<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 September 30, 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 November 12, 1998 was 11,323,782.
The Exhibit Index is on Page 24
Page 1 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): 3
Consolidated Statements of Financial Condition 4
Consolidated Statements of Operations 6
Consolidated Statements of Changes in Stockholders' Equity 7
Consolidated Statements 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 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit Index 24
Page 2 of 34 Pages
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
Page 3 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 9,094,223 $ 18,041,631
Deposits with clearing organizations 7,535,930 9,048,922
Receivable from broker-dealers and customers 21,678,225 20,486,191
Securities owned 15,385,490 10,497,465
Prepaid expenses and other assets 8,385,941 7,972,400
Deferred tax asset 6,751,012 6,331,637
Equity in affiliated companies 2,514,737 2,606,987
Furniture, equipment and leasehold
improvements 10,384,042 11,459,523
Intangible assets 1,299,211 1,606,757
------------------ -----------------
Total assets $ 83,028,811 $ 88,051,513
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------- -----------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
Liabilities:
Short-term bank loans $ $ 6,225,928
Payable to broker-dealers and customers 10,831,187 569,458
Securities sold, not yet purchased 780,849
Accounts payable and accrued liabilities 16,990,884 18,490,511
Accrued compensation payable 13,544,909 18,202,561
Income taxes payable 3,108,069 4,286,269
Deferred taxes payable 656,667 656,667
Obligations under capitalized leases 887,928 974,186
Notes payable 6,093,210 6,261,839
------------------- -----------------
52,112,854 56,448,268
------------------- -----------------
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized, none
issued at September 30, 1998 and December 31, 1997
Common stock, $.001 par value; 30,000,000 shares authorized,
11,392,269 shares issued at September 30, 1998 and December 31 1997 11,392 11,392
Additional paid-in capital 33,187,415 33,187,415
Treasury stock at cost; 68,487 and 61,638 shares of
common stock held at September 30, 1998 and
December 31, 1997, respectively ( 227,932) ( 209,451)
Accumulated deficit ( 4,549,470) ( 3,815,073)
Accumulated other comprehensive income 2,494,552 2,428,962
------------------- -----------------
Total stockholders' equity 30,915,957 31,603,245
------------------- -----------------
Total liabilities and stockholders' equity $ 83,028,811 $ 88,051,513
=================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Commission income $ 37,985,620 $ 42,355,643 $ 115,940,843 $ 128,472,164
Interest income 347,495 420,643 1,130,100 1,244,431
Other income 541,070 74,780 1,036,025 503,586
------------- ------------- ------------- -------------
38,874,185 42,851,066 118,106,968 130,220,181
------------- ------------- ------------- -------------
Costs and expenses:
Payroll and related costs 25,187,131 27,446,534 78,116,391 82,020,693
Communication costs 3,655,811 3,729,294 11,147,574 12,215,211
Travel and entertainment 2,123,090 2,636,848 7,110,874 8,024,132
Clearing fees 1,529,460 1,559,226 3,833,773 4,815,787
Occupancy costs 1,423,466 1,402,485 4,582,541 4,504,397
Depreciation and
amortization 1,259,903 1,346,129 3,806,953 4,003,548
Interest expense 213,558 220,836 698,898 668,099
General, administrative
and other expenses 1,838,493 2,089,959 4,992,388 5,350,702
------------- ------------- ------------- -------------
37,230,912 40,431,311 114,289,392 121,602,569
------------- ------------- ------------- -------------
Income before provision for
income taxes and
minority interest 1,643,273 2,419,755 3,817,576 8,617,612
Provision for income taxes 1,187,713 1,935,963 3,481,959 6,369,915
------------- ------------- ------------- -------------
Income before minority
interest 455,560 483,792 335,617 2,247,697
Minority interest in
consolidated subsidiaries ( 389,790) ( 405,964) ( 1,070,014) ( 1,028,866)
------------- ------------- ------------- -------------
Net income (loss) $ 65,770 $ 77,828 ($ 734,397) $ 1,218,831
============= ============= ============= =============
Weighted average common
shares outstanding 11,326,015 8,949,656 11,329,076 8,949,656
Basic and diluted earnings
per share $ .01 $ .01 ($ .06) $ .14
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 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 $32,450,874
Issuance of shares in
Exchange Offer 2,381 ( 2,381)
Comprehensive income
