<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number 0-25056
MAXCOR FINANCIAL GROUP INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-3262958
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two World Trade Center
New York, New York 10048
---------------------------------------
(Address of principal executive office)
(212) 748-7000
----------------------------
(Registrant's telephone
number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares of common stock, par value $.001 per share, of
registrant outstanding as of May 12, 1998 was 11,330,631.
The Exhibit Index is on Page 18
Page 1 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): 3
Consolidated Statement of Financial Condition 4
Consolidated Statement of Operations 6
Consolidated Statement of Changes in Stockholders' Equity 7
Consolidated Statement of Cash Flows 8
Notes to the Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
Page 2 of 38 Pages
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MARCH 31, 1998
--------------
(Unaudited)
Page 3 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- -----------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 9,019,675 $ 18,041,631
Commissions receivable 18,961,660 16,177,429
Deposits with clearing organizations
(Includes cash of $756,271 and U.S.
Treasury bills of $8,898,629 at
March 31, 1998) 9,654,900 9,048,922
Receivable from clearing firms 2,560,491 2,585,762
Receivable from broker-dealers and customers 952,328 1,723,000
Securities owned 4,274,641 10,497,465
Prepaid expenses and other assets 7,850,949 7,972,400
Deferred tax asset 6,329,627 6,331,637
Equity in affiliated companies 2,567,473 2,606,987
Furniture, equipment and leasehold improvements 10,588,708 11,459,523
Intangible assets 1,504,267 1,606,757
-------------- -------------
Total assets $ 74,264,719 $ 88,051,513
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
(continued)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- -----------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
<S> <C> <C>
Liabilities:
Short-term bank loans $ 1,695,426 $ 6,225,928
Accounts payable and accrued liabilities 16,522,995 18,490,511
Accrued compensation payable 13,704,559 18,202,561
Payable to broker-dealers and customers 300,000 569,458
Income taxes payable 2,663,052 4,286,269
Securities sold, not yet purchased 851,037 780,849
Deferred taxes payable 656,667 656,667
Obligations under capitalized leases 832,975 974,186
Notes payable 6,231,259 6,261,839
------------- ------------
43,457,970 56,448,268
------------- ------------
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000
shares authorized, none outstanding at
March 31, 1998 and December 31, 1997
Common stock, $.001 par value; 30,000,000
shares authorized, 11,330,631 shares
outstanding at March 31, 1998 and December
31, 1997 11,331 11,331
Additional paid-in capital 33,187,476 33,187,476
Treasury stock at cost; 61,638 shares of common
stock held at March 31, 1998 and December
31, 1997 ( 209,451) ( 209,451)
Accumulated deficit ( 4,619,363) ( 3,815,073)
Accumulated other comprehensive income 2,436,756 2,428,962
------------- ------------
Total stockholders' equity 30,806,749 31,603,245
------------- -----------
Total liabilities and stockholders' equity $ 74,264,719 $ 88,051,513
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 5 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(unaudited)
For the Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
Revenue:
Commission income $ 39,124,825 $ 43,412,352
Interest income 467,780 428,671
Other income 108,635 176,581
-------------- -------------
39,701,240 44,017,604
-------------- -------------
Costs and expenses:
Payroll and related costs 27,015,172 26,543,217
Communication costs 3,650,546 4,352,234
Travel and entertainment 2,600,307 2,714,381
Occupancy costs 1,540,173 1,550,870
Depreciation and amortization 1,270,360 1,322,818
Clearing fees 1,056,467 1,849,543
Interest expense 220,744 215,506
General, administrative and
other expenses 1,753,761 1,573,500
-------------- -------------
39,107,530 40,122,069
-------------- -------------
Income before provision for
income taxes and
minority interest 593,710 3,895,535
Provision for income taxes 990,600 2,607,847
-------------- -------------
Income (loss) before
minority interest ( 396,890) 1,287,688
Minority interest in
consolidated subsidiaries ( 407,400) ( 253,741)
-------------- -------------
Net income (loss) ($ 804,290) $ 1,033,947
============== =============
Weighted average
common shares outstanding 11,330,631 8,949,656
Basic and diluted
earnings per share ($ .07) $ .12
The accompanying notes are an integral part of these consolidated
financial statements.
Page 6 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
FOR THE PERIODS ENDED DECEMBER 31, 1997 AND MARCH 31, 1998 (unaudited)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional other
Comprehensive Common paid-in Treasury Accumulated comprehensive
income stock capital stock deficit income Total
------ ----- ------- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996 $ 8,950 $ 33,533,867 ($ 3,546,081) $ 2,454,138 $32,450,874
Issuance of shares in
Exchange Offer 2,381 ( 2,381)
Comprehensive income
Net loss for the
year ended
December 31, 1996 ($ 268,992) ( 268,992) ( 268,992)
Other comprehensive
income
Foreign translation
adjustment (net of
income tax benefit ( 25,176) ( 25,176)
of $111,003) ( 25,176)
----------
Comprehensive income ( 294,168)
==========
Acquisition of
treasury stock ( 209,451) ( 209,451)
Expenses incurred in
connection with
Exchange Offer ( 344,010) ( 344,010)
--------- ------------ --------- ----------- ----------- -----------
Balance at December
31, 1997 11,331 33,187,476 ( 209,451) ( 3,815,073) 2,428,962 31,603,245
Comprehensive income
Net loss for the
three months ended
March 31, 1998 ( 804,290) ( 804,290) ( 804,290)
Other comprehensive
income
Foreign translation
adjustment (net of
income tax expense
of $10,265) 7,794 7,794 7,794
----------
Comprehensive income ( $796,496)
========== --------- ------------ --------- ----------- ----------- -----------
Balance at March
31, 1998 $ 11,331 $ 33,187,476 ($ 209,451) ( $4,619,363) $ 2,436,756 $30,806,749
========= ============ ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 7 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 804,290) $ 1,033,947
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,270,360 1,322,818
Provision for doubtful accounts 15,228 12,256
Undistributed earnings of affiliates ( 1,001,310) ( 693,464)
Imputed interest expense 14,770 21,154
Amortization of deferred expenses 364
Deferred income taxes 4,842 827,731
Change in assets and liabilities:
Increase in commissions receivable ( 2,678,972) ( 306,394)
(Increase) decrease in deposits with clearing organizations ( 597,890) 113,939
Decrease (increase) in receivable from clearing firms 25,271 ( 1,608,380)
Decrease in receivable from broker-dealers and customers 493,016 466,266
Decrease in securities owned 6,222,824 7,726,887
Decrease in prepaid expenses and other assets 1,153,202 1,127,832
Decrease in short-term bank loans ( 4,530,502) ( 5,376,525)
(Decrease) increase in accounts payable and accrued liabilities ( 1,811,428) 1,378,656
Decrease in accrued compensation payable ( 4,576,780) ( 6,765,051)
Increase (decrease) in payable to broker-dealers and customers 8,198 ( 1,826,250)
(Decrease) increase in income taxes payable ( 1,629,182) 128,595
Increase (decrease) in securities sold, not yet purchased 70,188 ( 65,812)
------------ ------------
Net cash used in operating activities ( 8,352,455) ( 2,481,431)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets ( 497,407) ( 636,567)
Proceeds from the sale of subsidiary 322,622
Dividends received from equity affiliates 35,047 37,768
------------ ------------
Net cash used in investing activities ( 462,360) ( 276,177)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 8 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(unaudited) (continued)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Repayment of notes payable ( 97,908) ( 1,099,325)
Repayment of obligations under capitalized leases ( 157,125) ( 183,334)
------------ -------------
Net cash used in financing activities ( 255,033) ( 1,282,659)
------------ -------------
Effect of exchange rate changes on cash 47,892 ( 57,117)
------------ -------------
Net decrease in cash and cash equivalents ( 9,021,956) ( 4,097,384)
Cash and cash equivalents at beginning of period 18,041,631 18,231,926
------------ -------------
Cash and cash equivalents at end of period $ 9,019,675 $ 14,134,542
============ =============
Supplemental disclosures of cash flow information
Interest paid $ 142,218 $ 96,054
Income taxes paid 959,450 1,443,416
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Page 9 of 38 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
---------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Maxcor Financial Group Inc. (the "Company"), formerly Financial Services
Acquisition Corporation, was incorporated in Delaware on August 18, 1994 with
the objective of acquiring or merging with an operating business in the
financial services industry. On August 16, 1996 the Company acquired Euro
Brokers Investment Corporation ("EBIC"), a privately held international and
domestic inter-dealer broker, in a merger transaction (the "Merger").
