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As filed with the Securities and Exchange Commission on October 7, 1997.
Registration No. 333-34485
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-----------------------------
MAXCOR FINANCIAL GROUP INC.
(Exact name of registrant as specified in its charter)
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Delaware 6163 59-3262958
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification Number)
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Two World Trade Center
84th Floor
New York, New York 10048
(212) 748-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
-----------------------------
Gilbert D. Scharf
Chairman of the Board, Chief Executive Officer and President
Maxcor Financial Group Inc.
Two World Trade Center
84th Floor
New York, New York 10048
(212) 748-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------------
Copies to:
David Alan Miller, Esq. Roger E. Schwed, Esq.
Graubard Mollen & Miller General Counsel
600 Third Avenue Maxcor Financial Group Inc.
New York, New York 10016 Two World Trade Center, 84th Floor
Telephone: (212) 818-8800 New York, New York 10048
Fax: (212) 818-8881 Telephone: (212) 748-7000
Fax: (212) 748-7329
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, 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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities, in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1997, SUBJECT TO COMPLETION
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MAXCOR FINANCIAL GROUP INC.
Offer to Exchange 0.1667 of a Share of Common Stock
for Each and Every Outstanding
Redeemable Common Stock Purchase Warrant
and
Series B Redeemable Common Stock Purchase Warrant
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ______, 1997,
UNLESS EXTENDED. THE EXCHANGE OFFER IS CONDITIONED UPON AT LEAST 95% OF THE
AGGREGATE OUTSTANDING WARRANTS BEING VALIDLY TENDERED AND NOT WITHDRAWN AND
CERTAIN OTHER CONDITIONS. WARRANTS TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE AND, UNLESS PREVIOUSLY ACCEPTED FOR EXCHANGE,
AT ANY TIME AFTER 5:00 P.M. NEW YORK CITY TIME ON _____________, 1997.
- --------------------------------------------------------------------------------
Maxcor Financial Group Inc. (the "Company") hereby offers upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (as either may be amended from time to time, the "Exchange
Offer"), to exchange 0.1667 of a share (the "Exchange Ratio") of its common
stock, par value $.001 per share ("Common Stock"), for each and every of its
outstanding Redeemable Common Stock Purchase Warrants ("Series A Warrants") and
Series B Redeemable Common Stock Purchase Warrants ("Series B Warrants" and
together with the Series A Warrants, the "Warrants"). Accordingly, the Company
will issue one whole share of Common Stock in exchange for every six Warrants
(either Series A Warrants, Series B Warrants or both) tendered and accepted by
the Company for exchange pursuant to the Exchange Offer. No fractional shares of
Common Stock will be issued as a result of the Exchange Offer. Holders of
Warrants who tender a number of Warrants not evenly divisible by six and who
would otherwise therefore be entitled to a fractional share of Common Stock will
receive cash in lieu of such fractional amount. See "The Exchange Offer." Under
the Company's Stockholder Rights Plan, one Right to purchase one one-hundredth
of a share of the Company's Series A Junior Participating Preferred Stock will
be issued with and solely represented by each share of Common Stock that is
issued to a Warrant holder in exchange for his or her Warrants. See "Description
of Capital Stock - Series A Junior Participating Preferred Stock."
Neither the Company nor its Board of Directors is making any
recommendation to holders of the Warrants as to whether or not to tender their
Warrants in the Exchange Offer. However, all directors and executive officers of
the Company and all stockholders beneficially owning 5% or more of the
outstanding Common Stock have indicated to the Company their current intention
to tender in the Exchange Offer all of the Warrants owned by them. See
"Background of the Exchange Offer." Such persons and entities in the aggregate
own 7,299,850 (or approximately 49%) of the outstanding Warrants. See "Principal
Stockholders." In addition, certain of the same directors, executive officers
and 5% stockholders, beneficially owning in the aggregate 7,197,345 (or
approximately 48%) of the outstanding Warrants, are in any event obligated,
pursuant to a Security Transfer Agreement entered into with the Company in March
1996, to tender for exchange (and not withdraw) in the Exchange Offer their
Warrants in numbers at least proportionate to the aggregate tenders of Warrants
by all other holders in the Exchange Offer. See "Background of the Exchange
Offer - Security Transfer Agreement."
The Common Stock, Series A Warrants and Series B Warrants are currently
trading on the Nasdaq National Market under the symbols MAXF, MAXFW and MAXFZ,
respectively. The closing sales prices of the Common Stock, Series A Warrants
and Series B Warrants as reported on the Nasdaq National Market on August 20,
1997, the last full trading day prior to the Company's initial announcement of
the Exchange Ratio and other terms of the Exchange Offer, was $3.25, $.344, and
$.25, respectively. The closing sales prices of the Common Stock and Series A
Warrants reported on the Nasdaq National Market on October __, 1997, the last
full trading day for which information was available prior to the printing of
this Prospectus, were $____, ____, and $____, respectively.
Notwithstanding any other provision of the Exchange Offer, the Company
reserves the right to terminate or not proceed with the Exchange Offer, or to
extend or otherwise amend the Exchange Offer, if, among other things, there is
not validly tendered prior to the Expiration Date (as hereinafter defined) and
not withdrawn a minimum of 95% of the aggregate outstanding Warrants (the
"Minimum Condition"). The Exchange Offer is also conditioned upon certain other
customary conditions. Any or all of the conditions of the Exchange Offer, if not
satisfied in the Company's reasonable discretion, may be waived by the Company
in whole or in part at any time prior to the Expiration Date, subject to
applicable law. See "The Exchange Offer - Conditions of the Exchange Offer."
In evaluating the Exchange Offer, Warrant Holders are strongly urged to
read and consider carefully the factors described under "Risk Factors" on pages
9 through 13 below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October __, 1997
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NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED HEREIN, IN CONNECTION WITH THE
SOLICITATION AND THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF THE SALE OF,
OR AN OFFER TO SELL, OR A SOLICITATION OF THE PURCHASE OF, OR AN OFFER TO
PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
IN CONNECTION WITH THIS OFFERING, CERTAIN BROKER-DEALERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK AND WARRANTS OF THE
COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "THE EXCHANGE
OFFER -- PAYMENT OF SOLICITATION FEES."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form S-4 ("Registration Statement")
under the Securities Act of 1933, as amended ("Securities Act"), with respect to
all of the Common Stock that may be issued in the Exchange Offer. For the
purposes hereof, the term "Registration Statement" means the original
Registration Statement and any and all amendments, schedules and exhibits
thereto and any financial statements, notes and schedules filed as a part
thereof. The Company has also filed with the Commission a Schedule 13E-4
("Schedule 13E-4") pursuant to the Securities Exchange Act of 1934, as amended
("Exchange Act"), in connection with the Exchange Offer. In accordance with the
rules and regulations of the Commission, this Prospectus does not contain all of
the information set forth in the Registration Statement and the Schedule 13E-4.
Each statement made in this Prospectus concerning a document filed as an exhibit
to the Registration Statement or the Schedule 13E-4 is qualified in its entirety
by reference to such exhibit for a complete statement of its provisions. For
further information pertaining to the Company and the Common Stock offered in
the Exchange Offer, reference is made to the Registration Statement and the
Schedule 13E-4. The Registration Statement and the Schedule 13E-4 may be
inspected and copied at the public reference facilities maintained by the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 ("Washington Office"), or at its regional
offices at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661 ("Chicago Office"), and at Seven World Trade Center, 13th Floor,
New York, New York 10048 ("New York Office"). Any interested party may obtain
copies of all or any portion of the Registration Statement at prescribed rates
from the Public Reference Section of the Commission at its Washington Office.
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied (at prescribed
rates) at the Commission's Washington Office, Chicago Office and New York
Office. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants (including
the Company) that file electronically with the Commission. The Web site can be
reached at http://www.sec.gov. In addition, reports, proxy statements and other
information concerning the Company can be inspected and copied at the offices of
the Nasdaq National Market, 1745 K Street, N.W., Washington, D. C. 20006.
2
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by the
Company are incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
(2) The Company's Current Reports on Form 8-K dated June 18, 1997
and August 28, 1997, filed pursuant to Section 13 of the
Exchange Act.
(3) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997.
(4) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997.
Each document or report filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
hereof and prior to the termination of the offering of the Common Stock pursuant
to the Exchange Offer shall be deemed to be incorporated by reference into this
Prospectus and to be a part of this Prospectus from the date of filing of such
document. Any statement contained herein, or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which 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's Annual Report on Form 10-K for the year ended December
31, 1996 and its Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 accompany delivery of this Prospectus.
This Prospectus incorporates certain other documents by reference which
are not present herein or delivered herewith. Copies of any such documents filed
by the Company, including exhibits to such documents, are available to any
registered holder or beneficial owner of the Warrants upon written or oral
request and without charge from the Company. Telephone requests may be directed
to the Company's General Counsel at (212) 748-7000. In order to ensure timely
delivery of the documents, any such request should be made by October __, 1997.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including notes thereto,
appearing or incorporated by reference elsewhere in this Prospectus. Each holder
of Warrants contemplating the Exchange Offer is urged to read this Prospectus in
its entirety.
The Company
The Company, through its subsidiaries and affiliates, is a leading
domestic and international inter-dealer brokerage firm, specializing in emerging
market debt, money market instruments, derivatives, natural gas and electricity,
repurchase agreements and other fixed income securities. The Company conducts
its business through principal offices in New York, London, Tokyo, Toronto,
Sydney and Mexico City and by means of correspondent relationships with other
brokers throughout the world.
The Company functions primarily as an intermediary, matching up the
trading needs of its customers, who are primarily well-capitalized banks,
investment banks and broker-dealers. The Company assists its customers in
executing trades by identifying counterparties with reciprocal interests. The
Company provides its services through an international network of brokers who
service direct phone lines to most of the Company's clients and through
proprietary screen systems and other delivery systems that provide customers
with historical data and real-time pricing information in the Company's various
products.
The Company was incorporated under the laws of the State of Delaware in
August 1994 under the name Financial Services Acquisition Corporation. In
December 1994, the Company consummated an initial public offering ("IPO") and
raised net proceeds of approximately $20 million. In August 1996, a newly
formed, wholly-owned subsidiary of the Company merged (the "Merger") with and
into Euro Brokers Investment Corporation ("EBIC"), thereby acquiring its
inter-dealer brokerage business. In June 1997, the Company changed its name to
Maxcor Financial Group Inc. See "History of the Company." The Company's
principal executive office and mailing address is Two World Trade Center, 84th
Floor, New York, New York 10048 and the telephone number is (212) 748-7000.
The Exchange Offer
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The Offer........................... Subject to the terms and conditions
of the Exchange Offer, the Company
is offering to exchange 0.1667 of a
share of its Common Stock for each
and every of its outstanding
Warrants. Accordingly, the Company
will issue one whole share of its
Common Stock for every six Warrants
(either Series A Warrants, Series B
Warrants or both) tendered and
accepted by the Company for exchange
pursuant to the Exchange Offer. No
fractional shares of Common Stock
will be issued. Holders of Warrants
who would otherwise be entitled to a
fractional share of Common Stock
will receive cash in lieu of such
fractional amounts. Under the
Company's Stockholder Rights Plan,
one right (a "Right") to purchase
one one-hundredth of a share of the
Company's Series A Junior
Participating Preferred Stock will
be issued with and solely
represented by each share of Common
Stock that is issued to a Warrant
holder in exchange for his or her
Warrants. See "The Exchange Offer"
and "Description of Capital Stock -
Series A Junior Participating
Preferred Stock."
Expiration Date..................... 5:00 p.m., New York City time, on
______ __, 1997, unless extended.
See "The Exchange Offer - Expiration
Date; Extensions; Termination;
Amendments."
The Warrants........................ At October 3, 1997, there were
outstanding 7,566,666 Series A
Warrants (issued in connection
with the IPO) and 7,451,610
Series B Warrants
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3
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(issued in connection with the
Merger and economically identical in
their terms to the Series A
Warrants). Each Warrant currently
entitles the holder thereof to
purchase one share of Common Stock
for $5.00, subject to adjustment in
certain events. Provided that a
current prospectus with respect to
the Common Stock is in effect, the
Warrants may be exercised at any
time until November 30, 2001. The
Warrants are subject to redemption
by the Company under certain
circumstances. See "Description of
Capital Stock -- Warrants."
Purpose of
Exchange Offer.................... To retire all or substantially all
of the Warrants through the issuance
of Common Stock in order to simplify
the Company's capital structure,
reduce the potential future dilutive
impact on the Company's earnings per
share that could be caused by the
Warrants and eliminate any overhang
on the Common Stock price from the
existence of the Warrants.
No Company or Board
Recommendation.................... Neither the Company nor its Board of
Directors is making any
recommendation to holders of the
Warrants as to whether or not to
tender their Warrants in the
Exchange Offer. However, all
directors and named executive
officers of the Company and all
stockholders beneficially owning 5%
or more of the outstanding Common
Stock have indicated to the Company
their current intention to tender in
the Exchange Offer all of the
Warrants owned by them. See
"Background of the Exchange Offer."
Such persons and entities in the
aggregate own 7,299,850 (or
approximately 49%) of the
outstanding Warrants. See "Principal
Stockholders."
Security Transfer Agreement.......... Pursuant to a Security Transfer
Agreement entered into with the
Company at the time of the Merger,
certain directors, executive
officers and 5% stockholders of the
Company beneficially owning in the
aggregate 7,197,345 (or
approximately 48%) of the
outstanding Warrants, are obligated
to tender for exchange (and not
withdraw) in the Exchange Offer
Warrants owned by them in numbers at
least proportionate to the aggregate
tenders of Warrants by all other
holders in the Exchange Offer. See
"Background of the Exchange Offer -
Security Transfer Agreement."
Conditions of the Exchange
Offer............................. The Exchange Offer is subject to the
Minimum Condition that at least 95%
(or 14,267,362) of the aggregate
15,018,276 outstanding Warrants are
validly tendered and not withdrawn
prior to the Expiration Date and to
certain other customary conditions,
any or all of which, if not
satisfied in the Company's
reasonable discretion, may be waived
by the Company, in whole or in part
at any time prior to the Expiration
Date, subject to applicable law. See
"The Exchange Offer - Conditions of
the Exchange Offer."
Effects of the Exchange Offer
on the Company.................... In the absence of the Exchange
Offer, an additional 15,018,276
shares of Common Stock would be
issued if all of the currently
outstanding Warrants were exercised,
and the Company would receive the
proceeds of such exercises. Assuming
consummation of and 100%
participation in the Exchange Offer,
an additional 2,503,046 shares of
Common Stock would be issued and all
of the outstanding Warrants would be
extinguished without the making to
the Company of any exercise
payments. The Exchange Offer will
have no effect on the Company's
total stockholders' equity (other
than transaction costs). The
Exchange
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5
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Offer will initially have a dilutive
effect on the Company's earnings per
share of Common Stock and on other
per share measurements such as per
share book value or per share voting
power because there will be more
shares of Common Stock outstanding.
See "Background of The Exchange
Offer," "Selected Consolidated
Financial Information" and "Certain
Pro Forma Effects of the Exchange
Offer."
Effects of the Exchange Offer
on Exchanging Holders
of Warrants....................... Holders of Warrants who exchange
their Warrants pursuant to the
Exchange Offer will: (i) receive
whole shares of Common Stock for
their Warrants in accordance with
the Exchange Ratio, without the
requirement of making any exercise
payment, (ii) receive a cash
payment, without interest, for any
fractional interest in a share of
Common Stock that they would
otherwise be entitled to pursuant to
the Exchange Ratio, (iii) be able to
vote such Common Stock on all
matters that may come before the
holders of the Common Stock, (iv) be
able to receive dividends on such
Common Stock, if any, when declared
and paid by the Company and (v)
participate as a holder of such
Common Stock in proceeds from
liquidation of the Company after
creditors and preferred security
holders, if any, are paid.
Exchanging Warrant holders, however,
will lose the right to purchase, at
any time until November 30, 2001, a
share of Common Stock for $5.00, for
each Warrant held, and may be
subject to certain tax consequences
as a result of the Exchange Offer.
See "Background of the Exchange
Offer" and "Certain United States
Federal Income Tax Considerations."
Effects of the Exchange Offer
on Non-Exchanging Holders
of Warrants....................... Holders of Warrants who do not
participate in the Exchange Offer
will retain the right to purchase,
at any time until November 30, 2001,
a share of Common Stock for $5.00
for each Warrant held, subject to
the Company's right to redeem the
Warrants under certain
circumstances. See "Description of
Capital Stock - Warrants." If the
Exchange Offer is consummated, the
Company intends to delist the
Warrants from trading on the Nasdaq
National Market and to deregister
the Warrants pursuant to the
Exchange Act. In such event, the
trading market for, and the
liquidity of an investment in, the
Warrants remaining outstanding would
be significantly reduced. Warrant
holders do not have any appraisal or
dissenters' rights under the General
Corporation Law of the State of
Delaware. See "The Exchange Offer -
Terms of the Exchange Offer."
Procedures for
Tendering Warrants................ Each holder of Warrants who wishes
to tender such Warrants must, in
order to tender such Warrants
validly, deliver or cause to be
delivered to the Exchange Agent at
the address set forth herein prior
to 5:00 p.m., New York City time, on
the Expiration Date, a properly
completed Letter of Transmittal,
executed by the registered holder of
such Warrants, or an Agent's Message
(as defined below) made in
connection with a book-entry
delivery of such Warrants, and any
other documents required by the
Letter of Transmittal. In addition,
prior to such time either (i) the
certificates for such Warrants must
be delivered to the Exchange Agent
or (ii) such Warrants must be
tendered pursuant to the procedures
for book-entry transfer set forth
under "The Exchange Offer--Procedure
for Tendering" and a confirmation of
receipt of such Warrants received by
the Exchange Agent. Alternatively,
if Warrant certificates are not
immediately available or time does
not otherwise permit compliance with
the foregoing procedures, a holder
of Warrants may tender his or her
Warrants by complying with the
guaranteed delivery procedures set
forth under "The Exchange Offer--
Guaranteed Delivery Procedure,"
which, among other things, requires
the delivery to the Exchange Agent
prior to 5:00 p.m., New York City
time, on the Expiration Date of a
properly completed and duly executed
Notice of Guaranteed Delivery or an
Agent's Message with respect to
guaranteed delivery. Any holder of
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6
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Warrants whose Warrants are
registered in the names of brokers,
dealers, commercial banks, trust
companies or nominees are urged to
contact such registered holders
promptly if such holder wishes to
accept the Exchange Offer. Warrants
should not be sent to the Company.
Withdrawal of Tenders............... Tenders of Warrants may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date or, unless previously accepted
for exchange, after 5:00 p.m., New
York City time, on ____________ ___,
1997. See "The Exchange Offer -
Withdrawal Rights."
Acceptance of Warrants and
Delivery of Common Stock.......... Subject to the terms and conditions
of the Exchange Offer, the Company
will accept, by giving oral or
written notice to the Exchange Agent
promptly after the Expiration Date,
all Warrants properly tendered and
not withdrawn prior to 5:00 p.m.,
New York City time, on the
Expiration Date. The Company will
deliver shares of Common Stock
pursuant to the Exchange Offer (and
any cash payment in lieu of
fractional interests) promptly
following any such acceptance. See
"The Exchange Offer - Acceptance of
Warrants for Exchange; Delivery of
Common Stock."
Certain Federal Income Tax
Considerations.................... Holders of Warrants are urged to
consult their own tax advisors as to
the specific tax consequences to
them of the Exchange Offer. In
general, however, the Company
believes that the exchange of Common
Stock for Warrants will likely be
treated as a taxable transaction for
Federal income tax purposes. See
"Certain United States Federal
Income Tax Considerations."
Payment of Solicitation
Fees.............................. The Company will pay a solicitation
fee of $.05 per Warrant to
Soliciting Dealers (as hereinafter
defined) for any Warrants tendered
and accepted for exchange and
exchanged pursuant to the Exchange
Offer; provided that (i) the Letter
of Transmittal for such tender
designates the Soliciting Dealer as
having solicited and obtained the
tender of the Warrants covered
thereby and (ii) no solicitation fee
shall be payable with respect to
Warrants beneficially owned (x) by
any of the directors, executive
officers or 5% stockholders who have
indicated to the Company their
current intent to tender their
Warrants , (y) by any employee of
the Company or its affiliates or (z)
by the Soliciting Dealer. See "The
Exchange Offer - Payment of
Solicitation Fees."
Exchange Agent...................... Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New
York 10004, Tel: (212) 509-4000,
ext. 535.
Information Agent................... D.F. King & Co., Inc., 77 Water
Street, New York, New York 10005,
Tel: (800) 207-3158.
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Risk Factors
Holders of Warrants should carefully evaluate certain risk factors in
considering whether or not to participate in the Exchange Offer. These risk
factors include, but are not limited to, a decrease in the liquidity of an
investment in any Warrants remaining outstanding after the Exchange Offer; the
potential varying relationship of the Exchange Ratio to trading prices for the
Common Stock and the Warrants; forbearance by exchanging Warrant holders of
potential future gains relating to certain future increases in the price of the
Common Stock underlying such Warrants; possible volatility of the Common Stock
trading price; certain potential tax consequences to tendering Warrant holders;
the concentration of voting control in officers, directors and certain
stockholders of the Company; certain aspects of the operations of a financial
services company (including with respect to unsettled trades); and the high
degree of government regulation and competition in the financial brokerage
industry. See "Risk Factors," at pages 9 through 13 below.
7
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NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
THAT WARRANT HOLDERS TENDER OR REFRAIN FROM TENDERING THEIR WARRANTS, AND NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION ON BEHALF OF THE COMPANY.
THE DECISION TO TENDER IS A MATTER FOR EACH WARRANT HOLDER TO DETERMINE AFTER
CONSULTATION WITH HIS OR HER ADVISORS, INCLUDING TAX COUNSEL, ON THE BASIS OF
HIS OR HER OWN FINANCIAL POSITION AND REQUIREMENTS. SEE "THE EXCHANGE OFFER -
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS."
THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO SUCH DATE.
8
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RISK FACTORS
Holders of Warrants who participate in the Exchange Offer and receive
Common Stock in exchange for their Warrants will thereby be changing the nature
of their interest in the Company. The following risk factors, as well as the
information set forth elsewhere or incorporated by reference in this Prospectus,
should be considered carefully by all holders of Warrants in evaluating whether
or not to participate in the Exchange Offer. In addition, this Prospectus
contains certain forward looking statements that involve certain risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in these forward looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" below, as well as those discussed or incorporated by
reference elsewhere in this Prospectus.
Decrease in Liquidity of Remaining Warrants. Each Warrant currently represents
the right, until the Warrants expire on November 30, 2001 or are earlier
redeemed, to purchase a share of Common Stock for $5.00. If the Exchange Offer
is consummated, the Company intends to delist the Warrants from trading on the
Nasdaq National Market and to deregister the Warrants pursuant to the Exchange
Act. In such event, the trading market for, and liquidity of an investment in,
any Warrants remaining outstanding would be significantly reduced. Any such
reduction in liquidity could have the effect of depressing the market value of
any remaining outstanding Warrants. See "Background of the Exchange Offer" and
"Price Range of the Company's Securities."
Varying Relationship of Exchange Ratio to Trading Prices for the Common Stock
and Warrants. As of August 20, 1997, the last full trading day prior to the
Company's initial announcement of the Exchange Ratio and other terms regarding
the Exchange Offer, the closing sale prices of the Common Stock, Series A
Warrants and Series B Warrants as reported on the Nasdaq National Market were
$3.25, $.344 and $.25, respectively. For the 30 trading day period ending August
18, 1997, the average closing sale prices of the Common Stock, Series A Warrants
and Series B Warrants were $3.33, $.43 and $.36, respectively. For the 60 day
trading period ending August 18, 1997, the average closing sale prices of the
Common Stock, Series A Warrants and Series B Warrant were $3.36, $.50 and $.43,
respectively. The Exchange Ratio of 0.1667 of a share of Common Stock for each
Warrant represents a premium to the exchange ratio implied by the relationship
of the trading price of the Common Stock to the average trading prices of the
Series A Warrants and Series B Warrants for each of these dates and periods.
However, the market prices of the Common Stock, Series A Warrants and Series B
Warrants are subject to fluctuations, and the Company believes are likely to be
affected, among other factors, by the announcement and consummation of the
Exchange Offer itself. Accordingly, on any subsequent date, including the date
on which the Exchange Offer actually is consummated, the Exchange Ratio of
0.1667 of a share of Common Stock for each Warrant may not result in the same
premium to market value for Warrant holders, and may even result in no premium
or a negative premium to such market value. As of October __, 1997, the last
full trading day for which information was available prior to the printing of
this Prospectus, the closing sale prices of the Common Stock, Series A Warrants
and Series B Warrants as reported on the Nasdaq National Market were $____,
$____, and $____, respectively. See "Price Range of the Company's Securities."
Forbearance of Potential Future Profit. In the case of any particular Warrant
holder, if the per share market price of the Common Stock in the future (but
prior to November 30, 2001) were to exceed the sum of the price such holder paid
for a Warrant plus $5.00, this excess would represent potential profits
recognizable by the Warrant holder for such Warrant. A Warrant holder who
exchanges his or her Warrants in the Exchange Offer will be forbearing the
potential future profit described above. In exchange, he or she will be
obtaining the opportunity to profit in any post-Exchange Offer appreciation of
the Common Stock (whether or not the price is above $5.00), but on a
less-leveraged basis because he or she will be receiving in the Exchange Offer
for such Warrants a number of whole shares of Common Stock (due to the payment
of cash in lieu of fractional interests in a share of Common Stock) that is
one-sixth (rounded down) of the number of Warrants that he or she tendered.
Possible Volatility of Common Stock Trading Price. There are numerous factors
that the Company believes could affect the trading prices for its Common Stock
(and any remaining Warrants) in the future. If the Exchange Offer is
consummated, the Company believes that the issuance of a significant number of
shares of Common Stock in exchange for the tendered Warrants will cause an
initial dilution in per share earnings and other per share measurements that may
have a negative effect on the trading price for the Common Stock and any
remaining outstanding Warrants. This effect, if it occurs, may be offset in part
or in total by the elimination or reduction (depending on the extent to which
the
9
<PAGE>
Warrants are exchanged) of the future potential dilutive impact on per share
earnings that could be caused by exercise of the Warrants and by market
perceptions of benefits from the elimination or reduction of a Warrant overhang
on the Common Stock price and from a simplified capital structure for the
Company.
In addition, following the Exchange Offer, the Company will not need to reserve
as many shares (if any) of Common Stock for possible future exercises of the
Warrants. Accordingly, the number of authorized, but unissued and unreserved,
shares of Common Stock available for other issuances would increase. Subject to
the rules of the National Association of Securities Dealers, Inc. ("NASD"), the
Board of Directors is empowered, without stockholder approval, to issue any or
all of such authorized (but unissued and unreserved) shares of Common Stock, and
any such additional issuances (depending on the consideration, if any, received)
may dilute the interests of Common Stock holders and affect the market price of
the Common Stock (and any remaining outstanding Warrants). Other potential
issuances of securities (e.g., options under the Company's stock option plan or
shares of the Company's preferred stock) may have similar effects. Also,
potential sales of substantial blocks of the Company's securities by the holders
thereof could have a negative impact on the market price of the Common Stock
(and any remaining outstanding Warrants). See "Background of the Exchange
Offer."
Operational and other business and general economic factors also could cause the
market price for the Common Stock (and any remaining outstanding Warrants) to
fluctuate significantly. The Company believes these factors include, but are not
limited to, factors such as variations in the profitability and success of the
Company, as reflected in its announcement of quarterly and year-end financial
results, competitive developments in the inter-dealer brokerage industry,
changes in U.S. or foreign governmental regulations or capital requirements,
national and international economic and political conditions and broad trends in
business and finance.
Tax Consequences to Exchanging Warrant Holders. Although not free from doubt,
the Company believes that for Federal income tax purposes the Exchange Offer
will be treated as a taxable transaction to persons tendering their Warrants in
the Exchange Offer. For a discussion of certain general tax consequences to
exchanging Warrant holders, see "Certain United States Federal Income Tax
Considerations." The Exchange Offer will not affect the Federal income tax
treatment of holders who do not participate in the Exchange Offer.
Potential Redemption of Warrants. Any Warrants not exchanged in the Exchange
Offer may be redeemed by the Company, at a price of $.01 per Warrant, subject to
not less than 30 days' prior written notice to holders thereof, provided that
the last sale price of the Common Stock has been at least $8.50 per share for
the 20 consecutive trading days ending on the third day prior to the day on
which notice is given. Notice of the redemption of the Warrants could force the
holders thereof to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so, to sell the Warrants at the
then-current market price when they might otherwise wish to hold the Warrants,
or to accept the $.01 per Warrant redemption price. See "Description of Capital
Stock - Warrants."
Concentration of Voting Control. Welsh, Carson, Anderson & Stowe, VI, L.P., a
Delaware limited partnership ("WCAS"), and WCAS Information Partners, L.P., also
a Delaware limited partnership ("WCAS Information"), own of record an aggregate
of 2,333,174 shares of Common Stock, constituting approximately 26% of the
8,949,656 shares of Common Stock currently outstanding. Current directors and
named executive officers of the Company, together with two other more than 5%
beneficial owners of the Common Stock (who are both officers of subsidiaries of
the Company), own of record an aggregate of 2,671,478 shares of Common Stock,
constituting approximately 30% of the shares of Common Stock currently
outstanding. In addition, WCAS and WCAS Information own of record an aggregate
of 3,918,254 Warrants, with the current directors, named executive officers and
other 5% stockholders of the Company also owning of record an aggregate of
3,381,596 Warrants. Assuming such persons and entities tender all of their
Warrants in the Exchange Offer, WCAS and WCAS Information will, based on the
Exchange Ratio, receive an additional 653,042 shares of Common Stock in the
aggregate and the directors, executive officers and other 5% stockholders of the
Company will, based on the Exchange Ratio, receive an additional 563,599 shares
of Common Stock in the aggregate. Accordingly, following the Exchange Offer,
WCAS and WCAS Information would own of record an aggregate of 2,986,216 shares
of Common Stock (constituting approximately 26% of the outstanding shares of
Common Stock, assuming a 100% tender rate for all other holders of Warrants),
and the directors and executive officers and other 5% stockholders of the
Company would own of record an aggregate of 1,896,241 shares of Common Stock
(constituting approximately 28% of the outstanding shares of Common Stock,
assuming a 100% tender rate for all other holders of Warrants and, collectively
with WCAS and WCAS Information, 54% of the outstanding Common Stock).
10
<PAGE>
Such concentration of control in a single major stockholder and in directors,
named executive officers and other 5% stockholders of the Company may have an
adverse effect on the market prices for the Company's securities and could delay
or prevent a change in control of the Company. In addition, such persons, acting
together, have the ability to exercise significant influence over all matters
requiring stockholder approval. See "Management of the Company" and "Principal
Stockholders."
Authorization and Discretionary Issuance of Preferred Stock; Series A Junior
Participating Preferred Stock. The Company's Certificate of Incorporation
authorizes the issuance of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Subject to the rules of the NASD, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock (or any
remaining outstanding Warrants). The preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company, which could have the effect of discouraging
bids for the Company and, thereby, preventing stockholders from receiving the
maximum value for their shares. In addition, in December 1996, the Company
adopted a Stockholder Rights Plan (the "Rights Plan"), and in connection
therewith authorized the creation of a Series A Junior Participating Preferred
Stock (the "Junior Preferred Stock"). The Rights Plan, and the issuance
thereunder of any Rights to purchase Junior Preferred Stock, also could be
utilized as a method of discouraging, delaying or preventing a change in control
of the Company. See "Description of Capital Stock - Preferred Stock."
Certain Shares Eligible for Future Sale. In connection with the Merger, the
Company entered into a Registration Rights Agreement with WCAS, WCAS Information
and certain related investors, certain initial stockholders of the Company who
acquired shares prior to the IPO (five of whom, Messrs. G. Scharf, M. Scharf,
Whittemore, Kopp and Martin, are current directors of the Company) and certain
members of senior management of EBIC (one of whom, Mr. Reihl, is a current
director of the Company) (collectively, the "Registration Rights Agreement
Signatories"). In the aggregate, the Registration Rights Agreement Signatories
are believed currently to own of record an aggregate of 5,211,360 shares of
Common Stock, constituting approximately 58% of the 8,949,656 shares of Common
Stock currently outstanding. In addition, Registration Rights Agreement
Signatories are believed currently to own of record an aggregate of 7,748,729
Warrants. Assuming such persons and entities tender all of their Warrants into
the Exchange Offer, Registration Rights Agreement Signatories will, based on the
Exchange Ratio and assuming 100% participation by all other holders, own of
record an aggregate of 6,502,815 (or approximately 57%) of the outstanding
shares of Common Stock following the Exchange Offer. The Registration Rights
Agreement covers all existing shares of Common Stock held by such persons and
entities and, following the Exchange Offer, will also cover all additional
shares of Common Stock received in exchange for Warrants tendered by such
persons and entities and, subject to certain limitations, provides for two
demand registration rights (the first of which may only be initiated by the WCAS
entities or their permitted transferees) and certain "piggyback" registration
rights. See "Certain Relationships and Related Transactions." Sales of
substantial numbers of shares of Common Stock, under the Registration Rights
Agreement or otherwise, could materially adversely affect the market prices for
the Common Stock (and any remaining outstanding Warrants).
Liability for Unsettled Trades. The Company through its subsidiaries functions
as an intermediary, matching the trading needs of financial institutions by
providing specialized services. Some of these transactions are executed on a
name give-up basis, that is, once the specific economic terms of a proposed
transaction are agreed, the names of the individual counterparties are disclosed
and, subject to acceptance of the credit, the transaction is completed directly
by both counterparties. Other transactions are completed with the subsidiary
acting as a matched riskless principal in which the respective parties to the
transaction know the subsidiary as the counterparty. The transactions are then
settled through a clearing institution. In the process of executing brokerage
transactions, from time to time in the fast moving markets in which such
subsidiaries operate, miscommunications can arise whereby transactions are
completed with only one counterparty ("out trades"), thereby creating a
potential liability for such subsidiaries. These occurrences usually become
known to the subsidiary on the day of the trade or, as a result of the
settlement process, within a few days of the trade. Out trades generally
increase with increases in the volatility of the market. In general, the
Company's subsidiaries do not experience a high incidence of out trades, but in
those situations in which they occur, the subsidiary typically disposes of the
unmatched position within a short time frame. While out trades have not had a
significant adverse effect on the Company to date, there can be no guarantee
that the incidence of such occurrences will not increase in the future or that
they will not have a material adverse effect on the financial condition or
results of operations of the Company at that time.
11
<PAGE>
Government Regulation. The Company and its subsidiaries, in the ordinary course
of their business, are subject to extensive regulation at international, federal
and state levels by various regulatory bodies which are charged with
safeguarding the integrity of the securities and other financial markets and
protecting the interests of customers participating in those markets. Euro
Brokers Maxcor Inc. ("EBMI"), a wholly-owned subsidiary of the Company, is
registered as a broker-dealer with the Commission and applicable states and is a
member of the NASD. Maxcor Financial Asset Management Inc., also a wholly-owned
subsidiary of the Company, is an investment advisor, registered with the
Commission pursuant to the securities lending activities of its Euro Brokers
Securities Lending division. Other subsidiaries of the Company conducting
business outside of the United States are also subject to extensive regulation
by various non-U.S. governmental and regulatory bodies, including the Bank of
England, the Securities and Futures Authority and the Director General of Fair
Trading in the United Kingdom, the Ontario Securities Commission, the Bank of
Japan, the Japanese Ministry of Finance and the Australian Securities
Commission. Additional legislation and regulations, changes in the rules
promulgated by the Commission, other U.S. federal and state governmental
regulatory authorities, self-regulatory agencies or clearing organizations, as
well as non-U.S. governmental or regulatory agencies, or changes in the
interpretation or enforcement of laws and rules, may directly affect the manner
of operation and profitability of the Company. In addition, any expansion of the
Company's activities into new areas may subject the Company to additional
regulatory requirements that could similarly affect such operation and
profitability.