Net loss for the
year ended
December 31, 1997 ($ 268,992) ( 268,992) ( 268,992)
Other comprehensive
income
Foreign translation
adjustment (net of
income tax benefit
of $111,003) ( 25,176) ( 25,176) ( 25,176)
-----------
Comprehensive income ($ 294,168)
===========
Issuance of shares to
EBIC shareholders 61 ( 61)
Acquisition of treasury
stock ($ 209,451) ( 209,451)
Expenses incurred in
connection with
Exchange Offer ( 344,010) ( 344,010)
----------- ------------- ------------ ------------- ------------- -----------
Balance at December
31, 1997 11,392 33,187,415 ( 209,451) ( 3,815,073) 2,428,962 31,603,245
Comprehensive income
Net loss for the nine
months ended
September 30, 1998 ($ 734,397) ( 734,397) ( 734,397)
Other comprehensive
income
Foreign translation
adjustment (net of
income tax expense
of $155,079) 65,590 65,590 65,590
-----------
Comprehensive income ($ 668,807)
===========
Acquisition of treasury
stock ( 18,481) ( 18,481)
----------- ------------- ------------ ------------- ------------- -----------
Balance at
September 30, 1998 $ 11,392 $ 33,187,415 ($ 227,932) ($ 4,549,470) $ 2,494,552 $30,915,957
=========== ============= ============ ============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($ 734,397) $ 1,218,831
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 3,806,953 4,003,548
Provision for doubtful accounts 50,812 60,369
Undistributed earnings of affiliates ( 1,554,664) ( 1,661,898)
Net loss (gain) on disposal of fixed assets 28,009 ( 36,257)
Imputed interest expense 44,860 64,279
Deferred income taxes ( 386,306) 1,099,614
Change in assets and liabilities:
Decrease (increase) in deposits with clearing
organizations 1,517,444 ( 1,436,269)
(Increase) decrease in receivable from broker-dealers
and customers ( 1,200,130) 3,137,124
(Increase) decrease in securities owned ( 4,888,025) 5,384,503
Decrease in prepaid expenses and other assets 1,176,460 1,995,443
Decrease in short-term bank loans ( 6,225,928) ( 3,886,492)
Increase (decrease) in payable to broker-dealers and
customers 10,261,729 ( 1,826,250)
Decrease in securities sold, not yet purchased ( 780,849) ( 1,724,531)
(Decrease) increase in accounts payable and accrued
liabilities ( 1,224,090) 1,098,267
Decrease in accrued compensation payable ( 4,837,344) ( 9,645,707)
(Decrease) increase in income taxes payable ( 1,194,234) 880,181
------------------ ------------------
Net cash used in operating activities ( 6,139,700) ( 1,275,245)
------------------ ------------------
Cash flows from investing activities:
Purchase of fixed assets ( 3,107,094) ( 2,450,872)
Proceeds from the sale of fixed assets 289,258 241,172
Proceeds from the sale of subsidiary 322,622
Sale of exchange membership 140,000
Dividends received from equity affiliates 35,047 51,368
------------------ ------------------
Net cash used in investing activities ( 2,782,789) ( 1,695,710)
------------------ -------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 8 of 34 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from financing activities:
Repayment of notes payable ( 299,616) ( 1,099,509)
Repayment of obligations under capitalized leases ( 114,251) ( 249,202)
Acquisition of treasury stock ( 18,481) ( 209,451)
------------------ ------------------
Net cash used in financing activities ( 432,348) ( 1,558,162)
------------------ ------------------
Effect of exchange rate changes 407,429 ( 25,285)
------------------ ------------------
Net decrease in cash and cash equivalents ( 8,947,408) ( 4,554,402)
Cash and cash equivalents at beginning of period 18,041,631 18,231,926
------------------ -----------------
Cash and cash equivalents at end of period $ 9,094,223 $ 13,677,524
================== =================
Supplemental disclosures of cash flow information:
Interest paid $ 459,765 $ 328,430
Income taxes paid $ 2,560,533 $ 3,110,437
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 9 of 34 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") 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, Geneva, 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
principles 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 prior period balances to conform with the September 30, 1998
presentation. Operating results for the interim periods ended September 30,
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 34 Pages
<PAGE>
NOTE 2 - STOCKHOLDERS' EQUITY:
Preferred stock:
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:
At September 30, 1998 and December 31, 1997, the Company had outstanding
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).