EBIC, incorporated in December 1986, through its subsidiaries and affiliates is
primarily an inter-dealer broker of money market instruments, derivative
products and selected securities, with offices in major financial centers,
including New York, London, Tokyo, Toronto and Mexico City, and correspondent
relationships with other brokers throughout the world. EBIC and its affiliates
currently comprise substantially all of the Company's business and assets.
The Merger has been accounted for as a recapitalization of EBIC, with the
issuance of shares by EBIC for the net assets of the Company. The historical
assets and liabilities of the Company and EBIC have been combined and reflected
in the consolidated statement of financial condition at their respective book
values.
The accompanying unaudited consolidated condensed financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principals for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Certain reclassifications have been
made to the December 31, 1997 balances to conform with the March 31, 1998
presentation. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. All significant intercompany balances and transactions
have been eliminated in consolidation. For further information, refer to the
audited consolidated financial statements of the Company as of December 31,
1997 and for each of the years in the three-year period then ended and the
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
Page 10 of 38 Pages
<PAGE>
NOTE 2 - STOCKHOLDERS' EQUITY:
Preferred stock:
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be determined
from time to time by its Board of Directors. At December 31, 1997 and March 31,
1998, no shares of preferred stock were issued or outstanding. Pursuant to the
Company's adoption of a shareholder rights plan (the "Plan") in December 1996,
the Company authorized the creation of Series A junior participating preferred
stock and reserved 300,000 shares thereof for issuance upon exercise of the
rights that, pursuant to the Plan, were at the time dividended to holders of
Common Stock.
Common stock and warrants:
The Company is authorized to issue 30,000,000 shares of Common Stock. At
December 31, 1997 and March 31, 1998, the Company had outstanding 11,330,631
shares of Common Stock, 685,948 redeemable common stock purchase warrants
(issued in connection with the Company's initial public offering) and 49,032
Series B redeemable common stock purchase warrants (issued in connection with
the Merger and economically identical in their terms to the other series of
warrants) and held in treasury 61,638 shares of common stock.
At December 31, 1997 and March 31, 1998, the Company had 734,980 shares of
Common Stock reserved for issuance upon exercise of all warrants and an
additional 1,800,000 shares reserved for issuance upon exercise of options that
have been and may be granted pursuant to the Company's 1996 Stock Option Plan.
NOTE 3 - NET CAPITAL REQUIREMENTS:
The Company's U.S. broker-dealer subsidiary, Maxcor Financial Inc. ("MFI"), is
subject to the Securities and Exchange Commission's Uniform Net Capital Rule
(rule 15c3-1), which requires the maintenance of minimum regulatory net
capital. MFI has elected to use the alternative method, as permitted by the
rule, which requires that MFI maintain minimum regulatory net capital, as
defined, equal to the greater of $250,000 or 2% of aggregate debit items
arising from customer transactions, as defined; or 4% of the funds required to
be segregated pursuant to the Commodity Exchange Act and regulations
thereunder. At March 31, 1998, MFI's regulatory net capital was $11,574,319 and
exceeded the minimum requirement of $250,000 by $11,324,319. MFI's memberships
in certain clearing corporations and its agreements with certain clearing
organizations also require it to maintain certain minimum levels of regulatory
net capital. In addition, a number of the Company's other subsidiaries
operating in various countries are subject to capital rules and regulations
issued by the designated regulatory authorities to which they are subject.
Page 11 of 38 Pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company was incorporated in Delaware in August 1994 with the
objective of acquiring or merging with an operating business in the financial
services industry. On August 16, 1996, the Company acquired EBIC, a privately
held international and domestic inter-dealer broker for a broad range of
financial instruments, in the Merger. EBIC and its subsidiaries currently
comprise substantially all of the Company's business and assets.
Three Months Ended March 31, 1998
Compared to the Three Months ended March 31, 1997
Commission income for the three months ended March 31, 1998 decreased
$4,287,527 to $39,124,825, compared to $43,412,352 for the comparable period in
1997. The net decrease primarily resulted from the combination of reduced
brokerage in London of approximately $4.5 million, primarily reflecting several
departmental closures that occurred in 1997, and reduced brokerage in New York
of approximately $1.9 million, primarily reflecting reduced brokerage in
emerging markets products. These decreases were partially offset by overall
increased brokerage in Mexico City and Tokyo.
Interest income for the three months ended March 31, 1998 increased by
$39,109 to $467,780, compared to $428,671 for the comparable period in 1997,
reflecting an increase in interest associated with municipal securities
positions held.
Other income for the three months ended March 31, 1998 decreased
$67,946 to $108,635, compared to $176,581 for the same period in 1997,
primarily due to decreases in foreign exchange gains of approximately $61,000
and income from affiliated companies of approximately $135,000, partially
offset by an increase in trading gains on municipal securities transactions of
approximately $131,000.
Payroll and related costs for the three months ended March 31, 1998
increased $471,955 to $27,015,172, compared to $26,543,217 for the three months
ended March 31, 1997. The increase was primarily the result of increased costs
associated with the expansion of operations in Mexico City and Tokyo, offset in
part by decreased costs associated with certain departmental closures in 1997,
principally in London. Payroll and related costs increased as a percentage of
commission income to 69.0% for the three months ended March 31, 1998 as
compared with 61.1% for the corresponding period in 1997, reflective of certain
fixed salary costs in areas which sustained reduced revenues.
Page 12 of 38 Pages
<PAGE>
Communication costs for the three months ended March 31, 1998
decreased $701,688 to $3,650,546, compared to $4,352,234 for the three months
ended March 31, 1998, primarily as a result of certain departmental closures in
1997 in London and Toronto.
Travel and entertainment costs for the three months ended March 31,
1998 decreased $114,074 to $2,600,307, or 6.6% of commission income, compared
to $2,714,381 or 6.3% of commission income for the three months ended March 31,
1998. The slight increase in the ratio of travel and entertainment expenses to
commission income reflects the effects of continued efforts to maintain and
improve market share on reduced commission income levels.