Competition. The financial brokerage industry is highly competitive and the
Company encounters competition from several companies with significantly greater
resources than the Company and access to wider pools of potential clients.
Moreover, all brokerage firms are subject to the pressures of offering their
services at a lower price, with the use of volume discounting having become more
widespread in recent years. In addition, the development of new technologies may
expose the Company and the rest of the inter-dealer brokerage industry to the
possibility of losing clients to companies and products that facilitate fully
automated dealing, without intermediaries. The Company is also inherently
reliant on relationships with clients that develop over time and on the
performance and experience of a number of key management and brokerage and other
sales personnel, many of whom are often the target of aggressive recruitment
efforts by competitors within the industry.
Clearing Arrangements. Morgan Stanley & Co. Incorporated ("Morgan Stanley") and
Daiwa Securities America Inc. ("Daiwa") act as the primary clearing agents, on a
fully-disclosed basis, for EBMI. Under the terms of these agreements, Morgan
Stanley and Daiwa clear as principals a significant portion of EBMI's
transactions in emerging market debt and other securities and, among other
services, prepare and mail confirmations and monthly statements to customers.
Although the Daiwa/EBMI relationship has been ongoing for approximately three
years, the agreement is terminable by either party upon 30 days' prior notice.
The Morgan Stanley clearing relationship is new and only commenced in September
1997, but is terminable by either party upon 120 days' prior notice. In the
event of a termination of either or both agreements, EBMI believes that a new
clearing arrangement could be established in a timely fashion with another
clearing correspondent on terms acceptable to EBMI. It remains possible,
however, that the disruption from such a change, or the terms of any such new
arrangement, could have a material adverse effect on the Company's results of
operations or financial condition.
Litigation and Arbitration. Many aspects of the Company's business involve
varying risks of liability. In recent years, there has been an increasing
incidence of litigation and arbitration involving participants in the
inter-dealer brokerage industry, including employee claims alleging
discrimination or defamation in connection with terminations and competitor
claims alleging theft of trade secrets, unfair competition or tortious
interference in connection with new employee or new desk hires. A settlement or
judgment related to these or similar types of claims or activities could have a
material adverse effect on the Company's results of operations or financial
condition.
European Market Unification. The "European Monetary Union" is scheduled to
commence on January 1, 1999 when the European Currency Unit will be replaced by
the "Euro" at the conversion rate of 1:1, and those national currencies which
are to participate in the European Monetary Union will ultimately cease to exist
as separate currencies by virtue of being replaced by the Euro. The introduction
of a single currency for the European Community ("EC") could eliminate the
European cross-currency market and have an adverse impact on the Company's
business. Moreover, deregulation within the EC will allow brokers from any EC
country to conduct business in any other EC country without the necessity of
complying with the specific local regulations, and could increase the
competitive challenges faced by the Company.
12
<PAGE>
Lack of Diversification. EBIC and its subsidiaries and affiliates currently
comprise substantially all of the Company's business and assets. As a result,
the Company's performance and the market prices for the Company's securities are
highly dependent upon the performance of its inter-dealer brokerage business.
Although the Company is continuously seeking to strengthen and improve its
inter-dealer brokerage business, it is also currently exploring various options
for diversifying its businesses and sources of income. These possibilities
include the development of further asset management businesses, the development
of an investment banking business, the sale and other exploitation of data
generated and collected in the course of its business and/or acquisitions or
other business combinations to enhance or complement its business. There can be
no assurances, however, that the Company will be successful in achieving these
goals or others related to diversification or, if achieved, whether they will
positively affect the Company's financial condition and results of operations.
Dividends Unlikely. The Company has not paid any dividends on the Common Stock
to date. It is the present intention of the Board of Directors to retain all
earnings, if any, for use in the Company's business operations and accordingly,
the Company does not anticipate paying any dividends on the Common Stock in the
foreseeable future.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION(1)
(In thousands of dollars, except per share data)
The following selected consolidated financial data as of and for each
of the years in the five-year period ended December 31, 1996 are derived from
the Company's consolidated financial statements, which statements have been
audited by Price Waterhouse LLP, independent accountants.
The selected consolidated balance sheet data at June 30, 1997 and the
selected statement of operations data for the six-month periods ended June 30,
1997 and 1996 have been derived from unaudited consolidated financial statements
of the Company which, in the opinion of the Company's management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the results of unaudited periods. The results for the six-month
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.
The selected consolidated financial data set forth below should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," each included in the documents incorporated herein
by reference. See "Incorporation of Certain Documents by Reference." Statement
of Operations data presented below includes reclassifications of certain revenue
and expense items which are not directly associated with operations. Such
reclassifications include interest income, interest expenses, foreign exchange
effects and other non-operating items.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Commission income $ 113,932 $ 135,578 $ 144,587 $ 171,576 $ 178,110 $ 90,081 $ 86,117
Other income 424 723 207 518 591 119 514
--------- --------- --------- --------- --------- --------- ---------
114,356 136,301 144,794 172,094 178,701 90,200 86,631
--------- --------- --------- --------- --------- --------- ---------
Operating Costs:
Payroll and related costs 71,105 86,764 96,207 110,915 115,537 54,366 54,146
Communication costs 12,413 12,988 15,633 17,188 18,288 8,384 8,486
Travel and entertainment 7,672 8,682 10,494 10,224 11,355 5,370 5,387
Depreciation and amortization 3,857 4,192 4,248 4,568 4,734 2,318 2,657
Occupancy costs 2,868 4,452 5,640 5,855 6,539 3,033 3,102
Clearing fees -- 864 3,648 3,778 4,412 2,116 3,257
General, administrative and other 5,312 7,148 6,818 7,550 8,255 4,065 3,689
Write-off of goodwill 12,644
--------- --------- --------- --------- --------- --------- ---------
103,227 137,734 142,688 160,078 169,120 79,652 80,724
--------- --------- --------- --------- --------- --------- ---------
Operating profit (loss) 11,129 (1,433) 2,106 12,016 9,581 10,548 5,907
--------- --------- --------- --------- --------- --------- ---------
Other non-operating income (expenses):
Interest expense (3,265) (2,703) (1,636) (775) (693) (300) (447)
Other non-operating expenses (632) (2,086) (521) (295) (632) -- --
Other non-operating income -- 1,488 490 -- -- -- --
Interest income 1,450 1,203 1,091 1,463 1,801 841 823
Foreign exchange gain (loss) (1,581) 64 (17) 214 (8) 46 (85)
--------- --------- --------- --------- --------- --------- ---------
(4,028) (2,034) (593) 607 468 587 291
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes and minority interest 7,101 (3,467) 1,513 12,623 10,049 11,135 6,198
Provision for income taxes 6,037 4,859 3,334 7,393 6,651 6,087 4,434
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest 1,064 (8,326) (1,821) 5,230 3,398 5,048 1,764
Minority interest 371 (443) (250) (1,768) 307 (447) (623)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 1,435 ($ 8,769) ($ 2,071) $ 3,462 $ 3,705 $ 4,601 $ 1,141
========= ========= ========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------------------------------- --------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 72,164 $ 76,632 $ 71,915 $ 82,079 $ 97,173 $ 94,521
Obligations under capitalized leases 3,210 2,767 2,805 2,285 1,429 1,176
Notes payable 28,236 27,081 9,830 7,880 7,380 6,224
Total liabilities 52,453 65,696 43,361 50,186 64,881 61,176
Minority interest 1,322 548 492 502 (159) (272)
Stockholders' equity 18,389 10,388 28,062 31,391 32,451 33,617
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
----------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Per Share Information(2)
Net income $ 0.3 $ 0.41 $ 0.5 $ 0.13
Book value $ 3.5 $ 3.63 $ 3.9 $ 3.76
Common shares outstanding 8,949,656 8,949,656 8,949,656 8,949,656
</TABLE>
- -------------------------
(1) The Merger acquisition of EBIC by the Company on August 16, 1996 has
been accounted for as a recapitalization of EBIC, with the issuance of
shares by EBIC for the net assets of the Company. The consolidated
results of operation and financial position of the Company for periods
and dates prior to the Merger are the consolidated historical results
of operations and financial position of EBIC for such periods and
dates.
(2) The number of shares of Common Stock outstanding and related earnings
and book value per share information, as presented in the Company's
audited consolidated financial statements as of and for the years ended
December 31, 1995 and December 31, 1996 included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
("Consolidated Financial Statements"), were presented on a pro forma
basis, as if all shares anticipated to be issued in Merger (9,011,295)
had been issued as of January 1, 1995 and all such shares were
outstanding for the merged and recapitalized entity since that date.
See Notes 1 and 13 of the Notes to the Consolidated Financial
Statements. This number of shares outstanding has been restated to
reflect actual shares issued and outstanding at December 31, 1996 of
8,949,656, which is also the number of actual shares issued and
outstanding at June 30, 1997. The restatement of number of shares
outstanding had no effect on the related earnings and book value per
share information after rounding. Accordingly, shares outstanding and
related earnings and book value per share information for the years
ended December 31, 1995 and December 31, 1996 and the six months ended
June 30, 1996 have been presented as if all shares outstanding at
December 31, 1996 had been issued as of January 1, 1995 and all such
shares were outstanding for the merged and recapitalized entity since
that date.
15
<PAGE>
CERTAIN PRO FORMA EFFECTS OF THE EXCHANGE OFFER
The following table presents (i) the Company's historical earnings per
share of Common Stock for the year ended December 31, 1996 and the six months
ended June 30, 1997, (ii) the historical book value per share of Common Stock as
of December 31, 1996 and June 30, 1997, and (iii) the pro forma effect thereon
of the issuance of shares of Common Stock pursuant to the Exchange Offer
assuming 100% of the outstanding Warrants are exchanged. All per share
information has been calculated on the basis of 8,949,656 shares of Common Stock
outstanding at each of December 31, 1996 and June 30, 1997, and during the
periods then ended.
Earnings per Share
Year Ended Six Months Ended
December 31, June 30,
1996 1997
------ -----
Historical................................ $0.41 $0.13
Pro Forma................................. $0.32 $0.10
Book Value per Share
December 31, June 30,
1996 1997
------ -----
Historical................................ $3.63 $3.76
Pro Forma................................. $2.83 $2.94
16
<PAGE>
PRICE RANGE OF THE COMPANY'S SECURITIES
Since November 12, 1996, the Common Stock, Series A Warrants and Series
B Warrants have been traded on the Nasdaq National Market tier of The Nasdaq
Stock Market, first under the respective symbols FSAT, FSATW and FSATZ, and,
following the change in the Company's name on June 18, 1997, under the
respective symbols MAXF, MAXFW and MAXFZ. Prior to November 12, 1996, the Common
Stock and Series A Warrants were quoted on the OTC Bulletin Board, an NASD
sponsored and operated inter-dealer automated quotation system for equity
securities not listed on The Nasdaq Stock Market. Such over-the-counter market
quotations reflect inter-dealer prices, without retail markups, markdowns or
commissions, and may not necessarily represent actual transactions.
The following table sets forth (i) the range of high and low sales
prices for the Common Stock and Warrants, as reported by The Nasdaq Stock
Market, for the period beginning on November 12, 1996 when the Common Stock and
Warrants began trading on the Nasdaq National Market and (ii) for all other
periods, the range of high and low closing bid prices for the Common Stock and
the Series A Warrants on the OTC Bulletin Board, as reported by the NASD.
<TABLE>
<CAPTION>
Common Stock Warrants
-------------- --------------------------------
Series A Series B
-------------- --------------
High Low High Low High Low
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- ----------------------------
First Quarter $4.375 $4.250 $1.250 $0.625 $ $
Second Quarter 4.563 4.250 1.000 0.625
Third Quarter 4.625 4.250 1.000 0.688
Fourth Quarter 4.625 4.375 1.313 0.500
Year Ended December 31, 1996
- ----------------------------
First Quarter 4.875 4.625 1.313 0.500
Second Quarter 5.063 4.875 1.313 0.688
Third Quarter 5.375 4.813 1.313 0.688
Fourth Quarter (through November 11) 5.250 3.500 1.125 0.375
Fourth Quarter (from November 12) 4.000 2.625 1.000 0.406 0.969 0.188
Year Ended December 31, 1997
- ----------------------------
First Quarter 4.500 2.875 0.875 0.313 0.984 0.313
Second Quarter 3.375 2.375 0.813 0.250 0.813 0.313
Third Quarter 4.250 2.813 0.719 0.250 0.625 0.250
Fourth Quarter (through October __, 1997)
</TABLE>
As of October 3, 1997, there were 56, 23 and 35 holders of record of
the Common Stock, Series A Warrants and Series B Warrants, respectively. The
Company is aware that certain holders of record hold a substantial number of
shares of Common Stock, Series A Warrants and/or Series B Warrants as nominees
for a significant number of beneficial owners.
The closing sales prices of the Common Stock, Series A Warrants and
Series B Warrants, respectively, reported on the Nasdaq National Market on
October __, 1997, the last full trading day for which information was available
prior to the printing of this Prospectus, were $____, $____ and $____,
respectively.
The closing sales prices of the Common Stock, Series A Warrants and
Series B Warrants, respectively, reported on the Nasdaq National Market on
August 20, 1997, the last full trading day prior to the Company's initial
announcement of the Exchange Ratio and other terms regarding the Exchange Offer,
were $3.25, $.344 and $.25, respectively.
Although the Series A Warrants and the Series B Warrants are
economically identical in their terms, the Company notes that, historically,
liquidity (as measured by average daily trading volume) in the Series B Warrants
has been significantly less than liquidity in the Series A Warrants. The Company
believes that this difference reflects the fact that the Series B Warrants were
issued in connection with the Merger to former holders of EBIC common stock most
of whom, after the Merger, were subject to restrictions in their subsequent
transfers of such Series B Warrants either because they were signatories to the
Security Transfer Agreement (which prohibited most such transfers prior to
17
<PAGE>
November 30, 1996), otherwise were affiliates of EBIC and/or the Company (and,
accordingly, could sell only pursuant to a registration statement under the
Securities Act or an applicable exemption from registration thereunder, such as
Rule 144), and/or were directors or employees of the Company (and, accordingly,
subject to the Company's insider trading policies, generally limiting
transactions in the Company's securities by such persons to 30-day window
periods following the release of the Company's quarterly and year-end results).
The Company has not paid any dividends on the Common Stock to date. It
is the present intention of the Board of Directors to retain all earnings, if
any, for use in the Company's business operations and accordingly, the Company
does not anticipate paying any dividends on the Common Stock in the foreseeable
future.
HISTORY OF THE COMPANY
The Company was incorporated in Delaware in August 1994, under the name
Financial Services Acquisition Corporation, with the objective of acquiring or
merging with an operating business in the financial services industry. To this
end, the Company consummated an initial public offering in December 1994 and
raised net proceeds of approximately $20 million.
On March 8, 1996, the Company entered into a merger agreement ("Merger
Agreement") to acquire EBIC, a privately-held domestic and international
inter-dealer broker for a broad range of financial instruments. Pursuant to the
Merger Agreement, a newly-formed, wholly-owned subsidiary of the Company merged
with and into EBIC (the "Merger") on August 16, 1996, with EBIC thereby becoming
a wholly-owned subsidiary of the Company. EBIC, together with its subsidiaries
and affiliates, currently comprise substantially all of the Company's business
and assets.
Pursuant to the Merger, each outstanding share of EBIC common stock was
converted into the right to receive, after giving effect to certain adjustments
and subject to certain escrow arrangements, approximately, (i) 2.70 shares of
the Common Stock (approximately 4,505,666 shares in the aggregate), (ii) 4.53 of
the Series B Warrants (approximately 7,566,666 Warrants in the aggregate) and
(iii) $13.14 in cash (approximately $22 million in the aggregate). The intent
and general effect of the stock and warrant components of the Merger
consideration were to provide former stockholders of EBIC with an aggregate 50%
post-Merger equity interest in the Company; consistent with this objective, the
cash component of the Merger consideration was intended generally to equalize
the respective contributions of the Company's stockholders and EBIC stockholders
to the post-Merger consolidated net worth of the Company by paying to the former
stockholders of EBIC an aggregate amount equal to the pre-Merger difference
between the Company's and EBIC's respective net worth (each as calculated in
accordance with the Merger Agreement).
In June 1997, in connection with its Annual Meeting of Stockholders,
the Company changed its name to Maxcor Financial Group Inc.
18
<PAGE> BACKGROUND OF THE EXCHANGE OFFER
General
At the time of entering into the Merger Agreement, the Company
disclosed its intention to make (and the Merger Agreement specifically provides
for the contemplated making of) the Exchange Offer to acquire all of the
outstanding Warrants, as soon as reasonably practicable following consummation
of the Merger, on the basis of one share of Common Stock for a number of
Warrants to be determined.
Security Transfer Agreement
In connection with the Merger Agreement, the Company also entered into
a Security Transfer Agreement, dated as of March 8, 1996 (the "Security Transfer
Agreement"), with: (i) Gilbert D. Scharf, Chairman of the Board, President and
Chief Executive Officer of the Company and Michael J. Scharf, a Director and
also then Vice President, Secretary and Treasurer of the Company; (ii) WCAS and
WCAS Information, collectively, prior to the Merger, the holders of
approximately 52% of EBIC's outstanding Common Stock; and (iii) five members of
EBIC management consisting of Donald R.A. Marshall, Keith E. Reihl, Brian G.
Clark, Walter E. Dulski and Alistair H. Johnstone (collectively "EBIC
Management"). Among other things, the Security Transfer Agreement obligates such
persons (the "Agreement Signatories") to tender for exchange (and not withdraw)
in the Exchange Offer, if consummated on or prior to November 30, 1997, their
Warrants in numbers at least proportionate to the aggregate tenders of Warrants
made by all other holders in the Exchange Offer. At September 30, 1997, the
Agreement Signatories owned an aggregate of 7,197,345 Warrants, constituting
approximately 48% of all outstanding Warrants. Notwithstanding the foregoing,
each of the Agreement Signatories has indicated to the Company his or its
current intention to tender all of his or its Warrants in connection with the
Exchange Offer.
Purpose of the Exchange Offer
The Exchange Offer is intended to retire all or substantially all of
the Warrants through the issuance of Common Stock in order to simplify the
Company's capital structure, reduce the potential future dilutive impact on the
Company's earnings per share that could be caused by the Warrants and eliminate
any overhang on the Common Stock price from the existence of the Warrants.
Accordingly, the Company has established the Minimum Condition so that if there
is not validly tendered prior to the Expiration Date (and not withdrawn) a
minimum of 95% of the aggregate outstanding Warrants, the Company reserves the
right not to proceed with the Exchange Offer. See "The Exchange Offer -
Conditions of the Exchange Offer."
In the absence of the Exchange Offer, 15,018,276 shares of Common Stock
would be issued in exchange for the Warrants if all of the currently outstanding
Warrants were exercised, resulting in an aggregate of 23,967,932 shares of
Common Stock outstanding, and the Company would receive the proceeds of such
exercises. Assuming consummation of and 100% participation in the Exchange
Offer, 2,503,046 shares of Common Stock would be issued, resulting in an
aggregate of 11,452,702 shares of Common Stock outstanding, and all of the
Warrants would be extinguished. The Exchange Offer will have no effect on the
Company's total stockholders' equity (other than transaction costs). The
Exchange Offer will initially have a dilutive effect on the Company's earnings
per share of Common Stock and on other per share measurements such as per share
book value or per share voting power because there will be more shares of Common
Stock outstanding. See "Selected Consolidated Financial Data" and "Certain Pro
Forma Effects of the Exchange Offer."
Interests of Certain Persons in the Exchange Offer
In determining to approve and proceed with the Exchange Offer, the
Board of Directors took into account, and holders of Warrants contemplating
participating in the Exchange Offer should be aware of, the fact that (i) each
member of the Board owns shares of Common Stock (and/or shares of Common Stock
issuable upon exercise of options of the Company), and (ii) each member of the
Board, other than Messrs. James Stevens and William Wigton, owns Warrants. For
historical and pro forma Common Stock and Warrant holdings of such persons, see
"Principal Stockholders." In addition, the Merger Agreement required the
agreement to the Exchange Ratio of WCAS, although WCAS waived, prior to the
determination of the Exchange Ratio, any right to approve the Exchange Ratio.
19
<PAGE>
In assessing the holdings of Board members of the Company's securities,
the Board believed that any potential conflicts of interest arising therefrom
were minimized due to the fact that Messrs. Gilbert Scharf, Michael Scharf and
Keith Reihl (who collectively hold 1,278,010 Warrants, or approximately 94% of
all Warrants held by all of the Directors of the Company) are all Agreement
Signatories and thereby obligated pursuant to the Security Transfer Agreement to
tender in the Exchange Offer at least such portion of the Warrants held by them
as is proportionate to the percentage of Warrants tendered by all other holders
of Warrants in the Exchange Offer, thereby generally aligning their interests
with those of such other Warrant holders. In addition, the Board believed that
the interests of such persons (as well as of the three Directors of the Company,
Messrs. Whittemore, Kopp and Martin, who hold Warrants but are not Agreement
Signatories) were ultimately also aligned with the interests of the holders of
Common Stock by virtue of the fact that each of them holds shares of Common
Stock that proportionately represent an equal or larger percentage of all
outstanding shares of Common Stock than the percentage that their respective
holdings of Warrants represent of all outstanding Warrants. See "Principal
Stockholders." Accordingly, to the extent that such persons voluntarily tender a
portion of their Warrants that may turn out to be greater than the percentage of
Warrants tendered by all other holders of Warrants, the Board believed that any
potential conflicts of interest presented by the participation of such persons
in the determination of the Exchange Ratio and the decision to approve and
proceed with the Exchange Offer would be minimized by the disproportionate
dilutive effects on the Common Stock holdings of such persons and entities if
the Exchange Ratio were to provide an unwarranted premium to Warrant holders.
The Board also took into account that Messrs. Stevens and Wigton, who own shares
of Common Stock but no Warrants, and thereby could be considered as having
interests generally aligned with those of other holders of Common Stock,
participated in the Board's determination of the Exchange Ratio and the decision
to approve and proceed with the Exchange Offer, which was unanimous. The Board
also was aware that, at the Exchange Ratio, each Director was willing to state
his current intention to tender all of his Warrants in the Exchange Offer.
Effects of Exchange Offer on Tendering Warrant Holders
Holders of Warrants who exchange their Warrants pursuant to the
Exchange Offer will: (i) without the requirement of making any cash exercise
payment, receive whole shares of Common Stock for their Warrants, in accordance
with the Exchange Ratio; (ii) receive a cash payment, without interest, for any
fractional interest in a share of Common Stock that they would otherwise be
entitled to pursuant to the Exchange Ratio; (iii) be able to vote such Common
Stock on all matters that may come before the holders of the Common Stock; (iv)
be able to receive dividends on such Common Stock, if any, when declared and
paid by the Company; and (v) participate as a holder of such Common Stock in
proceeds from liquidation of the Company after creditors and preferred security
holders, if any, are paid. Exchanging Warrant holders, however, will lose the
right to purchase, at any time until November 30, 2001, a share of Common Stock
for $5.00, for each Warrant held, and may be subject to certain tax consequences
as a result of the Exchange Offer. See "Certain United States Federal Income Tax
Considerations."
If the Exchange Offer is consummated, the Company believes that the
issuance of a significant number of shares of Common Stock in exchange for the
tendered Warrants will cause an initial dilution in per share earnings and other
per share measurements that may have a negative effect on the trading price for
the Common Stock and any remaining outstanding Warrants. This effect, if it
occurs, may be offset in part or in total by the elimination or reduction
(depending on the extent to which the Warrants are exchanged) of the future
potential dilutive impact on per share earnings that could be caused by exercise
of the Warrants and by market perceptions of benefits from the elimination or
reduction of a Warrant overhang on the Common Stock price and from a simplified
capital structure for the Company. See "Risk Factors - Possible Volatility of
Common Stock Trading Price."
Effects of Exchange Offer on Non-Tendering Warrant Holders
Holders of Warrants who do not participate in the Exchange Offer will
retain the right to purchase, at any time until November 30, 2001, a share of
Common Stock for $5.00 for each Warrant held, subject to the Company's right to
redeem the Warrants under certain circumstances. See "Description of Capital
Stock -- Warrants." If the Exchange Offer is consummated, the Company intends to
delist the Warrants from trading on the Nasdaq National Market and to deregister
the Warrants pursuant to the Exchange Act. In such event, the trading market
for, and the liquidity of an investment in, the Warrants remaining outstanding
would be significantly reduced, and the trading prices for the Warrants could be
negatively affected. See "Price Range of the Company's Securities.".
20
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions
of the Exchange Offer (as set forth in this Prospectus and in the accompanying
Letter of Transmittal, as either may be amended from time to time), to exchange
0.1667 of a share (the Exchange Ratio) of Common Stock for each and every
outstanding Warrant. Accordingly, the Company will issue one whole share of
Common Stock in exchange for every six Warrants (either Series A Warrants,
Series B Warrants or both) tendered and accepted by the Company for exchange
pursuant to the Exchange Offer. No fractional shares of Common Stock will be
issued as a result of the Exchange Offer. Holders of Warrants who tender a
number of Warrants not evenly divisible by six and who would otherwise therefore
be entitled to a fractional share of Common Stock will receive cash in lieu of
such fractional amount. See "Fractional Shares" below. One Right to purchase one
one-hundredth of a share of Junior Preferred Stock will be issued with and
solely represented by each share of Common Stock that is issued to a Warrant
holder in the Exchange Offer. See "Description of Capital Stock - Series A
Junior Participating Preferred Stock."
The Exchange Offer is subject to the Minimum Condition that at least
95% (or 14,267,362) of the aggregate 15,018,276 Warrants outstanding are validly
tendered and not withdrawn prior to the Expiration Date and to certain other
customary conditions, any or all of which, if not satisfied in the Company's
reasonable discretion, may be waived by the Company in whole or part at any time
prior to the Expiration Date, subject to applicable law. Accordingly, the
Company reserves the right, notwithstanding any other provision of the Exchange
Offer, to terminate or not proceed with the Exchange Offer, or to extend or
otherwise amend the Exchange Offer, if the Minimum Condition or any of the other
conditions (collectively, the "General Conditions") of the Exchange Offer is not
satisfied prior to the Expiration Date. See "Conditions of the Exchange Offer."
In addition, the Company reserves the right, if any of the General
Conditions occurs at any time after the Expiration Date, but before the
acceptance of the Warrants for exchange or the actual exchange of Common Stock
for Warrants, (i) to withdraw the Exchange Offer and return all Warrants
tendered (regardless of whether or not theretofore accepted) or (ii) waive or
amend such condition and proceed with the acceptance for exchange of, and
exchange of Common Stock for, tendered Warrants, in each case subject to
applicable law (including Rule 14e-1(c) under the Exchange Act, requiring the
prompt exchange or return of Warrants tendered after termination or withdrawal
of the Exchange Offer). See "Conditions of the Exchange Offer."
As of October 3, 1997, 15,018,276 Warrants were outstanding. Of such
amount, 7,566,666 are Series A Warrants, which were issued in connection with
the IPO. The remaining 7,451,610 are Series B Warrants, which were issued in
connection with the Company's August 1996 Merger acquisition of EBIC. As of
October 3, 1997, there were 23 registered holders of the Series A Warrants and
35 registered holders of the Series B Warrants. This Prospectus and the Letter
of Transmittal are being sent to all persons and entities that, as of October
__, 1997, were registered holders of the outstanding Warrants. Although there is
no fixed record date for determining registered holders of Warrants entitled to
participate in the Exchange Offer, only a holder of Warrants who is the
registered holder thereof (or such person's legal representative or
attorney-in-fact) at the time of their tender in the Exchange Offer or who is a
person holding sale and transfer documents with respect to such Warrants from
the registered holder thereof at the time of such tender (which documents are
satisfactory to the Company and its transfer agent), may participate in the
Exchange Offer.
Warrant holders do not have appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware in connection with the Exchange
Offer.
Although the Company has no current plan or intention to do so, it
reserves the right in its sole discretion to purchase or make offers for any
Warrants that remain outstanding subsequent to the Expiration Date, subject to
the requirements of Rule 13e-4(f)(6) of the Exchange Act. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
Tendering holders of Warrants will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Warrants pursuant to
the Exchange Offer. If, however, shares of Common Stock issued pursuant to the
Exchange Offer or substitute certificates
21
<PAGE>
evidencing Warrants not exchanged are to be delivered to, or are to be issued in
the name of, any person other than the registered Warrant holder, or if tendered
Warrants are recorded in the name of any person other than the person signing
the Letter of Transmittal, then the amount of any transfer taxes (whether
imposed on the registered Warrant holder or any other person) will be payable by
the tendering Warrant holder. See "Payment of Expenses" below.
Expiration Date; Extension; Termination; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on
_______________ (the "Expiration Date"), subject to extension by the Company by
notice given to Continental Stock Transfer & Trust Company (the "Exchange
Agent") and Warrant holders as herein provided. The Company reserves the right
to so extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the time and date on which the Exchange Offer as so
extended shall expire. The Company will notify the Exchange Agent of any
extension by oral or written notice, and will make a public announcement thereof
by press release, in each case prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
The Company reserves the right (i) to delay accepting any Warrants for
exchange or to extend or terminate the Exchange Offer and not accept for
exchange any Warrants if any of the events set forth below under the caption
"Conditions of the Exchange Offer" shall have occurred and shall not have been
waived by the Company prior to the Expiration Date, by giving oral or written
notice of such delay or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner, including altering the Exchange Ratio
or otherwise changing the consideration offered in exchange for the Warrants in
the Exchange Offer (provided that any such changed consideration must be paid
with regard to all Warrants accepted in the Exchange Offer). Any such delay in
acceptance for exchange, extension or amendment will be followed as promptly as
practicable by public announcement thereof. If the Exchange Offer is amended in
a manner determined by the Company to constitute a material change, the Company
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of Warrants of such amendment and the Company, depending upon
the significance of the amendment and the manner of disclosure to the holders of
the Warrants, will extend if necessary the Exchange Offer for a period of time
in accordance with Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated under the
Exchange Act. These rules have been interpreted by the Commission as requiring
that the minimum period during which the Exchange Offer must remain open
following an announcement of a material change in the terms of the Exchange
Offer or information concerning the Exchange Offer (other than a change in
price, a change in the amount of securities sought, or a change in certain fees)
will depend on the facts and circumstances, including the relative materiality
of such change or information. If the material change in the Exchange Offer
relates to a change in the Exchange Ratio, the Minimum Condition or the
solicitation fee to be paid to Soliciting Dealers in connection with the
Exchange Offer, Rule 13e-4(f)(1) requires the Exchange Offer to remain open for
a period of not less than ten business days following the announcement of any
such change if the Exchange Offer would otherwise expire within such ten
business-day period. For purposes of the Exchange Offer, "business day" means
any day other than a Saturday, Sunday or federal holiday and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City time. The
rights reserved by the Company in this paragraph are in addition to the
Company's rights set forth below under the caption "Conditions of the Exchange
Offer."
Procedure for Tendering
The acceptance of the Exchange Offer by holders of Warrants pursuant to
the procedure set forth below will constitute an agreement between such holder
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
To be tendered validly, a properly completed Letter of Transmittal (or
facsimile thereof) executed by the registered holder of the Warrants, or an
Agent's Message (as defined below) made in connection with a book-entry delivery
of the Warrants, and any other documents required by the Letter of Transmittal,
must be received by the Exchange Agent at the address set forth below prior to
5:00 p.m., New York City time, on the Expiration Date. In addition, prior to
such time either (i) the certificates for such Warrants must be delivered to the
Exchange Agent or (ii) such Warrants must be tendered pursuant to the procedure
for book-entry tender set forth below and a confirmation of receipt of such
Warrants received by the Exchange Agent. Alternatively, if time does not permit
a holder of Warrants to provide the Exchange Agent with a Letter of Transmittal
or other required documents prior to 5:00 p.m., New York City time, on the
Expiration Date, or if certificate(s) representing such holder's Warrants are
not available for delivery, prior to such time, to the Exchange Agent, or if the
procedures for book-entry transfer cannot be completed on a timely basis, a
Warrant holder desiring to tender his or her Warrants must comply with the
guaranteed delivery procedure set forth below. See "Guaranteed Delivery
Procedure."
22
<PAGE>
The Exchange Agent will establish an account with respect to the
Warrants for purposes of the Exchange Offer at The Depository Trust Company
("DTC") within two days after the commencement date of the Exchange Offer. Any
Eligible Institution (as defined below) that is a participant in the DTC system
may make book-entry delivery of the Warrants by causing DTC to transfer such
Warrants into the Exchange Agent's account at DTC in accordance with DTC's
book-entry transfer procedure for such transfer. However, although delivery of
the Warrants may be effected through a timely confirmation of a book-entry
transfer of such Warrants into the Exchange Agent's account at DTC (a
"Book-Entry Confirmation"), the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message, and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at its address
set forth on the back cover page of this Prospectus on or prior to the
Expiration Date, or the guaranteed delivery procedure set forth below must be
complied with. LETTERS OF TRANSMITTAL AND WARRANTS SHOULD NOT BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Warrants tendered pursuant thereto
are tendered (i) by a registered holder of Warrants who has not completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Exchange Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a financial institution (a
commercial bank, savings and loan association, credit union or brokerage house)
that is a participant in the Securities Transfer Association Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (collectively "Eligible Institution").
THE METHOD OF DELIVERY OF WARRANTS AND OTHER DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH DELIVERY IS BY
MAIL, IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE.
If the Letter of Transmittal is signed by a person other than a
registered holder of any certificates representing Warrants listed thereon, such
Warrants must be endorsed or accompanied by appropriate stock powers or other
instruments of transfer satisfactory to the Company and its transfer agent, in
each case signed exactly as the name or names of the registered holder or
holders appear on such Warrants.
If the Letter of Transmittal or the Notice of Guaranteed Delivery or
any certificates representing Warrants or any stock powers or other transfer
instruments are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be so submitted.
The term "Agent's Message" means a message transmitted by DTC, received
by the Exchange Agent and forming part of the Book-Entry Confirmation, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering the Warrants that are the subject of such Book-Entry Confirmation,
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal, and that the Company may enforce such agreement against
such participant. In the case of an Agent's Message relating to guaranteed
delivery, the term means a message transmitted by DTC and received by the
Exchange Agent, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Warrants that such participant has
received and agrees to be bound by the Notice of Guaranteed Delivery with
respect to such Warrants, and that the Company may enforce such agreement
against such participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Warrants will be resolved by the
Company, whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of counsel for the Company, be
unlawful or violate the regulations of any national securities exchange or the
NASD. The Company also reserves the right to waive any irregularities of tender
as to particular Warrants. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured prior to the Expiration Date. None of the
Company, the Exchange Agent, the Information Agent or any other person shall be
under any duty to give notification of any defects or irregularities in such
tenders or incur any liability for failure to give such notification. Tenders of
Warrants will not be deemed to have been made until such irregularities have
been cured or waived. Any Warrants received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Any beneficial owner whose Warrants are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Warrants in the Exchange Offer should contact such registered Warrant
holder promptly and instruct such registered Warrant holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender directly,
such beneficial owner must, prior to completing and executing the Letter of
Transmittal and tendering Warrants, make appropriate arrangements to register
ownership of the Warrants in such beneficial owner's name. Beneficial owners
should be aware that the transfer of registered ownership may take considerable
time.