At September 30, 1998 and December 31, 1997, 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 September 30, 1998, MFI's regulatory net capital was
approximately $11,212,000 and exceeded the minimum requirement of $250,000 by
approximately $10,962,000. 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 34 Pages
<PAGE>
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENT:
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are to be recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
NOTE 5 - SUBSEQUENT EVENT:
On October 1, 1998 the Company issued 2,000 shares of a newly created Series B
Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") to its
equity affiliate, Yagi Euro Corporation ("Yagi Euro") at a purchase price of
$1,000 per share ("Stated Value"). Cumulative dividends at the annual rate of
2% of the Stated Value are payable quarterly in arrears. The Company may, at
any time, redeem the Series B Preferred Stock, in whole or in part, at its
option, at a per share price equal to the Stated Value together with accrued
and unpaid dividends thereon ("Liquidation Preference"). In addition, the
Series B Preferred Stock is subject to mandatory redemption at the Liquidation
Preference on October 1, 2008 or within 60 days of the disposition of the
Company's investment in Yagi Euro. The Series B Preferred Stock does not have
any conversion rights. The Series B Preferred Stock also is non-voting, unless
the Company has not paid dividends in full for the two immediately preceding
quarters or has failed to meet any mandatory redemption obligation, in which
case the holders of the Series B Preferred Stock would be entitled to appoint
one additional director to the Company's Board of Directors.
Page 12 of 34 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 September 30, 1998
Compared to the Three Months Ended September 30, 1997
Commission income for the three months ended September 30, 1998
decreased $4,370,023 to $37,985,620, compared to $42,355,643 for the
comparable period in 1997. The net decrease primarily resulted from the
combination of reduced brokerage in London and Toronto aggregating
approximately $1.0 million, primarily reflecting several departmental closures
during the fourth quarter of 1997, and reduced brokerage in New York of
approximately $3.7 million, primarily reflecting reduced market volumes in
emerging markets products and electricity energy derivatives. These decreases
were partially offset by overall increased brokerage in Tokyo, notwithstanding
the significant effect of the weakening Japanese yen as compared to the U.S.
dollar, and brokerage generated by the Company's new office in Geneva, which
commenced operations in July 1998.
Interest income for the three months ended September 30, 1998
decreased by $73,148 to $347,495, compared to $420,643 for the comparable
period in 1997, reflective of reduced cash balances and a lower interest rate
environment.
Other income for the three months ended September 30, 1998 increased
$466,290 to $541,070, compared to $74,780 for the same period in 1997,
primarily due to increases in foreign exchange gains of approximately $177,000
and in trading gains on municipal securities transactions of approximately
$310,000, partially offset by decreases in income from affiliated companies of
approximately $21,000.
