<PAGE>
As filed with the Securities and Exchange Commission on June 8, 1999
Registration No. 333-79081
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
FORM S-3/A
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Southwest Securities Group, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-2040825
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1201 Elm Street, Suite 3500
Dallas, Texas 75270
(214) 859-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
David Glatstein
President and Chief Executive Officer
1201 Elm Street, Suite 3500
Dallas, Texas 75270
(214) 859-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
David G. McLane, Esq. Jay R. Schifferli, Esq.
Gardere & Wynne, L.L.P. Kelley Drye & Warren LLP
1601 Elm Street, Suite 3000 Two Stamford Plaza
Dallas, Texas 75201-4761 281 Tresser Boulevard
(214) 999-4607 Stamford, Connecticut 06901-3229
(203) 324-1400
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 8,1999
PRELIMINARY PROSPECTUS
$50,000,000
Derivative Adjustable Ratio SecuritiesSM (DARTSSM)
[SOUTHWEST SECURITIES LOGO]
% Exchangeable Subordinated Notes due 2004
Subject to Exchange into Class A Common Stock of
[KNIGHT/TRIMARK GROUP, INC. LOGO]
Southwest Securities Group, Inc. is offering $50,000,000 of % Exchangeable
Subordinated Notes (each, a "DARTS"). The principal amount of each DARTS will
be $ , which represents the closing bid price of Knight/Trimark Group, Inc.
Class A common stock on , 1999. At maturity, the principal of the
DARTS will be paid by delivery of shares of Knight/Trimark Group, Inc. Class A
common stock. Alternatively, at maturity Southwest may pay cash in an amount
equal to the value of the Knight/Trimark common stock it would otherwise have
to deliver, or it may pay a combination of cash and Knight/Trimark common
stock. The number of shares of Knight/Trimark common stock or cash deliverable
at maturity to pay the principal of the DARTS will be based on the value of the
Knight/Trimark common stock at the time the DARTS mature.
The DARTS will mature on 2004. The DARTS will bear interest at the
rate of % per year. Interest on the DARTS will be paid quarterly in arrears
on 1, 1, 1, and 1 of each year, commencing
1, 1999.
The DARTS will be general unsecured obligations of Southwest. The DARTS are
generally subordinated to all current and future indebtedness of Southwest and
its subsidiaries. The DARTS will rank equal to certain other obligations.
Knight/Trimark will not receive any proceeds from the sale of the DARTS, and it
will not have any obligations with respect to the DARTS.
We do not expect to list the DARTS on any securities exchange. The
Knight/Trimark common stock is listed on the Nasdaq National Market under the
symbol "NITE." On June 3, 1999, the closing bid price for the Knight/Trimark
common stock was $50 5/8.
-----------
This investment involves risk. See "Risk Factors" beginning on page 7.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per DARTS Total
--------- -------
<S> <C> <C>
Initial public offering price.......................... $ $
Underwriting discount.................................. $ $
Proceeds to us (before expenses)....................... $ $
</TABLE>
Interest on the DARTS will accrue from , 1999 to the date of delivery.
The underwriters may, under certain circumstances, purchase up to an
additional $7,500,000 of DARTS at the initial public offering price less the
underwriting discount.
-----------
The underwriters are offering the DARTS subject to various conditions. The
underwriters expect to deliver the DARTS to purchasers on or about , 1999.
Raymond James & Associates, Inc. Forum Capital Markets LLC
The date of this prospectus is , 1999
"Derivative Adjustable Ratio SecuritiesSM" and "DARTSSM" are service marks
owned by Forum Capital Markets LLC.
<PAGE>
CERTAIN INTRODUCTORY MATTERS
Unless otherwise stated, all of the information in this prospectus assumes
that the underwriters do not exercise their over-allotment option. References
to "we," "our" and "Southwest" generally refer to Southwest Securities Group,
Inc. and its subsidiaries on a consolidated basis. Reference to "SSG" means
Southwest Securities Group, Inc., exclusive of its subsidiaries. All references
in this prospectus to Knight/Trimark common stock and the related per share
prices reflect a two-for-one stock split effected May 17, 1999.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking statements. In
addition, we may make forward-looking statements in future filings with the
Securities and Exchange Commission and in written material, press releases and
oral statements issued by us or on our behalf. Forward-looking statements
include statements regarding the intent, belief or current expectations of us
or our officers (including statements preceded by, followed by or including
forward-looking terminology such as "may," "will," "should," "believe,"
"expect," "anticipate," "estimate," "continue" or similar expressions or
comparable terminology) with respect to various matters.
It is important to note that our actual results could differ materially from
those anticipated in the forward- looking statements, depending on various
important factors. These important factors include, but are not limited to (1)
transaction volume in the securities markets; (2) volatility of the securities
markets; (3) fluctuations in interest rates; (4) changes in regulatory
requirements that could affect the cost of doing business; (5) status of
implementation of technology solutions; (6) general economic conditions, both
domestic and foreign; (7) changes in the rate of inflation and related impact
on securities markets; (8) competition from existing financial institutions and
other new participants in the securities markets; (9) legal developments
affecting the litigation experience of the securities industry; and (10)
changes in federal and state tax laws that could affect the popularity of
products sold by us. See "Risk Factors" beginning on page 7 for more
information on these and other risks we face.
All forward-looking statements in this prospectus are based on information
available to us on the date of this prospectus. We do not undertake to update
any forward-looking statements that may be made by us or on our behalf in this
prospectus or otherwise. In addition, please note that matters set forth under
the caption "Risk Factors" constitute cautionary statements identifying
important factors with respect to the forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
2
<PAGE>
PROSPECTUS SUMMARY
This summary does not contain all of the information you should consider
before investing in the DARTS. You should read the entire prospectus carefully.
In addition, you should review our consolidated financial statements and the
other information that we have publicly filed with the Securities and Exchange
Commission and that are incorporated into this prospectus by reference.
Southwest Securities Group, Inc.
SSG is a Dallas-based holding company offering a broad range of investment
and related financial services through our operating subsidiary companies to
individual and institutional clients or their financial intermediaries,
primarily in the United States. We have engaged in securities clearing and
related financial market activities for over 25 years. Clearing involves
maintaining our correspondent clients' accounts, processing securities
transactions, extending margin loans, and performing a variety of
administrative services as agent for our correspondent broker/dealers. We
provide clearing and related services to over 200 correspondent broker/dealers
and 700 independent contract brokers, as well as full-service brokerage and
online discount brokerage services to individual investors. Our clearing
business is complemented by our securities trading, securities lending,
investment banking and asset management businesses. As we have grown, we have
expanded our business platform by adding products and services complementary to
our core clearing business.
For a description of our securities holdings in Knight/Trimark Group, Inc.,
see "Relationship Between Southwest and Knight/Trimark."
Knight/Trimark Group, Inc.
According to publicly available documents, Knight/Trimark Group, Inc. is the
leading market maker in Nasdaq securities and in the Third Market, which is the
over-the-counter market in exchange-listed equity securities, primarily those
listed on the New York Stock Exchange (NYSE) and the American Stock Exchange
(AMEX). Market makers hold themselves out to execute trades by offering to buy
or sell securities for their own account. Through its wholly-owned subsidiary,
Knight Securities, Inc., it makes markets in approximately 6,700 equity
securities in Nasdaq and on the OTC Bulletin Board of the NASD. Through its
wholly-owned subsidiary, Trimark Securities, Inc., it makes markets in all
NYSE- and AMEX-listed equity securities in the Third Market.
Knight/Trimark will have no obligations with respect to the DARTS.
The Offering
Securities Offered........ $50,000,000 of % Exchangeable Subordinated Notes
of SSG, consisting of DARTS.
Initial Price............. $ per DARTS, reflecting the closing bid price
of Knight/Trimark common stock on the Nasdaq
National Market on the day of pricing.
Maturity Date............. , 2004
Interest Rate............. % per year ($ for each DARTS per year).
Interest Payment Dates.... 1, 1, 1 and 1,
commencing 1, 1999.
3
<PAGE>
Exchange at Maturity...... At maturity, SSG will pay the principal amount of
each DARTS in shares of Knight/Trimark Group, Inc.
Class A common stock (the "Knight/Trimark common
stock") in an amount described below.
Alternatively, SSG may pay cash in an amount equal
to the value of the Knight/Trimark common stock it
would otherwise be required to deliver, or it may
pay a combination of cash and Knight/Trimark
common stock.
The number of shares of Knight/Trimark common
stock that will be delivered to pay the principal
of a DARTS will be determined by reference to the
Maturity Price of the Knight/Trimark common stock
at the time the principal of the DARTS is to be
paid. The Maturity Price will be equal to the
average closing price per share of Knight/Trimark
common stock for the 20 trading days ending on the
business day prior to the maturity date.
. We will issue 0. shares of Knight/Trimark
common stock for each DARTS if the Maturity
Price is greater than or equal to $ .
. We will issue a fractional share of
Knight/Trimark common stock for each DARTS
equal to:
. the initial price per DARTS in this
offering divided by
. the Maturity Price
if the Maturity Price is less than $ but is
greater than the initial price per DARTS in
this offering.
. We will issue one share of Knight/Trimark
common stock for each DARTS if the Maturity
Price is less than or equal to the initial
price per DARTS in this offering.
The amount of Knight/Trimark common stock
delivered at maturity may be adjusted as a result
of certain distribution and recapitalization
events involving Knight/Trimark.
No Early Redemption or The DARTS are not redeemable or exchangeable for
Exchange.................. Knight/Trimark common stock until their maturity.
Obligations only of SSG... The DARTS are obligations of SSG and are not
obligations of Knight/Trimark.
4
<PAGE>
Ranking................... The DARTS are subordinated unsecured general debts
of SSG. The DARTS are subordinate to all existing
and future indebtedness of SSG (other than trade
payables and obligations designated as junior to
the DARTS) and all liabilities of SSG's
subsidiaries, except the DARTS will rank equal to:
. all future debt of SSG for money borrowed that
is not designated as senior to the DARTS; and
. any future debt of SSG and its subsidiaries
that is convertible or exchangeable for capital
stock.
If SSG had completed this offering on March 26,
1999 and applied the proceeds as it intends, then
on that date the DARTS would have been
subordinated to $55.5 million of indebtedness.
Investment in DARTS....... The terms of the DARTS differ from those of
ordinary debt securities because the value that a
holder of a DARTS will receive at maturity is not
fixed, but is based on the market price of the
Knight/Trimark common stock at maturity.
Listing................... We do not expect to list the DARTS on any
securities exchange.
The Knight/Trimark common stock trades on the
Nasdaq National Market under the symbol "NITE."
Use of Proceeds........... The net proceeds from the sale of the DARTS will
be added to SSG's general corporate funds and will
be used for general corporate purposes. See "Use
of Proceeds."
Risk Factors.............. An investment in the DARTS involves a high degree
of risk. Therefore, each potential buyer should
carefully consider the matters set forth in the
section "Risk Factors," which begins on page 7.
SSG's address is 1201 Elm Street, Suite 3500 Dallas, Texas 75270, and our
telephone number is (214) 859-1800.
5
<PAGE>
Summary Historical Consolidated Financial Information
The summary historical financial information presented below for, and as of
the end of, each of the fiscal years in the five-year period ended June 26,
1998 is derived from our audited consolidated financial statements, which
financial statements have been audited by KPMG LLP, independent certified
public accountants. The summary consolidated financial information for the nine
months ended March 26, 1999 and March 27, 1998 is derived from our unaudited
consolidated financial statements. In the opinion of management, the unaudited
results of operations for the nine months ended March 26, 1999 and March 27,
1998 include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information. The unaudited
consolidated results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the full fiscal year. The
following financial information should be read in conjunction with our
consolidated financial statements and related notes thereto incorporated by
reference in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
(unaudited) Fiscal Year Ended
--------------------- ------------------------------------------------------
March 26, March 27, June 26, June 27, June 28, June 30, June 24,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except return, ratio and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Revenues:
Net revenues from
clearing operations... $ 28,030 $ 19,324 $ 26,607 $ 22,693 $ 17,897 $ 10,818 $ 14,062
Commissions............ 46,946 44,045 59,401 38,882 36,896 26,617 32,913
Interest............... 106,286 104,738 143,121 119,176 95,956 63,629 44,746
Investment banking,
advisory and
administrative fees... 21,193 19,071 27,850 16,031 12,533 9,107 10,914
Net gains on principal
transactions.......... 29,508 8,625 12,576 11,856 8,735 4,877 4,977
Other.................. 10,572 8,799 16,203 9,766 9,791 5,133 6,143
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 242,535 $ 204,602 $ 285,758 $ 218,404 $ 181,808 $ 120,181 $ 113,755
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Commissions and other
employee
compensation.......... $ 90,268 $ 64,878 $ 91,817 $ 65,062 $ 53,433 $ 40,416 $ 44,347
Interest............... 71,736 73,599 100,704 83,238 69,092 42,308 28,524
Other expenses......... 52,118 42,566 61,339 44,361 37,526 28,702 28,231
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 214,122 $ 181,043 $ 253,860 $ 192,661 $ 160,051 $ 111,426 $ 101,102
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. $ 28,413 $ 23,559 $ 31,898 $ 25,743 $ 21,757 $ 8,755 $ 12,653
Income taxes............ 10,055 8,261 11,268 8,760 7,717 3,087 4,461
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 18,358 $ 15,298 $ 20,630 $ 16,983 $ 14,040 $ 5,668 $ 8,192
========== ========== ========== ========== ========== ========== ==========
Earnings per share,
basic (1).............. $ 1.56 $ 1.30 $ 1.76 $ 1.51 $ 1.26 $ 0.55 $ 0.78
Earnings per share,
diluted (1)............ $ 1.56 $ 1.30 $ 1.75 $ 1.51 $ 1.26 $ 0.55 $ 0.78
Weighted average shares
outstanding -
basic (1).............. 11,752 11,741 11,744 11,270 11,161 10,393 10,549
Weighted average shares
outstanding -
diluted (1)............ 11,798 11,765 11,763 11,283 11,167 10,393 10,549
Statement of Financial Condition
Data-
At Period End:
Receivables from
clients, net........... $ 689,861 $ 684,146 $ 648,464 $ 570,461 $ 475,195 $ 309,684 $ 292,554
Total assets............ 3,693,219 3,556,402 3,220,106 3,276,392 2,196,397 1,535,979 1,271,556
Total stockholders'
equity................. 203,659 120,690 125,467 106,928 84,449 71,541 63,866
Tangible book value per
share (1).............. 16.68 9.62 10.04 8.44 7.30 6.16 5.78
Other Data:
Transactions cleared.... 13,860 4,514 6,771 3,322 2,040 825 793
Assets under management,
at period end.......... $3,788,000 $3,435,000 $2,944,000 $2,048,000 $1,354,000 $1,095,000 $ 354,000
Return on beginning
equity (2)............. 20% 19% 19% 20% 20% 9% 15%
Ratio of earnings to
fixed charges (3) ..... 1.4x 1.3x 1.3x 1.3x 1.3x 1.2x 1.4x
</TABLE>
- --------
(1) Adjusted for the 10% stock dividend declared on May 6, 1999 and payable on
August 2, 1999 to shareholders of record on July 15, 1999.
(2) Annualized for the nine month periods.
(3) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before the provision for income taxes and fixed
charges, and fixed charges consist of interest expense and one-third of
rental expense which is deemed representative of an interest factor.
6
<PAGE>
RISK FACTORS
An investment in the DARTS involves a high degree of risk. You should
carefully consider the specific factors listed below and the other information
included in this prospectus before investing in the DARTS.
Risks Associated with Knight/Trimark
The amount of principal paid at maturity of the DARTS will depend on the value
of the Knight/Trimark common stock
The value of the principal payment a holder of a DARTS will receive at
maturity is not fixed, but is based on the price of Knight/Trimark common stock
at maturity. This is different from ordinary debt securities, which pay a fixed
amount at maturity. We cannot assure you that the value of the Knight/Trimark
common stock (or at our option, the cash equivalent) we deliver in payment of
principal of a DARTS will be equal to or greater than the initial price of the
DARTS in this offering because the price of Knight/Trimark common stock is
subject to market fluctuations. For example, if the Maturity Price is less than
the initial price of the DARTS in this offering, an investment in the DARTS
will result in a loss because the value of the Knight/Trimark common stock (or,
at our option, the cash equivalent) that we deliver in payment of principal of
a DARTS will be less than the initial price paid for a DARTS in this offering.
The DARTS are not principal protected and, accordingly, investors in the DARTS
may lose their entire investment.
The value of the Knight/Trimark common stock is subject to a number of factors
We cannot assure you that Knight/Trimark will be a successful or profitable
company or that the value of the Knight/Trimark common stock will not be
adversely affected by market conditions prevailing from time to time. If
Knight/Trimark is not a successful company, the value of the Knight/Trimark
common stock will be adversely affected. Knight/Trimark's success is subject to
all of the risks related to operations in the securities industry, as well as
management, regulatory, financing, litigation, technology, competitive and
other risks. The value of the Knight/Trimark common stock will also be affected
by prevailing economic, political and financial conditions, both in the U.S.
and internationally, as well as the liquidity and other attributes of the
trading market for the Knight/Trimark common stock. If the value of the
Knight/Trimark common stock is adversely affected by any of these risks or
market conditions, the value of the DARTS and value of the payment made to
holders of the DARTS at maturity will also be adversely affected.
The value of the DARTS will be affected by the trading price of Knight/Trimark
common stock
We anticipate that the trading prices of the DARTS in the secondary market
will be directly affected by the trading price of Knight/Trimark common stock
in the secondary market. It is impossible to predict whether the price of
Knight/Trimark common stock will rise or fall. The trading price of
Knight/Trimark common stock has been volatile. The future trading price of the
Knight/Trimark common stock will be influenced by factors related to
Knight/Trimark directly and by economic, financial and other factors and market
conditions that can affect the capital markets generally, including the level
of, and fluctuations in, the trading prices of stocks generally and sales of
substantial amounts of Knight/Trimark common stock in the market subsequent to
the offering of the DARTS or the perception that such sales could occur.
We do not control Knight/Trimark; Knight/Trimark has no obligations with
respect to the DARTS
As of the date of this prospectus, we own approximately 3.3 million shares
of Knight/Trimark common stock. We are a minority investor in, and are not
affiliated with, Knight/Trimark. As such, we have no ability to control,
directly or indirectly, the affairs or management of Knight/Trimark.
Knight/Trimark has no obligations with respect to the DARTS and is under no
obligation to take our needs or the needs of holders of the DARTS into
consideration for any reason. Knight/Trimark will not receive any of the
proceeds of this offering and is not responsible for, and has not participated
in, the determination or calculation of the amount receivable by holders of the
DARTS at maturity. Knight/Trimark is not involved with the administration or
trading of the DARTS and has no obligation with respect to the amount
receivable by holders of the DARTS at maturity.
7
<PAGE>
We are not responsible for Knight/Trimark disclosure
The information contained in this prospectus concerning Knight/Trimark has
come solely from information made publicly available by Knight/Trimark. See
"Knight/Trimark Group, Inc." A subsidiary of SSG acted as an underwriter in
connection with the public offerings of Knight/Trimark common stock, but has
not made any "due diligence" inquiry of Knight/Trimark subsequent to those
offerings. Neither SSG nor any underwriter has participated in the preparation
of Knight/Trimark's publicly available documents and they have not made any
"due diligence" inquiry into the accuracy or completeness of the information in
those documents. Neither SSG nor any underwriter assumes any responsibility for
the accuracy or completeness of that information, and neither SSG nor the
underwriters guarantee the accuracy or completeness of that information. You
are urged to make your own investigation into the business and affairs of
Knight/Trimark. We do not intend to, and are under no obligation to, provide
information to the holders of the DARTS with respect to future developments in
the business and affairs of Knight/Trimark.
Knight/Trimark common stock is subject to dilution
The amount that holders of the DARTS are entitled to receive at maturity is
subject to adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of Knight/Trimark that
affect Knight/Trimark's capital structure. See "Description of the DARTS--Anti-
Dilution Adjustments." No adjustment to the number of shares (or the cash
equivalent) will be made for certain other events, such as an issuer tender or
exchange offer at a premium to the market price or a third party tender or
exchange offer for shares of Knight/Trimark common stock, and offerings of
Knight/Trimark common stock for cash or in connection with acquisitions, that
may adversely affect the price of the Knight/Trimark common stock and the
trading price of the DARTS. We cannot assure you that Knight/Trimark will not
make offerings of Knight/Trimark common stock or take other action in the
future that may adversely affect the trading price of the DARTS.
Risks Associated with the DARTS
Investors in the DARTS will not fully participate in an increase in the value
of Knight/Trimark common stock
The DARTS provide less ability to benefit from equity appreciation in the
Knight/Trimark common stock than is provided by a direct investment in the
Knight/Trimark common stock. This is because the amount received by investors
at maturity of the DARTS will only exceed the initial price paid for the DARTS
in this offering if the Maturity Price exceeds the Threshold Appreciation
Price, which represents an appreciation of % over the initial price of the
DARTS in this offering. In addition, the DARTS provide investors with only %
of any appreciation of the Knight/Trimark common stock over the Threshold
Appreciation Price.
We do not have to hold Knight/Trimark common stock for delivery at maturity of
the DARTS and we are not required to deliver Knight/Trimark common stock at
maturity
The Indenture relating to the DARTS does not contain any restriction on our
ability to sell, pledge or otherwise convey all or any portion of our
Knight/Trimark common stock, and no shares of Knight/Trimark common stock will
be pledged or otherwise held in escrow for delivery at maturity of the DARTS.
As a result, if we become bankrupt or insolvent or we are liquidated, then any
Knight/Trimark common stock we own will be subject to the claims of our
creditors. In addition, we have the option to pay the principal of the DARTS at
maturity either in shares of Knight/Trimark common stock or cash in an amount
equal to the value of the Knight/Trimark common stock we are otherwise required
to deliver or a combination of cash and Knight/Trimark common stock. We cannot
provide assurance that we will elect to deliver Knight/Trimark common stock at
maturity of the DARTS.
Our sales of Knight/Trimark common stock may affect the value of the DARTS and
the Maturity Price
The Indenture does not restrict our ability to buy or sell shares of
Knight/Trimark common stock. Sales of Knight/Trimark common stock by us may
adversely affect the price of the Knight/Trimark common stock and,
8
<PAGE>
therefore, the DARTS. If we sell Knight/Trimark common stock during the period
used to determine the Maturity Price, the Maturity Price may be lower than it
would otherwise be. Also, since we may sell our Knight/Trimark common stock
prior to maturity, it is possible for us to make a substantial profit from our
sales of Knight/Trimark common stock even though investors in the DARTS lose
some or all of their investment.
Investors in the DARTS have no rights as Knight/Trimark stockholders
Holders of the DARTS will not be entitled to any rights with respect to
Knight/Trimark common stock, including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect of such
stock. Holders of DARTS will only become entitled to these rights at the time,
if any, we exchange shares of Knight/Trimark common stock for the DARTS at
maturity and then only if the applicable record date, if any, for the exercise
of such rights occurs after such date. For example, in the event that an
amendment is proposed to the Certificate of Incorporation or Bylaws of
Knight/Trimark and the record date for determining the stockholders of record
entitled to vote on the amendment occurs prior to our delivery of
Knight/Trimark common stock at maturity, holders of the DARTS will not be
entitled to vote on the amendment, and we would be entitled to vote on the
amendment without notifying or taking into account the interests of the holders
of the DARTS.
The federal income tax consequences relating to the DARTS are uncertain
Neither the IRS nor any court has decided how the DARTS or similar
securities should be treated for United States federal income tax purposes. As
a result, significant aspects of their tax treatment are uncertain. We will not
ask the IRS to rule on how the DARTS should be treated. The IRS may disagree
with the description of tax consequences of owning the DARTS that is described
under "Certain United States Federal Income Tax Considerations."
It is possible that the secondary market for the DARTS will be illiquid
The DARTS are new securities, and there is currently no secondary market for
the DARTS. We do not intend to apply to have the DARTS listed on any securities
exchange. Because the DARTS will not be listed or traded on any securities
exchange, pricing information for the DARTS will be more difficult to obtain,
and the liquidity of the DARTS may be adversely affected. We cannot assure you
that an active market for the DARTS will develop. If an active market does not
develop, Southwest has been advised by the underwriters that they intend to
make a market in the DARTS in the over-the-counter market. However, they are
not obligated to do so and they may discontinue such market making at any time
without notice. There can be no assurance that an active secondary market for
the DARTS will develop or, if a secondary market does develop, that it will
continue for the life of the DARTS.
The DARTS will be subordinate to our future and existing indebtedness
The DARTS will be unsecured obligations of SSG and will be subordinate to
all existing and future debt of SSG that by its terms is designated as senior
to the DARTS. At March 26, 1999, SSG had no outstanding indebtedness. In
addition, the DARTS will be structurally subordinated to all of the
indebtedness of our subsidiaries. At March 26, 1999, SSG's subsidiaries had
$55.5 million of outstanding indebtedness. The Indenture that will govern the
DARTS will not restrict the ability of SSG or its subsidiaries to incur
additional debt. By reason of this subordination, if (1) SSG becomes insolvent
or bankrupt or liquidates its business or (2) there is a payment default or
acceleration of payment with respect to indebtedness of SSG, then assets of SSG
(including its Knight/Trimark common stock) will be available to pay the DARTS
only after all of the obligations to which the DARTS are subordinated are paid
in full.
We will depend on payments from our subsidiaries to fund our cash payment
obligation
SSG does not have any business operations or source of income of its own,
and it conducts substantially all of its operations through its subsidiaries.
Therefore, SSG depends on the cash flow from its subsidiaries and payment of
funds by them to meet its debt service obligations. Many of SSG's subsidiaries
are engaged in regulated industries and have statutory capital requirements.
These regulations may restrict the ability of the subsidiaries to make payments
to SSG. In addition, future indebtedness of SSG's subsidiaries may impose
limitations on their ability to make cash payments and distributions to SSG.
9
<PAGE>
Risks Associated with Southwest
We are subject to risks inherent in the securities industry
The securities industry generally is, by its nature, volatile. We are
subject to numerous and substantial risks, many of which are beyond our
control, as a result of our activities in the securities industry, including:
. the risk of declines in price levels of securities and volumes of
transactions,
. losses resulting from our ownership, trading or underwriting of
securities,
. the failure of counterparties to meet commitments,
. customer, employee or issuer fraud,
. litigation,
. customer claims alleging improper sales practices,
. errors or misconduct by brokers, traders, employees or agents, and
. errors or failures in connection with the processing of securities
transactions.
Many of these risks may increase in periods of market volatility or reduced
liquidity.
Also, several fundamental changes are affecting the securities industry.
These changes include the emergence of online discount brokers, the increased
prominence of online retail investors, consolidation among firms in the
securities industry, new regulations at the federal and state level and the
increased use of technology. These changes could result in increased
competition from larger broker/dealers, a need for increased investment in
technology or potential loss of customers. These trends or future changes could
have a material adverse effect on our business, financial condition, results of
operations or cash flows.
We depend on untested, non-proprietary information systems
Our business strategy depends upon our implementation of a new client-server
based information system to support our correspondent clearing and brokerage
business. We expect to be the first firm to fully implement this system,
portions of which are still in the development stage. There is significant risk
in migrating to an untried software system, and we may not be able to use the
new system within our planned time frame, or the system may not function
properly when it is installed. A significant delay in our use of the new system
or serious or chronic malfunctions of the system after installation could lead
to unanticipated service disruptions, slower response times, impaired quality
and speed of order fulfillment, degradation in customer service, and delays in
reporting accurate financial information. Any of these events could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
The new information system is not proprietary to us. It has been developed
by an entity in which we and other securities firms own interests. Each of the
other securities firms that have participated in the development effort have
rights to use the system in their operations. In addition, the system will be
marketed to other securities firms. Any competitive advantage that we may gain
from use of the new system will be lessened or eliminated if other firms
successfully implement the same system, as we expect they will.
We currently use a legacy system similar to that in place at many of our
competitors. Our in-house programmers perform all maintenance and enhancement
of this legacy system. Until the new system is successfully implemented, we
will continue to rely on our own ability to modify and maintain the older
system to accommodate our current levels of processing. Our inability to do so
could have a material adverse effect on our business, financial condition,
results of operations or cash flows.
10
<PAGE>
Our revenues would decrease if securities transaction volumes decline
Our business depends upon the general volume of investing and securities
trading in the United States securities markets. If the volume of securities
transactions should decline, revenues from our securities brokerage, securities
lending and clearing businesses would decrease and our business, financial
condition, results of operations and cash flows would be materially impacted.
Our business is subject to credit risk
As part of margin lending, executing transactions and securities lending, we
extend credit to our own clients and to our correspondents and their clients.
We could suffer material losses if these borrowers fail to honor their
commitments to us and we do not hold adequate collateral.
Our business is subject to the risk involved in margin lending for the
purchase of securities and short sales. Agreements with margin and short
account clients permit us to liquidate or buy securities if the amount of our
collateral becomes insufficient. However, we may be unable to liquidate or buy
securities for various reasons, including:
. the securities may not be actively traded,
. the securities might be a large block of securities that exceeds current
market demand, or
. trading might be halted in a security for various reasons, including the
issuance of a stop order.
In addition, in securities transactions we are subject to credit risk during
the period between the execution of a trade and the settlement of such
transaction by the customer. While our correspondents guarantee all obligations
of their clients, our correspondents may not be able to satisfy their
obligations under these guarantees.
Our securities lending business also is subject to credit risk. When we
borrow securities, we make a cash deposit with the counterparty, and when we
lend securities, we receive a cash deposit from the counterparty. If a
counterparty fails to perform and our collateral or cash deposit is not
adequate, we are subject to risk of loss. Credit risk in all areas of the
business increases if prices decline rapidly because the value of our
collateral could fall below the amount of indebtedness it secures. In rapidly
appreciating markets, credit risk also increases due to short positions.
Market fluctuations could adversely impact our business
We are subject to risks as a result of fluctuations in the securities
markets. Our securities trading, market-making and underwriting activities
involve the purchase and sale of securities as a principal, which subjects our
capital to significant risks. Market conditions could limit our ability to sell
securities purchased or to purchase securities sold in such transactions. If
price levels for equity securities decline generally, the market value of
equity securities that we hold in our inventory could decrease. In addition, if
interest rates increase, the value of debt securities we hold in our inventory
would decrease. If securities prices decline generally, the value of assets
that we manage also could decline. Because we generally receive fees based on
the value of assets under management, our revenues from asset management
services could decline if securities prices decline.
In addition, fluctuations in securities markets might have the following
results, any of which could negatively impact us:
. markets might become less liquid, resulting in lower trading volumes,
. buyers and sellers of securities might become unable to fulfill their
settlement obligations to us, and
. litigation and other claims against us could increase.
11
<PAGE>
We depend on the services of certain of our key personnel
We depend on the highly skilled, and often specialized, individuals we
employ, particularly certain personnel in our asset management, securities
lending and trading businesses. Competition for the services of these employees
is intense. Although we have taken steps designed to retain our employees,
including adopting various incentive compensation plans, we cannot guarantee
that our efforts to retain such personnel will be successful. We generally do
not enter into employment agreements or noncompetition agreements with our
employees. We might lose such professionals due to increased competition or
other factors in the future. Our business, financial condition and operating
results could be materially impacted if we were to lose the services of certain
of our asset management, securities lending, or trading professionals,
particularly senior professionals with broad industry experience.
We depend significantly on our computer and communications systems
Our clearing, brokerage and trading businesses depend heavily on the
integrity and performance of our computer and communications systems. Some of
these systems utilize aging technology. Extraordinary trading volumes or other
events could cause our computer systems to operate at an unacceptably low speed
or even fail. Customers could suffer delays in trading if there were any
significant malfunctions or failure of our computer systems or any other
systems in the trading process (e.g., online service providers, record
retention and data processing functions performed by third parties, and third-
party software, such as Internet browsers). Such delays could cause substantial
losses for customers and could subject us to claims from customers for losses,
including litigation claiming fraud or negligence. In addition, if our computer
and communications systems fail to operate properly, regulations would restrict
our ability to conduct business. Any such failure could prevent us from
collecting funds relating to customer transactions, which would materially
impact our cash flow. Our network may not work appropriately and we could
suffer an extended computer system failure. Any computer or communications
system failure or decrease in computer system performance that causes
interruptions in our operations could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Our computer systems are subject to security risks
Our computer systems and network infrastructure could be vulnerable to
security problems. Hackers may attempt to penetrate our network security. Such
actions could have a material adverse effect on our business. A party who is
able to penetrate our network security could misappropriate proprietary
information. We rely on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to effect
secure transmission of confidential information. Advances in computer
capabilities, discoveries in the field of cryptography and other discoveries,
events or developments could lead to a compromise or breach of the algorithms
that our licensed encryption and authentication technology uses to protect such
confidential information. If such a compromise or breach of our licensed
encryption and authentication technology occurs, it could have a material
adverse effect on our business, results of operations and financial condition.
We may be required to expend significant capital and resources and engage the
services of third parties to protect against the threat of such security,
encryption and authentication technology breaches or to alleviate problems
caused by such breaches. Security breaches or the inadvertent transmission of
computer viruses could expose us to a risk of loss or litigation and possible
liability.
We are subject to regulatory risks
We are subject to extensive federal and state laws, rules and regulations
designed to protect the interests of investors. We are also regulated by self-
regulatory organizations such as the NYSE, the NASD and the Municipal
Securities Rulemaking Board. If we fail to comply with any of these laws, rules
or regulations, we could be subject to fines, suspensions or expulsion, which
would have a material adverse effect upon our business, financial condition,
results of operations or cash flows.
12
<PAGE>
Recently, there has been an increased focus by regulatory organizations on
the responsibility of clearing and online brokerage firms. Additional
legislation or regulations, or changes in the methods of enforcement of
existing regulations by governmental entities may have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
The SEC, the NYSE and various other regulatory agencies have stringent rules
regarding the maintenance of specified levels of net capital by securities
firms. A significant operating loss or any material charge against net capital
could adversely affect our ability to expand or even maintain our present level
of business.
Our business is highly competitive
All aspects of our business are highly competitive. We compete with numerous
other securities firms, commercial banks, investment banking firms, life
insurance companies, asset management firms, trust companies and others. Many
of our competitors have substantially greater access to capital and other
resources not available to us.