Occupancy costs represent expenses incurred in connection with various
operating leases for the Company's office premises and include base rent and
related escalations, maintenance, electricity and real estate taxes. Occupancy
costs of $1,540,173 for the three months ended March 31, 1998 were consistent
with those of $1,550,870 for the corresponding period in 1997.
Depreciation and amortization expense consists principally of
depreciation of communication and computer equipment and leased automobiles and
amortization of leasehold improvements. For the three months ended March 31,
1998, depreciation and amortization decreased $52,458 to $1,270,360, compared
to $1,322,818 for the same period in 1997, primarily as a result of a reduction
in leased automobiles, offset in part by the continued expansion of the
Company's proprietary screen system and other communications and computer
technology.
Clearing fees are fees for transaction settlements and credit
enhancement, which are charged by clearing institutions where the Company acts
as a riskless principal on a fully matched basis. These expenses decreased
$793,076 to $1,056,467, for the three months ended March 31, 1998, compared to
$1,849,543 for the three months ended March 31, 1997, due primarily to a
decline in the number of cleared transactions and a decrease in the clearing
fee per transaction.
Interest expense for the three months ended March 31, 1998 was
consistent with that for the corresponding period in 1997 at $220,744 and
$215,506, respectively.
General, administrative and other expenses include such operating
expenses as corporate insurance, office supplies and expenses, legal fees,
audit and tax fees, consulting fees, food costs and dues to various industry
associations. For the three months ended March 31, 1998 these expenses
increased by $180,261 to $1,753,761, compared to $1,573,500 for the three
months ended March 31, 1997, principally due to the reversal of excess
litigation reserves of approximately $450,000 during the
Page 13 of 38 Pages
<PAGE>
three months ended March 31, 1997, offset in part by decreases aggregating
approximately $270,000 in various expenses during the three months ended March
31, 1998 as compared to the three months ended March 31, 1997.
Provision for income taxes for the three months ended March 31, 1998
decreased by $1,617,247 to $990,600, compared to $2,607,847 for the three
months ended March 31, 1997, primarily due to reduced levels of pre-tax
accounting income. The Company's effective tax rate increased from 66.9% for
the three months ended March 31, 1997 to 166.8% for the three months ended
March 31, 1998, primarily reflecting a greater impact of the nondeductibility
of certain expenses, principally entertainment expenses, on lower pre-tax
accounting income.
Minority interest in consolidated subsidiaries for the three months
ended March 31, 1998 increased by $153,659 to ($407,400), compared to
($253,741) for the three months ended March 31, 1997, reflecting higher net
income generated by such subsidiaries.
Liquidity and Capital Resources
A substantial portion of the Company's assets, similar to other
brokerage firms, is liquid, consisting of cash, cash equivalents and assets
readily convertible into cash, such as commissions receivable, receivables from
broker-dealers, customers and clearing firms and securities owned.
Cash and cash equivalents and accrued compensation payable at March
31, 1998 reflect a reduction from levels at December 31, 1997 principally due
to the timing of employee bonus payments, which occurred in February 1998.
Securities owned principally reflect municipal security positions
taken in connection with the Company's brokerage of municipal securities
business. Positions are generally held for short periods of time and for the
purpose of facilitating anticipated customer needs and are generally financed
by a combination of cash margin and short term borrowings from the Company's
clearing bank. At March 31, 1998, as reflected on the Consolidated Statement of
Financial Condition, the Company had net assets relating to securities
transactions of approximately $2.4 million, reflecting securities owned of
approximately $4.3 million, securities sold, but not yet purchased of
approximately $0.9 million and a net receivable from broker-dealers and
customers of approximately $0.7 million, financed by short-term borrowings of
approximately $1.7 million.
MFI is a member of the Government Securities Clearing Corporation for
the purpose of clearing U.S. Treasury repurchase agreements. Pursuant to such
Page 14 of 38 Pages
<PAGE>
membership, MFI is required to maintain a minimum net regulatory capital of
$10,000,000, and a pledge of $5,000,000 in U.S. Treasury securities. In
addition, MFI's clearing arrangements require certain minimum collateral
deposits with its clearing firms. The aforementioned pledge and deposits have
been reflected as deposits with clearing organizations on the Consolidated
Statement of Financial Condition.
Notes payable at March 31, 1998 of approximately $6.2 million reflects
the remaining two annual installments of principal due on November 30 of each
of 1998 and 1999 on notes issued by the Company in connection with the
acquisition of EBIC's predecessor business in December 1986, which aggregate
$4.2 million, and approximately $2.0 million which relates to a secured
financing obtained by the Company in December 1997 in the form of a fixed rate
note payable to GE Capital Corporation, payable in monthly installments through
December 2002. The principal and interest payments of these notes are expected
to be paid in timely fashion from the Company's resources.
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
interest of customers. The compliance requirements of these different
regulatory bodies may include, but are not limited to, net capital or
stockholders' equity requirements. The Company has historically met regulatory
net capital and stockholders' equity requirements and believes it will be able
to continue to do so in the future.
Year 2000 Compliance
The Company is in the process of modifying and upgrading its computer
software applications and systems in a manner that the Company expects will
incorporate the "Year 2000" dating changes necessary to permit correct
recording of year dates for 2000 and later. The Company does not currently
expect the cost of this process to be material to its business, operations or
financial condition. The Company believes that it will be able to achieve
substantial or complete internal compliance by the end of 1998, and does not
currently anticipate any material disruption to its operations as the result of
any failure by the Company to be in compliance. The Company is currently in the
process of surveying the compliance status of its suppliers and customers.
Page 15 of 38 Pages
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
- ------- -----------
10.1 Agreement for Securities Clearance Services, dated March 13, 1998, by
and between Daiwa Securities America Inc. and Maxcor Financial Inc.
(1)
27 Financial Data Schedule (filed in electronic form only)
- --------------------------
(1) Portions of this exhibit have been redacted and confidential treatment
sought pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during
the three months ended March 31, 1998.
Page 16 of 38 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1998
MAXCOR FINANCIAL GROUP INC.
(Registrant)
/s/ Gilbert D. Scharf
--------------------------------------------------
Gilbert D. Scharf, Chairman of the Board,
President and Chief Executive Officer
/s/ Keith E. Reihl
-----------------------------------------------------
Keith E. Reihl, Chief Financial Officer and Treasurer
Page 17 of 38 Pages
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
10.1 Agreement for Securities Clearance Services, dated 19
March 13, 1998, by and between Daiwa Securities
America Inc. and Maxcor Financial Inc. (1)
27 Financial Data Schedule (filed in electronic form only) 38
- --------------------------
(1) Portions of this exhibit have been redacted and confidential treatment
sought pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.
Page 18 of 38 Pages
<PAGE>
Exhibit 10.1
------------
DAIWA [Conformed Copy]
Daiwa Securities America Inc. Financial Square 32 Old Slip
New York, NY 10005-3538
Tel: (212) 612-7000 Fax: (212) 612-7100
March 13, 1998
Maxcor Financial Inc.