Guaranteed Delivery Procedure
If a holder of Warrants desires to tender his or her Warrants and
certificate(s) representing such Warrants are not immediately available, or time
will not permit such holder's certificate(s) or any other required documents to
reach the Exchange Agent before 5:00 p.m., New York City time, on the Expiration
Date, or to complete, prior to such time, the procedures for book-entry
transfer, a tender may nonetheless be effected if:
(a) The tender is made by or through an Eligible Institution;
23
<PAGE>
(b) Prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed (with required signature guarantees) Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery), or an
Agent's Message with respect to guaranteed delivery; and
(c) The certificate(s) for all tendered Warrants (or a
confirmation of a book-entry transfer of such Warrants into the Exchange Agent's
account at DTC as described above), as well as a properly completed and duly
executed Letter of Transmittal, with any required signature guarantees, or an
Agent's Message made in connection with a book-entry delivery of such Warrants,
and all other documents required by the Letter of Transmittal, are received by
the Exchange Agent within three business days after the Expiration Date.
Conditions of the Exchange Offer
In addition, and notwithstanding any other provision of the Exchange
Offer, the Company will not be required to accept for exchange, or issue Common
Stock in exchange for, any Warrants tendered and may terminate, extend or
otherwise amend the Exchange Offer as provided herein, if, at any time on or
after the date of this Prospectus and before the Expiration Date, any of the
following conditions is determined by the Company in its reasonable discretion
to exist:
(a) the Minimum Condition has not been satisfied, so that
there has not been validly tendered prior to the Expiration Date a minimum of
14,267,362 Warrants (representing 95% of the aggregate outstanding Warrants)
which have not been withdrawn; or
(b) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency or regulatory authority which
challenges the making of the Exchange Offer or which might materially impair the
ability of the Company to proceed with or consummate the Exchange Offer or have
a material adverse effect on the contemplated benefits of the Exchange Offer to
the Company; or
(c) there shall have been proposed, adopted or enacted any
law, statute, rule or regulation which might materially impair the ability of
the Company to proceed with or consummate the Exchange Offer or have a material
adverse effect on the contemplated benefits of the Exchange Offer to the
Company; or
(d) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities on
the Nasdaq National Market (whether or not mandatory), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by Federal
or state authorities in the United States (whether or not mandatory), (iii) a
commencement of a war, armed hostilities or other international or national
crisis directly or indirectly involving the United States, (iv) any limitation
(whether or not mandatory) by any governmental authority on, or other event
having a reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (v) in the case of any of
the foregoing existing at the time of the commencement of the Exchange Offer, a
material acceleration or worsening thereof; or
(e) any tender or exchange offer with respect to some or all
of the Common Stock or the Warrants (other than the Exchange Offer), or a
merger, acquisition or other business combination proposal for the Company,
shall have been proposed, announced or made by any person or entity.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such conditions, or may be waived by the Company in whole or in part at any time
prior to the Expiration Date, subject to applicable law. Accordingly, if any of
the foregoing conditions shall have occurred prior to the Expiration Date, the
Company may (i) terminate the Exchange Offer and return tendered Warrants to the
holders who tendered them, (ii) extend the Exchange Offer and retain all
tendered Warrants, subject to Rule 13e-4(f)(2) of the Exchange Act (withdrawal
rights), until the expiration of the extended Exchange Offer or (iii) amend the
Exchange Offer in any respect, including by waiving such unsatisfied condition
and accepting all validly tendered Warrants that have not been withdrawn. If the
Company materially changes the terms of the Exchange Offer or information
concerning the Exchange Offer or if it waives a material condition of the
Exchange Offer, the Company will extend the Exchange Offer to the extent
required by Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated under the
24
<PAGE>
Exchange Act. If the Company alters the Exchange Ratio, waives or amends the
Minimum Condition or the Soliciting Dealer fees related to the Exchange Offer,
the Company will extend the Exchange Offer if necessary, to remain open for a
minimum of ten business days from the date that the Company first gives notice,
by public announcement or otherwise, of such waiver or amendment, if the
Exchange Offer would otherwise expire within such ten business-day period.
In addition, if any of the General Conditions (that is, the conditions
described in clauses (b) through (e) above) occurs at any time after the
Expiration Date but before the acceptance of the Warrants for exchange or the
actual exchange of Common Stock for Warrants, the Company may (i) withdraw the
Exchange Offer and return all Warrants tendered (regardless of whether or not
theretofore accepted) or (ii) waive or amend such condition and proceed with the
acceptance for exchange of, and exchange of Common Stock for, tendered Warrants,
in each case subject to applicable law (including Rule 14e-1(c) under the
Exchange Act, requiring the prompt exchange or return of Warrants tendered after
termination or withdrawal of the Exchange Offer).
Acceptance of Warrants for Exchange; Delivery of Common Stock
Upon the satisfaction or waiver of all of the conditions of the
Exchange Offer, the Company will accept promptly after the Expiration Date all
Warrants properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will deliver or cause the Exchange
Agent to deliver shares of Common Stock issued pursuant to the Exchange Offer
(and any cash payment in lieu of fractional interests) promptly following any
such acceptance.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered and not withdrawn Warrants when, as and if the Company
has given oral or written notice thereof to the Exchange Agent. The Exchange
Agent will act as agent for the tendering holders of Warrants for the purposes
of receiving the Common Stock pursuant to the Exchange Offer (and any cash
payment in lieu of fractional interests) from the Company. Under no
circumstances will interest be paid by the Company by reason of any delay in
delivering such Common Stock (or cash payment).
If any tendered Warrants are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Warrants will be returned,
without expense, to the tendering holder thereof (or, in the case of Warrants
tendered by book-entry transfer within a Book-Entry Transfer Facility, credited
to an account maintained within such Book-Entry Transfer Facility) as promptly
as practicable after the expiration or termination of the Exchange Offer.
Withdrawal Rights
Any holder of Warrants who has tendered Warrants may withdraw the
tender thereof, in whole or in part, at any time prior to 5:00 p.m., New York
City time, on the Expiration Date or, unless such tender has been previously
accepted for exchange, at any time after 5:00 p.m., New York City time, on
____________, 1997, by delivery of a written notice of withdrawal to the
Exchange Agent.
To be effective, a written notice of withdrawal (sent by hand,
telegraph or facsimile transmission) must (i) be timely received by the Exchange
Agent at the address set forth herein, (ii) specify the name of the person
having tendered the Warrants to be withdrawn, (iii) indicate the certificate
number or numbers of the Warrants to which the withdrawal relates, (iv) specify
the number of Warrants so withdrawn and (v) be (x) signed by the holder in the
same manner as the original signature on the Letter of Transmittal (including a
guarantee of signature, if required) or (y) accompanied by evidence satisfactory
to the Company that the holder withdrawing such tender has succeeded to
registered ownership of such Warrants. Withdrawals of tenders of Warrants may
not be rescinded, and any Warrants withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer; provided, however, that
withdrawn Warrants may be retendered by again following one of the tender
procedures described herein at any time prior to 5:00 p.m, New York City time,
on the Expiration Date.
All questions as to the validity (including time of receipt) of notices
of withdrawal will be determined by the Company, whose determination will be
final and binding. None of the Company, the Exchange Agent, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
25
<PAGE>
Fractional Shares
No fractional shares of Common Stock will be issued as a result of the
Exchange Offer. All fractional interests in a share of Common Stock that a
holder of Warrants participating in the Exchange Offer otherwise would be
entitled to receive as a result of the Exchange Offer will be aggregated and, if
after such aggregation a fractional interest in a share of Common Stock would
result, such tendering holder will be entitled to receive, in lieu thereof, an
amount in cash determined by multiplying (i) the fractional interest in the
share of Common Stock to which such holder would otherwise be entitled and (ii)
the average of the closing sales prices for shares of Common Stock, as reported
by the Nasdaq Stock Market, for each of the five trading days (whether or not
sales have occurred on such days) immediately preceding the Expiration Date.
Under no circumstances will a fractional interest in a share of Common Stock
entitle the owner thereof to vote or to any rights of a security holder.
As soon as practicable after the determination of the amount of cash,
if any, to be paid to a tendering holder of Warrants with respect to any
fractional share interest, and promptly after the acceptance of Warrants for
exchange, the Exchange Agent shall distribute in cash the amount payable to such
holder. Under no circumstances will interest be paid by the Company by reason of
any delay in making such cash payment.
Transferability of Shares of Common Stock Received Upon Exchange
The issuance of shares of Common Stock upon exchange of the Warrants
pursuant to the Exchange Offer are being registered under the Securities Act
pursuant to a Registration Statement of which this Prospectus forms a part. As
registered, the shares of Common Stock issued upon exchange of the Warrants will
be freely tradeable under federal law, without compliance with prospectus
delivery requirements; provided that the person receiving the shares of Common
Stock issued upon exchange of the Warrants is not an affiliate of the Company.
If the recipient of the shares of Common Stock is an affiliate of the Company,
the shares of Common Stock may only be sold pursuant to an effective
registration statement under the Securities Act with respect to such shares of
Common Stock or an exemption from registration thereunder.
Accounting for the Exchange Offer
The Exchange Offer will be accounted for as a purchase of the Warrants
into treasury followed by a cancellation of the Warrants. As a result, there
will be no impact on total stockholders' equity other than the associated costs
of the Exchange Offer, which will result in a decrease of additional paid-in
capital. See "Payment of Expenses."
Exchange Agent
Continental Stock Transfer & Trust Company, the Transfer and Warrant
Agent for the Company, has been appointed as Exchange Agent for the Exchange
Offer. All correspondence in connection with tendering and withdrawal procedures
relating to the Exchange Offer and the Letter of Transmittal should be addressed
to the Exchange Agent, as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Reorganization Department
Facsimile: (212) 509-5150
Telephone: (212) 509-4000, ext. 535
26
<PAGE>
Information Agent
D.F. King & Co., Inc. has been appointed as Information Agent for the
Exchange Offer. All inquiries concerning the Exchange Offer and/or requests for
additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Information Agent, as follows:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone: (800) 207-3158
Payment of Solicitation Fees
The Company will pay to Soliciting Dealers (as hereinafter defined) a
solicitation fee related to their solicitation efforts of $.05 per Warrant for
any Warrants tendered and accepted for exchange and exchanged pursuant to the
Exchange Offer; provided that no solicitation fee shall be payable with respect
to Warrants beneficially owned (i) by any of the directors, executive officers
or 5% stockholders who have indicated to the Company their current intent to
tender their Warrants, (ii) by any employee of the Company or its affiliates or
(iii) by the Soliciting Dealer (collectively, "Fee Ineligible Warrants"). The
term "Soliciting Dealer" shall mean (x) any broker or dealer in securities that
is a member of any national securities exchange or of the NASD, (y) any foreign
broker or dealer not eligible for membership in the NASD which agrees to conform
to the NASD's Rules of Fair Practice in soliciting tenders outside the United
States to the same extent as though it were an NASD member or (z) any bank or
trust company.
No such solicitation fee shall be payable to a Soliciting Dealer with
respect to the tender of Warrants by a holder unless the Letter of Transmittal
accompanying such tender designates such Soliciting Dealer as having solicited
and obtained the tender of the Warrants covered thereby. No such fee shall be
payable to a Soliciting Dealer with respect to the tender of Warrants by the
holder of record, for the benefit of the beneficial owner, unless the beneficial
owner has designated such Soliciting Dealer. If tendered Warrants are being
delivered by book-entry transfer or pursuant to the guaranteed delivery
procedure, the Soliciting Dealer must return a Notice of Solicited Tenders to
the Exchange Agent within five business days after the consummation of the
Exchange Offer to receive a solicitation fee. All questions as to the validity,
form or eligibility (including time of receipt) of Notices of Solicited Tenders
will be determined by the Company, whose determination will be final and
binding. None of the Company, the Exchange Agent, the Information Agent, or any
other person will be under any duty to give notification of any defects or
irregularities in any Notice of Solicited Tenders or incur any liability for
failure to give any such notification. The Company reserves the absolute right
not to pay any solicitation fees that would, in the opinion of counsel for the
Company, be unlawful or violate the regulations of any national securities
exchange or the NASD. No broker, dealer, bank, trust company or fiduciary shall
be deemed to be the agent of the Company, the Exchange Agent or the Information
Agent for purposes of the Exchange Offer.
In general, the rules of the Commission prohibit any broker-dealer that
is participating in the distribution of securities for or on behalf of the
Company from making a market in the Common Stock or Warrants during a
"restricted period" commencing up to five days prior to the date that this
Prospectus is distributed to Warrant holders and extending until completion of
the Exchange Offer. The Commission has, however, adopted exceptions to these
rules that permit market making under certain conditions. These rules permit
such broker-dealers to continue to make a market subject to the conditions,
among others, that its bid not exceed the highest bid by a market maker not
connected with the Exchange Offer and that its net purchases on any one trading
day not exceed prescribed limits. Pursuant to these exemptions, certain
broker-dealers receiving solicitation fees and/or their respective affiliates
may engage in passive market making in the Common Stock or Warrants during the
restricted period.
Payment of Expenses
Other than solicitation fees to be paid to the Soliciting Dealers, the
Company will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent and the Information Agent reasonable and customary fees for their services
in connection with the Exchange Offer and will reimburse them for their
reasonable out-of-pocket expenses in connection therewith. The Company will
also pay broker, dealers and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred
27
<PAGE>
by them in forwarding copies of this Prospectus and related documents to the
beneficial owners of the Warrants, and in handling or forwarding tenders for
their customers.
The cash expenses incurred or to be incurred by the Company in
connection with the Exchange Offer, other than solicitation fees payable to the
Soliciting Dealers, are estimated in the aggregate to be approximately $150,000
and include estimated fees and expenses of the Exchange Agent and Information
Agent, estimated accounting, banking and legal fees and estimated printing and
miscellaneous expenses. Based on an estimate of the number of Fee Ineligible
Warrants, the Company anticipates that the aggregate solicitation fees payable
to Soliciting Dealers will not exceed $350,000.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Warrants to it or its order pursuant to the Exchange Offer. If,
however, shares of Common Stock issued pursuant to the Exchange Offer or
substitute certificates evidencing Warrants not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Warrants tendered, or if tendered certificates
representing Warrants are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer and sale of Warrants to the Company or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
Use of Proceeds
The Company will not receive any cash proceeds from the issuance of the
Common Stock offered hereby.
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<PAGE>
BUSINESS OF THE COMPANY
The following description of the business of the Company is qualified
by and should be read in conjunction with Part I of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, incorporated herein by
reference and accompanying delivery of this Prospectus.
Overview
The Company, through its subsidiaries and affiliates, is a leading
domestic and international inter-dealer brokerage firm, specializing in emerging
market debt, money market instruments, derivatives, natural gas and electricity,
repurchase agreements and other fixed income securities. The Company conducts
its business through principal offices in New York, London, Tokyo, Toronto,
Sydney and Mexico City and by means of correspondent relationships with other
brokers throughout the world. The Company operates in each of these six
financial centers (other than Tokyo and Sydney) through wholly-owned
subsidiaries. In Tokyo, the Company has a 50% interest in a partnership (the
"Tokyo Partnership") with Yagi Euro and a 15% minority interest in Yagi Euro
itself. In Sydney, the Company has a controlling interest in a joint venture
with management and a financial partner.
The Company functions primarily as an intermediary, matching up the
trading needs of its customers, who are primarily well-capitalized banks,
investment banks and broker-dealers. The Company assists its customers in
executing trades by identifying counterparties with reciprocal interests. The
Company provides its services through an international network of brokers who
service direct phone lines to most of the Company's clients and through
proprietary screen systems and other delivery systems that provide customers
with historical data and real-time pricing information in the Company's various
products.
The Company believes that customers use its services for several
reasons. First, the Company believes that a customer can benefit from the
Company's worldwide broker and telecommunications network, which communicates
with and services most of the largest banks and securities firms. Second, the
Company provides customers with anonymity, which can enhance the customers'
flexibility and ability to act without signaling their intentions to the
marketplace. Third, because of its network, the Company believes it can provide
high-quality pricing and market information, as well as sophisticated analytics
and trading and arbitrage opportunities.
The Company's transactions are principally of two types, (i)
transactions whereby the Company acts only as a matching broker and (ii)
transactions whereby the Company acts as a matched riskless principal. Primarily
in transactions involving money market instruments, derivative products and
certain repurchase agreements, the trades are arranged while preserving the
customers' anonymity, but executed at the last instant on a name give-up basis
and settled directly between the counterparties. In these transactions the
Company acts solely as the matching broker and is never a counterparty. In the
second type of transaction, primarily securities transactions, the Company acts
as a matched riskless principal, connecting the buyer and seller for the
transaction on a fully anonymous basis by having the Company act as the
counterparty for each. This type of transaction is then promptly settled through
one of various clearing institutions with which the Company has contractual
arrangements. Except for limited positions in connection with its municipal
securities business (discussed below), the Company does not in this or other
types of trades it currently brokers seek to take positions for its own account.
Products
The Company's business generally falls into the brokerage of three
broad groups of products: (i) money market instruments, (ii) derivative products
and (iii) securities products.
Money Market Instruments
In general, money market instruments take the form of deposits or other
negotiable instruments placed by one financial institution with another, at an
agreed-upon rate of interest, for a fixed period of time. Money market
instruments primarily include Eurodollar deposits, term and overnight Federal
Fund deposits, Eurocurrency deposits, certificates of deposit, banker's
acceptances and short term commercial paper. The most traditional product in
this category is the Eurodollar deposit, which are U.S. dollar deposits placed
with financial institutions domiciled outside the United States (including
branches of U.S. banks). Eurocurrency deposits are non-dollar deposits placed
outside the country of denomination, such as Euro Swiss Franks, Euro Deutsche
marks and Euro Yen. The Company brokers money market instruments predominantly
to multinational banks.
29
<PAGE>
Derivative Products
A derivative products transaction generally is an agreement entered
into by two parties, in which each commits to a series of payments based upon
the price performance of an underlying financial instrument or commodity for a
specified period of time. This category includes a broad range of sophisticated
financial techniques employed by multinational banks, financial institutions,
securities dealers and corporations. Some of the types of derivatives most
frequently brokered by the Company are interest rate swaps, interest rate
options, forward rate agreements and energy-related derivatives.
In an interest rate swap, two parties agree to exchange interest rate
payment obligations on a notional principal amount over the term of the swap. No
principal is exchanged, and market risk is limited to differences in the
interest payments. Swaps enable institutions that may not be able to obtain low
cost fixed rate funding, but who can borrow lower cost floating rate funds, to
swap those floating rate obligations for fixed rate obligations and obtain a
fixed rate cost of funds that they could not otherwise access. Interest rate
options, which may also be structured as "cap," "floor" or "swaption"
transactions, are transactions in which one party grants the other the right
(but not the obligation) to receive a payment equal to the amount by which an
interest rate either exceeds (for call options) or is less than (for put
options) a specified strike rate.
Forward rate agreements ("FRAs") are over-the-counter, off-balance
sheet instruments similar to interest rate futures, designed to give the
counterparties protection against a shift in interest rates for time deposits.
The buyer, or borrower, of a FRA agrees to pay the seller, or lender, at some
specified future settlement date, an amount of interest based on a notional
principal at a fixed rate for a specified period of time. The seller agrees to
pay the buyer, on the same future settlement date, an amount of interest based
on the same amount of notional principal and the same period of time, but based
on the then-prevailing market rate for the time period. No actual principal is
exchanged. On the settlement date, the buyer and the seller calculate the
present value of the net interest owed, and one party pays the other
accordingly.
Energy-related derivatives, including options and physical contracts
based on natural gas, electricity and emissions, generally are transactions in
which payments based on fixed and floating commodities indices are exchanged.
The Company also brokers trades in cross currency swaps, in which
interest rate flows denominated in different currencies are exchanged, based on
predetermined notional amounts, in order to convert exposure in one currency to
another. In both the United Kingdom and Tokyo, a large portion of the Company's
derivative products business is non-dollar denominated. The Company brokers
derivative products predominantly to multinational banks and investment banks.
Securities Products
Products brokered by the Company in this category include debt
obligations issued by governments, banks and corporations. The Company brokers
transactions in municipal securities, emerging market debt, U.S. Treasury zero
coupon bonds, U.S. domestic convertible bonds, U.S. Treasury options and other
corporate securities. This category also includes repurchase agreements.
Emerging market debt, including Brady bonds, local sovereign issues and
Eurobonds, as well as options and repurchase agreements on the foregoing, in
1996 constituted the fastest growing area within the securities products
category, and is brokered by specialized teams located in New York, London and
Mexico City and through a joint venture in Buenos Aires. The market coverage of
the teams from these locations is worldwide. The Company's brokerage of emerging
market debt utilizes direct communication phone lines and proprietary,
computerized screen systems located directly in customers' offices.
Repurchase agreements are contractual obligations entered into by two
counterparties, first to sell securities and then to repurchase those same
securities (or the reverse in the case of a buyer) at an agreed upon future date
and price. The Company acts as an intermediary primarily for the U.S. Primary
Government Dealer community (banks and dealers licensed to participate in
auctions of U.S. Treasury securities), as well as for a number of U.S. regional
banks and dealers, in the negotiation and execution of U.S. Treasury and
mortgaged-backed repurchase agreements. The Company also disseminates repurchase
agreement market information via its proprietary, computerized screens.
30
<PAGE>
In June 1996, the Company began brokering municipal securities,
generally acting as a matched riskless principal, but also taking limited
proprietary positions. In October 1996, the Company also established a U.S.
convertible bond desk, generally brokering such instruments on a name give-up
basis.
The Company also conducts a securities lending business, primarily in
U.S. government and agency securities and U.S. corporate bonds, but also in
non-dollar government securities and corporate bonds, in which it arranges for
the lending of such securities from institutional investor portfolios, in
exchange for cash or other collateral, to securities dealers and other market
participants who need them to manage their positions. The Company also engages
in certain structured finance activities, primarily involving the arranging of
investment agreements between municipal bond issuers and financial investment
agreement providers.
The Company brokers securities products predominantly to banks,
investment banks and other financial institutions.
Communications Network and Information Systems
The Company has a global communications network through which it
conducts its business and a sophisticated computerized information system over
which it receives and transmits current market information. Its teams of
computer and communications specialists provide technological support to the
network. The Company is continually upgrading its technological facilities in
order to access and collate market information and redistribute it virtually
instantaneously throughout its network. Through the continued development and
use of proprietary software, computerized screen displays, digital networks and
interactive capabilities, the Company keeps its communication, technology and
information systems as current as possible.
Due to the need for instantaneous communications, the majority of the
Company's customers are connected to the Company via direct point to point
telephone and data lines around the world. The Company's intranet, with its
sophisticated host computer system and digital facilities, is used to connect
via one network the Company's offices and specific customers who trade in
certain products, including emerging market debt, repurchase agreements,
options, bankers acceptances and certificates of deposit. In this way, all
parties have simultaneous access to market bids and offers.
Most of the markets in which the Company operates are highly efficient,
offering participants immediate access and enormous liquidity. Some markets are
subject to a high degree of volatility. Even the slightest variation in price
can make the difference between missing or executing a transaction.
Consequently, the Company's business depends heavily on the use of advanced
telephone equipment, computer systems and pricing software. Direct line voice
communication, real-time computerized screen systems and instantaneous trade
execution for its clients are all imperative for the Company's continued success
in the inter-dealer brokerage business. For this reason, the Company intends to
continue to expand and enhance its communication and information system
networks.
Personnel
As of July 31, 1997, the Company employed 533 brokers, plus an
additional administrative staff, including officers and senior managers, of 165
persons, for a total employee headcount of 698. Of the brokers, 282 were located
in the U.S. and 175 were located in Europe, with the balance distributed among
the Company's other office locations. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
relations with employees to be good and regards compensation and employee
benefits to be competitive with those offered by other inter-dealer brokerage
firms.
Properties
The Company has principal offices in each of the following locations:
New York, New York; London, England; Tokyo, Japan; Toronto, Canada; Greenwich,
Connecticut (in the process of moving to Stamford, Connecticut); Mexico City,
Mexico; and Sydney, Australia. The Company leases all of its office space and
has material lease obligations with respect to its New York and London premises.
The Company occupies an aggregate of approximately 49,000 square feet of space
in 2 World Trade Center in downtown New York under leases expiring on various
dates from 2004 through 2007 (with a lease break provision in 2002). The Company
occupies approximately 36,000 square feet of space in downtown London under a
lease expiring in 2018 (with a lease break provision in 2003).
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<PAGE>
MANAGEMENT OF THE COMPANY
Executive Officers and Directors
Set forth below are the names, ages and positions of the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Class of
Name Age Director Position
- ---- --- -------- --------
<S> <C> <C> <C>
Gilbert D. Scharf 49 III Chairman of the Board, Chief Executive Officer
and President
Michael J. Scharf 54 III Director
Larry S. Kopp 55 III Director
James W. Stevens 61 I Director
Frederick B. Whittemore 66 I Director
Denis Martin 47 II Director
William B. Wigton 50 II Director
Keith E. Reihl 45 II Director, Chief Financial Officer and Treasurer
(and Chief Operating Officer of EBIC)
Roger E. Schwed 39 -- Vice President, General Counsel and Secretary
Walter E. Dulski 56 -- Executive Vice President of EBI
Michael C. Morrison 39 -- Chief Operating Officer of EBIC's London
Operations
</TABLE>
The Board of Directors of the Company is divided into three classes,
each of which generally serves for a term of three years, with only one class of
directors being elected in each year. In each case, each director holds office
until the next annual meeting of stockholders at which his class of directors is
to be elected, or until his successor is duly qualified and appointed. The term
of the Class I Directors will expire at the Company's annual meeting of
stockholders in 2000; the term of the Class II Directors will expire at the
annual meeting of stockholders in 1998; and the term of the Class III Directors
will expire at the annual meeting of stockholders in 1999.
Certain Biographical and Other Information Regarding the Company's Officers and
Directors
Gilbert D. Scharf, 49, has been Chairman of the Board, President and
Chief Executive Officer of the Company since its inception in 1994. Since April
1993, Mr. Scharf has been Vice President, Secretary, Treasurer and a director of
Niagara Corporation, a holding Company with operating subsidiaries in the
business of manufacturing cold drawn steel bars ("Niagara"). Since 1989, Mr.
Scharf has been a private investor and Chairman of Scharf Advisors, Inc.
("Scharf Advisors"). From 1985 to January 1989, Mr. Scharf was a Managing
Director of Lazard Brothers & Co. Ltd. in London, where he was responsible for
establishing and managing capital market activities. From 1983 to 1985, Mr.
Scharf was the General Partner of Mendez, Scharf & Co., a private investment
partnership. Prior thereto, Mr. Scharf was a Managing Director at Morgan Stanley
from 1978 to 1983, where he managed all corporate and international bond trading
and new issue commitments and the money market department, and was co-chairman
of the risk management committee. Upon consummation of the Company's acquisition
of EBIC, Mr. Scharf became the Vice-Chairman of EBIC and is currently the
Chairman, President and Chief Executive Officer of EBIC, as well as of a number
of its subsidiaries. Mr. Scharf earned a B.A. degree from Duke University. He is
the Chairman of the Board's Executive Committee.
Michael J. Scharf, 54, has been a director of the Company since its
inception in 1994 and, until August 1997, was also Vice President, Secretary and
Treasurer of the Company. Since April 1993, Mr. Scharf has been the Chairman of
the Board, President and Chief Executive Officer of Niagara. From August 1989 to
April 1994, he was a private investor. From October 1983 to August 1989, Mr.
Scharf was the Chairman and Chief Executive Officer of Edgcomb Steel of New
England, Inc. and its successor corporation, Edgcomb Corporation, which was,
from 1984 to 1989, one of the largest independent metals service center and
distribution companies in the United States. Edgcomb Corporation was sold in
1989 to a Company controlled by The Blackstone Group. Mr. Scharf received an
A.B. degree from Princeton University and an M.B.A. from Harvard Business
School. He is a member of the Board's Executive Committee.
32
<PAGE>
Larry S. Kopp, 55, has been a director of the Company since its
inception in 1994. Since November 1992, Mr. Kopp has been Managing Director of
Frank Russell and Company, a pension consulting firm which currently has $700
billion under advisement and $60 billion in investment funds through the
Company's global investment and administrative relationships. From 1978 to
November 1992, Mr. Kopp held several senior management positions in strategic
growth areas of Citicorp, including General Manager of its bank card business
and Chairman of Citicorp Insurance Services. From 1974 to 1978, Mr. Kopp was
involved in venture capital transactions and was an advisor at E.M. Warburg
Pincus and Company, where he served as a consultant to corporations regarding
strategic planning, turnarounds, financial restructuring and sales of assets.
Mr. Kopp earned B.A. and M.B.A. degrees from Stanford University. He is Chairman
of the Board's Compensation Committee.
James W. Stevens, 61, has been a director of the Company since its
August 1996 acquisition of EBIC when he became the designee to the Board of
Directors, pursuant to the Merger Agreement, of EBIC and its largest shareholder
WCAS, and has since been re-elected by the Company's stockholders at their
Annual Meeting in June 1997. Mr. Stevens has held various senior positions at
The Prudential Insurance Company of America ("Prudential") from October 1987
through December 1994. Mr. Stevens retired from Prudential in January 1995. As
an Executive Vice President of Prudential, from October 1987 to December 1994,
his responsibilities included serving on the Operating Council since 1993 and
serving as Chairman and Chief Executive Officer of the Prudential Asset
Management Group with responsibility for global institutional money management
since 1993. From April 1985 to October 1987, he was a Managing Director of
Dillon Read & Co. Inc. ("Dillon Read") in its investment banking and private
investment origination group. From 1974 to 1985, Mr. Stevens held several senior
positions at Citicorp, including Chairman of Citicorp Venture Capital Ltd. and
Group Executive of the Capital Markets Group, responsible for the Western
Hemisphere merchant banking and investment management activities of Citicorp.
Mr. Stevens currently serves on the boards of directors of the following
companies: Biogen, Inc., Markem Corporation, Polyfibron Technologies, Inc., Pen-
Tab Industries, Inc. and Walsh International, Inc. Mr. Stevens received his B.A.
degree from Williams College and his M.B.A. from New York University. He is
Chairman of the Board's Audit Committee.
Frederick B. Whittemore, 66, has been a director of the Company since
its inception in 1994. Mr. Whittemore currently serves as a member of the boards
of directors of Partner Re Services Ltd., Southern Pacific Petroleum, Integon
Insurance and Chesapeake Energy Corporation. Since 1989, Mr. Whittemore has been
an Advisory Director at Morgan Stanley and he is Chairman of several of Morgan
Stanley's mutual funds. Mr. Whittemore started at Morgan Stanley in 1958; he was
a Partner from 1967 to 1970 and a Managing Director from 1970 until 1988. He was
a senior banker in Corporate Finance, Mergers and Acquisitions and Capital
Markets, and Syndicate Manager responsible for organizing and pricing all public
offerings. Mr. Whittemore has also been a member of the Council of Foreign
Relations since 1983 and was Chairman of the Board, Amos Tuck School of Business
Administration at Dartmouth College from 1988 to June 1992. From 1977 to 1984,
Mr. Whittemore was a Governor of the American Stock Exchange ("AMEX") and from
1982 to 1984 he was Vice Chairman of AMEX. Mr. Whittemore earned an A.B. degree
from Dartmouth College and an M.B.A. from the Amos Tuck School of Business
Administration. He is a member of the Board's Audit Committee.
Denis Martin, 47, has been a director of the Company since its
inception in 1994. Since April 1997, Mr. Martin has been a management consultant
for Dynanet Ltd., a real estate management company based in the Isle of Man.
Since June 1997, Mr. Martin has also been employed as a Managing Director of
Euro Brokers Inc. ("EBI"). Mr. Martin has also been a private investor since
July 1993. From January 1992 to July 1993, Mr. Martin served as risk investment
manager at Cragnotti & Partners Capital Investment. From January 1990 to
December 1991, Mr. Martin headed the Investment Group at BNP Securities, and
from 1985 to December 1989, he was a partner in the Lazard Brothers Capital
Markets Group, where he was responsible for risk management. From 1980 to 1985,
Mr. Martin was a Eurobond market-maker at Morgan Stanley and, prior thereto, he
was in the actuarial and investment departments at Legal and General Assurance,
a major U.K. insurance Company. Mr. Martin earned a B.S. degree from the
University of Leicester, England.
William B. Wigton, 50, has been a director of the Company since its
August 1996 acquisition of EBIC in connection with the Merger. Mr. Wigton was a
founding member and has been a managing partner of Merrion Group, L.P., a
broker-dealer, since its inception in 1989. He is also a managing director of
and investor in Merrion Investors, L.P., a private investment fund, and from
1996 to 1997 served as a director of Munn, Bernhard & Associates, a registered
investment advisor. From 1981 to 1989, Mr. Wigton was employed at Lazard Freres
& Co. and was a general partner from 1987 to 1989, with responsibility for
corporate bond sales. From 1979 to 1981, Mr. Wigton was a senior vice president
at Dillon Read. Prior thereto, he was associated with Morgan Stanley (1975 to
1979) and Morgan Guaranty Trust Company (1970 to 1975). Mr. Wigton received his
B.A. degree from Lynchburg College. He is a member of the Board's Compensation
Committee.
33
<PAGE>
Keith E. Reihl, 45, has been a director of the Company since April
1997, when he was appointed to the Board of Directors to fill the vacancy
created by the resignation in November 1996 of Donald Marshall, the former Chief
Executive Officer of EBIC, and, since August 1997, Chief Financial Officer and
Treasurer of the Company. Mr. Reihl also is the Chief Operating Officer and
Treasurer of EBIC and a number of its subsidiaries, as well as a member of a
number of such companies' respective boards of directors. Prior to being
appointed Chief Operating Officer in November 1996, Mr. Reihl had served since
1983 as the Chief Financial Officer of EBIC and a number of its subsidiaries.
Prior to that time, Mr. Reihl was employed for nine years by Price Waterhouse
LLP, serving lastly as Senior Manager. Mr. Reihl is a Certified Public
Accountant and received his BA. degree in Accounting from Elizabethtown College
in 1974.
Roger E. Schwed, 39, has been Vice President and General Counsel of the
Company since October 1996 and, in August 1997, also became Secretary of the
Company (having previously been Assistant Secretary). Mr. Schwed is also
Executive Vice President, General Counsel and Secretary of EBIC and Executive
Vice President and Secretary of a number of EBIC's subsidiaries. Prior to
joining the Company, from March 1995 to September 1996, Mr. Schwed was Counsel
at the law firm Skadden, Arps, Slate, Meagher & Flom LLP in New York, and, from
October 1987 to February 1995, an associate at the law firm Cleary, Gottlieb,
Steen & Hamilton. Mr. Schwed received an A.B. degree from Princeton University
in 1979 and a J.D. degree from Columbia University School of Law in 1986.
Walter E. Dulski, 56, became an Executive Vice President of EBIC and a
number of its subsidiaries in 1997. Prior thereto, Mr. Dulski had been a Senior
Vice President of EBIC and such subsidiaries since 1979. Mr. Dulski is also a
director of EBI and a number of other EBIC subsidiaries. Mr. Dulski was a member
of the American Stock Exchange from 1977 to 1984. Mr. Dulski received his B.S.
degree in Economics from Villanova University in 1963.
Michael C. Morrison, 39, has been the Chief Operating Officer of the
Company's EBIC London operations since November 1996. Mr. Morrison also is, and
has been since 1987, the Chief Financial Officer and Secretary of such
operations and a member of the boards of directors of the companies comprising
such operations. Prior to that time, Mr. Morrison was employed for five years
with Price Waterhouse in London, serving lastly as Audit Manager. Mr. Morrison
is a Chartered Accountant and graduated Ardingly College in 1976, receiving his
Diploma in Accountancy from City of London Polytechnic in 1977.
Committees and Compensation of the Board of Directors
The Board of Directors has standing Executive, Audit and Compensation
Committees. The Executive Committee is currently comprised of Messrs. Gilbert
Scharf (Chairman) and Michael Scharf, and is authorized to exercise all powers
and authority of the Board of Directors, except those reserved to the Board by
law, Board resolution or the Company's Restated Certificate of Incorporation or
By-laws.
The Audit Committee is comprised of Messrs. Stevens (Chairman) and
Whittemore and recommends to the Board of Directors the accounting firm to be
appointed as independent accountants for the Company; reviews with the Company's
management and independent accountants the Company's quarterly and annual
operating results; and reviews with the Company's independent accountants the
scope and results of their audit and the adequacy of the Company's internal
accounting procedures and systems.
