented from time to time, the "Indenture"), between
the Company, as Issuer, Issuer, and Firstar Bank, N.A., as Trustee. Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture.
In connection with our proposed sale of $________ aggregate
principal amount of the Notes [in the case of a transfer of an interest in a
144A Global Note: , which represent an interest in a 144A Global Note
beneficially owned by] the undersigned ("Transferor"), we confirm that such sale
has been effected pursuant to and in accordance with Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(a) the offer of the Notes was not made to a person in the United
States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States or
(ii) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been pre-arranged with a buyer in the
United States;
(c) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable;
(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(e) we are the beneficial owner of the principal amount of Notes
being transferred.
D-1
<PAGE>
In addition, if the sale is made during a Distribution Compliance
Period and the provisions of Rule 904(b)(1) or Rule 904(b)(2) of Regulation S
are applicable thereto, we confirm that such sale has been made in accordance
with the applicable provisions of Rule 904(b)(1) or Rule 904(b)(2), as the case
may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this letter have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________
_______________________________
Authorized Signature
D-2
<PAGE>
EXHIBIT E
FORM OF RULE 144 CERTIFICATION
[Date]
Firstar Bank, N.A.
Attention: Keith A. Maurmeier
Corporate Trust Services
425 Walnut Street, 6th Floor ML CN WN 06CT
Cincinnati, OH 45202
Re: LaBranche & Co Inc. (the "Issuer" or "Company")
12% Senior Subordinated Notes due 2007 (the "Notes")
Ladies and Gentlemen:
Reference is hereby made to this Indenture, dated as of March 2,
2000 (as amended and supplemented from time to time, the "Indenture"), between
the Company, as Issuer, and Firstar Bank, N.A., as Trustee. Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $___ aggregate principal amount of Notes [in
the case of an exchange or transfer of an interest in a Global Note: which
represents an interest in a Global Note beneficially owned by the undersigned
(the "Transferor")] [in the case of an exchange or transfer of Certificated
Notes: which are held in the name of the undersigned (the "Transferor") and
evidenced by one or more Certificated Notes]. The Transferor has requested an
exchange or transfer of such [in the case of an exchange or transfer of an
interest in a Global Note: beneficial interest in the Global Note][ in the case
of an exchange or transfer of Certificated Notes: Certificated Note(s)] in the
form of an equal principal amount of Notes evidenced by one or more Certificated
Notes, to be delivered to such Person as the Transferor instructs the Trustee.
In connection with the foregoing, we confirm that such sale has been effected
pursuant to and in accordance with Rule 144 under the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferor]
By:____________________________
_______________________________
Authorized Signature
E-1
REGISTRATION RIGHTS AGREEMENT
Dated as of March 2, 2000
by and among
LaBranche & Co Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Smith Barney Inc.
ABN AMRO Incorporated
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 2, 2000, by and among LaBranche & Co Inc., a Delaware
corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Smith Barney Inc. and ABN AMRO Incorporated (each an
"Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom
has agreed to purchase the Company's 12% Series A Senior Subordinated Notes due
2007 (the "Series A Notes") pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated February
24, 2000, (the "Purchase Agreement"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated March 2, 2000, between the
Company and Firstar Bank, N.A., as Trustee, relating to the Series A Notes and
the Series B Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Business Day: Any day that is not a Saturday, a Sunday, a
federally-recognized holiday or a day on which banking institutions are not
required to be open in the State of New York or the state in which the Corporate
Trust Office (as defined in the Indenture) is located.
Certificated Securities: Certificated Notes, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
1
<PAGE>
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and pursuant to Regulation S under
the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Liquidated Damages: As defined in Section 5 hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 12% Series B Senior Subordinated Notes due
2007 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4(a) hereof.
2
<PAGE>
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.
Transfer Restricted Securities: Each Series A Note, until the earliest to
occur of (a) the date on which such Series A Note is exchanged in the Exchange
Offer for a Series B Note which is entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Series A Note has been disposed of in
accordance with a Shelf Registration Statement (and the purchasers thereof have
been issued Series B Notes), or (c) the date on which such Series A Note is
distributed to the public pursuant to Rule 144 under the Act (and purchasers
thereof have been issued Series B Notes), and each Series B Note until the date
on which such Series B Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
Section 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.
Section 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 60 days after the Closing Date (such
60th day being the "Filing Deadline") and notice thereof to be sent to
Donaldson, Lufkin & Jenrette Securities Corporation in the form of Exhibit A
attached hereto, (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but in
no event later than 120 days after the Closing Date (such 120th day being the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
3
<PAGE>
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 20
Business Days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Series B Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling
no-action letter (available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the Prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by
Broker-Dealers, the Company agrees to use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented, amended and
current as required by and subject to the provisions of Sections 6(a) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the Consummation Deadline or such shorter
period as will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto. The Company shall
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
Section 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law or Commission policy (after the Company has complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such
4
<PAGE>
Holder was prohibited by law or Commission policy from participating in the
Exchange Offer, (B) such Holder may not resell the Series B Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Series A Notes acquired directly from the Company or any
of its Affiliates, then the Company shall:
(x) cause to be filed, on or prior to 60 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above,
(such earlier date, the "Filing Deadline"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "Shelf Registration Statement")), relating to
all Transfer Restricted Securities, and
(y) use its best efforts to cause such Shelf Registration Statement to
become effective on or prior to 120 days after the Filing Deadline for the Shelf
Registration Statement (such 120th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company shall
use its best efforts to keep any Shelf Registration Statement required by this
Section 4(a) continuously effective, supplemented, amended and current as
required by and subject to the provisions of Sections 6(b) and (c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(d)) following
the Closing Date, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Shelf Registration Statement have been
sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall
5
<PAGE>
have provided all such information and then only after such date. Each selling
Holder agrees to promptly furnish additional information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
Section 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (iv) any
Registration Statement or Shelf Registration Statement, as the case may be,
required by this Agreement is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purpose without
being succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company hereby agrees to pay to each Holder of
Transfer Restricted Securities affected thereby liquidated damages in an amount
equal to $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues for the first 90-day period immediately following
the occurrence of such Registration Default. The amount of the liquidated
damages shall increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of liquidated damages of $.50 per week per $1,000 in principal amount of
Transfer Restricted Securities; provided that the Company shall in no event be
required to pay liquidated damages for more than one Registration Default at any
given time. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company to pay liquidated damages with respect to securities shall survive until
such time as such obligations with respect to such securities shall have been
paid in full. The additional amounts to be paid pursuant to this Section 5 shall
be referred to as "Liquidated Damages".
6
<PAGE>
Section 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Series B Notes by Broker-Dealers that tendered in the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of its market making activities or other trading activities
(other than Series A Notes acquired directly from the Company or any of its
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:
(i) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer, each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes shall
acknowledge and agree that, if the resales are of Series B Notes obtained
by such Holder in exchange for Series A Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission policy
as in effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and similar no-action letters (including, if applicable, any
no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co.,
Inc. (available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes
7
<PAGE>
in its ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Series B Notes received in
the Exchange Offer and (C) any other undertaking or representation required by
the Commission as set forth in any no-action letter obtained pursuant to clause
(i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall:
(i) comply with all the provisions of Section 6(c) below and use its
best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and pursuant
thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate
form under the Act, which form shall be available for the sale of the
Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes sold pursuant to the
Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to
the purchaser(s) of securities subject to the Shelf Registration Statement
in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company
shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if
Commission review is required, use its best efforts to cause such
amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the
Act with respect to the
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disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect
to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act
or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, and (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company shall use its best efforts
to obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(v) at the request of any Holder, furnish to such Holder in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders in connection
with such sale, if any, for a period of at least five Business Days, and
the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Holders shall reasonably object within five
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Business Days after the receipt thereof. A Holder shall be deemed to have
reasonably objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading or fails to comply with the
applicable requirements of the Act;
(vi) at the request of any Holder, promptly prior to the filing of any
document that is to be incorporated by reference into a Registration Statement
or Prospectus, provide copies of such document to such Holder in connection with
such exchange or sale, if any, make the Company's representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as such
Holders may reasonably request;
(vii) make available, at reasonable times, for inspection by each Holder
and any attorney or accountant retained by such Holders, all financial and other
records, pertinent corporate documents of the Company and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such Holder, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with such exchange or
sale, promptly include in any Registration Statement or Prospectus, pursuant to
a supplement or post-effective amendment if necessary, such information as such
Holders may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(ix) upon the request of any Holder, furnish to each Holder in connection
with such exchange or sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company hereby
consents to the use (in accordance with law) of the Prospectus and any amendment
or supplement thereto by each selling Holder in connection with the offering and
the sale of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such agreements and make
such representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any applicable Registration Statement
contemplated by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale
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pursuant to any applicable Registration Statement. In such connection, the
Company shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished) to
each Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 6(w), 9(a) and 9(b) of the Purchase Agreement and such
other similar matters as such Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company covering
matters similar to those set forth in Section 9(e) of the Purchase
Agreement and such other matter as such Holder may reasonably
request, and in any event including a statement to the effect that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company and have considered the matters
required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing, no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as of
the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such counsel assumes
no responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the related
Prospectus; and
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(3) a customary comfort letter, dated the date of Consummation
of the Exchange Offer, or as of the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters
of the type customarily covered in comfort letters to underwriters
in connection with underwritten offerings, and affirming the matters
set forth in the comfort letters delivered pursuant to Section 9(g)
of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance with
the matters covered in clause (A) above and with any customary conditions
contained in any agreement entered into by the Company pursuant to this
clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling Holders may
request and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however, that the
Company shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction where
it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities that
will result in such securities no longer being Transfer Restricted Securities,
cooperate with the Holders to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold and not
bearing any restrictive legends; and to register such Transfer Restricted
Securities in such denominations and such names as the selling Holders may
request at least two Business Days prior to such sale of Transfer Restricted
Securities;
(xiv) use its best efforts to cause the disposition of the Transfer
Restricted Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the disposition
of such Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such Transfer
Restricted Securities and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form eligible
for deposit with the Depository Trust Company;
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(xvi) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders with regard to any applicable Registration Statement,
as soon as practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) covering a
twelve-month period beginning after the effective date of the Registration
Statement (as such term is defined in paragraph (c) of Rule 158 under the
Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
Section 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Series B
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Notes to be issued in the Exchange Offer and printing of Prospectuses, messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company and, subject to paragraph (b) of this Section 7, the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Series A Notes in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Cleary, Gottlieb, Steen & Hamilton, unless
another firm shall be chosen by the Holders of a majority in principal amount of
the Transfer Restricted Securities for whose benefit such Registration Statement
is being prepared.