Two World Trade Center
84th Floor
New York, NY 10048-0697
Re: Agreement for Securities Clearance Services
-------------------------------------------
Dear Sirs:
This letter sets forth our agreement (the "Agreement") concerning
certain clearing services to be performed by Daiwa Securities America Inc.
("Daiwa") for Maxcor Financial Inc. ("Introducing Firm") with respect to
transactions of Approved Counterparties (as defined below) in the securities
specified in Exhibit A hereto ("Specified Securities"). It is understood and
agreed that this Agreement is contingent upon the approval of the New York
Stock Exchange, Inc. ("NYSE"). When so approved and signed by us, this
Agreement shall replace in its entirety the Agreement for Securities Clearance
Services between Daiwa and Introducing Firm dated June 7, 1993, revised
December 27, 1993.
1. Certain Definitions
A. "Applicable Rules" are, to the extent applicable, the Securities
Act of 1933 and The Exchange Act of 1934, all rules and regulations thereunder
and interpretations by the Securities and Exchange Commission, the rules and
regulations of the National Association of Securities Dealers ("NASD") and the
NYSE, all as in effect from time to time.
Member of all Major Exchanges
<PAGE>
B. An "Approved Counterparty" is a dealer trading with Introducing
Firm or a customer of Introducing Firm, which Daiwa as of the date of this
Agreement is accepting as a counterparty for trades brokered by Introducing
Firm or to which Daiwa hereafter sends a letter in the form of Exhibit B and
which, in either case, Daiwa continues to consider acceptable; provided,
however, that (i) Daiwa will make no material changes to the form of Exhibit B
without the prior consent of Introducing Firm and (ii) any decision by Daiwa to
change the status of an Approved Counterparty will be communicated either
orally and followed by fax or in writing to Introducing Firm in advance of its
implementation.
C. A "Back-to-Back Transaction" occurs where Introducing Firm (i) has
executed in a recorded conversation a sale by an Approved Counterparty to be
settled by Daiwa ("Side One") of Specified Securities and a buy to be settled
by Daiwa by another Approved Counterparty of Specified Securities ("Side Two"),
(ii) has confirmed that Side One and Side Two agree on all details of the trade
that must be met in order to settle (i.e. that Side One and Side Two are
Validated Transactions) and (iii) has transmitted Side One and Side Two to
Daiwa on the same day.
D. "Clearing Corporation" means CEDEL/Euroclear or any other clearing
organization that settles Transactions that Daiwa clears for Introducing Firm.
E. A "Matching Back-to-Back Transaction" is a Back-to-Back Transaction
with respect to which the counterparty to Side One and Side Two have both
submitted instructions to the Clearing Corporation in the form required to
settle Side One and Side Two, and a "Matching Transaction" is a Back-to-Back
Transaction with respect to which only one counterparty has submitted
instructions to the Clearing Corporation in the form required to settle the
side to which such counterparty is a party.
F. "Transactions" are any trades transmitted by Introducing Firm
hereunder to Daiwa for clearing and settlement.
G. A "Validated Transaction" is a sale or purchase of Specified
Securities with an Approved Counterparty for which the Introducing Firm has
confirmed all of the trade details necessary for settlement.
2. Responsibilities of Introducing Firm
A. Transmitting Transactions
Introducing Firm shall execute orders for purchases and sales of
Specified Securities by Approved Counterparties and transmit the Transactions
to Daiwa three times a day, at approximately 12:00 p.m. and 3:00 p.m., and by
no later than 6:00 p.m. (the last of which being referred to as the "Cut-Off
Time"). Any Transactions that Daiwa receives after the Cut-Off Time shall be
subject to the additional fees set forth on Schedule A hereto.
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(i) Transmitting Back-to-Back Transactions
Introducing Firm shall not transmit to Daiwa any Transaction that, by
the Cut-Off Time, is not a Back-to-Back Transaction, with the following
exception. Introducing Firm may transmit only Side One or Side Two, if at the
end of the trading day one of the two sides is not a Validated Transaction,
subject to the aggregate amount of such one-sided Transactions not exceeding a
limit established by Daiwa and communicated to Introducing Firm from time to
time. Introducing Firm shall exert reasonable best efforts to transmit a
Validated Side One or Side Two the following business day. If introducing Firm
has not done so by the end of the day after the settlement date, Daiwa may,
upon prior notice to Introducing Firm, on the second day after settlement date
buy in or sell out the securities to settle the other side. Introducing Firm
shall be liable for all loss, costs and expenses relating thereto to the extent
set forth in Sections 2.D. and 5.A.The foregoing right of Introducing Firm to
delay the transmission of one side is subject to (i) termination at any time
that Daiwa deems that it is no longer prudent to accept only one side and (ii)
satisfactory amounts on deposit in the Collateral Account, in Daiwa's sole
discretion. In any event, such one-sided Transactions shall give rise to the
additional fees established in Section 3.A. (iii) and Schedule A, regardless of
when after trade date Introducing Firm transmits to Daiwa the other side of the
Transaction.
B. Responsibility for Accounts
Except as otherwise specified in this Agreement, Introducing Firm
shall be solely responsible for the opening, approving and monitoring of
counterparties (the "Accounts"), and ensuring that Transactions are in
compliance with the Applicable Rules. Such responsibility, where applicable,
includes, but is not limited to:
(i) Using due diligence to learn and on a continuing basis to
know the essential facts of each customer, knowing all
persons holding power of attorney over any Account, being
familiar with each order in any Account and at all times to
comply fully with Rule 405 of the NYSE and the Rules of Fair
Practice of the NASD, and any interpretations thereof, and
all similar Applicable Rules; (ii) selecting, investigating,
training and supervising all personnel who open, approve or
authorize transaction in the Accounts; (iii) establishing
written procedures for the conduct of the Accounts and
ongoing review of all Transactions in Accounts, and
maintaining compliance and supervisory personnel adequate to
implement such procedures; (iv) determining the suitability
of all Transactions; (v) ensuring that there is a reasonable
basis for all recommendations made; (vi) determining the
appropriateness of the frequency of trading in Accounts;
(vii) determining the authorization and legality of each
transaction in the Account; (viii) determining the amount of
any difference between the prices paid or received by an
Account for a Specified Security and the prices paid or
received by Daiwa for said Specified Security; (ix) obtaining
and maintaining all documents necessary for the performance
of Introducing Firm's responsibilities under this Agreement
and retaining such documents in accordance with all the
Applicable Rules; (x) responding to all its customer
inquiries and complaints, and promptly notifying
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Daiwa in writing of complaints concerning Daiwa; (xi)
arranging for completion of all Daiwa forms and providing
any supporting documents required for the opening and
maintenance of the Account and (xii) promptly furnishing
Daiwa with all information concerning its customer and
Introducing Firm's relationship with its customer and any
related documents that Daiwa may reasonably require. Nothing
herein shall restrict Daiwa from making any further inquiry
or investigation as Daiwa deems necessary.
C. Volume Limitations
Introducing Firm shall not transmit to Daiwa more than the number of
Transactions per day that Daiwa informs Introducing Firm from time to time
constitute the Introducing Firm's volume limit, as set by Daiwa in its
reasonable discretion, acting in good faith. Any Transactions in excess of the
volume limitation, as in effect from time to time, may be rejected by Daiwa,
unless Daiwa has earlier indicated orally or in writing in the course of the
applicable day that it will accept such Transactions.