Payroll and related costs for the three months ended September 30,
1998 decreased $2,259,403 to $25,187,131, compared to $27,446,534 for the
three months ended September 30, 1997. The net decrease was primarily the
result of reduced employment costs in London and Toronto aggregating
approximately $1.2 million associated with departmental closures during the
fourth quarter of 1997 and salary reductions during 1998, and reduced
employment costs in New York of approximately $1.7 million associated with
reduced commission income and salary
Page 13 of 34 Pages
<PAGE>
reductions during 1998. These decreases were partially offset by increased
employment costs associated with the expansion of operations in Tokyo and
commencement of operations in Geneva. As a percentage of commission income,
payroll and related costs were relatively consistent at 66% for the three
months ended September 30, 1998, as compared to 65% for the corresponding
period in 1997, partly reflective of management's increased efforts to
correlate employment costs more closely to revenues.
Communication costs for the three months ended September 30, 1998
decreased $73,483 to $3,655,811, compared to $3,729,294 for the three months
ended September 30, 1997, primarily due to departmental closures in London and
Toronto during the fourth quarter of 1997, partially offset by costs incurred
by the new Geneva office.
Travel and entertainment costs for the three months ended September
30, 1998 decreased $513,758 to $2,123,090, compared to $2,636,848 for the
three months ended September 30, 1997. As a percentage of commission income,
travel and entertainment costs decreased to 5.6% for the three months ended
September 30, 1998 as compared to 6.2% for the corresponding period in 1997,
reflective of management's increased efforts to reduce these costs.
Clearing fees are fees for transaction settlements and credit
enhancement, which are charged by clearing institutions where the Company
generally acts as a riskless principal on a fully matched basis. These
expenses decreased $29,766 to $1,529,460, for the three months ended September
30, 1998, compared to $1,559,226 for the three months ended September 30,
1997, due primarily to a decline in the number of cleared transactions, offset
in part by additional costs incurred during the current period associated with
the processing of certain transactions through the Emerging Markets Clearing
Corporation ("EMCC") during the EMCC's initial implementation stage.
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.
For the three months ended September 30, 1998, these costs increased by
$20,981 to $1,423,466, compared to $1,402,485 for the three months ended
September 30, 1997, primarily resulting from escalations of rent associated
with pre-existing office locations and rent attributable to new office
locations in the U.S. and Geneva, offset in part by a net reduction between
reporting periods of approximately $138,000 in occupancy related accruals.
Depreciation and amortization expense consists principally of
depreciation of communication and computer equipment and leased automobiles
and amortization of leasehold improvements and intangible assets. For the
three months ended
Page 14 of 34 Pages
<PAGE>
September 30, 1998, depreciation and amortization decreased
$86,226 to $1,259,903, compared to $1,346,129 for the same period in 1997,
primarily as a result of a reduction in capitalized leased automobiles in the
U.K., offset in part by the continued expansion of the Company's proprietary
screen system and continued investment in communications and computer
technology.
Interest expense for the three months ended September 30, 1998
decreased $7,278 to $213,558, compared to $220,836 for the comparable period
in 1997. This increase was primarily the result of the net effect of a
decrease of approximately $32,000 associated with capitalized lease
obligations and an increase of approximately $23,000 in connection with the
financing of municipal securities positions.
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 September 30, 1998 these expenses
decreased by $251,466 to $1,838,493, compared to $2,089,959 for the three
months ended September 30, 1997. This decrease primarily resulted from the
combined net effects of, during the three months ended September 30, 1997, a
write-off of approximately $500,000 relating to an interactive electronic
execution system in Toronto and, during the three months ended September 30,
1998, an increase in professional fees of approximately $153,000 and net
increases in various other general and administrative expenses aggregating
approximately $95,000.
Provision for income taxes for the three months ended September 30,
1998 decreased $748,250 to $1,187,713, compared to $1,935,963 for the three
months ended September 30, 1997, primarily due to reduced levels of pre-tax
accounting income.
Minority interest in consolidated subsidiaries for the three months
ended September 30, 1998 decreased by $16,174 to ($389,790), compared to
($405,964) for the three months ended September 30, 1997, reflecting lower net
income generated by such subsidiaries.