Section 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder or any prospective purchaser of Series B Notes or registered Series A
Notes, or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company, and its directors
and officers, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the
same extent as the foregoing indemnity from the Company set forth in Section
8(a) above, but only with reference to information relating to such Holder
furnished in writing to the Company by such Holder
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expressly for use in any Registration Statement. In no event shall any Holder,
its directors, officers or any Person who controls such Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages that such Holder, its directors, officers or any Person who controls
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all reasonable fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such
reasonable fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by a majority of the Holders, in the case of the
parties indemnified pursuant to Section 8(a), and by the Company, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the reasonable fees and expenses of counsel (in any
case where such fees and expenses are at the expense of the indemnifying party)
and, prior to the date of such settlement, the indemnifying party shall have
failed to comply with such reimbursement request. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or
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could have been a party and indemnity or contribution may be or could have been
sought hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Company, on the one hand, and of the Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action that
could have given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
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Section 9. RULE 144A and RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
Section 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure
by the Company to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 3 and
4 hereof. The Company further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Neither the Company
has previously entered into any agreement granting any registration rights with
respect to its securities to any Person (excluding the registration rights
agreement dated August 24, 1999 by and among the Company and Salomon Smith
Barney, Donaldson, Lufkin & Jenrette Securities Corporation and ABN AMRO
Incorporated, as the initial purchasers). The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
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(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
LaBranche & Co Inc.
One Exchange Plaza
New York, New York 10006
Telecopier No. (212) 344-1469
Attention: George M.L. LaBranche, IV
With a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telecopier No.: (212) 752-5958
Attention: Jeffrey M. Marks, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer
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<PAGE>
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LaBRANCHE & CO INC.
By: /s/ G.M.L. LaBranche, IV
---------------------------------
Name: G.M.L. LaBranche, IV
Title: Chairman, Chief Executive
Officer and President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ABN AMRO INCORPORATED
SALOMON SMITH BARNEY INC.
By: Donaldson, Lufkin & Jenrette Securities
Corporation
By: /s/ Clifford Lam
----------------------------------------
Name: Clifford Lam
Title: Vice President
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EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Smith Barney Inc.
ABN AMRO Incorporated
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: LaBranche & Co Inc.
12% Senior Subordinated Notes due 2007
Date: _____________
For your information only (NO ACTION REQUIRED):
Today, ______, ____, we filed [an A/B Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
21
EXECUTION COPY
LaBranche & Co Inc.
$250,000,000
12% Series A Senior Subordinated Notes
Purchase Agreement
February 24, 2000
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
ABN AMRO INCORPORATED
<PAGE>
$250,000,000
12% Series A Senior Subordinated Notes
of
LaBranche & Co Inc.
PURCHASE AGREEMENT
February 24, 2000
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
ABN AMRO INCORPORATED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
LaBranche & Co Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation, ABN AMRO Incorporated and Salomon Smith Barney Inc. (each, an
"Initial Purchaser" and, collectively, the "Initial Purchasers") an aggregate of
$250,000,000 in principal amount of its 12% Series A Senior Subordinated Notes
(the "Series A Notes"), subject to the terms and conditions set forth herein.
The Series A Notes are to be issued pursuant to the provisions of an indenture
(the "Indenture"), to be dated as of the Closing Date (as defined below), among
the Company and Firstar Bank, N.A., as trustee (the "Trustee"). The Series A
Notes and the Series B Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "Notes." Capitalized terms used but
not defined herein shall have the meanings given to such terms in the Indenture.
Pursuant to a Stock Purchase Agreement, dated as of December 23,
1999 and as amended as of February 1, 2000, by and among Henderson Brothers
Holdings, Inc. ("Henderson Brothers"), certain stockholders of Henderson
Brothers and the Company (the "Henderson Acquisition Agreement"), the Company
shall acquire all of the outstanding capital stock of Henderson Brothers for
approximately $230.0 million in cash. An aggregate of $25.5 million of the
purchase price will be placed in escrow to secure various obligations of the
stockholders of Henderson Brothers to the Company under the Henderson
Acquisition Agreement. The Series A Notes are being offered in connection with
the financing of the acquisition of Henderson Brothers (the "Henderson
Acquisition Transaction").
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Pursuant to an Agreement and Plan of Merger, dated as of January 26,
2000, by and among Webco Securities, Inc. ("Webco"), the stockholders of Webco
and the Company (the "Webco Acquisition Agreement", and together with the
Henderson Acquisition Agreement, the "Acquisition Agreements"), the Company has
agreed to acquire Webco for (i) 2.8 million shares of the Company's common
stock, (ii) $9.2 million in cash and (iii) senior promissory notes in the
aggregate principal amount of $3.0 million, each bearing an interest rate of 10%
per annum. The Company's acquisition of Webco (the "Webco Acquisition
Transaction", and together with the Henderson Acquisition Transaction, the
"Acquisition Transactions") will be financed using a portion of the proceeds of
the offering of the Series A Notes.
1. Offering Memorandum. The Series A Notes will be offered and sold
to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"Act"). The Company has prepared a preliminary offering memorandum, dated
February 8, 2000 (the "Preliminary Offering Memorandum"), and a final offering
memorandum, dated February 24, 2000 (the "Offering Memorandum"), relating to the
Series A Notes.
Upon original issuance thereof, and until such time as the same is
no longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (the "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (as
defined in Rule 144A under the Act) (a "QIB") or (ii) IT HAS ACQUIRED THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (ii) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (iii) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE ACT, (iv) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE ACT, (v) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (vi) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE
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<PAGE>
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and each Initial Purchaser agrees to
purchase from the Company, the principal amounts of Series A Notes set forth
opposite the name of such Initial Purchaser on Schedule A hereto at a purchase
price equal to 95.777% of the principal amount thereof (the "Purchase Price").
3. Terms of Offering. The Initial Purchasers have advised the
Company that the Initial Purchasers will make offers (the "Exempt Resales") of
the Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBs") and (ii) persons permitted to purchase the
Series A Notes in offshore transactions in reliance upon Regulation S under the
Act (each, a "Regulation S Purchaser") (such persons specified in clauses (i)
and (ii) being referred to herein as the "Eligible Purchasers"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 98.277% of the principal amount thereof. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Series A Notes
will have the registration rights set forth in the registration rights agreement
(the "Registration Rights Agreement"), to be dated the Closing Date, in
substantially the form of Exhibit A hereto, for so long as such Series A Notes
constitute "Transfer Restricted Securities" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Securities and Exchange Commission (the
"Commission") under the circumstances set forth therein, (i) a registration
statement under the Act (the "Exchange Offer Registration Statement") relating
to the Company's 12% Series B Senior Subordinated Notes (the "Series B Notes"),
to be offered in exchange for the Series A Notes (such offer to exchange being
referred to as the "Exchange Offer") and (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, the "Registration
Statements") relating to the resale by certain holders of the Series A Notes and
to use its best efforts to cause such Registration Statements to be declared and
remain effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer. This Agreement, the Indenture,
the Notes and the Registration
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<PAGE>
Rights Agreement are hereinafter sometimes referred to collectively as the
"Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at the offices of Cleary, Gottlieb, Steen & Hamilton or such
other location as may be mutually acceptable. Such delivery and payment shall be
made at 9:00 a.m. New York City time, on March 2, 2000 or at such other time on
the same date or such other date as shall be agreed upon by the Initial
Purchasers and the Company in writing. The time and date of such delivery and
the payment for the Series A Notes are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Series A Notes (collectively, the "Global Note"), shall
be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct) in each case with any transfer taxes thereon duly paid by the
Company against payment by the Initial Purchasers of the Purchase Price thereof
by wire transfer in same day funds to the order of the Company. The Global Note
shall be made available to the Initial Purchasers for inspection not later than
9:30 a.m., New York City time, on the business day immediately preceding the
Closing Date.
5. Agreements of the Company. The Company hereby agrees with the
Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Notes for offering
or sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 5(e) hereof, or the initiation of any proceeding by any state securities
commission or any other federal or state regulatory authority for such purpose
and (ii) of the happening of any event during the period referred to in Section
5(c) below that makes any statement of a material fact made in the Offering
Memorandum untrue or that requires any additions to or changes in the Offering
Memorandum in order to make the statements therein not misleading. The Company
shall use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of any Series A Notes under any state
securities or Blue Sky laws and, if at any time any state securities commission
or other federal or state regulatory authority shall issue an order suspending
the qualification or exemption of any Series A Notes under any state securities
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company as many copies of the
Offering Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request for the time period specified in Section 5(c).
Subject to the Initial Purchasers' compliance with its representations and
warranties and agreements set forth in Section 7 hereof, the Company consents
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<PAGE>
to the use of the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection with
Exempt Resales.
(c) During such period as in the opinion of counsel for the
Initial Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers and in connection with
market-making activities of the Initial Purchasers for so long as any Series A
Notes are outstanding, (i) not to make any amendment or supplement to the
Offering Memorandum of which the Initial Purchasers shall not previously have
been advised or to which the Initial Purchasers shall reasonably object after
being so advised and (ii) to prepare promptly upon the Initial Purchasers'
reasonable request any amendment or supplement to the Offering Memorandum which
may be necessary or advisable in connection with such Exempt Resales or such
market-making activities.
(d) If, during the period referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers and
counsel to the Initial Purchasers in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial Purchasers
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may request and to continue such
registration or qualification in effect so long as required for Exempt Resales
and to file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification; provided,
however, that the Company shall not be required in connection therewith to
qualify as a foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Notes a financial report of the Company and its
Subsidiaries (as defined below) on a consolidated basis (and a similar financial
report of all unconsolidated Subsidiaries, if any), all such financial reports
to include a consolidated balance sheet, a consolidated statement of operations,
a consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year,
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<PAGE>
certified by the Company's independent public accountants and (ii) to mail and
make generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, a consolidated balance sheet, a consolidated statement of operations
and a consolidated statement of cash flows (and similar financial reports of all
unconsolidated Subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods of
the preceding year.
(g) So long as the Notes are outstanding, to furnish to the
Initial Purchasers as soon as available copies of all reports or other
communications furnished by the Company to its security holders or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and/or its Subsidiaries (as defined below) as
the Initial Purchasers may reasonably request.
(h) So long as any of the Series A Notes remain outstanding
and during any period in which the Company is not subject to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
available to any holder of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Series A Notes from such holder the
information ("Rule 144A Information") required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees, disbursements and expenses of
counsel to the Company and accountants of the Company in connection with the
sale and delivery of the Series A Notes to the Initial Purchasers and pursuant
to Exempt Resales, and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements to any of
the foregoing (including financial statements), including the mailing and
delivering of copies thereof to the Initial Purchasers and persons designated by
it in the quantities specified herein, (ii) all costs and expenses related to
the transfer and delivery of the Series A Notes to the Initial Purchasers and
pursuant to Exempt Resales, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement, the other
Operative Documents and any other agreements or documents in connection with the
offering, purchase, sale or delivery of the Series A Notes, (iv) all expenses in
connection with the registration or qualification of the Series A Notes for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any preliminary and supplemental Blue Sky
memoranda in connection therewith (including the filing fees and reasonable fees
and disbursements of counsel for the Initial Purchasers in connection with such
registration or qualification and memoranda relating thereto), (v) the cost of
printing certificates representing the Series A Notes, (vi) all expenses and
listing fees in connection with the application for designation for trading of
the Series A Notes in the PORTAL Market ("PORTAL"), (vii) the fees and expenses
of the Trustee and the Trustee's counsel in connection with the Indenture and
the Notes, (viii) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights Agreement, and
(xi)
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<PAGE>
and all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section.