The Compensation Committee is comprised of Messrs. Kopp (Chairman) and
Wigton and determines the cash and non-cash compensation payable to executive
officers of the Company. The Compensation Committee also administers the
Company's 1996 Stock Option Plan ("Option Plan"). Each of Messrs. Kopp and
Wigton is an independent outside director and a "disinterested person" within
the meaning of Rule 16b-3 under the Exchange Act. There are no "interlocks," as
defined by the Commission, with respect to any director who serves, or for any
part of 1996 has served, as a member of the Compensation Committee.
The members of the Board of Directors are compensated in a manner and
at a rate determined from time to time by the full Board. In August 1996, each
non-employee member of the Board of Directors (then consisting of Messrs.
Stevens, Whittemore, Martin, Kopp and Wigton) received as compensation a
one-time grant of options under the Option Plan to acquire 10,000 shares of
Common Stock, exercisable at $5.00 per share, and vesting in equal 50%
increments on the dates respectively six months and twelve months after the date
of grant. Non-employee directors are also compensated annually in arrears (on or
before the time of the Company's annual meeting) at the rate of $500 for each
Board or Committee meeting attended, plus reimbursement of reasonable expenses
to attend.
34
<PAGE>
Executive Compensation
The following table summarizes compensation paid by the Company and its
subsidiaries, during each of the last three fiscal years, to its Chief Executive
Officer, its four remaining most highly compensated executive officers as of
December 31, 1996, and Donald Marshall, the former Chief Executive Officer of
EBIC who resigned in November 1996 (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Securities Underlying All Other
Principal Position Year Salary Bonus Options (# of shares) Compensation(1)
- ------------------ ---- ------ ----- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Gilbert D. Scharf, 1996 $168,750 $ -- 250,000 $ --
Chairman of the 1995 -- -- -- --
Board, President 1994 -- -- -- (3)
and Chief Executive
Officer(2)
Keith E. Reihl, 1996 281,250 50,000 100,000 6,419
Chief Financial Officer 1995 270,000 90,000 -- 6,293
and Treasurer 1994 293,750 -- -- 6,302
Walter E. Dulski, 1996 270,000 75,000 30,000 3,673
Executive Vice President 1995 270,000 -- -- 3,673
of EBI 1994 293,750 -- -- 3,805
Roger E. Schwed, 1996 62,500 25,000 50,000 1,780
Vice President, General -- -- -- -- --
Counsel and Secretary(4) -- -- -- -- --
Michael C. Morrison, 1996 157,300 133,705 50,000 382
Chief Operating Officer 1995 158,140 95,951 -- 432
of EBIC's London
Operations(5) 1994 140,947 104,704 -- 424
Donald R.A. Marshall, 1996 450,000 50,000 150,000 14,883
Former Chief Executive 1995 450,000 100,000 -- 14,607
Officer of EBIC(6) 1994 446,833 -- -- 14,673
</TABLE>
(1) Amounts, for each of Messrs. Reihl, Dulski and Marshall, are comprised
of (i) annual premiums ranging from $612 to $1,861 paid by EBI on
travel accident insurance policies providing coverage of $2.5 million
for Mr. Marshall and $1 million for each of Messrs. Reihl and Dulski
and (ii) annual premiums ranging from $1,281 to $11,574 paid by EBI on
long-term disability policies currently providing for, in the event of
disability, monthly payments for life to Mr. Marshall of $13,500 and to
Mr. Reihl of $6,900 and monthly payments for two years to Mr. Dulski of
$3,000. Amounts also include (x) for such persons and Mr. Schwed,
$1,000 contributions annually to the EBI 401(k) Savings Plan and (y)
for all Named Executive Officers, other than Mr. Morrison, annual
premiums of $780 paid by EBI on life insurance policies providing
coverage for such officers of two times the prior year's reported Form
W-2 earnings (or base salary and guaranteed bonus, if higher), up to a
maximum coverage of $500,000. Amounts for Mr. Morrison are comprised of
pro rated annual premiums paid by EBIC's London operations on a group
life insurance policy providing coverage for Mr. Morrison of four times
his base salary. Certain perquisites and other personal benefits that
aggregate in each case to less than 10% of the Named Executive
Officer's annual salary and bonus have been omitted pursuant to item
402(b)(1)(iii)(C)(1) of Regulation S-K.
35
<PAGE>
(2) Mr. Scharf did not draw a salary from the Company prior to the date of
the Merger (August 16, 1996). His compensation disclosed for 1996
relates only to the partial year following the Merger (reflecting an
annual base salary of $450,000).
(3) In August 1994, Mr. Scharf was issued 498,333 shares of Common Stock at
$.03 per share that were placed in escrow for a period that will end
November 30, 1997 ("Pre-IPO Shares") and were subject to certain
restrictions, including having no value if the Company were forced to
liquidate by its inability to consummate an initial business
combination within two years of its December 1994 IPO. In the IPO, each
unit offered for sale to the public (consisting of one share of Common
Stock and two Warrants) was priced at $6.00. As a result of the Merger,
the characteristics described above with respect to the Pre-IPO Shares,
other than the escrow requirement, no longer apply.
(4) Mr. Schwed did not join the Company until October 1, 1996. His
compensation disclosed for 1996 relates only to a partial year
(reflecting an annual base salary, inclusive of guaranteed bonus, of
$250,000). Mr. Schwed's option grants include 25,000 options granted in
February 1997, but relating to fiscal year 1996.
(5) All amounts for Mr. Morrison reflect the U.S. Dollar equivalent of
amounts actually paid in Pounds Sterling, using average U.S.
Dollar/Pounds Sterling exchange rates of 1.5730, 1.5814 and 1.5376 for
1996, 1995 and 1994, respectively.
(6) Mr. Marshall resigned as a director of the Company, and as Chief
Executive Officer of Euro Brokers and a number of its subsidiaries, in
November 1996. He will continue to be paid by the Company in his
remaining capacity as a consultant, at an annual compensation rate of
$450,000, through November 22, 1999.
Stock Option Grant Table
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1996 to each of the
Named Executive Officers.
<TABLE>
<CAPTION>
Stock Option Grants in Last Fiscal Year
---------------------------------------
Potential Realizable Value
Number of Percentage of at Assumed Annual Rates
Securities Total Options Option of Stock Price
Underlying Granted to Exercise Term Appreciation for
Options Employees in Price Per Expiration Option Term (2)(3)
Name Granted(1) Fiscal Year Share Date 5% 10%
- ----------------- ---------- ------------ ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gilbert Scharf(4) 150,000 11.7% $ 5.00 8/26/06 $ 471,671 $1,195,307
100,000 7.8 5.50 8/26/01 88,141 255,255
Keith Reihl 100,000 7.8 5.00 8/26/06 314,447 796,871
Walter Dulski 30,000 2.3 5.00 8/26/06 94,334 239,061
Roger Schwed(5) 25,000 1.9 5.1875 9/30/06 81,560 206,688
25,000 1.9 4.8125 2/03/07 42,577 139,062
Michael Morrison 50,000 3.9 5.00 8/26/06 157,224 398,436
Donald Marshall(6) 90,000 7.0 5.00 2/22/00 77,443 163,924
60,000 4.7 5.50 2/22/00 21,629 79,283
</TABLE>
(Footnotes follow on next page)
36
<PAGE>
(1) All options are grants under the Option Plan which was implemented in
August 1996. All options permit the holder to acquire shares of Common
Stock and, except as noted below, are incentive stock options ("ISOs")
granted on August 27, 1996 at an exercise price of $5.00, which was the
fair market value of the Common Stock on the date of grant (as
determined under the Option Plan), and vest in equal 20% increments on
each of the first through fifth anniversaries of the date of grant.
Upon the occurrence of a "Change in Control" (as defined in the Option
Plan), all outstanding options that are not then exercisable will
become immediately exercisable.
(2) These amounts reflect the difference obtained by subtracting (i) the
product of the option's exercise price per share of Common Stock and
the total number of shares of Common Stock underlying the option from
(ii) the stated rate of interest (5% or 10%) applied, on a compounded
basis over the term of the option, to the product of the fair market
value of a share of Common Stock on the option grant date and the total
number of shares of Common Stock underlying the option.
(3) These amounts represent certain assumed rates of appreciation only, in
accordance with Commission rules. Actual gains, if any, on stock option
exercises are dependent upon the future market performance of the
Common Stock and the date(s) on which the options are exercised, and
may be significantly greater or less than the amounts reflected in the
table.
(4) Mr. Scharf's options consist of 100,000 ISOs and 150,000 non-qualified
stock options. Mr. Scharf's ISOs were granted at an exercise price of
$5.50, or 110% of fair market value of the Common Stock on the date of
grant, and vest in equal 20% increments on each of the first through
fourth anniversaries of the date of grant and on January 1, 2001.
(5) Mr. Schwed's options consist of 25,000 that were granted on October 1,
1996, at an exercise price $5.1875, which was the then-prevailing fair
market value of the Common Stock, and 25,000 that were granted on
February 4, 1997 (relating to fiscal year 1996), at an exercise price
of $4.8125, which was above the then-prevailing $4.00 fair market value
of the Common Stock.
(6) Mr. Marshall's options consist of 60,000 ISOs and 90,000 non-qualified
stock options. Mr. Marshall's ISOs were granted at an exercise price of
$5.50, or 110% of the fair market value of the Common Stock on the date
of grant. All of Mr. Marshall's options vest in equal one-third
increments on November 22 of each of 1997, 1998 and 1999.
Option Exercises and Fiscal Year End Values
The Company's Option Plan was implemented in August 1996 and,
accordingly, at the Company's December 31, 1996 fiscal-year end, the number of
options held by each Named Executive Officer was the same as the total number
granted to him in fiscal year 1996 (as set forth in the table above). At
December 31, 1996, none of the options granted in 1996 to any of the Named
Executive Officers was exercisable (and, accordingly, none had been exercised).
In addition, based on the December 31, 1996 closing sale price for the Common
Stock of $3-1/16 per share, none of such options were "in-the-money" (i.e., none
had an exercise price below such closing sale price).
Employment Agreements
Each of the Named Executive Officers has an employment agreement with
the Company or one of its subsidiaries, except for Mr. Marshall, who has a
consulting agreement. Each of Mr. Scharf's and Mr. Reihl's agreements
(respectively with the Company and EBIC) became effective August 16, 1996, for
initial three-year terms, with annual, automatic one-year extensions beginning
on the second anniversary of the effective date unless either party gives notice
of non-renewal on or prior to such anniversary. These agreements provide Mr.
Scharf and Mr. Reihl with minimum annual base salaries of $450,000 and $300,000,
respectively, as from time-to-time reviewed and increased by the employer's
board of directors. Each agreement provides for annual bonuses that will be
determined by the board, but only if the book value per share of Common Stock
increases during the applicable period or in accordance with any annual
incentive plan adopted by the employer, and for participation in current and
future employee benefit plans. If the executive's employment is terminated by
death, by the employer for "Cause" (as defined in such agreements) or by the
executive other than for "Good Reason" (as defined in such agreements), he will
be entitled to no further payments under his agreement. If the executive's
employment is terminated for "Disability" (as defined in such agreements), he
will be entitled to an additional six months of base salary, followed by such
benefits as are provided under any applicable disability plan. If the
executive's employment is terminated by the employer without "Cause" or by the
executive for "Good Reason," the executive will be entitled to (i) continuation
of base salary to the end of the
37
<PAGE>
employment term or, if longer, for one year (a "Salary Continuation Period"),
and (ii) continuation of coverage under all health, medical and life insurance
benefit plans for the longer of one year and the remainder of the employment
term or, if earlier, until the executive is re-employed and is entitled to
similar benefits from his new employer. Under the agreements, the executive is
subject to certain confidentiality obligations and, during any Salary
Continuation Period or, if the executive's employment is terminated by the
employer for "Cause" or by the executive other than for "Good Reason," during
the one-year period following any such termination (the "Non-Compete Period"),
is obliged not to engage in certain competitive businesses (in consideration of
the employer continuing to pay the executive at a rate equal to one-half of his
base salary), not to solicit employees of the employer (or its subsidiaries) to
work in such competitive businesses and not to solicit customers of the employer
(or its subsidiaries) for such competitive businesses.
Mr. Schwed's employment agreement is with the Company and is similar to
the ones described above, except that (i) it has a two-year initial term from an
effective date of October 1, 1996 (with annual, automatic one-year extensions
beginning on the first anniversary of the effective date unless either party
gives notice of non-renewal on or prior to such anniversary), (ii) it provides
for a minimum annual base salary (inclusive of minimum annual bonus) of
$250,000, (iii) it does not require an increase in the Company's per share book
value for the payment of discretionary bonuses, (iv) it permits unilateral
termination by the executive upon 60 days prior written notice, (v) the
continuation of base salary after a termination by the employer without "Cause"
or by the executive for "Good Reason" will terminate to the extent the executive
is re-employed and is entitled to similar base salary from his new employer and
(vi) the Non-Compete Period is six months, with the employer having the choice
to enforce executive's covenant not to engage in certain competitive businesses
during such time by continuing to pay the executive at a rate equal to his base
salary and minimum bonus.
Mr Dulski's employment agreement is with EBI and has a term that began
on September 1, 1996 and ends on June 30, 1999, subject to automatically
continuing past such termination date unless and until either party gives the
other not less than six months prior written notice of termination expiring on
or after such termination date. Under the agreement, Mr. Dulksi's base salary is
$270,000, and he is entitled to be considered for discretionary semi-annual
bonuses. Upon the executive's death or termination of the executive's employment
unilaterally by the executive or by the employer for "Cause" (as defined in the
agreement), he is entitled to no further payments under the agreement. The
agreement provides for certain confidentiality obligations, a six-month
post-termination non-competition period with respect to not engaging in certain
competitive businesses or soliciting clients of the employer (in consideration
of the continuance of the executive's base salary during such period), and a
one-year post-termination period with respect to non-solicitation of employees.
Mr. Morrison's employment agreement is with Euro Brokers International
Limited and had a fixed term that began on June 1, 1994 and ended on May 31,
1996, and an automatic rolling term that continues past such termination date
unless and until either party gives the other not less than six months prior
written notice of termination. Under the agreement, Mr. Morrison's base salary
is (pound)100,000, and he is entitled to be considered for discretionary
semi-annual bonuses. The agreement provides for certain confidentiality
obligations, a six-month non-competition period (running from the earlier of the
date a termination notice is given and the date the executive's employment is
terminated) with respect to not engaging in certain competitive businesses or
soliciting clients of the employer, and a one-year period (running from the same
date) with respect to non-solicitation of employees.
Mr. Marshall's consulting agreement is with EBIC and has a fixed term
that began on November 23, 1996 and ends on November 22, 1999. During the term
of the agreement, Mr. Marshall receives annual compensation of $450,000,
reimbursement of certain expenses and continued coverage under certain life,
medical, accident and disability insurance plans. Following the term, the
agreement provides for the continuance for certain defined periods of certain of
the expense reimbursement provisions and, subject to certain availability and
cost limits, Mr. Marshall's medical insurance coverage. During the first year of
the term, the Company is obligated to use its reasonable best efforts to arrange
for the private sale or sales, at mutually agreed prices, of up to 50% of the
shares of Common Stock owned by Mr. Marshall. During the first two years of the
term, Mr. Marshall is obligated not to engage in certain competitive businesses.
During all three years of the term, Mr. Marshall is also obligated not to
solicit any clients of EBIC (or its subsidiaries) for such competitive
businesses and not to solicit any employees of EBIC (or its subsidiaries) or
assist any such competitive businesses to hire such employees. Certain
provisions in the agreement relating to the right of EBIC to purchase shares of
Common Stock held by Mr. Marshall using the proceeds of a key man life insurance
policy with respect to Mr. Marshall are, with the lapsing of such policy in
March 1997, no longer of any effect.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1994, the Company issued an aggregate of 833,333 shares of
Common Stock to its six initial stockholders, consisting of Messrs. G. Scharf,
M. Scharf, Kopp, Whittemore, Martin and William D. Birch (a former director of
the Company who resigned, effective as of the Merger, and was replaced by Mr.
Wigton), for an aggregate price of $25,000, or $.03 per share. Pursuant to
agreements entered into at the time between the holders of all such shares (the
"Pre-IPO Shares") and the Company, the Pre-IPO Shares were subject to certain
obligations and restrictions (which are no longer applicable) and were placed in
escrow for a period that will end on November 30, 1997. Until such time, the
beneficial owners of the Pre-IPO Shares are not able to sell or otherwise
transfer such shares (with certain limited exceptions), but retain full and
unrestricted voting rights.
Through August 1996, the Company paid $5,000 per month to Scharf
Advisors for office space and certain office and secretarial services. In
addition, Scharf Advisors received reimbursement for certain out-of-pocket
expenses incurred in connection with activities on behalf of the Company. Scharf
Advisors is wholly-owned by Gilbert Scharf, the Chairman, President and Chief
Executive Officer of the Company. Management of the Company believes that the
arrangement with Scharf Advisors was on terms at least as favorable as would
have been available from an unaffiliated third party.
The Merger was consummated on August 16, 1996, with EBIC becoming a
wholly-owned subsidiary of the Company. In the Merger, former shareholders of
EBIC (some of whom, WCAS and Messrs. Donald R.A. Marshall, Alistair H. Johnstone
and Brian G. Clark, as a result became beneficial owners of more than 5% of the
Common Stock, and some of whom, Messrs. Keith E. Reihl, Walter E. Dulski and
Michael C. Morrison, are currently deemed executive officers of the Company)
received, in exchange for each share of EBIC common stock they held at the time
of the Merger, consideration consisting of, after giving effect to certain
adjustments and subject to certain escrow arrangements, approximately (i) 2.70
shares of Common Stock, (ii) 4.53 Series B Warrants and (iii) $13.14 in cash.
In connection with the Merger, the Company entered into the
Registration Rights Agreement with WCAS and WCAS Information and certain related
investors, certain members of EBI management (including Messrs. Marshall, Reihl,
Dulski, Johnstone and Clark) and the Company's initial stockholders (Messrs. G.
Scharf, M. Scharf, Martin, Kopp, Whittemore and Birch) providing for two demand
registration rights, and certain "piggy-back" registration rights, with respect
to their shares of Common Stock. The first demand may only be initiated by
holders of at least a majority of the total shares of Common Stock issued in the
Merger to WCAS and certain related investors, but will extend to the other
stockholders who are parties to the agreement. The second demand may be made by
holders of a majority of the total shares of Common Stock held by all
stockholders who are parties to the agreement.
In connection with the Merger, the Company also entered into the
Security Transfer Agreement with certain of its security holders, including
WCAS, WCAS Information and Messrs. G. Scharf, M. Scharf, Marshall, Reihl,
Dulski, Johnstone and Clark, obligating such holders, if the Company consummates
a Common Stock for Warrants exchange offer prior to November 30, 1997, to tender
into such exchange offer at least such portion of the Warrants then held by such
holder as is proportionate to the percentage of Warrants tendered by all other
Warrant holders.
Also in connection with the Merger, the Company entered into an escrow
agreement pursuant to which, among other things, 10% of the shares of Common
Stock issued in the Merger to former EBIC stockholders (including WCAS and
Messrs. Marshall, Reihl, Dulski, Morrison, Johnstone and Clark) were placed in
escrow to pay, among other things, indemnities, if any, that become owed to the
Company under the Merger agreement. The escrow period has expired without any
claim being made for the escrow shares and, accordingly, such shares are in the
process of being released, without adjustment.
Gilbert D. Scharf and Michael J. Scharf are brothers. There are no
other family relationships among the Company's directors, executive officers or
persons nominated or chosen by the Company to become a director or executive
officer.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information and certain pro
forma information after giving effect to the Exchange Offer (assuming the tender
of all Warrants) regarding the beneficial ownership of shares of Common Stock
and Warrants as of September 30, 1997, by (i) those persons or groups who
beneficially own more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) each Named Executive Officer of the Company and
(iv) all directors and executive officers of the Company as a group (based upon
public filings and information furnished by such persons).
<TABLE>
<CAPTION>
Prior to Exchange Offer After Exchange Offer +
------------------------------------------------------------------ ----------------------
% of
No. of Common % of % of Common No. of
Common Stock No. of Warrants Stock Beneficially Common %
Name(1) Shares(2) Owned(3) Warrants(4) Owned(5) Owned(6) Shares(7) Owned(8)
- -------- --------- -------- ----------- -------- ------------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gilbert D. Scharf(9)(10) 881,666 9.8 716,666 4.8 16.4 1,001,110 8.7
Michael J. Scharf(9)(10) 388,667 4.3 333,334 2.2 7.8 444,222 3.9
Donald R.A. Marshall(10) 583,315 6.5 895,631 6.0 14.9 732,586 6.4
Denis Martin(9)(11) 55,000 * 10,000 * * 56,666 *
James W. Stevens 20,000 * -- -- * 20,000 *
Frederick B. Whittemore(9) 35,000 * 50,000 * * 43,333 *
Larry S. Kopp(9) 43,000 * 21,000 * * 46,500 *
William B. Wigton 10,000 * -- -- * 10,000 *
Keith E. Reihl(10) 155,771 1.7 228,010 1.5 4.2 193,772 1.7
Walter E. Dulski(10) 151,517 1.7 244,377 1.6 4.3 192,246 1.7
Roger E. Schwed 5,000 * -- -- * 5,000 *
Michael C. Morrison 22,805 * 21,505 * * 26,389 *
Alistair H. Johnstone(10) 323,160 3.6 542,704 3.6 9.1 413,610 3.6
Brian G. Clark(10) 193,577 2.1 318,369 2.1 5.5 246,638 2.2
Welsh, Carson, Anderson
& Stowe VI, L.P.
("WCAS")(10)(12) 2,333,174 26.0 3,918,254 26.0 48.6 2,986,216 26.1
All executive officers and
directors as a group
(11 persons) 1,768,426 19.4 1,624,892 10.8 31.7 2,039,238 17.6
</TABLE>
+ Assumes that all outstanding Warrants are exchanged for shares of
Common Stock in the Exchange Offer at the Exchange Ratio.
* Indicates less than 1%.
(1) The address of each stockholder, other than WCAS, is c/o Maxcor
Financial Group Inc., Two World Trade Center, 84th Floor, New York, New
York 10048. The address of WCAS is 320 Park Avenue, Suite 2500, New
York, New York 10022.
(2) Reflects shares of Common Stock held of record, plus shares of Common
Stock issuable upon exercise of stock options held by each stockholder
that are currently exercisable or exercisable within 60 days
("Exercisable Options"), but does not include shares of Common Stock
issuable upon exercise of Warrants held by such stockholder (see
footnote 4 below). The exercise price for each Exercisable Option is
$5.00 per share. Beneficial ownership of Exercisable Options is as
follows: Denis Martin - 10,000; James W. Stevens - 10,000; Frederick B.
Whittemore - 10,000; Larry S. Kopp - 10,000; William B. Wigton -
10,000; Gilbert D. Scharf - 50,000; Michael J. Scharf - 2,000; Donald
R.A. Marshall - 50,000; Keith E. Reihl - 20,000; Walter E. Dulski -
6,000; Roger E. Schwed - 5,000; Michael C. Morrison - 10,000; Brian G.
Clark - 4,000; and all executive officers and directors as a group -
143,000.
40
<PAGE>
(3) Calculated as the number of shares of Common Stock held of record by
the stockholder, plus shares issuable upon exercise of Exercisable
Options, divided by the 8,949,656 shares of Common Stock outstanding as
of October 3, 1997, plus any shares issuable upon exercise of
Exercisable Options held by the stockholder (but not by any other
stockholders).
(4) All of the outstanding Warrants are immediately exercisable.
Accordingly, shares of Common Stock underlying the Warrants are deemed
under Commission rules to be beneficially owned by the holder thereof.
Accordingly, the total beneficial ownership of shares of Common Stock
prior to the Exchange Offer by persons or groups identified in this
table can be calculated as the sum of the Warrants held (as identified
in this column) and the number of shares of Common Stock held of record
(as identified in the first column of this table).
(5) Based on an aggregate of 15,018,276 Warrants outstanding.
(6) Reflects (i) shares of Common Stock beneficially owned, including
shares of Common Stock issuable upon exercise of Exercisable Options
and Warrants, by such person or entity as a percentage of (ii) the
outstanding Common Stock as of October 3, 1997, plus any shares
issuable upon exercise of the Exercisable Options and Warrants held by
such person or entity (but not any other holder).
(7) Reflects (i) shares of Common Stock owned of record, (ii) shares of
Common Stock beneficially owned as a result of Exercisable Options and
(iii) on a pro forma basis, shares of Common Stock issuable upon
exchange of Warrants in the Exchange Offer.
(8) Calculated as (a)(i) the number of shares of Common Stock held of
record by the stockholder, plus (ii) shares of Common Stock
beneficially owned by such stockholder as a result of Exercisable
Options, plus (iii) on a pro forma basis, shares of Common Stock
issuable to such stockholder upon exchange of his or its Warrants in
the Exchange Offer, divided by (b) the 8,949,656 shares of Common Stock
outstanding as of October 3, 1997, plus any shares issuable upon
exercise of Exercisable Options held by the stockholder (but not by any
other stockholders).
(9) Certain of the shares of Common Stock indicated as owned by the
stockholder are Pre-IPO Shares, held in escrow with Continental Stock
Transfer & Trust Company, as escrow agent, for a period ending on
November 30, 1997. During the remaining balance of such escrow period,
the beneficial owners of such shares retain full and unrestricted
voting rights but are not able to sell or otherwise transfer them (with
certain limited exceptions). Beneficial ownership of Pre-IPO Shares is
as follows: Gilbert D. Scharf - 498,333; Michael J. Scharf - 220,000;
Mr. Martin - 40,000; Mr. Whittemore - 25,000; Mr. Kopp - 25,000; and
all executive officers and directors as a group - 808,333.
(10) All Warrants held by the stockholder are subject to the terms of the
Security Transfer Agreement entered into in connection with the Merger
that obligates the holder thereof to tender into the Exchange Offer at
least such portion of the Warrants then held by such stockholder as is
proportionate to the percentage tendered by all other Warrant holders.
(11) Includes 5,000 shares of Common Stock beneficially owned jointly with
Mr. Martin's wife.
(12) Includes 39,258 shares of Common Stock and 65,928 Warrants owned by
WCAS Information. Information with respect to WCAS and WCAS Information
and their respective holdings are derived from their joint Schedule 13D
with respect to the Common Stock, dated August 16, 1996, and filed with
the Commission on August 23, 1996 ("WCAS 13D"). As set forth therein,
WCAS and WCAS Information filed a single joint Schedule 13D because
they may be deemed to constitute a "group" within the meaning of
Section 13(d)(3) of the Exchange Act. Individual general partners
(including related trusts) of the limited partnerships serving as
general partners of WCAS and WCAS Information, who in the aggregate
directly own 113,644 shares of Common Stock and 190,848 Warrants (based
on the WCAS 13D and Form 3 and Form 4 filings by such persons), may be
deemed to have beneficial ownership of the shares of Common Stock and
Warrants owned by WCAS and WCAS Information. As set forth in the WCAS
13D, such persons disclaim any such beneficial ownership other than for
any shares of Common Stock or Warrants such persons own by virtue of
their indirect pro rata interest, as a partner of the applicable
general partner of WCAS or WCAS Information, in the shares of Common
Stock and Warrants owned by WCAS and WCAS Information. In addition, as
set forth in the WCAS 13D, WCAS and WCAS Information disclaim any
beneficial ownership of such persons' shares of Common Stock.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company is authorized to issue 30,000,000 shares of Common Stock,
par value $.001 per share. At October 3, 1997, the Company had outstanding
8,949,656 shares of Common Stock.
The holders of the Company's Common Stock are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. There
is no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors then being elected. The Board of
Directors of the Company is divided into three classes, each of which generally
serves for a term of three years, with only one class of directors being elected
in each year. In each case, each director will hold office until the next annual
meeting of stockholders at which his class of directors is to be elected, or
until his successor is duly qualified and appointed. The holders of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefore. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no redemption, preemptive or other
subscription rights, and there are no conversion provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock to be issued in the Exchange Offer as set forth in this
Prospectus will be, fully paid and nonassessable. Under the Company's
Certificate of Incorporation (i) holders of Common Stock may not act by written
consent and (ii) the ability to call special meetings of stockholders is limited
to the Chairman or President of the Company or to an affirmative vote of a
majority of the Board of Directors.
Warrants
As of October 3, 1997, the Company had outstanding 7,566,666 Series A
Warrants and 7,451,610 Series B Warrants. Each of the outstanding Warrants (both
series) currently entitles the holder thereof to purchase from the Company one
share of Common Stock at an exercise price of $5.00 per share subject to
adjustment in certain circumstances. The Warrants expire on November 30, 2001.
The Company may call the Warrants for redemption, in whole or in part,
at a price of $.01 per Warrant at any time upon not less than 30 days prior
written notice to the Warrant holders, if the last sale price of the Common
Stock has been at least $8.50 per share for at least 20 consecutive trading days
ending on the third day prior to the date on which the notice of redemption is
given. The Series A Warrants and the Series B Warrants were issued in registered
form under Warrant Agreements between the Company and Continental Stock Transfer
& Trust Company, as Warrant Agent, dated November 30, 1994 and June 5, 1996,
respectively.
The exercise price, number of shares of Common Stock issuable on
exercise of the Warrants and the redemption price of the Warrants are subject to
adjustment in certain circumstances, including a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at a price below the exercise price of the Warrants.
The Company has the right, in its sole discretion, to decrease the
exercise price of the Warrants for a period of not less than 30 days on not less
than 30 days prior written notice to the Warrant holders. In addition, the
Company has the right, in its sole discretion, to extend the expiration date of
the Warrants on five business days prior written notice to the Warrant holders.
42
<PAGE>
The Warrants may be exercised upon surrender of the Warrant certificate
on or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check, payable to the Company) for the number of Warrants being
exercised. The Warrant holders do not have the rights or privileges of holders
of the Common Stock prior to the exercise of the Warrants.
No Warrants will be exercisable unless at the time of exercise there is
a current prospectus covering the shares of Common Stock issuable upon exercise
of such Warrants under an effective registration statement filed with the
Commission and such shares have been qualified for sale or are exempt from
qualification under the securities laws of the state of residence of the holder
of such Warrants.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant holder exercises all Warrants then owned of record by him,
the Company will pay to such Warrant holder in lieu of the issuance of any
fractional share which is otherwise issuable to such Warrant holder, an amount
in cash, based on the market value of the Common Stock on the last trading day
prior to the date of exercise.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of preferred stock, par value $.001 per share ("Preferred
Stock"), with such designations, rights and preferences as may be determined
from time to time by the Board of Directors. Accordingly, the Board of Directors
is empowered, subject to NASD rules, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
Common Stock. The Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. At October 3, 1997, no shares of Preferred Stock were
issued and outstanding.
Series A Junior Participating Preferred Stock
Pursuant to the Company's adoption of the Rights Plan in December 1996,
the Company authorized the creation of the Junior Preferred Stock, and reserved
shares thereof for issuance upon any exercise of the Rights granted under the
Rights Plan. In December 1996, pursuant to the Rights Plan, the Rights were
dividended among each holder of Common Stock, with such holders receiving one
Right, expiring December 6, 2006, for each share of Common Stock held of record.
Each Right entitles the holder to purchase from the Company, under certain
specified circumstances, one one-hundredth of a share of Junior Preferred Stock
for $22.50, subject to adjustment. Prior to the time that the Rights become
exercisable, the Rights trade with, and are represented solely by the
certificate for, the Common Stock. At the time the Rights become exercisable,
separate certificates will be distributed, and the Rights could begin to trade
separately from the Common Stock. Rights generally become exercisable ten days
after a person or group acquires 15% or more beneficial ownership, or a person
or group that beneficially owns 15% or more of the Common Stock acquires an
additional 5% or more beneficial ownership, of the outstanding Common Stock, or
a person or group commences a tender or exchange offer for 15% or more of the
Common Stock (or, if already a 15% or more holder, that would result in its
acquisition of an additional 5% beneficial ownership). Upon occurrence of such
event (other than pursuant to an offer for all outstanding shares of Common
Stock that the independent directors of the Company determine to be fair to and
otherwise in the best interests of the Company and its stockholders), and
subject to the Rights no longer being redeemable, each Right would entitle the
holder thereof (other than the person or group triggering such exercisability)
to buy (with certain limited exceptions) Common Stock (or, in certain
circumstances, a combination of Common Stock, other securities, cash or other
property) having a market value of twice the exercise price of each Right. If
the Company is involved in certain mergers or other business combinations, or
50% or more of the Company's assets, cash flow or earning power is sold or
transferred at any time after the Rights become exercisable, the Rights will be
modified so as to entitle the holder thereof (other than the person or group
triggering such exercisability) to buy a number of the acquiring company's
common shares having a market value of twice the exercise price of each Right.
Rights are redeemable by the Company at $.01 each at any time (with certain
limited exceptions) prior to the tenth day after a person or group acquires 15%
or more beneficial ownership, or a person or group that beneficially owns 15% or
more of the Common Stock acquires an additional 5% or more beneficial ownership,
of the outstanding Common Stock.
One Right will be issued with (and solely represented by) each share of
Common Stock issued to a Warrant holder in exchange for his or her Warrants
pursuant to the Exchange Offer. The foregoing description of the Rights and the
Rights Plan is qualified in its entirety by reference to the Rights Agreement,
dated as of December 6, 1996, between the Company and Continental Stock Transfer
& Trust Company, as Rights Agent, which is incorporated herein by reference.
43
<PAGE>
Units
In its IPO, the Company's issuance of Common Stock and Series A
Warrants took the form of the issuance of Units, with each Unit consisting of
one share of Common Stock and two Series A Warrants. The securities constituting
the Units became separately transferable upon the closing of the IPO. The Units
are sporadically quoted on the OTC Bulletin Board under the symbol "MAXFU."
Delaware Anti-Takeover Law
Under Section 203 of the Delaware General Corporation Law ("Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock is publicly traded or held of record by more than 2,000
stockholders, and an "interested stockholder" are prohibited for a three-year
period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation or bylaws not to be governed by the Delaware anti-takeover law
(the Company has not made such an election), (ii) the business combination was
approved by the board of directors of the corporation before the other party to
the business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee stock plans in which the
employees do not have a right to determine confidentially whether to tender or
vote stock held by the plan), or (iv) the business combination was approved by
the board of directors of the corporation and ratified by 66 2/3% of the voting
stock which the interested stockholder did not own. The three-year prohibition
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who becomes
a beneficial owner of 15% or more of a Delaware corporation's voting stock. The
Delaware anti-takeover law could have the effect of delaying, deferring or
preventing a change in control of the Company.
Limitation of Liability and Indemnification Matters
The Company's Restated Certificate of Incorporation provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a known violation of law, (iii) under
Section 174 of the Delaware General Corporation Law (the "DGCL"), relating to
prohibited dividends or distributions or the repurchase or redemption of stock,
or (iv) for any transaction from which the director derives an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of directors' liability, then under the Company's Restated
Certificate of Incorporation the liability of directors of the Company shall
automatically be eliminated or limited to the fullest extent provided by law.
The Company's Restated Certificate of Incorporation and By-laws also contain
provisions to indemnify the directors, officers, employees and other agents of
the Company to the fullest extent permitted by the DGCL, as it may be amended
from time to time. Currently, Section 145 of the DGCL generally permits a
corporation to indemnify its directors, officers, employees and other agents
against expenses, judgments, fines and amounts paid in settlement incurred by
them in connection with any pending, threatened or completed action or
proceeding if the director, officer, employee or agent has acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful, except that
in an action by or in the right of the corporation (a "derivative action"), no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless
there are certain court determinations that, in view of all of the circumstances
of the case, indemnification (for such expenses that the court deems proper) is
fair and reasonable. The Company's Restated Certificate of Incorporation and
By-laws also provide that expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action for which such officer or director may be entitled to
indemnification shall be paid by the Company in advance of the final disposition
of such action upon receipt of certain undertakings by such officer or director.