D. Indemnification
Introducing Firm agrees to indemnify and hold harmless Daiwa, its
officers, directors, employees and affiliates, against any and all losses,
costs, claims and expenses (including reasonable attorneys' fees), as incurred,
(a) arising out of (i) Daiwa acting as clearing broker for Introducing Firm
pursuant to this Agreement, (ii) the negligence of Introducing Firm, its
failure to perform its obligations under this Agreement or the willful
misconduct of Introducing Firm, and (b) constituting Introducing Firm Failure
Costs or Counterparty Failure Costs (all referred to as "Indemnified Losses"),
but excluding Credit Failure Costs, as defined in Section 5.B., any indirect or
consequential losses, lost opportunity costs, or any Indemnified Loss caused by
Daiwa's negligence, its failure to perform its obligations under this
Agreement, or its willful misconduct. Daiwa shall give Introducing Firm prompt
written notice of any matter that may constitute an Indemnified Loss hereunder,
and, if the Indemnified Loss involves a third-party claim, the Introducing Firm
may, but shall not be obligated to, assume the defense thereof with counsel of
its own choosing and at its own expense.
E. Recording, Retaining Tapes
Introducing Firm shall record every trading conversation with
counterparties to Transactions and shall retain tapes of all such conversations
for at least thirty business days, and longer with respect to specified days,
Approved Counterparties or Transactions if Daiwa so requests, either orally and
confirmed by fax or in writing.
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3. Responsibilities of Daiwa
A. Clearing
Subject to the exception described in Section 2. A.(i), Daiwa is
obligated to clear only Matching Back-to-Back Transactions and Matching
Transactions with Approved Counterparties in Specified Securities, which
entails Daiwa taking a position as a fully disclosed principal on Side One and
on Side Two of Matching Back-to-Back Transactions (or, in the case of Matching
Transactions on the side that is matched) pursuant to the following procedure.
(i) Upon receipt of a transmission of Back-to-Back Transactions
from Introducing Firm, Daiwa may, but is not obligated to,
check whether all or any number of such Transactions fail to
meet the definition of a Back-to-Back Transaction. Subject to
the exception established in Section 2.A.(i), any Transaction
that does not meet the definition of a Back-to-Back
Transaction may be rejected by Daiwa, and Daiwa shall not,
unless the Transaction is subsequently accepted by Daiwa, be
principal to the counterparty nor carry the position on its
books.
(ii) Daiwa shall download to the Clearing Corporation by either
the end of the day of trade date or, with respect to
Transactions transmitted after the Cut-Off Time, on T +1, the
trade details received from Introducing Broker for each
Transaction that Daiwa has not rejected pursuant to
subsection (i) above.
(iii) On the business day following the download of information
regarding any Transaction to the Clearing Corporation, Daiwa
shall review a report from the Clearing Corporation
indicating whether any Transactions were not Back-to-Back
Transactions or were not Matching Back-to-Back Transactions.
In either case, if Introducing Firm has transmitted any
Transaction to Daiwa other than a Back-to-Back Transaction,
Introducing Firm shall pay to Daiwa the applicable fees set
forth in Schedule A, and, as set forth in Section 5.A.,
Introducing Firm shall reimburse Daiwa for all Introducing
Firm Failure Costs. Daiwa shall settle as fully disclosed
principal any Transactions for which it has sent a
confirmation, pursuant to Section 3.B. The sending of a
confirmation shall mean that Daiwa has taken a position as
principal and is therefore carrying such Transactions on its
books, notwithstanding that Introducing Firm remains
financially responsible to Daiwa hereunder for any
Introducing Firm Failure Costs and Counterparty Failure
Costs. Upon prior notice to Introducing Firm, Daiwa may take
commercially reasonable action to settle or liquidate any
unmatched Back-to-Back Transactions for which it has sent a
confirmation to the counterparty and has submitted settlement
instructions to the Clearing Corporation.
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B. Confirmations
No later than T+ 1 or one day after Daiwa has received a Transaction,
whichever is later, Daiwa shall deliver confirmations to all counterparties on
Transactions that Daiwa has not rejected pursuant to Section 3.A.(i) hereof and
that Daiwa is obligated to transmit to the Clearing Corporation, pursuant to
Section 3.A.(ii). From the time that Daiwa transmits a confirmation with
respect to a Transaction pursuant to this Section 3.B, it shall be acting as
principal for and carrying such Transaction on its books for regulatory capital
purposes.
C. Revenue; Fees
Daiwa shall receive on settled Matching Back-to-Back Transactions and
Matching Transactions revenue in the form of commissions of Introducing Firm or
the spread between Side One and Side Two. Daiwa shall remit to Introducing Firm
within five business days of the end of each calendar month such amounts
remaining after Daiwa deducts (i) its fee, as established in Schedule A,
including any additional fees set forth therein for transmissions after the
Cut-Off Time pursuant to Section 2.A. and for transmissions of non Back-to-Back
Transactions pursuant to Section 3.A (iii) ("Fees"), (ii) Introducing Firm
Failure Costs, (iii) Counterparty Failure Costs and (iv) amounts for any
Indemnified Losses.
Daiwa shall furnish Introducing Firm with a detailed supporting
schedule with each revenue payment. Daiwa's determination of the amount payable
to Introducing Firm with respect to any calendar month shall be conclusive and
binding on the parties hereto if Introducing Firm does not object thereto in
writing, with details of its objections, within thirty (30) days after its
receipt of such supporting schedule and any reasonably requested additional
information with respect thereto, provided such request is made no later than
15 days after initial receipt of the supporting schedule.
D. Safekeeping/Credit
Daiwa shall be responsible for (i) the delivery and receipt of funds
and/or Specified Securities to and from Accounts, as applicable, and for the
transfer of Specified Securities to and from Accounts and (ii) the receipt,
timely delivery and safeguarding of funds and securities and maintenance of
books and records (including preparation and timely transmittal of the trade
confirmations and statements) relating to all Transactions settled by Daiwa
pursuant to Section 3.A.
Although Daiwa in no way undertakes to extend credit to any Approved
Counterparty, if it were to do so, any credit shall be extended in compliance
with Regulation T, Rule 431 of the NYSE Rules and any other applicable margin
regulations.
E. Indemnification
Daiwa agrees to indemnify and hold harmless Introducing Firm, its
officers, directors, employees and affiliates, against any and all losses,
costs, claims and expenses (including
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reasonable attorneys' fees), as incurred, (a) caused by (i) Daiwa's failure to
perform its obligations under this Agreement or (ii) Daiwa's negligence or
willful misconduct or (b) constituting Credit Failure Costs, as defined in
Section 5.B. (all referred to as "IF Indemnified Losses"), but excluding any
indirect or consequential losses, or lost opportunity costs. The Introducing
Firm shall give Daiwa prompt written notice of any matter that may constitute
an IF Indemnified Loss hereunder, and, if the IF Indemnified Loss involves a
third party claim, Daiwa may, but shall not be obligated to, assume the defense
thereof with counsel of its own choosing and at its own expense.
F. Reports
Daiwa will provide Introducing Firm with same-day reports of
Transactions that do not constitute Back-to-Back Transactions and with daily
morning reports, starting with T+l, of Transactions that are not Matching
Transactions.