(j) To use its best efforts to effect the inclusion of the
Series A Notes in PORTAL and to maintain the listing of the Series A Notes on
PORTAL for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of
the Notes, and to comply with all of its agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any warrants, rights or options to purchase or otherwise acquire debt securities
of the Company substantially similar to the Notes (other than (i) the Notes and
(ii) as contemplated in the Acquisition Agreements), without the prior written
consent of the Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Series A Notes to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Series A Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Notes.
(o) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Series A Notes.
6. Representations, Warranties and Agreements of the Company. As of
the date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers through Donaldson, Lufkin & Jenrette
Securities Corporation expressly for use therein. No stop order or decree
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been
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<PAGE>
issued and no proceeding for any such purpose has been commenced or is pending
or, to the knowledge of the Company, is threatened.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to carry on its
business as described in the Preliminary Offering Memorandum and the Offering
Memorandum and to own, lease and operate its properties, and is duly qualified
and is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified in a foreign jurisdiction would not have a material adverse effect
on the business, prospects, condition (financial or other), properties, net
worth, management, earnings or results of operations of the Company and its
Subsidiaries, taken as a whole, or draw into question the validity of this
Agreement or the other Operative Documents (a "Material Adverse Effect").
(c) The Company has an authorized capitalization as set forth
in the Offering Memorandum," and all currently outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or similar rights.
(d) The direct or indirect subsidiaries (the "Subsidiaries) of
the Company are: (x) as of the date hereof and as of the Closing Date, LaBranche
& Co. ("LaBCo.") and LaB Investing Co.L.L.C. ("LaBLLC") and (y) as of the
Closing Date, as a result of the consummation of the Henderson Acquisition
Transaction, Henderson Brothers and its subsidiaries, Henderson Brothers, Inc.
("HBInc.") and Henderson Brothers Futures Corporation ("HBFC"). Immediately
following the consummation of the Henderson Acquisition Transaction, the Company
will cause the NYSE specialist business and related assets and operations of
HBInc. (the "HBInc. Specialist Business") to be transferred to LaBCo. by (i)
causing HBInc. to declare and pay to Henderson Brothers a dividend consisting of
the HBInc. Specialist Business, (ii) then causing Henderson Brothers to declare
and pay to the Company a dividend consisting of the HBInc. Specialist Business
and (iii) then transferring the HBInc. Specialist Business as a capital
contribution by the Company to LaBCo. Immediately following the consummation of
the Webco Acquisition Transaction, the Company will cause the NYSE specialist
business of Webco (the "Webco Specialist Business") to be transferred as a
capital contribution from the Company to LaBCo. For purposes of this Agreement,
LaBCo. shall be deemed to include (x) as of the Closing Date, the HBInc.
Specialist Business and (y) only in the event that the Webco Acquisition
Transaction has been consummated, the Webco Specialist Business. Each of the
Subsidiaries has been duly organized and is validly existing as a limited
partnership, a limited liability company or a corporation, as the case may be,
in good standing under the laws of the jurisdiction in which it is organized or
incorporated, as the case may be, with the power and authority to own, lease and
operate its properties and conduct its business as described in the Offering
Memorandum, and is duly qualified and is in good standing and authorized to do
business in each foreign jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except to the
extent that a failure to be so qualified in a foreign jurisdiction would not
have a Material Adverse Effect. All of the outstanding shares of capital stock,
membership interests or partnership interests, as the case may be, of each of
the Company's Subsidiaries have been duly
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authorized and validly issued and are fully paid and non-assessable, and are
owned by the Company, directly or indirectly through one or more Subsidiaries,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a "Lien").
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The Indenture has been duly authorized by the Company and,
on the Closing Date, will have been validly executed and delivered by the
Company. When the Indenture has been duly executed and delivered by the Company,
the Indenture will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Indenture will conform in all
material respects to the description thereof in the Offering Memorandum and to
the requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or
"Trust Indenture Act"), and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder.
(g) The Series A Notes have been duly authorized and, on the
Closing Date, will have been validly executed and delivered by the Company. When
the Series A Notes have been issued, executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement, the Series A
Notes will be entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with their terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Series A
Notes will conform in all material respects as to legal matters to the
description thereof contained in the Offering Memorandum.
(h) On the Closing Date, the Series B Notes will have been
duly authorized by the Company. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the benefits of the Indenture
and will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(i) The Registration Rights Agreement has been duly authorized
by the Company and, on the Closing Date, will have been duly executed and
delivered by the Company. When the Registration Rights Agreement has been duly
executed and delivered, the Registration Rights Agreement will be a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of
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acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Registration Rights Agreement will conform in all material respects as to legal
matters to the description thereof in the Offering Memorandum.
(j) Neither the Company nor any of its Subsidiaries is in
violation of its respective charter, by-laws or other organizational documents
or in default in the performance of any obligation, agreement, covenant or
condition contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property is bound, except any such violation or default that individually or in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
(k) The execution, delivery and performance of this Agreement,
the other Operative Documents and the Acquisition Agreements by the Company,
compliance by the Company with all provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not (i)
require any consent, approval, authorization or other order of, or filing with,
or qualification with, any court or governmental or self regulatory body or
agency (except such as may be required under federal securities laws, the
securities or Blue Sky laws of the various states or the TIA, by the New York
Stock Exchange (the "NYSE") or in connection with the Acquisition Transactions),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of the Company or any of its
Subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property is bound, except any such conflict, breach or default that individually
or in the aggregate could not reasonably be expected to have a Material Adverse
Effect, (iii) violate or conflict with any applicable statute, law, ordinance,
administrative, governmental or self regulatory organizational rule or
regulation, or judgment, order or decree of any court or any governmental body
or agency having jurisdiction over the Company, any of its Subsidiaries or their
respective property, except any such violation or conflict that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect, (iv) result in the imposition or creation of (or the obligation to
create or impose) a material Lien under, any agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries or their respective property is bound, or (v) result in the
termination, suspension or revocation of any Authorization (as defined below) of
the Company or any of its Subsidiaries or result in any other impairment of the
rights of the holder of any such Authorization.
(l) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or any of its
Subsidiaries is or could be a party or to which any of their respective property
is or could be subject, which might result, singly or in the aggregate, in a
Material Adverse Effect or materially adversely affect the issuance of the
Series A Notes or the consummation of the Henderson Acquisition Transaction or
of any of the transactions contemplated by the Operative Documents. Except as
disclosed in the Offering Memorandum, neither the Company nor any of its
Subsidiaries is involved in any strike, job action or labor dispute with any
group of its employees that would reasonably be expected to have a Material
Adverse Effect, and, to the knowledge of the Company, no such action or dispute
is threatened.
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(m) Neither the Company nor any of its Subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules
and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, would not have a Material Adverse Effect.
(n) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect.
(o) Each of the Company and its Subsidiaries (i) has such
concessions, permits, licenses, consents, exemptions, franchises,
authorizations, orders, registrations, qualifications and other approvals (each,
an "Authorization") of, and has made all filings with and notices to, all
federal, state and foreign governments, governmental or regulatory authorities
and self-regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws and (ii) is a member
in good standing of each federal, state or foreign exchange, board of trade,
clearing house or association and self-regulatory or similar organization, in
each case, as are necessary to own, lease, license and operate its respective
properties, to conduct its business and to consummate the Henderson Acquisition
Transaction, except where the failure to have any such Authorization or to make
any such filing or notice would not, singly or in the aggregate, have a Material
Adverse Effect. Each such Authorization is valid and in full force and effect
and each of the Company and its Subsidiaries is in compliance with all the terms
and conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such Authorization;
and other than as described in the Offering Memorandum, such Authorizations
contain no restrictions, including, without limitation, net capital
requirements, that are burdensome to the Company or any of its Subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(p) (i) The accountants, Arthur Andersen LLP, that have
certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to the Company, as required by the Act and the
Exchange Act. The historical financial statements, together with related
schedules and notes, set forth in the Preliminary Offering Memorandum and the
Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
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<PAGE>
(ii) The accountants, Deloitte & Touche LLP, that have
certified certain financial statements of Henderson Brothers and HBInc. and
delivered their report with respect to the audited financial statements included
in the Offering Memorandum, are independent public accountants with respect to
Henderson Brothers within the meaning of the Act and the applicable published
rules and regulations thereunder.
(iii) The accountants, Goldstein Golub Kessler & Company, that
have certified certain financial statements of Henderson Brothers and HBInc. and
delivered their report with respect to the audited financial statements included
in the Offering Memorandum, are independent public accountants with respect to
Henderson Brothers within the meaning of the Act and the applicable published
rules and regulations thereunder.
(iv) The accountants, Glasser & Haims, P.C., that have
certified certain financial statements of Webco and delivered their report with
respect to the audited financial statements included in the Offering Memorandum,
are independent public accountants with respect to Webco within the meaning of
the Act and the applicable published rules and regulations thereunder.
(q) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any amendment
or supplement thereto) present fairly in all material respects the consolidated
financial position, results of operations and changes in financial position of
the Company and its Subsidiaries on the basis stated in the Offering Memorandum
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company or its Subsidiaries, as applicable.
(r) The pro forma financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements of the Company
and its Subsidiaries and give effect to assumptions used in the preparation
thereof on a reasonable basis and in good faith and present fairly in all
material respects the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum; and such pro forma
financial statements comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(s) The Company is not and, after giving effect to the
offering and sale of the Series A Notes and the application of the net proceeds
thereof as described in the Offering Memorandum, will not be an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
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<PAGE>
(t) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company (other than the Series A Notes) or to require the
Company to include such securities with the Notes registered pursuant to any
Registration Statement.
(u) Neither the Company nor any of its Subsidiaries nor any
agent thereof acting on the behalf of them has taken, and none of them will
take, any action that might cause this Agreement or the issuance or sale of the
Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the Federal Reserve System.
(v) No "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Company that it is considering imposing) any
condition (financial or otherwise) on the Company's retaining any rating
assigned to the Company, any securities of the Company or (ii) has indicated to
the Company that it is considering (a) the downgrading, suspension, or
withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company or any securities of the Company.
(w) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in or contemplated by
the Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development which could reasonably be expected to
result in a material adverse change in the condition, financial or otherwise, or
the earnings, business, management or operations of the Company and its
Subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development which could reasonably be expected to result in a
material adverse change in the capital stock or in the long-term debt of the
Company or any of its Subsidiaries, (iii) neither the Company nor any of its
Subsidiaries has incurred any material liability or obligation, direct or
contingent and (iv) there has not occurred any material adverse change or any
development which could reasonably be expected to result in a material adverse
change that may prevent, impair or delay the consummation of the Henderson
Acquisition Transaction.
(x) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(y) When the Series A Notes are issued and delivered pursuant
to this Agreement, the Series A Notes will not be of the same class (within the
meaning of Rule 144A under the Act) as any security of the Company that is
listed on a national securities exchange registered under Section 6 of the
Exchange Act or that is quoted in a United States automated inter-dealer
quotation system.