44
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the United States
federal income tax consequences to holders of Warrants tendering their Warrants
pursuant to the Exchange Offer. The Exchange Offer will not affect the United
States federal income tax treatment of holders who do not participate in the
Exchange Offer. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury regulations, administrative
pronouncements and judicial decisions, all as in effect and existing on the date
hereof and all of which are subject to change, possibly with retroactive effect.
There can be no assurance that the Internal Revenue Service (the "Service") will
not take a contrary view, and no ruling from the Service has been or will be
sought by the Company.
This summary applies only to those holders who have held Warrants and
will hold the Common Stock received in exchange therefor as capital assets
pursuant to Section 1221 of the Code, and does not address the Federal income
tax consequences to holders who are subject to special rules (such as insurance
companies, financial institutions, tax-exempt organizations and broker-dealers)
or special rules with respect to integrated transactions (such as certain
hedging transactions) or certain straddle transactions.
As used in the discussion which follows, the term "U.S. Holder" means a
beneficial owner of Warrants that, for United States federal income tax
purposes, is (i) a citizen or resident of the United States, (ii) a corporation,
or other entity taxable as a corporation, created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii)
otherwise subject to United States federal income taxation on a net income basis
with respect to worldwide income. The term "Non-U.S. Holder" means a holder of
Warrants that is, for United States federal income tax purposes, not a U.S.
Holder.
Tax Consequences to U.S. Holders
Although the matter is not entirely free from doubt, the Company
believes that the exchange of Warrants for shares of Common Stock pursuant to
the Exchange Offer will be treated as a taxable transaction and will result in
the following Federal income tax consequences to participating U.S. Holders of
Warrants:
1. A participating U.S. Holder of a Warrant will recognize gain or loss
equal to the excess of (i) the sum of the fair market value of the shares of
Common Stock received in the Exchange Offer and any cash received in lieu of a
fractional share of Common Stock over (ii) the participating U.S. Holder's tax
basis in the Warrants exchanged therefor;
2. Such gain or loss will be capital gain or loss if the Warrants were
capital assets in the hands of a participating U.S. Holder;
3. The tax basis of the shares of Common Stock received in the Exchange
Offer will be equal to the fair market value of such shares of Common Stock
received in the Exchange Offer; and
4. The holding period for the shares of Common Stock received in the
Exchange Offer will commence on the day following the consummation of the
Exchange Offer if the shares of Common Stock are capital assets in the hands of
a participating U.S. Holder.
Information Reporting and Backup Withholding
The "backup" withholding and information reporting requirements on the
gross value of the shares of Common Stock will apply to the receipt of the
Common Stock upon the exchange of the Warrants. The Company will be required to
withhold tax at a rate of 31% if the U.S. Holder, among other things, (i) fails
to furnish his or her social security number or other taxpayer identification
number ("TIN") to the Company, (ii) furnishes to the Company an incorrect TIN,
(iii) fails to provide the Company with a certified statement, signed under
penalties of perjury, that the TIN provided to the Company is correct and that
the U.S. Holder is not subject to backup withholding or (iv) fails to report
properly interest and dividends on his or her tax return. A U.S. Holder who does
not provide the Company with his or her correct TIN may be subject to penalties
under the Code. Certain U.S. Holders, including corporations, are not subject to
backup withholding if their exempt status is properly established.
45
<PAGE>
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be allowed as a credit against such holder's
United States Federal income tax liability and may entitle such holder to a
refund, provided the required information is furnished to the Service.
Tax Consequences to Non-U.S. Holders
A Non-U.S. Holder generally will not be subject to United States
federal income tax on any gain realized in connection with the exchange of
Warrants for shares of Common Stock pursuant to the Exchange Offer, unless (i)
(x) the gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or (y) if a tax treaty applies, the
gain is attributable to the United States permanent establishment maintained by
the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual,
such holder is present in the United States for 183 days or more in the taxable
year of exchange and certain other conditions are satisfied or (iii) the
Non-U.S. Holder is subject to tax pursuant to provisions of the Code applicable
to United States expatriates.
Information Reporting and Backup Withholding
Delivery to a Non-U.S. Holder of shares of Common Stock in exchange for
Warrants is subject to both backup withholding at the rate of 31% and
information reporting unless the beneficial owner provides the Company with a
completed IRS Form W-8 which certifies under penalties of perjury that such
owner is a Non-U.S. Holder who meets all the requirements for exemption from
United States federal income tax on any gain from the sale or exchange of the
Warrants.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be allowed as a credit against such non-U.S.
Holder's United States federal income tax liability and may entitle such holder
to a refund, provided the required information is furnished to the Service.
ALL HOLDERS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE
SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THE EXCHANGE OFFER.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon
for the Company by Graubard Mollen & Miller, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 that are incorporated by reference in this Prospectus, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
46
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information....................... 2
Incorporation of Certain Documents by
Reference.............................. 3
Prospectus Summary.......................... 4
Risk Factors................................ 9
Selected Consolidated
Financial Information.................. 13
Certain Pro Forma Effects of the
Exchange Offer......................... 15
Price Range of the Company's
Securities............................. 16
History of the Company...................... 17
Background of the Exchange Offer............ 18
<CAPTION>
Page
----
<S> <C>
The Exchange Offer.......................... 20
Business of the Company..................... 28
Management of the Company................... 31
Certain Relationships and
Related Transactions.................... 37
Principal Stockholders...................... 39
Description of Capital Stock................ 41
Certain United States Federal
Income Tax Considerations............... 43
Legal Matters............................... 45
Experts..................................... 45
</TABLE>
EXCHANGE AGENT
Continental Stock Transfer
& Trust Company
2 Broadway
New York, New York 10004
Attention: Reorganization Department
Telephone: (212) 509-4000, ext. 535
Facsimile: (212) 509-5150
INFORMATION AGENT
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone: (800) 207-3158
47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors, officers, employees and
agents against liabilities they may incur in such capacities provided certain
standards are met, including good faith and the reasonable belief that the
particular action was in, or not opposed to, the best interests of the
corporation.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact such person
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under standards similar
to those set forth above, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that, among other things, to
the extent that a director or officer of a corporation has been successful in
the defense of any action, suit or proceeding referred to in subsections (a) and
(b) of Section 145, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that a corporation is empowered
to purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify against such liability under
Section 145.
Indemnification as described above shall be granted in a specific case
only upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of
directors who were not parties to such proceeding, (b) independent legal counsel
in a written opinion if there are no such disinterested directors or if such
disinterested directors so direct or (c) the shareholders.
Article VII of the By-laws of the Company provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Company against expenses (including attorneys' fees), judgments,
fines and settlement payments actually and reasonably incurred by him or her if
he or she acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company (except that in the
case of an action by or in the right of the Company, no indemnification shall be
made with respect to any claim for which such person is judged liable to the
Company, unless the court deems indemnification to be proper) and with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. Article EIGHTH of the Company's Certificate of
Incorporation and Article VII of the Company's By-laws provide that the Company
shall pay in advance of the final disposition of such action, suit or proceeding
the expenses incurred by a director or officer in defending such action, suit or
II-1
<PAGE>
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Company as authorized by the By-laws of
the Company.
Section 102(b)(7) of the DGCL permits the certificate of incorporation
of a corporation to provide that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of his or
her fiduciary duty as a director, except for liability (i) for any breach of the
director's duty or loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (dealing with
unlawful dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article EIGHTH of the Company's Certificate of Incorporation eliminates
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as directors to the extent permitted by
Section 102(b)(7) of the DGCL and by Delaware law in general if amended to
further expand director protection.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in a 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 Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the 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.
II-2
<PAGE>
Item 21. Exhibits
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger, dated as of March 8, 1996, as amended, by
and among the Registrant, EBIC Acquisition Corp. and Euro Brokers
Investment Corporation ("EBIC"), without exhibits and schedules
(incorporated herein by reference to Exhibit 2.1 of the Registrant's
Quarterly Report on Form 10-Q, dated May 15, 1996 (the "Form 10-Q"))
2.2 Security Transfer Agreement, dated as of March 8, 1996, among the
Registrant, Gilbert Scharf, Michael Scharf, Welsh, Carson, Anderson &
Stowe VI, L.P. ("WCAS") and certain individuals (incorporated herein by
reference to Exhibit 2.2 of the Form 10-Q)
2.3 Registration Rights Agreement, dated as of August 16, 1996, by and
among the Registrant and the persons listed in Annexes I, II and III
thereto (incorporated by reference to Exhibit 2.5 of the Registrant's
Current Report on Form 8-K, dated August 16, 1996)
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3 of the Registrant's
Registration Statement on Form 8-A, dated October 28, 1996)
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (incorporated herein by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K, dated June
18, 1997)
3.3 Amended and Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 ("1996 Form 10-K")
4.1 Form of Common Stock Certificate (incorporated herein by reference to
Exhibit 4.1 of Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (No. 33-85346), dated November 23, 1994
("Amendment No. 1")
4.2 Form of Redeemable Common Stock Purchase Warrant (incorporated herein
by reference to Exhibit 4.2 of Amendment No. 1) and Series B Warrants
(incorporated herein by reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-4 (No. 333-06753) dated June 25, 1996)
(the "Form S-4")
4.3 Warrant Agreement, dated as of November 30, 1994, by and between the
Registrant and Continental Stock Transfer & Trust Company (incorporated
herein by reference to Exhibit 4.4 of Amendment No. 1)
4.4 Form of Series B Redeemable Common Stock Purchase Warrant (incorporated
herein by reference to Exhibit 4.2 of the Form S-4)
4.5 Warrant Agreement, dated as of June 5, 1996, by and between the
Registrant and Continental Stock Transfer & Trust Company (incorporated
herein by reference to Exhibit 4.3 of the Form S-4)
4.6 Rights Agreement, dated as of December 6, 1996, between the Registrant
and Continental Stock Transfer & Trust Company, as rights agent
(incorporated herein by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A, dated December 6, 1996)
4.7 Agreement to furnish Debt Instruments (incorporated herein by reference
to Exhibit 4.7 of the 1996 Form 10-K)
5.1 Opinion of Graubard Mollen & Miller (filed herewith)
10.1 Agreement of Lease, dated September 10, 1992, by and between Euro
Brokers Inc. and The Port Authority of New York and New Jersey (the "NY
Lease") (incorporated herein by reference to Exhibit 10.1 of the 1996
Form 10-K)
10.2 Supplement No. 1 to the NY Lease, dated March 21, 1993 (incorporated
herein by reference to Exhibit 10.2 of the 1996 Form 10-K)
II-3
<PAGE>
10.3 Supplement No. 2 to the NY Lease, dated July 1, 1994 (incorporated
herein by reference to Exhibit 10.3 of the 1996 Form 10-K)
10.4 Underlease of Premises, dated 28 May 1993, between Chestermount
Properties Limited and Euro Brokers Holdings Limited (incorporated
herein by reference to Exhibit 10.4 of the 1996 Form 10-K)
10.5 Letter Agreements, each dated September 9, 1994 ("Letter Agreements"),
among the Registrant, certain stockholders of the Registrant, GKN
Securities Corp. and Barington Capital Group, L.P. (incorporated herein
by reference to Exhibit 10.2 of the Registrant's Registration Statement
on Form S-1 (No. 33-85346), dated October 19, 1994)
10.6 Form of Share Escrow Agreement among the Registrant, the stockholders
party to the Letter Agreements and Continental Stock Transfer & Trust
Company of New York (incorporated herein by reference to Exhibit 10.6
of Amendment No. 1)
10.7+ The Registrant's 1996 Stock Option Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.7 of the 1996 Form
10-K)
10.8+ Employment Agreement, dated March 8, 1996, by and between the
Registrant and Gilbert Scharf (incorporated herein by reference to
Exhibit 10.8 of the Form 10-Q)
10.9+ Employment Agreement, dated March 8, 1996, by and between EBIC and
Keith Reihl (incorporated herein by reference to Exhibit 10.9 to the
Form S-4)
10.10+ Employment Agreement, dated as of September 11, 1996, by and between
the Registrant and Roger Schwed (incorporated herein by reference to
Exhibit 10.10 to the 1996 Form 10-K)
10.11+ Employment Agreement, dated 23 May 1994, by and between Euro Brokers
Limited and Michael Morrison (incorporated herein by reference to
Exhibit 10.11 to the 1996 Form 10-K)
10.12+ Employment Agreement, dated as of September 1, 1996, by and between
Euro Brokers Inc. and Walter E. Dulski (incorporated herein by
reference to Exhibit 10.12 to the 1996 Form 10-K)
10.13+ Agreement, dated as of November 19, 1996, by and among the Registrant,
EBIC and Donald R.A. Marshall (incorporated herein by reference to
Exhibit 10.13 to the 1996 Form 10-K)
10.14 Agreement for Securities Clearance Services, dated June 7, 1993, as
amended, by and between Daiwa Securities America Inc. and Euro Brokers
Maxcor Inc. (incorporated herein by reference to Exhibit 10.14 to the
1996 Form 10-K)(1)
10.15 Fully Disclosed Clearing Agreement, dated July 21, 1997, by and between
Morgan Stanley & Co. Incorporated and Euro Brokers Maxcor Inc. (filed
herewith)(2)
21 Subsidiaries of the Registrant (filed herewith)
23.1 Consent of Price Waterhouse LLP (filed herewith)
23.2 Consent of Graubard Mollen & Miller (included in its opinion filed as
Exhibit 5.1)
24.1 Powers of Attorney (incorporated herein by reference to the signature
page of the Registrant's Registration Statement on Form S-4, dated
August 27, 1997)
99.1 Form of Letter to Warrant holders from the Registrant, Form of Letter
to Brokers, Dealers and Other Nominees from the Registrant, Form of
Letter to Clients from Brokers, Dealers and Other Nominees, Form of
Letter of Transmittal to be used by tendering Warrant holders and Form
of Notice of Guaranteed Delivery (filed herewith)
II-4
<PAGE>
+ Connotes a management contract or compensatory plan or arrangement in
which a director or executive officer of the Registrant participates.
(1) Portions of this Exhibit have been redacted as a result of confidential
treatment granted by the Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended ("Rule 24b-2").
(2) Portions of this Exhibit have been redacted as a result of a request
for confidential treatment made to the Commission pursuant to Rule
24b-2.
II-5
<PAGE>
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy expressed in
the Securities Act and is, therefore, unenforceable. In the event that 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 Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
("Act"), the Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on October 7, 1997
MAXCOR FINANCIAL GROUP INC.
By: /s/ Gilbert D. Scharf
------------------------------------------
Gilbert D. Scharf, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Act, this Amendment No. 1 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Gilbert D. Scharf Chief Executive Officer, President and October 7, 1997
- ---------------------------------- Chairman of the Board of Directors
Gilbert D. Scharf (Principal Executive Officer)
* Director October 7, 1997
- ----------------------------------
Michael J. Scharf
* Director October 7, 1997
- ----------------------------------
Larry S. Kopp
* Director October 7, 1997
- ----------------------------------
James W. Stevens
* Director October 7, 1997
- ----------------------------------
Frederick B. Whittemore
/s/ Denis Martin Director October 7, 1997
- ----------------------------------
Denis Martin
* Director October 7, 1997
- ----------------------------------
William B. Wigton
/s/ Keith E. Reihl Director, Chief Financial Officer October 7, 1997
- ---------------------------------- and Treasurer (Principal Accounting
Keith E. Reihl Officer)
</TABLE>
- ----------------------------------
* Pursuant to power of attorney.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Location of
Exhibit in
Sequential
Exhibit No. Description of Document Numbering System
- ----------- ----------------------- ----------------
<S> <C> <C>
5.1 Opinion of Graubard Mollen & Miller
10.15 Fully Disclosed Clearing Agreement, dated July 21, 1997, by and between
Morgan Stanley & Co. Incorporated and Euro Broker Maxcor Inc.(1)
21 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
99.1 Form of Letter to Warrant holders from the Registrant, Form of Letter
to Brokers, Dealers and Other Nominees from the Registrant, Form of
Letter to Clients from Brokers, Dealers and Other Nominees, Form of
Letter of Transmittal to be used by tendering Warrant holders and Form
of Notice of Guaranteed Delivery.
</TABLE>
- --------
(1) Portions of this exhibit have been redacted as a result of a request
for confidential treatment made to the Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.
<PAGE>
[GRAUBARD MOLLEN & MILLER]
October 7, 1997
Maxcor Financial Group Inc.
Two World Trade Center, 84th Floor
New York, New York 10048
Ladies and Gentlemen:
We have acted as special counsel to Maxcor Financial Group Inc., a
Delaware corporation ("Company"), in connection with the proposed exchange offer
("Exchange Offer") described in the prospectus ("Prospectus") forming a part of
the Company's registration statement on Form S-4 (File No. 333-34485) filed with
the Securities and Exchange Commission ("Commission") pursuant to the Securities
Act of 1933, as amended ("Securities Act"), on August 27, 1997, as amended by
Amendment No. 1 filed by the Company on October 7, 1997 ("Registration
Statement"). The Registration Statement relates to shares of the Company's
common stock, par value $.001 per share ("Shares"), proposed to be issued in
exchange for the Company's Redeemable Common Stock Purchase Warrants and the
Company's Series B Redeemable Common Stock Purchase Warrants (collectively,
"Warrants").
We have examined the Registration Statement, the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of the Company and
such records, certificates and other documents as we have considered necessary
for the purpose of this opinion.
Based on such examination, it is our opinion that the Shares issuable
to holders of Warrants upon exchange of their Warrants pursuant to the terms of
the Exchange Offer have been duly authorized by all necessary corporate action
on the part of the Company and, when issued and delivered in accordance with the
terms of the Exchange Offer, will be validly issued, fully paid and
non-assessable.
We hereby consent to the use of our name in the Registration Statement
as counsel who will pass upon the legality of the Shares issued in exchange for
the Warrants tendered in the Exchange Offer and as having prepared this opinion
and to the use of this opinion as an exhibit to the Registration Statement. We
further consent to the use of our name as counsel for the Company and to the
reference to this firm in the Prospectus. In giving the foregoing consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission thereunder.
Very truly yours,
/s/ GRAUBARD MOLLEN & MILLER
<PAGE>
EXHIBIT 10.15
FULLY DISCLOSED CLEARING AGREEMENT
This Agreement, made this 31 day of July, 1997, between MORGAN STANLEY & CO.
INCORPORATED (the "Clearing Broker") and EURO BROKERS MAXCOR INC. (the
"Introducing Broker"), sets forth the terms and conditions under which the
Clearing Broker will provide execution and clearing services, as principal, on a
fully disclosed basis, for certain customer and proprietary accounts of the
Introducing Broker.
I. SERVICES TO BE PROVIDED BY THE CLEARING BROKER
A. SERVICES TO BE PROVIDED. Subject to the terms and conditions of this
Agreement and to the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Investment
Advisers Act of 1940, as amended, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Government Securities Act of 1986, as amended,
or any rules or regulations under any of the foregoing, and to any other
applicable law, rule or regulation, federal, state or local, including the rules
of the Board of Governors of the Federal Reserve System, and to any applicable
constitution, by-law, rule, regulation, or stated policy or practice of any
securities exchange or association or other regulatory or self-regulatory body
or agency (collectively, the "Laws and Regulations"), the Clearing Broker will
provide the following services to the Introducing Broker with respect to the
securities and other investment instruments listed on Schedule A attached
hereto:
1. EXECUTION AND CLEARANCE. Subject to the terms and conditions hereof,
the Clearing Broker will execute and/or clear orders, on a fully disclosed
basis, that are transmitted by the Introducing Broker to the Clearing Broker for
such customers' or proprietary accounts of the Introducing Broker as have been
accepted by the Clearing Broker, pursuant to Article III. Section A.1 below.
These accounts are hereinafter referred to as the "Introduced Accounts" and the
beneficial owners thereof (except for Introduced Accounts that are proprietary
accounts of the Introducing Broker) are hereinafter referred to as the
"Customers." Unless otherwise mutually agreed to in writing, the Clearing Broker
will only execute and/or clear paired or "riskless" purchases and sales of
orders initiated by the Introducing Broker between an Introduced Account and the
Clearing Broker on the one hand, and the Clearing Broker and another Introduced
Account on the other, in accordance with the terms of this Agreement. The
Clearing Broker's obligation to clear a transaction for an Introduced Account as
principal is subject to the Clearing Broker having matched or affirmed the
transaction by telephone or through a recognized matching/comparison system
(e.g., Euroclear, Cedel, DTC, GSCC, or such other system agreed to by the
Clearing Broker from time to time) applicable to that transaction. The Clearing
Broker agrees to use its reasonable best efforts to match/confirm promptly all
orders for Qualifying Transactions (as such term is defined in the Principal
Letter attached hereto as Exhibit A) received, so that an unmatched trade report
is current and can be generated promptly on T+1. In addition, to permit timely
intraday monitoring of matching and comparison, the Clearing Broker agrees to
give the Introducing Broker access to live data through Euroclear and other
appropriate terminals installed by the Clearing Broker at the Introducing
Broker's place of business. Such terminals will reflect activity in sub-accounts
of the Clearing Broker's accounts at Euroclear and other clearing corporations
as are used for settling transactions under this Agreement. To the extent the
Clearing Broker provides the Introducing Broker with electronic order entry
devices to route orders to the New York Stock Exchange Inc. (the "NYSE"), the
Introducing Broker shall adopt written compliance procedures for entering orders
into such devices.
2. CONFIRMATIONS AND STATEMENTS.
i) The Clearing Broker will prepare and mail confirmations,
notices, and monthly statements (or quarterly statements if no
activity in any Introduced Account occurs during any quarter
covered by such statement) directly to every Introduced Account
on the Clearing Broker's forms for such purposes.
ii) The Introducing Broker shall provide to the Clearing Broker
information with respect to each transaction executed in an
Introduced Account so that the Clearing Broker can include
information required by Rule 10b-10 of the 1934 Act, as well as
information required by any other applicable Laws and
Regulations, on the confirmation it
<PAGE>
generates. It is understood that such confirmations will reflect
that the transaction has been introduced to the Clearing Broker
through the Introducing Broker. The Introducing Broker
acknowledges that the data it provides for inclusion on such
confirmations, notices, and statements shall be accurate and
complete.
iii) Unless otherwise agreed, the Clearing Broker will supply the
Introducing Broker on each business day with copies of Customer
confirmations, margin activity statements, money lines, daily
fail reports, daily unmatched reports and daily commission
detail reports. Unless the Introducing Broker notifies the
Clearing Broker within a reasonable time (and for the purposes
hereof, other than the daily commission detail, a period of one
(1) business day after receipt of such information shall
generally be deemed to be a reasonable time) of mistakes or
discrepancies in the above-described reports and information,
the Clearing Broker shall be entitled to consider all such
information supplied to the Introducing Broker to be correct.
3. CASHIERING FUNCTIONS. The Clearing Broker will engage in all cashiering
functions for the Introduced Accounts, including the receipt, delivery, and
transfer of securities purchased, sold, borrowed, and loaned, the making and
receipt of payments therefor, the custody of securities and payments so
received, the handling of margin accounts, the receipt and distribution of
dividends and other distributions, the processing of exchange offers, rights
offerings, warrants, tender offers, and redemptions, and such other functions as
may be agreed upon by the parties; provided, however, that if mutually agreed to
by the Introducing Broker and the Clearing Broker, cashiering functions with
respect to receipt of cash and securities may be performed directly by the
Introducing Broker.
4. BOOKS AND RECORDS. The Clearing Broker will establish and maintain all
prescribed books and records of transactions executed or cleared through it that
are not specifically assigned to the Introducing Broker pursuant to the terms of
this Agreement, including a stock record, a daily record of required margin, and
other information required by applicable Laws and Regulations, including Rule
17a-3 under the 1934 Act, Rule 432(a) of the rules (the "Rules") of the Board of
Directors of the NYSE, or by the constitution, by-laws, rules, regulations, or
stated policies or practices of any other securities exchange (the "Standards"),
including but not limited to any national securities exchange registered under
the 1934 Act (a "National Securities Exchange").
5. LAWS AND REGULATIONS. To the extent the Clearing Broker is responsible
for compliance with any applicable Rules, Standards and Laws and Regulations and
has not under this Agreement delegated such responsibility to the Introducing
Broker, the Introducing Broker shall not be responsible for the Clearing
Broker's compliance with such Rules, Standards and Laws and Regulations.
B. SERVICES NOT TO BE PROVIDED. Unless otherwise agreed to in writing, the
Clearing Broker shall not provide to the Introducing Broker any services that
are not specifically set forth in this Agreement, including, but not limited to,
the following:
1. clearing, execution, accounting, bookkeeping or recordkeeping,
cashiering, or any other services with respect to commodities transactions,
including contracts for future delivery of commodities and options on such
contracts or on commodities, or any other transactions not involving securities
or other instruments listed on Schedule A hereto;
2. preparation of the Introducing Broker's payroll records, financial
statements or any analysis or review thereof or any recommendations relating
thereto;
3. preparation or issuance of checks in payment of the Introducing
Broker's expenses, other than expenses incurred by the Clearing Broker on behalf
of the Introducing Broker pursuant to this Agreement;
4. payment of commission, salaries, or other remuneration to the
Introducing Broker's employees;
5. preparation and filing of reports with the Securities and Exchange
Commission (the "SEC"), the NYSE, any state securities commission, any National
Securities Exchange, or other securities exchange, securities association, or
other regulatory or self-regulatory body or agency for which the Introducing
Broker or any Introduced Account is responsible; provided, however, that (a) the
Clearing Broker shall at the request of the Introducing Broker, promptly
cooperate in providing the Introducing Broker with any necessary information and
2
<PAGE>
data contained in records kept by the Clearing Broker and not otherwise
available to the Introducing Broker for use in Introducing Broker's preparation
of such reports, and (b) the Introducing Broker shall be responsible for any
costs incurred by the Clearing Broker in connection with the preparation and
provision of such information if such request is non-routine and extraordinary.
6. verification of the address changes of any Introduced Account, unless
Clearing Broker fails to forward to the Introducing Broker any such address
change received directly by the Clearing Broker.
7. obtaining, verifying, and interpreting account information, and
ensuring that such information meets the requirements of Rule 405(1) of the
Rules, the Standards and any other Laws and Regulations;
8. maintaining records of personal and financial information concerning
any Introduced Account and orders received therefor, and maintaining all
documents and agreements executed by any Introduced Account that in each case
are required to be maintained by the Introducing Broker;
9. holding for safekeeping the securities of any Introduced Account
registered in the name of the Customer;
10. accepting deposits from the Introducing Broker in the form of cash;
or
11. verification of changes in the identity or address of any person
holding any power of attorney over any Introduced Account, unless the Clearing
Broker fails to forward to the Introducing Broker any such change received
directly by the Clearing Broker.
C. SERVICES LIMITED TO CLEARING FUNCTIONS. The Clearing Broker shall limit its
services pursuant to the terms of this Agreement to that of the
execution/clearing functions and related services expressly set forth herein and
the Introducing Broker shall not hold itself out as an agent of the Clearing
Broker or of any company affiliated or associated with the Clearing Broker.
Neither this Agreement nor any operation hereunder shall create a general or
limited partnership, association, joint venture, branch, or agency relationship
between the Introducing Broker and the Clearing Broker.
D. NO DUTY TO INVESTIGATE. The Clearing Broker will have no obligation to the
Introducing Broker to make any investigation into the facts surrounding any
transaction that it may have with the Introducing Broker on a principal or
agency basis or that the Introducing Broker may have with its Customers or other
persons, nor will the Clearing Broker be under any responsibility for compliance
by the Introducing Broker with any Rules, Standards, or Laws and Regulations
that may be applicable to the Introducing Broker with respect to any Introduced
Account.
E. SIPC. The Clearing Broker and the Introducing Broker hereby agree that for
the purposes of the financial responsibility rules and the Securities Investor
Protection Act, the Introduced Accounts shall be considered to be accounts of
the Clearing Broker and not the Introducing Broker. Nothing in this paragraph
shall otherwise change or affect the provisions of this Agreement that provide
that an Introduced Account is the Introducing Broker's account for any other
purpose or to negate the intent of any other section of this Agreement,
including but not limited to the delineation of responsibilities as set forth
elsewhere in this Agreement.
II. COLLATERAL ACCOUNT, CLEARING FEES, INTEREST CHARGES, AND COMMISSIONS
A. THE COLLATERAL ACCOUNT
1. To ensure the Introducing Broker's performance of its obligations under
this Agreement, including but not limited to the indemnification obligations
under Article VII hereof, the Introducing Broker shall, on or before the agreed
date of commencement of services under this Agreement, establish an account at
the Clearing Broker (the "Collateral Account"). The Collateral Account shall at
all times contain cash, securities issued or guaranteed as to principal and
interest by the government of the United States of America and having a maturity
of ten years or less, or a combination of both, having a loan value, as defined
by house requirements of the Clearing Broker, of $2,000,000, as adjusted from
time to time (the "Clearing Deposit"). The Collateral Account shall not be
deemed to be margin for any Introduced Account and shall not in any way
constitute an ownership interest in the Clearing Broker. The Clearing Broker
shall pay interest to the Introducing Broker on the cash held from time to time
in the Collateral Account at a rate listed on Schedule A hereto. The Clearing
Broker shall have the right, in its
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reasonable discretion, to increase upon notice, the amount of the Clearing
Deposit to be maintained with the Clearing Broker by the Introducing Broker to
reflect materially changed conditions relating to the Introducing Broker or its
business or an unusually high number or value of unresolved errors with respect
to transactions forwarded by the Introducing Broker. Upon the cessation or
amelioration of such conditions, the Clearing Broker shall reinstate the
original, or reduce the, as the case may be, amount of the Clearing Deposit.
Cash or securities in the Collateral Account equal to the required Clearing
Deposit shall not be withdrawn by the Introducing Broker without the consent of
the Clearing Broker.
2. Unless otherwise mutually agreed, all transfers of funds by the
Introducing Broker to the Collateral Account shall be in immediately available
funds. All securities transferred by the Introducing Broker to the Collateral
Account (i) shall be in suitable form for transfer or shall be accompanied by
duly executed instruments of transfer or assignment in blank and such other
documentation as the party receiving possession may reasonably request, (ii)
shall be transferred on the book-entry system of a Federal Reserve Bank, or
(iii) shall be transferred by any other method acceptable to the Clearing
Broker. As used herein with respect to securities, "transfer" is intended to
have the same meaning as when used in Section 8-313 of the New York Uniform
Commercial Code.
B. CLEARING FEES/MINIMUM MONTHLY COMPENSATION/OFFSETS IN THE EVENT OF A
DEFAULT.
1. The Introducing Broker agrees to pay the Clearing Broker for its
services pursuant to this Agreement such amounts as are set forth in
Schedule A hereto. After the first year of service under this Agreement,
said compensation schedules may be changed by the Clearing Broker at any
time on sixty (60) days' prior written notice to the Introducing Broker or
from time to time as may be agreed to in writing by the Introducing Broker
and the Clearing Broker; provided, however, that with respect to the
Clearing Broker's charges for services in connection with the clearance of
securities transactions executed in local emerging markets, such charges
may be changed upon thirty (30) days' prior written notice during the first
year of services hereunder.
2. Commissions and/or spread revenue shall be credited with interest
daily at the rate listed in Schedule A attached hereto. The Clearing Broker
will remit to the Introducing Broker spread and/or commission revenue, and
any interest earned thereon, due the Introducing Broker on a weekly basis,
after deduction of the following:
i) all clearing and other charges, costs, or expenses due the
Clearing Broker in accordance with the terms of this Agreement;
and
ii) all amounts due the Clearing Broker by the Introducing Broker
arising from any losses, liabilities, or damages in accordance
with the terms of this Agreement. The Introducing Broker hereby
grants the Clearing Broker a security interest in all of the
assets of the Introducing Broker in the possession of the Clearing
Broker (including the Clearing Deposit and any after-acquired
property) as security for the repayment of all of the Introducing
Broker's obligations and liabilities under this Agreement to the
Clearing Broker.
3. In the event that the Introducing Broker defaults (as defined in
Article IX below), the Clearing Broker shall immediately offset any and all
liabilities, costs, or expenses due it from the Introducing Broker under this
Agreement against spread and/or commission revenue due the Introducing Broker or
the Clearing Deposit or, to the extent that the foregoing are insufficient, any
other assets of the Introducing Broker then in the possession of the Clearing
Broker.
4. The Clearing Broker agrees that its security rights under Sections 2
and 3 above shall apply with respect to the assets of the Introducing Broker
only.
5. Within thirty (30) days of the termination of this Agreement, the
Clearing Broker will (a) effect the payment and delivery to Introducing Firm of
the funds and/or securities in the Collateral Account, less any amounts the
Clearing Broker is entitled to offset under Section B.3 of this Article II;
provided, however, that the Clearing Broker may retain in the Collateral Account
such amount as it reasonably deems
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appropriate for its protection from any claim or proceeding of any type then
threatened or pending, until the final determination thereof is made.
C. INTEREST CHARGES/OTHER CHARGES TO INTRODUCED ACCOUNTS.
1. As between the Introducing Broker and the Clearing Broker, interest
charged on debit balances in any Customer Introduced Account shall be
retained by the Clearing Broker and interest paid or credit given for
any credit balances that from time to time may be left on deposit in
Customers' Introduced Accounts with the Clearing Broker shall be at the
discretion of the Clearing Broker, and interest paid or credit given
for any credit balances that from time to time may be left on deposit
in the Introducing Broker's proprietary Introduced Accounts with the
Clearing Broker shall be credited at the rate listed on Schedule A
hereto, and shall be remitted to the Introducing Broker as reasonably
requested by the Introducing Broker.
2. The Introducing Broker and the Clearing Broker shall reasonably
cooperate with and assist each other in attempting to recover from any
Introduced Account carried by the Clearing Broker any loss or liability
incurred by the Clearing Broker or the Introducing Broker (including
those resulting from Article VII below) as a result of any default or
failure to perform (or other acts of omissions) by any Introduced
Account.
D. COMMISSIONS AND MARK-UPS. The Clearing Broker shall not exercise any
control or influence over the commissions, mark-ups, or other charges or
expenses imposed by the Introducing Broker upon the Introduced Accounts. The
Clearing Broker shall charge each of the Introduced Accounts such commissions,
mark-ups, charges, and expenses as the Introducing Broker directs in writing;
provided, however, that such commissions, mark-ups, charges, and expenses shall
be implemented (i) only to the extent they are within the usual and normal
capabilities of the Clearing Broker's dataprocessing and operations systems, and
(ii) to the extent of changes therein only after such reasonable time as the
Clearing Broker may reasonably deem necessary to avoid disruption of its normal
operating capabilities. Further, the Introducing Broker shall be responsible for
all costs, if any, associated with any modifications to the Clearing Broker's
systems and procedures which may be necessary to accommodate the Introducing
Broker if such request is non-routine and extraordinary in nature.
E. FEES NOT TO CONTRAVENE RULES. In no event shall the fees charged for the
services rendered pursuant to this Agreement be in contravention of the Rules,
Standards or Laws and Regulations. In the event that such fees are deemed by the
Clearing Broker to be in contravention of the Rules, Standards or Laws and
Regulations, they shall be replaced with fees mutually agreed upon by the
Clearing Broker and the Introducing Broker.
III. PROCEDURES FOR INTRODUCED ACCOUNTS
A. OPENING ACCOUNTS.
1. OPENING INTRODUCED ACCOUNTS. At the time of the opening of each
prospective Introduced Account, the Introducing Broker shall submit to the
Clearing Broker a completed new account form on such forms as the Clearing
Broker will supply to the Introducing Broker or the Introducing Broker
shall otherwise provide new account information to the Clearing Broker by
such process and/or in such format as may be mutually agreed. The Clearing
Broker shall promptly make such credit and other review of the prospective
Introduced Account as it deems necessary and promptly thereafter notify the
Introducing Broker of its acceptance (together with relevant account
numbers at the Clearing Broker for such Introduced Account) or
non-acceptance thereof (together with the reasons therefor).