Nine Months Ended September 30, 1998
Compared to the Nine Months Ended September 30, 1997
Commission income for the nine months ended September 30, 1998
decreased $12,531,321 to $115,940,843, compared to $128,472,164 for the
comparable period in 1997. The net decrease primarily resulted from the
combination of reduced brokerage in London and Toronto aggregating
approximately $8.2 million, primarily reflecting several departmental closures
during the fourth quarter of 1997, and reduced brokerage in New York of
approximately $7.4 million, primarily reflecting reduced market volumes in
emerging markets products and electricity
Page 15 of 34 Pages
<PAGE>
energy derivatives. These decreases were partially offset by overall increased
brokerage in Tokyo, notwithstanding the significant effect of the weakening
Japanese yen as compared to the U.S. dollar, increased brokerage in Mexico City
and brokerage generated by the Company's new office in Geneva, which commenced
operations in July 1998.
Interest income for the nine months ended September 30, 1998
decreased by $114,331 to $1,130,100, compared to $1,244,431 for the comparable
period in 1997, reflective of reduced cash balances and a lower interest rate
environment.
Other income for the nine months ended September 30, 1998 increased
$532,439 to $1,036,025, compared to $503,586 for the same period in 1997,
primarily due to increases in foreign exchange gains of approximately $405,000
and in trading gains on municipal securities transactions of approximately
$291,000, partially offset by decreases in income from affiliated companies of
approximately $164,000.
Payroll and related costs for the nine months ended September 30,
1998 decreased $3,904,302 to $78,116,391, compared to $82,020,693 for the nine
months ended September 30, 1997. The net decrease was primarily the result of
reduced employment costs in London and Toronto aggregating approximately $5.0
million associated with departmental closures during the fourth quarter of
1997 and salary reductions in 1998, offset in part by increased employment
costs associated with the expansion of operations in Tokyo and Mexico City and
the commencement of operations in Geneva. Payroll and related costs increased
as a percentage of commission income to 67% for the nine months ended
September 30, 1998, as compared with 64% for the corresponding period in 1997,
reflective of certain fixed salary costs in areas which sustained reduced
revenues.
Communication costs for the nine months ended September 30, 1998
decreased $1,067,637 to $11,147,574, compared to $12,215,211 for the nine
months ended September 30, 1997, primarily as a result of departmental
closures in London and Toronto during the fourth quarter of 1997, offset in
part by costs incurred by the new Geneva office.
Travel and entertainment costs for the nine months ended September
30, 1998 decreased $913,258 to $7,110,874, compared to $8,024,132 for the nine
months ended September 30, 1997. As a percentage of commission income, travel
and entertainment costs were relatively consistent at 6.1% for the nine months
ended September 30, 1998 as compared to 6.2% for the corresponding period in
1997.
Clearing fees for the nine months ended September 30, 1998,
decreased $982,014 to $3,833,773, compared to $4,815,787 for the nine months
ended September 30, 1997, due primarily to a decline in the number of cleared
transactions and a decrease in the clearing fee per transaction, offset in part
by additional costs
Page 16 of 34 Pages
<PAGE>
incurred during the current period associated with the
processing of certain transactions through the EMCC during the EMCC's initial
implementation stage.
Occupancy costs for the nine months ended September 30, 1998
increased by $78,144 to $4,582,541, compared to $4,504,397 for the nine months
ended September 30, 1997, primarily resulting from escalations of rent
associated with pre-existing office locations and rent attributable to new
office locations in the U.S. and Geneva, offset in part by a net reduction
between reporting periods of approximately $138,000 in occupancy related
accruals.
Depreciation and amortization expense for the nine months ended
September 30, 1998 decreased $196,595 to $3,806,953, compared to $4,003,548
for the same period in 1997, primarily as a result of a reduction in
capitalized leased automobiles in London, offset in part by the continued
expansion of the Company's proprietary screen system and continued investment
in communications and computer technology.