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<PAGE>
(z) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company or any of its
respective representatives (other than each of the Initial Purchasers, as to
whom the Company makes no representation) in connection with the offer and sale
of the Series A Notes contemplated hereby, including, but not limited to,
articles, notices or other communications published in any newspaper, magazine,
or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Series A Notes have been
issued and sold by the Company within the six-month period immediately prior to
the date hereof.
(aa) Prior to the effectiveness of any Registration Statement,
the Indenture is not required to be qualified under the TIA.
(bb) Neither the Company nor any of its respective affiliates
or any person acting on its or their behalf (other than the Initial Purchasers,
as to whom the Company makes no representation) has engaged or will engage in
any directed selling efforts within the meaning of Regulation S under the Act
("Regulation S") with respect to the Series A Notes.
(cc) The Company has not taken and will not take any action to
cause the Series A Notes offered and sold in reliance on Regulation S to be
offered and sold other than in offshore transactions.
(dd) The Company and its respective affiliates and all persons
acting on their behalf (other than the Initial Purchasers, as to whom the
Company makes no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Series A Notes outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by Rule
902(h).
(ee) The Company is a "reporting issuer," as defined in Rule
902 under the Act.
(ff) The sale of the Series A Notes pursuant to Regulation S
is not part of a plan or scheme to evade the registration provisions of the Act.
(gg) No registration under the Act of the Series A Notes is
required for the sale of the Series A Notes to the Initial Purchasers as
contemplated hereby or for the Exempt Resales assuming (i) the accuracy of the
Initial Purchasers' representations and warranties and compliance with the
agreements set forth in Section 7 hereof, (ii) compliance by each Initial
Purchaser with the offering and transfer procedures and restrictions described
in the Offering Memorandum, (iii) the accuracy of the representations and
warranties deemed to be made in the Offering Memorandum by purchasers to whom
the Initial Purchasers initially resell the Series A Notes and (iv) purchasers
to whom the Initial Purchasers initially resell the Series A Notes receive a
copy of the Offering Memorandum prior to such sale.
(hh) Each certificate signed by any officer of the Company or
any of its Subsidiaries and delivered to the Initial Purchasers or counsel for
the Initial Purchasers shall be
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<PAGE>
deemed to be a representation and warranty by the Company to the Initial
Purchasers as to the matters covered thereby.
(ii) No approval of the stockholders of the Company is
necessary in connection with the consummation of the Henderson Acquisition
Transaction.
(jj) The Company's authorized equity capitalization is as set
forth in the Offering Memorandum under the heading "Capitalization."
(kk) Neither the Company nor its Subsidiaries nor, to the
knowledge of the Company, any employee or agent of the Company or its
Subsidiaries has made any payment of funds or received or retained any funds in
violation of any law, rule or regulation, which violation could reasonably be
expected to have a Material Adverse Effect.
(ll) Each of the Company and its Subsidiaries and ERISA
Affiliates (as defined below) has fulfilled its obligations, if any, under the
minimum funding standards of Section 302 of ERISA and Section 412 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations and
published interpretations thereunder with respect to each "plan" (as defined in
Section 3(3) of ERISA) for which the Company or any of its Subsidiaries or ERISA
Affiliates have or may have any liability (contingent or otherwise) and each
such plan is in compliance in all material respects with the applicable
provisions of ERISA and such regulations and published interpretations
thereunder. Neither the Company nor any of its Subsidiaries or ERISA Affiliates
have incurred any unpaid liability to the Pension Benefit Guaranty Corporation
(other than for the payment of premiums in the ordinary course) or to any such
plan under Title IV of ERISA. Neither the Company nor any of its Subsidiaries
has engaged in any non-exempt "prohibited transactions" under ERISA or the Code.
The term "ERISA Affiliate" means each trade or business (whether or not
incorporated) that would be treated as a single employer with the Company under
Title IV of ERISA or Section 412 of the Code.
(mm) Immediately after the consummation of the purchase and
sale of the Series A Notes, the fair value and present fair saleable value of
the assets of the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company is not, nor will it be, after
giving effect to the consummation of such transactions, (i) left with
unreasonably small capital with which to carry on its business as it is proposed
to be conducted, (ii) unable to pay its debts (contingent or otherwise) as they
mature or (iii) otherwise insolvent.
(nn) The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources that the Company
believes to be reliable and accurate.
(oo) The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the
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recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(pp) The Company and its Subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent applications,
trade and service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, know-how and other
intellectual property (collectively, the "Intellectual Property") necessary for
the conduct of the Company's business as now conducted or as proposed in the
Offering Memorandum to be conducted, except to the extent a failure to so own,
possess, license or have rights to use Intellectual Property could not
reasonably be expected to have a Material Adverse Effect.
(qq) LaBCo. is registered as a broker-dealer with the
Commission under the Exchange Act, is a member organization in good standing
with the NYSE and is not required to be registered with the securities authority
of any state. As of the Closing Date, HBInc. will be registered as a
broker-dealer with the Commission under the Exchange Act, will be a member
organization in good standing with the NYSE and will not be required to be
registered with the securities authority of any state.
(rr) LaBCo. is, and, as of the Closing Date HBInc. will be, a
broker-dealer subject to the provisions of Regulation T (12 C.F.R.ss.220) of the
Board of Governors of the Federal Reserve System. LaBCo. maintains and, as of
the Closing Date, HBInc. will maintain procedures and internal controls designed
to ensure that it does not extend or maintain credit to or for its customers
other than in accordance with the provisions of Regulation T, and management
officials of the Company regularly supervise the activities of LaBCo. and will
regularly supervise the activities of HBInc. and the activities of their
respective employees to ensure that neither LaBCo. nor HBInc. will extend or
maintain credit to or for its customers other than in accordance with the
provisions of said Regulation T.
(ss) There is no franchise, contract or other document of a
character that would be required to be described in a prospectus under the Act,
which is not described in the Offering Memorandum; and the statements set forth
in the Offering Memorandum under the headings "Business--Pending Acquisitions,
- --Operations--NYSE Rules Governing Our Specialist Activities and --Regulatory
Matters," "Employment Agreements and Noncompetition Agreements," "Incentive
Awards to Our Employees," "Description of Senior Subordinated Notes,"
"Description of Other Indebtedness," "Certain United States Federal Income Tax
Consequences" and "Plan of Distribution" fairly summarize in all material
respects the matters described therein.
(tt) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds insuring the
Company or any of its Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
its Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of its Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause;
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<PAGE>
neither the Company nor any such Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any such Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Offering Memorandum.
(uu) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from making any distribution in respect of its capital
stock, membership interests or partnership interests, as the case may be, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to the
Company or any other Subsidiary of the Company, except as described in or
contemplated by the Offering Memorandum.
(vv) The Company had full right, power and authority to
execute and deliver the Henderson Acquisition Agreement and to perform its
obligations thereunder. The Henderson Acquisition Agreement has been duly
executed and delivered by the Company and each Acquisition Agreement is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. The
Company is in compliance with all of the terms and conditions of the Henderson
Acquisition Agreement, and no event has occurred, including without limitation,
the receipt of any notice, which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of the Henderson
Acquisition Agreement or would result in any other impairment in the
consummation of the Henderson Acquisition Agreement.
The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the
Initial Purchasers, severally and jointly, represents and warrants to, and
agrees with, the Company that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A
Notes with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
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(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A Notes
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Series A
Notes only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell the
Series A Notes only to, and will solicit offers to buy the Series A Notes only
from (A) Eligible Purchasers that such Initial Purchaser reasonably believes are
QIBs and (B) Regulation S Purchasers, in each case, that agree that (x) the
Series A Notes purchased by them may be resold, pledged or otherwise transferred
within the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as in
effect on the date of the transfer of such Series A Notes, only (I) to the
Company or any of its Subsidiaries, (II) to a person whom the seller reasonably
believes is a QIB purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A under the Act, (III) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) in accordance with another exemption
from the registration requirements of the Act (and based upon an opinion of
counsel acceptable to the Company) or (VI) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other applicable jurisdiction and (y)
they will deliver to each person to whom such Series A Notes or an interest
therein is transferred a notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person
acting on its or their behalf have not engaged or will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Series A Notes.
(f) The Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
Such Initial Purchaser acknowledges that the Company and, for
purposes of the opinions to be delivered to each Initial Purchaser pursuant to
Section 9 hereof, counsel to the Company and counsel to such Initial Purchaser
will rely upon the accuracy and truth of the foregoing representations and each
Initial Purchaser hereby consents to such reliance.
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8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Initial Purchaser, its directors, its officers and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by the Company to any holder or prospective
purchaser of Series A Notes pursuant to Section 5(h) or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or judgments are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to such Initial Purchaser furnished in writing
to the Company by such Initial Purchaser through Donaldson, Lufkin & Jenrette
Securities Corporation provided, however, that the foregoing indemnity agreement
with respect to any Preliminary Offering Memorandum shall not inure to the
benefit of any Initial Purchaser who failed to deliver an Offering Memorandum,
as then amended or supplemented, (so long as the Offering Memorandum and any
amendment or supplement thereto was provided by the Company to the several
Initial Purchasers in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages, liabilities or judgements caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such material misstatement or
omission or alleged material misstatement or omission was cured in the Offering
Memorandum, as so amended or supplemented.
(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, and their respective directors and
officers and each person, if any, who controls (within the meaning of Section 15
of the Act or Section 20 of the Exchange Act) the Company, to the same extent as
the foregoing indemnity from the Company to each Initial Purchaser but only with
reference to information relating to such Initial Purchaser furnished in writing
to the Company by such Initial Purchaser through Donaldson, Lufkin & Jenrette
Securities Corporation (and not with respect to the information furnished to the
Company by and relating to any of the other Initial Purchasers) expressly for
use in the Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all reasonable fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both
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Sections 8(a) and 8(b), none of the Initial Purchasers shall be required to
assume the defense of such action pursuant to this Section 8(c), but each
Initial Purchaser may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as provided below,
shall be at the expense of such Initial Purchaser). Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such reasonable fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation, in the case of the parties indemnified pursuant
to Section 8(a), and by the Company, in the case of parties indemnified pursuant
to Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the reasonable fees and expenses of counsel (in any case where such
reasonable fees and expenses are at the expense of the indemnifying party) and,
prior to the date of such settlement, the indemnifying party shall have failed
to comply with such reimbursement request. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and each of the Initial Purchasers on the other hand
from the offering of the Series A Notes or (ii) if the allocation provided by
clause 8(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the
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relative fault of the Company, on the one hand, and each of the Initial
Purchasers, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand and each of the Initial Purchasers, on
the other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (after underwriting discounts
and commissions, but before deducting expenses) received by the Company, and the
total discounts and commissions received by each of the Initial Purchasers bear
to the total price to investors of the Series A Notes. The relative fault of the
Company, on the one hand, and each of the Initial Purchasers, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, on the
one hand, or any of the Initial Purchasers, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and each of the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such indemnified party in connection with investigating or defending any
matter, including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, each Initial Purchaser shall not be required to contribute any amount
in excess of the amount by which the total discounts and commissions received by
such Initial Purchaser exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 8(d) are several in proportion to the respective principal amount
of Series A Notes purchased by each of the Initial Purchasers hereunder and not
joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
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9. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
on the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Company or any securities of the Company (including, without
limitation, the placing of any of the foregoing ratings on credit watch with
negative or developing implications or under review with an uncertain direction)
by any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Act, (ii) there shall not have
occurred any change, nor shall any notice have been given of any potential or
intended change, in the outlook for any rating of the Company or any securities
of the Company by any such rating organization and (iii) no such rating
organization shall have given notice that it has assigned (or is considering
assigning) a lower rating to the Notes than that on which the Notes were
marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in or contemplated by
the Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred any
change or any development which could reasonably be expected to result in a
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and its Subsidiaries, taken as a whole,
(ii) there shall not have been any change or any development which could
reasonably be expected to result in a change in the capital stock or in the
long-term debt of the Company or any of its Subsidiaries and (iii) neither the
Company nor any of its Subsidiaries shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your reasonable judgment,
is material and adverse and, in your reasonable judgment, makes it impracticable
to market the Series A Notes on the terms and in the manner contemplated in the
Offering Memorandum.