The clearing business has become considerably more competitive over the past
few years and there are numerous large, highly visible and well-financed
securities firms that either have begun offering clearing services or have
attempted to increase their share of the market. Despite our efforts to remain
competitive, our customers may decide to discontinue using our services. In
addition, there has been consolidation within the financial services industry
by securities firms and other financial institutions having financial resources
far greater than us. These developments have increased competition from firms
with greater capital resources and possibly greater operating efficiencies than
ours.
The securities industry has experienced substantial commission discounting
by broker/dealers competing for institutional and individual brokerage
business. In addition, an increasing number of specialized firms now focus
their services on the individual investor, which enables them to execute trades
without the assistance of a broker. These firms generally effect transactions
for their clients on a discounted commission basis without offering other
services such as portfolio evaluation, investment recommendations and research.
This could result in lower brokerage revenues and profit margins to us.
Commercial banks and other financial institutions are offering their clients
certain corporate and individual financial services traditionally provided by
securities firms. The current trend toward consolidation in the commercial
banking industry could further increase competition in all aspects of our
business and could affect the opportunities for us to expand or maintain
business. We cannot predict the type and extent of competing services that
commercial banks and other financial institutions may offer. We would be
adversely affected by increased competition from other financial institutions.
Our business may be affected by year 2000 issues
The widespread use of computer programs that rely on two-digit date programs
to perform computations and decision-making functions may cause information
technology systems to malfunction in the year 2000 and may lead to significant
business delays. The year 2000 problem has the potential to significantly
impact the securities industry since information is moved to and from the
exchanges and trading partners on a real-time basis from computer system to
computer system with little human interaction. In addition to potential
problems from computer systems, potential problems could arise from equipment
with embedded chips, such as vaults, elevators and other non-information
technology systems. Not all of our systems are year 2000 compliant. If we fail
to properly recognize and address the year 2000 problem in our systems, our
business, financial condition, results of operations and cash flows could be
materially and adversely affected.
The year 2000 problem also affects some of our major suppliers of computers,
software and other equipment. We have discussed the year 2000 problem with all
of our major suppliers, but we cannot assure you that these suppliers will
resolve any or all year 2000 problems. If our suppliers fail to resolve year
2000 problems, our business could be materially disrupted.
We expect to identify and resolve all year 2000 problems that could
materially adversely affect our business operations. We cannot determine with
complete certainty that all year 2000 problems affecting us or
13
<PAGE>
our clients have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous.
In addition, no one can accurately predict how many year 2000 problem-related
failures will occur or the severity, duration, or financial consequences of
these perhaps inevitable failures. Moreover, our failure to address adequately
year 2000 issues in our main trading-related, communications or data processing
systems could result in litigation, which could be costly and time-consuming to
defend.
We are subject to risks relating to litigation and potential securities law
liabilities
Many aspects of our business involve substantial risks of liability. In
recent years, there has been an increasing incidence of litigation involving
the securities industry. In the normal course of our business, we have been
subject to claims by clients dealing with matters such as unauthorized trading,
churning, mismanagement and breach of fiduciary duty, which are made against
most broker/dealers and clearing companies. We are frequently brought into
lawsuits based on actions of our correspondents. Underwriters are subject to
substantial potential liability for material misstatements and omissions in
prospectuses and other communications with respect to underwritten offerings of
securities. A substantial settlement by or judgment against us could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
We are a party to several lawsuits and arbitrations and are subject to the
risk of litigation and claims. As we intend to defend actively such litigation,
significant legal expenses may be incurred.
We are dependent on web infrastructure in conducting our business
The successful implementation of our business strategies that use the
internet will depend in large part upon the continued development of a web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of complementary products
such as high speed modems for providing reliable web access and services.
Because global commerce and online exchange of information on the web and other
similar open wide area networks are new and evolving, we cannot predict with
any assurance whether the web will support increasing use or will prove to be a
viable commercial marketplace. The web has experienced, and is expected to
continue to experience, significant growth in the number of users and the
amount of content. To the extent that the web continues to experience increased
number of users, frequency of use or increased bandwidth requirements of users,
we cannot assure you that the web infrastructure will continue to be able to
support the demands placed on it. Furthermore, the performance or reliability
of the web could be adversely affected by this continued growth. In addition,
the web could lose its viability or effectiveness due to delays in the
development or adoption of new standards and protocols to handle increased
levels of activities or due to increased governmental regulation. We cannot
assure you that the infrastructure or complementary products or services
necessary to make the web a viable commercial marketplace will be developed,
or, if they are developed, that the web will achieve broad acceptance. If the
necessary infrastructure standards, protocols or complementary products,
services or facilities are not developed, our business, results of operations
and financial condition will be materially and adversely affected. Even if such
infrastructure, standards or protocols or complementary products, services or
facilities are developed and the web becomes a viable commercial marketplace,
we may incur substantial expenditures in order to adapt our services to
changing web technologies, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Our management has discretion in use of proceeds
We intend to use a significant portion of the net proceeds from the offering
for general corporate purposes. Accordingly, our management has discretion in
how the net proceeds of the offering are utilized in our business.
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<PAGE>
Forward-looking statements
Certain of the statements contained in documents incorporated by reference
into this Prospectus may be considered forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, that are based on management's beliefs, as well as assumptions made by,
and information currently available to, management. When used in these
documents, words such as "anticipate," "estimate," "expect," "objective,"
"projection," "forecast," "goal," or similar words are intended to identify
forward-looking statements. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, we can give no assurance
that such expectations will prove to have been correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Important factors that could cause future
results to differ include, but are not limited to (1) transaction volume in the
securities markets; (2) volatility of the securities markets; (3) fluctuations
in interest rates; (4) changes in regulatory requirements that could affect the
cost of doing business; (5) status of implementation of technology solutions;
(6) general economic conditions, both domestic and foreign; (7) changes in the
rate of inflation and related impact on securities markets; (8) competition
from existing financial institutions and other new participants in the
securities markets; (9) legal developments affecting the litigation experience
of the securities industry; and (10) changes in federal and state tax laws that
could affect the popularity of products sold by us.
15
<PAGE>
SOUTHWEST SECURITIES GROUP, INC.
We are a full-service securities firm using technology to deliver a broad
range of investment and related financial services to our clients, which
include individual and institutional investors, broker/dealers, corporations,
governmental entities and financial intermediaries.
We provide clearing and related services to over 200 correspondent
broker/dealers and 700 independent contract brokers, as well as full-service
and online discount brokerage services to individual investors. Clearing
involves maintaining our correspondent clients' accounts, processing securities
transactions, extending margin loans, and performing a variety of
administrative services as agent for our correspondent broker/dealers. Our
clearing business is complemented by our securities trading, securities
lending, investment banking and asset management businesses.
Our principal subsidiary, Southwest Securities, Inc., is a registered
securities broker/dealer and a member of the NYSE and other major exchanges.
Southwest Securities, Inc. provides correspondent clearing services to
securities broker/dealers and other financial institutions in 30 states, Canada
and Europe. Southwest Securities, Inc. serves individual investors through its
Private Client Group offices in Texas, New Mexico and California and
institutional investors nationwide from its Dallas, New York and Chicago
offices. Clients of these offices gain access to Southwest Securities, Inc.'s
investment research that focuses on corporations primarily in the southwestern
United States.
We operate three other broker/dealer subsidiaries engaged in certain aspects
of the securities brokerage business. All three are NASD-registered
broker/dealers and correspondents of Southwest Securities, Inc. SWS Financial
Services, Inc. contracts with independent registered representatives for the
administration of their securities business. We offer online discount brokerage
services through Mydiscountbroker.com, Inc., which began operations in 1997.
NorAm, formerly Equity Securities Trading Company, Inc., contracts with
Canadian Securities brokers on an independent contractor basis for the
administration of their U.S. securities business.
We offer investment management, advisory and trust services through three
subsidiaries. Westwood Management Corporation, a registered investment advisor,
manages the Gabelli-Westwood Family of Mutual Funds as well as equity and fixed
income investments for a diverse clientele including corporate plan sponsors,
charitable institutions, educational endowments and public funds. Westwood
Trust provides trust, custodial and other management services to high net worth
individuals and corporations throughout Texas and the Southwest. SW Capital
Corporation administers the Local Government Investment Cooperative fund for
cities, counties, schools and other local governments across Texas.
SWS Technologies, Inc., incorporated in 1997, provides internet services,
network design and engineering and disaster recovery services to us, our
clients and other customers primarily in the southwestern United States.
We were incorporated in Delaware in 1972 and completed our initial public
offering on October 11, 1991. Our principal executive offices are located at
1201 Elm Street, Suite 3500, Dallas, Texas 75270 and our telephone number is
(214) 859-1800.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the DARTS in this
offering (after payment of underwriting discounts and commissions and estimated
expenses of the offering) will be $ ($ if the underwriters
exercise their over-allotment option in full). We intend to use the net
proceeds for general corporate purposes, including potential expansion (through
internal growth or by acquisition) of our correspondent clearing, brokerage,
investment banking, trading, securities lending, asset management or technology
businesses. We continually review possible acquisitions and are in preliminary
discussions with respect thereto. Except as disclosed in SSG's Form 8-K dated
June 7, 1999, incorporated by reference herein, we have no commitment with
respect to any possible acquisition. Pending use of the net proceeds of the
offering, we may use a portion of the net proceeds to reduce short-term bank
borrowings incurred for working capital to finance our securities inventories
and securities inventories of our correspondents. These short-term bank
borrowings bear interest at a floating rate of 1/4% above the Federal Funds
rate and are due and payable on demand.
CAPITALIZATION
The following table sets forth our consolidated capitalization at March 26,
1999 and the pro forma consolidated capitalization as adjusted to give effect
to the consummation of the offering of $50,000,000 of DARTS, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
March 26, 1999
(unaudited)
-------------------------
As
Actual(1) Adjusted(1)(2)
--------- --------------
(in thousands)
<S> <C> <C>
Indebtedness:
Short-term borrowings.............................. $ 55,500 $ 7,500
% Exchangeable Subordinated Notes Due 2004........ -- 50,000
--------- ---------
Total indebtedness............................... 55,500 57,500
Stockholders' equity:
Preferred stock, $1.00 par value, 100,000 shares
authorized; none issued........................... -- --
Common stock, $0.10 par value, 20,000,000 shares
authorized; 11,771,295 issued and outstanding .... 1,177 1,177
Additional paid-in capital ........................ 124,678 124,678
Unrealized holding gain, net of tax................ 61,636 61,636
Retained earnings ................................. 16,179 16,179
Receivable from employees under the employee stock
purchase plan..................................... (11) (11)
--------- ---------
Total stockholders' equity....................... 203,659 203,659
--------- ---------
Total capitalization................................. $ 259,159 $ 261,159
========= =========
</TABLE>
- --------
(1) As adjusted for the 10% stock dividend declared on May 6, 1999 and payable
on August 2, 1999 to shareholders of record on July 15, 1999.
(2) As adjusted to reflect the sale of $50,000,000 of DARTS, and application of
the net proceeds as set forth under "Use of Proceeds."
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RELATIONSHIP BETWEEN SOUTHWEST AND KNIGHT/TRIMARK
Southwest owned a minority interest in Roundtable Partners, LLC, the
predecessor of Knight/Trimark. In connection with the initial public offering
of Knight/Trimark common stock in July 1998, our interest in Roundtable
Partners, LLC was converted into approximately 3.3 million shares of
Knight/Trimark. In our financial statements we classify the Knight/Trimark
common stock as marketable equity securities available for sale, and our
unrealized holding gain, net of tax, is recorded as a separate component of
stockholders' equity.
KNIGHT/TRIMARK GROUP, INC.
This prospectus relates only to the DARTS offered hereby and does not relate
to the Knight/Trimark common stock. All disclosures contained in this
prospectus regarding Knight/Trimark are derived from the publicly available
documents of Knight/Trimark described below. A subsidiary of SSG acted as an
underwriter in connection with the public offerings of Knight/Trimark common
stock, but has not made any "due diligence" inquiry of Knight/Trimark
subsequent to those offerings. However, SSG and the underwriters did not
participate in the preparation of those documents and have not made any "due
diligence" inquiry with respect to the information provided in those documents.
Neither SSG nor any underwriter assumes any responsibility for the accuracy or
completeness of that information. Neither Southwest nor the underwriter are
obligated to provide holders of the DARTS with supplemental information
regarding future developments affecting Knight/Trimark. There can be no
assurance that all events occurring prior to the date of this prospectus
(including events that would affect the accuracy or completeness of
Knight/Trimark's publicly available documents) that would affect the trading
price of the Knight/Trimark common stock have been publicly disclosed. Because
the amount receivable by a holder of a DARTS at maturity is related to the
trading price of the Knight/Trimark common stock, such events, if any, would
most likely also affect the trading price of the DARTS. Investors are urged to
conduct their own investigation into the business and affairs of
Knight/Trimark.
According to publicly available documents, Knight/Trimark is the leading
market maker in Nasdaq securities and in the Third Market, which is the over-
the-counter market in exchange-listed equity securities, primarily those listed
on the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX).
Market makers hold themselves out to execute trades by offering to buy or sell
securities for their own account. Through its wholly-owned subsidiary, Knight
Securities, Inc. ("Knight"), they make markets in approximately 6,700 equity
securities in Nasdaq and on the OTC Bulletin Board of the NASD. Through its
wholly-owned subsidiary, Trimark Securities, Inc. ("Trimark"), they make
markets in all NYSE- and AMEX-listed equity securities in the Third Market.
Since its inception in 1995, Knight/Trimark has significantly increased its
market share of trading volume in the markets in which it participates:
. Based on data from The AutEx Group, a widely recognized industry
reporting service that publishes daily trading volume and market share
statistics reported by broker/dealer market makers, Knight achieved a #1
market share ranking of volume in Nasdaq in February 1998. Additionally,
Knight has further increased its volumes and its market share since that
time. The volume of Nasdaq shares traded by Knight increased from 614.7
million shares in January 1997 to 3.2 billion shares in December 1998.
During the same period, Knight's market share more than tripled from
4.4%, or a rank of 6th overall, to 15.6%, or a rank of 1st overall.
. According to the NASD, Trimark has held the #1 market share ranking in
the trading of NYSE-listed securities for over two years. Additionally,
Trimark has increased its volumes and its market share over the same
period. Trimark's trading volume of NYSE-listed securities has increased
from 234.3 million shares in January 1997 to 644.0 million shares in
December 1998. During the same period, Trimark's market share
approximately doubled from 21.2% to 40.4%.
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<PAGE>
. According to the NASD, Trimark has also held the #1 market share ranking
in the trading of AMEX-listed securities for over two years.
Additionally, Trimark has further increased its volumes and its market
share over the same period. Trimark's trading volume of AMEX-listed
securities has increased from 40.3 million shares in January 1997 to
65.7 million shares in December 1998. During this same period, Trimark
increased its market share from 51.4% to 61.7%.
Knight/Trimark is subject to the informational requirements of the Exchange
Act. Accordingly, Knight/Trimark files reports, proxy statements and other
information with the Commission under Commission File Number 1-14223. Copies of
Knight/Trimark's registration statements, reports, proxy statements and other
information may be inspected and copied at certain offices of the Commission at
the addresses listed under "Available Information" and through the Commission's
home page on the internet.
PRICE RANGE OF KNIGHT/TRIMARK COMMON STOCK AND CASH DIVIDENDS
The Knight/Trimark common stock is traded on the Nasdaq National Market
under the symbol "NITE." Public trading of the Knight/Trimark common stock
commenced on July 8, 1998. Before that, no public market for its common stock
existed. The following table sets forth, for the periods indicated, the high
and low closing sales prices per share for the Knight/Trimark common stock in
the Nasdaq National Market. The table reflects a two-for-one stock split
effected May 17, 1999.
<TABLE>
<CAPTION>
High Low
---- ---
<C> <S> <C> <C>
1998 Third Quarter (from July 8, 1998)................. $ 9 1/2 $ 3 5/16
Fourth Quarter.................................... $12 11/16 $ 2 9/16
1999 First Quarter..................................... $33 1/2 $11
Second Quarter (through June 3, 1999)............. $78 15/32 $33 3/32
</TABLE>
According to publicly available documents, Knight/Trimark has never paid a
dividend. They intend to retain future earnings, if any, to finance the
development and expansion of their business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future. The payment of cash
dividends is within the discretion of their board of directors and will depend
on many other factors, including their results of operations, financial
condition and capital requirements, restrictions imposed by financing
arrangements and legal requirements.
19
<PAGE>
DESCRIPTION OF THE DARTS
The DARTS will be issued under an indenture (the "Indenture") between SSG
and Norwest Bank Minnesota, National Association, as trustee (the "Trustee").
The following is a summary of certain provisions of the DARTS, but this summary
is not a complete restatement of the terms of the DARTS and the Indenture.
Potential buyers of the DARTS should read the Indenture because it, and not
this summary description, defines the rights of holders of the DARTS. A copy of
the Indenture is included as an exhibit to the registration statement which
includes this prospectus and is available upon request from SSG.
Nature of Obligation
The DARTS are unsecured general obligations of SSG, and subordinate in right
of payment to certain other obligations of Southwest as described under "--
Subordination." The total principal amount of DARTS to be issued by SSG in this
offering will be limited to $50,000,000 ($57,500,000 if the underwriters' over-
allotment option is exercised in full). The Indenture will permit SSG to issue
up to $150 million total principal amount of DARTS. Accordingly, SSG may
conduct additional offerings of DARTS in the future without the consent of
purchasers of DARTS in this offering and all of the DARTS will constitute a
single class of securities. The DARTS will be issued in fully registered form,
without coupons, in denominations of $ or multiples of $ .
Maturity and Interest
The scheduled maturity of the DARTS is , 2004. Interest on the
DARTS will be paid in cash and accrue at the rate shown on the cover page of
this prospectus. Accrued interest will be paid quarterly in arrears and the
interest payment dates will be 1, 1, 1 and 1 of each
year commencing 1, 1999. If in any year a scheduled interest payment
date is not a business day, then interest will be paid on the next succeeding
business day. The DARTS will bear interest from the date of original issue or,
if any interest has already been paid, from the most recent interest payment
date to which interest has been paid. Interest will be paid to persons who are
holders of DARTS at the close of business on the fifteenth day of the month
preceding the interest payment date. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
Delivery of Payment
Interest on the DARTS will be paid at the office or agency of SSG in New
York, New York or by a corporate check mailed to the holders of the DARTS
entitled to such payment. The principal amount of the DARTS will be paid by
delivery of Knight/Trimark common stock or cash, or both, upon surrender of the
DARTS at the office or agency of Southwest in New York, New York. All cash
payments of principal and interest with respect to the DARTS represented by the
certificate registered in the name of or held by The Depositary Trust Company
or its nominee will be made by wire transfer of immediately available funds to
The Depositary Trust Company or its nominee as the registered owner thereof.
See "--Book Entry, Delivery and Form."
Transfer and Exchange
A holder may transfer DARTS in accordance with the Indenture. The Trustee
may require a holder, among other things, to furnish appropriate endorsements
and transfer documents, and SSG may require a holder to pay any taxes and fees
required by law or permitted by the Indenture.
Maturity; Exchange Ratio
The DARTS will mature on , 2004, except the DARTS may mature earlier if
the payment obligation of the DARTS is accelerated due to a default by SSG. At
maturity, the principal amount of each DARTS will be exchanged by SSG for
shares of Knight/Trimark common stock. Alternatively, instead of delivering
Knight/Trimark common stock, SSG may deliver cash in an amount equal to the
value of the Knight/Trimark common stock it is otherwise required to deliver or
a combination of cash and Knight/Trimark common stock.
20
<PAGE>
The number of shares of Knight/Trimark common stock that will be delivered
per DARTS at maturity is:
(1) 0. shares of Knight/Trimark common stock per DARTS if the Maturity
Price (as defined in the next sentence) per share of Knight/Trimark
common stock is greater than or equal to the Threshold Appreciation
Price (as defined in the next sentence);
(2) a fractional share of Knight/Trimark common stock per DARTS equal to:
. the initial price per DARTS in this offering divided by
. the Maturity Price
if the Maturity Price is less than the Threshold Appreciation Price but
is greater than the initial price per DARTS in this offering; and
(3) one share of Knight/Trimark common stock per DARTS if the Maturity
Price is less than or equal to the initial price per DARTS in this
offering.
The Maturity Price is the average closing bid price per share of
Knight/Trimark common stock for the 20 trading days ending on the business day
prior to the maturity date. The Threshold Appreciation Price is $ .
The number of shares of Knight/Trimark common stock that will be delivered
to a holder of DARTS at maturity is subject to adjustment if certain events
occur with respect to the Knight/Trimark common stock as described below in
"--Anti-dilution Adjustments." No fractional shares of Knight/Trimark common
stock will be delivered at maturity and a cash payment will be made in lieu of
fractional shares as provided below in "--Fractional Shares."
SSG expects that delivery of Knight/Trimark common stock in payment of
principal of the DARTS at maturity (assuming SSG does not elect to pay the
cash equivalent) will be made from the Knight/Trimark common stock SSG
currently owns. The Knight/Trimark common stock currently owned by SSG will be
freely tradeable when delivered at maturity (except if the recipient is an
affiliate of SSG). However, if SSG defaults on the DARTS and as a result the
maturity of the DARTS is accelerated to a date prior to July 8, 2000, then the
Knight/Trimark common stock delivered at maturity will be subject to the
manner of sale limitations imposed by Rule 144 under the Securities Act.
On or prior to the 30th business day prior to maturity, SSG will notify the
Trustee whether the principal amount of each DARTS will be exchanged for
shares of Knight/Trimark common stock or cash, or both. In addition, on or
prior to that date SSG will publish or cause to be published a notice in a
newspaper of national circulation published at least five days a week, stating
whether the principal amount of each DARTS will be exchanged for shares of
Knight/Trimark common stock or cash, or both. If SSG elects to deliver shares
of Knight/Trimark common stock, holders of the DARTS will be responsible for
the payment of any and all brokerage costs upon the subsequent sale of such
stock. If less than all of the outstanding DARTS are to be exchanged for
Knight/Trimark common stock, the DARTS to be exchanged for Knight/Trimark
common stock will be selected by the Trustee from the outstanding DARTS by lot
or pro rata (as nearly as may be) or by any other method determined by the
Trustee in its sole discretion to be equitable.
There Are No Restrictions on Our Ability to Transfer Knight/Trimark Common
Stock
The Indenture does not restrict SSG's ability to sell, pledge or otherwise
convey all or any portion of the Knight/Trimark common stock held by it, and
none of SSG's Knight/Trimark common stock will be pledged or otherwise held in
escrow for exchange at maturity. Consequently, if SSG becomes bankrupt or
insolvent or if SSG is liquidated, then any Knight/Trimark common stock owned
by SSG will be subject to the claims of the creditors of SSG. In addition, as
described above in "--Maturity; Exchange Ratio," SSG will have the option,
exercisable in its sole discretion, to pay the principal amount of the DARTS
at maturity by delivering to
21
<PAGE>
holders of the DARTS either the specified number of shares of Knight/Trimark
common stock or cash with an equal value, or a combination of both. There can
be no assurance that SSG will elect at maturity to deliver Knight/Trimark
common stock. Consequently, holders of the DARTS will not be entitled to any
rights with respect to the Knight/Trimark common stock (including, without
limitation, voting rights and rights to receive any dividends or other
distributions on the Knight/Trimark common stock) until such time, if any, as
SSG exchanges shares of Knight/Trimark common stock for DARTS at maturity.
Hypothetical Exchange Rates
The following chart shows the number of shares of Knight/Trimark common
stock or the amount of cash that a holder of DARTS would receive for each DARTS
at various Maturity Prices, assuming that there will be no dilution
adjustments. There can be no assurance that the Maturity Price will be within
the range set forth below. Given the initial sales price in this offering of
$ and the Threshold Appreciation Price of $ , a holder of the DARTS would
receive at maturity the following number of shares of Knight/Trimark common
stock or equivalent amount of cash (at the option of Southwest) per DARTS:
<TABLE>
<S> <C> <C>
Maturity Price of Number of Shares of
Knight/Trimark Knight/Trimark Equivalent
Common Stock Common Stock Amount of Cash
--------------------------- --------------------------- ---------------------------
$ $
$ $
$ $
$ $
$ $
</TABLE>
Fractional Shares
No fractional shares of Knight/Trimark common stock will be issued if SSG
exchanges the DARTS for shares of Knight/Trimark common stock. In lieu of any
fractional share otherwise issuable in respect of a DARTS, the holder will
receive an amount in cash equal to the value of the fractional share at the
Maturity Price.
Redemption
The DARTS are not redeemable or exchangeable for Knight/Trimark common stock
prior to maturity.
Anti-Dilution Adjustments
The number of shares of Knight/Trimark common stock delivered at maturity of
the DARTS (which we refer to as the "Exchange Ratio" in this section) will be
adjusted if certain events occur during the period commencing on the date of
this prospectus and ending on the business day prior to maturity. The Exchange
Ratio will not be adjusted for any event other than those specified below.
These adjustments do not cover all events that could affect the Exchange Ratio,
including, without limitation, an issuer tender or exchange offer at a premium
to the market price or a third party tender or exchange offer for shares of
Knight/Trimark common stock, and offerings of Knight/Trimark common stock for
cash or in connection with acquisitions. See "Risk Factors--Knight/Trimark
common stock is subject to dilution."
If an adjustment event occurs, the Exchange Ratio will not be adjusted
unless the amount of the adjustment is at least 1% of the Exchange Ratio;
provided, however, that any adjustments which are not required to be made for
this reason will be carried forward and taken into account in any subsequent
adjustment. All adjustments to the Exchange Ratio will be calculated to the
nearest 1/10,000th of a share of Knight/Trimark common stock (or if there is
not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share).
22
<PAGE>
SSG is required, within ten business days following the occurrence of an
event that requires an adjustment to the Exchange Ratio or the occurrence of a
Spin-Off (as defined in "--Dividends and Other Distributions" below) or a
Reorganization Event (as defined in "--Consolidation, Merger or Sale of Assets
of Knight/Trimark" below) (or, in any case, if SSG is not aware of such
occurrence, as soon as it becomes aware), to provide written notice to the
Trustee and to the holders of the DARTS of the occurrence of such event. The
notice will be accompanied by a statement setting forth in reasonable detail
(1) the method by which the adjustment to the Exchange Ratio was determined or
(2) the change in the consideration to be received by the holders of the DARTS
following a Spin-Off (if SSG elects not to adjust the Exchange Ratio in
connection with the Spin-Off) or a Reorganization Event, and setting forth the
revised Exchange Ratio or consideration. In connection with a Spin-Off, the
notice will also include an election by Southwest (as described below in "--
Dividends and Other Distributions") to either adjust the Exchange Ratio or to
deliver Spin-Off Securities (as defined under "--Dividends and Other
Distributions" below) to the holders of the DARTS at maturity.
For purposes of the following anti-dilution provisions, all references to
Knight/Trimark common stock include any capital stock of Knight/Trimark
received upon reclassification of the Class A common stock, par value $.01 per
share, of Knight/Trimark.
For purposes of clarity, it is intended that the adjustments for stock
splits, reverse stock splits, stock dividends, cash dividends and other
distributions described below will apply only if the events actually occur.
Stock Splits
If there is a stock split or reverse stock split of the Knight/Trimark
common stock, then the Exchange Ratio will be adjusted at the opening of
business on the day the stock split or reverse stock split is effective. The
adjustment in the Exchange Ratio will be in direct proportion to the stock
split or reverse stock split.
Stock Dividends
If there is a stock dividend on the Knight/Trimark common stock, then the
Exchange Ratio will be adjusted at the opening of business on the first day on
which the Knight/Trimark common stock trades without the right to receive such
dividend (the "ex-dividend date"). The new Exchange Ratio will be calculated as
follows:
A + B
-----
New Exchange Ratio = ER X A
Where:
"ER" is the Exchange Ratio in effect immediately prior to the
adjustment;
"A" is the number of shares of Knight/Trimark common stock
outstanding at the opening of business on the ex-dividend date; and
"B" is the number of shares constituting the stock dividend.
Rights and Warrants
If Knight/Trimark issues rights or warrants to all holders of Knight/Trimark
common stock to subscribe for or purchase shares of Knight/Trimark common stock
at an exercise price per share less than the closing price of the
Knight/Trimark common stock on the record date for determining the holders of
Knight/Trimark common stock entitled to receive such rights and warrants, then
the Exchange Ratio will be adjusted at the record date. No adjustment, however,
will be made with respect to rights to purchase shares of Knight/Trimark
23
<PAGE>
common stock pursuant to a plan for the reinvestment of dividends or interest.
The new Exchange Ratio will be calculated as follows:
A + B
-----
New Exchange Ratio = ER X A + C
Where:
"ER" is the Exchange Ratio in effect immediately prior to the
adjustment;
"A" is the number of shares of Knight/Trimark common stock
outstanding at the close of business on the record date;
"B" is the number of shares of Knight/Trimark common stock
underlying the rights or warrants; and
"C" is (1) the number of shares of Knight/Trimark common stock
underlying the rights or warrants; multiplied by (2) the offer or
exercise price of the rights or warrants; divided by (3) the closing
price of the Knight/Trimark common stock on the record date.
If the rights and warrants expire prior to the maturity of the DARTS, the
Exchange Ratio will be readjusted to the Exchange Ratio that would have been in
effect had such adjustments for the issuance of such rights or warrants been
made upon the basis of the number of shares of Knight/Trimark common stock
actually delivered.
Dividends and Other Distributions
There will be no adjustments to the Exchange Ratio to reflect cash dividends
or other distributions paid with respect to Knight/Trimark common stock other
than Extraordinary Dividends. A dividend or other distribution with respect to
Knight/Trimark common stock will be an "Extraordinary Dividend" if it:
(1) is of securities ("Spin-Off Securities") of an issuer other than
Knight/Trimark (a "Spin-Off"); or
(2) exceeds the immediately preceding non-Extraordinary Dividend for
Knight/Trimark common stock by an amount equal to at least 10% of the
closing price of Knight/Trimark common stock on the first business day
immediately preceding the ex-dividend date with respect to such
Extraordinary Dividend.
If an Extraordinary Dividend occurs with respect to Knight/Trimark common
stock, the Exchange Ratio will be adjusted at the opening of business on the
ex-dividend date. The new Exchange Ratio will be calculated as follows:
A
-----
New Exchange Ratio = ER X A - B
Where:
"ER" is the Exchange Ratio in effect immediately prior to the
adjustment.
"A" is the closing price of Knight/Trimark common stock on the
business day immediately preceding such ex-dividend date; and
"B" is
(1) in the case of cash dividends or other distributions that
constitute quarterly dividends, the amount per share of such
Extraordinary Dividend minus the amount per share of the
immediately preceding non-Extraordinary Dividend for
Knight/Trimark common stock; or
24
<PAGE>
(2) in the case of cash dividends or other distributions that do
not constitute quarterly dividends, the amount per share of such
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the Board of Directors of SSG,
whose determination will be conclusive and described in a Board resolution.
Notwithstanding the foregoing, instead of adjusting the Exchange Ratio after
a Spin-Off, SSG can elect to deliver at maturity of the DARTS an amount of
Spin-Off Securities (or cash in equal amount) equal to the product of (1) the
Exchange Ratio and (2) the amount of Spin-Off Securities issued per share of
Knight/Trimark common stock in the Spin-Off. For purposes of delivering cash in
lieu of delivering Spin-Off Securities at maturity, the value of the Spin-Off
Securities would be an amount equal to the average closing price per share of
the Spin-Off Securities attributable to each DARTS for the 20 trading days
ending on the business day prior to the maturity date. If SSG elects to deliver
Spin-Off Securities at maturity, holders of the DARTS will be responsible for
the payment of any and all brokerage and other transaction costs upon any
subsequent sale of the Spin-Off Securities.
Consolidation, Merger or Sale of Assets of Knight/Trimark
In the event of:
(1) any consolidation or merger of Knight/Trimark, or any surviving entity
or subsequent surviving entity of Knight/Trimark (which will be
referred to in this section as a "Knight/Trimark Successor"), with or
into another entity (other than a merger or consolidation in which
Knight/Trimark is the continuing corporation and in which the
Knight/Trimark common stock outstanding immediately prior to the merger
or consolidation is not exchanged for cash, securities or other
property of Knight/Trimark or another entity);
(2) any sale, transfer, lease or conveyance to another corporation of the
property of Knight/Trimark or any Knight/Trimark Successor as an
entirety or substantially as an entirety;
(3) any statutory exchange of securities of Knight/Trimark or any
Knight/Trimark Successor with another corporation (other than in
connection with a merger or acquisition); or
(4) any liquidation, dissolution or winding up of Knight/Trimark or any
Knight/Trimark Successor (any such event described in clause (1), (2),
(3) or (4), a "Reorganization Event"),
the Exchange Ratio used to determine the amount payable upon exchange at
maturity for each DARTS will be adjusted to provide that each holder of DARTS
will receive for each DARTS at maturity cash in an amount equal to:
(a) 0. multiplied by the Transaction Value if the Transaction Value (as
defined below) is greater than or equal to the Threshold Appreciation
Price;
(b) the initial price per DARTS in this offering if the Transaction Value
is less than the Threshold Appreciation Price but greater than the
initial price per DARTS in this offering; and
(c) the Transaction Value if the Transaction Value is less than or equal to
the initial price per DARTS in this offering.
"Transaction Value" means:
(1) for any cash received in any such Reorganization Event, the amount of
cash received per share of Knight/Trimark common stock;
25
<PAGE>
(2) for any property other than cash or securities received in a
Reorganization Event, an amount equal to the market value at maturity
of such property received per share of Knight/Trimark common stock,
which market value will be determined by a nationally recognized
independent investment banking firm retained for this purpose; and
(3) for any securities received in a Reorganization Event, an amount equal
to (A) the average closing price per share of such securities on the 20
trading days ending on the business day prior to maturity of the DARTS
multiplied by (B) the number of such securities received for each share
of Knight/Trimark common stock.
Notwithstanding the foregoing, if a Reorganization Event occurs, SSG may, at
its option, in lieu of delivering cash as described above, deliver:
(a) an amount of cash equal to (1) the Exchange Ratio (adjusted as
described above) multiplied by (2) the amount of cash, if any, received
by SSG per share of Knight/Trimark common stock in such Reorganization
Event; plus
(b) property in an amount equal to (1) the Exchange Ratio (adjusted as
described above) multiplied by (2) the amount of property, if any,
received by SSG per share of Knight/Trimark common stock in such
Reorganization Event; plus
(c) securities in a number or amount, as applicable, equal to (1) the
Exchange Ratio (adjusted as described above) multipled by (2) the
number or amount, as applicable, of securities, if any, received by SSG
in such Reorganization Event per share of Knight/Trimark common stock.