4. Separate Responsibilities
Pursuant to NYSE Rule 382, the parties have allocated between
themselves in this Agreement responsibility for compliance with all applicable
laws, rules and regulations of the SEC, NYSE and NASD. In addition, for
purposes of the Securities and Exchange Commission's financial responsibility
rules and SIPC, the Introducing Firm's customers will be considered customers
of Daiwa and not customers of the Introducing Firm; provided, however, that
nothing in this Section shall cause the Introducing Firm's customers to be
construed or interpreted as customers of Daiwa for any other purpose or to
negate the intent of any other Section of this Agreement, including, but not
limited to, the delineation of responsibilities as set forth elsewhere in this
Agreement.
Each party shall be solely responsible for (i) adherence to Applicable
Rules and for the supervision of its own operations area and personnel; (ii)
compliance with all restricted/control stock requirements, as applicable to it;
(iii) compiling and filing its respective regulatory reports, as applicable;
and (iv) supplying the other with reasonable access to its relevant records and
supplying any information in its possession reasonably requested by such party
in order for both parties to properly perform their respective functions under
the Agreement. Each party shall be responsible for its own errors with respect
to this Section 4.
5. Failure to Match; Failure to Settle; Responsibilities of the Parties
A. Not Back-to-Back Transactions/Introducing Firm Failure
In the event Daiwa receives a Transaction that does not meet the
definition of a Back-to-Back Transaction for any reason, including without
limitation, (i) the failure of Introducing Firm to transmit to Daiwa Validated
Transactions or (ii) the failure of Introducing Firm to transmit to Daiwa Side
One and Side Two on the same day, Introducing Firm shall have full
responsibility
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for, and shall pay to Daiwa upon demand, all amounts constituting Daiwa's
reasonable out-of-pocket costs (whether or not already paid), losses and
expenses (including reasonable attorneys' fees) arising therefrom including,
without limitation, costs to buy-in, borrow or sell-out the securities, to
compel performance by the counterparty, or to pay additional personnel or
overtime, but only if such additional personnel or overtime costs are beyond
the ordinary course of business. All of the foregoing are referred to as
"Introducing Firm Failure Costs". Also, Introducing Firm shall be obligated to
pay the applicable fees set forth in Schedule A.
B. Settlement Failure/Counterparty Failure
In the event Daiwa has transmitted a Back-to-Back Transaction to the
Clearing Corporation that becomes a Matching Back-to-Back Transaction but that
(i) fails on settlement date due to failure of the counterparty to deliver
securities or cash or (ii) fails to become a Matching Back-to-Back Transaction
because of the failure of the counterparty to either Side One or Side Two to
send to the Clearing Corporation adequate instructions required for settlement,
but excluding in either case counterparty failure due to actual or impending
bankruptcy or similar insolvency proceedings or credit issues ("Credit Failure
Costs"), Introducing Firm shall be responsible for, and shall pay to Daiwa upon
demand, all amounts constituting Daiwa's reasonable out-of-pocket costs
(whether or not already paid), losses and expenses (including reasonable
attorneys' fees) arising from such fail, including, without limitation, costs
to buy-in, borrow or sell-out securities, to compel performance by the
counterparty, to pay additional personnel or to pay overtime, but only if such
personnel or overtime costs are beyond the ordinary course of business. All of
the foregoing costs, losses, and expenses are referred to herein as the
"Counterparty Failure Costs".
C. Suspension of Certain Trading
If at any time the number of Transactions (either Side One or Side
Two), with respect to which the counterparty has not provided Clearing
Corporation with matching instructions, reaches an amount that Daiwa finds
unacceptable Daiwa may, acting in good faith, suspend accepting Transactions
from Introducing Firm, with respect to that counterparty, immediately upon
written or oral notice, until such time that Daiwa decides that it is prudent
to resume accepting such Transactions hereunder.
If at any time the number of Transactions that are not Back-to-Back
Transactions reaches an amount that Daiwa finds unacceptable (subject to
Section 2.A.(i)), Daiwa may, acting in good faith, suspend accepting
Transactions from Introducing Firm immediately upon written or oral notice,
until such time that Daiwa decides that it is prudent to resume accepting
Transactions hereunder.
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D. Regulatory Capital
It is understood that in no event shall Introducing Firm Failure
Costs, Counterparty Failure Costs or Indemnified Losses include any costs or
expenses of Daiwa incurred in connection with capital charges for Transactions,
unless Daiwa is required to obtain capital in addition to the amount it
normally has as excess net capital as a result of the failure of Introducing
Firm to perform its obligations under this Agreement.
6. Introducing Firm Representations and Covenants
Introducing Firm represents, warrants and covenants to Daiwa as
follows:
(i) It is a member in good standing of the NASD.
(ii) It is and during the term of this Agreement will remain duly
registered or licensed and in good standing as a
broker/dealer under the Applicable Rules.
(iii) It has all the requisite authority in conformity with all
Applicable Rules to enter into this Agreement and to retain
the services of Daiwa in accordance with the terms hereof and
has taken all necessary action to authorize the execution of
this Agreement and the performance of the obligations
hereunder.
(iv) It is in compliance, and during the term of this Agreement
will remain in compliance with (a) the capital and financial
reporting requirements of any and all national securities
exchange or other securities exchange and/or securities
association of which it is a member, (b) the capital
requirements of the Securities and Exchange Commission and
(c) the NASD Rules of Fair Practice.
(v) It shall provide representatives of any governmental body
having jurisdiction over the respective businesses of the
parties with reasonable access to the records relating to
Accounts and their owners.
(vi) It shall keep confidential any information it may acquire as
a result of this Agreement regarding the business and affairs
of Daiwa, which requirements shall survive the termination of
this Agreement.
7. Daiwa Representations and Covenants
Daiwa represents, warrants and covenants to Introducing Firm as
follows:
(i) Daiwa is a member in good standing of the NASD and of the
NYSE.
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(ii) Daiwa is and during the term of this Agreement will remain
duly licensed and in good standing as a broker/dealer under
the Applicable Rules.
(iii) Daiwa has all the requisite authority, in conformity with all
Applicable Rules to enter into and perform this Agreement and
has taken all necessary action to authorize the execution of
this Agreement and the performance of the obligations
hereunder.
(iv) Daiwa is in compliance, and during the term of this Agreement
will remain in compliance with (a) the capital and financial
reporting requirements of every national securities exchange
and/or other securities exchange or association of which it
is a member, (b) the capital requirements of the Securities
and Exchange Commission and (c) the NASD Rules of Fair
Practice.
(v) The names and addresses of Introducing Firm's customers which
have or which may come to Daiwa's attention in connection
with the clearing and related functions it has assumed under
this Agreement are confidential and shall not be utilized by
Daiwa except in connection with the functions performed by
Daiwa pursuant to this Agreement. Notwithstanding the
foregoing, should any customer of Introducing Firm request,
on an unsolicited basis that Daiwa become its broker,
acceptance of such Account by Daiwa shall in no way violate
this representation and warranty, nor result in a breach of
this Agreement.
(vi) Daiwa shall keep confidential any information it may acquire
as a result of this Agreement regarding Introducing Firm's
business and affairs, which requirement shall survive the
termination of this Agreement.