(d) You shall have received on the Closing Date (x) a
certificate dated the Closing Date, signed by the Chairman, Chief Executive
Officer and President and by the Executive Vice President, Finance of the
Company, confirming the matters set forth in Sections 6(w)(i)-(iii), 9(a) and
9(b) and stating that each of the Company has complied in all material respects
with all the agreements and satisfied in all material respects all of the
conditions herein contained and required to be complied with or satisfied on or
prior to the Closing Date and (y) a certificate of the Chief Compliance Officer
of the Company or another officer of the Company satisfactory to Donaldson,
Lufkin & Jenrette Securities Corporation confirming the following:
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<PAGE>
(i) neither the Company nor any of its Subsidiaries has
violated any provisions of ERISA or the rules and regulations
promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a Material Adverse Effect; and
(ii) each of the Company and its Subsidiaries (i) has such
Authorizations of, and has made all filings with and notices to, all
federal, state and foreign governments, governmental or regulatory
authorities and self-regulatory organizations and all courts and
other tribunals, including without limitation, under any applicable
Environmental Laws and (ii) is a member in good standing of each
federal, state or foreign exchange, board of trade, clearing house
or association and self-regulatory or similar organization, in each
case, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a Material
Adverse Effect; each such Authorization is valid and in full force
and effect and each of the Company and its Subsidiaries is in
compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred
(including the receipt of any notice from any authority or governing
body) which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of
any such Authorization; and other than as described in the Offering
Memorandum, such Authorizations contain no restrictions, including,
without limitation, net capital requirements, that are burdensome to
the Company or any of its Subsidiaries; except where such failure to
be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a Material Adverse
Effect.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchasers), dated the Closing
Date, of Fulbright & Jaworski L.L.P., counsel for the Company, to the effect
that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the
Offering Memorandum and to own, lease and operate its
properties; each of its Subsidiaries has been duly organized
or incorporated, as the case may be, and is validly existing
as a limited partnership, a limited liability company or a
corporation, as the case may be, in good standing under the
laws of the jurisdiction in which it is organized or
incorporated, as the case may be, and has the power and
authority to carry on its business as described in the
Offering Memorandum and to own, lease and operate its
properties;
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(ii) the Company is duly qualified and is in good
standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification
except where the failure to be so qualified would not have a
Material Adverse Effect, and each of its Subsidiaries is duly
qualified and is in good standing and authorized to do
business in each foreign jurisdiction in which the nature of
its business or its ownership or leasing of property requires
such qualification;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are
fully paid, non-assessable and, to the knowledge of such
counsel, not subject to any preemptive or similar rights;
(iv) all of the outstanding shares of capital stock,
membership interests or partnership interests, as the case may
be, of each of the Company's Subsidiaries have been duly
authorized and validly issued and are fully paid and
non-assessable, and are owned, directly or indirectly, by the
Company, to the knowledge of such counsel, free and clear of
any Lien;
(v) the Series A Notes have been duly authorized and,
when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this
Agreement, will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company,
enforceable in accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (y) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(vi) the Company had the corporate right, power and
authority to execute and deliver the Henderson Acquisition
Agreement and to perform its obligations thereunder; the
Henderson Acquisition Agreement is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally, and (b) rights of
acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(vii) the Indenture has been duly authorized, executed
and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company and
in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (y) rights
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<PAGE>
of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability;
(viii) this Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and is a
valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as
(x) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (y) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(x) the Series B Notes have been duly authorized;
(xi) the statements under the captions
"Business--Pending Acquisitions," "--Operations--NYSE Rules
Governing Our Specialist Activities," "Business--Regulatory
Matters," "Employment Agreements and Noncompetition
Agreements," "Incentive Awards to Our Employees," "Description
of Senior Subordinated Notes," "Description of Other
Indebtedness," "Certain United States Federal Income Tax
Consequences" and "Plan of Distribution" (other than
statements in the "Plan of Distribution" furnished to the
Company by the Initial Purchasers, as to which no opinion is
rendered) in the Offering Memorandum, insofar as such
statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present
in all material respects such legal matters, documents and
proceedings;
(xii) The Company's authorized equity capitalization is
set forth in the Offering Memorandum under the heading
"Capitalization";
(xiii) to the knowledge of such counsel, neither the
Company nor any of its Subsidiaries is in violation of its
respective charter, by-laws or other organizational documents
and, to the best of such counsel's knowledge after due
inquiry, neither the Company nor any of its Subsidiaries is in
default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its Subsidiaries, taken as
a whole, to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or
their respective property is bound that (A) is described in
the Offering Memorandum under the headings "Business - Pending
Acquisitions," "Employment Agreements and Noncompetition
Agreements," "Incentive Awards to Our Employees," "Certain
Transactions - Reorganization and Related Transactions and
--Interest on Indebtedness" and "Description of
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<PAGE>
Other Indebtedness" or (B) has been filed as an exhibit to any
of the Company's filings with the Commission pursuant to the
Act or the Exchange Act (collectively, the "Material
Contracts");
(xiv) the execution, delivery and performance of this
Agreement, the other Operative Documents by the Company, the
compliance by the Company with all provisions hereof and
thereof and the consummation of the transactions contemplated
hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or filing with, or
qualification with, any court or governmental or self
regulatory body or agency known to such counsel to be
applicable to the Company (except such as may be required
under federal securities laws, the securities or Blue Sky laws
of the various states or the TIA, by the NYSE or in connection
with the Acquisition Transactions), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any of
its Subsidiaries or any Material Contract, except any such
conflict, breach or default that individually or in the
aggregate could not reasonably be expected to have a Material
Adverse Effect, (iii) violate or conflict with any applicable
statute, law, ordinance, administrative, governmental or
self-regulatory organization rule or regulation, or judgment,
order or decree of any court or any governmental body or
agency known to us to have jurisdiction over the Company, any
of its Subsidiaries or their respective property, except any
such violation or conflict that individually or in the
aggregate could not reasonably be expected to have a Material
Adverse Effect, (iv) result in the imposition or creation of
(or the obligation to create or impose) a Lien under any
Material Contract, or (v) result in the termination,
suspension or revocation of any material Authorization of the
Company or any of its Subsidiaries or result in any other
impairment of the rights of the holder of any such material
Authorization.
(xv) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its Subsidiaries is or could be a
party or to which any of their respective property is or could
be subject, which might result, singly or in the aggregate, in
a Material Adverse Effect or which would be required to be
described in a prospectus pursuant to the Act which is not
described in the Offering Memorandum, and to the knowledge of
such counsel, there is no franchise, contract or other
document of a character which would be required to be
described in a prospectus pursuant to the Act which is not
described in the Offering Memorandum.
(xvi) each of the Company and its Subsidiaries (i) has
such Authorizations of, and has made all filings with and
notices to, all federal, state and foreign governments,
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including
without limitation, under any applicable Environmental Laws
and (ii) is a
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<PAGE>
member in good standing of each federal, state or foreign
exchange, board of trade, clearing house or association and
self-regulatory or similar organization, in each case, to
consummate the transactions contemplated by this Agreement and
the Henderson Acquisition Transaction, except where the
failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a
Material Adverse Effect; to the knowledge of such counsel,
each such Authorization is valid and in full force and effect
and each of the Company and its Subsidiaries is in compliance
in all material respects with all the terms and conditions
thereof and with the rules and regulations of the authorities
and governing bodies known to us to have jurisdiction with
respect thereto; and, to the knowledge of such counsel, no
event has occurred (including the receipt of any notice from
any authority or governing body) which allows or, after notice
or lapse of time or both, would allow, revocation, suspension
or termination of any such Authorization or results or, after
notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such
Authorization; and other than as described in the Offering
Memorandum, such Authorizations contain no restrictions,
including, without limitation, net capital requirements, that
are burdensome to the Company or any of its Subsidiaries;
except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such
event or the presence of any such restriction would not,
singly or in the aggregate, have a Material Adverse Effect;
(xvii) the Company is not and, immediately after the
offering and sale of the Series A Notes and the application of
the net proceeds thereof as described in the Offering
Memorandum, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
(xviii) to the best of such counsel's knowledge after
due inquiry, other than the Registration Rights Agreement,
there are no contracts, agreements or understandings between
the Company and any person granting such person the right to
require the Company to file a registration statement under the
Act with respect to any securities of the Company or to
require the Company to include such securities with the Notes
registered pursuant to any Registration Statement;
(xix) the Indenture complies as to form in all material
respects with the requirements of the TIA, and the rules and
regulations of the Commission applicable to an indenture which
is qualified thereunder. It is not necessary in connection
with the offer, sale and delivery of the Series A Notes to the
Initial Purchasers in the manner contemplated by this
Agreement or in connection with the Exempt Resales to qualify
the Indenture under the TIA;
27
<PAGE>
(xx) no registration under the Act of the Series A Notes
is required for the sale of the Series A Notes to the Initial
Purchasers as contemplated by this Agreement or for the Exempt
Resales assuming that (i) each Initial Purchaser is a QIB or a
Regulation S Purchaser, (ii) the accuracy of, and compliance
with, the Initial Purchasers' representations and agreements
contained in Section 7 of this Agreement, (iii) the accuracy
of the representations of the Company set forth in Sections
6(z), (bb), (cc), (dd) and (ff) of this Agreement, (iv)
compliance by each Initial Purchaser with the offering and
transfer procedures and restrictions described in the Offering
Memorandum, (v) the accuracy of the representations and
warranties deemed to be made in the Offering Memorandum by
purchasers to whom the Initial Purchasers initially resell the
Series A Notes and (vi) purchasers to whom the Initial
Purchasers initially sell the Series A Notes receive a copy of
the Offering Memorandum prior to such sale;
(xxi) the approval of the Company's stockholders is not
required in connection with the consummation of the Henderson
Acquisition Transaction;
(xxii) the Indenture, the Notes and the Registration
Rights Agreement conform in all material respects to the
descriptions thereof contained in the Offering Memorandum;
(xxiii) no Material Contract contains any provisions
that prohibit any Subsidiary of the Company, directly or
indirectly, from making any distribution in respect of its
capital stock, membership interests or partnership interests,
as the case may be, from repaying to the Company any loans or
advances to such Subsidiary from the Company or from
transferring any of such Subsidiary's property or assets to
the Company or any other Subsidiary of the Company, except as
described in or contemplated by the Offering Memorandum;
(xxiv) each of LaBCo. and HBInc. is registered as a
broker-dealer with the Commission under the Exchange Act and
is a member organization in good standing with the NYSE, and
neither LaBCo. nor HBInc. is required to be registered with
the securities authority of any state; and
(xxv) neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance,
execution or delivery of the Notes will violate Regulation T,
U or X of the Board of Governors of the Federal Reserve
system.