If SSG elects to deliver securities or other property, holders of the DARTS
will be responsible for the payment of any and all brokerage and other
transaction costs upon any subsequent sale of such securities or other
property. The kind and amount of securities into which the DARTS shall be
exchangeable after consummation of such transaction shall be subject to
adjustment as described in the immediately preceding paragraph following the
date of consummation of such transaction.
Subordination
Payments under the DARTS will be subordinated to the prior payment in full
of all Senior Indebtedness of Southwest. "Senior Indebtedness" is defined below
in this section. If there is any payment or distribution of assets to creditors
of Southwest upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshalling of assets, then the
holders of Senior Indebtedness will be entitled to receive payment in full of
all amounts due or to become due with respect to the Senior Indebtedness before
any payment is made on the DARTS and before Southwest may acquire any of the
DARTS for any cash, property, assets or securities.
SSG also may not make any payment on the DARTS if:
(1) there occurs and is continuing a default in the payment of all or any
portion of the obligations under any Senior Indebtedness (a payment
default); or
(2) there occurs and is continuing any other default with respect to the
Senior Indebtedness that permits the holders of the Senior Indebtedness
to accelerate the maturity of that Senior Indebtedness, and the Trustee
and SSG have been notified in writing by any authorized holder or
representative of holders of such Senior Indebtedness that no payment
should be made with respect to the DARTS (a covenant default).
Payment on the DARTS will resume:
(1) in the case of a payment default, on the date the default is cured or
waived; and
26
<PAGE>
(2) in the case of a covenant default, the earlier of 120 days or the date
on which such default is cured or waived, unless the maturity of such
Senior Indebtedness has been accelerated.
If any payment to the holders of the DARTS is delayed due to a covenant
default on Senior Indebtedness, payment on the DARTS may not again be delayed
due to a covenant default unless:
(1) at least 360 days have passed since the last delay period commenced;
and
(2) all scheduled payments under the DARTS that have come due since the
last delay period commenced have been paid in full in cash.
Subject to payment in full of all Senior Indebtedness, the holders of the
DARTS will be subrogated to the rights of the holders of the Senior
Indebtedness to the extent of payments made on Senior Indebtedness upon any
distribution of assets in any such proceedings out of the distributive share of
the DARTS.
"Senior Indebtedness" means the principal of (and premium, if any), and
accrued interest on:
(1) indebtedness of SSG (including indebtedness of others guaranteed by
Southwest) other than the DARTS that is existing on the date of the
Indenture, which is:
(a) for money borrowed; or
(b) evidenced by a note or similar instrument given in connection with
the acquisition of any businesses, properties or assets of any
kind;
(2) obligations of SSG as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles and leases of property or assets made as part of any sale
and leaseback transaction to which SSG is a party;
(3) amendments, renewals, extensions, modifications and refundings of any
indebtedness or obligation identified in clauses (1) or (2) above; and
(4) future indebtedness of SSG described in (1) above, and amendments,
renewals, extensions, modifications and refundings thereof, if the
instrument creating or evidencing such future indebtedness provides
that such indebtedness or obligation is senior in right of payment to
the DARTS.
The following obligations will not be Senior Indebtedness, and will rank
equally with the DARTS unless the instruments creating such indebtedness
provide by their terms that such indebtedness is junior in right of payment to
the DARTS:
(1) future indebtedness of Southwest which is, by its terms, convertible or
exchangeable into capital stock; and
(2) indebtedness of SSG or amounts owed by SSG (except to banks and other
financial institutions) for compensation to employees, or for goods or
materials purchased, or services utilized, in the ordinary course of
business of SSG or of any other person from whom such indebtedness or
amount was assumed by SSG or for whom such indebtedness was guaranteed
by SSG.
The DARTS are unsecured obligations of SSG, and will rank equally with all
unsecured trade debt and unsecured obligations of SSG that arise by operation
of law or are imposed by any judicial or governmental authority. The DARTS are
obligations exclusively of SSG, and accordingly, will be effectively
subordinated to all indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of its subsidiaries. The right
of SSG, and, therefore, the right of creditors of SSG (including holders of
DARTS) to receive assets of any of its subsidiaries, as a practical matter,
will be effectively subordinated to the claims of
27
<PAGE>
the subsidiary's creditors, except to the extent SSG is itself recognized as a
creditor of the subsidiary or those other creditors have agreed to subordinate
their claims to the payment of the DARTS, in which case the claims of SSG would
still be subordinate to any secured claim on the assets of the subsidiary and
any indebtedness of the subsidiary senior to that held by SSG.
At March 26, 1999, $55.5 million of Senior Indebtedness was outstanding.
Southwest may from time to time incur additional indebtedness constituting
Senior Indebtedness.
Consolidation, Merger and Sale of Assets
SSG may not, directly or indirectly, consolidate with or merge into any
other entity or convey, transfer, sell or lease its assets (or the collective
assets of it and its subsidiaries) substantially as an entirety to any entity,
unless:
(1) either (a) SSG is the continuing corporation or (b) the entity formed
by or surviving such consolidation or merger or to which such assets
are conveyed, transferred, sold or leased is a corporation organized
under the laws of the United States or any state thereof or the
District of Columbia;
(2) the entity formed by or surviving such consolidation of merger (if
other than SSG) or to which such assets are conveyed, transferred, sold
or leased assumes all obligations of SSG under the DARTS and the
Indenture pursuant to agreements reasonably satisfactory to the
Trustee;
(3) immediately before and immediately after the transaction, no Event of
Default (as defined below in "--Events of Default"), and no event
which, after notice or lapse of time or both, would become an Event of
Default, under the Indenture shall exist;
(4) immediately after giving effect to the transaction, the DARTS and the
Indenture, as supplemented, will be valid and enforceable obligations
of SSG or such successor; and
(5) SSG has delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that the assumption of SSG's
obligations under the DARTS and the Indenture comply with the
applicable provisions of the Indenture.
Events of Default
The following will be Events of Default under the Indenture:
(1) failure to pay principal of any DARTS when due and payable, regardless
of whether the payment is prohibited by the subordination provisions of
the Indenture;
(2) failure to pay any interest on any DARTS when due, which failure
continues for 30 days, regardless of whether the payment is prohibited
by the subordination provisions of the Indenture;
(3) failure to perform any of the covenants of SSG in the Indenture, which
failure continues for 60 days after written notice of the failure as
provided in the Indenture;
(4) failure to pay when due the principal of and/or any indebtedness for
money borrowed by SSG or any of its subsidiaries in excess of $5
million, individually or in the aggregate, if that indebtedness is not
discharged, or any payment acceleration resulting from the failure is
not annulled, within 10 days after written notice as provided in the
Indenture;
(5) failure by SSG or any of its "significant subsidiaries," as that term
is defined under Regulation S-X under the Securities Act of 1933 as in
effect on the date of the Indenture, to pay final judgments
28
<PAGE>
aggregating more than $1 million, which judgments are not paid,
discharged or stayed for a period of 60 days; and
(6) certain events of bankruptcy, insolvency or reorganization of SSG or
any "significant subsidiary."
Except as provided in the Indenture, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of DARTS, unless such holders shall
have offered to the Trustee reasonable indemnity. Subject to such provisions
for the indemnification of the Trustee, the holders of a majority of the
outstanding DARTS will 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 as a result of an Event
of Default.
If an Event of Default under clause (6) above occurs, all unpaid principal
and interest on the DARTS will automatically become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of the DARTS. If any other Event of Default occurs and is continuing,
either the Trustee or the holders of at least 25% of the then outstanding
DARTS (by notice to Southwest and the Trustee) may declare the unpaid
principal and interest on the DARTS to become immediately due and payable.
After the acceleration of payment, but before a judgment or decree is issued
based on the acceleration, the holders of a majority of the then outstanding
DARTS may, under certain circumstances, rescind and annul the acceleration if
all Events of Default, other than the nonpayment of accelerated principal,
have been cured or waived as provided in the Indenture. The waiver of defaults
is discussed below in "--Modifications, Amendments and Waivers."
No holder of any DARTS will have any right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy under the Indenture unless:
(1) the holder shall have previously given to the Trustee written notice of
a continuing Event of Default;
(2) holders of at least 25% of the then outstanding DARTS shall have made
written request and offered satisfactory indemnity to the Trustee to
institute the proceeding;
(3) the Trustee shall have failed to institute the proceeding within 60
days after the receipt of such request of and offer of indemnity; and
(4) during such 60-day period, no direction inconsistent with such request
shall have been given to the Trustee by the holders of a majority of
the then outstanding DARTS.
Modifications, Amendments and Waivers
Modifications and amendments of the Indenture may be made by SSG and the
Trustee with the consent of the holders of at least a majority of the then
outstanding DARTS held by persons other than affiliates of Southwest, except
that no modification or amendment may be made without the consent of the
holder of each outstanding DARTS affected thereby if the modification or
amendment would:
(1) change the stated maturity of, or any installment of interest on, or
waive a default in the payment of, any DARTS;
(2) reduce the principal amount of any DARTS or reduce the rate or extend
the time of payment of interest on any DARTS;
(3) reduce the number of shares of Knight/Trimark common stock (or other
assets) deliverable by SSG at maturity of the DARTS;
(4) change the place or means of payment of principal of or interest on any
DARTS;
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<PAGE>
(5) impair the right to institute suit for the enforcement of any payment
on or with respect to any DARTS;
(6) reduce the vote of the holders necessary to waive certain defaults or
compliance with certain provisions of the Indenture, consent to any
merger, consolidation or conveyance, sale, transfer or lease of assets,
or modify or amend the Indenture;
(7) modify the provisions of the Indenture with respect to the
subordination of the DARTS in a manner adverse to the holders; or
(8) except as permitted by the Indenture, consent to the assignment or
transfer by SSG of any of its rights and obligations under the
Indenture.
The holders of a majority of the then outstanding DARTS held by persons
other than affiliates of SSG may, on behalf of all holders, waive any past
default under the Indenture or Event of Default, except a unanimous vote is
necessary to waive a default in the payment of principal of or interest on any
of the DARTS or in respect of a provision which under the Indenture cannot be
amended without the consent of the holder of each outstanding DARTS.
Amendments and supplements of the Indenture may be made by SSG and the
Trustee without the consent of any holder to:
(1) cure any ambiguity, defect or inconsistency (which does not adversely
affect the rights of any holder of the DARTS);
(2) comply with the restriction on mergers, consolidations and asset sales;
(3) add to the covenants of SSG further covenants, restrictions, conditions
or provisions for the protection of the holders of the DARTS;
(4) make any change that does not adversely affect the rights of any holder
of the DARTS under the Indenture; or
(5) comply with requirements of the Securities and Exchange Commission in
order to effect or maintain qualification of the Indenture under the
Trust Indenture Act.
Governing Law
The Indenture and the DARTS will be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to such State's
conflict of law principles.
Concerning the Trustee
SSG may maintain deposit accounts and conduct other banking transactions
with the Trustee or its affiliates in the ordinary course of business, and the
Trustee and its affiliates may from time to time in the future provide SSG with
banking and financial services in the ordinary course of their business.
Book-Entry, Delivery and Form
Except as set forth in the next paragraph, the DARTS will initially be
issued in the form of one or more Global DARTS (collectively, the "Global
DARTS"). The Global DARTS will be deposited on the date of the closing of the
sale of the DARTS with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary.
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<PAGE>
DARTS that are issued as described below in "--Certificated Securities" will
be issued in the form of registered definitive certificates (the "Certificated
Securities"). Upon the transfer of Certificated Securities, such Certificated
Securities may, unless all Global DARTS have previously been exchanged for
Certificated Securities, be exchanged for an interest in the Global DARTS
representing the number of DARTS being transferred, subject to the transfer
restrictions set forth in the indenture.
The Depositary has advised SSG that it is:
(1) a limited-purpose trust company organized under the laws of the State
of New York;
(2) a member of the Federal Reserve System;
(3) a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
(4) a "clearing agency" registered pursuant to Section 17A of the
Securities Exchange Act.
The Depositary was created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance in accounts of its Participants. The Depositary's Participants
include securities brokers and dealers, banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as bank's, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depositary only through Participants or Indirect Participants.
Southwest expects that pursuant to procedures established by the Depositary:
(1) upon deposit of the Global DARTS, the Depositary will credit the
accounts of Participants designated by the underwriters with an interest in the
Global DARTS; and
(2) ownership of the DARTS evidenced by Global DARTS will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of Participants),
the Participants and the Indirect Participants. Prospective purchasers are
advised that the laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to
transfer DARTS or to pledge the DARTS as collateral will be limited to such
extent.
So long as the Depositary or its nominee is the registered owner of the
Global DARTS, the Depositary or such nominee, as the case may be, will be
considered the holder under the Indenture of the DARTS represented by the
Global DARTS. Except as provided below, owners of beneficial interests in a
Global DARTS will not be entitled to have DARTS represented by such Global
DARTS registered in their names, will not receive or be entitled to receive
physical delivery of the Certificated Securities, and will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a person having a beneficial
interest in DARTS represented by a Global DARTS to pledge such interest to
persons or entities that do not participate in the Depositary's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Payments with respect to any DARTS represented by a Global DARTS registered
in the name of the Depositary or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of the Depositary or its
nominee in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, Southwest and the Trustee may treat the persons in
whose names the DARTS, including the Global DARTS, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither Southwest nor the Trustee has or
will have
31
<PAGE>
responsibility or liability for the payment of such amounts to beneficial
owners of DARTS, or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global DARTS as
shown on the records of the Depositary, Payments by the Participants and the
Indirect Participants to the beneficial owners of DARTS will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global DARTS may, upon request to the Trustee, exchange such beneficial
interest for DARTS in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof).
In addition, Certificated Securities will be issued in exchange for the
Global DARTS if:
(1) Southwest notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and Southwest is unable
to locate a qualified successor within 90 days; or
(2) Southwest, at its option, notifies the Trustee in writing that it
elects to cause the issuance of DARTS in definitive form under the
Indenture.
Certificated Securities will be issued upon surrender by the Depositary of
its Global DARTS to each person that the Depositary identifies as the
beneficial owner of the DARTS represented by the Global DARTS. In addition,
subject to certain conditions, any person having a beneficial interest in a
Global DARTS may, upon request to the Trustee, exchange such beneficial
interest for Certificated Securities. Upon any such issuance, the Trustee is
required to register the Certificated Securities in the name of such person or
persons (or a designated nominee), and cause the same to be delivered to such
person or persons or their nominees.
Neither SSG nor the Trustee shall be liable for any delay by the Depositary
or any Participant or Indirect Participant in identifying the beneficial owners
of the related DARTS. Each of them may conclusively rely on, and shall be
protected in relying on instructions from the Depositary for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the DARTS to be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that SSG believes
to be reliable. SSG has no responsibility for the performance by the Depositary
or its Participants of their respective obligations as described hereunder or
under the rules and procedures governing their respective operations.
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<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences resulting from the purchase, ownership and disposition of the
DARTS. As the law is technical and complex, the discussion below necessarily
represents only a general summary. This summary only addresses the tax
consequences to a person that acquires the DARTS on their original issuance at
the initial price per DARTS in this offering and that is (1) an individual
citizen or resident of the United States, (2) a corporation that is created or
organized under the laws of the United States or any state thereof or the
District of Columbia, (3) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (4) a trust which
is subject to the supervision of a court within the United States and which has
one or more United States persons who have the authority to control all
substantial decisions of the trust (a "United States Person"). This summary
does not address all the possible tax consequences that may be applicable to a
particular holder in light of the holder's individual investment circumstances,
nor does it address the tax consequences to (A) persons that are not United
States Persons, (B) persons that may be subject to special treatment under
United States federal income tax law, such as banks, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, traders in securities or commodities electing to mark to market, tax-
exempt organizations, and dealers in securities or currencies, (C) persons that
will hold the DARTS as part of a position in a "straddle" or as part of a
"hedging," "conversion," "synthetic security" or other integrated investment
transaction for federal income tax purposes, (D) persons whose functional
currency is not the United States dollar, (E) persons that do not hold the
DARTS and, if applicable, the Knight/Trimark common stock as capital assets, or
(F) persons that acquire a DARTS at other than the initial price per DARTS in
this offering.
This summary is based upon the Internal Revenue Code, Treasury Regulations,
rulings and pronouncements of the IRS, and judicial decisions in effect on the
date of this prospectus, all of which are subject to change at any time
(possibly with retroactive effect). Southwest will not be seeking an IRS ruling
with respect to the correct tax treatment of the DARTS. In addition, no
existing statutory, judicial or administrative authority directly addresses the
characterization of the DARTS or instruments similar to DARTS for U.S. federal
income tax purposes. As a result, significant uncertainty exists concerning the
proper tax treatment of the DARTS. There can be no assurance that the IRS or a
court will agree with the conclusions expressed in this section. This summary
does not include any description of the tax laws of any state or local
government, or of any foreign government, that may be applicable to the DARTS
or holders thereof.
Persons considering an investment in the DARTS should consult their own tax
advisors concerning the application of the United States federal tax laws to
their particular situations, as well as any consequences arising under the laws
of any other taxing jurisdiction.
Pursuant to the terms of the Indenture, SSG and every holder of the DARTS
will be obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize the DARTS for all tax purposes
as a forward purchase contract to purchase Knight/Trimark common stock (and
Spin-Off Securities, if any) at maturity (including as a result of acceleration
or otherwise), under the terms of which contract (1) at the time of issuance of
the DARTS the holder deposits irrevocably with SSG a fixed amount of cash equal
to the purchase price of the DARTS to assure the fulfillment of the holder's
purchase obligation described in clause (3) below, which deposit will
unconditionally and irrevocably be applied at maturity to satisfy such
obligation, (2) until maturity SSG will be obligated to pay interest on such
deposit at a rate equal to the stated rate of interest on the DARTS as
compensation to the holder for SSG's use of such cash deposit during the term
of the DARTS, and (3) at maturity such cash deposit unconditionally and
irrevocably will be applied by SSG in full satisfaction of the holder's
obligation under the forward purchase contract, and SSG will deliver to the
holder the number of shares of Knight/Trimark common stock (and Spin-Off
Securities, if any) that the holder is entitled to receive at maturity pursuant
to the terms of the DARTS (subject to SSG's right to deliver cash in lieu of
the shares of Knight/Trimark common stock (and Spin-Off Securities, if any)).
Prospective investors should note that cash proceeds of this offering will not
be segregated by SSG during the term of the DARTS, but instead will be
commingled with SSG's other assets and applied in a manner consistent with the
"Use of Proceeds" discussion above. Consistent with the above characterization,
(A)
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<PAGE>
amounts paid to SSG in respect of the original issue of the DARTS will be
treated as allocable in their entirety to the amount of the cash deposit
attributable to such DARTS and (B) amounts denominated as interest that are
payable with respect to the DARTS will be characterized as interest payable on
the amount of such deposit, includible annually in the income of the holder as
interest income in accordance with such holder's method of accounting.
Under the above characterization of the DARTS, a holder's tax basis in the
DARTS generally will equal the holder's cost for the DARTS. Upon the sale or
other taxable disposition of a DARTS, a holder generally will recognize gain or
loss equal to the difference between the amount realized on the sale or other
taxable disposition and the holder's tax basis in the DARTS. Such gain or loss
generally will be long-term capital gain or loss if the holder has held the
DARTS for more than one year at the time of disposition.
Under the above characterization of the DARTS, if SSG delivers shares of
Knight/Trimark common stock (and Spin-Off Securities, if any) at maturity, a
holder will recognize no gain or loss on the purchase of the shares of
Knight/Trimark common stock (and Spin-Off Securities, if any) against
application of the monies received by SSG in respect of the DARTS. A holder
will have a tax basis in such interest in the shares of Knight/Trimark common
stock (and Spin-Off Securities, if any) equal to the holder's tax basis in the
DARTS (less the portion of the tax basis of the DARTS allocable to any
fractional interest in shares of Knight/Trimark common stock (and Spin-Off
Securities, if any), as described in the next sentence). A holder will
recognize gain or loss (which will be short-term capital gain or loss) with
respect to cash received in lieu of a fractional interest in a share of
Knight/Trimark common stock (and Spin-Off Securities, if any) equal to the
difference between the cash received for the fractional interest and the
portion of the basis of the DARTS allocable to the fractional interest (based
on the relative number of fractional shares and full shares delivered to the
holder). If SSG delivers solely cash to the holder at maturity, a holder will
recognize capital gain or loss equal to any difference between the cash
received from SSG and the holder's tax basis in the DARTS at that time. Such
gain or loss generally will be long-term capital gain or loss if the holder has
held the DARTS for more than one year at maturity. The receipt of any accrued
and unpaid interest at maturity will be includible in the income of the holder
as ordinary interest income.
Due to the absence of authority as to the proper characterization of the
DARTS, no assurance can be given that the IRS will accept, or that a court will
uphold, the characterization and tax treatment described above. In particular,
the IRS could seek to analyze the federal income tax consequences of owning
DARTS under Treasury regulations promulgated in June 1996 governing contingent
payment debt instruments (the "Contingent Payment Regulations"). The Contingent
Payment Regulations are complex, but very generally apply the original issue
discount rules of the Internal Revenue Code to a contingent payment debt
instrument by requiring that original issue discount be accrued every year at a
"comparable yield" for the issuer of the instrument, determined at the time of
issuance of the obligation. In addition, the Contingent Payment Regulations
require that a projected payment schedule, which results in such a "comparable
yield," be determined, and the adjustments to income accruals be made to
account for differences between actual payments and projected amounts. To the
extent that the comparable yield as so determined exceeds the interest actually
paid on a contingent debt instrument, the owner of that instrument will
recognize ordinary interest income in excess of the cash the owner receives. In
addition, any gain realized on the sale, exchange or redemption of a contingent
payment debt instrument will be treated as ordinary income. Any loss realized
on such sale, exchange or redemption will be treated as an ordinary loss to the
extent the holder's original issue discount inclusions with respect to the
obligation exceed prior reversals of such inclusions required by the adjustment
mechanism described above. Any loss realized in excess of such amount generally
will be treated as a capital loss.
We believe that the Contingent Payment Regulations do not apply to the
DARTS, because those Regulations apply only to debt instruments that provide
for contingent payments. The DARTS are payable by the delivery of shares of
Knight/Trimark common stock (and Spin-Off Securities, if any) (unless SSG
exercises its option to deliver cash to the holders at maturity) and provide
economic returns that are based upon the value
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<PAGE>
of the Knight/Trimark common stock (and Spin-Off Securities, if any) at
maturity. The DARTS therefore offer no assurance that a holder's investment
will be returned to the holder at maturity.
Accordingly, we believe that the DARTS properly are characterized for tax
purposes, not as debt instruments, but as forward purchase contracts in respect
of which holders have deposited a fixed amount of cash with SSG, on which
interest is payable at a fixed rate. If, however, the IRS were successfully to
maintain that the Contingent Payment Regulations applied to the DARTS, then,
among other matters, (1) gain realized by a holder on the sale or other taxable
disposition of a DARTS would be characterized as ordinary income, rather than
as short- or long-term capital gain (depending on whether the DARTS had been
held for more than one year at the time of such disposition) and (2) a holder
would recognize ordinary income, or ordinary or capital loss (as the case may
be, under the rules of the Contingent Payment Regulations summarized above) on
the receipt of the shares of Knight/Trimark common stock (and Spin-Off
Securities, if any), rather than capital gain or loss upon the ultimate sale of
such DARTS.
Even if the Contingent Payment Regulations do not apply to the DARTS, it is
possible that the IRS could seek to characterize the DARTS in a manner that
results in tax consequences to initial holders of the DARTS different from
those reflected in the Indenture and described above. Under alternative
characterizations of the DARTS, it is possible, for example, that the DARTS
could be treated as including a forward contract and one or more options.
Possible Treasury Regulations
Section 1259 of the Code requires a taxpayer to recognize taxable gain at
the time of a "constructive sale" with respect to any appreciated position in
stock. A "constructive sale" is deemed to occur with respect to an appreciated
position in stock if the owner engages in certain specified transactions which
generally eliminate substantially all risk of loss and all opportunity for gain
with respect to such position. We do not believe the issuance of the DARTS will
constitute a "constructive sale" under Section 1259 of the Code because under
the terms of the DARTS we will retain the dividends and an opportunity for gain
with respect to the underlying Knight/Trimark Common Stock. The legislative
history to Section 1259 of the Code addresses the treatment of "collar"
transactions which, as in the case of the DARTS, imposes some limits on the
owner's risk of loss and opportunity for gain with respect to the underlying
appreciated position in stock. The legislative history further indicates that
the determination regarding whether the terms of a particular "collar"
constitute a constructive sale will be made in the Regulations that generally
would be applicable only on a prospective basis, except in cases to prevent
abuses.
A bill pending in Congress that was introduced on May 5, 1999 would treat
some or all of the net long-term capital gain arising from "constructive
ownership" transactions involving certain derivative financial instruments as
short-term capital gain, and would impose an interest charge on such short-term
capital gain. The proposed legislation would be effective with respect to gain
recognized after the date the legislation is enacted into law, generally
without regard to when the constructive ownership transaction was entered into.
If enacted in its current form, the legislation does not appear to apply to the
DARTS (and, even if the legislation in its current form were extended to cover
the DARTS, it is not expected to have any material effect on the DARTS). It is
not possible to predict whether legislation addressing constructive ownership
transactions will be enacted, or what form any such legislation might take
(including with respect to effective dates).
Non-U.S. Holders
Payments which are made with respect to the DARTS to any holder who is a
nonresident alien individual or foreign corporation ("Non-U.S. Holder") will
generally not be subject to United States federal withholding tax (except as
discussed below with respect to backup withholding), provided that such holder
complies with applicable certification requirements (including, in general the
furnishing of IRS Forms W-8 or 1001, or successor forms thereto).
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<PAGE>
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale, exchange or redemption of
the DARTS, unless (1) the gain is effectively connected with a trade or
business of the Non-U.S. Holder within the United States, (2) subject to
certain exceptions, in the case of a Non-U.S. Holder who is a nonresident alien
individual and holds the DARTS as a capital asset, such holder is present in
the United States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met or (3) the Non-U.S. Holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates (including certain former citizens and resident of the United
States).
Backup Withholding and Information Reporting
In general, payments of principal, premium and interest with respect to a
DARTS, and the proceeds of a sale of a DARTS within the United States (1) will
be subject to information reporting and (2) will be subject to backup
withholding at a rate of 31% if the holder fails to provide its taxpayer
identification number on IRS Form W-9, fails to establish an exemption from
backup withholding, or is otherwise subject to backup withholding under Section
3406 of the Code. Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against such holder's U.S. federal income
tax liability, provided the required information is furnished to the IRS.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in an underwriting agreement,
each underwriter named below has severally agreed to purchase, and Southwest
has agreed to sell to such underwriter, the number of DARTS set forth opposite
the name of such underwriter.
<TABLE>
<CAPTION>
Name Number of DARTS
---- ---------------
<S> <C>
Raymond James & Associates, Inc..........................
Forum Capital Markets LLC................................
-----
Total
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the DARTS included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all of the DARTS (other than those
covered by the over-allotment option described in the next paragraph) if they
purchase any of the DARTS.
Southwest has granted the underwriters an option, exercisable for 45 days
from the date of this prospectus, to purchase up to $7,500,000 of newly-issued
DARTS to cover over-allotments, if any, in this offering. If the option is
exercised, each underwriter will be obligated, subject to certain conditions,
to purchase a number of additional DARTS approximately proportionate to its
initial purchase commitment.
Southwest has been advised by the underwriters that they propose to offer
some of the DARTS directly to the public at the public offering price set forth
on the cover of this prospectus. After the initial offering of the DARTS to the
public, the underwriters may change the public offering price and the other
selling terms.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Southwest in connection with this offering.
<TABLE>
<CAPTION>
Paid by Southwest
-----------------
<S> <C>
Per DARTS $
</TABLE>
Southwest estimates that its total expenses in connection with this offering
will be $ .
The DARTS will constitute a new class of securities with no established
trading market. The initial public offering price for the DARTS is equal to the
last bid price of the Knight/Trimark common stock on , 1999, as reported
on the Nasdaq National Market. Southwest does not intend to apply to have the
DARTS listed on any securities exchange. Southwest has been advised by the
underwriters that, following the completion of this offering, they intend to
make a market in the DARTS in the over-the-counter market. However, they are
not obligated to do so and any market-making activities with respect to the
DARTS may be discontinued at any time without notice. Accordingly, no assurance
can be given as to the liquidity of or the trading market for the DARTS. The
lack of a trading market could adversely affect investors, as described in the
"Risk Factors" section under the caption "-- It is possible that the secondary
market for the DARTS will be illiquid ."
In connection with this offering, the underwriters may purchase and sell
DARTS in the open market. These transactions may include over-allotment,
stabilizing transactions and syndicate covering transactions. Over-allotments
involve syndicate sales of DARTS in excess of the number of DARTS to be
purchased by the underwriters in this offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of DARTS in the
open market after the distribution of the DARTS has been completed in order to
cover syndicate short positions. Stabilizing transactions consist of certain
bids or purchases of DARTS made for the purpose of preventing or retarding a
decline in the market price of the DARTS while this offering is in progress.
Such stabilizing transactions and syndicate covering transactions may cause the
price of the DARTS to be higher than it otherwise would be in the absence of
such transactions.
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<PAGE>
These transactions may be effected in the over-the-counter market, or
otherwise and, if commenced, may be discontinued at any time.
The underwriters may not confirm sales to discretionary accounts without the
prior written approval of the customer.
Southwest Securities, Inc., SWS Financial Services, Inc.,
Mydiscountbroker.com, Inc. and NorAm Investment Services, Inc., each of which
is affiliated with SSG, are member firms of the NASD. Because of this
relationship, this offering is being conducted in accordance with Rule 2720 of
the NASD.
Southwest has agreed to indemnify the underwriters against certain
liabilities in connection with the offer and sale of the DARTS, including
liabilities under the Securities Act of 1933, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
The validity of the DARTS offered hereby is being passed upon for Southwest
by Gardere & Wynne, L.L.P., Dallas, Texas. Certain legal matters will be passed
upon for the Underwriters by Kelley Drye & Warren LLP.
EXPERTS
The consolidated financial statements and schedule of SSG and its
subsidiaries as of June 26, 1998 and June 27, 1997, and for each of the years
in the three-year period ended June 26, 1998, have been incorporated herein by
reference in this Registration Statement in reliance on the reports of KPMG
LLP, independent certified public accountants, incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION ABOUT SOUTHWEST
We are subject to the information requirements of the Exchange Act, and in
accordance therewith we file periodic reports, proxy statements and other
information with the SEC. Reports, proxy statements and other information may
be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Suite 1400, Northwestern
Atrium Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and such information may also be inspected at
the offices of the National Association of Securities Dealers, Inc., Listing
Section, 1735 K Street, Washington, D.C. 20006. The Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's web site address, http://www.sec.gov.
We have filed with the Commission a registration statement on Form S-3
(together with all exhibits, schedules, amendments and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the DARTS
offered hereby. This prospectus does not contain all the information set forth
or incorporated by reference in the Registration Statement (certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission). Statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and
each such statement is qualified in all respects by reference to the copy of
such contract or document filed as an exhibit to the Registration Statement.
For further information with respect to the Company and the DARTS reference is
made to the Registration Statement and the exhibits and schedules filed as a
part thereof, which may be inspected and copied at the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D. C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois at prescribed rates.
38
<PAGE>
The following documents or portions thereof filed by the Company with the
Commission (Commission File No. 0-19483) pursuant to the Exchange Act are
hereby incorporated by reference in this prospectus:
1. Annual Report on Form 10-K for the fiscal year ended June 26, 1998.
2. Quarterly Reports, including any amendments to these reports, on Form
10-Q for the quarters ended September 25, 1998, December 31, 1998 and
March 26, 1999.
3. Current Report on Form 8-K dated June 7, 1999.
All reports and documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of the offering of the DARTS made
hereby shall be deemed to be incorporated by reference into this prospectus and
to be a part hereof from the filing of such documents. Any statement contained
in this prospectus or in a document incorporated or deemed to be incorporated
by reference in this prospectus shall be deemed to be modified or superseded
for the purposes of this prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this prospectus.
The Company will provide without charge to each person to whom a copy of
this prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or
schedules are specifically incorporated by reference into such documents). Such
requests should be directed to Barbara A. Hart, Secretary, Southwest Securities
Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270, or by telephone
at (214) 859-1800.
39
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. Neither Southwest Securities Group, Inc. nor any underwriter has
authorized anyone to provide prospective investors with different or
additional information. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<S> <C>
Certain Introductory Matters................................................ 2
Cautionary Statement Regarding Forward-Looking Statements................... 2
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 7
Southwest Securities Group, Inc. ........................................... 16
Use of Proceeds............................................................. 17
Capitalization.............................................................. 17
Relationship Between Southwest and Knight/Trimark........................... 18
Knight/Trimark Group, Inc. ................................................. 18
Price Range of Knight/Trimark Common Stock and Cash Dividends............... 19
Description of the DARTS.................................................... 20
Certain United States Federal Income Tax Considerations..................... 33
Underwriting................................................................ 37
Legal Matters............................................................... 38
Experts..................................................................... 38
Where You Can Find More Information About Southwest......................... 38
</TABLE>
$50,000,000
Derivative Adjustable Ratio Securities SM (DARTS SM)
[Logo of Southwest Securities Group, Inc.]
Subject to Exchange into Class A Common Stock of
[Logo ofKNIGHT/TRIMARK GROUP, INC.]
---------------
PROSPECTUS
---------------
Raymond James & Associates, Inc.
Forum Capital Markets LLC
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the Commission registration fee, NASD filing fee and listing fee
are estimates.
<TABLE>
<CAPTION>
Item Amount
---- ------
<S> <C>
Commission registration fee.................................... $15,985
NASD filing fee................................................ 6,250
Legal fees and expenses........................................ 75,000
Accounting fees and expenses................................... 50,000
Printing expenses.............................................. 60,000
Fees and expenses for qualification under state securities laws
(including legal fees)........................................ 7,500
Trustee's, transfer agent's and registrar's fees and expenses.. 12,000
Miscellaneous.................................................. 3,265
-------
Total........................................................ 230,000
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
As permitted by the Delaware General Corporation Law, the Registrant's by-
laws provide that the directors and officers of the Registrant shall be
indemnified by the Registrant against certain liabilities that those persons
may incur in their capacities as directors or officers. Furthermore, the
Registrant's amended certificate of incorporation eliminates the liability of
directors of the Registrant, under certain circumstances, to the maximum extent
permitted by the Delaware General Corporation Law.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act and
in certain circumstances provides for indemnification of the Registrant's
directors and officers.