2. CUSTOMER AGREEMENTS AND SUPPLEMENTARY DOCUMENTATION. The Clearing
Broker shall supply to the Introducing Broker any other additional or
supplementary documentation or information that the Clearing Broker may
reasonably request the Introducing Broker to obtain from the Customer,
including, but not limited to, a cash account agreement on a form approved
by the Clearing Broker ("Cash Account Agreement"), and all documents the
Clearing Broker sends directly to the Customer. At the time of the opening
of Introduced Accounts that are margin accounts, the Introducing Broker or
the Introduced Account shall furnish the Clearing Broker with executed
margin agreements on a form to be provided by
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the Clearing Broker (the "Margin Agreement"). If any Introduced Account has
been opened without the Clearing Broker having previously received the
foregoing information or documents, failure of the Clearing Broker to
receive such information or documents, or the fact that the Clearing Broker
has notified the Introducing Broker of its acceptance of the Introduced
Account under Article III Section A.1. above, shall not be deemed to be a
waiver of the information or documentation requirements set forth herein.
With respect to each Introduced Account that is a proprietary account of
the Introducing Broker, an executed Margin Agreement shall be furnished to
the Clearing Broker, as applicable, and any such Margin Agreement, as
amended from time to time, is incorporated by reference herein. Upon the
reasonable request of the Clearing Broker, the Introducing Broker shall
furnish the Clearing Broker with any other additional or supplementary
documents and agreements executed by the Introduced Account on forms
supplied by the Clearing Broker that the Clearing Broker may require in
connection with the opening, operating or maintaining of Introduced
Accounts. The Clearing Broker may, at its option, mail Cash Account
Agreements, Margin Agreements or other documentation directly to the
Introduced Accounts upon notification by the Introducing Broker. The
Introducing Broker shall promptly provide the Clearing Broker with basic
data and copies of documents relating to each of the Introduced Accounts,
including, but not limited to, copies of records of any receipts of the
Introduced Accounts' funds or securities received directly by the
Introducing Broker, as shall be necessary for the Clearing Broker to
discharge its obligations hereunder.
3. PRINCIPAL LETTERS. With respect to each prospective Introduced Account
submitted by the Introducing Broker to the Clearing Broker, the Clearing
Broker shall, upon acceptance thereof as an Introduced Account, deliver to
such Introduced Account a principal letter (a "Principal Letter") either
(i) for those Customers who are dealers, in the form attached hereto as
Exhibit A, or (ii) for all other Customers, in the form attached hereto as
Exhibit B. The contents of the forms of Principal Letter are incorporated
herein by reference and may be amended from time to time by mutual
agreement of the Clearing Broker and the Introducing Broker. The Clearing
Broker shall forward to the Introducing Broker a copy of each Principal
Letter countersigned by a Customer.
4. FAILURE TO COMPLY WITH DOCUMENTATION REQUIREMENTS.
i) If the documents necessary to comply with the account
documentation requirements of applicable Rules, Standards, and
Laws and Regulations have not been received by the Clearing Broker
after prior request has been made therefor, the Clearing Broker
may give the Introducing Broker notification that no orders and/or
requests for disbursements will be accepted for the Introduced
Account involved. For purposes of this Section 4.i), such
non-acceptance shall become effective immediately if the Clearing
Broker reasonably believes that acceptance of any order and/or
request for disbursement would pose a regulatory, credit or
litigation risk to the Clearing Broker. In the absence of such
belief, the Introducing Broker shall be given 5 days' prior notice
of such non-acceptance. If orders are placed for such account
after immediate notice is given, or after the expiration of the 5
days' prior notice, as applicable, the Clearing Broker may reject
such orders, but if such orders are accepted, full commission
credit will be granted on such orders. This Agreement is not in
any way intended to limit the responsibility of the Clearing
Broker under the Rules, Standards, Laws and Regulations with
respect to Introduced Accounts. Further, acceptance of an order
after notification has been given shall not constitute a waiver of
the Clearing Broker's right to reject any subsequent order for
such Introduced Account if it fails to meet its account
documentation requirements.
ii) The Clearing Broker may treat transactions in any Introduced
Account as cash transactions until such time as the Clearing
Broker has received and accepted Margin Agreements, duly and
validly executed in respect of such Introduced Account.
5. AGENCY INTRODUCED ACCOUNTS. At the time of the opening of any agency
Introduced Account, the Introducing Broker shall furnish the Clearing
Broker with the name and address of any principal for whom the agent is
acting and written evidence of the agent's authority.
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6. DILIGENCE AS TO ACCOUNTS. As between the Clearing Broker and the
Introducing Broker, the Introducing Broker shall be responsible for
compliance with Rule 405(3) of the Rules and any interpretations thereof
and all similar applicable Rules, Standards, or Laws and Regulations and
shall specifically approve the opening of any new account before forwarding
such account to the Clearing Broker as a potential Introduced Account.
7. CLEARING BROKER'S RIGHT TO REJECT/TERMINATE ACCOUNTS. The Clearing
Broker reserves the right to reject any account that the Introducing Broker
may tender to the Clearing Broker as a potential Introduced Account. The
Clearing Broker also reserves the right to terminate any account previously
accepted by it as an Introduced Account upon prior notice to the
Introducing Broker.
8. MINORS/OTHER PROHIBITED CUSTOMERS. As between the Clearing Broker and
the Introducing Broker, the Introducing Broker shall be responsible for
ensuring that its Customers shall not be minors or subject to those
prohibitions existing under the Rules, Standards, or Laws and Regulations
generally relating to the incapacity of any Introduced Account or any
conflict of interest relating to such Introduced Account.
B. COMPLIANCE WITH MARGIN REQUIREMENTS.
1. GENERALLY. With respect to Introduced Accounts that are margin
accounts, the Clearing Broker is responsible for compliance with Regulation
T, 12 C.F.R. Part 220, promulgated by the Board of Governors of the Federal
Reserve System (the "Board"), and any interpretive rulings issued by the
Board, and letter rulings of the Federal Reserve Bank of New York, Rules
and interpretations of the NYSE and any other applicable initial margin and
margin maintenance requirements of the Rules, Standards, or Laws and
Regulations. The Introducing Broker is responsible to the Clearing Broker
for the collection of margin required to support and maintain each
transaction for each Introduced Account in conformity with the above
initial margin and margin maintenance requirements, as well as house
initial margin and margin maintenance requirements. After such initial
margin on each transaction has been received, maintenance margin calls
shall be generated by the Clearing Broker and made by the Clearing Broker
or, at the Clearing Broker's option, by the Introducing Broker at the
instructions of the Clearing Broker. The Introducing Broker shall be
responsible for obtaining the amount due directly from the Introducing
Broker's Customer. Subject to the terms of the applicable Margin
Agreements, the Clearing Broker shall have the absolute right to modify, in
its sole discretion, the margin requirements for any Introduced Account or
any security position from time to time so that the Clearing Broker may
call for additional margin and shall have sole discretion as to the amount
of margin to be required of and maintained by Introduced Accounts.
2. INSUFFICIENT MARGIN PROVIDED BY AN INTRODUCED ACCOUNT. In the event
that satisfactory margin is not provided within the time specified by the
Clearing Broker or securities sold are not delivered as required, subject
to the terms of the applicable Margin Agreements, the Clearing Broker may
take appropriate remedial action or direct the Introducing Broker to take
such action as the Clearing Broker deems appropriate, including but not
limited to the sale or purchase of securities for the Introduced Account.
C. DVP ACCOUNTS. The Introducing Broker agrees that all Customers of the
Introducing Broker who engage in delivery versus payment ("DVP") or receive
versus payment ("RVP") transactions (and their agents) will utilize the
facilities of a securities depository for the confirmation, acknowledgment, and
book entry settlement of all depository eligible transactions, subject to the
exceptions to Rule 387 of the Rules. The Introducing Broker will be responsible
for complying with the requirements of NYSE Rule 387 with respect to all DVP/RVP
transactions, except for delivery of confirmations.
D. DEPOSITS OF PAYMENTS AND SECURITIES. To facilitate the keeping of records
by the Clearing Broker, the Introducing Broker shall turn over promptly to the
Clearing Broker, and the Clearing Broker shall provide the Introducing Broker
with receipts for, any and all payments and securities that the Introducing
Broker receives from Customers. Concurrently with the delivery of such payments
or securities to the Introducing Broker, it shall furnish the Clearing Broker
with such information as may be relevant or necessary to enable the Clearing
Broker to record promptly and properly such payments and securities in the
respective Introduced Accounts.
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E. OTC TRANSACTIONS. On all over-the-counter transactions for Introduced
Accounts, the Introducing Broker shall furnish the Clearing Broker with the
names of the respective purchasing and selling broker-dealers (except as
otherwise provided below), the names of the purchasing and selling Customers,
and the wholesale and retail purchase and sale prices. When the selection of the
contra broker in an over-the-counter transaction is left to the Clearing
Broker's discretion, the Clearing Broker will assume responsibility for any
failure to pay by the contra broker. When the Introducing Broker executes its
own over-the-counter order or designates the contra broker, in the event that
the over-the-counter contra broker fails to perform its part of the transaction,
the Introducing Broker will reimburse the Clearing Broker for any loss sustained
thereby. The Clearing Broker reserves the right at any time to limit the size of
transactions that the Clearing Broker will accept for clearance in these
circumstances. If, after the Introducing Broker has received notice of such
limitation, the Introducing Broker executes an order in excess of the limit
established by the Clearing Broker, the Clearing Broker shall have the right to
notify the other party and other dealer that it will not accept the transaction
for clearance and settlement.
F. PRINCIPAL TRANSACTIONS WITH OTHER BROKER-DEALERS/GUARANTEED TRANSACTIONS
WITH CUSTOMERS. The Introducing Broker understands and agrees that the character
of the Clearing Broker's status as the Introducing Broker's agent, as is
described in the Rule 382 Letter, and the Introducing Broker's responsibilities
and liabilities under this Agreement, including but not limited to the
indemnification provisions of Article VII, Section B, and the Introducing
Broker's responsibility for NYSE Rule 405 compliance, remain unchanged with
respect to any principal transaction. Accordingly, should an Introduced Account
fail to perform its settlement obligations with respect to any Qualifying
Transaction, then, notwithstanding the issuance of a Principal Letter, the
Introducing Broker shall remain liable to the Clearing Broker, in accordance
with the provisions of Article VII of this Agreement, for any resulting losses,
claims, damages, liabilities and expenses suffered by the Clearing Broker.
G. ORDERS/TRADING/SETTLEMENTS.
1. The Introducing Broker shall be solely and exclusively responsible for
approving all orders for the Introduced Accounts and for establishing
procedures to ensure that such approved orders are transmitted properly to
the Clearing Broker (or to interfaces established by the Clearing Broker)
for execution and clearance. The Clearing Broker reserves the right, in its
reasonable discretion, upon prior notice (and only with respect to orders
not yet received) to both the Introducing Broker and the Introduced
Account, to restrict trading in any Introduced Account, including the
Introducing Broker's proprietary or market making accounts, to liquidating
orders or cash transactions only, or to prohibit certain trading strategies
or trading of certain types of securities, or to reject any transaction
that is not a paired or "riskless" transaction. The Clearing Broker
reserves the right, in its reasonable discretion, to reject any order (i)
that the Introducing Broker may transmit to the Clearing Broker for
execution or clearance with respect to any account that has not been
approved as an Introduced Account, (ii) under the conditions described in
the Principal Letter, or (iii) where the Clearing Broker reasonably
suspects fraud or misconduct. The Clearing Broker will not accept orders
directly from Introduced Accounts.
2. All transactions heretofore had, if any, between the Introducing
Broker and the Clearing Broker with respect to orders given by or for the
Introduced Accounts and cleared through the Clearing Broker shall be
subject to the provisions of this Agreement.
3. Any settlements which involve bank drafts, draft charges, including
any interest expense, will be borne by the Introducing Broker unless
created pursuant to errors or omissions of the Clearing Broker.
H. DILIGENCE AS TO ACCOUNTS/CAPACITY AND AUTHORITY/DISCRETIONARY
ACCOUNTS/REGISTRATION.
1. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be responsible for the supervisory review of all
orders for the Introduced Accounts and shall ensure that any orders and
instructions given by it or any of its partners, officers or employees to
the Clearing Broker pursuant to the terms of this Agreement shall have been
properly authorized in advance.
2. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be responsible for making every reasonable effort
to ascertain the essential facts relative to any Introduced Account and any
order therefor, in compliance with Rule 405(1) of the Rules, including but
not otherwise limited to ascertaining the authority of all orders for
Introduced Accounts, and the genuineness of all certificates, papers, and
signatures provided by each Introduced Account. Any investment advice
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furnished to an Introduced Account by the Introducing Broker or its
partners, officers or employees shall be the sole and exclusive
responsibility of the Introducing Broker.
3. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be responsible for review of all Introduced
Accounts and for compliance with any supervisory responsibility under Rule
405(2) of the Rules, including where applicable but not otherwise limited
to matters involving the investment objectives of the Introduced Accounts,
the suitability of the investments made by the Introduced Accounts, the
reasonable bases for recommendations made to Introduced Accounts, and the
frequency of trading in the Introduced Accounts, whether or not such
transactions are instituted by the Introducing Broker, its partners,
officers, employees or any registered investment adviser.
4. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be solely and exclusively responsible for the
handling and supervisory review of any Introduced Accounts over which the
Introducing Broker's partners, officers or employees have discretionary
authority, as required by Rule 408 of the Rules and any interpretations
thereof and any other applicable Rules, Standards or Laws and Regulations.
The Introducing Broker shall furnish the Clearing Broker with such
documentation with respect thereto as may be requested by the Clearing
Broker. The Introducing Broker hereby warrants that with regard to any
orders or instructions given by the Introducing Broker with respect to such
discretionary accounts, its partners, officers or employees shall have been
fully and properly authorized relative thereto and that the execution of
such orders in conformity therewith shall not be in violation of the Rules,
Standards or Laws and Regulations.
5. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be responsible for the handling and supervisory
review of any Introduced Account for an employee or officer of any member
organization, self-regulatory organization, bank, trust company, insurance
company, or other organization engaged in the securities business, and for
compliance with Rule 407 of the Rules and any interpretations thereof and
any other applicable Rules, Standards or Laws and Regulations. The
Introducing Broker shall furnish the Clearing Broker with such
documentation with respect thereto as may be reasonably requested by the
Clearing Broker.
6. The Introducing Broker shall be solely and exclusively responsible for
ensuring that it is authorized to do business in any jurisdiction in which
any Introduced Account resides or is domiciled.
I. DISCLOSURE DOCUMENT DELIVERY/PROSPECTUS DELIVERY.
1. The Introducing Broker shall be solely and exclusively responsible for
compliance with any and all disclosure document delivery requirements in
connection with Introduced Accounts that are option accounts and with any
principal training or registration requirements relating to options trading
in Introduced Accounts.
2. As between the Clearing Broker and the Introducing Broker, the
Introducing Broker shall be responsible for timely delivery of (or making
available to the Clearing Broker for timely delivery of) any prospectus
required pursuant to the prospectus delivery requirements of the 1933 Act.
J. SUPERVISORY PROCEDURES/TRAINING/INSIDER TRADING. The Introducing Broker and
the Clearing Broker shall each be responsible for the respective compliance by
each with any supervisory procedures, including those under Rule 342 of the
Rules, Section 27 of Article II of the Rules of Fair Practice of the NASD, and,
to the extent applicable, any other related provisions of the Rules, Standards,
Laws and Regulations, including but not otherwise limited to supervising the
activities and training of their respective registered representatives, as well
as all of their other respective employees in the performance of functions
specifically allocated to them pursuant to the terms of this Agreement.
K. OPTIONS TRADING. The Introducing Broker represents that before it commences
any trading in options for any Introduced Account, it will have a Senior
Registered Options Principal registered with either the American Stock Exchange,
Inc. or the National Association of Securities Dealers, Inc. (the "NASD").
L. TRANSACTIONS EXECUTED AWAY. In the event the Introducing Broker executes
orders away from the Clearing Broker, the Clearing Broker will use its best
efforts to clear the transaction within a reasonable period.
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M. RESTRICTED, CONTROL AND SHELF REGISTERED SECURITIES. As between the
Clearing Broker and the Introducing Broker, the Introducing Broker shall be
responsible for compliance with any Rules, Standards, Laws and Regulations
concerning transfers of restricted or control securities in Introduced Accounts.
Securities delivered to the Clearing Broker on behalf of an Introduced Account
for delivery in respect of a sale shall not be in legended form; provided,
however, with respect to transactions the Introducing Broker may execute for
Qualified Institutional Buyers (as such term is defined in Rule 144A of the 1933
Act), the Introducing Broker may deliver Rule 144A securities. In addition, the
Clearing Broker may accept requests from the Introducing Broker for it to clear
other unregistered or legended securities by amending Schedule A hereto.
N. TRUTH IN LENDING. As between the Clearing Broker and the Introducing
Broker, the Introducing Broker shall be responsible for compliance with Rule
10b-16 under the 1934 Act; provided, however, that any document provided to
Customers by the Introducing Broker or its partners, officers or employees in
connection therewith shall be approved in writing by the Clearing Broker in
advance.
IV. INFORMATION TO BE PROVIDED BY THE INTRODUCING BROKER
A. FINANCIAL INFORMATION/FORM BD/FILINGS WITH OTHER REGULATORY BODIES.
1. The Introducing Broker shall provide the Clearing Broker with copies of
the Introducing Broker's annual audited financial statements as well as
copies of all financial information and reports filed by the Introducing
Broker with the NYSE (if a member), the NASD, the SEC, and any other
National Securities Exchange (where a member) (including but not otherwise
limited to monthly and quarterly Financial and Operational Combined Uniform
Single Reports, i.e., "FOCUS" Reports) promptly after the filing therewith.
2. The Introducing Broker shall submit to the Clearing Broker as
reasonably requested by the Clearing Broker, additional information and
reports relating to the Introducing Broker's financial integrity, including
but not otherwise limited to information regarding the Introducing Broker's
aggregate indebtedness ratio and net capital.
3. The Introducing Broker shall provide the Clearing Broker with the Form
BD and any amendment or supplement to the Form BD of the Introducing
Broker, and, upon request, any information filed or on file with any
regulatory body or agency relating to the Introducing Broker or any of its
directors, officers and employees.
B. THREATENED OR PENDING ACTIONS OR INVESTIGATIONS/OTHER INFORMATION
1. The Introducing Broker shall provide the Clearing Broker, to the
extent it affects or could foreseeably affect in a materially adverse way
the Introducing Broker's business activities or financial condition
(including its ability to meet its net capital requirements), with notice
of any action, suit, investigation, inquiry, or proceeding currently
pending or subsequently commenced against the Introducing Broker, any of
its parent companies or subsidiaries, or any officer, director, general
securities principal, financial or operations principal, or employee, of
the Introducing Broker, or such parent companies or subsidiaries or their
respective property or assets, by or before any court or other tribunal,
any arbitrator, any governmental authority, or any self-regulatory
organization of which any of them is a member. The Introducing Broker will
notify the Clearing Broker promptly of the Introducing Broker's becoming
aware of the initiation of any such action, suit, investigation, inquiry,
or proceeding.
2. The Introducing Broker shall provide the Clearing Broker with all
appropriate data in its possession pertinent to the proper performance and
supervision of any function or responsibility specifically allocated to the
Clearing Broker pursuant to the terms of this Agreement. The Clearing
Broker shall be responsible for all costs incurred by the Introducing
Broker in connection with the preparation and provision of such
information, if such information is non-routine and extraordinary in
nature.
C. PARTICIPATION IN DISTRIBUTIONS. The Introducing Broker shall provide the
Clearing Broker with written notice of securities as to which the Introducing
Broker intends to participate in the distribution (whether as part of the
underwriting or selling group). The Clearing Broker shall have the right to
limit or prohibit the
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Introducing Broker's distribution activities with regard to any security for
which clearing services are provided under the terms of this Agreement. Under no
circumstances may the Introducing Broker join a syndicate without the prior
written approval of the Clearing Broker.
V. INFORMATION TO BE PROVIDED BY THE CLEARING BROKER
The Clearing Broker shall provide the Introducing Broker with all appropriate
data in its possession pertinent to the proper performance and supervision of
any function or responsibility specifically allocated to the Introducing Broker
pursuant to the terms of this Agreement. The Introducing Broker shall be
responsible for all costs incurred by the Clearing Broker in connection with the
preparation and provision of such information, if such information is
non-routine and extraordinary in nature.
VI. COMMUNICATIONS WITH CUSTOMERS AND OTHERS
A. NYSE RULE 382.
1. The Clearing Broker, prior to or concurrently with the provision of
the Principal Letter, will notify the Introducing Broker's Customers in
writing as to the general nature of the services to be provided by the
Clearing Broker pursuant to this Agreement, the respective obligations of
the parties hereto, and any other Customer-related responsibilities of the
parties to this Agreement, which notification will comply with Rule 382 of
the Rules (the "Rule 382 Letter"). The Rule 382 Letter is attached to
Exhibit B of this Agreement.
2. The Clearing Broker shall inform the Introducing Broker's Customers
pursuant to such Rule 382 Letter that all inquiries and correspondence
should be directed to the Introducing Broker. In the event such
correspondence is not directed to the party who is responsible under the
terms of this Agreement for the area to which the correspondence relates,
the Introducing Broker or the Clearing Broker shall expeditiously forward
such correspondence to the appropriate party, which shall respond to it.
B. WRITTEN APPROVAL REQUIRED FOR REFERENCES TO THE CLEARING BROKER OR ITS
AFFILIATES. The Introducing Broker shall not, without the prior written approval
of the Clearing Broker, (i) place any advertisement in any newspaper,
publication, periodical or any other media, (ii) communicate with the general
public in any manner whatsoever, or (iii) communicate with any Customer in
writing, if such advertisement or communication in any manner makes reference to
the Clearing Broker or any affiliate of the Clearing Broker or to the clearing
arrangements and the services embodied in this Agreement, except to the extent
necessary to support the execution and/or clearance of transactions permitted
under this Agreement. Notwithstanding the foregoing, the Introducing Broker may
make such disclosures of this Agreement and references to the Clearing Broker
and the services provided to the Introducing Broker hereunder as it reasonably
believes are required by applicable Laws and Regulations or as necessary to
perform its obligations hereunder.
C. TERMINATION UPON MISREPRESENTATION OF CLEARING RELATIONSHIP AS BRANCH,
AFFILIATION OR AGENCY. Should the Introducing Broker in any way hold itself out
as, advertise or represent that it is the agent of, affiliated with, or a branch
of the Clearing Broker, the Clearing Broker shall have the power, at its option,
to terminate this Agreement and the Introducing Broker shall be liable for any
loss, liability, damage, cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) sustained or incurred by the
Clearing Broker as a result of such advertisement or representation.
Notwithstanding the provisions of paragraph C of Article X below that any
dispute or controversy between the parties hereto relating to or arising out of
this Agreement shall be referred to and settled by arbitration, in connection
with any breach by the Introducing Broker of this paragraph, the Clearing Broker
may, at any time prior to the initial arbitration hearing pertaining to such
dispute or controversy, by application to the United States District Court for
the Southern District of New York or the Supreme Court of the State of New York
for the County of New York (the jurisdiction of which the Introducing Broker
hereby consents to), to seek such temporary or provisional relief or remedy
("provisional remedy") provided for by the laws of the United States of America
or the laws of the State of New York as would be available in an
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action based upon such dispute or controversy in the absence of an agreement to
arbitrate. The parties hereto acknowledge and agree that it is their intention
to have any such application for a provisional remedy decided by the court to
which it is made and that such application shall not be referred to or settled
by arbitration. No such application to either said court for a provisional
remedy, nor any act or conduct by either party in furtherance of or in
opposition to such application, shall constitute a relinquishment or waiver of
any right to have the underlying dispute or controversy with respect to which
such application is made settled by arbitration in accordance with paragraph C
of Article X below.
VII. ERRORS, CONTROVERSIES AND INDEMNITIES
A. INDEMNIFICATION FROM CLEARING BROKER. The Clearing Broker hereby agrees to
indemnify, defend and hold harmless the Introducing Broker and each person, if
any, who controls the Introducing Broker within the meaning of Section 20 of the
1934 Act, from and against any and all losses, claims, damages, liabilities and
expenses, including reasonable attorney's fees and costs, as a result of the bad
faith, willful misconduct, negligence, or criminal acts or omissions on the part
of any of the Clearing Broker's directors, officers, employees, agents or
representatives with respect to the Clearing Broker's performance of this
Agreement.
B. INDEMNIFICATION FROM INTRODUCING BROKER. The Introducing Broker hereby
agrees to indemnify, defend and hold harmless the Clearing Broker and each
person, if any, who controls the Clearing Broker within the meaning of Section
20 of the 1934 Act from and against any and all losses, claims, damages,
liabilities and expenses, including reasonable attorney's fees and costs, as a
result of any material act or omission on the part of any of the Introducing
Broker's directors, officers, employees, agents or representatives with respect
to the Introducing Broker's performance of this Agreement.
C. NOTIFICATION REQUIREMENTS. In case any proceeding (including any
governmental investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to this Article VII, such person
(hereinafter called the indemnified party) shall promptly notify the person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel satisfactory to the indemnified party to represent
the indemnified party. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties, and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent (or the indemnifying party fails to respond to a request for its consent
within 30 days) or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes a
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding to the same extent as the indemnifying party
is released.
D. SURVIVAL OF INDEMNITY. The indemnification provisions in this Article VII,
and the indemnification provisions embodied within Article III, Section E
hereof, shall remain operative and in full force and effect, regardless of the
termination of this Agreement, and shall survive any such termination for a
period of 6 years; with respect to any action initiated prior to the end of the
6 year term, the indemnification provisions shall survive until such action is
finally determined (by adjudication, arbitration or settlement).
E. NO THIRD PARTY BENEFICIARIES. The only parties with rights and remedies
under or by reason of this Agreement are the Introducing Broker and the Clearing
Broker, and there are no intended third-party beneficiaries of this Agreement.
Without limiting the generality of the foregoing, in no event shall either party
be responsible to any person or each other for indirect damages arising out of
any of either party's actions or inactions, even if notified of the possibility
thereof.
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VIII. ADDITIONAL REPRESENTATIONS AND WARRANTIES
A. THE INTRODUCING BROKER. The Introducing Broker represents, warrants,
and covenants as follows:
1. The Introducing Broker shall (a) maintain at all times a net
capital computed in accordance with Rule 15c3-1 of the 1934 Act of at least
$7,000,000 and (b) immediately notify the Clearing Broker when (i) its net
capital is less than the amount set forth in (a) above, (ii) its Aggregate
Indebtedness Ratio reaches or exceeds 10 to 1, or (iii) if the Introducing
Broker has elected to operate under paragraph (f) of rule 15c3-1, when its net
capital is less than 5% of aggregate debit items computed in accordance with
Rule 15c3-3. Notwithstanding the foregoing, should the Introducing Broker's net
capital at any time be less than the minimum set forth in (a) above, the
Introducing Broker will have ten (10) days within which to eliminate such
deficiency, provided that under no circumstances shall the Introducing Broker's
net capital fall below $5,000,000.
2. The Introducing Broker is a member in good standing of the NASD
and, if it is a member of the NYSE, is in good standing. The Introducing Broker
agrees to promptly notify the Clearing Broker of any additional exchange
memberships or affiliations. The Introducing Broker shall also comply with
whatever non-member access rules have been promulgated by any National
Securities Exchange or any other securities exchange of which it is not a
member.
3. The Introducing Broker is and during the term of this Agreement
will remain duly registered or licensed and in good standing as a broker-dealer
under all applicable Laws and Regulations.
4. The Introducing Broker has all the requisite authority in
conformity with all applicable Rules to enter into this Agreement and to retain
the services of the Clearing Broker in accordance with the terms hereof and has
taken all necessary action to authorize the execution of this Agreement and the
performance of the obligations hereunder.
5. The Introducing Broker is in compliance, and during the term of
this Agreement will remain in compliance with (i) the capital and financial
reporting requirements of every National Securities Exchange or other securities
exchange and/or securities association of which it is a member, (ii) the capital
requirements of the SEC, and (iii) the capital requirements of every state in
which it is licensed as a broker-dealer.
6. The Introducing Broker shall keep confidential any confidential
information the Introducing Broker may acquire as a result of this Agreement
regarding the business and affairs of the Clearing Broker except to the extent
required to be disclosed by applicable Laws and Regulations. This requirement
shall survive the life of this Agreement.
7. The Introducing Broker shall keep confidential the pricing terms
negotiated and agreed upon between the Introducing Broker and the Clearing
Broker from time to time, except to the extent required to be disclosed by
applicable Laws and Regulations. This requirement shall survive the life of this
Agreement.
8. All transactions introduced to the Clearing Broker by the
Introducing Broker on behalf of an Introduced Account are authorized by the
Introduced Account.
9. All orders or transactions introduced to the Clearing Broker by
the Introducing Broker for Introduced Accounts shall comply in all respects with
applicable Laws and Regulations and Rules and Standards; and, as between the
Clearing Broker and the Introducing Broker, the Introducing Broker shall be
responsible for (i) using due diligence to learn and on a continuing basis to
know the essential facts of each Customer, including verifying the address
changes communicated to it of each Customer, knowing all persons communicated to
it as holding power of attorney over any Introduced Account, being familiar with
each order requested by it to be executed and/or cleared in any Introduced
Account and at all times fully complying with Rule 405 of the New York Stock
Exchange, Inc., and any interpretations thereof, and all similar applicable
rules; (ii) selecting, investigating, training, and supervising all personnel of
the Introducing Broker who open, approve, or authorize transactions in the
Introduced Accounts; (iii) establishing written procedures for the conduct of
the Introduced Accounts and ongoing review of all transactions in Introduced
Accounts, and maintaining compliance and supervisory personnel adequate to
implement such procedures; (iv) determining the suitability of all transactions,
including option transactions; (v) ensuring that there is a reasonable basis for
all recommendations made to Customers; (vi) determining the
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appropriateness of the frequency of trading in Introduced Accounts; (vii)
determining the authorization of each transaction in Introduced Accounts; and
(viii) obtaining and maintaining all documents necessary for the performance by
the Introducing Broker of its responsibilities under this Agreement and
retaining such documents in accordance with all applicable Laws, Rules, and
Regulations.
10. The Introducing Broker shall not generate and/or prepare and send
any statements, bills, or confirmations respecting transactions for any
Introduced Account that have been introduced to the Clearing Broker unless
expressly authorized to do so in writing by the Clearing Broker.
11. The Introducing Broker shall carry a $1,000,000 Securities Dealer
Blanket Bond insurance policy (with a $10,000 deductible) meeting requirements
as to form and type of coverage as the relevant regulatory agency (either the
NYSE or NASD) may prescribe in order to fully protect and indemnify the Clearing
Broker against any loss, liability, damage, cost, or expense (including but not
otherwise limited to fees and expenses of legal counsel) that the Clearing
Broker may suffer or incur, directly or indirectly, as a result of any act of
the Introducing Broker's employees, agents, or partners. The insurance policy
should cover, but is not limited to, the following items: employee fidelity,
premises, transit, forgery, securities, counterfeiting, facsimile signatures,
central handling of securities (if required by the Introducing Broker's
self-regulatory organization), computer systems, and loss payee and notification
(with the Clearing Broker designated as "joint loss payee").
12. The Introducing Broker has disclosed to the Clearing Broker every
action, suit, investigation, inquiry, or proceeding pending, as described in
Section IV.B. of this Agreement.
B. THE CLEARING BROKER. The Clearing Broker represents, warrants,
and covenants as follows:
1. The Clearing Broker is a member in good standing of the NASD and
the NYSE.
2. The Clearing Broker is and during the term of this Agreement will
remain duly licensed and in good standing as a broker-dealer under all
applicable Laws and Regulations.
3. The Clearing Broker has all the requisite authority, in conformity
with all applicable Rules, Standards, Laws and Regulations, to enter into and
perform this Agreement and has taken all necessary action to authorize the
execution of this Agreement and the performance of the obligations hereunder.
4. The Clearing Broker is in compliance, and during the term of this
Agreement will remain in compliance with (i) the capital and financial reporting
requirements of every National Securities Exchange and/or other securities
exchange or association of which it is a member, (ii) the capital requirements
of the SEC, and (iii) the capital requirements of every state in which it is
licensed as a broker-dealer.
5. The Clearing Broker represents and warrants that the names and
addresses of the customers of the Introducing Broker that have or may come to
its attention in connection with the clearing and related functions it has
assumed under this Agreement are and will be kept confidential and shall not be
utilized by the Clearing Broker except in connection with the functions
performed by the Clearing Broker pursuant to this Agreement. Notwithstanding the
foregoing, should an Introduced Account request, on an unsolicited basis, that
the Clearing Broker become its broker, acceptance of such Introduced Account by
the Clearing Broker shall in no way violate this representation and warranty,
nor result in a breach of this Agreement.
6. The Clearing Broker shall keep confidential any confidential
information it may acquire as a result of this Agreement regarding the business
and affairs of the Introducing Broker or of an Introduced Account, except to the
extent required to be disclosed by applicable Laws and Regulations. This
requirement shall survive the life of this Agreement.
7. The Clearing Broker will maintain customer documents provided to
it, as well as its books and records, in accordance with applicable Laws and
Regulations.
8. The Clearing Broker maintains adequate disaster recovery plans and
facilities.
9. The Clearing Broker shall keep confidential the pricing terms
negotiated and agreed upon between the Clearing Broker and the Introducing
Broker from time to time, except to the extent required to be disclosed by
applicable Laws and Regulations. This requirement shall survive the life of this
Agreement.
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10. The execution and/or clearing of transactions for Introduced
Accounts by the Clearing Broker shall comply with all applicable Laws and
Regulations.
IX. TERMINATION
A. EVENTS OF DEFAULT. Notwithstanding any provision in this Agreement, the
following events or occurrences shall constitute an Event of Default under this
Agreement:
1. either party hereto shall fail to perform or observe any term,
covenant, or condition to be performed hereunder (including, but not limited to,
any representation, warranty, or covenant relating to net capital requirements)
and such failure shall continue to be unremedied for a period of ten (10) days
after receipt by the defaulting party of written notice from the non-defaulting
party specifying the failure and demanding that the same be remedied; or
2. any representation or warranty made by either party hereto shall
prove to be incorrect at any time in any material respect and such inaccuracy,
as determined solely by the non-defaulting party in its reasonable discretion,
either (i) is incapable of cure or (ii) continues uncured for a period of 24
hours, or such longer period as may be specified by the non-defaulting party,
after the non-defaulting party notifies the defaulting party of the inaccuracy
and demands a cure; or
3. a receiver, liquidator, or trustee of either party hereto or of
any material property held by either party, is appointed by court order and such
order remains in effect for more than 30 days; or either party is adjudicated
bankrupt or insolvent; or a substantial amount of property of either party is
sequestered by court order and such order remains in effect for more than 30
days; or a petition is filed against either party under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, and is
not dismissed within 30 days after such filings; or
4. either party hereto files a petition in voluntary bankruptcy or
seeks relief under any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents to the filing of
any petition against it under any such law; or
5. either party hereto makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts generally as they
become due, or consents to the appointment of a receiver, trustee or liquidator
of either party, or of any property held by either party; or
6. either party hereto is enjoined, disabled, suspended, prohibited,
or otherwise unable to engage in the securities business as a result of any
administrative or judicial proceeding or action by the SEC, any state securities
law administrator, any National Securities Exchange, or any self-regulatory
organization having jurisdiction over that party.