With respect to matters relating to Henderson Brothers,
HBInc., HBFC or the Henderson Acquisition Transaction, (i) Fulbright
& Jaworski L.L.P. may rely on an opinion of Cravath, Swaine & Moore,
dated the Closing Date, provided that such opinion expressly states
that such opinion may be delivered to,
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<PAGE>
and relied upon by, the Initial Purchasers in connection with the
transactions contemplated hereby or (ii) the Company may deliver to
the Initial Purchasers an opinion of Cravath, Swaine & Moore, dated
the Closing Date and addressed to the Initial Purchasers.
The opinion of Fulbright & Jaworski L.L.P shall also
contain the following paragraph:
We have participated in conferences with officers and
other representatives of the Company, representatives of the
independent public accountants for the Company, representatives of
the Initial Purchasers and counsel for the Initial Purchasers at
which conferences the contents of the Offering Memorandum and
related matters were discussed, and, although we have not
independently verified and are not passing upon and assume no
responsibility for the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum (except to the
extent specified in Section 9(e)(xi)), and that our judgment as to
materiality is, to the extent we deem proper, based in part upon the
views of appropriate officers and other representatives of the
Company, nothing has come to our attention that leads us to believe
that the Offering Memorandum, as of its date or as of the date
hereof, contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements contained therein, in
the light of the circumstances under which they were made, not
misleading (it being understood that we express no opinion with
respect to the financial statements and related notes thereto and
the other financial, statistical and accounting data included in the
Offering Memorandum).
The opinion of Fulbright & Jaworski L.L.P. (and, to the extent
applicable, the opinion of Cravath, Swaine & Moore) described in Section 9(e)
above shall be rendered to you at the request of the Company and shall so state
therein.
(f) The Initial Purchasers shall have received on the Closing Date
an opinion, dated the Closing Date, of Cleary, Gottlieb, Steen & Hamilton,
counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(g) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof and
the Closing Date, in form and substance satisfactory to the Initial Purchasers
from each of Arthur Andersen LLP, Deloitte & Touche LLP, Goldstein Golub Kessler
& Company and Glasser & Haims, P.C., all of which are independent public
accountants with respect to the entities audited by them, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to the Initial Purchasers with respect to the financial
statements and certain financial information (and, in the case of Arthur
Andersen LLP, the pro forma financial statements and pro forma financial
information) contained in the Offering Memorandum.
(h) The Series A Notes shall have been duly listed in PORTAL.
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(i) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company and the Trustee.
(j) The Company shall have executed the Registration Rights
Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company.
(k) At or prior to the Closing Date, the Company shall have
performed or complied in all material respects with the agreements herein
contained and required to be performed or complied with by the Company at or
prior to the Closing Date.
(l) At the Closing Date, the Henderson Acquisition Transaction shall
have been consummated subject to the funding to be provided hereby and the
Company shall have provided to the Initial Purchasers or counsel for the Initial
Purchasers copies of all closing documents delivered to the parties to the
Henderson Acquisition Transaction.
(m) At the time of execution of this Agreement and on the Closing
Date, no order or decree preventing the use of the Offering Memorandum or any
amendment or supplement thereto, or any order asserting that the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, shall have been issued and no proceedings for those purposes shall have
been commenced or shall be pending or, to the knowledge of the Company,
threatened. No order suspending the sale of the Series A Notes in any
jurisdiction shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending or, to the knowledge of the Company,
threatened.
30
<PAGE>
10. Effectiveness of Agreement and Termination. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchasers by written notice to the Company if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers
shall fail or refuse to purchase the Series A Notes which it or they have agreed
to purchase hereunder on such date and the aggregate principal amount of the
Series A Notes which such defaulting Initial Purchaser or Initial Purchasers, as
the case may be, agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of the Series A Notes to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the principal
amount of the Series A Notes set forth opposite its name in Schedule A bears to
the aggregate principal amount of the Series A Notes which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to purchase,
or in such other proportion as you may specify, to purchase the Series A Notes
which such defaulting Initial Purchaser or Initial Purchasers, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of the Series A Notes which any
Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such principal amount of the Series A Notes without the written consent of such
Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial
Purchasers shall fail or refuse to purchase the Series A Notes and the aggregate
principal amount of the Series A Notes with respect to which such default occurs
is more than one-tenth of the aggregate principal amount of the Series A Notes
to be purchased by all Initial Purchasers and arrangements satisfactory to the
Initial Purchasers and the Company for purchase of such the Series A Notes are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Initial Purchaser and the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Offering
31
<PAGE>
Memorandum or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of any such Initial Purchaser under
this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to LaBranche &
Co Inc., One Exchange Plaza, New York, New York 10006, Attention: George M. L.
LaBranche, IV and (ii) if to the Initial Purchasers, Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Smith Barney Inc. and ABN AMRO
Incorporated, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series A Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of the Initial Purchasers, the
officers or directors of the Initial Purchasers, any person controlling the
Initial Purchasers, the Company, the officers or directors of the Company, or
any person controlling the Company, (ii) acceptance of the Series A Notes and
payment for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on
behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company agrees to
reimburse the Initial Purchasers for all reasonable out-of-pocket expenses
(including the reasonable fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The
Company also agrees to reimburse the Initial Purchasers and its officers,
directors and each person, if any, who controls such Initial Purchasers within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act for any
and all reasonable fees and expenses (including without limitation the
reasonable fees and expenses of counsel) incurred by them in connection with
enforcing their rights under this Agreement (including without limitation its
rights under Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Initial
Purchasers, the Initial Purchasers' directors and officers, any controlling
persons referred to herein, the directors of the Company and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Series A Notes from any of the Initial Purchasers merely because of
such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
32
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the Initial Purchasers.
Very truly yours,
LaBranche & Co Inc.
By: /s/ G.M.L. LaBranche
------------------------------------
Name: G.M.L. LaBranche, IV
Title: Chairman, Chief Executive
Officer and President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
ABN AMRO INCORPORATED
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Clifford Lam
----------------------------------
Name: Clifford Lam
Title: Vice President
33
<PAGE>
SCHEDULE A
Initial Purchasers Principal Amount of Notes
------------------ -------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation .......................... $218,750,000
Salomon Smith Barney Inc. .......................... 25,000,000
ABN AMRO Incorporated .............................. 6,250,000
============
Total .............................................. $250,000,000
1
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
2
Exhibit 21
List of Subsidiaries
Jurisdiction of Organization or
-------------------------------
Subsidiary Incorporation
- ---------- -------------
LaBranche & Co. New York
LaB Investing Co. L.L.C New York
Henderson Brothers Holdings, Inc. Delaware
Henderson Brothers, Inc. Delaware
Henderson Brothers Futures Corporation Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation in
this Form 10-K of our report dated January 24, 2000. It should be noted that we
have not audited any financial statements of the LaBranche & Co Inc. and
Subsidiaries subsequent to December 31, 1999 or performed any audit procedures
subsequent to the date of our report.
/s/ Arthur Andersen LLP
New York, New York
April 4, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 109,196 25,822
<SECURITIES> 150,034 116,462
<RECEIVABLES> 37,497 57,817
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 299,242 201,461
<PP&E> 1,355 1,647
<DEPRECIATION> 1,250 729
<TOTAL-ASSETS> 505,125 272,201
<CURRENT-LIABILITIES> 70,123 97,211
<BONDS> 115,822 0
0 0
0 0
<COMMON> 459 0
<OTHER-SE> 251,513 0
<TOTAL-LIABILITY-AND-EQUITY> 505,125 272,201
<SALES> 0 0
<TOTAL-REVENUES> 201,037 126,411
<CGS> 0 0
<TOTAL-COSTS> 66,569 34,776
<OTHER-EXPENSES> 81,535 85,075
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,286 3,577
<INCOME-PRETAX> 52,933 6,560
<INCOME-TAX> 23,899 3,900
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,034 2,660
<EPS-BASIC> 0.72 0.11
<EPS-DILUTED> 0.72 0.11
</TABLE>
EXHIBIT 99.1
RISK FACTORS
The risks and uncertainties described below are some of the material risks
that our company faces.
We have significant indebtedness and interest payment obligations.
We have significantly increased our debt as a result of our recent
transactions. As of March 24, 2000, we have approximately $415.5 million of
consolidated aggregate principal amount of outstanding debt. These calculations
of debt exclude subordinated liabilities related to contributed exchange
memberships. LaBranche & Co. also has the ability to borrow $200.0 million under
a revolving credit facility with The Bank of New York which was originally
entered into in June of 1998 and increased and extended in both June 1999 and
February 2000 (the "Credit Agreement"). We may also need to incur additional
debt in the future for working capital or to complete acquisitions, even though
our principal credit facility imposes some limits on our ability to do so. We
are highly leveraged and our high level of indebtedness could have important
consequences to you, which include the following:
o our ability to obtain additional financing to fund our growth strategy,
working capital, capital expenditures, debt service requirements or other
purposes may be impaired;
o our ability to use operating cash flow in other areas of our business
will be limited because we must dedicate a substantial portion of these funds to
make principal and interest payments;
o we may not be able to compete with others who are not as highly
leveraged; and
o our substantial degree of leverage may limit our flexibility to adjust
to changing market conditions, changes in our industry and economic downturns.
Our ability to satisfy our debt obligations will depend upon our future
operating performance and our ability to obtain additional debt or equity
financing. Prevailing economic conditions and financial, business and other
factors, many of which are beyond our control, will affect our ability to make
these payments. If in the future we cannot generate sufficient cash from
operations to meet our debt obligations, we will need to refinance our debt
obligations, obtain additional financing or sell assets. We cannot assure you
that our business will generate cash flow or that we will be able to obtain
funding sufficient to satisfy our debt service requirements.
Further, LaBranche & Co. is a broker-dealer and a specialist regulated by
the SEC and the NYSE. Such regulations include strict rules regarding capital
requirements and approval requirements for withdrawals of capital from, and in
some cases, other distributions by, the broker-dealer. These regulations could
prevent us from obtaining funds necessary to satisfy our obligations to pay
interest on or repay our indebtedness.
Our ability to take actions may be restricted by the terms of our indebtedness.
The covenants in our existing debt agreements, including the Credit
Agreement, the note purchase agreements relating to LaBranche & Co.'s existing
senior subordinated indebtedness, the indenture governing our senior notes and
the indenture governing our senior subordinated notes and any future financing
agreements, may adversely affect our ability to finance future operations or
capital needs
<PAGE>
or to engage in other business activities. These covenants limit or restrict our
ability and the ability of our subsidiaries to:
o incur additional debt;
o pay dividends and make distributions;
o repurchase our securities;
o make certain investments;
o create liens on our assets;
o transfer or sell assets;
o enter into transactions with affiliates;
o issue or sell stock of subsidiaries; or
o merge or consolidate.