Item 16. Exhibits.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Indenture
4.2 Form of DARTS (included in Exhibit 4.1)
Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of
5.1 securities being registered
*12.1 Statement of computation of ratio of earnings to fixed charges
*21.1 Subsidiaries of Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
*24.1 Power of Attorney
*25.1 Statement of eligibility of Norwest Bank Minnesota, National
Association, dated May 20, 1999.
</TABLE>
- --------
* Previously filed.
II-1
<PAGE>
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefits plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe it meets all of the requirements for
filing on Form S-3 and has duly caused this Amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on the 8th day of June, 1999.
SOUTHWEST SECURITIES GROUP, INC.
By: /s/ DAVID GLATSTEIN
----------------------------------
David Glatstein, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons and in the capacities
indicated on the 8th day of June, 1999.
<TABLE>
<S> <C>
Name Title
---- -----
/s/ DAVID GLATSTEIN President, Chief Executive Officer and
------------------------------------------ Director
David Glatstein (principal executive officer)
* Chief Financial Officer and Treasurer
------------------------------------------ (principal financial officer)
Stacy M. Hodges
* Controller
------------------------------------------ (principal accounting officer)
Laura Leventhal
* Chairman of the Board
------------------------------------------
Don A. Buchholz
Director
------------------------------------------
Brodie L. Cobb
* Director
------------------------------------------
J. Jan Collmer
* Director
------------------------------------------
R. Jan LeCroy
Director
------------------------------------------
Frederick R. Meyer
Director
------------------------------------------
Jon L. Mosle, Jr.
</TABLE>
/s/ DAVID GLATSTEIN
*By:_________________________________
David Glatstein
As Attorney-in-Fact
II-3
<PAGE>
EXHIBIT 1.1
$57,500,000
__% Exchangeable Subordinated Notes Due 2003
SOUTHWEST SECURITIES GROUP, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
_______, 1999
FORUM CAPITAL MARKETS LLC
RAYMOND JAMES & ASSOCIATES, INC.
c/o Forum Capital Markets LLC
53 Forest Avenue
Old Greenwich, Connecticut 06870
Ladies and Gentlemen:
Southwest Securities Group, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Raymond James & Associates, Inc. and Forum Capital
Markets LLC (the "Underwriters," which term shall also include any underwriter
substituted as provided in Section 11), with respect to the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of
$50,000,000 aggregate principal amount of the Company's __% Exchangeable
Subordinated Notes due 2004 (the "Notes"). The Exchangeable Subordinated Notes
will be issued pursuant to the provisions of an indenture dated as of the date
hereof (the "Indenture") between the Company and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee"). The Indenture will be in
substantially the form filed as an exhibit to the Registration Statement (as
defined below). Such $50,000,000 aggregate principal amount of Exchangeable
Subordinated Notes are hereafter referred to as the "Firm Notes." Upon the
request of the Underwriters, as provided in Section 2(b) hereof, the Company
shall also issue and sell to the Underwriters, acting severally and not jointly,
up to an additional $7,500,000 aggregate principal amount of Exchangeable
Subordinated Notes for the purpose of covering over-allotments, if any. Such
$7,500,000 aggregate principal amount of Exchangeable Subordinated Notes are
hereinafter referred to as the "Option Notes," and together with the Firm Notes
are hereinafter referred to as the "Notes." The Notes are exchangeable at
maturity for a number of shares of Class A common stock, par value $.01 per
share, of Knight/Trimark Group, Inc. (the "Knight/Trimark Common Stock") or at
the Company's option cash of equal value, at a rate determined by reference to
the market price of the Knight/Trimark Common Stock at maturity of the Notes.
The Company hereby confirms its agreement with the Underwriters with respect to
the sale by the Company and the purchase by the Underwriters of the Notes, as
set forth herein.
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, the Underwriters as of the date hereof, and as
of the Closing Date
<PAGE>
(as defined in Section 2(c)) and each Option Closing Date (as defined in Section
2(b)), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-3, No. 333-_____, including the
related preliminary prospectus dated ____________, 1999 and any subsequent
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Notes under the Securities Act of 1933, as amended (the "Securities Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Securities Act, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission under the Securities Act (the "Regulations") and
the rules and regulations under the Trust Indenture Act. The Company has
complied with the conditions for the use of Form S-3. Except as the context may
otherwise require, said registration statement, as amended, on file with the
Commission at the time said registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including but not
limited to those documents or information incorporated by reference therein) and
all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or, if no filing
pursuant to Rule 424(b) is made, such form of prospectus included in the
Registration Statement, together with any documents thereafter incorporated by
reference therein, is hereinafter called the "Prospectus." If the Company files
an abbreviated registration statement to register additional Notes and relies
upon Rule 462(b) under the Securities Act for such registration statement to
become effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to refer to both the registration statement referred to above
and the Rule 462 Registration Statement. For purposes hereof, "Rules and
Regulations" means the rules and regulations adopted by the Commission under the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the Trust Indenture Act, as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof or the
qualification of the Trustee, and no proceedings for a stop order suspending the
effectiveness of the Registration Statement, any of the Company's securities or
the qualification of the Trustee have been instituted or are pending or, to the
knowledge of the Company, threatened. Each of any Preliminary Prospectus, the
Registration Statement and the Prospectus at the time of filing thereof with the
Commission, conformed with the requirements of the Securities Act, the Trust
Indenture Act and the Rules and Regulations in all material respects. Neither
the Registration Statement nor the Prospectus at the time of filing thereof
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,
in light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters expressly for use in the
Registration Statement or Prospectus. When the Registration Statement or any
amendment
2
<PAGE>
thereto was or is declared effective, the Closing Date and each Option Closing
Date, if any, the Registration Statement and the Prospectus will conform to the
requirements of the Securities Act, the Trust Indenture Act and the Rules and
Regulations. At all times subsequent to the effective date of the Registration
Statement through the last to occur of the Closing Date, the last Option Closing
Date, if any, or the last date the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will conform to the requirements of the Securities
Act, the Trust Indenture Act and the Rules and Regulations. Neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, as of such respective dates, with respect to the Registration
Statement, or during such respective periods, with respect to the Prospectus,
will 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 (with respect to the Prospectus, in light of the circumstances under
which they were made) not misleading; provided, however, that this
representation and warranty does not apply to statements made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriters by or on behalf of the Underwriters expressly for use in
such Registration Statement or Prospectus. The Company acknowledges that the
only such written information is that contained under the caption "Underwriting"
in the Prospectus and the Registration Statement.
(c) The Company is subject to Section 13 or 15(d) of the Exchange
Act. The documents incorporated by reference into the Registration Statement
(the "Incorporated Documents"), when they were filed with the Commission (or, if
any amendment with respect to any such document was filed, when such amendment
was filed), complied with the requirements of the Exchange Act and the
regulations thereunder and, when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments thereto
become or became effective, at the Closing and any Option Closing did not and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. Any Incorporated Documents filed subsequent
to the date of the Prospectus shall, when filed with the Commission, conform in
all respect to the requirements of the Exchange Act and the Rules and
Regulations, as applicable. All reports and statements required to be filed by
the Company under the Securities Act and the Exchange Act have been filed,
together with all exhibits required to be filed therewith.
(d) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed on Annex I attached hereto. The Company and each of the Subsidiaries
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation. The Company
and each of the Subsidiaries is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing, except where the failure to be so qualified or licensed would not
have a material adverse effect on the condition, financial or otherwise, results
of operations, business or prospects of the Company and the Subsidiaries, taken
as a whole (a "Material Adverse Effect"). The Company does not own or control,
directly or indirectly, any corporation, partnership, limited liability company,
association or other entity other than the Subsidiaries. None of the
Subsidiaries owns more than 10% of or controls, directly or indirectly, any
corporation, partnership, limited liability company, association or other entity
except other Subsidiaries. The Company owns, either directly or
3
<PAGE>
through other Subsidiaries, all of the outstanding capital stock of each
Subsidiary free and clear of all liens, charges, claims, encumbrances, pledges,
security interests defects or other restrictions or equities of any kind
whatsoever; and all outstanding capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable and not
issued in violation of any preemptive rights or applicable securities laws. Each
of the Company and the Subsidiaries has all requisite power and authority
(corporate and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits (collectively
"Approvals") of and from all governmental or regulatory officials and bodies, to
own or lease its properties and conduct its business as described in the
Prospectus except for Approvals which if not so obtained would not have a
Material Adverse Effect; each of the Company and the Subsidiaries is and has
been doing business in compliance with all such Approvals and all federal,
foreign, state and local laws, rules and regulations, except for such failures
to comply as would not have a Material Adverse Effect; and neither the Company
nor any of the Subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such Approval. Each Subsidiary which
accounted for more than 5% of the Company's consolidated assets at March 26,
1999 or more than 10% of the Company's consolidated revenues during the 12
months then ended or which is reasonably expected to exceed such percentages
with respect to the Company's next four fiscal quarters ending after the date
hereof are indicated on Annex I, and all such Subsidiaries are hereinafter
referred to collectively as the "Significant Subsidiaries."
(e) The Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization," and will have the adjusted
capitalization set forth therein as of the period indicated therein, based upon
the assumptions set forth therein. Neither the Company nor any of the
Subsidiaries is a party to or bound by any instrument, agreement or other
arrangement, including, but not limited to, any voting trust agreement,
stockholders' agreement or other agreement or instrument, affecting the
securities or rights or obligations of securityholders of the Company or
providing for it to issue, sell, transfer or acquire any capital stock, rights,
warrants, options or other securities of the Company or any of the Subsidiaries,
except for this Agreement and the Indenture and as set forth in the Registration
Statement. The Notes and all other securities issued or issuable by the Company
and the Subsidiaries conform, or, when issued and paid for, will conform in all
material respects to all statements with respect thereto contained in the
Prospectus. All issued and outstanding securities of the Company and the
Subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any securityholder of the Company or any of the Subsidiaries or
similar contractual rights granted by the Company or any of the Subsidiaries.
(f) The Notes will be issued pursuant to the terms and conditions of
the Indenture, and the Indenture conforms to the description thereof contained
in the Registration Statement. At the Closing Date, the Indenture will conform
to the requirements of the Trust Indenture Act and the Rules and Regulations
applicable to an indenture which is qualified thereunder. The Notes have been
duly authorized and, when validly authenticated, issued, delivered and paid for
in the manner contemplated by the Indenture, will be duly authorized, validly
issued and outstanding obligations of the Company entitled to the benefits of
the Indenture. The Notes are not and will not be subject to any preemptive or
other similar rights of
4
<PAGE>
any securityholder of the Company or any of the Subsidiaries; all corporate
action required to be taken for the authorization, issue and sale of the Notes
has been duly and validly taken; and the certificates representing the Notes
will be in due and proper form. No holder of any securities of the Company has
any right to require registration of shares of Common Stock or other securities
of the Company because of the filing of the Registration Statement or the
consummation of the transactions contemplated hereby. Upon the issuance and
delivery pursuant to the terms of this Agreement and the Indenture of the Notes
to be sold by the Company hereunder and thereunder, the Underwriters will
acquire good and marketable title thereto free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever.
(g) The consolidated financial statements of the Company and the
Subsidiaries together with the related notes thereto set forth in or
incorporated by reference in the Registration Statement and the Prospectus
fairly present the financial position, changes in stockholders' equity, cash
flow and results of operations of the Company and the Subsidiaries at the
respective dates and for the respective periods to which they apply, and such
historical financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. Except as described in or contemplated
by the Prospectus (i) there has been no material adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, business, prospects or results of operations of
the Company and the Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, since the date of the financial statements included
in the Registration Statement and the Prospectus, and (ii) the outstanding debt,
the property, both tangible and intangible, and the businesses of each of the
Company and the Subsidiaries conform in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
Financial information set forth in the Prospectus (including that incorporated
by reference) fairly presents on the basis stated in the Prospectus, the
information set forth therein and has been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus.
(h) Each of the Company and the Subsidiaries has filed all income and
franchise tax returns required to be filed (after giving effect to all
permissible extensions) through the date hereof by it in any jurisdiction, and
has paid all taxes shown to be due on such returns or claimed to be due from
such entities, other than those being contested in good faith, except where the
failure to so file or pay would not have a Material Adverse Effect. All tax
liabilities, including those being contested by the Company or the Subsidiaries
are adequately reserved for in the Company's financial statements (in accordance
with generally accepted accounting principles). No tax deficiency has been
asserted and no tax proceedings are pending or, to the knowledge of the Company,
threatened against the Company or any of the Subsidiaries which, if adversely
determined would have a Material Adverse Effect, and to the knowledge of the
Company, no such deficiency or proceeding is contemplated.
(i) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Notes from the
Company or (iii) the consummation by the Company of any of its obligations under
this Agreement or the Indenture.
5
<PAGE>
(j) Each of the Company and the Subsidiaries maintains liability,
casualty and other insurance (subject to customary deductions and retentions)
against such risk of the types and in the amounts customarily maintained by
companies of comparable size to the Company engaged in similar businesses in
similar industries, all of which insurance is in full force and effect. There
are no facts or circumstances known to the Company which would have the effect
under any such insurance policy or surety bond of relieving any insurer of its
obligation to satisfy in all material respects any valid claim of the Company or
any of the Subsidiaries.
(k) There is no action, suit, proceeding, arbitration, litigation or
governmental proceeding pending or, to the knowledge of the Company, threatened
or contemplated against (or circumstances that are reasonably likely to give
rise to the same), or involving the properties or businesses of, the Company or
any of the Subsidiaries which (i) questions the validity of the capital stock of
the Company or any of the Subsidiaries or this Agreement or the Indenture or of
any action taken or to be taken by the Company or any of the Subsidiaries
pursuant to or in connection with this Agreement or the Indenture or (ii) except
as in the Registration Statement or the Prospectus, would have a Material
Adverse Effect.
(l) The Company has full corporate right, power and authority to
authorize, issue, deliver and sell the Notes, to enter into this Agreement and
the Indenture and to consummate the transactions provided for in such
agreements. This Agreement has been duly and properly authorized, executed and
delivered by the Company. This Agreement constitutes, and when the Company has
duly executed and delivered the Indenture, the Indenture (assuming the due
execution and delivery thereof by the Trustee) will constitute, a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except to the extent that enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution may be limited by federal or state securities
laws or public policy relating thereto. None of the Company's issue and sale of
the Notes, the execution or delivery of this Agreement or the Indenture, its
performance hereunder and thereunder or its consummation of the transactions
contemplated herein and therein conflicts or will conflict with or results or
will result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or results or will result in the
creation or imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon any
property or assets of the Company (including, without limitation, the
Knight/Trimark Common Stock) or any of the Subsidiaries pursuant to the terms
of, (i) the certificate of incorporation or by-laws of the Company or any of the
Subsidiaries, (ii) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or credit agreement
or other agreement or instrument to which the Company or any of the Subsidiaries
is a party or by which it is or may be bound or to which its properties or
assets is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company or any of
the Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body, having jurisdiction over the
Company or any of the Subsidiaries or any of their respective activities or
properties except, in the case of clauses (ii) and (iii), such conflict,
breaches, defaults, creations, impositions and violations that would not have a
Material Adverse Effect.
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(m) No consent, approval, authorization or order of, and no filing
with, any court, arbitrator, regulatory body, government agency or other body,
domestic or foreign, is required for the execution, delivery or performance by
the Company of this Agreement or the Indenture or the transactions contemplated
hereby or thereby, except such as have been or may be obtained under the
Securities Act or the Exchange Act or may be required under state securities or
Blue Sky laws or the rules of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the Underwriters' purchase and distribution
of the Notes.
(n) Subsequent to the respective dates as of which information is set
forth in the Prospectus and except as may otherwise be indicated or contemplated
herein or therein, unless the Company has notified the Underwriters in writing
otherwise, neither the Company nor any of the Subsidiaries has (i) issued any
securities or incurred any material liability or obligation, direct or
contingent, for borrowed money not in the ordinary course of business, (ii)
entered into any material transaction other than in the ordinary course of
business or (iii) declared or paid any dividend, other than regular cash
dividends, or made any other distribution on or in respect of its capital stock
of any class, and there has not been any change in the capital stock from the
description thereof in the Registration Statement or any material adverse change
in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operation of the Company or any of the
Subsidiaries.
(o) Neither the Company nor any of its Subsidiaries (i) is in
violation of its certificate of incorporation or by-laws, (ii) is in default in
the performance of any obligation, agreement or condition contained in any
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement, purchase order, agreement or instrument evidencing an obligation for
borrowed money or other material agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries may be bound or to which the property or assets of the Company or
any of the Subsidiaries is subject or affected or (iii) is in violation in any
respect of any law, ordinance, governmental rule, regulation or court decree to
which it or its property or assets may be subject, except any violation or
default under the foregoing clause (ii) or (iii) as would not have a Material
Adverse Effect.
(p) The Company believes that each of the Company and the
Subsidiaries currently has a good employer/employee relationship with its
employees. The Company and the Subsidiaries are in compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except for such failures to comply as would not have a Material Adverse Effect.
There are no pending investigations involving the Company or any of the
Subsidiaries by the U.S. Department of Labor or, to the Company's knowledge, any
such investigations by any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations that
would have a Material Adverse Effect. There is no unfair labor practice charge
or complaint against the Company or any of the Subsidiaries pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the Company or
any of the Subsidiaries. Neither the Company nor any of the Subsidiaries is or
every have been a party to any collective bargaining agreement, and no
collective bargaining agreement is currently being negotiated by the Company or
any of the Subsidiaries. No grievance or arbitration proceeding is pending or
threatened under
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any expired or existing collective bargaining agreements of the Company or any
of the Subsidiaries. No material labor dispute with the employees of the Company
or any of the Subsidiaries exists or, to the best of the Company's knowledge, is
imminent.
(q) No "employee pension benefit plan," "employee welfare benefit
plan" or "multi-employer plan" ("ERISA Plans") as such terms are defined in
Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or sponsored by the
Company or any of the Subsidiaries (or any trust created thereunder) has engaged
in a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
which could subject the Company or any of the Subsidiaries to any tax penalty or
civil penalty on prohibited transactions which has not been adequately corrected
and which might reasonably be expected to have a Material Adverse Effect. No
"accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of
the events set forth in Section 4043(b) of ERISA (other than events with respect
to which the 30-day notice under Section 4043 of ERISA has been waived) has
occurred with respect to any employee benefit plan which might reasonably be
expected to have a Material Adverse Effect. Each ERISA Plan is in compliance
with all reporting, disclosure and other requirements of the Code and ERISA as
they relate to such ERISA Plan, except for noncompliance which could not be
reasonably expected to have a Material Adverse Effect. Determination letters
have been received from the Internal Revenue Service with respect to each ERISA
Plan which is intended to comply with Code Section 401(a) stating that such
ERISA Plan and the attendant trust are qualified thereunder. Neither the Company
nor any of the Subsidiaries has ever completely or partially withdrawn from a
"multi-employer plan" as so defined.
(r) Neither the Company or any of the Subsidiaries, nor any of its
affiliates has taken or will take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be expected to cause or
result in, under the Exchange Act or otherwise, stabilization or manipulation of
the price of any security of the Company or Knight/Trimark Group, Inc. to
facilitate the sale or resale of the Notes or otherwise.
(s) Each of the Company and the Subsidiaries (i) owns or has the
right to use all patents, trademarks, service marks, trade names, copyrights,
technology, and all licenses and rights with respect to the foregoing, used in
the conduct of its business without, to the knowledge of the Company and the
Subsidiaries, infringing upon the right of any person, corporation or other
entity, except where the failure to so own or have such right would not, in the
aggregate, have a Material Adverse Effect and (ii) has no reason to believe, and
has not received any written notice, that the conduct of their respective
businesses infringe or conflict with any such rights of others with respect to
any of the foregoing.
(t) Each of the Company and the Subsidiaries has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property which are material to its business, in each case, except as
disclosed in the Prospectus, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects and other restrictions that
would have a Material Adverse Effect.
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(u) To the Company's knowledge, KPMG Peat Marwick are independent
certified public accountants of the Company as required by the Securities Act
and the Rules and Regulations.
(v) Neither the Company nor any of the Subsidiaries has, nor, to the
knowledge of the Company, has any officer, director or employee of the Company
or any of the Subsidiaries or any other person acting on behalf of the Company
or any of the Subsidiaries, for the benefit of the Company or any such
Subsidiaries at any time during the last five years, (i) made any unlawful gift
or contribution to any candidate for federal, state, local or foreign political
office, or failed to disclose fully any such gift or contribution in violation
of law, or (ii) made any payment to any federal, state, local or foreign
governmental officer or official, which would be reasonably likely to subject
the Company or any of the Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign). Each of
the Company's and the Subsidiaries' internal accounting controls are sufficient
to cause the Company and the Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(w) The minute books of the Company and each of the Subsidiaries have
been made available to the Underwriters, contain a complete summary of all
meetings and actions of the directors and stockholders of each of the Company
and the Subsidiaries since the time of their respective incorporation and
reflect all transactions referred to in such minutes accurately in all respects.
(x) Neither the Company nor any of the Subsidiaries has been notified
or is otherwise aware that it is potentially liable, or is considered
potentially liable, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar law ("Environmental
Laws"), except as would not have a Material Adverse Effect. To the Company's
knowledge, the Company and the Subsidiaries are in compliance with all
applicable existing Environmental Laws, except for such instances of non-
compliance which would not have a Material Adverse Effect. The term "Hazardous
Material" means (i) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (ii)
any "hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated
biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulation under or within the meaning of
any other Environmental Law. To the Company's knowledge, no disposal, release or
discharge of "Hazardous Material" has occurred on, in, at or about any of the
facilities or properties of the Company or any of the Subsidiaries, except for
those instances which are in compliance with Environmental Laws or in the
aggregate would not have a Material Adverse Effect. Except as described in the
Prospectus, to the Company's knowledge: (i) there has been no storage, disposal,
generation, transportation, handling or treatment of Hazardous Material by the
Company or any of the Subsidiaries (or to the knowledge of the Company, any of
its predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or any of the Subsidiaries in
violation of any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit or which would require remedial action which has not been
taken, under any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit, except for such violations and failures to take remedial
action which would not result in,
9
<PAGE>
singularly or in the aggregate, a Material Adverse Effect; (ii) there has been
no material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding such
property by the Company or any of the Subsidiaries of any Hazardous Materials,
except for such spills, discharges, leaks, emissions, injections, escapes,
dumping or releases which are in compliance with Environmental Laws or would not
result in, singularly or in the aggregate, a Material Adverse Effect.
(y) The Company is not an "investment company," a company controlled
by an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
(z) None of the proceeds of the sale of the Notes will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Notes to be considered a "purpose credit"
within the meanings of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve Board.
(aa) The Company and the Subsidiaries have complied and will comply
with all the provisions of Florida H.B. 1771, codified as Section 517.075 of the
Florida Statutes, and all regulations promulgated thereunder relating to issuers
doing business with Cuba.
(bb) Except as set forth in this Agreement, there are no claims,
payouts, issuances, arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with respect to the sale
of the Notes hereunder or any other arrangement, agreement, understanding,
payment or issuance with respect to the Company, any of the Subsidiaries or any
of their respective officers, directors or affiliates that would constitute
underwriters' compensation as determined by the NASD. For these purposes,
underwriters' compensation means total expenses payable by the Company to or on
behalf of the Underwriters which normally would be paid by the Underwriters,
fees and expenses of Underwriters' Counsel (as defined herein), finders fees,
financial consulting and advisory fees or other items of value accruing to the
Underwriters and related persons, which items of value include, but are not
necessarily limited to, stock, options, warrants and convertible and other debt
securities if the same are deemed to have been received in connection with or in
relation to the offering contemplated by this Agreement and when given by or
acquired from the Company or related parties of the Company or persons in
control of or under common control with the Company or related parties of the
Company.
(cc) The Indenture has been duly qualified under the Trust Indenture
Act, and all fees required to be paid with respect to the execution of the
Indenture and the issuance of the Notes have been paid or will be paid when due.
(dd) Neither the Company nor any of the Subsidiaries is an "affiliate"
(as defined for purposes of Section 2(11) of the Securities Act) of The
Knight/Trimark Group, Inc.; neither the Company nor any of the Subsidiaries has
material non-public information with respect to The Knight/Trimark Group, Inc.;
and neither the Company nor any of the Subsidiaries
10
<PAGE>
has the right to cause the registration under the Securities Act of the shares
of Knight/Trimark Common Stock owned by the Company.
(ee) The Company owns of record and beneficially __________ shares of
Knight/Trimark Common Stock, free and clear of any liens, claims or encumbrances
(except for transfer restrictions imposed by the Securities Act because such
shares of Knight/Trimark Common Stock are restricted securities under the
Securities Act). The Knight/Trimark Common Stock owned by the Company was
acquired July 8, 1998.
(ff) The Company is familiar with its obligations under NASD Rule 2720
and it is in compliance with Sections (f) and (g) thereof.
2. Purchase by the Underwriters; Delivery and Payment.
--------------------------------------------------
(a) On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase from the Company, the aggregate
principal amount of Firm Notes set forth opposite the name of such Underwriter
in Schedule I attached hereto at a purchase price equal to 96.5% of the
principal amount thereof, plus any additional amount of Firm Notes which each
underwriter may become obligated to purchase pursuant to Section 11.
(b) In addition, on the basis of the representations, warranties and
agreements contained herein, and subject to the terms and conditions set forth
herein, the Company hereby grants an option to the Underwriters to purchase,
severally and not jointly, any or all of the Option Notes at a price equal to
96.5% of the principal amount thereof plus accrued interest from the Closing
Date to the applicable Option Closing Date. Such option will expire at 5:00 p.m.
New York time 45 days after the date hereof, and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Firm Notes
upon notice by the Underwriters to the Company setting forth the aggregate
principal amount of Option Notes as to which the Underwriters are then
exercising the option and the time and date of delivery and payment therefor.
Any such time and date of delivery and payment (an "Option Closing Date") shall
be determined by the Underwriters, but shall not be later than five full
business days after the exercise of such option unless otherwise agreed by the
Company and the Underwriters.
(c) Delivery of, and payment for, the Firm Notes shall be made at
10:00 a.m., New York City time, on ___________, 1999, or at such other date or
time as shall be agreed by the Underwriters and the Company (such date and time
being referred to herein as the "Closing Date"). Delivery of, and payment for,
the Firm Notes and the Option Notes shall be made at the offices of Kelley Drye
& Warren LLP ("Underwriters' Counsel"), New York, New York, or any such other
place as shall be agreed by the Underwriters and the Company. On the Closing
Date, the Company shall deliver or cause to be delivered to the Underwriters
certificates for the Firm Notes against payment to or upon the order of the
Company of the purchase price by certified or official bank check or by wire or
book-entry transfer, in each case in immediately available funds. On each Option
Closing Date, the Company shall deliver or cause to be delivered to the
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<PAGE>
Underwriters certificates for the Option Notes purchased thereat against payment
to or upon the order of the Company of the purchase price by certified or
official bank check or by wire or book-entry transfer, in each case in
immediately available funds. Upon delivery, the Notes shall be in such
denominations and registered in such names as the Underwriters shall have
requested in writing not less than one full business day prior to the Closing
Date. The Company shall make the certificates for the Notes available for
inspection by the Underwriters in New York, New York, not later than one full
business day prior to the Closing Date.
(d) Notwithstanding any provision of this Section 2 to the contrary,
the proceeds of the offering will be held in escrow in accordance with NASD Rule
2720 until such time as the Company delivers to the Underwriters evidence of
compliance with Section (e) of such Rule.
3. Public Offering of the Notes. As soon after the Registration Statement
----------------------------
becomes effective as the Underwriters deem advisable, the Underwriters shall
make a public offering of the Notes (other than to residents of any jurisdiction
in which the qualification of the Notes is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Underwriters may from time to time increase or decrease the public offering
price after the distribution of the Notes has been completed to such extent as
the Underwriters in their sole discretion deem advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
---------------------------------------
agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Securities Act or
Exchange Act during any time that a prospectus relating to the Securities is
required to be delivered under the Securities Act of which the Underwriters and
Underwriters' Counsel shall not previously have been advised and furnished with
a copy, or to which the Underwriters or Underwriters' Counsel shall have
reasonably objected, or which is not in compliance with the Securities Act, the
Exchange Act, the Trust Indenture Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriters and if requested confirm in writing,
(i) when the Registration Statement, as amended, becomes effective and, if the
provisions of Rule 430A promulgated under the Securities Act will be relied
upon, when the Prospectus has been filed in accordance with said Rule 430A and
when any post-effective amendment to the Registration Statement becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding suspending the effectiveness
of the Registration Statement or the qualification of the Trustee or any order
preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of
proceedings for that purpose, (iii) of the issuance by the Commission or by any
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state securities commission of any proceedings for the suspension of the
qualification of any of the Notes for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose, (iv) of
the receipt of any comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order or suspension at the earliest possible
time.
(c) The Company shall file the Prospectus or transmit the Prospectus
by a means reasonably calculated to result in filing with the Commission
pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the
Underwriters, pursuant to Rule 424(b)(4)) on or before the date it is required
to be filed under the Securities Act and the Rules and Regulations.
(d) The Company will give the Underwriters notice of its intention to
file or prepare any amendment to the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Notes which differs from the corresponding
prospectus on file at the Commission at the time the Registration Statement
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish
the Underwriters with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such prospectus to which the Underwriters or Underwriters'
Counsel shall reasonably object.
(e) The Company will furnish to the Underwriters and Underwriters'
Counsel, without charge, one photocopy of the manually executed Registration
Statement (including exhibits thereto) and, so long as delivery of a prospectus
by an Underwriter or dealer may be required by the Securities Act, as many
copies of each Preliminary Prospectus and Prospectus and any supplement thereto
as the Underwriters may reasonably request.
(f) The Company shall endeavor in good faith, in cooperation with the
Underwriters at or prior to the time the Registration Statement becomes
effective, to qualify the Notes for offering and sale under the securities laws
of such jurisdictions as the Underwriters may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby but in any event not longer than
90 days from the date hereof, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation, subject itself to taxation or file a general consent to service of
process in any such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Underwriters agree that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction to continue such qualification for
so long as may be necessary to complete the distribution contemplated hereby but
in any event not longer than 90 days from the date hereof.
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<PAGE>
(g) During the time when a prospectus is required to be delivered
under the Securities Act, the Company shall comply with all requirements imposed
upon it by the Securities Act and the Exchange Act, as now and hereafter amended
and by the Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the Notes in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Notes is
required to be delivered under the Securities Act, any event shall have occurred
as a result of which, in the opinion of counsel for the Company or Underwriters'
Counsel, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will notify the Underwriters promptly and prepare
and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Securities Act, each such amendment or
supplement to be reasonably satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may reasonably
request.
(h) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its securityholders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Securities Act and Rule 158(a) of
the Rules and Regulations, which statement need not be audited unless required
by the Securities Act, covering a period of at least 12 consecutive months after
the effective date of the Registration Statement.
(i) For so long as the Company is a reporting company under either
Section 13 or 15(d) of the Exchange Act, the Company will deliver to the
Underwriters during the period ending at the earlier of the fifth anniversary of
the date hereof or the date no Notes remain outstanding:
(i) concurrently with furnishing such annual reports to its
securityholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
certified public accountants;
(ii) copies of the Quarterly Report on Form 10-Q and Annual
Report on Form 10-K;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders generally;
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<PAGE>
(iv) as soon as they are available, copies of all reports and
financial statements filed with the Commission, any state securities
commission, the NASD, the Nasdaq Stock Market ("Nasdaq"), the New York
Stock Exchange or any other securities exchange;
(v) every press release containing a material news item which
was released by or on behalf of the Company or any of the
Subsidiaries; and
(vi) any additional information of a public nature concerning
the Company or any of the Subsidiaries (and any future subsidiaries)
or their respective businesses which the Underwriters may reasonably
request.
The foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its Subsidiaries are consolidated, and will
be accompanied by similar financial statements for any Subsidiary which is not
so consolidated.
(j) For a period of four years after the Closing Date, the Company
shall timely file all such reports, forms or other documents as may be required
(including, but not limited to, such disclosure as may be required pursuant to
Rule 463 under the Securities Act) from time to time under the Securities Act,
the Exchange Act and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Securities Act, the Exchange Act and the Rules and
Regulations.
(k) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two full business days prior thereto, a
copy of the latest available unaudited interim consolidated statements of
operations and balance sheets of the Company and the Subsidiaries (which in no
event shall be as of a date more than 30 days prior to the date of the
Registration Statement) which have been read by the Company's independent public
accountants as stated in their letters to be furnished pursuant to Section 6(j)
hereof.
(l) Until the earlier of the completion of the distribution of the
Notes or 90 days from the date hereof, neither the Company nor any of the
Subsidiaries shall, without the prior written consent of the Underwriters and
Underwriters' Counsel (which consent shall not be unreasonably withheld), issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company, any of the Subsidiaries, their
respective activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(m) For a period of four years after the effective date of the
Registration Statement, the Company shall use reasonable efforts to provide to
the Underwriters, at the Underwriters' request and at the Company's sole
expense, with a report on Blue Sky qualifications relating to secondary sales of
the Company's securities prepared by counsel to the Company; provided, however
that the Underwriters shall not make any such request unless the
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<PAGE>
Notes are not listed on the Nasdaq Stock Market or a national securities
exchange at the time of such request.
(n) The Company shall use the proceeds from the sale of the Notes in
the manner described in the Prospectus under the caption "Use of Proceeds."
(o) The Company shall use its reasonable efforts to do and perform
all things required to be done and performed under this Agreement by it that are
within its control prior to or after the Closing Date and to use reasonable
efforts to satisfy all conditions precedent on its part to the delivery of the
Notes.
(p) The Company shall not, so long as the Notes are outstanding, be
or become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act, and the Company will
not be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder.
(q) In connection with the offering, until the Underwriters shall
have notified the Company of the completion of the resale of the Notes, to not,
and to use its reasonable best efforts to not permit any affiliated purchasers
(as defined in Regulation M under the Exchange Act), either alone or with one or
more other persons to, bid for or purchase, for any account in which it or any
of its affiliated purchasers has a beneficial interest, any Notes or
Knight/Trimark Common Stock, or attempt to induce any person to purchase any
Notes or Knight/Trimark Common Stock; and to not, and to use its reasonable best
efforts to not permit any of its affiliated purchasers to, make bids or
purchases for the purpose of creating actual, or apparent, active trading in or
of raising the price of the Notes.