B. TERMINATION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. Upon the
occurrence of any such Event of Default, the nondefaulting party may, at its
option, by notice to the defaulting party declare that this Agreement shall be
thereby terminated and such termination shall be effective as of the date such
notice has been communicated to the defaulting party. If the Introducing Broker
defaults, the Clearing Broker shall have sole discretion to determine what
orders, if any, it shall accept for any Introduced Account, and shall in
addition to all rights it has under this Agreement, have all rights granted to
it under any Margin Agreement incorporated by reference herein. In such event,
the Clearing Broker shall be entitled, upon the consent of the Customer, to
accept instructions directly from the Customer.
C. TERMINATION FOR OTHER REASONS. This Agreement may be canceled by either
of the parties hereto upon one hundred and twenty (120) days' written notice,
with or without cause; provided, however, that this Agreement may be terminated
by the Clearing Broker (i) at any time if there is a change in control or
ownership of the Introducing Broker, or (ii) upon thirty (30) days' prior
written notice if there is a material change in the management of the
Introducing Broker such that, in the Clearing Broker's reasonable discretion, a
bona fide
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question is raised as to the desirability of continuing the Clearing Agreement,
in each case without the prior written approval of the Clearing Broker.
D. SURVIVAL OF LIABILITIES. Termination of this agreement in any manner
will not release the Introducing Broker or the Clearing Broker from any
liability or responsibility to the other with respect to transactions effected
prior to the effective date of such termination, whether or not claims relating
to such transactions will have been made before or after such termination.
E. EARLY TERMINATION. In the event that the Introducing Broker terminates
this Agreement for any reason, other than the Clearing Broker's (i) imposition
of new fee schedules, (ii) raising of the Collateral Deposit, or (iii) failure
to perform its obligations hereunder, prior to two years following the date
hereof, the Introducing Broker shall pay to the Clearing Broker a termination
fee equal to the expenses incurred by the Clearing Broker in establishing
systems procedures and capacity for servicing the Introducing Broker and in
discontinuing this Agreement. The Clearing Broker shall provide the Introducing
Broker with a detailed statement and breakdown of any such termination fee. If
there is insufficient collateral in the Collateral Account to cover all or part
of the termination fee (in addition to any other liabilities of the Introducing
Broker to the Clearing Broker), said fee shall be paid within ten (10) days
after the Introducing Broker's receipt of a statement of the Clearing Broker
setting forth the expenses incurred by the Clearing Broker; provided, however,
such fee shall not exceed $100,000 if termination occurs on or prior to one year
from the date of this Agreement, and $50,000 if termination occurs after the
first year but prior to two years from the date of this Agreement.
X. MISCELLANEOUS
A. AGREEMENT SUPERSEDES PREVIOUS AGREEMENTS/MODIFICATIONS. This Agreement
supersedes any previous agreement and may be modified only by a writing signed
by both parties to this Agreement. Such modification shall not be deemed to be a
cancellation of this Agreement.
B. SUBMISSION OF AGREEMENT FOR APPROVAL. This Agreement shall be submitted
to and/or approved by any National Securities Exchange, or other regulatory and
self-regulatory bodies vested with the authority to review and/or approve this
Agreement or any amendment or modifications hereof. In the event of any such
disapproval, the parties hereto agree to bargain in good faith to achieve the
requisite approval.
C. ARBITRATION/LITIGATION. Any dispute or controversy between the
Introducing Broker and the Clearing Broker relating to or arising out of their
relationship or this Agreement shall be settled by arbitration in New York
before and under the rules of the Arbitration Department of the NYSE, unless the
transaction which gave rise to such dispute or controversy was effected in
another exchange or market which provides arbitration facilities, in which case
it shall be settled by arbitration under such facilities. In the event that
litigation proceedings in court or in arbitration are commenced by a Customer of
the Introducing Broker against one of the parties to this Agreement, the other
party to this Agreement, solely for purposes of its indemnification obligations
hereunder, hereby waives any procedural or jurisdictional defenses to the
assertion by such party of such claims in such forum.
D. ASSIGNABILITY. This Agreement shall be binding upon all successors,
assigns or transferees of both parties hereto, irrespective of any change with
regard to the name of or the personnel of the Introducing Broker or the Clearing
Broker. Any assignment of this Agreement shall be subject to the requisite
review and/or approval of any regulatory or self-regulatory agency or body whose
review and/or approval must be obtained prior to the effectiveness and validity
of such assignment. No assignment of this Agreement by either party shall be
valid unless the other party consents to such an assignment in writing;
provided, however, any assignment by the Clearing Broker to any subsidiary that
it may create or acquire or that is controlled directly or indirectly by the
Clearing Broker, or any affiliate that is controlled directly or indirectly by
the Clearing Broker's parent, will be deemed valid and enforceable in the
absence of any consent from the Introducing Broker. When consent is required by
either party, such consent will not be unreasonably withheld. Neither this
Agreement nor any relationship or operation hereunder is intended to be, shall
not be deemed to be, and shall not be treated as a general or limited
partnership, association or joint venture or agency relationship between the
Introducing Broker and the Clearing Broker.
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E. GOVERNING LAW. The construction and effect of every provision of this
Agreement, the rights of the parties hereunder and any questions arising out of
the Agreement, shall be subject to the statutory and common law of the State of
New York without reference to the conflict of law provisions thereof.
F. HEADINGS. The headings preceding the text, articles, and sections
hereof have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction, or effect of this Agreement.
G. SERVICES COVERED BY THIS AGREEMENT. This Agreement shall cover only the
types of services set forth herein and is in no way intended nor shall it be
construed to bestow upon the Introducing Broker any special treatment regarding
any other arrangements, agreements or understandings that presently exist or
which may hereafter exist between the Introducing Broker and the Clearing Broker
or any affiliate of the Clearing Broker. The Introducing Broker shall be under
no obligation whatsoever to deal with the Clearing Broker or any of its
subsidiaries or any companies controlled directly or indirectly by or affiliated
with the Clearing Broker, in any capacity other than as set forth in this
Agreement. Similarly, the Clearing Broker shall be under no obligation
whatsoever to deal with the Introducing Broker or any of its affiliates in any
capacity other than as set forth in this Agreement.
H. SEVERABILITY. If any provision or condition of this Agreement shall be
held to be invalid or unenforceable by any court, or regulatory or
self-regulatory agency or body, such invalidity or unenforceability shall attach
only to such provision or condition. The validity of the remaining provisions
and conditions shall not be affected thereby and this Agreement shall be carried
out as if any such invalid or unenforceable provision or condition were not
contained herein.
I. WAIVER. The enumeration herein of specific remedies shall not be
exclusive of any other remedies. Any delay or failure by any party to this
Agreement to exercise any right, power, remedy or privilege herein contained, or
now or hereafter existing under any applicable statute or law, shall not be
construed to be a waiver of such right, power, remedy or privilege or to limit
the exercise of such right, power, remedy or privilege. No single, partial or
other exercise of any such right, power remedy or privilege shall preclude the
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
J. NOTICES. All notices, consents, directions, approvals, restrictions,
requests, or other communications required or permitted to be delivered
hereunder shall be given to the parties hereto, effective upon delivery
(facsimile transmissions shall be effective upon transmission), as follows:
If to the Clearing Broker: Morgan Stanley & Co. Incorporated
One Pierrepont Plaza
Brooklyn, NY 11201
Attention: Kevin J. Browne
If to the Introducing Broker: Euro Brokers Maxcor Inc.
Two World Trade Center
Suite 8400
New York, NY 10048-0697
Attention: Keith E. Reihl
Either party may change its address for notice purposes by giving written notice
pursuant to registered mail of the new address to the other party. Termination
shall not affect any of the rights and liabilities of the parties hereto
incurred before the date of receipt of such notice of termination.
K. SOFTWARE AND HARDWARE PROVIDED BY THE CLEARING BROKER TO THE
INTRODUCING BROKER. The Clearing Broker may provide certain software and data
("Software") that are or may be used by the Introducing Broker under license
from the Clearing Broker. In addition, the Introducing Broker may also use
certain hardware or communication facilities ("Hardware") provided by the
Clearing Broker. The Introducing Broker understands and agrees that the Software
is proprietary and confidential to the Clearing Broker, incorporates trade
secrets of the Clearing Broker and constitutes valuable property of the Clearing
Broker. The Introducing Broker agrees not to disclose or provide the Software to
any third party without the written permission of the Clearing Broker.
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L. LIMITATION OF LIABILITY. Neither party shall not be liable to the other
for any loss caused, directly or indirectly, by government restrictions,
exchange or market rulings, suspension of trading, war (whether declared or
undeclared), terrorist acts, insurrection, riots, flooding, strikes, failure of
utility services, accidents, adverse weather or other events of nature,
including but not limited to earthquakes, hurricanes and tornadoes, or other
conditions beyond the control of such party.
M. INVESTIGATION OF INTRODUCING BROKER'S CREDIT. The Clearing Broker shall
have the right to investigate, or arrange for an appropriate party to
investigate, the Introducing Broker's credit. Nothing in this paragraph shall be
construed to relieve the Introducing Broker of its obligation to oversee its
financial integrity.
N. NONCOMPETITION.
1. The Introducing Broker. Without the prior written consent of the
Clearing Broker, the Introducing Broker will not during the period of
this Agreement and for one year following its termination, hire or
attempt to hire any person who is employed by the Correspondent
Services business unit of the Clearing Broker or whose employment with
the Correspondent Services business unit of the Clearing Broker
terminated within the six month period prior to the termination of this
Agreement.
2. The Clearing Broker. Without the prior written consent of the
Introducing Broker, the Correspondent Services business unit of the
Clearing Broker will not during the period of this Agreement and for
one year following its termination, hire or attempt to hire any person
who is employed by the Introducing Broker or whose employment with the
Introducing Broker terminated within the six month period prior to the
termination of this Agreement.
Made and executed at New York, New York on the date first hereinabove set forth.
EURO BROKERS MAXCOR INC.
By:/s/ Keith E. Reihl
-------------------
Keith E. Reihl
Chief Operating Officer
MORGAN STANLEY & CO. INCORPORATED
By:/s/ Kevin J. Browne
--------------------
Kevin J. Browne
Managing Director
18
<PAGE>
SCHEDULE A
----------
Schedule A has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
<PAGE>
MORGAN STANLEY Exhibit A
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718) 754-4000
Date
By Facsimile/Federal Express
- ----------------------------
USA Securities Incorporated
1 Wall Street
New York, NY 10008
Attn: Senior Credit Officer
Re: Euro Brokers Maxcor Inc.
Ladies and Gentlemen:
This letter sets forth the procedures concerning "Qualifying Transactions" (as
defined) initiated by Euro Brokers Maxcor Inc. ("Euro Brokers") in which USA
Securities Incorporated ("USA Securities") and Morgan Stanley & Co.
Incorporated ("Morgan Stanley") act as principals in the respective trades. For
purposes of this letter, "Qualifying Transactions" mean transactions involving
the purchase or sale of Euroclear, Cedel and/or DTC eligible Eurobonds, Brady
Bonds and warrants, other non-US securities settling within their local markets,
and U.S. domestic Treasury, Municipal and Corporate bonds.
It is expected that authorized employees of Euro Brokers will, by telephone or
by other acceptable means of communication, directly contact your trading desk
to initiate Qualifying Transactions between USA Securities and Morgan Stanley.
Please note, however, that such authorized employees of Euro Brokers will not
be acting as Morgan Stanley's agent. USA Securities agrees that (i) until the
observance of the following procedures (x) no proposed Qualifying Transaction
will be accepted or consummated by Morgan Stanley, (y) no proposed transaction
initiated by Euro Brokers will be binding on Morgan Stanley, (z) Morgan Stanley
will have no responsibility whatsoever with respect to any non-acceptance or
non-consumation of such proposed Qualifying Transaction, including without
limitation any obligation to reimburse USA Securities for any losses sustained
or costs incurred in connection therewith, and (ii) Morgan Stanley's obligations
in connection with any Qualifying Transaction will be expressly conditioned upon
the observance of the following procedures:
a) for Euroclear, Cedel or DTC eligible securities, the
matching/affirmation of such Qualifying Transactions at Euroclear, DTC,
or other recognized comparison system, and
b) for other non-US securities settling locally; promptly upon the
initiation of a proposed Qualifying Transaction by an authorized
employee of Euro Brokers, USA Securities' trading desk must telephone
an authorized employee of Morgan Stanley at 718-754-5511 and provide
details regarding the proposed Qualifying Transaction. Morgan Stanley
will either (i) on the basis of its records, confirm the Qualifying
Transaction to USA Securities, or (ii) contact Euro Brokers to confirm
the terms of the proposed Qualifying Transaction, in which case,
immediately upon confirming the transaction with Euro Brokers, Morgan
Stanley will recontact USA Securities to confirm that the transaction
is a Qualifying Transaction.
<PAGE>
USA Securities Incorporated MORGAN STANLEY
Page 2
Only when the foregoing procedures have been followed will Morgan Stanley
thereafter act as principal in the Qualifying Transaction. USA Securities
confirms and agrees that once the Qualifying Transaction has been appropriately
confirmed, USA Securities will act as principal on the other side of the
Qualifying Transaction. Whether or not a Qualifying Transaction is confirmed,
Euro Brokers will never itself be a principal in a trade.
All USA Securities customary documentation for Qualifying Transactions,
regardless of how initiated, should be sent to Morgan Stanley, and Morgan
Stanley will send USA Securities its usual documentation in connection
therewith.
The terms of this letter, and our respective obligations hereunder, will
commence only upon receipt and acceptance by Morgan Stanley of a copy of this
letter signed by USA Securities. Morgan Stanley will not accept and confirm any
trade initiated by Euro Brokers prior to such time. Once accepted by Morgan
Stanley, this letter will be effective as of the date of its acceptance and will
remain in force until [Date + 12 months] and continue automatically thereafter
unless and until terminated in writing by either party prior to such date.
Notwithstanding the foregoing, Morgan Stanley reserves the right at any time,
including prior to [Date + 12 months], to terminate this agreement, upon notice
to USA Securities with no liability as a result. All Qualifying Transactions
initiated prior to either party's receipt of any notice of termination from the
other party shall be subject to the terms and conditions described herein.
This letter, including the procedures outlined herein, represents the entire
agreement among the parties, and supersedes any prior agreements or
understandings among the parties with respect to the subject matter hereof.
If you agree with the procedures described above, please have an authorized
individual sign and date the enclosed copies of this letter and return them to
Morgan Stanley & Co. Incorporated, 1 Pierrepont Plaza, 10th Floor, Brooklyn, NY
11201, Attention: Mr. Loc Nguyen. Once accepted by Morgan Stanley by
countersignature below, a fully executed original of this letter will be
forwarded to you for your records.
Very truly yours,
Morgan Stanley & Co. Incorporated
ACCEPTED AND AGREED ACCEPTED AND AGREED
this ___ day of___________, 19__ this ___ day of _________, 19__
Morgan Stanley & Co. Incorporated USA Securities Incorporated
By (print name):_________________ By (print name):_________________
Title (print):___________________ Title (print):____________________
Signature:_______________________ Signature:________________________
<PAGE>
MORGAN STANLEY Exhibit B
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718) 754-4000
By Federal Express
- ------------------
American Investment Management, Inc.
60 Wall St
New York, NY 10048
Attn: James Duff
Re: Your Brokerage Account With USA Brokers, Inc.
---------------------------------------------
Ladies and Gentlemen:
This letter is provided in connection with the securities account you
have opened with USA Brokers, Inc. ("Your Introducing Broker"), the firm through
which you conduct your securities transactions. Your Introducing Broker has a
contractual arrangement (a "Clearing Agreement") with Morgan Stanley & Co.
Incorporated ("Morgan Stanley") for securities execution and clearance services.
The attached Rule 382 Letter, a copy of which will also be sent to you by mail
upon your account being opened, advises you about the allocation of
responsibilities between Morgan Stanley and Your Introducing Broker under the
terms of the Clearing Agreement. The Rule 382 Letter advises you that Morgan
Stanley acts as agent to Your Introducing Broker, performing only limited
functions.
This letter relates to an arrangement between Morgan Stanley and Your
Introducing Broker with respect to certain "Qualifying Transactions" (as
defined) for your account in which you and Your Introducing Broker act as
principal. For purposes of this letter, "Qualifying Transactions" mean
transactions involving only the purchase or sale of (i) "exempted securities"
(as defined in the Securities Exchange Act of 1934, as amended), or (ii)
Corporate Bonds, Medium Term Notes, Deposit Notes, and Mortgage Backed
Securities, or (iii) Euro Bonds, Brady Bonds and Warrants and non-U.S.
Securities settling within their local markets.
Upon the initiation of a Qualifying Transaction between your authorized
trader and an authorized employee of Your Introducing Broker, Your Introducing
Broker will telephone a Morgan Stanley contact detailing the Qualifying
Transaction. In accordance with the procedures agreed upon between Morgan
Stanley and Your Introducing Broker, Morgan Stanley will recognize the
Qualifying Transactions only if Morgan Stanley accepts and confirms the order
("Confirmed Qualifying Transactions"). With respect to such Confirmed Qualifying
Transactions only, Morgan Stanley has agreed with Your Introducing Broker that,
in the event Your Introducing Broker cannot perform its obligations to you
thereunder, Morgan Stanley guarantees to you that it will either (i) pay to you,
upon Your Introducing Broker's failure to do so and upon Morgan Stanley's
receipt from you of securities sold, such dollar amount as is owed to you from
any sale transaction, or (ii) for any purchase transaction, deliver to you,
upon Your Introducing Broker's failure to do so and upon Morgan Stanley's
receipt from you of funds to pay for securities purchased, either such
securities or, if Morgan Stanley is unable to deliver such securities, cash
equal to the fair market value of such securities as of trade date. This letter
does not
<PAGE>
American Investment Management, Inc, MORGAN STANLEY
Page 2
operate to change the character of Morgan Stanley's status as agent of Your
Introducing Broker as described in the attached Rule 382 Letter. In addition,
this letter does not operate as an unqualified guarantee of Your Introducing
Broker's obligations to you.
The terms of this letter will commence only upon receipt and
acceptance by Morgan Stanley of a copy of this letter signed by you, and does
not relate to any Qualifying Transaction initiated between you and Your
Introducing Broker prior to such time. Moreover, Morgan Stanley, in its sole
discretion, may revoke this letter and/or terminate its arrangement with Your
Introducing Broker at any time. You will receive prior written notice of any
such revocation or termination.
Two copies of this letter are enclosed. Please sign and date the
acknowledgment set forth below on both copies and return them to Morgan Stanley
& Co. Incorporated, 1 Pierrepont Plaza, l0th Floor, Brooklyn, NY 11201, Attn:
Loc Nguyen. By executing this letter you acknowledge that you have read and
understand the attached Rule 382 Letter and the allocation of responsibilities
between Morgan Stanley and Your Introducing Broker.
Once this letter has been accepted by Morgan Stanley by
countersignature below, a fully executed original of this letter will be
forwarded to you for your records. Any questions you may have regarding the
arrangement described herein should be referred to Your Introducing Broker.
Very truly yours,
Morgan Stanley & Co. Incorporated
ACKNOWLEDGED AND AGREED TO ACCEPTED AND AGREED
this __ day of______________, 1997 this __ day of _____________, 1997
Name (print):____________________ Morgan Stanley & Co. Incorporated
By (print):______________________ By (print):_____________________
Title (print):___________________ Title (print):__________________
Signature:_______________________ Signature:______________________
Enclosure
<PAGE>
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
CORRESPONDENT SERVICES
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
RULE 382 LETTER
Dear Customer:
You have opened a securities account with a brokerage firm that has a
contractual arrangement with Morgan Stanley & Co. Incorporated ("Morgan
Stanley") for securities execution and clearance services. This letter is to
inform you about the allocation of responsibilities contained in the agreement
between Morgan Stanley and the brokerage firm through which you conduct your
purchases and sales of securities. Your brokerage firm is not an affiliate or
subsidiary of Morgan Stanley, its parent corporation, or any of Morgan Stanley's
affiliated companies; nor are your brokerage firm's registered representatives
or other employees employed by Morgan Stanley, its parent corporation, or
affiliated companies. Morgan Stanley's corporate headquarters is located at 1585
Broadway, New York, New York 10036.
You have appointed your brokerage firm for whom Morgan Stanley executes
and clears securities transactions to act as your agent for the purpose of
carrying out your directions with respect to your purchase or sale of
securities. Morgan Stanley has been informed that your brokerage firm is
authorized to open or close brokerage accounts, place and withdraw orders and
take such other steps as are responsible to carry out your directions. Until
receipt of your written notice to the contrary, Morgan Stanley may accept
instructions for your account from your brokerage firm without inquiry or
investigation by Morgan Stanley. Morgan Stanley is not responsible or liable for
any acts or omissions of your brokerage firm or its employees, nor is it
responsible for any indirect or consequential damages under any circumstances
caused by your brokerage firm. As between you and Morgan Stanley, you shall be
responsible for any action taken by Morgan Stanley in your account based upon
instructions Morgan Stanley received from either you or your brokerage firm.
You understand that Morgan Stanley does not act as investment adviser or
solicit orders, that Morgan Stanley does not advise you or your brokerage firm
on any matters pertaining to the suitability of any order, offer any opinion,
judgment or other type of information pertaining to the nature, value, potential
or suitability of any particular investment, or review the appropriateness of
investment advice or transactions entered by your brokerage firm on your behalf.
Morgan Stanley neither controls, audits or otherwise supervises the activities
of your brokerage firm or its registered representatives, nor does it verify
information provided by your brokerage firm regarding your account, including
any transactions therein.
Your brokerage firm shall at all times be exclusively responsible for:
- - Opening, approving, servicing, and monitoring your account, including
obtaining and verifying your new account information.
- - Obtaining personal information from you, including your investment
objectives.
- - Reviewing your account and all orders for that account, which includes
supervising all investment advice given to you and, if your account is a
discretionary account, supervising the exercise of such discretion.
- - Accepting and arranging for execution of your transactions, and
establishing procedures for reviewing and transmitting orders prior to
execution.
- - Determining commissions, mark-ups or other fees charged for your
transactions, a portion of which may be shared by your brokerage firm and
Morgan Stanley.
- - Transmitting instructions concerning your account to Morgan Stanley either
generally or in connection with tender or exchange offers or any other
form of corporate reorganization, unless Morgan Stanley accepts
instructions directly from you.
<PAGE>
EXHIBIT 21
MAXCOR FINANCIAL GROUP INC.
SCHEDULE OF SUBSIDIARIES
JURISDICTION OF
COMPANY INCORPORATION
------- -------------
EURO BROKERS INVESTMENT CORPORATION DELAWARE
MAXCOR FINANCIAL ASSET MANAGEMENT INC. DELAWARE
EURO BROKERS MEXICO, S.A. de C.V. MEXICO
E-B FUNDING CORPORATION DELAWARE
EURO BROKERS TOKYO INC. DELAWARE
YAGI EURO CORPORATION JAPAN
EURO BROKERS HOLDINGS INC. NEW YORK
MAXCOR FINANCIAL SERVICES INC. DELAWARE
EURO BROKERS INC. NEW YORK
EURO BROKERS MAXCOR INC. NEW YORK
EURO BROKERS HOLDINGS LTD. ENGLAND
EURO BROKERS INTERNATIONAL LTD. ENGLAND
EURO BROKERS FINANCIAL SERVICES LTD. ENGLAND
EURO BROKERS SERVICES LTD. ENGLAND
EURO BROKERS AUSTRALIA LTD. ENGLAND
EURO BROKERS AUSTRALIA PTY LTD. AUSTRALIA
EURO BROKERS CANADA LTD. CANADA
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to the Registration Statement on Form
S-4 of Maxcor Financial Group Inc. (formerly Financial Services Acquisition
Corporation) of our report dated March 6, 1997 appearing on page F-3 of
Financial Services Acquisition Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial Information" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Information."
/s/ PRICE WATERHOUSE LLP
New York, New York
October 6, 1997
<PAGE>
EXHIBIT 99.1
Maxcor Financial Group Inc.
October __, 1997
To Our Warrant Holders:
The Company is proposing in the documents enclosed herewith to allow
holders of its Redeemable Common Stock Purchase Warrants (Nasdaq: MAXFW) and its
Series B Redeemable Common Stock Purchase Warrants (Nasdaq: MAXFZ) to exchange
such Warrants for shares of the Company's Common Stock (Nasdaq: MAXF) on the
basis of 0.1667 of a share of Common Stock for each and every outstanding
Warrant (the "Exchange Offer"). Accordingly, the Company will issue one whole
share of Common Stock in exchange for every six Warrants (of either or both
series) tendered and accepted by the Company for exchange pursuant to the
Exchange Offer. Cash will be paid in lieu of fractional shares being issued.
The Company is undertaking the Exchange Offer in order to simplify the
Company's capital structure, reduce the potential future dilutive impact on the
Company's earnings per share that could be caused by the Warrants and eliminate
any overhang on the Common Stock price from the existence of the Warrants. The
Company believes these purposes are best served only if all or substantially all
of the Warrants are retired and, accordingly, has established a minimum tender
condition of 95%, meaning that the Company reserves the right not to proceed
with the Exchange Offer if less than 95% of all outstanding Warrants are validly
tendered. If the Exchange Offer is consummated, the Company intends to delist
any remaining Warrants from trading on the Nasdaq National Market and to
deregister such Warrants under the Securities Exchange Act of 1934.
Neither the Company nor its Board of Directors is making any recommendation
to Warrant holders as to whether or not to tender their Warrants in the Exchange
Offer. However, you should be aware that all directors and executive officers of
the Company, and all stockholders beneficially owning 5% or more of the
outstanding Common Stock, have indicated to the Company their current intention
to tender in the Exchange Offer all of the Warrants owned by them. Such persons
and entities collectively own approximately 49% of all outstanding Warrants.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
_________, 1997, unless extended. Accordingly, we urge you to read promptly the
enclosed Prospectus, which sets forth the full terms and conditions of the
Exchange Offer, as well as the enclosed Form 10-K and Form 10-Q, which set forth
financial and other information concerning the Company. The enclosed Letter of
Transmittal (as well as pages __ to __ of the Prospectus) contains detailed
instructions as to the steps needed to be taken by you in order to participate
in the Exchange Offer. In addition, if you have any questions about the Exchange
Offer or need additional copies of the enclosed materials, you should feel free
to contact the Company's Information Agent, D.F. King & Co., Inc. at (800)
207-3158.
Very truly yours,
Gilbert D. Scharf
Chairman, President and
Chief Executive Officer
<PAGE>
MAXCOR FINANCIAL GROUP INC.
Offer to Exchange
0.1667 of a Share of Common Stock
of Maxcor Financial Group Inc.
for Each and Every of its Outstanding
Redeemable Common Stock Purchase Warrants
and
Series B Redeemable Common Stock Purchase Warrants
October __, 1997
To Brokers, Dealers and Other Nominees:
Maxcor Financial Group Inc. ("Company") is enclosing herewith copies of
a Prospectus, dated October __, 1997 ("Prospectus"), a related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Exchange Offer") and certain other materials listed below. These materials are
intended for you to distribute to your clients in connection with the Company's
offer to exchange 0.1667 of a share of its common stock, par value $.001 per
share ("Common Stock"), for each and every of its outstanding Redeemable Common
Stock Purchase Warrants ("Series A Warrants") and Series B Redeemable Common
Stock Purchase Warrants ("Series B Warrants" and together with the Series A
Warrants, the "Warrants"), upon the terms and subject to the conditions of the
Exchange Offer. As described in more detail in the Prospectus, the Company will
issue one share of Common Stock in exchange for every six Warrants (either
Series A Warrants, Series B Warrants or both) tendered and accepted by the
Company for exchange pursuant to the Exchange Offer. No fractional shares of
Common Stock will be issued as a result of the Exchange Offer. Holders of
Warrants who tender a number of Warrants not evenly divisible by six and who
would otherwise therefore be entitled to a fractional share of Common Stock will
receive cash in lieu of such fractional amount. Additionally, under the
Company's Stockholder Rights Plan, one Right to purchase one one-hundredth of a
share of the Company's Series A Junior Participating Preferred Stock will be
issued with and solely represented by each share of Common Stock that is issued
to a Warrant holder in exchange for his or her Warrants.
The Company will pay to Soliciting Dealers (as hereinafter defined) a
solicitation fee related to their solicitation efforts of $.05 per Warrant for
any Warrants that they solicit and that are tendered and accepted for exchange
and exchanged pursuant to the Exchange Offer; provided that no solicitation fee
shall be payable with respect to Warrants beneficially owned (i) by any of the
directors, executive officers or 5% stockholders of the Company who have
indicated to the Company (as described in the Prospectus) their current intent
to tender their Warrants, (ii) by any employee of the Company or its affiliates
or (iii) by the Soliciting Dealer. The term "Soliciting Dealer" shall mean (x)
any broker or dealer in securities that is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. ("NASD"),
(y) any foreign broker or dealer not eligible for membership in the NASD which
agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders
outside the United States to the same extent a though it were an NASD member or
(z) any bank or trust company.
No such solicitation fee shall be payable to a Soliciting Dealer with
respect to the tender of Warrants by a holder unless the Letter of Transmittal
accompanying such tender designates such Soliciting Dealer as having solicited
and obtained the tender of the Warrants covered thereby. No such fee shall be
payable to a Soliciting Dealer with respect to the tender of Warrants by the
holder of record, for the benefit of the beneficial owner, unless the beneficial
owner has designated such Soliciting Dealer. If tendered Warrants are being
delivered by book-entry transfer or pursuant to the guaranteed delivery
procedure, the Soliciting Dealer must return a Notice of Solicited Tenders to
the Exchange Agent within five business days after the Expiration Date to
receive a solicitation fee. All questions as to the validity, form or
eligibility (including time of receipt) of Notices of Solicited Tenders will be
determined by the Company, whose determination
<PAGE>
will be final and binding. None of the Company, the Exchange Agent, the
Information Agent, or any other person will be under any duty to give
notification of any defects or irregularities in any Notices of Solicited
Tenders or incur any liability for failure to give any such notification. The
Company reserves the absolute right not to pay any solicitation fees that would,
in the opinion of counsel for the Company, be unlawful or violate the
regulations of any national securities exchange or the NASD. No broker, dealer,
bank, trust company or fiduciary shall be deemed to be the agent of the Company,
the Exchange Agent or the Information Agent for purposes of the Exchange Offer.
For your information and for forwarding to your clients for whom you
hold Warrants registered in your name or in the name of your nominee, or who
hold Warrants registered in their own names, we are enclosing the following
documents:
1. The Prospectus, dated October __, 1997.
2. The Letter of Transmittal to be used by registered holders of
Warrants in accepting the Exchange Offer;
3. A form of letter which you may send, as a cover letter to accompany
the Prospectus and related materials, to your clients for whose accounts you
hold Warrants registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with respect to the Exchange
Offer;
4. A Letter to Warrant holders from Gilbert D. Scharf, Chairman,
President and Chief Executive Officer of the Company;
5. The Annual Report on Form 10-K of the Company for the year ended
December 31, 1996;
6. The Quarterly Report on Form 10-Q of the Company for the three
months ended June 30, 1997;
7. A Form of Notice of Guaranteed Delivery (to be used to accept the
Exchange Offer if certificates evidencing the Warrants are not immediately
available or under certain other circumstances described in the Prospectus);
8. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9;
9. Certificate of Foreign Status on Form W-8 (for non-United States
clients); and
10. A return envelope addressed to Continental Stock Transfer & Trust
Company, the Exchange Agent.
Your prompt action is requested. We urge you to contact your clients as
soon as possible. The Exchange Offer will expire at 5:00 p.m., New York City
time, on _________ __, 1997, unless extended ("Expiration Date"). Tendered
Warrants may be withdrawn at any time prior to the Expiration Date and unless
theretofore accepted for exchange by the Company, may also be withdrawn after
5:00 p.m., New York City time, on _______ __, 1997.
The Exchange Offer is conditioned upon at least 95% of the aggregate
outstanding Warrants being validly tendered and not withdrawn prior to the
Expiration Date and certain other conditions. Any or all of the conditions, if
not satisfied in the Company's reasonable discretion, may be waived by the
2
<PAGE>
Company, in whole or in part at any time prior to the Expiration Date, subject
to applicable law. See "THE EXCHANGE OFFER--Conditions of the Exchange Offer" in
the Prospectus.
Other than fees to be paid to any Soliciting Dealers, as described
above, the Company will not make any payments to brokers, dealers or others
soliciting tenders of Warrants pursuant to the Exchange Offer. The Company,
however, will pay to Continental Stock Transfer & Trust Company (the Exchange
Agent) and D.F. King & Co., Inc. (the Information Agent) reasonable and
customary fees for their services in connection with the Exchange Offer and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith. In addition, you will be reimbursed for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
your clients who are beneficial owners of the Warrants, and in handling or
forwarding any of their tenders of Warrants.
In general, the rules of the Securities and Exchange Commission
prohibit any broker-dealer that is participating in the distribution of
securities for or on behalf of the Company from making a market in the Common
Stock or Warrants during a "restricted period" commencing up to five days prior
to the date that this Prospectus is distributed to Warrant holders and extending
until completion of the Exchange Offer. The Commission has, however, adopted
exceptions to these rules that permit market making under certain conditions.
These rules permit such broker-dealers to continue to make a market subject to
the conditions, among others, that its bid not exceed the highest bid by a
market maker not connected with the Exchange Offer and that its net purchases on
any one trading day not exceed prescribed limits. Pursuant to these exemptions,
certain broker-dealers receiving solicitation fees and/or their respective
affiliates may engage in passive market making in the Common Stock or Warrants
during the restricted period.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Warrants to it or its order pursuant to the Exchange Offer. If,
however, shares of Common Stock issued pursuant to the Exchange Offer or
substitute certificates evidencing Warrants not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Warrants tendered, or if tendered certificates
representing Warrants are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer and sale of Warrants to the Company or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
To participate in the Exchange Offer, certificates for Warrants, or a
timely confirmation of a book-entry transfer of such Warrants into the Exchange
Agent's account at the Depository Trust Company, in each case together with a
duly executed and properly completed Letter of Transmittal or facsimile thereof,
with any required signature guarantees, or an Agent's Message in connection with
a book-entry delivery of Warrants, and any other required documents, must be
received by the Exchange Agent by 5:00 p.m., New York City time, on the
Expiration Date as indicated in the Letter of Transmittal and the Prospectus.
If holders of the Warrants wish to tender, but it is impracticable for
them to forward their Warrants prior to 5:00 p.m., New York City time, on the
Expiration Date or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "THE EXCHANGE OFFER--Guaranteed Delivery
Procedure," which procedures include delivering a properly completed and
executed Notice of Guaranteed Delivery with required signature guarantees, or an
Agent's Message with respect to guaranteed delivery, prior to such time.
3
<PAGE>
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be addressed to
the Information Agent, D.F. King & Co., Inc. at (800) 207-3158.
Very truly yours,
MAXCOR FINANCIAL GROUP INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY, THE INFORMATION AGENT OR THE EXCHANGE
AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENTS ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER,
EXCEPT FOR THE DOCUMENTS ENCLOSED AND THE STATEMENTS EXPRESSLY MADE THEREIN.
4
<PAGE>
NOTICE OF SOLICITED TENDERS
The Company will pay to any Soliciting Dealer (as defined hereinafter)
a solicitation fee related to its solicitation efforts of $.05 per Warrant for
any Warrants that it solicits and that are tendered and accepted for exchange
and exchanged in connection with the Exchange Offer; provided, that no
solicitation fee shall be payable with respect to Warrants beneficially owned by
(i) any of the directors, executive officers or 5% stockholders who have
indicated to the Company their current intent to tender their Warrants, (ii) any
employee of the Company or its affiliates or (iii) the Soliciting Dealers. The
term "Soliciting Dealer" shall mean (x) any broker or dealer in securities that
is a member of any national securities exchange or of the National Association
of Securities Dealers, Inc. ("NASD"), (y) any foreign broker or dealer not
eligible for membership in the NASD which agrees to conform to the NASD's Rules
of Fair Practice in soliciting tenders outside the United States to the same
extent as though it were an NASD member or (z) any bank or trust company. If
tendered Warrants are being delivered by book-entry transfer or pursuant to the
guaranteed delivery procedure, the Soliciting Dealer must return this Notice of
Solicited Tenders to the Exchange Agent within five business days after the
Expiration Date in order to receive a solicitation fee.