In addition, the Credit Agreement and the note purchase agreements also
require LaBranche & Co. to comply with certain financial ratios. LaBranche &
Co.'s ability to comply with these ratios may be affected by events beyond our
or its control. If any of the covenants in our Credit Agreement, the note
purchase agreements, the indenture relating to our senior notes or the indenture
relating to our senior subordinated notes is breached, or if LaBranche & Co. is
unable to comply with required financial ratios, it may be in default under the
Credit Agreement or the note purchase agreements and we may be in default under
the indenture relating to our senior notes or the indenture relating to our
senior subordinated notes. A significant portion of our indebtedness then may
become immediately due and payable. We are not certain whether we would have, or
be able to obtain, sufficient funds to make these accelerated payments.
Compliance with the covenants is also a condition to borrowings under the Credit
Agreement.
We are required to take actions upon the occurrence of a change of control.
Upon the occurrence of a change of control, we will be required to offer
to repurchase all outstanding senior notes and senior subordinated notes at a
price equal to 101% of their principal amount, together with accrued and unpaid
interest, if any, to the date of repurchase. Certain important corporate events,
such as leveraged recapitalizations that would increase our level of
indebtedness, would not constitute a change of control. If a change of control
were to occur, it is possible that we would not have sufficient funds to
repurchase our senior subordinated notes owned by holders seeking to accept our
offer or that restrictions in the Credit Agreement, the note purchase agreements
relating to LaBranche & Co.'s existing senior subordinated indebtedness or the
indenture governing our senior notes will not allow such repurchases.
Furthermore, a change of control will most likely trigger a default under the
Credit Agreement, the note purchase agreements relating to LaBranche & Co.'s
existing senior subordinated indebtedness and the indenture governing our senior
notes. To the extent we do not have sufficient funds to meet our repurchase
obligations and any other obligations in respect of the Credit Agreement, the
note purchase agreements and the indenture relating to our senior notes, we
would necessarily seek third-party financing. However, it is possible that we
will not be able to obtain such financing.
2
<PAGE>
We may have insufficient capital in the future and may be unable to secure
additional financing when we need it.
Our business depends on the availability of adequate capital. We cannot be
sure that we will have sufficient capital in the future or that additional
financing will be available on a timely basis, or on terms favorable to us.
Historically, we have satisfied these needs with internally generated funds, our
bank credit facilities and the issuance of subordinated debt by our operating
subsidiaries and the issuance by us of our senior notes and our common stock.
The proceeds of the sale of our senior subordinated notes were used to fully
fund our acquisition of Henderson Brothers and to partially fund our acquisition
of Webco and to pay fees and expenses related to both acquisitions. We currently
anticipate that our available cash resources and credit facilities will be
sufficient to meet our anticipated working capital, regulatory capital and
capital expenditure requirements through the end of 2000.
We may, however, need to raise additional funds to: o increase the capital
available to us for our inventory positions; o support more rapid expansion; o
acquire complementary businesses; or o respond to unanticipated capital
requirements.
We may be required to obtain this additional financing on short notice as
a result of rapid, unanticipated developments, such as a steep market decline.
Our revenues may decrease due to changes affecting the economy, such as
increases in interest rates or inflation, or changes affecting the securities
markets, such as decreased volume or liquidity.
We recently experienced a substantial increase in the revenues we earn
from our specialist activities. An adverse change affecting the economy or the
securities markets could result in a decline in market volume or liquidity. This
would result in lower revenues from our specialist activities. Our recent
increase in revenues was caused primarily by significant increases in the volume
of trading on the NYSE and favorable conditions in the securities markets. The
current favorable business environment may not continue indefinitely.
Sustained declines in price levels of securities could cause us to incur losses.
Adverse changes in the economy and the securities markets could lead to
lower price levels of securities. Sustained declines in these price levels may
result in: o losses from declines in the market value of securities held in our
inventory; o the failure of buyers and sellers of securities to fulfill their
settlement obligations; and o increases in claims and litigation.
Trading through NYSE specialists could be replaced by alternative trading
systems which could reduce our revenue.
3
<PAGE>
Alternative trading systems could reduce the levels of trading of
NYSE-listed stocks executed through specialists. This, in turn, could have an
adverse effect on our revenues. Over the past few years, a number of alternative
trading systems have developed or emerged which may compete with specialists by
increasing trading in NYSE-listed stocks off the NYSE trading floor in
over-the-counter markets. In the future, similar new systems may continue to be
developed and placed in operation.
New and proposed NYSE initiatives may lower the revenues we earn on trades
executed in shares of our common stock listings.
The NYSE recently approved the repeal of Rule 390, which generally
prohibited member firms from trading stocks listed before April 26, 1979 other
than on a national exchange. Any stocks for which we act as specialist listed
before April 26, 1979 will now be freely tradable in over-the-counter markets.
We will not receive commissions on trades executed in over-the-counter markets
and will not participate in those trades as principal. Additionally, on December
28, 1999, the NYSE implemented a new initiative which increased from two minutes
to five minutes the window for providing commission-free transactions on orders.
Therefore, any order we execute as agent within five minutes of placement of the
order will not generate any commissions revenue for us. This new initiative has
adversely affected commissions revenue.
Competition from Nasdaq for new listings could adversely affect NYSE trading
volume and, in turn, reduce our revenues.
Nasdaq continues to grow and gain in popularity, attracting companies
which might otherwise have listed on the NYSE. If more companies decide to be
quoted on Nasdaq as opposed to listing their stocks on the NYSE, or if companies
choose to delist using recently relaxed delisting procedures, trading volume on
the NYSE could be adversely affected. This, in turn, could adversely affect our
trading revenue. In recent years, many high technology companies have opted to
be quoted on Nasdaq, even though many of them would have qualified for NYSE
listing. In addition, the SEC recently approved a revision to NYSE Rule 500
which makes it easier for a company to delist its shares from the NYSE. The
original rule required supermajority shareholder approval before a listed
company could delist from the NYSE. Under the recently approved amendment of
Rule 500, a company can delist from the NYSE if it obtains the approval of a
majority of the company's board of directors and the company's audit committee.
The company would then provide its 35 largest shareholders with written notice
of the proposed delisting and allow a 20-40 day waiting period to elapse.
Our quarterly results may fluctuate significantly.
Our revenues may fluctuate significantly based on factors relating to the
securities markets. These factors include:
o a decrease in trading volume on the NYSE;
o volatility in the equity securities markets; and
o changes in the value of our securities positions.
Many elements of our cost structure do not decline if we experience
quarterly reductions in our revenues. As a result, if market conditions cause
our revenues to decline, we may be unable to adjust our cost structure on a
timely basis and we could suffer losses.
4
<PAGE>
Risks associated with our trading transactions could result in trading losses.
A majority of our specialist-related revenues are derived from trading by
us as principal. We may incur trading losses relating to these activities since
each primarily involves the purchase, sale or short sale of securities for our
own account. In any period, we may incur trading losses in a significant number
of our specialist stocks for a variety of reasons, including price declines of
our specialist stocks, lack of trading volume in our specialist stocks and the
required performance of our specialist obligations. From time to time, we have
large position concentrations in securities of a single issuer or issuers
engaged in a specific industry. In general, because our inventory of securities
is marked to market on a daily basis, any downward price movement in these
securities will result in a reduction of our revenues and operating profits. We
also operate a proprietary trading desk separately from our NYSE specialist
operations, which represented 3.3% of our total revenues in 1999. We may incur
trading losses as a result of these trading activities.
Although we have adopted risk management policies, we cannot be sure that
these policies have been formulated properly to identify or limit our risks.
Even if these policies are formulated properly, we cannot be sure that we will
successfully implement these policies. As a result, we may not be able to manage
our risks successfully or avoid trading losses.
NYSE specialist rules may require us to make unprofitable trades or to refrain
from making profitable trades.
When we trade as principal, we attempt to derive a profit from the
difference between the prices at which we buy and sell securities. Our role as a
specialist, at times, requires us to make trades that adversely affect our
profitability. In addition, as a specialist, we are at times required to refrain
from trading for our own account in circumstances in which it may be to our
advantage to trade. For example, we may be obligated to act as a principal when
buyers or sellers outnumber each other. In those instances, we may take a
position counter to the market, buying or selling shares to support an orderly
market in the affected stocks. In order to perform these obligations, we hold
varying amounts of securities in inventory. In addition, specialists generally
may not trade for their own account when public buyers are meeting public
sellers in an orderly fashion and may not compete with public orders at the same
price. By having to support an orderly market, maintain inventory positions and
refrain from trading under some favorable conditions, we are subjected to a high
degree of risk. Additionally, the NYSE periodically amends its rules and may
make the rules governing our activities as a specialist more stringent or may
implement changes which could adversely affect our trading revenues.
We may have difficulty successfully managing our growth.
Since 1994, we have experienced significant growth in our business
activities and the number of our employees. We cannot assure you that we will be
able to manage our growth successfully. Our inability to do so could have an
adverse effect on our business, financial condition and/or operating results.
The growth of our business has increased the demands upon our management and
operations and we expect it to continue to do so in the future. This growth has
required, and will continue to require, us to increase our investment in
management personnel, financial and management systems and controls, and
facilities. The scope of procedures for assuring compliance with applicable
rules and regulations has changed as the size and complexity of our business has
increased. In response, we have implemented formal compliance procedures which
are regularly updated. Our future operating results will depend on our ability
to continue:
5
<PAGE>
o to improve our systems for operations, financial control, and
communication and information management;
o to refine our compliance procedures and enhance our compliance
oversight; and
o to recruit, train, manage and retain our employees.
We may fail to integrate our recent acquisitions.
We cannot assure you that we will be able to integrate the businesses of
Henderson Brothers or Webco with our current business. The acquisitions may
result in unforeseen operating difficulties and expenditures. They may also
require significant management attention that would otherwise be available for
ongoing development of our business. Moreover, we cannot assure you that the
anticipated benefits of these acquisitions will be realized. As a result of the
acquisitions, we will incur amortization expenses related to goodwill and other
intangible assets. In addition, we may incur contingent liabilities of which we
are not aware.
As part of our acquisition of Henderson Brothers, we acquired its clearing
operations. We have no experience operating a clearing business and may not be
familiar with all of the risks associated with the clearing business. We cannot
assure you that we will successfully operate and manage this business.
Our success depends on our ability to accurately process and record our
transactions, and any failure to do so could subject us to losses.
Our specialist activities require us to accurately record and process a
very large number of transactions on a daily basis. Any failure or delay in
recording or processing transactions could cause substantial losses for brokers,
their customers and/or us and could subject us to claims for losses. We rely on
our staff to operate and maintain our information and communications systems
properly, and we depend on the integrity and performance of those systems. Our
recording and processing of trades is subject to human and processing errors.