(r) The Company shall not take any action prior to the execution and
delivery of the Indenture which, if taken after such execution and delivery,
would have violated any of the covenants contained in the Indenture.
(s) The Company will comply with the provisions of NASD Rule 2720 for
so long as the Notes are outstanding.
5. Payment of Expenses.
-------------------
(a) The Company will pay all expenses incident to the performance of
the obligations of the Company under this Agreement and the Indenture,
including, without limitation: (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of each Preliminary Prospectus and the Prospectus and any amendments
and supplements thereto, in quantities as hereinabove stated, (iii) the printing
and filing of the Registration Statement and each amendment thereto and any
registration under the Securities Act; (iv) the printing, engraving, issuance
and delivery of the Notes, (v) the qualification of the Notes under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum" and, the "Supplemental Blue Sky
Memorandum," and
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reasonable disbursements and fees of counsel for the Underwriters in connection
therewith, (vi) costs and expenses of travel, food and lodging of Company
personnel in connection with the "road show," information meetings and
presentations, (vii) fees and expenses of the transfer agent and registrar,
(viii) fees and expenses of the Trustee, including the Trustee's counsel, in
connection with the Indenture and the Notes, (ix) fees incurred in connection
with the rating, if any, of the Notes, (x) any transfer tax, stamp duty or
similar tax payable by the Underwriters in connection with the purchase by the
Underwriters of the Notes, (xi) the fees payable to the NASD incurred in
connection with its review of the Underwriting terms of the offering of the
Securities, (xii) all costs of placing tombstone advertisements in The New York
Times, The Wall Street Journal and the Investment Dealers Digest and (xiii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not specifically otherwise provided for in this Section.
(b) If this Agreement is terminated for any reason other than as a
result of a breach of this Agreement by the Underwriters, the Company shall
reimburse and indemnify the Underwriters for then reasonable actual accountable
out-of-pocket expenses, including the reasonable fees and expenses of
Underwriters' Counsel. In addition, the Company shall remain liable for all Blue
Sky counsel fees and expenses and Blue Sky filing fees as described above.
6. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; and the performance by the Company on and as of the Closing Date and each
Option Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement (including the Statement of
Eligibility and Qualification of the Trustee on Form T-1 (the "Form T-1"), shall
have become effective not later than 5:30 p.m. New York time on the date hereof
or at such later time and date as may have been approved by the Underwriters and
no stop order suspending the effectiveness of the Registration Statement
(including the Form T-1) shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company or the Underwriters, threatened by the Commission, and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriters' Counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the Company that the
Registration Statement, or any supplement or amendment thereto, contains an
untrue statement of fact which, in the Underwriters' reasonable opinion, is
material or omits to state a fact which,
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in the Underwriters' reasonable opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus or any supplement thereto, contains an untrue statement of
fact which, in the Underwriters' reasonable opinion, is material or omits to
state a fact which, in the Underwriters' reasonable opinion is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. No order
suspending the sale of the Securities in any jurisdiction shall have been issued
on either the Closing Date or the relevant Option Closing Date, if any, and no
proceedings for that purpose shall have been instituted or shall, to the
knowledge of the Underwriters, be threatened.
(c) On or prior to the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from Underwriters' Counsel such
opinion or opinions with respect to the organization of the Company, the
validity of the Notes, the Underlying Stock, the Registration Statement and
other related matters as the Underwriters may request and Underwriters' Counsel
shall have received such papers and information as they request to enable it to
pass upon such matters.
(d) On the Closing Date, the Underwriters shall have received the
opinion of Gardere & Wynne, L.L.P., counsel to the Company, dated the Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
the Underwriters and Underwriters' Counsel to the effect that:
(i) (A) the Company and each of the Significant Subsidiaries
has been duly incorporated and is validly existing as a corporation in
corporate and tax good standing under the laws of its jurisdiction of
incorporation, (B) the Company and each of the Significant
Subsidiaries is duly qualified to do business and in good standing as
a foreign corporation in the states designated on Annex I and (C) the
Company and each of the Significant Subsidiaries has all requisite
corporate power and authority and authority and all necessary
governmental authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
regulatory officials and bodies (except where the failure to so have
any such authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would not
have a Material Adverse Effect) to own their respective properties and
to conduct their respective businesses as now being conducted as
described in the Prospectus, if so described;
(ii) the Company's authorized capital stock as of March 26, 1999
is as set forth under the heading "Capitalization" in the Prospectus;
(iii) the Company owns of record, directly or indirectly, all the
outstanding shares of capital stock of each of the Subsidiaries free
and clear of any liens, charges, claims, pledges, security interests,
defects or other encumbrances;
(iv) except for the Indenture and this Agreement and as
disclosed in the Registration Statement, to such counsel's knowledge,
neither the Company nor any of the Subsidiaries are party to or bound
by any instrument, agreement or
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other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities of the Company or any of its
Subsidiaries or the Knight/Trimark Common Stock owned by the Company.
(v) all outstanding shares of capital stock of the Company are
authorized, validly issued, fully-paid and non-assessable; to such
counsel's knowledge, none of such securities were issued in violation
of any preemptive rights of stockholders of the Company or similar
contractual rights granted by the Company or applicable securities
laws, and were not issued and sold other than in compliance with
applicable federal securities laws; the holders of outstanding
securities of the Company are not entitled to any pre-emptive rights
with respect to the Notes or the Knight/Trimark Common Stock pursuant
to the Company's Certificate of Incorporation or By-laws, as amended,
or any other instrument known to such counsel; all of the outstanding
shares of capital stock of each of the Subsidiaries are authorized
and, assuming receipt by each such Subsidiary of full payment
therefor, were validly issued, and such counsel has no knowledge that
such shares are not fully paid and nonassessable;
(vi) the Company's issuance of the Notes, and performance of
its obligations thereunder, have been duly authorized by the Company;
when executed by the Company and authenticated by the Trustee in
accordance with the Indenture and delivered to the Underwriters
against payment of the agreed consideration therefor in accordance
with the terms of this Agreement, the Notes will be validly issued;
the Notes and the Indenture conform in all material respects to the
description thereof in the Registration Statement and the Prospectus;
(vii) the form of the Notes is in the form required by the
Indenture; when executed by the Company and authenticated by the
Trustee in accordance with the Indenture and delivered to the
Underwriters against payment of the agreed consideration therefor in
accordance with the terms of this Agreement, the Notes will be duly
authorized and binding obligations of the Company enforceable against
the Company in accordance with their terms; upon issuance and delivery
of the certificates representing the Notes to the Underwriters
pursuant to this Agreement and the Indenture, assuming that the
Underwriters take delivery of said certificates representing the Notes
in good faith and without notice of any adverse claim (within the
meaning of the Uniform Commercial Code as in effect in the State of
New York), the Underwriters will acquire good title thereto free and
clear of any adverse claim (within the meaning of the Uniform
Commercial Code as in effect in the State of New York);
(viii) the Registration Statement (including the Form T-1
attached as an Exhibit thereto) has become effective under the
Securities Act; a Prospectus containing the information permitted to
be omitted under Rule 430A has been filed in accordance with Rule
424(b); to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or the qualification of
19
<PAGE>
the Trustee is in effect or proceedings for that purpose are pending
before or contemplated by the Commission;
(ix) the Registration Statement and the Prospectus (except for
the financial statements and the notes thereto and the schedules and
other financial and statistical data included therein or omitted
therefrom and the Form T-1, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements of
the Securities Act, the Trust Indenture Act, and the rules and
regulations under the Securities Act and the Trust Indenture Act; the
documents incorporated by reference into the Registration Statement
(except for the financial statements and the notes thereto and the
schedules and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all
material respects with the Exchange Act and the rules and regulations
of the Commission thereunder;
(x) the Indenture has been qualified under the Trust Indenture
Act;
(xi) the statements in the Registration Statement and
Prospectus, insofar as they refer to statements of law or legal
conclusions, and the statements in the Registration Statement and
Prospectus, insofar as they are descriptions of this Agreement, the
Indenture and the Notes, are accurate in all material respects in the
context in which they were given and present fairly the subject matter
thereof; to such counsel's knowledge, the statements in the
Registration Statement and Prospectus, insofar as they are
descriptions of other agreements or other legal documents to which the
Company or any of its Subsidiaries is a party or by which any of them
or their respective properties are bound, are accurate in all material
respects and present fairly the subject matter thereof; to such
counsel's knowledge, there is no action, arbitration, suit or other
proceeding against the Company or any of its Subsidiaries, or
involving the properties or business of the Company or any of its
Subsidiaries, which (i) questions the validity of the capital stock of
the Company or any of the Subsidiaries or of this Agreement, the
Indenture or of any action taken or to be taken by the Company or any
of its Subsidiaries in connection with any of the foregoing or (ii)
except as disclosed in the Registration Statement, could have a
Material Adverse Effect.
(xii) the Company has all requisite corporate power and
authority to execute, deliver, and perform its obligations under this
Agreement and the Indenture and to consummate the transactions
contemplated herein and therein; the Company has duly authorized the
execution and delivery of, and performance by the Company of its
obligations under, this Agreement and the Indenture; the Company has
duly executed and delivered this Agreement and the Indenture;
(xiii) this Agreement and the Indenture each constitute a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms; the execution and delivery by
the Company of, and the performance of its obligations under, this
Agreement, the Indenture and the Notes
20
<PAGE>
do not result in any breach or violation of any applicable statute,
rule or regulation;
(xiv) the execution and delivery by the Company of this
Agreement, the Indenture and the Notes the performance by the Company
hereunder and thereunder the compliance by the Company with the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby do not and will not conflict with or
result in any breach or violation of, constitute a default under, or
result in the creation or imposition of any lien, charge, claim,
pledge, security interest or other encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms
of (A) the certificate or articles of incorporation or by-laws of the
Company or any of the Subsidiaries to (B) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or other
agreement or instrument listed as an exhibit to any of the
Incorporated Documents or (C) any statute, rule or regulation or, to
the best of such counsel's knowledge, any judgment, decree or order
applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body having jurisdiction over the Company or
any of its Subsidiaries or any of their respective activities or
properties. Such counsel need express no opinion in this paragraph
(xiv) as to state securities or blue sky laws or with respect to
matters of fact relating to compliance with any financial covenants,
ratios or tests or any aspect of the financial condition or results of
operations of the Company;
(xv) neither the Company nor any of the Subsidiaries is in
violation of its respective certificate or articles of incorporation
or by-laws; to such counsel's knowledge, neither the Company nor any
of the Subsidiaries is in breach of, or in default with respect to,
any provisions of any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or other agreement or instrument of which such
counsel has knowledge to which the Company or any of the Subsidiaries
is a party or by which any of them is or may be bound or to which any
of their respective properties or assets is or may be subject, except
for such breaches or defaults which in the aggregate would not have a
Material Adverse Effect; and to such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in violation of any law, rule
or regulation applicable to it or any judgment, decree or order of any
judicial or governmental authority of which such counsel has knowledge
by which the Company or any of the Subsidiaries may be bound or to
which any of their respective properties or assets is or may be
subject, except for such violations which in the aggregate would not
have a Material Adverse Effect;
(xvi) neither the issuance of the Notes nor the performance by
the Company of this Agreement, the Indenture and the Notes and the
transactions contemplated hereby and thereby requires any consent,
approval, authorization or other order of or registration or filing
with, any court, regulatory body or government agency or body, other
than such as already has been made or obtained
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<PAGE>
and such as may be required under state securities or Blue Sky laws or
the rules of the NASD;
(xvii) the statements in the Prospectus under the captions
"Business-Legal Proceedings," and "Certain United States Federal
Income Tax Considerations" insofar as such statements constitute
matters of law, summaries of legal matters, documents or proceedings
referred to therein, or legal conclusions, have been reviewed by such
firm and are correct in all material respects;
(xviii) the statements set forth in the Prospectus under the
caption "Description of the DARTS" accurately summarize in all
material respects the terms of the Notes and the Indenture;
(xix) neither the execution and delivery by the Company of, nor
the performance of its obligations under, this Agreement and the
Indenture, nor the sale, issuance, execution or delivery by the
Company of the Notes will violate Regulations G, T, U or X of the
Federal Reserve Board; and
(xx) the Company is not an "investment company," a company
controlled by, under common control with, or controlling an
"investment company" or a "promoter" or "principal underwriter" for,
an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely: (A) as to matters involving
the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (B) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the Subsidiaries, provided, that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Underwriters and they are justified in relying
thereon. At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Gardere & Wynne, L.L.P., dated such Option
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to the Underwriters and Underwriters' Counsel confirming as of such
Option Closing Date the statements made by such counsel in their opinion
delivered on the Closing Date.
(e) Gardere & Wynne, L.L.P. shall state in the opinion letters
contemplated by Section 6(d) that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company and the Subsidiaries and the
Underwriters, at which conferences the contents of the
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<PAGE>
Registration Statement and related matters were discussed, and, although such
counsel is not passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, on the basis of the foregoing, no facts have come to the
attention of such counsel which has lead them to believe that the Registration
Statement as of its effective date 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, except that such
counsel need express no opinion or belief with respect to the financial
statements and related notes and other financial, statistical or accounting data
included in the Registration Statement or excluded therefrom.
(f) On or prior to the Closing Date and each Option Closing Date, if
any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require and have requested
reasonably in advance for the purpose of enabling them to review or pass upon
the matters referred to in Section 6(c) or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(g) On and as of the Closing Date and each Option Closing Date, if
any: (i) there shall have been no material adverse change and no development
involving a prospective material adverse change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company and the Subsidiaries taken as a whole, whether or not in the ordinary
course of business, from the latest dates as of which such condition is set
forth in the Registration Statement and Prospectus or Knight/Trimark Group,
Inc.; (ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company or any of the Subsidiaries, from the
latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company and the Subsidiaries taken as a whole; (iii)
neither the Company nor any of the Subsidiaries shall be in default under any
provision of any instrument relating to any material outstanding indebtedness;
(iv) no material amount of the assets of the Company or any of the Subsidiaries
shall have been pledged or mortgaged, except as set forth in the Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or,
threatened (or circumstances which could reasonably be expected to give rise to
same shall have arisen) against the Company or any of the Subsidiaries, or
affecting any of their respective properties or businesses, before or by any
court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may have a Material
Adverse Effect, except as set forth in the Prospectus; and (vi) no stop order
shall have been issued under the Securities Act and no proceedings therefor
shall have been initiated or threatened by the Commission or any state
regulatory authority.
(h) On the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
president or chairman and by the chief financial or chief accounting officer of
the Company, in their capacities as such, dated the Closing Date or such Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus, this Agreement
and the Indenture and that:
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(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made on and
as of the Closing Date or such Option Closing Date, as the case may be, and
the Company has complied in all material respects with all agreements and
covenants and satisfied all conditions contained in this Agreement and the
Indenture on its part to be performed or satisfied at or prior to the
Closing Date or such Option Closing Date, as the case may be;
(ii) no stop order suspending the effectiveness of the Registration
Statement or any part thereof or the qualification of the Trustee is in
effect and no proceedings for that purpose are pending or, to such
officer's knowledge, threatened;
(iii) since the date of the most recent financial statements included
in the Prospectus, there has been no material adverse change in the
condition, financial or otherwise business, prospects or results of
operation of the Company and the Subsidiaries, taken as a whole, except as
set forth in the Prospectus;
(iv) the Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement or any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and none of the Prospectus or any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(v) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus: (a) neither the
Company nor any of the Subsidiaries has incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other than in
the ordinary course of its business, any material liabilities or
obligations, direct or contingent, except as disclosed in the Prospectus;
(b) neither the Company nor any of the Subsidiaries has paid or declared
any dividends or other distributions, other than regular cash dividends, on
its capital stock except as disclosed in the Prospectus; (c) neither the
Company nor any of the Subsidiaries has entered into any material
transactions not in the ordinary course of business, except as disclosed in
the Prospectus; (d) there has not been any material change in the capital
stock of the Company from the description thereof in the Registration
Statement; (e) neither the Company nor any of the Subsidiaries has
sustained any material loss or damage to its property or assets, whether or
not insured; and (f) there is no litigation which is pending or to the best
of the Company's knowledge threatened against the Company, any of the
Subsidiaries or any affiliated party of any of the foregoing which would
have a Material Adverse Effect and which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth.
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(i) On or prior to the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate signed by the
secretary of the Company, in his capacity as such, dated the Closing Date
or such Option Closing Date, as the case may be, as to:
(i) the absence of any contemplated proceeding for the merger,
consolidation, liquidation or dissolution of the Company or any
Subsidiary, as the case may be, or the sale of all or substantially
all of its assets;
(ii) the due adoption and full force and effect of the By-laws
of the Company (with a copy of the By-laws attached);
(iii) resolutions adopted by the Board of Directors of the
Company and/or a committee thereof authorizing the offering of the
Notes and the consummation of the transactions contemplated by this
Agreement and the Indenture (with copies of such resolutions
attached); and
(iv) the incumbency, authorization and signatures of certain
officers and directors of the Company, including all those signing
this Agreement, the Indenture and/or any certificate delivered at such
closing.
(j) By no later than 5:00 p.m. New York City time on the date hereof
the Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory in all respects (including the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriters and Underwriters' Counsel, relating to the
Company's fiscal year ended June 26, 1998 and subsequent thereto, from KPMG Peat
Marwick LLP:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the
Securities Act and the Exchange Act and the applicable Rules and
Regulations;
(ii) stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company included
in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Securities
Act;
(iii) stating that, on the basis of procedures which included a
reading of the latest available interim consolidated financial
statements of the Company (with an indication of the date of the
latest available unaudited consolidated financial statements of the
Company), a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the
board of directors of each of the Company and the Subsidiaries,
consultations with officers and other employees of each of the Company
and the Subsidiaries responsible for financial and accounting matters
and other procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial information,
nothing has come to their attention which would lead them to believe
that:
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(A) the unaudited consolidated financial statements of the
Company included in the Registration Statement are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
consolidated financial statements contained in the Registration
Statement;
(B) at the date of the latest available balance sheet read
by KPMG Peat Marwick LLP, and at a subsequent date not more than
five business days prior to the date of delivery of such letter,
there has been any increase in consolidated short-term
indebtedness or long-term indebtedness of the Company and the
Subsidiaries, or any decrease in the stockholders' equity or net
current assets or net assets of the Company, as compared with
amounts shown in the latest balance sheet included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease; or
(C) the period from the date of the latest income statement
included in the Registration Statement to the date of the latest
available income statement read by Ernst & Young LLP, and at a
subsequent date not more than five business days prior to the
date of delivery of such letter, there was any decrease in
consolidated net revenues or net income, or net income per common
share of the Company, in each case as compared with the
corresponding period of the previous year, other than as set
forth in or contemplated by the Registration Statement, or, if
there was any such decrease, setting forth the amount of such
decrease.
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and/or other financial information pertaining to the Company and the
Subsidiaries contained in the Registration Statement (in each case to
the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records,
including work sheets, of the Company and the Subsidiaries and
excluding any questions requiring an interpretation by legal counsel),
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures set forth in the letter and
found them to be in agreement with such results; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from KPMG Peat Marwick LLP a letter, dated as
of the Closing Date or such Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Section 6(j), except that the specified date referred to shall be a date not
more than five days prior to the Closing Date or such Option Closing Date, as
the case may be, and, if the Company has elected to rely on Rule 430A of the
26
<PAGE>
Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (iv) of Section 6(j) with respect to certain
amounts, percentages and financial information as specified by the Underwriters
and deemed to be a part of the Registration Statement pursuant to Rule 430A(b)
and have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iv).
(l) The Company shall have delivered to the Underwriters a letter
from KPMG Peat Marwick LLP addressed to the Company stating that they have not
with respect to the Company's fiscal year ended June 26, 1998 brought to the
attention of any of the Company's or the Subsidiaries management any `weakness'
as defined in Statement of Auditing Standard No. 60 "Communication of Internal
Control Structure Related Matters Noted in an Audit" in any of Company's or the
Subsidiaries' internal controls.
(m) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Underwriters the appropriate
principal amount of Notes.
(n) Trading in the Company's common stock shall not have been
suspended by the New York Stock Exchange at any time after May __, 1999, and
trading in the Knight/Trimark Common Stock shall not have been suspended by the
Nasdaq Stock Market at any time after May __, 1999.
(o) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
over-the-counter market shall have been suspended or limited, or minimum prices
shall have been established on either of such exchanges or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, or trading in securities of the Company or
Knight/Trimark Group, Inc. on any exchange or in the over-the-counter market
shall have been suspended or (ii) any moratorium on commercial banking
activities shall have been declared by Federal or New York State authorities or
(iii) an outbreak or escalation of hostilities or a declaration by the United
States of a national emergency or war or such a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States shall be
such) as to make it, in the judgment of the Underwriters, impracticable or
inadvisable to proceed with the offering or the delivery of the Notes on the
terms and in the manner contemplated in the Registration Statement.
(p) The Indenture shall have been duly executed and delivered by the
Company and the Trustee and the Notes shall have been duly executed and
delivered by the Company and duly authenticated by the Trustee.
(q) On or prior to the date hereof, the Underwriters shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to the Underwriters.
27
<PAGE>
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriters may terminate this
Agreement or, if the Underwriters so elect, they may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7, "Underwriters" shall include the
officers, directors, partners, employees and agents of each of the Underwriters,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11), and each person, if any, who controls an Underwriter
("controlling person") within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions, proceedings,
suits and litigation in respect thereof), whatsoever (including but not limited
to any and all reasonable expenses whatsoever incurred in investigating,
preparing or defending against any action, suit, proceeding or litigation,
commenced or threatened, or claim whatsoever), as the same are incurred, to
which any of the Underwriters or any such controlling person may become subject,
under the Securities Act, the Exchange Act or any other statute or at common law
or otherwise insofar as such losses, claims, damages, expenses or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in (i) any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented) (ii)
any post-effective amendment or amendments or any new registration statement and
prospectus in which are included securities of the Company for use in the same
offering or (iii) any blue sky application or other document executed by the
Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application), or arise out of or are based upon the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), provided, however, that
the Company shall not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, expense or liability arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
("Underwriters Information") specifically for inclusion therein and provided,
further, that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any Preliminary Prospectus or the Prospectus, the
indemnification provided for herein shall not apply to any loss, liability,
claim, damage or expense to the extent the same results from the sale of Notes
to a person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus, or in the case of an untrue
statement or omission or alleged untrue statement or omission in the Prospectus,
a copy of the amended Prospectus or supplement thereto, if the Company has
previously furnished sufficient copies thereof, based upon the number of copies
requested by the Underwriters, to the Underwriters a reasonable time in advance
and the claim, damage or expense of such person results from an untrue statement
or alleged untrue statement or omission or alleged omission of a material fact
contained in a Preliminary Prospectus or Prospectus that was corrected in the
Prospectus or
28
<PAGE>
amendment or supplement thereto. The indemnity agreement in this Section 7(a)
shall be in addition to any liability which the Company may have at common law
or otherwise.
(b) The Underwriters agree severally and not jointly to indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, to the same extent as the foregoing indemnity from the
Company to the Underwriters, but only with respect to statements or omissions
made in conformity with the Underwriters Information in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under Section 7 (a) or (b) unless and to the extent
that it has been prejudiced in a material respect by such failure or from the
forfeiture of substantial rights and defenses). In case any such action, suit or
proceeding is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party,
which may be the same counsel as counsel to the indemnifying party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to take charge of the defense of such action within a reasonable time
after notice of commencement of the action or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of such
indemnified party or parties), in any of which events such fees and expenses of
one additional counsel reasonably satisfactory o the indemnifying parties shall
be borne by the indemnifying parties. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is
29
<PAGE>
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Section 7 provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions, suits, proceedings
or litigation in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand, from the
offering of the Securities or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Notes (before deducting expenses)
bear to the total discounts received by the Underwriters hereunder, in each case
as set forth in the table on the cover page of the Prospectus. Relative fault
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 or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions, suits, proceedings
or litigation in respect thereof) referred to above in this Section 7(d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, preparing or defending any
such action, claim, suit, proceeding or litigation. Notwithstanding the
provisions of this Section 7(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discount applicable to the Notes
purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signed the Registration Statement and each director
of the Company shall have the same rights to contribution as the Company,
subject in each case to this Section 7(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit,
proceeding or litigation against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of
30
<PAGE>
the Company submitted pursuant hereto shall be deemed to be representations,
warranties and agreements at the Closing Date and each Option Closing Date, as
the case may be, and the agreements of the Company and the provisions with
respect to the payment of expenses contained in Sections 5 and 10 and the
respective indemnity agreements contained in Section 7 shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any of the Subsidiaries or any
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
--------------
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Underwriters, in their discretion, shall release the Notes for the sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Notes to be purchased hereunder shall be deemed to have been so released upon
the earlier of dispatch by the Underwriters of telegrams to securities dealers
releasing the Notes for offering or the release by the Underwriters for
publication of the first newspaper advertisement which is subsequently published
relating to the Notes.
10. Termination.
-----------
(a) Subject to Section 10(b), the Underwriters shall have the right
to terminate this Agreement (i) if trading on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock Market or in the over-the-counter
market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required in the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; (ii) if the
United States shall have become involved in a war or major hostilities, or there
shall have been an escalation in an existing war or major hostilities, or a
national emergency shall have been declared in the United States; (iii) if a
moratorium in foreign exchange trading has been declared; (iv) if the Company or
any of the Subsidiaries shall have sustained a loss material or substantial to
the Company or any of the Subsidiaries by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Underwriters' opinion, make
it inadvisable to proceed with the delivery of the Notes; (v) if there shall
have been such a material adverse change in the conditions or prospects of the
Company or any of the Subsidiaries as in the Underwriters' judgment would make
it inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (vi) if there shall have been such a material adverse change in
the general market, political or economic conditions in the United States or
elsewhere, as in the Underwriters' judgment would make it inadvisable to proceed
with the offering, sale and/or delivery of the Notes.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 10(a) or Section 12 or if this Agreement shall
not be carried out within the time specified herein, or any extension thereof
granted to the Underwriters, by reason of any failure on the part of the Company
to perform any undertaking or satisfy any condition of this Agreement by it to
be performed or satisfied (including, without limitation, pursuant to Section 6,
Section 10(a) or Section 12), then the Company shall promptly reimburse and
indemnify the
31
<PAGE>
Underwriters for all of their reasonable out-of-pocket expenses, including the
fees and disbursements of Underwriters' Counsel. In addition, the Company shall
remain liable for all Blue Sky counsel fees and expenses and Blue Sky filing
fees. Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 and Section 7
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
--------------------------------
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12) to
purchase the Securities which it or they are obligated to purchase on such date
under this Agreement (the "Defaulted Securities"), the Underwriters shall have
the right, within 48 hours thereafter, to make arrangement for one or more of
the non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Underwriters shall
not have completed such arrangements within such 48 hour period, then:
(i) if the principal amount of Defaulted Securities does not
exceed 10% of the aggregate principal amount of Firm Notes to be
purchased on such date, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters; or
(ii) if the principal amount of Defaulted Securities exceeds 10%
of the aggregate principal amount of Firm Notes, this Agreement shall
terminate without liability on the part of any non-defaulting
Underwriters.
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to postpone
the Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
----------------------
or any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may, at their option, by notice from the Underwriters to the Company, terminate
the Underwriters' obligation to purchase Option Notes from the Company on such
date) without any liability on the part of any non-defaulting party other than
pursuant to Sections 5, 7 and 10. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
32
<PAGE>
13. Notices. All notices and communications hereunder, except as herein
-------
otherwise specifically provided, shall be given in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to them at
Forum Capital Markets LLC, 53 Forest Avenue, Old Greenwich, Connecticut 06870,
Attention: Mr. C. Keith Hartley, with a copy to Kelley Drye & Warren LLP, Two
Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, Attention:
Jay R. Schifferli, Esq. Notices to the Company shall be directed to the Company
at Southwest Securities Group, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas
75370 Attention: General Counsel, with a copy to Gardere & Wynne, L.L.P., 1601
Elm Street, Suite 3000, Dallas, Texas 75201, Attention: David G. McLane, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
-------
shall be binding upon the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Notes from the Underwriters shall be deemed to be a successor by
reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
------------
enforced in accordance with the laws of the state of New York without giving
effect to choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement constitutes the entire
----------------------------
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by the
Underwriters and the Company.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
SOUTHWEST SECURITIES GROUP, INC.
By:______________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
33
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC.
FORUM CAPITAL MARKETS LLC
By: FORUM CAPITAL MARKETS LLC
By:_________________
Name:
Title:
34
<PAGE>
SCHEDULE I
----------
Principal amount of
Name of Underwriter Notes to be Purchased
- ------------------- ---------------------
Raymond James & Associates, Inc.............................. $
Forum Capital Markets LLC.................................... $______
Total.......................................... $
=======
35
<PAGE>
ANNEX I
Jurisdictions in
which Qualified
Name State of to
- ---- --------
Incorporation Conduct Business
------------- ----------------
_________________
* Denotes significant Subsidiary.
36
<PAGE>
EXHIBIT 4.1
SOUTHWEST SECURITIES GROUP, INC.,
Company
and
NORWEST BANK, MINNESOTA, NATIONAL ASSOCIATION,
Trustee
Indenture
Dated as of ____ __, 1999
$150,000,000
__% Exchangeable Subordinated Notes Due 2004
<PAGE>
Cross Reference Table
---------------------
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
<S> <C>
310(a)(1).................................................................... 6.10
(a)(2)....................................................................... 6.10
(a)(3)....................................................................... Not Applicable
(a)(4)....................................................................... Not Applicable
(a)(5)....................................................................... 6.10
(b).......................................................................... 6.8, 6.10
311(a)....................................................................... 6.11
(b).......................................................................... 6.11
312(a)....................................................................... 2.5
(b).......................................................................... 11.9
(c).......................................................................... 11.9
313(a)....................................................................... 6.6
(b).......................................................................... 6.6
(c).......................................................................... 6.6
(d).......................................................................... 6.6, 12.2
314(a)....................................................................... 3.4, 3.7, 12.2
(b).......................................................................... Not Applicable
(c)(1)....................................................................... 12.3, 12.4
(c)(2)....................................................................... 12.3,12.4
(c)(3)....................................................................... Not Applicable
(d).......................................................................... Not Applicable
(e).......................................................................... 12.4
(f).......................................................................... Not Applicable
315(a)....................................................................... 6.1(b)
(b).......................................................................... 6.5, 12.2
(c).......................................................................... 6.1(a)
(d).......................................................................... 6.1(c)
(e).......................................................................... 5.11
316(a)....................................................................... 2.10
(a)(1)(A).................................................................... 5.5
(a)(1)(B).................................................................... 5.4
(a)(2)....................................................................... Not Applicable
(b).......................................................................... 5.7
(c).......................................................................... 8.4, 11.1
317(a)(1).................................................................... 5.8
(a)(2)....................................................................... 5.9
(b).......................................................................... 2.4
318(a)....................................................................... 12.1
</TABLE>
___________________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
INDENTURE dated as of May __, 1999 between Southwest Securities Group,
Inc., a Delaware corporation, and Norwest Bank, Minnesota, National Association,
as trustee.
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the registered holders of the Company's __%
Exchangeable Subordinated Notes due ________1, 2004 (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions.
-----------
"Affiliate" of a Person means (i) any other Person which, directly or
---------
indirectly, is in control of, is controlled by or is under common control with
such specified Person. For the purpose of this definition, "control" of a
Person means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person, whether by ownership of voting
securities, by contract or otherwise, and "controlling" or "controlled" have
----------- ----------
corresponding meanings.
"Agent" means any Registrar or Paying Agent.
-----
"Board of Directors" means the Board of Directors of the Company or any
------------------
duly authorized committee thereof.
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which banking institutions in the City of New York, New York or Dallas, Texas
are required or authorized by law or other governmental action to be closed.
"Closing Price" means, when used with respect to any security as of any
-------------
date, the last sale price, regular way, or, in case no such sale takes place on
such date, the average of the closing bid and asked prices, regular way, of such
security in either case as reported for consolidated transactions on the New
York Stock Exchange or, if such security is not listed or admitted to trading on
the New York Stock Exchange, as reported for consolidated transactions with
respect to securities listed on the principal national securities exchange on
which such security is listed or admitted to trading or, if such security is not
listed or admitted to trading on any national securities exchange, as reported
on the Nasdaq National Market, or, if such security is not listed or admitted to
trading on the Nasdaq National Market, as reported on the Nasdaq SmallCap
Market, or if such security is not listed or admitted to trading on any national
securities exchange or the Nasdaq National Market or the Nasdaq SmallCap Market,
the average of the high bid and low asked prices of such security in the over-
the-counter market as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other system then in use or,
if such security is not quoted by any such organization, the average of the
closing bid and asked prices of such security furnished by a New York Stock
Exchange member firm selected by the Company. If such security is not quoted by
any such organization and no such New York Stock Exchange member firm is able to
provide such prices, the Closing Price of such security shall be the Fair Market
Value thereof.
<PAGE>
"Common Stock" means, subject to adjustment as described in Section 9.3(a),
------------
the Class A common stock, par value $0.01 per share, of Knight/Trimark and any
shares of capital stock of Knight/Trimark received upon reclassification or
reclassifications thereof; provided that if at any time there shall be more than
one such resulting class, the shares of each such class issuable upon exchange
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications. For
purposes of all Sections of this Indenture other than Article 9, "Common Stock"
also includes any Spin-Off Securities and Property received as a result of a
Reorganization Event.
"Company" means Southwest Securities Group, Inc., a Delaware corporation,
-------
until a successor replaces it in accordance with the applicable provisions of
this Indenture and, thereafter, "Company" shall mean such successor.
-------
"Corporate Trust Office" of the Trustee means the principal office at which
----------------------
the Trustee conducts its corporate business, initially at ____________________,
New York, New York _____.
"Default" means any event which is, or with the passage of time or the
-------
giving of notice or both would be, an Event of Default.
"Depositary" means, with respect to the Notes issued in global form, the
----------
Trustee and any successor entity thereto or such other Person as appointed by
the Company from time to time in accordance with the provisions of this
Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"Fair Market Value" means, at any date as to any asset, Property or right
-----------------
(including, without limitation, Capital Stock of any Person, evidences of
indebtedness or other securities, but excluding cash), the fair market value of
such item as determined in good faith by the Board of Directors, whose
determination shall be conclusive; provided, however, that such determination is
described in an Officers' Certificate filed with the Trustee and that, if there
is a Closing Price for such item on such date, "Fair Market Value" means such
-----------------
Closing Price (without giving effect to the last sentence of the definition
thereof).