8. Nature of Relationship
A. Daiwa shall limit its services pursuant to the terms of this
Agreement to that of the clearing and the specified related functions described
herein, and Introducing Firm shall not hold itself out as an agent of Daiwa or
of any subsidiary or company controlled directly or indirectly by or affiliated
with Daiwa. Neither this Agreement nor any operation hereunder shall create a
general or limited partnership, association or joint venture or agency
relationship between the parties.
B. Introducing Firm shall not, without the prior written approval of
Daiwa, place any advertisement in any newspaper, publication, periodical or any
other media if such advertisement in any manner makes reference to Daiwa or to
the clearing arrangements set forth in this Agreement; provided, however, that
the public parent company of Introducing Firm may name Daiwa and accurately
describe this Agreement in any filing such company makes with the Securities
and Exchange Commission pursuant to either the Securities Act of 1933 or the
Securities Exchange Act of 1934.
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C. Should Introducing Firm in any way hold itself out as, advertise or
represent that it is the agent of Daiwa, Daiwa may, at its option, terminate
this Agreement and Introducing Firm shall be liable for any loss, liability,
damage, claim, cost or expense (including but not limited to reasonable fees
and expenses of legal counsel) sustained or incurred by Daiwa as a result of
such a representation of agency or apparent authority to act as an agent of
Daiwa or agency by estoppel.
9. Deposit of Collateral
A. To ensure Introducing Firm's performance of its obligations under
this Agreement (including, without limitation, the payment of Fees, Introducing
Firm Failure Costs, Counterparty Failure Costs and Indemnified Losses), there
shall be established a securities holding account with Daiwa to be opened in
the name of Introducing Firm and designated as the Introducing Firm Collateral
Account (the "Collateral Account"). The Collateral Account shall at all times
contain cash, securities, or a combination of both, having a market value of
not less than the sum required by Daiwa as of the date of this Agreement;
provided that Daiwa shall have the right, in its reasonable discretion, to
increase upon not less than three business days notice to Introducing Firm, the
Collateral Amount to reflect materially changed conditions relating to the
Introducing Firm or its business or an unusually high number or value of
unresolved errors or fails with respect to Transactions (the "Collateral
Amount"). Said securities shall consist only of direct obligations issued by or
guaranteed as to principal and interest by the United States and such other
securities as Daiwa may in writing consent to, in its sole discretion, from
time to time. As collateral security for all of its obligations to Daiwa under
and with respect to this Agreement, Introducing Firm hereby pledges, assigns
and grants a first priority security interest and lien to Daiwa in and upon all
property from time to time now or hereafter in the Collateral Account, and
Daiwa shall have all rights and remedies with respect thereto of a secured
party under the New York Uniform Commercial Code or other applicable law, as
well as its other rights hereunder. Introducing Firm represents and warrants
that any Collateral shall be free of any lien, pledge or interest other than
that of Daiwa. Introducing Firm shall be entitled to receive all cash
distributions made on or in respect of the securities unless the market value
of the cash and/or securities in the Collateral Account is less than the
Collateral Amount. If the Collateral Account consists of cash, Daiwa shall pay
interest to the Introducing Firm on this cash held from time to time at an
agreed upon rate. If at any time the market value of the cash and/or securities
in the Collateral Account fall below 90% of the Collateral Amount, as
determined by Daiwa, Daiwa may, by notice to Introducing Firm, demand that
Introducing Firm deliver additional collateral to the Collateral Account no
later than the third following business day to increase the market value to the
full Collateral Amount.
B. Except as provided herein, Introducing Firm shall not have access
to, nor have any right to transfer or withdraw any cash or securities from, the
Collateral Account without the prior written consent of Daiwa. The Collateral
Account shall not be deemed to be margin for any Approved Counterparty
accounts.
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C. Daiwa shall have the right to deduct the amount of any and all
amounts owed to Daiwa hereunder, including without limitation, Fees,
Introducing Firm Failure Costs and Counterparty Failure Costs and Indemnified
Losses, from the securities collateral, and, in such event, Daiwa shall have
the right to liquidate the securities in a commercially reasonable manner;
provided, however, Daiwa agrees to deduct the foregoing amounts first from
revenue, pursuant to Section 3.C. and then, to the extent revenue is
insufficient, from the Collateral Account. Any amounts deducted from revenue or
the Collateral Account, which are subsequently determined (by Daiwa, mutual
agreement, arbitration or otherwise) to be incorrect, excessive or otherwise
not the responsibility of Introducing Firm, shall be promptly reimbursed by
Daiwa to Introducing Firm together with interest thereon (from the date of
deduction to the date of reimbursement) calculated at a comparable Treasury
rate.
D. Within thirty (30) days of the termination of this Agreement, Daiwa
will (a) effect the payment and delivery to Introducing Firm of the funds
and/or securities in the Collateral Account, less any amounts Daiwa is entitled
to withdraw under the preceding paragraph; provided, however, that Daiwa may
retain in the Collateral Account such amount as it reasonably deems appropriate
for its protection from any claim or proceeding of any type then threatened or
pending, until the final determination thereof is made, and (b) deliver or
cause to be delivered to Introducing Firm (without the reproduction or other
copying thereof) all documents and other materials, including customer lists,
prepared in connection with this Agreement or the business of Introducing Firm,
except for such documents and other materials as Daiwa may have destroyed in
the normal course of its business or may be required to keep for regulatory
purposes or otherwise as may be required by law. In any event, Daiwa agrees
that no such documents or other materials will be distributed by it to any
person or group in or outside Daiwa that does not have responsibility for the
administration, legal or audit review of this Agreement or transactions
thereunder.
10. Assignment
This Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns. Introducing Firm may not assign
its rights and/or obligations hereunder without the prior written consent of
Daiwa, except pursuant to a merger or other business combination with another
wholly-owned subsidiary of Maxcor Financial Group Inc. in which the resulting
entity has a net worth at least equal to that of the Introducing Firm as of the
date hereof.
11. Amendments; Waiver; Integration
Any amendment or supplement to this Agreement and any waiver of any
rights hereunder must be in writing signed by the Parties. Further, without
limiting the foregoing, no failure to enforce a right, no act or pattern of
conduct shall constitute an amendment, supplement or waiver. This Agreement
supersedes all other agreements between the parties with respect to the subject
matter hereof.
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12. Governing Law
This agreement shall be construed and interpreted in accordance with
the internal laws of the state of New York without reference to choice of law
principles.
13. Arbitration
Each party agrees that any claim, dispute, grievance or controversy
arising under this Agreement or any Transactions executed or arising therefrom
or thereunder shall be settled by arbitration pursuant to and in accordance
with Article XI of the NYSE Constitution and the NYSE Arbitration Rules. Each
party further agrees to service of process in any arbitration proceeding by
mailing of copies thereof (by registered or certified mail, if practicable)
postage prepaid, or by telex, to it at an address for notices under this
Agreement; and agrees that nothing herein shall affect the other party's right
to effect service of process in any other manner permitted by NYSE Arbitration
Rules, and that each party shall have the right to bring a proceeding for
enforcement of a judgment entered by any arbitration panel against the other
party in any court or jurisdiction in accordance with applicable law.