Interest expense for the nine months ended September 30,1998
increased $30,799 to $698,898, compared to $668,099 for the comparable period
in 1997. This increase was primarily the result of the net effect of an
increase of approximately $87,000 in connection with the financing of
municipal securities positions and a decrease of approximately $64,000
associated with capitalized lease obligations.
General, administrative and other expenses for the nine months ended
September 30, 1998 decreased by $358,314 to $4,992,388, compared to $5,350,702
for the nine months ended September 30, 1997. This decrease primarily resulted
from the combined net effects of, during the nine months ended September 30,
1997, a write-off of approximately $500,000 relating to an interactive
electronic execution system in Toronto and the reversal of excess litigation
reserves of approximately $450,000 and, during the nine months ended September
30, 1998, amounts received, net of amounts paid for professional fees,
relating to legal actions enforcing non-compete provisions against former
employees (recorded as a net reduction of expenses approximating $361,000) and
net increases in various general and administrative expenses aggregating
approximately $53,000.
Provision for income taxes for the nine months ended September 30,
1998 decreased by $2,887,956 to $3,481,959, compared to $6,369,915 for the
nine months ended September 30, 1997, primarily due to reduced levels of
pre-tax accounting income.
Minority interest in consolidated subsidiaries for the nine months
ended September 30, 1998 increased by $41,148 to ($1,070,014), compared to
($1,028,866) for the nine months ended September 30, 1997, reflecting higher
net income generated by such subsidiaries.
Page 17 of 34 Pages
<PAGE>
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 receivables from broker-dealers and
customers and securities owned.
Cash and cash equivalents and accrued compensation payable at
September 30, 1998 reflect a reduction from levels at December 31, 1997
principally due to the timing of certain employee bonus payments which
occurred during the quarter ended September 30, 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 currently financed
by margin borrowings from a broker-dealer that clears these transactions on
the Company's behalf on a fully-disclosed basis ("Clearing Broker"). Prior to
July 1998, these positions were generally financed by short-term bank loans.
At September 30, 1998, as reflected on the Consolidated Statements of
Financial Condition, the Company had net assets relating to securities
transactions of approximately $4.6 million, reflecting securities owned of
approximately $15.4 million, financed by a payable to the Clearing Broker of
approximately $10.8 million.
MFI is a member of the Government Securities Clearing Corporation for
the purpose of clearing U.S. Treasury repurchase agreements. Pursuant to such
membership, MFI is required to maintain excess regulatory net 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
Statements of Financial Condition.
Notes payable at September 30, 1998 of approximately $6.1 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 $1.9 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. On October 1, 1998, the Company issued 2,000 shares of Series B
Preferred Stock to Yagi Euro for a total purchase price of $2,000,000. The
Series B Preferred Stock is redeemable at anytime at the Company's option and is
subject to mandatory redemption on
Page 18 of 34 Pages
<PAGE>
October 1, 2008 or within 60 days of the disposition of the Company's
investment in Yagi Euro.
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 well underway with the process of modifying and
upgrading its computer software applications and systems to incorporate the
"Year 2000" dating changes necessary to permit correct recording of year
dates for 2000 and later. The Company believes that it will be able to
achieve substantial or complete internal compliance by the end of March
1999, and does not currently anticipate any material disruption to its
operations as the result of any failure by the Company to be in compliance.
In addition, the Company has already made significant efforts to survey
and test the Year 2000 compliance status and efforts of the key vendors,
suppliers and other third parties with whom it conducts business, and to
obtain appropriate Year 2000 compliance assurances from such parties. These
efforts are ongoing and expected to continue throughout 1999. To date,
preliminary or verbal responses from, web page postings of, and/or testing
by the Company with, such third parties suggest that all or nearly all of
the key third parties will be timely Year 2000 compliant. However, the
Company has not yet received many of the confirmatory written
representations it has sought from, or been able to schedule or complete
testing with many of, such third parties. The Company intends to continue to
seek the necessary written assurances from such third parties, as well as
the necessary opportunities to test the compliance status of their relevant
systems.