"GAAP" means, as of any date, generally accepted accounting principles in
----
the United States and does not include any interpretations or regulations that
have been proposed but that have not become effective.
"Global Security" means a Note that evidences all or part of the Notes and
---------------
bears the legend set forth in Section 2.7.
"Holder" means a Person in whose name a Note is registered on the Register.
------
2
<PAGE>
"Indenture" means this Indenture, as amended or supplemented from time to
---------
time.
"Interest Payment Date" means _______ 1, ______ 1, _________ 1 and _____1
---------------------
of each year, commencing _________ 1, 1999.
"Initial Price" means $___.
-------------
"Knight/Trimark" means, subject to Section 9.3(a)(v), Knight/Trimark Group,
--------------
Inc., a Delaware corporation.
"Knight/Trimark Successor" has the meaning specified in Section 9.3.
------------------------
"Maturity" when used with respect to any Note, means the date on which the
--------
principal of such Note or an installment of principal becomes due and payable as
therein or herein provided, whether at the stated maturity, by declaration of
acceleration or otherwise.
"Maturity Price" means the average of Closing Price per share of Common
--------------
Stock for the 20 Trading Days ending on the Business Day prior to Maturity.
"Officer" means, with respect to any Person, the Chairman of the Board, the
-------
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary, any Assistant Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
---------------------
by two Officers, one of whom must be the Chairman of the Board, the President,
the Treasurer or a Vice-President of the Company, that meets the requirements of
Sections 12.3 and 12.4; provided, however, that for purposes of Section 3.7,
"Officers' Certificate" means a certificate signed on behalf of the Company by
the principal executive officer, principal financial officer or principal
accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee and that meets the requirements of Sections
12.3 and 12.4. The counsel may be an employee of or counsel to the Company or
to the Trustee.
"Person" means any individual, corporation, partnership, association, trust
------
or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
"Principal" of a debt security means the principal of the security plus the
---------
premium, if any, on the security. With respect to the Notes, Principal means
the value the Company is obligated to deliver at Maturity, whether in Common
Stock or cash.
3
<PAGE>
"Property" of any Person means any and all types of real, personal,
--------
tangible, intangible or mixed property owned by such Person whether or not
included on the most recent consolidated balance sheet of such Person in
accordance with GAAP.
"Representative" means the indenture trustee or other trustee, agent or
--------------
representative for an issue of Senior Indebtedness.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Senior Indebtedness" means the principal of (and premium, if any) and
-------------------
accrued interest on (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) (a)
indebtedness of the Company (including indebtedness of other Persons guaranteed
by the Company), other than the Notes, outstanding on the date of this Indenture
which is (i) for money borrowed or (ii) evidenced by a note, debenture or
similar instrument given in connection with the acquisition of any business,
Property or assets, (b) obligations of the Company, whether outstanding on the
date of this Indenture or hereafter created, incurred or assumed, as lessee
under leases required to be capitalized on the balance sheet of the lessee under
GAAP and leases of Property or assets made as part of any sale and leaseback
transaction to which the Company is a party, (c) all reimbursement obligations
and other liabilities (contingent or otherwise) with respect to letters of
credit, bank guarantees or bankers' acceptances, (d) amendments, renewals,
extensions, modifications and refundings of any such indebtedness or obligation
and (e) indebtedness of the Company (including indebtedness of other Persons
guaranteed by the Company) created, incurred or assumed after the date of this
Indenture which is (i) for money borrowed or (ii) evidenced by a note, debenture
or similar instrument given in connection with the acquisition of any business,
Property or assets and amendments, renewals, extensions, modifications and
refundings thereof, if the instrument creating or evidencing such indebtedness
provides by its terms that such indebtedness or obligation is senior in right of
payment to the Notes (all of which indebtedness will have the benefit of the
subordination provisions of Article 10); provided, however, that indebtedness of
the Company (including indebtedness of other Persons guaranteed by the Company)
created, incurred or assumed after the date of this Indenture which is (i) for
money borrowed or (ii) evidenced by a note, debenture or similar instrument and
which, in either case, by its terms is convertible or exchangeable into capital
stock of any Person, and amendments, renewals, extensions, modifications and
refundings thereof, will rank pari passu with the Notes, unless the instruments
creating or evidencing such indebtedness provide by their terms that such
indebtedness is junior in right of payment to the Notes. "Senior Indebtedness"
-------------------
shall not include indebtedness or amounts owed (except to banks or other
financial institutions) for compensation to employees, or for goods or materials
purchased or services utilized, in the ordinary course of business of the
Company or of any other Person from whom such indebtedness or amount was assumed
or for whom such indebtedness was guaranteed.
4
<PAGE>
"Subsidiary" of a Person on any date means any other Person of whom such
----------
Person owns, directly or indirectly through a Subsidiary or Subsidiaries of such
Person, Capital Stock with voting power, acting independently and under ordinary
circumstances, entitling such Person to elect a majority of the board of
directors or other governing body of such other Person. Unless otherwise stated
herein or the context otherwise requires, "Subsidiary" means a Subsidiary of the
----------
Company.
"Threshold Amount" means $________.
----------------
"TIA" or "Trust Indenture Act of 1939" means the Trust Indenture Act of
--- ---------------------------
1939 (U.S. Code (S)(S) 77aaa-77bbbb) as amended and as in effect on the date of
this Indenture; provided, however, that if the TIA is amended after such date,
"TIA" or "Trust Indenture Act of 1939" means, to the extent required by any such
- ---- ---------------------------
amendments, the TIA as so amended.
"Trading Day" means (i) if the applicable security is listed or admitted
-----------
for trading on a national security exchange, a day on which such exchange is
open for business, (ii) if the applicable security is quoted on the Nasdaq Stock
Market, a day on which trades may be made thereon or (iii) if the applicable
security is not so listed, admitted for trading or quoted, any Business Day.
"Trustee" means the party identified in the title of this Indenture as
-------
trustee until a successor replaces it in accordance with the applicable
provisions of this Indenture and, thereafter, "Trustee" means such successor.
-------
"Trust Officer" means any officer or corporate trust officer or assistant
-------------
corporate trust officer of the Trustee assigned by the Trustee to administer its
corporate trust matters.
Section 1.2 Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in Section
----- ------------------
<S> <C>
"Agent Members"......................................................... 2.7
"Bankruptcy Law"........................................................ 5.1
"Code".................................................................. 10.4
"Covenant Default"...................................................... 10.4
"Custodian"............................................................. 5.1
"Delivery of Spin-Off Securities Option"................................ 9.3
"Event of Default"...................................................... 5.1
"Exchange Consideration"................................................ 9.3
"Exchange Ratio"........................................................ 9.3
"ex-dividend date"...................................................... 9.3
"Extraordinary Dividend"................................................ 9.3
"Notice of Default"..................................................... 5.1
"Paying Agent".......................................................... 2.3
"Payment Default"....................................................... 10.4
"Register".............................................................. 2.3
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
"Registrar"............................................................. 2.3
"Reorganization Event".................................................. 9.3
"Significant Subsidiary"................................................ 5.1
"Spin-Off".............................................................. 9.3
"Spin-Off Securities"................................................... 9.3
"Transaction Value"..................................................... 9.3
</TABLE>
Section 1.3 Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. Such
provisions shall apply to this Indenture at all times, notwithstanding that at
any time or from time to time this Indenture is not required to be qualified
under the TIA.
The following TIA terms used in this Indenture have the following meanings:
"commission" means the SEC;
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes means the Company and any successor obligor
on the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA and not
otherwise defined herein have the meanings so assigned to them.
Section 1.4 Rules of Construction.
---------------------
Unless the context otherwise requires or unless otherwise stated herein:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP ;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
6
<PAGE>
(5) references to sections of or rules under the Securities
Act, the Exchange Act or the TIA shall be deemed to
include substitute, replacement or successor sections
or rules;
(6) references to Sections or Articles mean Sections or
Articles of this Indenture; and
(7) solely for purposes of this Indenture and the Notes, a
determination, approval or other action by the Board of
Directors shall not be deemed to have been made, given
or taken unless it is set forth in a written resolution
or resolutions (or comparable written instrument) duly
adopted thereby.
ARTICLE 2
THE NOTES
Section 2.1 Form and Dating.
---------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is hereby incorporated in and
expressly made a part of this Indenture. The Notes may have notations, legends
or endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each Note shall be dated
the date of its authentication. The terms of the Notes set forth in Exhibit A
are part of the terms of this Indenture. The Notes are general unsecured
obligations of the Company limited to $150,000,000 in the aggregate principal
amount, subject to Section 2.7. The Notes shall be issuable only in registered
form without coupons and only in denominations of the Initial Price or multiples
thereof.
Section 2.2 Execution and Authentication.
----------------------------
Two Officers shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Notes and may be in
facsimile form.
Any Note bearing the manual or facsimile signature of an individual shall
be valid notwithstanding that such individual ceased to be an Officer prior to
authentication of the Note or ceased to hold the office of Company ascribed to
such individual on the Note.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence, and the only evidence,
that the Note has been authenticated under this Indenture.
7
<PAGE>
The Trustee shall authenticate Notes for original issue up to the aggregate
principal amount stated in Section 2.1, upon delivery of (i) a written order of
the Company signed by an Officer directing the Trustee to authenticate the Notes
and (ii) an Officers' Certificate certifying that all conditions precedent to
the issuance of the Notes contained herein have been complied with. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount, except as provided in Section 2.7.
The Trustee may appoint an authenticating agent upon the approval and at
the expense of the Company to authenticate Notes. Unless limited by the terms
of such appointment, an authenticating agent shall be authorized to authenticate
Notes at such times and upon such conditions as the Trustee is so authorized.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent.
Section 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain in the City of New York, New York an office or
agency where Notes may be presented for registration of transfer or for exchange
(the "Registrar"), and an office or agency where Notes may be presented for
---------
payment (the "Paying Agent"). The Registrar shall keep a register of the Notes
------------
(the "Register") and of their transfer and exchange. The Company may appoint
--------
one or more co-registrars and one or more additional paying agents upon the
reasonable approval of the other Registrar or Registrars or Paying Agent or
Paying Agents, as the case may be, and at the expense of the Company. The term
"Registrar" includes any co-registrar or co-registrars and the term "Paying
--------- ------
Agent" includes any additional paying agent or paying agents. The Company may
- -----
change any Paying Agent, Conversion Agent or Registrar without notice to any
Holder. The Company shall promptly notify the Trustee in writing of the name
and address of any Agent not a party to this Indenture. The Company or any
Subsidiary may act as Paying Agent (except for purposes specified in Sections
2.13 and 3.1), or Registrar. If the Company fails to appoint or maintain itself
or another Person as Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
6.7.
The Company shall enter into an appropriate agency agreement with any Agent
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 any
such Agent.
The Company initially appoints the office of the Trustee at the Corporate
Trust Office, and through it the offices of its agent, Norwest Bank, Minnesota,
National Association, _______________New York, New York [ZIP] as the offices or
agencies for each of the purposes designated in this Section 2.3 to act as
Registrar and Paying Agent with respect to the Notes.
Section 2.4 Paying Agent to Hold Money and Common Stock in Trust.
----------------------------------------------------
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all Common
8
<PAGE>
Stock and money held by the Paying Agent for the payment of Principal of or
interest on the Notes, and will notify the Trustee of any default by the Company
in making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all Common Stock and money held by it to the
Trustee and account for any Common Stock and money disbursed by it. The Company
at any time may require a Paying Agent to pay all Common Stock and money held by
it to the Trustee and account for any Common Stock and money disbursed by it.
Upon payment over to the Trustee, the Paying Agent (if other than the Company or
a Subsidiary of the Company) shall have no further liability for the Common
Stock and money delivered to the Trustee. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all Common Stock and money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.
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, the Company shall furnish or the
Company shall cause the Registrar to furnish to the Trustee at least ten
Business Days before each Interest Payment Date, and at such other times as the
Trustee may request in writing within five Business Days after such request, a
list in such form and as of such date as the Trustee may reasonably require, and
upon which the Trustee may conclusively rely, of the names and addresses of, and
principal amount of Notes held by, the Holders.
Section 2.6 Transfer and Exchange.
---------------------
(a) Upon surrender for registration or transfer of any Note, together with
a written instrument of transfer satisfactory to the Registrar duly executed by
the Holder or such Holder's attorney duly authorized in writing, at the office
or agency of the Registrar, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denomination or
denominations, of a like aggregate principal amount. The Company shall not
charge a service charge for any registration of transfer or exchange of Notes;
provided, that the Company may require from a Holder requesting such transfer or
exchange (other than any exchange of a temporary Note for a definitive Note not
involving any change in ownership) payment of an amount sufficient to pay all
taxes, assessments or other governmental charges that may be imposed in
connection with the transfer or exchange.
(b) Transfers of Notes may be effected only by surrender of the Notes to
the Company for registration and the issuance by the Company of one or more new
Notes. Until such surrender and registration, the Company may treat the Holders
of Notes appearing on the Register as the absolute owners of such Notes .
(c) At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination or denominations, of a like aggregate principal
amount, upon surrender
9
<PAGE>
of the Notes to be exchanged, together with a written instrument of exchange
satisfactory to the Registrar duly executed by the Holder or such Holder's
attorney duly authorized in writing, at the office or agency of the Registrar.
Whenever any Notes are so surrendered for exchange, the Company shall execute,
and the Trustee shall authenticate and deliver, Notes which the Holder making
the exchange is entitled to receive.
(d) All Notes issued upon any registration of transfer or exchange of
Notes shall be valid obligations of the Company, evidencing the same debt and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
(e) 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.
Section 2.7 Global Securities.
-----------------
This Section 2.7 shall apply only to any Global Security deposited with or
on behalf of the Depositary.
(a) Each Global Security authenticated under this Indenture (i) shall be
registered in the name of the Depositary for such Global Security or Global
Securities or the nominee of the Depositary and (ii) shall be delivered by the
Trustee to the Depositary or pursuant to the Depositary's instructions or held
by the Trustee as custodian for the Depositary.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices of the Depositary governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Notes registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (A) such Depositary (i) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security and the
Company thereupon fails to appoint a successor Depositary or (ii) has ceased to
be a clearing agency registered under the Exchange Act, (B) there shall have
occurred and be continuing an Event of
10
<PAGE>
Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to the Securities or (C) the Company in its sole
discretion determines that such Global Security shall be so exchangeable or
transferable.
(c) Subject to Section 2.7(b) above, upon issuance of Notes in definitive
registered certificated form, the Trustee shall register the Notes in the name
of, and cause the Notes to be delivered to, the Person or Persons (or the
nominee thereof) identified as the beneficial owners as the Depositary shall
direct.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section, Section 2.8, 2.11 or otherwise, shall
be authenticated and delivered in the form of, and shall be, a Global Security,
unless such Note is registered in the name of a Person other than the Depositary
for such Global Security or a nominee thereof.
(e) Each Note certificate evidencing the Global Securities (and all Notes
issued in exchange therefor or in substitution thereof) shall bear a legend in
substantially the following form:
"Unless this Certificate is presented by an authorized representative
of The Depository Trust Company to Southwest Securities Group, Inc. or
its agent for registration of transfer, exchange or payment, and any
Certificate issued in exchange for this Certificate or any portion
hereof is registered in the name of Cede & Co. (or in such other name
as is requested by an authorized representative of The Depository
Trust Company), any transfer, pledge or other use hereof for value or
otherwise by or to any person other than The Depository Trust company
or a nominee thereof is wrongful inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
This Note is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a depositary
or a nominee thereof. This Note may not be exchanged in whole or in
part for a Note registered, and no transfer of this Note in whole or
in part may be registered, in the name of any person other than such
Depositary or a nominee thereof, except in the limited circumstances
described in the Indenture."
(f) No Obligation of the Trustee.
----------------------------
The Trustee shall have no responsibility or obligation to any beneficial
owner of a Global Security, a member of, or a participant in the Depositary or
other Person with respect to the accuracy of the records of the Depositary 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
Depositary) of any notice (including any notice of redemption) or the payment of
any amount, under or with respect to such Notes. All notices and communications
to be given to the Holders and all payments to be
11
<PAGE>
made to Holders under the Notes shall be given or made only to or upon the order
of the registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any Global
Security shall be exercised only through the Depositary subject to the
applicable rules and procedures of the Depositary. The Trustee may rely and
shall be fully protected in relying upon information furnished by the Depositary
with respect to its members, participants and any beneficial owners.
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 Agent Members or
beneficial owners in any Global Security) 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 2.8 Replacement Notes.
-----------------
Upon surrender of a mutilated Note at the office or agency of the
Registrar, the Company shall execute, and the Trustee shall authenticate and
deliver, a replacement Note in the name of the Holder of such mutilated Note, of
like principal amount and dated the date of such mutilated Note.
Upon surrender of written notice by a Holder or a Holder's attorney duly
authorized in writing at the office or agency of the Registrar that a Note has
been lost, destroyed or wrongfully taken, the Company shall execute, and the
Trustee shall authenticate and deliver, a replacement Note in the name of such
Holder, of like principal amount and dated the date of such lost, destroyed or
wrongfully taken Note; provided, however, that, unless such requirement is
waived by the Company, such notice shall be accompanied by an indemnity or
indemnity bond from an acceptable issuer that is sufficient in the judgment of
the Trustee and the Company to protect the Company, the Trustee, any Agent and
any authenticating agent from any loss which any of them may suffer by reason of
such Note's replacement.
The Company may charge the Holder for its expenses in replacing a Note.
Every replacement Note shall be an obligation of the Company and shall be
entitled to all benefits of this Indenture equally and proportionately with all
other Notes duly issued hereunder.
Section 2.9 Outstanding Notes.
-----------------
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in the Global Security effected
by the Trustee hereunder and those described in this Section 2.9 as not
outstanding. Except as set forth in Section 2.10, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
12
<PAGE>
If a Note is replaced pursuant to Section 2.8, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a holder in due course.
If the principal amount of any Note is considered paid under Section 3.1,
it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, any Subsidiary or an Affiliate
of any thereof) segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to redeem or
pay Notes payable on that date, and is not prohibited from paying such money to
the Holders thereof pursuant to the terms of this Indenture, then on and after
such redemption date or maturity date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Section 2.10 Treasury Notes.
--------------
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 considered as though
not outstanding; provided, however, that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Notes as to which a Trust Officer of the Trustee knows are so
owned shall be so disregarded.
Section 2.11 Temporary Notes.
---------------
Until definitive Notes are ready for delivery, the Company may prepare and
execute and the Trustee shall authenticate and deliver temporary Notes upon a
written order of the Company signed by an Officer and delivered to a Trust
Officer. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes. If temporary Notes are issued, the Company shall, without unreasonable
delay, prepare definitive Notes which may be exchanged for temporary Notes.
After the preparation of definitive Notes, the temporary Notes shall be
exchangeable for definitive Notes upon surrender of the temporary Notes at the
office or agency of the Registrar, without charge to Holders. Upon surrender
for cancellation of one or more temporary Notes, the Company shall execute and
the Trustee upon a written order of the Company signed by an Officer shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.
Section 2.12 Cancellation.
------------
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall promptly cancel and destroy (in accordance with the standard
document destruction policies of the Trustee) all Notes so delivered
13
<PAGE>
and certify to the Company their destruction unless by a written order signed by
an Officer, the Company shall direct that cancelled Notes be returned to it. The
Company may not issue new Notes to replace Notes that have matured or been
redeemed.
Section 2.13 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Notes, the Company
shall pay defaulted interest (plus interest on such defaulted interest, to the
extent lawful, at the rate borne by the Notes) in any lawful manner. The
Company shall pay the defaulted interest to the Persons who are Holders on a
subsequent special record date. The Company shall fix or cause to be fixed (or
upon the Company's failure to do so the Trustee shall fix) any such special
record date and payment date to the reasonable satisfaction of the Trustee,
which specified record date shall not be less than 10 days prior to the payment
date for such defaulted interest, and shall promptly mail or cause to be mailed
to each Holder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid and
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 with respect to such defaulted interest or shall make arrangements
reasonably satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, which money when so deposited shall be held in trust for the
benefit of the Person entitled to such defaulted interest as provided in this
Section 2.13.
Section 2.14 Deposit of Moneys and Common Stock.
----------------------------------
(a) Prior to 10:00 a.m., New York City time, on each Interest Payment Date
and the Maturity Date, the Company shall deposit with the Paying Agent in
immediately available funds money sufficient to make cash payments of interest,
if any, due on such Interest Payment Date or Maturity Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date or Maturity Date, as the case may be.
(b) Prior to 10:00 a.m. on the Maturity Date, the Company shall deposit
with the Paying Agent, (i) Common Stock, money in immediately available funds or
a combination thereof sufficient to pay the Principal of the Notes on the
Maturity Date as provided in Article 9, in a timely manner which permits the
Paying Agent to remit payment to the Holders on the Maturity Date or as soon
thereafter as practicable (but in no event later than 15 days after the Maturity
Date).
ARTICLE 3
COVENANTS
Section 3.1 Payment of Notes.
----------------
The Company shall (i) pay the Principal of the Notes and (ii) pay interest
on the Notes on the dates and in the manner provided in the Notes and this
Indenture. Principal and interest shall
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be considered paid on the date due if the Paying Agent (other than the Company
or a Subsidiary) on that date holds money in accordance with this Indenture
designated for and sufficient to pay in cash all Principal and interest then due
and the Paying Agent is not prohibited from paying such money to Holders on that
date pursuant to the terms of this Indenture.
To the extent lawful, the Company shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on (i) overdue
Principal of the Notes at the rate borne by the Notes and (ii) overdue
installments of interest at the same rate.
Interest with respect to each Note will accrue from the later of (i) the
date such Note is issued or (ii) the last Interest Payment Date from which
Interest has been paid. Notwithstanding the foregoing, if the original issue
price of any Note includes interest accruing from a prior issue date or record
date, interest on such Note will accrue from such earlier date.
Section 3.2 Stay, Extension and Usury Laws.
------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, 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 has been
enacted.
Section 3.3 Continued Existence.
-------------------
Subject to Article 4, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
corporation and the corporate existence of the Subsidiaries and will refrain or
cause the Subsidiaries to refrain from taking any action that would cause its
corporate existence or the corporate existence of any of the Subsidiaries to
cease, including without limitation any action that would result in the
liquidation, winding up or dissolution of it or any of the Subsidiaries;
provided, however, that the Company shall not be required to preserve the
existence of any Subsidiary if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and the Subsidiaries and that the loss thereof to the Company taken
as a whole is not disadvantageous in any material respect to the Holders.
Section 3.4 Reports.
-------
(a) The Company shall file with the Trustee copies of all reports and
other information and documents that the Company is required to file with the
SEC pursuant to the Exchange Act. Each such report or other information or
document shall be filed with the Trustee within 15 days after filing of such
report or other information or document with the SEC. The Company will mail or
cause to be mailed to all Holders copies of all of (a) its annual reports to
15
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stockholders and (b) quarterly reports to stockholders which are mailed to its
institutional stockholders.
(b) If the Company is at any time no longer subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
prepare (i) for the first three quarters of each fiscal year of the Company,
quarterly financial statements substantially equivalent to the financial
statements required to be included in a report on Form 10-Q under the Exchange
Act, and (ii) annually, complete audited consolidated financial statements,
including, but not limited to, a balance sheet, a statement of operations, a
statement of stockholders' equity and all appropriate notes. All such financial
statements will be prepared in accordance with GAAP, except for changes with
which the Company's independent accountants concur and except that quarterly
financial statements may be subject to year-end adjustments. The Company will
file or cause to be filed with the Trustee and will mail or cause to be mailed
to the Holders a copy of such financial statements within 50 days after the end
of each of the first three quarters of each fiscal year of the Company and
within 95 days after the close of each fiscal year of the Company, respectively.
Notwithstanding the foregoing, if the Company is no longer subject to such
reporting requirements by reason of the acquisition of capital stock by, or
merger or consolidation of the Company with, a Person which is subject to such
reporting requirements or a Subsidiary of such a Person and such Person has
unconditionally and irrevocably guaranteed payment in full when due of all
amounts payable with respect to the Notes, then the Company need not prepare,
file or mail the financial statements described in this Section 3.4(b);
provided, however, that such Person complies with Section 3.4(a) as if
references therein to the Company were references to such Person.
Section 3.5 Taxes.
-----
The Company shall, and shall cause each of the Subsidiaries to, pay or
discharge prior to delinquency all taxes, assessments and governmental levies,
except as contested in good faith and by appropriate proceedings.
Section 3.6 Convertible or Exchangeable Debt Issued by Subsidiaries.
-------------------------------------------------------
The Company shall not permit any Subsidiary to create, incur, assume or
guarantee after the date of this Indenture any indebtedness which is (i) for
money borrowed or evidenced by a note, debenture or similar instrument and which
(ii) by its terms is convertible or exchangeable into capital stock of any
Person or any amendment, renewal, extension, modification or refunding of any
such indebtedness, unless the instruments creating or evidencing and governing
such indebtedness provide by their terms that such indebtedness ranks pari passu
with or junior to the Notes in right of payment.
Section 3.7 Compliance Certificate.
----------------------
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, an Officers' Certificate stating that a review
of the activities of the Company and the Subsidiaries during the preceding
fiscal year has been made under the
16
<PAGE>
supervision of the signing Officer with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to such Officer, that to the best of his or
her knowledge the Company has kept, observed, performed and fulfilled each and
every covenant and condition 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
such Defaults or Event 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 of or interest
on the Notes are prohibited.
Section 3.8 Further Assurance to the Trustee.
--------------------------------
The Company shall, upon reasonable request of the Trustee, execute and
deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the provisions of this
Indenture.
ARTICLE 4
SUCCESSORS
Section 4.1 When Company May Merge or Sell Assets.
-------------------------------------
The Company shall not consolidate with or merge into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
Person in a single transaction or series of related transactions, without the
consent of Holders of the majority in aggregate principal amount of Notes then
outstanding, unless:
(a) the Company is the continuing corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, lease, conveyance or other disposition of assets shall have
been made, is organized and existing under the laws of the United States, any
state thereof or the District of Columbia and such Person (if other than the
Company) expressly assumes by supplemental indenture executed and delivered to
the Trustee and in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Notes and this Indenture;
(b) immediately before and immediately after giving effect to the
transaction no Event of Default, and no event which, after notice or lapse of
time, or both, would become an Event of Default, shall have occurred and be
continuing;
(c) immediately after giving effect to such transaction, the Notes and
this Indenture (as supplemented by any such supplemental indenture) will be
valid and enforceable obligations of the Company or such successor; and
17
<PAGE>
(d) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such proposed
transaction and such supplemental indenture do not conflict with the applicable
provisions of this Indenture and, with respect to such Officers' Certificate
only, that all conditions precedent herein provided for relating to such
transaction have been satisfied.
Section 4.2 Successor Substituted.
---------------------
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1, the Person formed by such consolidation or into or
with which the Company is merged or to which such sale, lease, conveyance or
other disposition is made 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 successor Person has been named as the Company herein;
provided, however that in the case of a sale, lease, conveyance or other
disposition the Company shall not be released from the obligation to pay the
Principal of and interest on the Notes.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1 Events of Default.
-----------------
The following shall constitute an "Event of Default":
----------------
(a) failure to pay any Principal of any Note when due and payable either
in cash or by delivery of Common Stock as provided in Article 9, regardless of
whether such payment is prohibited by the subordination provisions of this
Indenture;
(b) failure to pay any interest on any Note when due and payable, which
failure continues for 30 days, regardless of whether such payment is prohibited
by the subordination provisions of this Indenture;
(c) failure to perform the other covenants of the Company in this
Indenture, which failure continues for 60 days after written notice as provided
in the last paragraph of this Section 5.1;
(d) a default occurs (after giving effect to any applicable grace periods
or any extension of any maturity date) in the payment when due of Principal of,
or an acceleration of, any indebtedness for money borrowed by the Company or any
of its Subsidiaries in excess of $5.0 million, individually or in the aggregate,
if such indebtedness is not discharged, or such acceleration is not annulled,
within ten days after written notice as provided in the last paragraph of this
Section 5.1;
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<PAGE>
(e) the Company or any of its Significant Subsidiaries, pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property, and such Custodian is not
discharged within 30 days,
(iv) makes a general assignment for the benefit of its creditors, or
(v) admits in writing that it is generally unable to pay its debts
as the same become due;
(f) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief in an involuntary case against the Company or any
Significant Subsidiary,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of the
Company or any Significant Subsidiary, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary,
and, in each case, the order or decree remains unstayed and in effect for 60
consecutive days; or
(g) any judgment or decree for the payment of money in excess of $1.0
million (to the extent not covered by insurance) is rendered against the Company
or any Significant Subsidiary and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days after such judgment or decree
becomes final and non-appealable.
The term "Bankruptcy Law" means Title 11 of the U.S. Code or any similar
--------------
federal, foreign or state law for the relief of debtors. The term "Custodian"
---------
means any receiver, trustee, assignee, liquidator, examiner or similar official
under any Bankruptcy Law. The term "Significant Subsidiary" has the same
----------------------
meaning as significant subsidiary has under Regulation S-X under the Securities
Act as in effect on the date hereof.
A Default under Section 5.1(c) (other than a Default under Section 4.1,
which Default shall be an Event of Default with the notice but without the
passage of time specified in Section 5.1(c)) or Section 5.1(d) shall not be an
Event of Default until (i) the Trustee shall have notified the Company, or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding shall have notified the Company and the Trustee, of the Default and
(ii) the Company shall have failed to cure the Default under Section 5.1(c)
within 60 days after receipt
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of the notice or under Section 5.1(d) within 10 days after receipt of the
notice, respectively. Any such notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default."
-----------------
Section 5.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
Sections 5.1(e) and 5.1(f)) occurs and is continuing, the Trustee (by notice to
the Company), or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding (by notice to the Company and the Trustee), may
declare the unpaid Principal of and accrued interest on all the Notes then
outstanding to be due and payable. Upon any such declaration, such Principal
and accrued interest shall be due and payable immediately. If an Event of
Default specified in Section 5.1(e) or 5.1(f) occurs, such an amount shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by written notice to
the Trustee may rescind an acceleration and its consequences if (a) the Company
has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue
interest on all Notes then outstanding and (ii) the Principal of the Notes then
outstanding which has become due otherwise than by such declaration of
acceleration and accrued interest thereon at a rate borne by the Notes and (b)
the rescission would not conflict with any judgment or decree and 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.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Section 5.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
remedy available under applicable law to collect the payment of Principal and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
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. All remedies are cumulative
to the extent permitted by law.
Section 5.4 Waiver of Existing and Past Defaults.
------------------------------------
The Holders of a majority in aggregate principal amount of the Notes then
outstanding held by Persons who are not Affiliates of the Company by written
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except (i) a continuing Default or Event of Default in the payment
of the Principal of or the interest on any Note or (ii) a Default or Event of
Default with respect to a provision that under Section 8.2 cannot be amended
without the consent of each Holder 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
20
<PAGE>
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 5.5 Control by Majority.
-------------------
Notwithstanding anything contained in Section 5.3 to the contrary, the
Holders of a majority in aggregate 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 it; provided, however, that the Trustee may refuse to follow any
direction that conflicts with applicable law or this Indenture or that the
Trustee determines is unduly prejudicial to the rights of other Holders or would
involve the Trustee in personal liability; provided further, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Prior to taking any action or following any direction pursuant to this
Article 5, the Trustee shall be entitled to request indemnification from the
requesting Holders satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. If the
Trustee makes such request, it shall be entitled to delay taking such action or
following such direction until it has received such indemnification.
Section 5.6 Limitation on Suits.
-------------------
A Holder may pursue a remedy with respect to this Indenture or the Notes
only if:
(a) the Holder gives to the Trustee notice of a continuing Event of
Default;
(b) the Holders of at least 25% in aggregate principal amount of the Notes
then outstanding make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Holders of a majority in aggregate
principal amount of the Notes then outstanding do not give the Trustee a
direction inconsistent with the request.
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 5.7 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 of and interest on such Note,
on or after the respective due dates
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<PAGE>
expressed in the Note, or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 5.8 Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 5.1(a) or 5.1(b) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of Principal of and
interest accrued on the Notes and interest on overdue Principal or repurchase
price, if any, of and accrued interest on the Notes and for such further amount
as shall be sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel.
Section 5.9 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 and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property. Except as provided in this Indenture, nothing
contained herein shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder or to authorize the Trustee to vote with respect to the
claim of any Holder in any such proceeding.
Section 5.10 Priorities.
----------
If the Trustee collects any money and/or Common Stock pursuant to this
Article 5, it shall pay out the money and/or Common Stock in the following
order:
First: to the Trustee for amounts due under Section 5.8 or 6.7;
Second: to holders of Senior Indebtedness to the extent required by
Article 10;
Third: to Holders for amounts due and unpaid on the Notes for
Principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and
payable on the Notes for Principal and interest,
respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders and, if it does so, will give prompt prior written notice thereof to the
Registrar.
22
<PAGE>
At least 15 days before any such record date, the Trustee shall give or
cause to be given to each Holder a notice that states such record date, such
payment date and the amount to be paid.
Section 5.11 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 a
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 5.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
5.7 or a suit by Holders of more than 10% in aggregate principal amount of the
then outstanding Notes.
ARTICLE 6
TRUSTEE
Section 6.1 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 person
would exercise or use under the circumstances in the conduct of such person's
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 or the TIA and no others; and
(ii) in the absence of negligence, willful misconduct or 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. However, the Trustee shall examine
the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture, but the Trustee need not verify
the contents thereof.
(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 Section 6.1(c) does not limit the effect of Section 6.1(b);
23
<PAGE>
(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; and
(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 Section 5.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to the provisions of the TIA and Sections 6.1(a), 6.1(b),
6.1(c) and 6.1(e).
(e) The Trustee may refuse to perform any duty or exercise any right or
power hereunder unless it receives indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money or Common
Stock received by it hereunder, except as the Trustee may agree in writing with
the Company. Money or Common Stock held by the Trustee in trust hereunder need
not be segregated from other funds, except to the extent required by law.
Section 6.2 Rights of Trustee.
-----------------
(a) The Trustee may conclusively rely on any document 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 the document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters to the extent reasonably deemed necessary by it.