No such solicitation fee shall be payable to a Soliciting Dealer with
respect to the tender of Warrants by a holder unless the Letter of Transmittal
accompanying such tender designates such Soliciting Dealer as having solicited
and obtained the tender of the Warrants covered thereby. No such fee shall be
payable to a Soliciting Dealer with respect to the tender of Warrants by the
holder of record, for the benefit of the beneficial owner, unless the beneficial
owner has designated such Soliciting Dealer.
List below the number of Warrants tendered by each beneficial owner
whose tender you have solicited. If the space below is inadequate, list the
Warrants on a separate signed schedule and affix the list to this Notice of
Solicited Tenders.
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(Please fill in) WARRANTS TENDERED
- -------------------------------------------------- ---------------------------------------------------------------
Indicate
Whether
Series A Total
Warrant Warrant or Total Number of
Certificate Series B Number of Warrants
Number(s) Warrant Warrants Tendered*
- -------------------------------------------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(Please fill in) WARRANTS TENDERED
- -------------------------------------------------- ---------------------------------------------------------------
Indicate
Whether
Series A Total
Warrant Warrant or Total Number of
Certificate Series B Number of Warrants
Number(s) Warrant Warrants Tendered*
- -------------------------------------------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
- -------------------------------------------------- ----------- ---------- --------- ---------
Total Warrants
- -------------------------------------------------- ----------- ---------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
* Unless otherwise indicated, it will be assumed that the total number of
Warrants represented by the certificates bearing the serial numbers
listed are being tendered.
- --------------------------------------------------------------------------------
6
<PAGE>
All questions as to the validity, form or eligibility (including time
of receipt) of Notices of Solicited Tenders will be determined by the Company,
whose determination will be final and binding. None of the Company, the Exchange
Agent, the Information Agent or any other person will be under any duty to give
information of any defects or irregularities in any Notices of Solicited Tenders
or incur any liability or failure to give any such notification. The Company
reserves the absolute right not to pay any solicitation fees that would, in the
opinion of counsel for the Company, be unlawful or violate the regulations of
any national securities exchange or the NASD.
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE EXCHANGE
AGENT AND MUST BE RECEIVED BY THE EXCHANGE AGENT WITHIN FIVE BUSINESS DAYS AFTER
THE EXPIRATION DATE.
The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Exchange Offer; (iii) in soliciting
tenders of Warrants, it has used no soliciting materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in making solicitations.
- ---------------------------------------- ----------------------------------
Firm Name Address (including Zip Code)
- ---------------------------------------- ----------------------------------
By: Area Code and Telephone Number
Title:
DO NOT SEND WARRANTS WITH THIS FORM.
WARRANT CERTIFICATES MUST BE SENT WITH THE
LETTER OF TRANSMITTAL
================================================================================
SOLICITATION FEE PAYMENT INSTRUCTIONS
Issue check to:
Name
----------------------------------------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Taxpayer identification or Social Security No.)
================================================================================
7
<PAGE>
Offer to Exchange
0.1667 of a Share of Common Stock of
MAXCOR FINANCIAL GROUP INC.
for Each and Every of its Outstanding
Redeemable Common Stock Purchase Warrants and
Series B Redeemable Common Stock Purchase Warrants
October __, 1997
To Our Clients:
Enclosed for your consideration is a Prospectus, dated October __, 1997
("Prospectus"), of Maxcor Financial Group Inc., a Delaware corporation
("Company"), and a related Letter of Transmittal (which, as amended from time to
time, together constitute the "Exchange Offer") relating to the Exchange Offer
by the Company to exchange 0.1667 of a share of its common stock, par value
$.001 per share ("Common Stock"), for each and every of its outstanding
Redeemable Common Stock Purchase Warrants ("Series A Warrants") and Series B
Redeemable Common Stock Purchase Warrants ("Series B Warrants" and, together
with the Series A Warrants, the "Warrants"), upon the terms and subject to the
conditions of the Exchange Offer. As described in more detail in the Prospectus,
the Company will issue one share of Common Stock in exchange for every six
Warrants (either Series A Warrants, Series B Warrants or both) tendered and
accepted by the Company for exchange pursuant to the Exchange Offer. No
fractional shares of Common Stock will be issued as a result of the Exchange
Offer. Holders of Warrants who tender a number of Warrants not evenly divisible
by six and who would otherwise therefore be entitled to a fractional share of
Common Stock will receive cash in lieu of such fractional amount. Additionally,
under the Company's Stockholder Rights Plan, one Right to purchase one
one-hundredth of a share of the Company's Series A Junior Participating
Preferred Stock will be issued with and solely represented by each share of
Common Stock that is issued to a Warrant holder in exchange for his or her
Warrants.
Also enclosed for your information are the Company's most recent
Quarterly Report on Form 10-Q (for the three months ended June 30, 1997) and
Annual Report on Form 10-K (for the year ended December 31, 1996).
Please note that the Exchange Offer will expire at 5:00 p.m., New York
City time, on _________ __, 1997, unless extended ("Expiration Date"). Tenders
of Warrants may be withdrawn at any time prior to the Expiration Date and unless
theretofore accepted for exchange by the Company, may be withdrawn after 5:00
p.m., New York City time on ________ __, 1997.
The Company reserves the right to terminate or not proceed with the
Exchange Offer, or to extend or otherwise amend the Exchange Offer, if, among
other things, there is not validly tendered prior to the Expiration Date and not
withdrawn a minimum of 95% of the aggregate outstanding Warrants. The Exchange
Offer is also conditioned upon certain other customary conditions. Any or all of
the conditions, if not satisfied in the Company's reasonable discretion, may be
waived by the Company, in whole or in part at any time prior to the Expiration
Date, subject to applicable law.
This material is being forwarded to you as the beneficial owner of
Warrants carried by us in your account but not registered in your name. A tender
of such Warrants may be made only by us as the holder of record and pursuant to
your instructions. The accompanying Letter of Transmittal is furnished to you
for your information only and may not be used by you to tender Warrants.
Accordingly, we request instructions as to whether you wish us to
tender any or all such Warrants held by us for your account, pursuant to the
terms and conditions of the Exchange Offer as described in the enclosed
Prospectus and Letter of Transmittal.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender your Warrants on your behalf in accordance with the
provisions of the Exchange Offer.
If you wish to have us tender any or all of your Warrants, please so
instruct us by completing, executing and returning to us the attached
instruction form.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
OF MAXCOR FINANCIAL GROUP INC.
The undersigned acknowledge(s) receipt of your letter, the Prospectus
describing the Exchange Offer by the Company to acquire all of its outstanding
Warrants, the related Letter of Transmittal and the Company's most recent Form
10-Q and Form 10-K.
This will instruct you to tender the number of Warrants indicated below
(or, if no number is indicated below, all Warrants) held by you for the account
of the undersigned, pursuant to the terms and conditions of the Exchange Offer
as set forth in the Prospectus and the related Letter of Transmittal.
Number of Warrants to be Tendered:
______________ Series A Warrants and
______________ Series B Warrants.
Date:
----------------------------------- -------------------------------------
-------------------------------------
Signature(s)
- ----------------------------------------- -------------------------------------
Please type or print address(es) here
- ----------------------------------------- -------------------------------------
- ----------------------------------------- -------------------------------------
Area Code and Telephone Number
- -----------------------------------------
Taxpayer Identification or Social Security Number(s)
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED,
YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL
YOUR WARRANTS PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL.
2
<PAGE>
LETTER OF TRANSMITTAL
to Tender
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
and
SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANTS
of
MAXCOR FINANCIAL GROUP INC.
Pursuant to the Prospectus, dated October __, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ___________,
1997, UNLESS EXTENDED. THE EXCHANGE OFFER IS CONDITIONED UPON AT LEAST 95%
OF THE AGGREGATE OUTSTANDING WARRANTS BEING VALIDLY TENDERED AND NOT WITHDRAWN
AND CERTAIN OTHER CONDITIONS. WARRANTS TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE AND, UNLESS PREVIOUSLY ACCEPTED FOR
EXCHANGE, AT ANY TIME AFTER 5:00 P.M. NEW YORK CITY TIME ON _____________, 1997.
EXCHANGE AGENT:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Continental Stock Transfer Continental Stock Transfer Continental Stock Transfer &
& Trust Company & Trust Company Trust Company
2 Broadway 2 Broadway 2 Broadway, 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
(registered or certified mail
recommended)
</TABLE>
By Facsimile:
Continental Stock Transfer
& Trust Company
Attn: Reorganization Department
Fax No. (212) 509-5150
(For Eligible Institutions Only)
Confirm by telephone:
Telephone no. (212) 509-4000, ext. 535
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND
COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW.
The undersigned acknowledges receipt of the Prospectus, dated October
__, 1997 ("Prospectus"), of Maxcor Financial Group Inc. ("Company") which,
together with this Letter of Transmittal ("Letter of Transmittal"), as either
may be amended from time to time, constitute the Company's offer ("Exchange
Offer"), upon the terms and subject to the conditions set forth in the
Prospectus and this Letter of Transmittal, to exchange 0.1667 of a share of its
common stock, par value $.001 per share ("Common Stock"), for each and every of
its issued and outstanding Redeemable Common Stock Purchase Warrants ("Series A
Warrants") and Series B Redeemable Common
<PAGE>
Stock Purchase Warrants ("Series B Warrants" and, together with the Series A
Warrants, the "Warrants"). As described in more detail in the Prospectus, the
Company will issue one whole share of Common Stock in exchange for every six
Warrants (either Series A Warrants, Series B Warrants or both) tendered and
accepted by the Company for exchange pursuant to the Exchange Offer. No
fractional shares of Common Stock will be issued as a result of the Exchange
Offer. Holders of Warrants who tender a number of Warrants not evenly divisible
by six and who would otherwise therefore be entitled to a fractional share of
Common Stock will receive cash in lieu of such fractional amount. Additionally,
under the Company's Stockholder Rights Plan, one Right to purchase one
one-hundredth of a share of the Company's Series A Junior Participating
Preferred Stock will be issued with and solely represented by each share of
Common Stock that is issued to a Warrant holder in exchange for his or her
Warrants.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE INSTRUCTIONS INCLUDED IN THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING OR SIGNING THIS LETTER OF TRANSMITTAL OR CHECKING
ANY BOX BELOW.
List below the Warrants to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Warrant certificate numbers, the
number of Warrants represented thereby, the number of Warrants being tendered
and the Series of Warrant should be listed on a separate signed schedule and
affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF WARRANTS TENDERED HEREWITH
- --------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(If blank, please fill in exactly as name(s) appears
on Warrant certificate(s)) WARRANTS TENDERED
- ------------------------------------------------------ -----------------------------------------------------------
Indicate
Whether
Series A Total
Warrant Warrant or Total Number of
Certificate Series B Number of Warrants
Number(s)* Warrant Warrants* Tendered**
- ------------------------------------------------------ ------------ ---------- --------- ----------
<S> <C> <C> <C> <C>
- ------------------------------------------------------ ------------ ---------- --------- ----------
- ------------------------------------------------------ ------------ ---------- --------- ----------
- ------------------------------------------------------ ------------ ---------- --------- ----------
Total Warrants
- ------------------------------------------------------ ------------ ---------- --------- ----------
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Warrant holders tendering Warrants by
book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Warrants
represented by the certificates bearing the serial numbers listed are
being tendered.
- --------------------------------------------------------------------------------
2
<PAGE>
This Letter of Transmittal is to be completed by holders of Warrants
pursuant to instructions set forth below and the procedures set forth in the
Prospectus under the caption "THE EXCHANGE OFFER -- Procedure for Tendering."
Warrant holders whose Warrants are not immediately available or who
cannot deliver their Warrants or a confirmation (a "Book-Entry Confirmation") of
a book-entry tender of their Warrants into the Exchange Agent's account at the
Depositary Trust Company ("DTC") and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Warrants in
accordance with the Notice of Guaranteed Delivery enclosed herewith and the
guaranteed delivery procedure set forth in the Prospectus under the caption "THE
EXCHANGE OFFER -- Guaranteed Delivery Procedure." See Instruction 1 of this
Letter of Transmittal. Delivery of documents to DTC does not constitute delivery
to the Exchange Agent.
/ / CHECK HERE IF TENDERED WARRANTS ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-----------------
/ / CHECK HERE IF TENDERED WARRANTS ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
/ / CHECK HERE TO INDICATE WHETHER ANYONE SOLICITED THE TENDER OF YOUR
WARRANTS AND, IF SO, COMPLETE THE FOLLOWING (SEE INSTRUCTION 9)
Name of Soliciting Dealer:
---------------------------------------------
Name of Individual Broker:
---------------------------------------------
Telephone Number of Broker:
--------------------------------------------
Address:
---------------------------------------------------------------
Number of Warrants Solicited:
------------------------------------------
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Warrants listed above. Subject to,
and effective upon, the acceptance for exchange of the Warrants tendered
herewith, the undersigned hereby sells, exchanges, assigns and transfers to, or
upon the order of, the Company all right, title and interest in and to such
Warrants. No fractional shares of Common Stock will be issued as a result of the
Exchange Offer. Holders of Warrants who tender a number of Warrants not evenly
divisible by six and who would otherwise therefore be entitled pursuant to the
Exchange Offer to a fractional share of Common Stock will receive cash in lieu
of such fractional amount. Under the Company's Stockholder Rights Plan, one
Right to purchase one one-hundredth of a share of the Company's Series A Junior
Participating Preferred Stock will be issued with and solely represented by each
share of Common Stock that is issued to a Warrant holder in exchange for his or
her Warrants.
The undersigned represents and warrants that the undersigned is the
lawful owner of, and has full power and authority to tender, exchange, assign
and transfer, the Warrants described above and tendered hereby and that, if and
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Warrants, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that the undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Warrants.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "Exchange Offer--Conditions to the Exchange Offer,"
including without limitation, a minimum condition that at least 95% of the
outstanding Warrants be exchanged prior to the Expiration Date. The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company) as more particularly set forth in the Prospectus,
the Company may not be required to complete the Exchange Offer and/or exchange
any of the Warrants tendered hereby and, in such event, the Warrants not
exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
The undersigned hereby irrevocably appoints the Exchange Agent the true
and lawful agent and attorney-in-fact of the undersigned with respect to the
undersigned's Warrants tendered hereby, with full power of substitution (such
power-of-attorney being deemed to be an irrevocable power coupled with an
interest) to effect the exchange of such Warrants for the shares of Common Stock
(and cash payment in lieu of fractional interests, if any) being offered by the
Company in exchange therefor pursuant to and upon the terms of the Exchange
Offer, including to deliver such Warrants, together with all accompanying
evidences of transfer and authenticity, to the Company, the Exchange Agent or
the stock transfer agent of the Company for retirement or cancellation.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered Warrants
may be withdrawn at any time prior to 5:00 p.m., New York City Time on ______
__, 1997, unless extended
4
<PAGE>
("Expiration Date") and, unless previously accepted for exchange, at any time
after 5:00 p.m., New York City time, on _________ __, 1997.
Unless otherwise indicated herein under "Special Exchange
Instructions," please issue the Common Stock and/or return any Warrants not
accepted for exchange in the name of the registered holder(s) appearing above
under "Description of Warrants Tendered Herewith." Similarly, unless otherwise
indicated under "Special Delivery Instructions" below, please mail the
certificates representing issued Common Stock (and any cash in lieu of
fractional interests) and/or return any Warrants not accepted for exchange (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) above appearing under "Description of Warrants Tendered Herewith." If
both the "Special Exchange Instructions" and the "Special Delivery Instructions"
are completed, please issue the Common Stock and/or return any Warrants not
accepted for exchange in the name of, and deliver the certificates(s) for such
Common Stock (and any cash in lieu of fractional interests) and/or return any
Warrants not accepted for exchange to, the person or persons so indicated.
Appropriate signature guarantees have been included with respect to Warrants for
which Special Exchange Instructions and/or Special Delivery Instructions have
been given. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Exchange Instructions," to transfer any Warrants from
the name of the registered holder thereof if the Company does not accept for
exchange any of the Warrants so tendered.
<TABLE>
<S> <C>
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4 and 5) (See Instructions 3, 4 and 5)
To be completed ONLY if the shares of the To be completed ONLY if the shares of the issued
Common Stock are to be issued in the name of Common Stock are to be mailed to someone other
someone other than the undersigned. than the undersigned, or to the undersigned at
an address other than that shown above.
Issue and Mail Shares of the Common Stock to: Mail Shares of the Common Stock to:
Name: Name:
------------------------------------------------------ -------------------------------------------
(Please Print) (Please Print)
Address: Address:
--------------------------------------------------- ----------------------------------------
(Include Zip Code) (Include Zip Code)
- ----------------------------------------------------------- -------------------------------------------
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
</TABLE>
The undersigned understands that tender of any of the Warrants pursuant
to any of the procedures described in the Prospectus under the caption "THE
EXCHANGE OFFER--Procedure for Tendering" and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer set forth in the
Prospectus and this Letter of Transmittal. The undersigned further understands
that no interest will be paid with respect to the shares of Common Stock (and/or
any cash payment in lieu of fractional interests) to be issued and delivered to
the undersigned in exchange for the undersigned's Warrants tendered hereby by
reason of any delay in effecting such exchange or otherwise.
5
<PAGE>
TENDERING WARRANT HOLDER(S) SIGN HERE
(Also complete Substitute Form W-9 Below)
- -------------------------------- ----------------------------------------------
Signature of Holder Social Security Number or Taxpayer I.D. Number
- -------------------------------- ----------------------------------------------
Signature of Holder Social Security Number or Taxpayer I.D. Number
Dated: , 1997
(Must be signed by the registered holder(s) exactly as the name(s) appear(s) on
the certificate(s) for the tendered Warrants or a security position listing or
by any person(s) authorized to become registered holder(s) by endorsements and
other documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, the capacity of the
person should be indicated. See Instruction 3.)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
----------------------------------------------------
================================================================================
GUARANTEE OF SIGNATURE(S)
(Only if Required -- See Instruction 3)
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
(Please Print)
Title:
--------------------------------------------------------------------------
Name of Eligible Institution:
---------------------------------------------------
Address:
------------------------------------------------------------------------
Area Code and Telephone No.:
----------------------------------------------------
Dated: , 1997
-------------------
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Delivery of this Letter of Transmittal and Warrants; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used to exchange
Warrants for shares of Common Stock either if Warrants are to be forwarded
herewith or, unless an Agent's Message (as defined in the Prospectus) is
utilized, if tenders of Warrants are to be made pursuant to the procedures for
delivery by book-entry transfer set forth under "The Exchange Offer--Procedure
for Tendering" in the Prospectus. Accordingly, certificates for all physically
delivered Warrants or Book-Entry Confirmation of the tender of such Warrants,
as the case may be, as well as a properly completed and duly executed copy of
this Letter of Transmittal or a facsimile hereof, or an Agent's Message in
connection with a book-entry delivery, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address set
forth herein on or prior to the Expiration Date.
The method of delivery of this Letter of Transmittal, the Warrants or
Book-Entry Confirmation, as the case may be, and any other required documents is
at the election and risk of each holder of Warrants and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that Warrant
holders use an overnight or hand delivery service providing for receipted
delivery.
Holders whose Warrants are not immediately available or who cannot
deliver their Warrants and all other required documents to the Exchange Agent on
or prior to the Expiration Date, or who cannot complete the procedure for
book-entry transfer on a timely basis, may tender their Warrants by delivering
the Notice of Guaranteed Delivery form enclosed herewith, properly completed and
duly executed by an Eligible Institution (as defined below--see Instruction 3),
or by delivering an Agent's Message with respect to guaranteed delivery, in each
case pursuant to the guaranteed delivery procedure set forth in the Prospectus
under "Exchange Offer--Guaranteed Delivery Procedure." To be effective, such
Notice of Guaranteed Delivery must be: (i) made by or through an Eligible
Institution, (ii) received by the Exchange Agent on or prior to the Expiration
Date, and (iii) followed, within three business days after delivery of the
Notice of Guaranteed Delivery, by the tendered Warrants, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed copy of this Letter of Transmittal (or a
facsimile hereof), or an Agent's Message in connection with a book-entry
delivery, and any other documents required by this Letter of Transmittal.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Warrant holders, by execution of this Letter of
Transmittal (or facsimile hereof), shall waive any right to receive notice of
the acceptance of their Warrants for exchange.
2. Withdrawals. Tenders of Warrants pursuant to the Exchange Offer are
irrevocable, except that Warrants tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date and, unless previously accepted for exchange, at any time after 5:00 p.m.,
New York City time, on ______ __, 1997. To be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be timely received by
the Exchange Agent at the address set forth herein. Any such notice of
withdrawal must (i) specify the person named in this Letter of Transmittal as
having tendered Warrants to be withdrawn, (ii) specify certificate numbers and
designation of the Warrants to be withdrawn, (iii) specify the number of
Warrants so being withdrawn, (iv) include a statement that such Warrant holder
is withdrawing its tender of such Warrants for exchange, (v) include the name of
the registered Warrant holder of such Warrants, and (vi) be signed by the
Warrant holder in the same manner as the original signature on this Letter of
Transmittal (including
7
<PAGE>
any required signature guarantees) or be accompanied by evidence satisfactory to
the Company that the person withdrawing the tender has succeeded to the
beneficial ownership of the Warrants being withdrawn. The Exchange Agent will
return the properly withdrawn Warrants promptly following receipt of notice of
withdrawal.
3. Guarantee of Signatures; Signature on this Letter of Transmittal;
Written Instruments and Endorsements. No signature guarantee on this Letter of
Transmittal is required if (i) this Letter of Transmittal is signed by the
registered holder(s) of the Warrants being tendered herewith (the term
"registered holder" for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of such
Warrants) unless such holder(s) have completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Exchange Instructions" on
this Letter of Transmittal or (ii) such Warrants are tendered for the account of
a financial institution (a commercial bank, savings and loan association, credit
union, or brokerage house) that is a participant in the Securities Transfer
Association Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee Program or the Stock Exchange Medallion Program ("Eligible
Institution"). In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution. If Warrants are registered in the
name of a person other than the signer of this Letter of Transmittal, the
tendered Warrants must be endorsed or accompanied by an appropriate instrument
of transfer, signed exactly as the name or names of the registered owner or
owners appear on the Warrants, with the signatures on the Warrants or instrument
of transfer guaranteed as aforesaid.
If this Letter of Transmittal is signed by the registered holder(s) of
the Warrants tendered hereby, the signature must correspond with the name(s) as
written on the face of certificates without alteration, enlargement or any
change whatsoever.
If any of the Warrants tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Warrants registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Warrants.
When this Letter of Transmittal is signed by the registered holder or
holders of Warrants listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Warrants listed, the tendered Warrants must
be endorsed or accompanied by separate written instrument of transfer or
exchange in form satisfactory to the Company and duly executed by the registered
holder or holders, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Warrants with the signatures on
the Warrants or instrument of transfer guaranteed as aforesaid.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should indicate
such capacity when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
8
<PAGE>
4. Transfer Taxes. The Company shall pay all transfer taxes, if any,
applicable to the exchange of Warrants pursuant to the Exchange Offer. If,
however, certificates representing Common Stock issued pursuant to the Exchange
Offer or substitute certificates evidencing Warrants not exchanged are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Warrants tendered hereby, or if tendered Warrants are
recorded in the name of any person other than the person signing this letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
transfer and sale of Warrants to the Company or its order pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Warrant holder or any other person) will be payable by the
tendering Warrant holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering Warrant holder.
5. Special Exchange and Delivery Instructions; Mutilated, Lost, Stolen
or Destroyed Warrants. If shares of the Common Stock are to be issued in the
name of a person other than the signer of this Letter of Transmittal or if
shares of the Common Stock are to be sent (or unexchanged Warrants returned) to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed.
Any holder whose Warrants have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
6. Requests for Assistance or Additional Copies. All questions relating
to the Exchange Offer, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Information
Agent, as follows: D.F. King & Co., Inc., 77 Water Street, New York, New York
10005, Tel:1-800/207-3158. In addition, all questions relating to procedures for
tendering may be directed to the Exchange Agent, Continental Stock Transfer &
Trust Company, at 212/509-4000, extension 535, or by mail at 2 Broadway, New
York, New York 10004, Attention: Reorganization Department.
7. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or
Warrants, and of notices of withdrawal of tendered Warrants, will be resolved by
the Company, whose determination will be final and binding. The Company reserves
the absolute right to reject any or all Letters of Transmittal or tenders of
Warrants, or notices of withdrawal of tendered Warrants, that it determines are
not in proper form or the acceptance of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to the particular Warrants covered by
any Letter of Transmittal or tendered pursuant to such Letter of Transmittal or
any particular Warrant holder. None of the Company, the Information Agent, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or withdrawals or incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer shall be final
and binding.
8. Taxpayer Information and Substitute W-9. All Warrant holders
All Warrant holders must complete Part 1 of the "Substitute Form W-9"
set forth below by providing the Warrant holder's name, street address, city,
and either (i) state and zip code, or (ii) country of residence. United States
Warrant holders must also complete Part 2 of the "Substitute Form W-9" and all
foreign Warrant holders must also complete Part 3 of the "Substitute Form W-9."
9
<PAGE>
United States Warrant holders
United States federal income tax law requires that a United States
holder who surrenders Warrants provide the Exchange Agent (as payor) with his or
her correct taxpayer identification number ("TIN"), which, if the surrendering
holder is an individual, is his or her social security number. If the Exchange
Agent is not provided with the correct TIN, the surrendering holder may be
subject to a penalty imposed by the Internal Revenue Service and payments that
are made by the Company to the tendering holder may be subject to a 31% backup
withholding. If withholding results in an overpayment of taxes, a refund may be
obtained. Exempt persons (including, among others, all corporations) are not
subject to these backup withholding and reporting requirements.
To prevent the 31% backup withholding tax, each surrendering United
States holder must provide his or her correct TIN by completing Part 2 of the
"Substitute Form W-9" set forth below, certifying that the TIN provided is
correct (or that the surrendering holder is awaiting a TIN) and that (a) the
surrendering holder has not been notified by the Internal Revenue Service that
he or she is subject to backup withholding as a result of failure to report all
interest or dividends, or (b) the Internal Revenue Service has notified the
surrendering holder that he or she is no longer subject to backup withholding or
certify in accordance with the enclosed Guidelines that such surrendering holder
is exempt from backup withholding. If shares of the Common Stock are to be
issued in more than one name or in a name other than that of the actual owner,
consult the enclosed Guidelines for information on which TIN to report.
Foreign Warrant holders
United States federal income tax law requires a foreign holder who
surrenders Warrants to provide the Exchange Agent (as payor) with a
certification of such holder's foreign status. If the Exchange Agent is not
provided with the certification of foreign status, payments that are made by the
Company to the surrendering holder (including but not limited to any future
dividends on the Common Stock) may be subject to the 31% backup withholding tax.
To prevent the 31% backup withholding tax, each surrendering foreign
holder must certify, by completing Part A of Part 3 of the "Substitute Form W-9"
set forth below, that such holder is not a United States citizen or United
States resident (or that such holder is a foreign corporation, partnership,
trust or estate). If shares of the Common Stock are to be issued in the name of
a securities clearing organization, a bank or other financial institution, then
an authorized representative of such institution must complete Part B of Part 3
of the "Substitute Form W-9" set forth below.
If the shares of the Common Stock are to be owned jointly be more than
one foreign holder, each such joint owner must complete a separate Part 3 of the
"Substitute Form W-9."
10
<PAGE>
<TABLE>
<CAPTION>
PAYOR'S NAME:
Continental Stock Transfer & Trust Company (As Exchange Agent)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
All Warrant holders must complete Part 1 and either Part 2 or
Part 3 (See Instruction 8).
_________________________________________________________________________________________________________
SUBSTITUTE PART 1: TO BE COMPLETED BY ALL WARRANT HOLDERS
Form W-9
_________________________________________________________________________________________________________
Name
_________________________________________________________________________________________________________
Address
_________________________________________________________________________________________________________
City, State, and ZIP code (or Country)
_________________________________________________________________________________________________________
PART 2: TAXPAYER IDENTIFICATION NUMBER (TO BE COMPLETED BY ALL UNITED
STATES WARRANT HOLDERS.)
(CHECK IF AWAITING TIN / /)
. Enter your taxpayer Social security number
identification number ____-__-____
in the appropriate box:
Employer identification number
____-_______
Certification. --Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am awaiting
for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or the IRS has notified me that I am no longer subject to backup
withholding.
Signature _____________________________________________ Date _________________
- ------------------------------------------------------------------------------------------------------------------------------------
PART 3: CERTIFICATE OF FOREIGN STATUS -- COMPLETE EITHER PART A OR PART B. (TO
BE COMPLETED BY ALL FOREIGN WARRANT HOLDERS.)
Part A: Certification of Under penalties of perjury, I certify that, to the
Registered Holder best of my knowledge and belief, I am not a United
States citizen or resident (or I am a foreign
corporation, partnership, trust or estate).
Signature _____________________________________________ Date _________________
Part B: Certification of Under penalties of perjury, I certify that I am an
Financial authorized representative of the financial institution
Institution named below and that we have received from the
beneficial owner a Form W-8 or substitute form in
accordance with the provisions of Treasury Regulations
Section 1.6049-5(b)(2)(iv).
________________________________________________________________________________________________________
Name of Financial Institution
Signature _____________________________________________ Date _________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
11
<PAGE>
9. Solicited Tenders. The Company will pay to Soliciting Dealers (as
hereinafter defined) a solicitation fee related to their solicitation efforts of
$.05 per Warrant for any Warrants tendered and accepted for exchange and
exchanged pursuant to the Exchange Offer; provided that no solicitation fee
shall be payable with respect to Warrants beneficially owned (i) by any of the
directors, executive officers or 5% stockholders of the Company who have
indicated to the Company their current intent to tender their Warrants, (ii) by
any employee of the Company or its affiliates or (iii) by the Soliciting Dealer.
The term "Soliciting Dealer" shall mean (x) any broker or dealer in securities
that is a member of any national securities exchange or of the National
Association of Securities Dealers, Inc. ("NASD"), (y) any foreign broker or
dealer not eligible for membership in the NASD which agrees to conform to the
NASD's Rules of Fair Practice in soliciting tenders outside the United States to
the same extent as though it were an NASD member or (z) any bank or trust
company.
No such solicitation fee shall be payable to a Soliciting Dealer with
respect to any tender of Warrants pursuant to this Letter of Transmittal unless
this Letter of Transmittal specifically designates where indicated above such
Soliciting Dealer as having solicited and obtained the tender of the Warrants
covered thereby. No such fee shall be payable to a Soliciting Dealer with
respect to the tender of Warrants by the holder of record, for the benefit of
the beneficial owner, unless the beneficial owner has designated such Soliciting
Dealer. If tendered Warrants are being delivered by book-entry transfer or
pursuant to the guaranteed delivery procedure, the Soliciting Dealer must return
a Notice of Solicited Tenders to the Exchange Agent within five business days
after the Expiration Date to receive a solicitation fee. All questions as to the
validity, form or eligibility (including time of receipt) of Notice of Solicited
Tenders will be determined by the Company, whose determination will be final and
binding. None of the Company, the Exchange Agent, the Information Agent, or any
other person will be under any duty to give notification of any defects or
irregularities in any Notice of Solicited Tenders or incur any liability for
failure to give any such notification. The Company reserves the absolute right
not to pay any solicitation fees that would, in the opinion of counsel for the
Company, be unlawful or violate the regulations of any national securities
exchange or the NASD. No broker, dealer, bank, trust company or fiduciary shall
be deemed to be the agent of the Company, the Exchange Agent or the Information
Agent for purposes of the Exchange Offer.
10. Inadequate space. If the space provided in this Letter of
Transmittal is inadequate, list and attach hereto on a separate schedule the
Warrant certificate numbers, the number of Warrants represented thereby, the
number of Warrants being tendered and the Series of Warrant.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR WARRANTS AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AND
SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANTS
OF
MAXCOR FINANCIAL GROUP INC.
This form or one substantially equivalent hereto, or an Agent's Message
with respect to guaranteed delivery, must be used to accept the Exchange Offer
of Maxcor Financial Group Inc. ("Company") made pursuant to the Prospectus dated
October __, 1997 ("Prospectus") and the accompanying Letter of Transmittal, if
certificates for the Warrants are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date of the Exchange Offer or if the
procedures for book-entry transfer cannot be completed on a timely basis. This
form may be delivered by hand or transmitted by facsimile transmission or by
mail to the Exchange Agent. See "THE EXCHANGE OFFER--Procedures for Tendering"
and "--Guaranteed Delivery Procedure" in the Prospectus. Defined terms used in
this Notice of Guaranteed Delivery without separate definition shall have the
meaning herein as is assigned to such terms in the Prospectus.
EXCHANGE AGENT:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Continental Stock Transfer Continental Stock Transfer Continental Stock Transfer &
& Trust Company & Trust Company Trust Company
2 Broadway 2 Broadway 2 Broadway, 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
(registered or certified mail
recommended)
</TABLE>
By Facsimile:
Continental Stock Transfer
& Trust Company
Attn: Reorganization Department
Fax No. (212) 509-5150
(For Eligible Institutions Only)
Confirm by telephone:
Telephone no. (212) 509-4000,
ext. 535
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on
a Letter of Transmittal is required to be guaranteed by an eligible institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box in the Letter of Transmittal
itself.
<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged, as each may be amended
from time to time, the Series and number of Warrants set forth below, pursuant
to the guaranteed delivery procedure set forth under the caption "THE EXCHANGE
OFFER--Guaranteed Delivery Procedure" in the Prospectus. By so tendering, the
undersigned hereby does make, at and as of the date hereof, the representations
and warranties of a tendering holder of Warrants as set forth in the Letter of
Transmittal.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) or Name(s) of Registered Holder(s):
Authorized Signatory:
- ------------------------------------------- -----------------------------------
- ------------------------------------------- -----------------------------------
(Please Print)
Warrants Tendered Hereby:
- -------------------------
Address:
---------------------------
Series A Warrants
- -----------------
Certificate Warrant Nos. (if available)
----
-----------------------------------
- ------------------------------------------- Tel. No.(s)
------------------------
Number of Warrants Tendered
----------------
If Warrants will be delivered by
Series B Warrants book-entry transfer through the
- ----------------- Depository Trust Company, check the
Certificate Warrant Nos. (if available) box below and provide account
---- number.
- ------------------------------------------- / / The Depository Trust Company
Account Number:
Number of Warrants Tendered --------------------
----------------
Dated:
- -------------------------------------------- -----------------------------
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantees)
The undersigned, a financial institution (a commercial bank, savings
and loan association, credit union or brokerage house) that is a participant in
the Securities Transfer Association Medallion Program, the New York Stock
Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion
Program, hereby (a) represents that each holder of Warrants on whose behalf this
tender is being made "own(s)" the Warrants covered hereby within the meaning of
Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents
that the tender of Warrants effected hereby complies with such Rule 14e-4, and
(c) guarantees that, within three New York Stock Exchange trading days from the
date of this Notice of Guaranteed Delivery, (i) a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), with any required
signature guarantees, or an Agent's Message in the case of a book-entry delivery
of Warrants, together with (ii) either certificates representing the Warrants
tendered hereby in proper form for transfer or timely confirmation of the
book-entry transfer of such Warrants into the Exchange Agent's account at the
Depository Trust Company, and (iii) any other required documents, will be
deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Warrants tendered hereby to the Exchange Agent within the time
set forth above and that failure to do so could result in financial loss to the
undersigned.
<TABLE>
<S> <C>
Name of Firm:__________________________________ Authorized Signature:
Address:_______________________________________ ________________________________________________
_______________________________________________ Print Name:_____________________________________
Area Code and Telephone No:____________________ Title:__________________________________________
_______________________________________________ Date:___________________________________________
</TABLE>
3