14. Termination
This Agreement may be terminated by either party upon thirty days'
written notice given to the other party at any time, or immediately upon
written notice following an Event of Default which event shall occur if (i)
either party shall fail to perform or observe any term, covenant or condition
to be performed or observed by it hereunder and such failure shall continue to
be unremedied for a period of five business days after written notice from the
non-defaulting party to the defaulting party specifying the failure and
demanding that the same be remedied; (ii) any representation or warranty made
by either party shall prove to be incorrect at any time in any material
respect; (iii) a receiver, liquidator or trustee of either party, or of any
material property held by either party, is appointed by court order; or either
party is adjudicated bankrupt or insolvent; or any of its material property is
sequestered by court order and such order is not appealed and stayed within
fifteen days of its entrance; or a petition is filed against either party under
the bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect and is not dismissed within fifteen days of such filing, or (iv) either
party makes an assignment for the benefit of its creditors, or admits in
writing its inability to pay its debts generally as they become due, or
consents to the appointment of a receiver, trustee or liquidator of either
party, or of any property held by either party.
13
<PAGE>
15. Notices
Written notices shall be properly made if hand delivered, mailed
(registered mail) or telecopied ("faxed") to the party entitled to receive such
notices at the following address or telephone number:
To Introducing Firm:
Maxcor Financial Inc.
2 World Trade Center - 84th Floor
New York, N.Y. 10048-0697
Tel. No: 212-748-7040
Fax No.: 212-748-7049
Attn.: Susan J. Tysk, Senior Vice President
and Assistant Treasurer
To Daiwa:
Daiwa Securities America Inc.
Financial Square
32 Old Slip
New York, New York 10005
Tel. No.: 212 612-6494
Fax No.: 212 612-7131
Attn.: Thomas S. Dillon, Executive Vice President
Correspondent Services
14
<PAGE>
16. Miscellaneous
There will be no Account opened on behalf of any employee or officer
of any New York Stock Exchange member organization, self-regulatory
organization or other financial institution without the prior written consent
of Daiwa.
This Agreement and all transactions in the Accounts, will be subject
to the applicable constitution, rules, by-laws, regulations and customs of any
securities market, association, exchange or clearing house where such
transactions are effected, and also to all applicable NYSE and NASD Rules and
to all U.S. federal and state laws and regulations.
All telephone conversations in connection with Transactions under the
Agreement may be electronically recorded and may be used to resolve any
uncertainty or any dispute arising in connection with this Agreement or any
transaction hereunder.
Please indicate your agreement with the foregoing by signing and
returning the enclosed copy of this letter.
Very truly yours,
DAIWA SECURITIES AMERICA INC.
/s/ Daiwa Securities America Inc.
---------------------------------
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
MAXCOR FINANCIAL INC.
/s/ Maxcor Financial Inc.
- --------------------------
15
<PAGE>
Exhibit A
---------
Schedule of Specified Securities
--------------------------------
1. Securitized Adjustable Rate Mortgages
2. Asset-backed Securities bearing a credit rating of AA or better
3. Collateralized Mortgage Obligations bearing a credit rating of AA or
better
4. GNMA, FNMA and Freddie Mac Securities
5. Brady Bonds
6. U.S. Government and Agency Securities
7. Sovereign Debt - EuroClear/CEDEL/DTC Eligible
8. Euro Bonds
9. Corporate Securities
10. Convertible Bonds
11. Municipal Securities
16
<PAGE>
Exhibit B
---------
[Daiwa Letterhead]
___________, 19____
[Customer Name and Address]
Re [Name of Introducing Firm]:
Allocation of Brokerage Account Responsibilities
------------------------------------------------
Ladies and Gentlemen:
As you know, your account has been introduced to Daiwa Securities
America Inc. ("Daiwa") by your brokerage firm _______ ("XXX"), for the purpose
of Daiwa clearing trades, as fully-disclosed principal, in certain specified
securities pursuant to the clearing service agreement between XXX and Daiwa.
Once Daiwa enters a trade on its books, you will be considered a
customer of Daiwa for purposes of the Securities and Exchange Commission's
financial responsibility rules and the Securities Investor Protection Act.
Nothing herein shall cause customers of XXX to be construed as customers of
Daiwa for any other purpose.
In establishing this relationship, XXX is acting solely on your behalf
and not on behalf of or as the agent of Daiwa. XXX shall remain responsible for
the ongoing relationship with you, and for the following:
- Learning your investment objectives and opening, approving
and monitoring your account, and in all respects complying
with Rule 405 of the New York Stock Exchange.
- Reviewing your account and all orders in it and supervising
all investment advice.
- Accepting or rejecting your orders and correcting errors in
trade details in order to transmit only matching transactions
to Daiwa.
- Ensuring that all the transactions conducted in your account
are in compliance with all applicable law and rules.
- Responding to any inquiries or complaints you may make
concerning your account.
17
<PAGE>
Allocation of Brokerage Account Responsibilities
Page 2
- Supervising all functions performed by XXX's employees,
including, investment advisory, sales, trading and account
opening and approving activities.
Additionally, XXX is responsible to Daiwa for supplying all
documentation required by Daiwa, notwithstanding the fact that Daiwa has at all
times the right to contact you directly regarding its information requirements.
Daiwa has at all times the right, exercisable in its sole discretion, to refuse
to accept orders for your account.
Daiwa will be responsible for the following:
Clearing, as principal, transactions in your account pursuant to XXX's
instruction.
- Maintaining books and records and filing regulatory reports.
- Delivering from and receiving funds and securities for your
account, receiving and holding dividends or interest and
handling exchange or tender offers, rights, warrants and
redemptions, all in accordance with the last instructions
received either from you or XXX.
- Safeguarding funds and securities.
- Preparing and transmitting confirmations and statements.
Any questions you may have concerning the conduct of your account
should be addressed directly to XXX.
You agree that any and all telephone conversations between us with
respect to the contemplated transactions may be tape recorded and you hereby
waive further notice of tape recording. In the event of any dispute, tapes can
be used in any forum in which a dispute is sought to be resolved.
Very truly yours,
By:
------------------------------------
DAIWA SECURITIES AMERICA INC.
Thomas S. Dillon
Executive Vice President
Head of Sales & Administrative Services
Correspondent Services Division
18
<PAGE>
Schedule A
----------
Schedule A has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.
19
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Financial Statements of Maxcor Financial Group Inc.
at and as of March 31, 1998 and is qualified in its entirety by
reference to such Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,019,675
<RECEIVABLES> 952,328
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 4,274,641
<PP&E> 10,588,708
<TOTAL-ASSETS> 74,264,719
<SHORT-TERM> 1,695,426
<PAYABLES> 300,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 851,037
<LONG-TERM> 6,231,259
0
0
<COMMON> 11,331
<OTHER-SE> 30,795,418
<TOTAL-LIABILITY-AND-EQUITY> 74,264,719
<TRADING-REVENUE> 187,651
<INTEREST-DIVIDENDS> 467,780
<COMMISSIONS> 39,124,825
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 220,744
<COMPENSATION> 27,015,172
<INCOME-PRETAX> 593,710
<INCOME-PRE-EXTRAORDINARY> 593,710
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (804,290)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