(b) Before the Trustee acts or refrains from acting pursuant to the terms
of this Indenture or otherwise, it may require an Officers' Certificate or an
Opinion of Counsel, or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel.
(c) The Trustee may act through agents and attorneys and shall not be
responsible for the willful misconduct or gross negligence of any agents and
attorneys appointed with due care.
(d) Subject to the provisions of Section 6.1(c), the Trustee shall not be
liable for any action it takes or omits to take in good faith which it believes
to be authorized or within its rights or powers conferred by this Indenture.
Section 6.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to and must
comply with Sections 6.10 and 6.11.
24
<PAGE>
Section 6.4 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's use of the
proceeds from the Notes, and it shall not be responsible for any statement of
the Company in this Indenture or any statement in the Notes other than its
authentication.
Section 6.5 Notice of Defaults.
------------------
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to the Company and each
Holder a notice of the Default or Event of Default within 90 days after it
occurs, unless such Default or Event of Default shall have been cured or waived.
Except in the case of a Default or Event of Default in payment on any Note under
Section 5.1(a) or 5.1(b), the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding the
notice is in the best interests of Holders.
Section 6.6 Reports by Trustee to Holders.
-----------------------------
Within 60 days after each May 15, commencing, May 15, 2000, the Trustee
shall mail to the Company and each Holder, at the Company's expense, a brief
report dated as of such reporting date that complies with TIA (S) 313(a) (but if
no event described in TIA (S) 313(a) has occurred within the 12 months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA (S) 313(b)(2) to the extent applicable. The Trustee shall also
transmit by mail all reports as required by TIA (S) 313(c).
Provided that this Indenture shall have been qualified under the TIA, a
copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each stock exchange or market on which the Notes are listed or
admitted to trading. The Company shall promptly notify the Trustee when the
Notes are listed on any stock exchange or admitted to trading on any market and
of any delisting thereof.
Section 6.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee (in its capacities as Trustee, Paying
Agent and Registrar) from time to time such compensation as may be agreed in
writing between the Company and the Trustee for its services hereunder. The
Trustee's compensation shall not be (to the extent permitted by law) limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it in accordance with any provision of this Indenture. Such
expenses may include the reasonable compensation and out-of-pocket expenses of
the Trustee's agents and counsel, except such disbursements, advances and
expenses as may be attributable to its negligence, willful misconduct or bad
faith. Any "float" earned on any money disbursed hereunder shall be considered
additional compensation to the Trustee.
25
<PAGE>
The Company shall indemnify the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) and each of its officers, directors, employees, attorneys-
in-fact and agents for, and hold each of such Persons harmless against, any
claim, demand, expense (including, but not limited to, reasonable disbursements
and expenses of the Trustee's agents and counsel), loss or liability incurred by
any of them without negligence, willful misconduct or bad faith on such Person's
part, arising out of or in connection with the administration of this trust and
the rights or duties of the Trustee hereunder, including the reasonable costs
and expenses of such Person's defense against any claim or liability in
connection with the exercise or performance of any of the Trustee's powers or
duties hereunder. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. The Company shall
defend the claim and the Trustee shall provide reasonable cooperation at the
Company's expense in the defense. The Trustee may engage separate counsel at
its own expense and participate in the defense, provided that the Company shall
bear the reasonable expenses of such separate counsel which is reasonably
acceptable to the Company if the defendants regarding such claim include both
the Trustee and the Company and the Company and the Trustee shall have been
advised in writing by the Trustee's separate counsel that representation of the
Trustee and the Company would be inappropriate under applicable standards of
professional responsibility due to actual or potential differing interests
between them. The Company need not reimburse any expense or indemnify against
any loss or liability to the extent incurred by the Trustee through its
negligence, bad faith or willful misconduct. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonable
withheld.
The Company's payment obligations pursuant to this Section 6.7 shall
survive the discharge of this Indenture. When the Trustee incurs expenses or
renders services after an Event of Default specified in Section 5.1(e) or 5.1(f)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
Section 6.8 Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 6.8.
The Trustee may resign by so notifying the Company in writing at least 30
days prior to the date of the proposed resignation; provided, however, that no
such resignation shall be effective until a successor Trustee has accepted its
appointment pursuant to this Section 6.8. The Holders of a majority in
aggregate principal amount of the then outstanding Notes may remove the Trustee
by so notifying the Trustee and the Company. The Company shall remove the
Trustee if:
(a) the Trustee fails to comply with Section 6.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
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(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee otherwise becomes incapable of acting.
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.
If a successor Trustee is not appointed or does not take office within 30
days after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon 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. The
successor Trustee shall mail a notice of its succession to the Holders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee upon payment of all amounts due it hereunder.
Notwithstanding the replacement of the Trustee pursuant to this Section 6.8, the
Company's obligations under Section 6.7 shall continue for the benefit of the
retiring Trustee with respect to expenses and liabilities incurred by it prior
to such replacement.
Section 6.9 Successor Trustee by Merger.
---------------------------
Except as otherwise provided in Section 6.8(a) or 6.8(d), if the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
Section 6.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a). The Trustee shall always have a combined capital and surplus
as stated in its most recent published annual report of condition of at least
$100 million. The Trustee shall comply with TIA (S) 310(b). In the event the
Trustee shall cease to be eligible in accordance with this Section 6.10, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 6.8.
Section 6.11 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 7
DISCHARGE OF INDENTURE
Section 7.1 Termination of Company's Obligations.
------------------------------------
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 6.7 and 7.2 shall survive) when all
outstanding Notes theretofore authenticated and issued (other than destroyed,
lost or stolen Notes which have been replaced or paid) have been delivered to
the Trustee for cancellation and the Company has paid all sums payable hereunder
(including, without limitation, the payment of Principal in cash or by delivery
of Common Stock as provided in Article 9).
Section 7.2 Repayment to Company.
--------------------
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or Common Stock held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request by the Company any money or Common Stock held by them for the payment of
Principal or interest that remains unclaimed for one year after the date upon
which such payment shall have become due; provided, however, that the Company
shall have first caused notice of such payment to the Company to be mailed to
each Holder entitled thereto no less than 30 days prior to such payment. After
payment to the Company, Holders entitled to the money or Common Stock must look
to the Company for payment as general creditors unless an applicable abandoned
property law designates another Person.
ARTICLE 8
AMENDMENTS
Section 8.1 Without Consent of Holders.
--------------------------
The Company and the Trustee may amend this Indenture or the Notes without
the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency; provided such
amendment does not adversely affect the rights of any Holder;
(b) to comply with Section 4.1;
(c) to provide for uncertificated Notes in addition to or in lieu of
certificated Notes;
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(d) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the protection of the Holders, and to
make the occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies provided in
this Indenture or in the Notes as herein set forth;
(e) to make any change that does not adversely affect the rights hereunder
of any Holder; or
(f) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA; or
(g) to make administrative adjustments appropriate to provide for the
issuance of additional Notes from time to time up to the principal amount of
Notes authorized pursuant to Section 2.1;
provided, however, that, in each case, the Company has delivered to the Trustee
an Officers' Certificate stating that such amendment complies with the
provisions of this Section 8.1 and an Opinion of Counsel stating that adoption
of such amendment does not conflict with the provisions of this Section 8.1.
Section 8.2 With Consent of Holders.
-----------------------
The Company and the Trustee may amend or modify this Indenture or the Notes
with the written consent of the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes, and the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Company with any provision of this Indenture or the
Notes; provided, however, that, without the consent of each Holder affected, an
amendment, modification or waiver under this Section 8.2 may not (with respect
to any Notes held by a non-consenting Holder):
(a) change the stated maturity of, or any installment of interest on, or
waive a default in the payment of Principal or repurchase price, if any, of or
interest on any Note;
(b) reduce the principal amount of any Note or reduce the rate or extend
the time of payment of interest on any Note;
(c) decrease the Exchange Ratio;
(d) change the place or currency of payment of Principal of or interest on
any Note;
(e) impair the right to institute suit for the enforcement of any payment
on or with respect to any Note;
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(f) reduce the percentage of the aggregate principal amount of outstanding
Notes, the consent of the Holders of which is necessary to amend this Section
8.2, consent to a merger, consolidation or conveyance, sale, transfer or lease
of assets as described in Section 4.1 or modify or amend any other provision of
this Indenture;
(g) reduce the percentage of the aggregate principal amount of outstanding
Notes, the consent of the Holders of which is necessary for waiver of compliance
with certain provisions of this Indenture or for waiver of certain defaults;
(h) modify the provisions of this Indenture with respect to the
subordination of the Notes in a manner adverse to the Holders; or
(i) except as otherwise permitted under Article 4, consent to the
assignment or transfer by the Company of any of its rights and obligations under
this Indenture.
To secure a consent of the Holders under this Section 8.2, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section 8.2 becomes effective, the
Company shall mail to Holders a notice briefly describing the amendment or
waiver. Any failure of the Company to mail such notices, or any defect therein,
shall not, however, in any way, impair or affect the validity of any such
amendment or waiver.
Section 8.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to this Indenture or the Notes shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 8.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplemental indenture or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by such Holder and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as such consenting Holder's Note, even if notation of the consent is not
made on any Note. However, prior to becoming effective, any such Holder or
subsequent Holder may revoke the consent as to its Notes or a portion thereof if
the Trustee receives written notice of revocation before the consent of Holders
of the requisite aggregate principal amount of Notes then outstanding has been
obtained and not revoked.
The Company may, but shall not be obligated to, fix a record date pursuant
to Section 11.1 for the purpose of determining the Holders entitled to consent
to any amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be Holders
after
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such record date. No consent shall be valid or effective for more than 90 days
after such record date unless consents from Holders of the principal amount of
Notes required hereunder for such amendment or waiver to be effective shall have
also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every Holder,
unless it is of the type described in any of Sections 8.2(a) through 8.2(j). In
such case, the amendment or waiver shall bind each Holder of a Note who has
consented to it and every subsequent Holder of a Note that evidences the same
debt as the consenting Holder's Note.
Section 8.5 Notation on or Exchange of Notes.
--------------------------------
The Trustee (in accordance with the written direction of the Company) may
(at the Company's expense) place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment or waiver. Failure to make the appropriate notation
or issue a new Note shall not affect the validity and effect of such amendment,
supplement or waiver.
Section 8.6 Trustee Protected.
-----------------
The Trustee shall sign all supplemental indentures authorized by this
Indenture, except that the Trustee need not sign any supplemental indenture that
adversely affects its rights. In signing or refusing to sign such supplemental
indenture, the Trustee shall be entitled to receive an Officers' Certificate and
Opinion of Counsel to the effect that such supplemental indenture is authorized
or permitted by this Indenture and will be valid and binding on the Company in
accordance with its terms.
ARTICLE 9
PAYMENT OF NOTES IN COMMON STOCK
Section 9.1 Payment of Principal at Maturity.
--------------------------------
(a) At Maturity, the Principal of each Note will be exchanged for
(i) shares of Common Stock at the Exchange Ratio (as defined below);
or
(ii) cash in an amount determined as set forth below
together with any accrued and unpaid interest up to Maturity. Payment of cash
instead of Common Stock will be at the Company's sole discretion, and the
Company may elect the cash payment option with respect to any or all portion of
the Notes. For each increment of principal
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of the Notes equal to the Initial Price the "Exchange Ratio" is equal to,
subject to adjustment pursuant to Section 9.3:
(i) ____ shares of Common Stock, if the Maturity Price is greater
than or equal to the Threshold Appreciation Price;
(ii) a fractional share of Common Stock equal to the Initial Price
divided by the Maturity Price if the Maturity Price is less
than the Threshold Appreciation Price but is greater than the
Initial Price; and
(iii) one share of Common Stock if the Maturity Price is less than
or equal to the Initial Price.
If the Company elects the cash payment option, the amount of cash it will
deliver for each increment of principal of the Notes equal to the Initial Price
will be the cash equivalent value of such number of shares (or fractions
thereof) of Common Stock at the Maturity Price which the Company would otherwise
be required to deliver pursuant to this Section 9.1(a). Such number of shares of
Common Stock or amount of cash deliverable upon exchange is hereinafter referred
to as the "Exchange Consideration."
(b) On or prior to the 30th day prior to Maturity, the Company will notify
the Trustee and publish a notice in a newspaper of national circulation
published at least five days a week stating whether the principal amount of each
Note will be exchanged for shares of Common stock or cash or both. If less than
all of the outstanding Notes are to be exchanged for Common Stock, the Notes to
be exchanged will be selected by the Trustee from the outstanding Notes by lot
or pro rata (as nearly as may be) or by any other method determined by the
Trustee in its sole discretion to be equitable.
Section 9.2 No Fractional Shares.
--------------------
No fractional shares of Common Stock (and/or other securities if a Spin-Off
or a Reorganization Event has occurred prior to Maturity), will be issued if the
Company exchanges the Notes for shares of Common Stock (and/or such securities).
If more than one Note shall be surrendered for exchange at one time by the same
Holder, the number of full shares of Common Stock and/or such other securities
which will be delivered upon exchange will be computed on the basis of the
aggregate number of Notes so surrendered at Maturity. In lieu of any fractional
share or security otherwise issuable in respect of all Notes of any holder which
are exchanged at Maturity, such Holder shall be entitled to receive an amount in
cash equal to the value of such fractional share or security at the Maturity
Price (or similarly calculated average price for a security other than Common
Stock).
Section 9.3 Adjustment of Exchange Ratio.
----------------------------
(a) The Exchange Ratio will be subject to adjustment as described below to
the extent that any of the events requiring such adjustment occur during the
period commencing on the date
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of this Indenture and ending on the Business Day prior to Maturity. No
adjustments to the Exchange Ratio will be made other than those specified below.
(i) If the Common Stock is subject to a stock split or reverse stock
split, then at the opening of business on the first Trading Day for
the Common Stock on which such stock split or reverse stock split if
effective, the Exchange Ratio will be adjusted. The new Exchange Ratio
will equal the Exchange Ratio in effect immediately prior to such
Trading Day multiplied by a fraction, the numerator of which will be
the number of shares of Common Stock that, immediately after giving
effect to such stock split or reverse stock split, the shares of
Common Stock outstanding at the close of business on the record date
for holders of Common Stock entitled to such split or reverse stock
split have come to represent and the denominator will be the number of
shares of Common Stock outstanding at the close of business on such
record date. If the record date for such a stock split or reverse
stock split is prior to the Maturity Date but the effective time of
such stock split or reverse stock split is after the Business Day
preceding the Maturity Date, it will be assumed for purposes of this
Section 9.3(a)(i) that such effective date was such Business Day
preceding the Maturity Date.
(ii) If the Common Stock is subject to a stock dividend that is given
ratably to all holders of shares of Common Stock, then at the opening
of business on the first day on which the Common Stock trades without
the right to receive such dividend (the "ex-dividend date"), the
Exchange Ratio will be adjusted by multiplying such Exchange Ratio
immediately prior to such opening of business by a fraction, the
numerator of which will be the number of shares of Common Stock
outstanding at the opening of business on such ex-dividend date plus
the number of shares constituting such stock dividend and the
denominator will be the number of shares of Common Stock outstanding
at the opening of business on such ex-dividend date. If the record
date for such stock dividend is prior to the Maturity Date but the ex-
dividend date is after the Business Day preceding the Maturity Date,
then for purposes of this Section 9.3(a)(ii) it will be assumed that
the ex-dividend date was such Business Day preceding the Maturity
Date.
(iii) If Knight/Trimark issues rights, warrants, options or
convertible or exchangeable securities to all holders of Common Stock
to subscribe for, purchase, convert into or exchange for shares of
Common Stock (other than rights to purchase shares of Common Stock
pursuant to a plan for the reinvestment of dividends or interest) at a
price per share less than the Closing Price of the Common Stock on the
record date for determining the holders of Common Stock entitled to
receive such rights, warrants, options or convertible or exchangeable
securities; then the Exchange Ratio will be adjusted on the record
date for determining the holders of Common Stock entitled to receive
such rights, warrants, options or convertible or exchangeable
securities. The adjusted Exchange Ratio will be calculated by
multiplying the Exchange Ratio in effect
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<PAGE>
immediately prior to such record date by a fraction, the numerator of
which will be the number of shares of Common Stock outstanding at the
close of business on such record date, plus the number of additional
shares of Common Stock issuable pursuant to such rights, warrants,
options or convertible or exchangeable securities and the denominator
or which will be the number of shares of Common Stock outstanding at
the close of business on such record date, plus the number of
additional shares of Common Stock which the aggregate consideration
(based on the Fair Market Value thereof) received or receivable upon
the conversion, exchange, purchase or subscription of all such right,
warrants, options or convertible or exchangeable securities would
purchase at the Closing Price of the Common Stock on such record date.
To the extent that any such rights, warrants, options or convertible
or exchangeable securities, the Exchange Ratio shall be readjusted to
the Exchange Ratio which would then be in effect had such adjustments
for the issuance of such rights, warrants, options or convertible or
exchangeable securities been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered pursuant
thereto.
(iv) There will be no adjustments to the Exchange Ratio to reflect
cash dividends or other distributions paid with respect to Common
Stock other than Extraordinary Dividends. A dividend or other
distribution with respect to Common Stock will be deemed to be an
"Extraordinary Dividend" (i) if such dividend or other distribution is
of securities ("Spin-Off Securities") of an issuer other than
Knight/Trimark (a "Spin-Off") or (ii) if such dividend or other
distribution exceeds the immediately preceding non-Extraordinary
Dividend for Common Stock by an amount equal to at least 10% of the
Closing Price of Common Stock on the first Business Day immediately
preceding the ex-dividend date with respect to such Extraordinary
Dividend. If the record date for an Extraordinary Dividend occurs with
respect to Common Stock prior to the maturity date, the Exchange Ratio
will be adjusted at the opening of business on the ex-dividend date
(or, if the ex-dividend date is after the Business Day preceding the
Maturity Date, such Business Day) by multiplying the Exchange Ratio in
effect immediately prior to such adjustment by a fraction, the
numerator of which will be the Closing Price of Common Stock on the
Business Day immediately preceding such ex-dividend date and the
denominator will be the difference between such Closing Price and the
Extraordinary Dividend Amount. The "Extraordinary Dividend Amount"
with respect to an Extraordinary Dividend for Common Stock will equal
(i) in the case of cash dividends or other distributions that
constitute quarterly dividends, the amount per share of such
Extraordinary Dividends minus the amount per share of the immediately
preceding non-Extraordinary Dividend for Common Stock or (ii) in the
case of cash dividends or other distributions that do not constitute
quarterly dividends, the amount per share of such Extraordinary
Dividend. To the extent an Extraordinary Dividend is not paid in cash,
the value of the non-cash component will be determined by the Board of
Directors of the Company, whose determination will
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<PAGE>
be conclusive and described in a resolution of the Board of Directors;
provided such determination is described in an Officers Certificate
filed with the Trustee.
Notwithstanding the foregoing, in the case of a Spin-Off, the Company
may, at its option, in lieu of adjusting the Exchange Ratio as
described in the immediately preceding paragraph, adjust the Exchange
Ratio used to determine the amount payable upon exchange at Maturity
for each Note to provide that each holder of Notes will receive at
Maturity, in addition to the amount of Common Stock deliverable (or
cash in lieu thereof) for each principal amount of Notes equal to the
Initial Price, an amount of Spin-Off Securities equal to the product
of the Exchange Ratio (as otherwise in effect at Maturity) and the
amount of Spin-Off Securities issued per share of Common Stock in the
Spin-Off, so that the Maturity Price will take into account both the
value of the Spin-Off Securities and the value of the Common Stock
delivered upon exchange of the Notes (the "Delivery of Spin-Off
Securities Option"); provided, however, that the Company may, at its
option, in lieu of delivering an amount of Spin-Off Securities to the
holders of the Notes at Maturity, deliver cash in an amount equal to
the value of such amount of Spin-Off Securities Option. If the Company
elects the Delivery of Spin-Off Securities Option, the Company must
issue a press release through the PR Newswire (or another comparable
or successor service) prior to the opening of business on the ex-
dividend date with respect to such Spin-Off that it elects to deliver
Spin-Off Securities in lieu of adjusting the Exchange Ratio as
described in the immediately preceding paragraph. For purposes of
delivering cash in lieu of delivering Spin-Off Securities at Maturity,
or, if the Company elects to deliver Spin-Off Securities at Maturity,
for purposes of valuing the Spin-Off Securities delivered at Maturity,
the value of the Spin-Off Securities would be an amount equal to the
average Closing Price per share or security of such Spin-Off
Securities for the 20 Trading Days ending on the Business Day prior to
Maturity.
(v) In the event of (A) any consolidation or merger of
Knight/Trimark, or any surviving entity or subsequent surviving entity
of Knight/Trimark (a "Knight/Trimark Successor") with or into another
entity (other than a merger or consolidation in which Knight/Trimark
is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of Knight/Trimark or
another entity, (B) any sale, transfer, lease or conveyance to another
Person of the property of Knight/Trimark or any Knight/Trimark
Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of Knight/Trimark of any
Knight/Trimark Successor with another Person (other than in connection
with a merger or acquisition) or (D) any liquidation, dissolution or
winding up of Knight/Trimark or any Knight/Trimark Successor (any such
event described in clause (A), (B), (C) or (D), a "Reorganization
Event"), the Exchange Ratio used to determine the amount payable upon
exchange at Maturity for each Note will be adjusted to provide that
each holder of Notes will receive at Maturity
35
<PAGE>
for each principal amount of the Notes equal to the Initial Price cash
in an amount equal to:
(1) __________ multiplied by the Transaction Value, if the
Transaction Value (as defined below) is greater than or
equal to the Threshold Appreciation Price,
(2) the Initial Price, if the Transaction Value is less than the
Threshold Appreciation Price but greater than the Initial
Price and
(3) the Transaction Value, if the Transaction Value is less than
or equal to the Initial Price.
"Transaction Value" means (i) for any cash received by the
Company in any such Reorganization Event, an amount equal to the
product of (A) the Exchange Ratio (applicable to such Exchange
Consideration as in effect on the Business Day prior to Maturity) and
(B) the amount of cash received per share of Common Stock, (ii) for
any property other than cash or securities received by the Company in
any such Reorganization Event, an amount equal to the product of (A)
the Exchange Ratio (applicable to such Exchange Consideration as in
effect on the Business Day prior to maturity) and (B) the then-current
market value of such property received per share of Common Stock as
determined by a nationally recognized independent investment banking
firm retained for this purpose by the Company and (iii) for any
securities received by the Company in any such Reorganization Event,
an amount equal to the product of (A) the Exchange Ratio (applicable
to such Exchange consideration as in effect on the Business Day prior
to Maturity) and (B) the average Closing Price per share of such
securities on the 20 Trading Days ending on the Business Day prior to
Maturity multiplied by the number of such securities received for each
share of Common Stock.
Notwithstanding the foregoing, the Company may, at its option, in
lieu of delivering cash as described above, deliver (a) an amount of
cash equal to (i) the Exchange Ratio (adjusted as described above)
times (ii) the amount of cash, if any, received by the Company per
share of Common Stock in such Reorganization Event plus (b) property
in an amount equal to (i) the Exchange Ratio (as so adjusted) times
(ii) the amount of property, if any, received by the Company per share
of Common Stock in such Reorganization Event plus (c) securities in a
number or amount, as applicable, equal to (i) the Exchange Ratio (as
so adjusted) times (ii) the number or amount, as applicable, of
securities, if any, received by the Company in such Reorganization
Event per share of Common Stock.
(b) No adjustments to the Exchange Ratio will be required unless such
adjustment would require a change of at least 1% in the Exchange Ratio;
provided, however, that any adjustments which by reason of the foregoing are not
required to be made shall be carried
36
<PAGE>
forward and taken into account in any subsequent adjustment. All adjustments to
the Exchange Ratio will be calculated to the nearest 1/10,000th of a shares of
Common Stock (or if there is not a nearest 1/10,000th of a share to the next
lower 1/10,000th of a share).
(c) In the case of any such adjustments to the Exchange Ratio (other than
as provided in Section 9.3(a)(iv) above if the Company elects to deliver Spin-
Off Securities rather than to adjust the Exchange Ratio pursuant to the first
paragraph of Section 9.3(a)(iv) above, or as provided in Section 9.3(a)(v)
above, the Maturity Price shall be adjusted in the same manner. The required
adjustment to the Maturity Price shall be made at Maturity by multiplying the
Maturity Price by the cumulative number or fraction determined pursuant to the
Exchange Ratio adjustment procedure described in this Section 9.3.
(d) If as provided in this Article 9 the Company elects to deliver Common
Stock, property and/or securities at Maturity, Holders of the Notes will be
responsible for the payment of any and all brokerage and other transaction costs
upon any subsequent sale of the common Stock, property or securities.
(e) The provisions of this Section 9.3 shall similarly apply to all
successive events of the type described in this Section 9.3. If any securities
or other property are received by the Company with respect to the Common Stock
shall be subject to the adjustments as provided in this Section 9.3 in a manner
as equivalent to the Common Stock hereunder as practicable.
Section 9.4 Notice of Adjustments and Certain Other Events.
----------------------------------------------
The Company shall, within ten Business Days following the occurrence on an
event that requires an adjustment to the Exchange Ratio or the occurrence of a
Spin-Off or a Reorganization Event (or, in any case, if the Company is not aware
of such occurrence, as soon as practicable after becoming so aware), to provide
written notice to the Trustee and to the Holders of the Notes of the occurrence
of such event and a statement in reasonable detail setting forth the method by
which the adjustment to the Exchange Ratio was determined or the change in the
consideration to be received by the Holders of the Notes following a Spin-Off
(if the Company elects to exercise its Delivery of Spin-Off Securities Option)
or a Reorganization Event and setting forth the revised Exchange Ratio or
consideration. In connection with a Spin-Off, such notice shall also include a
statement by the Company as to whether it has elected to exercise its Delivery
of Spin-Off Securities Option.
Section 9.5 Payment of Certain Taxes Upon Exchange; Tax Characterization.
------------------------------------------------------------
The Company will pay any and all taxes that may be payable in respect of
the transfer and delivery of shares of Common Stock, other securities or
property on exchange of Notes pursuant hereto. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the delivery of shares of Common Stock or other securities in a name
other than that of the Holder of the Note or Notes to be exchanged, and no such
transfer or delivery shall be made unless and until the person requesting such
transfer has
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<PAGE>
paid to the Company the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid.
The Company hereby agrees, and each Holder by such Holder's purchase of a
Note will be deemed to agree, (in the absence of an administrative determination
or judicial ruling to the contrary) to characterize the Notes for all tax
purposes as a forward purchase contract to purchase Common Stock (and Spin-Off
Securities, if any) at Maturity (including as a result of acceleration or
otherwise), under the terms of which contract (i) at the time of issuance of the
Notes the Holder deposits irrevocably with the Company a fixed amount of cash
equal to the purchase price of the Notes to assure the fulfillment of the
Holder's purchase obligation described in clause (iii) below, which deposit will
unconditionally and irrevocably be applied at Maturity to satisfy such
obligation, (ii) until Maturity the Company will be obligated to pay interest on
such deposit at a rate equal to the stated rate of interest on the Notes as
compensation to the Holder for the company's use of such cash deposit during the
term of the Note, and (iii) at Maturity such cash deposit unconditionally and
irrevocably will be applied by the Company in full satisfaction of the Holder's
obligation under the forward purchase contract, and the Company will deliver to
the Holder the number of shares of Common Stock (and Spin-Off Securities, if
any) that the Holder is entitled to receive at Maturity pursuant to the terms of
the Notes (subject to the Company's right to deliver cash in lieu of the shares
of Common Stock (and Spin-Off Securities, if any)). Consistent with the above
characterization, (i) amounts paid to the company in respect of the original
issue of the Notes will be treated as allocable in their entirety to the amount
of the cash deposit attributable to such Notes and (ii) amounts denominated as
interest that are payable with respect to the Notes will be characterized as
interest payable on the amount of such deposit, includible annually in the
income of the Holder as interest income in accordance with such Holder's method
of accounting.
Section 9.6 Shares Free and Clear.
---------------------
(a) The Company hereby represents and warrants and agrees that upon
exchange of Notes for Common Stock or other securities or property that the
Holders of the Notes shall hold good and valid title to, and become the
beneficial owners of, such Common Stock, securities or other property, free and
clear of any and all liens, claims, charges, encumbrances and equities. Except
as provided in Section 9.3(d), the Company shall pay all taxes and charges with
respect to the delivery of such Common Stock, securities or other property
delivered in exchange for Notes hereunder.
(b) The Company shall prepare and obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
laws, and shall comply with all requirements as to registration or
qualification, in order that any shares of Common stock, securities or other
property delivered upon exchange of the Notes will be freely transferable by the
Holders and not subject to any prospectus delivery or other requirements.
Notwithstanding the foregoing, if the Maturity of the Notes occurs prior to July
8, 2000 shares of Common Stock delivered may be subject to the manner of sale
limitations provided by Rule 144 under the Securities Act.
38
<PAGE>
ARTICLE 10
SUBORDINATION
Section 10.1 Agreement to Subordinate.
------------------------
The Company covenants and agrees, and each Holder, by such Holder's
acceptance of a Note, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article 10, the indebtedness
represented by the Notes and the payment of the Principal, of and interest on
each and all of the Notes are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior Indebtedness.
No provision of this Article 10 shall prevent the occurrence of any Default
or Event of Default hereunder.
Section 10.2 Payment Over of Proceeds Upon Dissolution, Etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (b) any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or with respect to all
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders are entitled to receive any payment on account
of Principal or repurchase price, if any, of or interest on the Notes, and to
that end the holders of Senior Indebtedness shall be entitled to receive, for
application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable with respect to the Notes in any such case, proceeding, liquidation,
dissolution or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this Section
10.2, the Trustee or any Holder shall have received any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, before all Senior Indebtedness is paid in full or payment thereof
provided for, then and in such event such payment or distribution shall be held
in trust by such recipient and shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payment or distribution of assets of the Company for
application in the form received to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
39
<PAGE>
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance or transfer of its properties and assets substantially as an entirety
to another Person upon the terms and conditions set forth in Article 4 shall not
be deemed a dissolution, winding-up, liquidation, reorganization, assignment for
the benefit of creditors or marshalling of assets and liabilities of the Company
for the purposes of this Section 10.2 if the Person formed by such consolidation
or into which the Company is merged or the Person which acquires by conveyance
or transfer such properties and assets substantially as an entirety, as the case
may be, shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article 4.
Section 10.3 Prior Payment to Senior Indebtedness Upon Acceleration of
---------------------------------------------------------
Notes.
-----
If any Notes are declared due and payable before their stated Maturity,
then the holders of Senior Indebtedness outstanding at the time such Notes so
become due and payable shall be entitled to receive payment in full of all
amounts due or to become due on or with respect to such Senior Indebtedness, or
provision shall be made for such payment in money or money's worth, before the
Holders are entitled to receive any payment by the Company on account of the
Principal of or interest on the Notes or on account of the purchase or other
acquisition of Notes.
If, notwithstanding the foregoing, the Company shall make any payment to
the Trustee or to any Holder prohibited by the foregoing provision of this
Section 10.3, then and in such event such payment shall be held in trust by such
recipient and shall be paid over and delivered forthwith to the Company in the
form received.
The provisions of this Section 10.3 shall not apply to any payment with
respect to which Section 10.2 would be applicable.
Section 10.4 No Payment When Senior Indebtedness in Default.
----------------------------------------------
(a) In the event and during the continuation of (i) any default in the
payment of Principal of or interest on any Senior Indebtedness beyond any
applicable grace period with respect thereto (a "Payment Default"), or (ii) any
event of default with respect to any Senior Indebtedness permitting the holders
of such Senior Indebtedness (or a trustee on behalf of the holders thereof) to
declare such Senior Indebtedness due and payable prior to the date on which it
would otherwise have become due and payable (a "Covenant Default"), provided a
Representative of such Senior Indebtedness has delivered to the Company and the
Trustee written notice of such Covenant Default, then, unless and until such
event of default shall have been cured or waived or shall have ceased to exist
or the Company and the Trustee shall have received written notice from the
Representative of the Senior Indebtedness with respect to which such event of
default relates approving payment on the Notes, no payment shall be made by the
Company with respect to the Principal or repurchase price, if any, of or
interest on the Notes or to acquire any of the Notes until such Payment Default
or Covenant Default, as the case may be, is cured or waived; provided that no
such default (other than a default in the payment of Principal) will prevent any
payment on, or with respect to, the Notes for more than 120 days unless the
maturity of such Senior Indebtedness has been accelerated. If any such delay is
made
40
<PAGE>
with respect to the Notes due to a Covenant Default, payment on the Notes may
not again be delayed due to a Covenant Default unless at least 360 days have
passed since the last payment delay period began and all scheduled payments
under the Notes that have come due since the last such delay period commenced
have been paid in full in cash.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or to any Holder prohibited by the foregoing
provision of this Section 10.4, then and in such event such payment shall be
held in trust by such recipient and shall be paid over and delivered forthwith
to the Company in the form received.
The provisions of this Section 10.4 shall not apply to any payment with
respect to which Section 10.2 would be applicable.
Section 10.5 Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article 10 or elsewhere in this Indenture or in
any of the Notes shall prevent (a) the Company, at any time except when any of
the conditions described in Section 10.2, 10.3 or 10.4 exist, from making
payments at any time of Principal or repurchase price, if any, of or interest on
the Notes or (b) the application by the Trustee of any money deposited with it
hereunder to the payment of or on account of the Principal or repurchase price,
if any, of or interest on the Notes or the retention of any such payment by the
Holders, except if, at the time of the application by the Trustee, any of the
conditions described in Section 10.2, 10.3 or 10.4 exist; provided that the
Trustee shall have no responsibility to refrain from so applying such money
unless it shall have actual knowledge of the existence of such condition.
Section 10.6 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Subject to the payment in full of all Senior Indebtedness, the Holders
shall be subrogated to the extent of the payments or distributions made to the
holders of such Senior Indebtedness pursuant to the provisions of this Article
10 (equally and ratably with the holders of all indebtedness of the Company
which is not Senior Indebtedness and which is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the Principal or repurchase price, if any, of and
interest on the Notes shall be paid in full. For purposes of such subrogation,
no payments or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which the Holders or the Trustee would be entitled
except for the provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Indebtedness by Holders or
the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders be deemed to be a payment or distribution by
the Company to or on account of Senior Indebtedness.
