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Rule 424(b)(3)
File No. 333-34485
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
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THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON NOVEMBER
13, 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OF THE AGGREGATE OUTSTANDING WARRANTS BEING VALIDLY TENDERED AND NOT WITHDRAWN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 WARRANTS TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT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 12:00 MIDNIGHT, NEW YORK CITY TIME ON DECEMBER 12,
1997.
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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 (if consummated on or before November 30, 1997)
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, Series A
Warrants and Series B Warrants reported on the Nasdaq National Market on October
14, 1997, the last full trading day for which information was available prior to
the printing of this Prospectus, were $4.25, $.625, and $.688, 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 12 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 16, 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.
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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 November 3, 1997.
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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
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....................... 12:00 Midnight, New York City time, on
November 13, 1997, unless extended. See
"The Exchange Offer - Expiration Date;
Extensions; Termination; Amendments."
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The Warrants.......................... At October 14, 1997, there were
outstanding 7,566,666 Series A Warrants
(issued in connection with the IPO) and
7,451,610 Series B Warrants (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 (if consummated on or
before November 30, 1997) 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
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5
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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 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
the following documents prior to 12:00
Midnight, New York City time, on the
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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 12:00 Midnight,
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
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 12:00 Midnight, New
York City time, on the Expiration Date
or, unless previously accepted for
exchange, after 12:00 Midnight, New York
City time, on December 12, 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
12:00 Midnight, 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
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Company or its affiliates or (z) by the
Soliciting Dealer. If tendered Warrants
are being delivered by book-entry
transfer or pursuant to the guaranteed
delivery procedure, the Soliciting
Dealer must also return a Notice of
Solicited Tenders to the Exchange Agent
within five business days after the
Expiration Date to receive a
solicitation fee. 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.
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 12 below.
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.
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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 14, 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 $4.25,
$.625, and $.688, 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 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.
9
<PAGE>
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). 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,
10
<PAGE>
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.
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
11
<PAGE>
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.
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.
12
<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>
13
<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 $ 0.39 $ 0.41 $ 0.51 $ 0.13
Book value $ 3.51 $ 3.63 $ 3.99 $ 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.
14
<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.
<TABLE>
<CAPTION>
Earnings per Share
------------------
Year Ended Six Months Ended
December 31, June 30,
1996 1997
------ -----
<S> <C> <C>
Historical...................................................................... $0.41 $0.13
Pro Forma....................................................................... $0.32 $0.10
</TABLE>
Book Value per Share
--------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------ -----
<S> <C> <C>
Historical...................................................................... $3.63 $3.76
Pro Forma....................................................................... $2.83 $2.94
</TABLE>
15
<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 14, 1997) 4.563 3.438 0.844 0.500 0.813 0.500
</TABLE>
As of October 14, 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 14,
1997, the last full trading day for which information was available prior to the
printing of this Prospectus, were $4.25, $.625 and $.688, 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
16
<PAGE>
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
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.
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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.
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
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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 (if consummated on or before November 30, 1997) 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."
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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 of the Exchange Offer is not satisfied prior to the Expiration Date.
See "Conditions of the Exchange Offer."
As of October 14, 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 14, 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
15, 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 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 12:00 Midnight, New York City time, on
November 13, 1997 (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
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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
12:00 Midnight, 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 12:00 Midnight, 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 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."
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, 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
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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
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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 12:00 Midnight, 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;
(b) Prior to 12:00 Midnight, 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 if not satisfied in the Company's reasonable discretion
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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 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.
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 12:00 Midnight, 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 DTC, credited to an account maintained
within DTC by the Exchange Agent pursuant to the Exchange Offer) 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 12:00 Midnight, New York City
time, on the Expiration Date or, unless such tender has been previously accepted
for exchange, at any time after 12:00 Midnight, New York City time, on December
13, 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 12:00 Midnight, 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.
24
<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
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
25
<PAGE>
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 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 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 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,
26
<PAGE>
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.
27
<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.
28
<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.
29
<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.
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
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<PAGE>
$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.
32
<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.
33
<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 1994 140,947 104,704 -- 424
Operations (5)
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.
(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).
34
<PAGE>
(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> <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>
(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
35
<PAGE>
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 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
36
<PAGE>
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.
37
<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.
38
<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 % of Common
No. of Common % of Stock No. of
Common Stock No. of Warrants 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.
(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
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<PAGE>
October 14, 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 14, 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 14, 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 excep tions). 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.
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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 14 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 14 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.
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.
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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 14, 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.
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."
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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.
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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.
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.
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<PAGE>
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.
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TABLE OF CONTENTS
Page
----
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
The Exchange Offer..........................................................20
Business of the Company.....................................................28
Management of the Company...................................................31
Certain Relationships and Related
Transactions...........................................................38
Principal Stockholders......................................................39
Description of Capital Stock................................................41
Certain United States Federal
Income Tax Considerations...............................................44
Legal Matters...............................................................45
Experts.....................................................................45
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
46