Moreover, extraordinary trading volume or other events could cause our
information and communications systems to operate at an unacceptably low speed
or even fail. Any significant degradation or failure of our information systems
or any other systems in the trading process could cause us to fail to complete
transactions or could cause brokers who place trades through us to suffer delays
in trading.
Our management information systems may fail and interrupt our business.
Any information or communication systems failure or decrease in
information or communications systems performance that causes interruptions in
our operations could have an adverse effect on our business, financial condition
and/or operating results. Our systems may fail as a result of:
o hardware or software failure; or
o power or telecommunications failure.
Although we have established a back-up disaster recovery center in
Hoboken, New Jersey, it may not be effective in preventing an interruption of
our business.
We depend on the NYSE and clearing and depository institutions to effect trades,
and their failure to perform could subject us to losses.
6
<PAGE>
We are dependent on the proper and timely function of complex information
and communications systems maintained and operated by or for the NYSE and
clearing and depository institutions. Failures or inadequate or slow performance
of any of those systems could adversely affect our ability to operate and
complete trades. The failure to complete trades on a timely basis could subject
us to losses and claims for losses of brokers and their customers.
Our future success will depend on our ability to upgrade our information and
communications systems, and any failure to do so could harm our business and
profitability.
The development of complex communications and new technologies, including
Internet-based technologies, may render our existing information and
communications systems outdated. In addition, our information and communications
systems must be compatible with those of the NYSE. As a result, if the NYSE
upgrades its systems, we will need to make corresponding upgrades. Our future
success will depend on our ability to respond to changing technologies on a
timely and cost-effective basis. We cannot be sure that we will be successful in
upgrading our information and communications systems on a timely or
cost-effective basis. Our failure to do so could have an adverse effect on our
business, financial condition and/or operating results.
The NYSE's ability to develop information and communications systems and
complex computer and other technology systems has been instrumental in its
recent growth and success. We are dependent on the continuing development of
technological advances by the NYSE, a process over which we have no control. If
the NYSE for any reason is unable to continue its recent history of
computer-related and other technological developments and advances, it could
have an adverse effect on the success of the NYSE, including its ability to
grow, to manage its trading volumes or to attract new listings. Any such
developments can be expected to adversely affect our operations, financial
condition and operating results.
If we lose the services of our key personnel or cannot hire additional qualified
personnel, our business will be harmed.
Our future success depends on the continued service of key employees,
particularly George M.L. LaBranche, IV (Michael LaBranche), our Chairman, Chief
Executive Officer and President. The loss of the services of any of our key
personnel or the inability to identify, hire, train and retain other qualified
personnel in the future could have an adverse effect on our business, financial
condition and/or operating results. We have employment agreements with Mr.
LaBranche and other key employees. We also maintain "key person" life insurance
policies on Mr. LaBranche and other key employees. Competition for key personnel
and other highly qualified management, trading, compliance and technical
personnel is intense. We cannot assure you that we will be able to attract new
or retain currently employed highly qualified personnel in the future.
In connection with our reorganization transactions, our managing directors
received substantial amounts of our common stock in exchange for their interests
in LaB Investing Co. L.L.C. Because the shares of common stock were received in
exchange for membership interests, ownership of the shares is not dependent upon
the continued employment of those managing directors. In addition, employees who
are not managing directors received grants of stock options and restricted stock
units. The steps we have taken to encourage the continued service of these
individuals, who include key senior personnel in our specialist activities, may
not be effective.
7
<PAGE>
We depend significantly on revenues from our specialist activities for a small
group of listed companies, and the loss of any of them could reduce our
revenues.
Historically, a small number of listed companies have accounted for a
significant portion of our revenues from our specialist trading activities. The
loss of any of these listed companies could have an adverse effect on our
revenues. For the years ended December 31, 1998 and 1999, transactions in our 10
most actively traded specialist stocks accounted for approximately 39.0% and
44.2% of our total revenues, respectively. We cannot assure you that we will be
able to retain these or other listed companies. We can lose these listed
companies if they cease to be traded on the NYSE as a result of being acquired
or otherwise delisted. In addition, if the NYSE were to determine that we have
failed to fulfill our obligations as specialist for a listed company, our
registration as a specialist for that listed company could be cancelled or
suspended.
We depend almost entirely on our specialist activities, and if they fail to grow
as anticipated, it would harm our revenues.
We derive substantially all of our revenues from specialist activities. If
demand for our specialist services fails to grow, grows more slowly than we
currently anticipate, or declines, our revenues would be adversely affected. We
expect our specialist activities to continue to account for substantially all of
our revenues for the foreseeable future. Our future success will depend on:
o continued growth in the volume of trading and the number of listings on
the NYSE;
o our ability to be chosen as specialist for additional listing companies;
o our ability to respond to regulatory and technological changes; and
o our ability to respond to changing demands in the marketplace.
We are subject to intense competition for new listings, and our profitability
will suffer if we do not compete effectively.
We cannot be sure that we will be able to compete effectively with current
or future competitors. Our failure to compete effectively would have an adverse
effect on our profitability. We obtain all of our new listings on the NYSE by
going through an allocation process. Under this process either a committee of
the NYSE or the listing company chooses the specialist. The competition for
obtaining new listing companies is intense. We expect competition to continue
and to intensify in the future. Some of our competitors may have significantly
greater financial and other resources than we have and may have greater name
recognition. These competitors may be able to respond more quickly to new or
evolving opportunities and listing company requirements. They may also be able
to undertake more extensive promotional activities to attract new listing
companies. In addition, the specialist industry has recently been consolidating.
The combined companies resulting from this consolidation may have a stronger
capital base. This trend has intensified the competition in our industry.
Finally, the NYSE retains the ability to name new specialist firms.
The failure by us or our employees to comply with applicable laws and
regulations could result in substantial fines and other penalties.
The securities industry is subject to extensive regulation under both
federal and state laws. In addition, the SEC, the NYSE, other self-regulatory
organizations, commonly referred to as SROs, and
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state securities commissions require strict compliance with their respective
rules and regulations. Failure to comply with any of these laws, rules or
regulations could result in serious adverse consequences. We and our officers
and employees may be subject in the future to claims arising from acts in
contravention of these laws, rules and regulations. An adverse ruling against us
and/or our officers and other employees as a result of any of these claims could
result in us and/or our officers and other employees being required to pay a
substantial fine or settlement. It could also result in the suspension or
revocation of our registration with the SEC as a broker-dealer or our suspension
or expulsion as a member of the NYSE. If this occurred, we would be unable to
operate our business.
The regulatory environment in which we operate may change, making it difficult
for us to remain in compliance.
The regulatory environment in which we operate is subject to change which
we cannot predict. It may be difficult for us to comply with new or revised
legislation or regulations imposed by the SEC, other U.S. or foreign
governmental regulatory authorities and SROs, including the NYSE. Failure to
comply would have an adverse effect on our business, financial condition and/or
operating results. Changes in the interpretation or enforcement of existing laws
and rules by the SEC, these governmental authorities, SROs and the NYSE could
also have an adverse effect on our business, financial condition and/or
operating results.
We cannot predict the effect a proposed public offering by the NYSE would have
on our business.
The NYSE announced that it is considering offering shares of its capital
stock to the public. We are unable to predict what effect, if any, such an
offering would have on our business and the specialist industry.
Failure to comply with net capital and net liquid asset requirements may result
in the revocation of our registration with the SEC or our expulsion from the
NYSE.
The SEC, the NYSE and various other regulatory agencies have stringent
rules with respect to the maintenance of minimum levels of capital and net
liquid assets by securities brokers-dealers as well as specialist firms. Subject
to SEC approval, the NYSE recently increased its minimum net liquid asset
requirements. Currently, we are required to maintain minimum net liquid assets
of $284.3 million. Failure to maintain compliance with these required minimum
levels may subject us to suspension or revocation of registration by the SEC and
suspension or expulsion as a member of the NYSE and other regulatory bodies. If
this occurred, we would be unable to operate our business. In addition, a change
in these rules, the imposition of new rules or any unusually large requirement
or charge against our regulatory capital could limit any of our operations that
require the intensive use of capital. These rules could also restrict our
ability to withdraw capital from LaBranche & Co. Any limitation on our ability
to withdraw capital from LaBranche & Co. could limit our ability to receive
distributions from LaBranche & Co. and LaB Investing Co. L.L.C., which, in turn,
could limit our ability to pay cash dividends, repay debt and repurchase shares
of our outstanding stock. A substantial market decline, a significant operating
loss or any unusually large requirement or charge against regulatory capital
could adversely affect our ability to expand or even maintain our present levels
of business, which could have an adverse effect on our business, financial
condition and/or operating results.
Employee misconduct is difficult to detect and deter and could result in losses.
There have been a number of highly publicized cases involving fraud, stock
manipulation or other misconduct by employees in the financial services industry
in recent years, and we run the risk that
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employee misconduct could occur. Misconduct by employees could include binding
us to transactions that exceed authorized limits or present unacceptable risks,
or hiding from us unauthorized or unsuccessful activities, which, in either
case, may result in unknown and unmanaged risks or losses. Employee misconduct
could also involve the improper use or disclosure of confidential information,
which could result in regulatory sanctions and serious reputational or financial
harm. It is not always possible to deter employee misconduct and the precautions
we take to prevent and detect this activity may not be effective in all cases.
In connection with our recent acquisitions, we have employed nearly 100
additional employees. As a result of the increased number of employees and our
lack of experience working with these employees, the risk that we will not
detect or deter employee misconduct will increase.
We are subject to risk relating to litigation and potential securities laws
liability.
Many aspects of our business involve substantial risks of liability. A
specialist is exposed to substantial risks of liability under federal and state
securities laws, other federal and state laws and court decisions, as well as
rules and regulations promulgated by the SEC and the NYSE. We are also subject
to the risk of litigation and claims that may be without merit. We could incur
significant legal expenses in defending ourselves against such lawsuits or
claims. An adverse resolution of any future lawsuits or claims against us could
have an adverse effect on our business, financial condition and/or operating
results.
Counterparties may fail to pay us.
As a specialist of listed stocks, the majority of our securities
transactions are conducted as principal with broker-dealer counterparties
located in the United States. The NYSE and the clearing houses monitor the
credit standing of the counterparties with which we conduct business. However,
we cannot assure you that any of these counterparties will not default on their
obligations. If any do, our business, financial condition and/or operating
results could be adversely affected.
Some of our executive officers are in a position to control matters requiring a
stockholder vote.
Our managing directors currently own approximately 71.2% of our
outstanding common stock. These stockholders have entered into a stockholders'
agreement under which they have agreed, among other things, that their shares of
our common stock will be voted, for as long as they own their shares, as
directed by a majority vote of Michael LaBranche, our Chairman, Chief Executive
Officer and President, James G. Gallagher and Alfred O. Hayward, Jr., each an
executive officer and director. Accordingly, these individuals have the ability
to control all matters requiring approval by our stockholders. These matters
include the election and removal of directors and the approval of any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they are able to dictate the management of our business and affairs. This
concentration of ownership could have the effect of delaying, deferring or
preventing a change in control, a merger or consolidation, a takeover or another
business combination.
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