Section 10.7 Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article 10 are and are intended solely for the
purpose of defining the relative rights of the Holders on the
41
<PAGE>
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article 10 or elsewhere in this Indenture or in the Notes is
intended to or shall: (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders, the obligation of the Company,
which is absolute and unconditional (and which, subject to the rights under this
Article 10 of the holders of Senior Indebtedness, is intended to rank equally
with all other general obligations of the Company), to pay to the Holders the
Principal or repurchase price, if any, of and interest on the Notes as and when
the same shall become due and payable in accordance with their terms; or (b)
affect the relative rights against the Company of the Holders and creditors of
the Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article 10 of the holders of Senior Indebtedness to receive cash,
property and securities otherwise payable or deliverable to the Trustee or such
Holder.
Section 10.8 Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 10 and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes.
Section 10.9 No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by the Company or by any act
or failure to act, in good faith, by any such holder, or by any non-compliance
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders, without incurring
responsibility to the Holders and without impairing or releasing the
subordination provided in this Article 10 or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
42
<PAGE>
Section 10.10 Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee with respect to the Notes. Notwithstanding the provisions of this
Article 10 or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee with respect to the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
a holder of Senior Indebtedness or from any Representative therefor, and, prior
to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.1, shall be entitled in all respects to assume that no
such facts exist; the fact that the Trustee may so rely does not relieve the
Holders of their obligations under Section 10.3 to hold in trust any payments
received in contravention of Sections 10.2, 10.3 or 10.4.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a Representative therefor) to
establish that such notice has been given by a holder of Senior Indebtedness (or
a Representative therefor). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 10, 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.
Section 10.11 Reliance on Judicial Order or Certificate of Liquidating
--------------------------------------------------------
Agent.
-----
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee, subject to the provisions of Section 6.1, and the
Holders shall be entitled to rely upon any order or decree entered by any court
of competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding-up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness 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 10.
Section 10.12 Trustee Not Fiduciary for Holders of Senior Indebtedness.
` --------------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to, or be subject
to any implied covenants or obligations in favor of, the holders of Senior
Indebtedness and shall not be
43
<PAGE>
liable to any such holders if it shall in good faith mistakenly pay over or
distribute to Holders or to the Company or to any other Person cash, property or
securities to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article 10 or otherwise.
Section 10.13 Rights of Trustee as Holder of Senior Indebtedness;
---------------------------------------------------
Presevation of Trustee's Rights.
-------------------------------
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article 10 with respect to any Senior Indebtedness which may
at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Section 10.14 Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
-------
used in this Article 10 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 10 in addition to or in place of the Trustee; provided,
however, that Section 10.13 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE 11
MEETINGS OF HOLDERS
Section 11.1 Action by Holders.
-----------------
Whenever in this Indenture it is provided that the Holders of a specified
percentage in aggregate principal amount of the Notes may take any action
(including the making of any demand or request, the giving of any notice,
consent or waiver or the taking of any other action), the fact that at the time
of taking any such action, the Holders of such specified percentage have joined
therein may be evidenced (a) by any instrument or any number of instruments of
similar tenor executed by Holders in person or by proxy appointed in writing or
(b) by the record of the Holders voting in favor thereof at any meeting of
Holders called and held in accordance with the provisions of this Article 11.
Whenever the Company or the Trustee solicits the taking of action by the
Holders, the Company or the Trustee may fix in advance of such solicitation a
date as the record date for determining Holders entitled to take such action. If
a record date is fixed, those and only those Persons who are Holders at the
record date so fixed, or their proxies, shall be entitled to take such action
regardless of whether they are Holders at the time of such action.
44
<PAGE>
Section 11.2 Purposes for Which Meetings May Be Called.
-----------------------------------------
A meeting of Holders may be called at any time and from time to time
pursuant to the provisions of this Article 11 for any of the following purposes:
(a) to give any notice to the Company, or the Trustee, or to give any
directions to the Trustee, or to waive or to consent to the waiving of any
Default hereunder and its consequences, or to take any other action authorized
to be taken by Holders pursuant to any of the provisions of Article 5;
(b) to remove the Trustee or to appoint a successor Trustee pursuant to
the provisions of Article 6;
(c) to consent to the execution of an indenture or indentures supplemental
hereto pursuant to Section 8.2; or
(d) to take any other action (i) authorized to be taken by or on behalf of
the Holders of any specified aggregate principal amount of the Notes under any
other provision of this Indenture, or authorized or permitted by law or (ii)
which the Trustee deems necessary or appropriate in connection with the
administration of this Indenture.
Section 11.3 Manner of Calling Meetings.
--------------------------
The Trustee may at any time call a meeting of Holders to take any action
specified in Section 11.2, to be held at such time and at such place in the City
of New York, New York or such other place as the Trustee shall determine. Notice
of every meeting of Holders, setting forth the time and place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given by the Trustee, to the Company and to each Holder not less than 10 nor
more than 60 days prior to the date fixed for such meeting.
Any meeting of Holders shall be valid without notice if the Holders of all
Notes then outstanding are present in person or by proxy, or if notice is waived
before or after the meeting by all of the Holders and if the Company and the
Trustee are either present by duly authorized representatives or have, before or
after the meeting, waived notice.
Section 11.4 Call of Meetings by the Company or Holders.
------------------------------------------
In case at any time the Company or the Holders of not less than 10% in
aggregate principal amount of the Notes then outstanding, shall have requested
the Trustee to call a meeting of Holders to take any action specified in Section
11.2, by written request setting forth in reasonable detail the action proposed
to be taken at the meeting, and the Trustee shall not have given the notice of
such meeting within 20 days after receipt of such request, then the Company or
the Holders of Notes in the amount above specified may determine the time and
place in the City of New York, New York for such meeting and may call such
meeting for the purpose of taking such action, by giving or causing to be given
notice thereof as provided in Section 11.3.
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<PAGE>
Section 11.5 Who May Attend and Vote at Meetings.
-----------------------------------
To be entitled to vote at any meeting of Holders, a person shall be (a) a
Holder on the record date for such meeting or, if there is no such record date,
on the date of such meeting or (b) a Person appointed by an instrument in
writing as proxy for one or more of such Holders. The only Persons who shall be
entitled to be present or to speak at any meeting of Holders shall be the
Persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
Section 11.6 Regulations May be Made by Trustee; Conduct of the Meeting;
-----------------------------------------------------------
Voting Rights; Adjournment.
- --------------------------
Notwithstanding any other provision of this Indenture, the Trustee may make
such reasonable regulations as it may deem advisable for any meeting of Holders,
in regard to proof of the holding of Notes and of the appointment of proxies,
and in regard to the appointment and duties of inspectors of votes, the
submission and examination of proxies, certificates and other evidence of the
right to vote, and such other matters concerning the conduct of the meeting as
it shall deem appropriate.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders as provided in Section 11.4, in which case the Company or
the Holders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote.
At any meeting each Holder or proxy shall be entitled to one vote for each
principal amount of Notes equal to the Initial Price held or represented by such
Holder or proxy, as the case may be; provided, however, that no vote shall be
cast or counted at any meeting with respect to any Notes challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman of the meeting shall have no right to vote other than by virtue of
Notes held by such chairman or instruments in writing as aforesaid duly
designating such chairman as the proxy to vote on behalf of other Holders. At
any meeting of Holders, the presence (in person or by proxy) of Persons holding
or representing a majority in aggregate principal amount of the Notes then
outstanding shall be sufficient for a quorum. Any meeting of Holders duly called
pursuant to the provisions of Section 11.3 or 11.4 may be adjourned from time to
time by vote of the Holders of a majority in aggregate principal amount of the
Notes represented at the meeting and entitled to vote, and the meeting may be
held as so adjourned without further notice.
Section 11.7 Voting at the Meeting and Record to be Kept.
-------------------------------------------
The vote upon any resolution submitted to any meeting of Holders shall be
by written ballots on which shall be subscribed the signatures of the Holders or
of their representatives by proxy and the principal amount of the Notes voted by
the ballot. The permanent chairman of the
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<PAGE>
meeting shall appoint two inspectors of votes, who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Holders shall be prepared by the secretary of the meeting and there
shall be attached to such record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that such notice was given as provided in Section 11.3 or 11.4. The
record shall be signed and verified by the affidavits of the permanent chairman
and the secretary of the meeting and one of the duplicates shall be delivered to
the Company and the other to the Trustee to be preserved by the Trustee, the
latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 11.8 Exercise of Rights of Trustee or Holders May Not Be
---------------------------------------------------
Hindered or Delayed by Call of Meeting.
--------------------------------------
Nothing contained in this Article 11 shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Holders or any rights
expressly or impliedly conferred hereunder to make such call, any hindrance or
delay in the exercise of any right or rights conferred upon or reserved to the
Trustee or to the Holders under any of the provisions of this Indenture or of
the Notes.
Section 11.9 Communication by Holders with Other Holders.
-------------------------------------------
Holders may communicate pursuant to TIA (S) 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 (S)
312(c).
ARTICLE 12
MISCELLANEOUS
Section 12.1 Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required or deemed to be included in this Indenture
by the TIA, the required or deemed provision shall control.
47
<PAGE>
Section 12.2 Notices.
-------
Any notice or communication by the Company or the Trustee to the other
shall be deemed to have been duly given if given in writing and delivered in
person or mailed by first-class mail (registered or certified, return receipt
requested), telecopier or overnight air courier guaranteeing next day delivery
addressed as follows:
if to the Company:
Southwest Securities Group, Inc.
1201 Elm Street, Suite 3500
Dallas, Texas 75270
Fax No.: (214) 749-0810
Attention: President
with a copy to:
___________________
___________________
___________________
___________________
Fax No.: ( )
if to the Trustee:
___________________
___________________
___________________
___________________
Fax No. (___) ___-____
Attention: ________________
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) 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 the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be in writing and shall be
mailed by first class mail, certified or registered, return receipt requested,
or by overnight air courier guaranteeing next day delivery to its last address
shown on the Register. Any notice or communication shall also be so mailed to
any Person described in TIA (S) 313(c), to the extent
48
<PAGE>
required by the TIA. 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.
If a notice or communication is given in the manner provided above within
the time prescribed, it shall be deemed to have been duly given, whether or not
received by the addressee.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 12.3 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:
(a) an Officers' Certificate 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) at the Trustee's request, an Opinion of Counsel stating that, in the
opinion of such counsel, the proposed action does not conflict with this
Indenture.
Section 12.4 Statements Required in Certificate or Opinion of Counsel.
--------------------------------------------------------
Each Officers' Certificate or Opinion of Counsel with respect to compliance
or conflicts with a condition or covenant in this Indenture shall include:
(a) a statement that each Person executing such Officers' Certificate or
Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such Officers'
Certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of each such Person, such examination
or investigation has been made as is necessary to enable it to express an
informed opinion as to whether or not such covenant or condition has been
complied with or whether the proposed action is not in conflict with this
Indenture, as the case may be; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with or such action does not conflict
with this Indenture, as the case may be; provided, however, that an Opinion of
Counsel may be based, insofar as it relates to factual matters, on a certificate
or certificates of public officials, a legal opinion of counsel employed by the
Company or a Subsidiary or a certificate of or representations by an Officer or
Officers unless counsel rendering such Opinion of Counsel actually knows that
such certificate, legal opinion or representation is erroneous.
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<PAGE>
Section 12.5 Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable
rules and set reasonable requirements for its functions.
Section 12.6 Legal Holidays.
--------------
If a payment date is not a Business Day at a place of payment, payment may
be made at such place of payment on the next succeeding Business Day, and no
additional interest shall accrue for the intervening period.
Section 12.7 No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Notes or
this Indenture or for any claim based on, with respect to or by reason of such
obligations or their creation including with respect to any certificate
delivered thereunder or hereunder. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release contained in this Section
12.7 are part of the consideration for the Company's issuance of the Notes.
Section 12.8 Counterparts.
------------
This Indenture 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.
Section 12.9 Governing Law.
-------------
The internal laws of the state of New York shall govern this indenture and
the Notes, without regard to the conflict of laws provisions thereof.
Section 12.10 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.11 Successors.
----------
All agreements of the Company in this Indenture and the Notes shall bind
its successors and assigns. All agreements of the Trustee in this Indenture
shall bind its successors and assigns.
Section 12.12 Severability.
------------
50
<PAGE>
In case any provision of this Indenture or in 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.
Section 12.13 Table of Contents, Headings, Etc.
--------------------------------
The Table of Contents and headings of the Articles and Sections 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.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
executed as of the day and year first above written.
SOUTHWEST SECURITIES GROUP, INC.
By: ________________________________________
Name:
Title:
NORWEST BANK, MINNESOTA, NATIONAL ASSOCIATION
By: ________________________________________
Name:
Title:
51
<PAGE>
EXHIBIT A
[Face of Note]
SOUTHWEST SECURITIES GROUP, INC.
EXCHANGEABLE SUBORDINATED NOTES DUE 2004
[Global Securities Legend]
Unless this Certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), 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 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.
CUSIP No. ____________
No._________ $________________
Southwest Securities Group, Inc. promises to pay to_______________________
or registered assigns, the principal sum of __________________________________
Dollars on _______ 1, 2004 as provided in Section 1 below.
Interest Payment Dates: _______ 1,_______ 1,_______ 1 and _______ 1,
commencing _______ 1, 1999.
Record Dates: ________15, ________15, ________15 and ________15.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
SOUTHWEST SECURITIES GROUP, INC.
(SEAL) By:_____________________________
President
ATTEST:
By:______________________________
Secretary
Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
NORWEST BANK, MINNESOTA, NATIONAL ASSOCIATION
as Trustee
By:__________________________ Dated:________________________
Authorized Signature
B-1
<PAGE>
[Reverse Side]
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Indenture dated as of _______, 1999 between Southwest
Securities Group, Inc., a Delaware corporation, and Norwest Bank Minnesota,
National Association, as trustee, as amended from time to time in accordance
with its terms (the "Indenture").
1. Payment of Principal.
--------------------
(a) At Maturity, the Principal of each Note will be exchanged for
(i) shares of Common Stock at the Exchange Ratio (as defined
below); or
(ii) cash in an amount determined as set forth below,
together with any accrued and unpaid interest up to Maturity. Payment of cash
instead of Common Stock will be at the Company's sole discretion, and the
Company may elect the cash payment option with respect to any or all portion of
the Notes. For each increment of principal of the Notes equal to the Initial
Price the "Exchange Ratio" is equal to, subject to adjustment pursuant to
Section 9.3 of the Indenture:
(i) ____ shares of Common Stock, if the Maturity Price is greater
than or equal to the Threshold Appreciation Price;
(ii) a fractional share of Common Stock equal to the Initial Price
divided by the Maturity Price if the Maturity Price is less than the
Threshold Appreciation Price but is greater than the Initial Price;
and
(iii) one share of Common Stock if the Maturity Price is less than
or equal to the Initial Price.
If the Company elects the cash payment option, the amount of cash it will
deliver for each increment of principal of the Notes equal to the Initial Price
will be the cash equivalent value of such number of shares (or fractions
thereof) of Common Stock at the Maturity Price which the Company would otherwise
be required to deliver pursuant to this Section. Such number of shares of Common
Stock or amount of cash deliverable upon exchange is hereinafter referred to as
the "Exchange Consideration."
(b) On or prior to the 30th day prior to Maturity, the Company will
notify the Trustee and publish a notice in a newspaper of national circulation
published at least five days a week stating whether the principal amount of each
Note will be exchanged for shares of Common stock or cash or both. If less than
all of the outstanding Notes are to be exchanged for Common Stock, the Notes to
be exchanged will be selected by the Trustee from the outstanding Notes by lot
or pro rata (as nearly as may be) or by any other method determined by the
Trustee in its sole discretion to be equitable.
No fractional shares of Common Stock and/or other securities if a Spin-Off
or a Reorganization Event (each as defined in Section 9.3 of the Indenture) has
occurred prior to Maturity, will be issued if the Company exchanges the Notes
for shares of Common Stock and/or such securities. If more than one Note shall
be surrendered for exchange at one time by the same Holder, the number of full
shares of Common Stock and/or such other securities which will be delivered upon
exchange will be computed on the basis of the aggregate number of Notes so
surrendered at Maturity. In lieu of any fractional share of security otherwise
issuable in respect of the Notes of any Holder which are exchanged at maturity,
such Holder shall be entitled to receive an amount in cash equal to the value of
such fractional share or security at the Maturity Price (or similarly calculated
average price for a security other than Common stock).
"Maturity Price" means the average Closing Price per share of Common Stock
for the 20 Trading Days ending the Business Day prior to Maturity.
B-2
<PAGE>
The Exchange Ratio and Maturity Price are subject to adjustment as provided
in the Indenture. In addition, the Indenture provides that in the case of a
Reorganization Event or Spin-Off, the Company may deliver the cash, property or
securities received in such Reorganization Event, or the Spin-Off Securities
received in such Spin-Off, in lieu of Common Stock (or, at its option, may
deliver the cash equivalent thereof).
2. Interest.
--------
(a) The Company shall pay interest on the outstanding principal
amount of this Note at the rate of __% per annum from the date of original
issuance of any Notes under the Indenture until maturity. The Company will pay
interest quarterly on ________1, ________1, ________1, and ________1, of each
year commencing _________ 1, 1999, or if any such day is not a Business Day, on
the next succeeding Business Day. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from the date of original issuance of any Notes under the Indenture;
provided, however, that if there is no existing Default in the payment of
interest and this Note is authenticated between a record date shown on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
(b) To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue Principal of the Notes at the rate borne by the Notes and (ii) overdue
installments of interest on the Notes at the rate borne by the Notes.
3. Method of Payment. The Company will pay interest (except defaulted
-----------------
interest) on the Notes to those persons who are Holders at the close of business
on the record date shown on the face hereof next preceding the applicable
Interest Payment Date (even if such Notes are cancelled after such record date
and on or before such Interest Payment Date). Defaulted interest shall be paid
to Holders as of a special record date established for purposes of determining
the Holders entitled thereto. The Notes will be payable as to Principal and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, as set forth in the Indenture,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the Register or by wire
transfer of immediately available funds. Cash payments shall be in the currency
of the United States of America which at the time of payment is legal tender for
payment of public and private debts.
4. Paying Agent and Registrar. Initially, the Trustee will act as
--------------------------
Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any Subsidiary may act
in any such capacity.
5. Indenture. The Company issued the Notes under the Indenture. The
---------
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act of 1939 for a statement of such terms. The Notes are
general unsecured obligations of the Company limited to $150,000,000 in
aggregate principal amount, subject to Section 2.7 of the Indenture.
6. Mandatory Redemption. The Notes may not be redeemed or exchanged
--------------------
for Exchange Consideration prior to maturity.
7. Subordination. The Notes are subordinated to Senior Indebtedness.
-------------
To the extent provided in the Indenture, Senior Indebtedness must be paid before
the Notes may be paid. The Company agrees, and each Holder by accepting a Note
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give effect to such provisions, and each Holder
appoints the Trustee its attorney-in-fact for any and all such purposes.
8. Denominations, Transfer, Exchange. The Notes are in registered form
---------------------------------
without coupons in denominations of $____ and integral multiples of $____. A
Holder may transfer or exchange Notes as provided in the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture.
B-3
<PAGE>
9. Persons Deemed Owners. The registered Holder of a Note may be
---------------------
treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions for which the
----------------------
consent of each Holder is required, the Indenture or the Notes may be amended
with the consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding and any existing Default (except a payment
default) may be waived with the consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding. Without the consent
of any Holder, the Company and the Trustee may amend or supplement the Indenture
or the Notes to (i) cure any ambiguity, defect or inconsistency, provided that
such amendment does not adversely affect the rights of any Holder, (ii) provide
for uncertificated Notes in addition to or in lieu of certificated Notes, (iii)
comply with Section 4.1 of the Indenture, (iv) make any change that does not
adversely affect the rights of any Holder, (v) comply with requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
TIA and (vi) add to the covenants of the Company.
11. Defaults and Remedies. Events of Default include: (a) failure to
---------------------
pay any Principal of any Note when due and payable, regardless of whether such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due and payable, which failure
continues for 30 days, regardless of whether such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform the other
covenants of the Company in the Indenture, which failure continues for 60 days
after written notice as provided in the Indenture; (d) default (after giving
effect to any applicable grace periods or any extension of any maturity date) in
payment when due of Principal of, or an acceleration of, any indebtedness for
money borrowed by the Company or any Subsidiary in excess of $5.0 million,
individually or in the aggregate, if such indebtedness is not discharged, or
such acceleration is not annulled, within ten days after written notice as
provided in the Indenture; and (e) certain events of bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary and (f) any judgment
or decree for the payment of money in excess of $1.0 million (to the extent not
covered by insurance) is rendered against the Company or any Significant
Subsidiary and such judgment or decree shall remain undischarged or unstayed for
a period of 60 days after such judgment or decree becomes final and non-
appealable. If an Event of Default shall occur and be continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may accelerate the maturity of all Notes, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes shall immediately so accelerate. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Notes at the request or direction of any of the Holders. Subject to certain
limitations, the Holders of a majority in aggregate principal amount of the
outstanding Notes will 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. The Company must furnish an annual
compliance certificate to the Trustee.
12. Trustee Dealings with Company. The Trustee, in its individual or
-----------------------------
any other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if were not Trustee; provided, however, that if the Trustee
acquires any conflicting interest as described in the Trust Indenture Act of
1939, it must eliminate such conflict or resign.
13. No Recourse Against Others. A director, officer, employee,
--------------------------
incorporator or stockholder of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, with respect to, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release contained in Article 12 of the Indenture are
part of the consideration for the Company's issuance of the Notes.
14. Tax Characterization. By its purchase of a Note, each Holder hereby
--------------------
agrees with the Company (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize this Note for all tax purposes
as a forward purchase contract to purchase Common Stock (and Spin-Off
Securities, if any) at Maturity (including as a result of acceleration or
otherwise), under the terms of which contract (i) at the time of issuance of
this Note the Holder deposits irrevocable with the Company a fixed amount of
cash equal to the purchase price of the Note to assure the fulfillment of the
Holder's purchase obligation described in clause (iii) below, which deposit will
unconditionally and irrevocably be applied at Maturity to satisfy such
obligation, (ii) until Maturity the Company will be obligated to pay interest on
such deposit at a rate equal to the stated rate of interest on this Note as
compensation to the Holder for the Company's use of such cash deposit during the
term hereof, and (iii) at Maturity such cash deposit unconditionally and
irrevocably be applied by the Company in full satisfaction of the Holder's
obligation under the forward purchase contract, and the Company will deliver to
the Holder the number of shares of
B-4
<PAGE>
Common Stock (and Spin-Off Securities, if any) that the Holder is entitled to
receive at Maturity pursuant to the terms of this Note (subject to the Company's
right to deliver cash in lieu of the shares of Common Stock (and Spin-Off
Securities, if any)). Consistent with the above characterization (i) amounts
paid to the Company in respect of the original issue of this Note will be
treated as allocable in their entirety to the amount of the cash deposit
attributable to such Note and (ii) amounts denominated as interest that are
payable with respect to the Note will be characterized as interest payable on
the amount of such deposit, includible annually in the income of the Holder as
interest income in accordance with such Holder's method of accounting.
13. Authentication. This Note shall not be valid until authenticated by
--------------
the manual signature of the Trustee or an authenticating agent.
14. 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 entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
SOUTHWEST SECURITIES GROUP, INC.
1201 Elm Street, Suite 3500
Dallas, Texas 75270
Attention: President
B-5
<PAGE>
SCHEDULE OF EXCHANGES OF GLOBAL SECURITY
FOR DEFINITIVE SECURITIES
The following exchanges of this Global Security for Definitive Securities
have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount
decrease in Amount of increase of this Global Signature of
Principal Amount in Principal Security following authorized officer
of this Global Amount of this such decrease or of Trustee or Notes
Date of Exchange Security Global Security increase) Custodian
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
B-6
<PAGE>
ASSIGNMENT FORM
(I) or (we) assign and transfer this Note to
_____________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ agent to transfer this
Note on the Register. The agent may substitute another to act for him.
Date: ___________
Signature:_____________________________________________
(exactly as your name appears on the face of this Note)
Name: _______________________________________________
Title:_______________________________________________
Address:_____________________________________________
Phone No.:___________________________________________
Date:________________________________________________
Signature Guaranteed:
By: ________________________________________
This signature shall be guaranteed by an eligible guarantor
institution (a bank or trust company having an office or
correspondent in the United States or a broker or
dealer which is a member of a registered securities
exchange or the National Association of Securities
Dealers, Inc.) with membership in an approved signature
guaranty medallion program pursuant to SEC Rule 17Ad-15.
B-7
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - Definitions and Incorporation by Reference............................................................ 1
Section 1.1 Definitions................................................................................ 1
Section 1.2 Other Definitions.......................................................................... 5
Section 1.3 Incorporation by Reference of Trust Indenture Act.......................................... 6
Section 1.4 Rules of Construction...................................................................... 6
ARTICLE 2 - The Notes............................................................................................. 7
Section 2.1 Form and Dating............................................................................ 7
Section 2.2 Execution and Authentication............................................................... 7
Section 2.3 Registrar and Paying Agent................................................................. 8
Section 2.4 Paying Agent to Hold Money and Common Stock in Trust....................................... 8
Section 2.5 Holder Lists............................................................................... 9
Section 2.6 Transfer and Exchange...................................................................... 9
Section 2.7 Global Securities.......................................................................... 10
Section 2.8 Replacement Notes.......................................................................... 12
Section 2.9 Outstanding Notes.......................................................................... 12
Section 2.10 Treasury Notes............................................................................. 13
Section 2.11 Temporary Notes............................................................................ 13
Section 2.12 Cancellation............................................................................... 13
Section 2.13 Defaulted Interest......................................................................... 14
Section 2.14 Deposit of Moneys and Common Stock......................................................... 14
ARTICLE 3 - Covenants............................................................................................. 14
Section 3.1 Payment of Notes........................................................................... 14
Section 3.2 Stay, Extension and Usury Laws............................................................. 15
Section 3.3 Continued Existence........................................................................ 15
Section 3.4 Reports.................................................................................... 15
Section 3.5 Taxes...................................................................................... 16
Section 3.6 Convertible or Exchangeable Debt Issued by Subsidiaries.................................... 16
Section 3.7 Compliance Certificate..................................................................... 16
Section 3.8 Further Assurance to the Trustee........................................................... 17
ARTICLE 4 - Successors............................................................................................ 17
Section 4.1 When Company May Merge or Sell Assets...................................................... 17
Section 4.2 Successor Substituted...................................................................... 18
ARTICLE 5 - Defaults and Remedies................................................................................. 18
Section 5.1 Events of Default.......................................................................... 18
Section 5.2 Acceleration............................................................................... 20
Section 5.3 Other Remedies............................................................................. 20
Section 5.4 Waiver of Existing and Past Defaults....................................................... 20
Section 5.5 Control by Majority........................................................................ 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 5.6 Limitation on Suits........................................................................ 21
Section 5.7 Rights of Holders to Receive Payment....................................................... 21
Section 5.8 Collection Suit by Trustee................................................................. 22
Section 5.9 Trustee May File Proofs of Claim........................................................... 22
Section 5.10 Priorities................................................................................. 22
Section 5.11 Undertaking for Costs...................................................................... 23
ARTICLE 6 - Trustee............................................................................................... 23
Section 6.1 Duties of Trustee.......................................................................... 23
Section 6.2 Rights of Trustee.......................................................................... 24
Section 6.3 Individual Rights of Trustee............................................................... 24
Section 6.4 Trustee's Disclaimer....................................................................... 25
Section 6.5 Notice of Defaults......................................................................... 25
Section 6.6 Reports by Trustee to Holders.............................................................. 25
Section 6.7 Compensation and Indemnity................................................................. 25
Section 6.8 Replacement of Trustee..................................................................... 26
Section 6.9 Successor Trustee by Merger................................................................ 27
Section 6.10 Eligibility; Disqualification.............................................................. 27
Section 6.11 Preferential Collection of Claims Against Company.......................................... 27
ARTICLE 7 - Discharge of Indenture................................................................................ 28
Section 7.1 Termination of Company's Obligations....................................................... 28
Section 7.2 Repayment to Company....................................................................... 28
ARTICLE 8 - Amendments............................................................................................ 28
Section 8.1 Without Consent of Holders................................................................. 28
Section 8.2 With Consent of Holders.................................................................... 29
Section 8.3 Compliance with Trust Indenture Act........................................................ 30
Section 8.4 Revocation and Effect of Consents.......................................................... 30
Section 8.5 Notation on or Exchange of Notes........................................................... 31
Section 8.6 Trustee Protected.......................................................................... 31
ARTICLE 9 - Payment of Notes in Common Stock...................................................................... 31
Section 9.1 Payment of Principal at Maturity........................................................... 31
Section 9.2 No Fractional Shares....................................................................... 32
Section 9.3 Adjustment of Exchange Ratio............................................................... 32
Section 9.4 Notice of Adjustments and Certain Other Events............................................. 37
Section 9.5 Payment of Certain Taxes Upon Exchange; Tax Characterization............................... 37
Section 9.6 Shares Free and Clear...................................................................... 38
ARTICLE 10 - Subordination ...................................................................................... 39
Section 10.1 Agreement to Subordinate................................................................... 39
Section 10.2 Payment Over of Proceeds Upon Dissolution, Etc............................................. 39
Section 10.3 Prior Payment to Senior Indebtedness Upon Acceleration of Notes............................ 40
Section 10.4 No Payment When Senior Indebtedness in Default............................................. 40
Section 10.5 Payment Permitted If No Default............................................................ 41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 10.6 Subrogation to Rights of Holders of Senior Indebtedness.................................... 41
Section 10.7 Provisions Solely to Define Relative Rights................................................ 41
Section 10.8 Trustee to Effectuate Subordination........................................................ 42
Section 10.9 No Waiver of Subordination Provisions...................................................... 42
Section 10.10 Notice to Trustee.......................................................................... 43
Section 10.11 Reliance on Judicial Order or Certificate of Liquidating Agent............................. 43
Section 10.12 Trustee Not Fiduciary for Holders of Senior Indebtedness................................... 43
Section 10.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights....... 44
Section 10.14 Article Applicable to Paying Agents........................................................ 44
ARTICLE 11 - Meetings of Holders.................................................................................. 44
Section 11.1 Action by Holders.......................................................................... 44
Section 11.2 Purposes for Which Meetings May Be Called.................................................. 45
Section 11.3 Manner of Calling Meetings................................................................. 45
Section 11.4 Call of Meetings by the Company or Holders................................................. 45
Section 11.5 Who May Attend and Vote at Meetings........................................................ 46
Section 11.6 Regulations May be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment..... 46
Section 11.7 Voting at the Meeting and Record to be Kept................................................ 46
Section 11.8 Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting. 47
Section 11.9 Communication by Holders with Other Holders................................................ 47
ARTICLE 12 - Miscellaneous........................................................................................ 47
Section 12.1 Trust Indenture Act Controls............................................................... 47
Section 12.2 Notices.................................................................................... 48
Section 12.3 Certificate and Opinion as to Conditions Precedent......................................... 49
Section 12.4 Statements Required in Certificate or Opinion of Counsel................................... 49
Section 12.5 Rules by Trustee and Agents................................................................ 50
Section 12.6 Legal Holidays............................................................................. 50
Section 12.7 No Recourse Against Others................................................................. 50
Section 12.8 Counterparts............................................................................... 50
Section 12.9 Governing Law.............................................................................. 50
Section 12.10 No Adverse Interpretation of Other Agreements.............................................. 50
Section 12.11 Successors................................................................................. 50
Section 12.12 Severability............................................................................... 50
Section 12.13 Table of Contents, Headings, Etc........................................................... 51
</TABLE>
EXHIBITS
Exhibit A - Form of Note
<PAGE>
EXHIBIT 5.1
June 7, 1999
Southwest Securities Group, Inc.
1201 Elm Street, Suite 3500
Dallas, Texas 75270
Ladies and Gentlemen:
We have served as counsel for Southwest Securities Group, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended (the "1933 Act), of up to $57,500,000 of Derivative Adjustable Ratio
Securities, to be evidenced by __% Exchangeable Subordinated Notes due 2004 (the
"Notes").
We have examined the Registration Statement, the Indenture between the
Company and Norwest Bank Minnesota, N.A., as Trustee, pursuant to which the
Notes are to be issued (the "Indenture"), the form of the Notes to be issued and
such other documents and such questions of law as we have deemed necessary to
render the opinion expressed below.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as copies, and the authenticity of the originals of
such copied documents. We have also assumed, with respect to all persons and
entities other than the Company, the power (corporate or otherwise) of such
persons or entities to enter into and perform all of their obligations under the
Indenture, the due authorization by all requisite action (corporate otherwise)
on the part of such persons or entities, the due execution and delivery by such
persons or entities of such document, and the validity and binding effect
thereof. As to any facts material to the opinion expressed herein that we did
not independently establish or verify, we have relied upon oral or written
statements, certificates and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, and subject to the qualifications set forth
below, we are of the opinion that when the Notes are executed and authenticated
in accordance with the terms of the Indenture and delivered in the manner and
for the consideration described in the Registration Statement, the Notes will be
binding and enforceable obligations of the Company.
The opinion expressed above is subject to the following qualifications:
A. The binding nature and enforceability of the Notes may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or transfer, and other similar laws affecting the enforcement of creditors'
rights generally and (ii) equitable principles of general application and
judicial
<PAGE>
discretion that may limit or affect the availability or grant of certain
equitable remedies in certain instances. In addition, the binding nature and
enforceability of certain of the remedial, waiver and other provisions of the
Notes, or of the Indenture for the Notes, may be restricted by applicable state
law, but such restrictions will not, in our opinion, render the Notes invalid as
a whole or substantially interfere with the realization of the principal legal
benefits purported to be provided by the Notes or by the Indenture for the Notes
(except to the extent of any procedural delay which may result therefrom).
Further, the binding nature and enforceability of the indemnification provisions
of the Indenture may be limited by public policies embodied in or reflected by
various state and federal securities laws.
B. The opinion expressed herein is limited to the laws of the United
States of America and the laws of the State of Texas, and we assume no
responsibility as to the applicability or the effect of any other laws. We have
assumed that the laws of the State of New York, which purport to govern the
Notes and the Indenture, are the same as the laws of the State of Texas with
respect to the binding nature and enforceability of the Notes.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
under the heading "Legal Matters." Our consent, however, is not an admission
that we come within the category of persons whose consent is required under
Section 7 of the 1933 Act or the rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ David R. Earhart
--------------------------
David R. Earhart, Partner
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Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Southwest Securities Group, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Dallas, TX
June 8, 1999