To date, in fiscal 1998, the Company has spent approximately $100,000
on Year 2000 compliance efforts, and has budgeted an additional $100,000 for
the balance of 1998, as well as an additional $300,000 for all of fiscal
1999. These amounts reflect that the Company, independent of Year 2000
considerations, invests regularly in updating its technology, so that
significant hardware and software expenditures solely for Year 2000 purposes
have not proven necessary. These amounts also reflect that the Company, to
date, has been able to conduct most of its Year 2000 compliance efforts
using internal information technology personnel and, going forward, does not
expect to rely heavily on outside consultants in connection with such
efforts.
The Company believes that it has already addressed many of the Year
2000 issues facing its business and is well positioned to address the
remaining ones. As a result, the Company does not currently have a formal
contingency plan, although it will periodically reassess the need for one
and, in the interim, has started identifying possible alternative vendors
and suppliers, should the need for them arise. Notwithstanding the Company's
current comfort level with the status and results of its Year 2000
compliance efforts, the Company cautions that unforeseen circumstances may
exist or arise and that it cannot predict with certainty: (i) the ultimate
outcome or success of its Year 2000 compliance efforts, (ii) the final costs
required to address all of its Year 2000-related issues (including whether
the above budgets for 1998 and 1999 will prove to be adequate), (iii)
whether all necessary third party systems will be timely Year 2000 compliant
(or, if not, whether adequate alternatives can be found) or (iv) if the
Company's and/or third party compliance efforts ultimately prove inadequate
in any fashion, whether such deficiencies would have a material adverse
effect on the Company's business, financial condition or results of
operations.
Page 19 of 34 Pages
<PAGE>
Forward-Looking Statements
This report and other oral and written statements made by the
Company to the public contain and incorporate by reference forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements are
based on management's current expectations or beliefs and are subject to a
number of factors and uncertainties (such as market conditions, the Company's
relationships with its employees, counterparties and clearing firms, the
actions of the Company's competitors, the success of the Year 2000 compliance
efforts by the Company and its key vendors and suppliers, and government
regulatory changes) that could cause actual results to differ materially from
those described in the forward-looking statements. Reference is made to the
"Cautionary Statements" section of the Company's 1997 Annual Report on Form
10-K and the Company's subsequent filings with the Securities and Exchange
Commission for a fuller description of these and additional uncertainties. The
forward-looking statements made herein are only made as of the date of this
report and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The disclosure required by this Item 3 is not currently applicable to
the Company.
Page 20 of 34 Pages
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On October 1, 1998, the Company issued and sold to Yagi Euro
Corporation, a corporation organized under the laws of Japan ("Yagi Euro"),
two thousand (2,000) shares of a new series of the Preferred Stock, $.001 par
value, of the Company, designated as "Series B Cumulative Redeemable Preferred
Stock" (the "Series B Preferred Stock"). Yagi Euro purchased the shares of
Series B Preferred Stock (each, a "Share" and, collectively, the "Shares") at
their stated value of $1,000 per share, for an aggregate purchase price of Two
Million Dollars ($2,000,000).
The purchase of the Series B Preferred Stock was intended to create a
cross-ownership interest between the Company and Yagi Euro, in furtherance of
an already existing relationship between the two entities, and to provide the
Company with a low-cost source of capital. The Company, through subsidiary
entities, has for some time owned an approximately 15% common equity interest
in Yagi Euro and operated a joint venture with Yagi Euro in Tokyo for the
brokering of interest rate options and swaps and other derivatives.
The Shares do not have any conversion rights. The Shares may not be
transferred by Yagi Euro (except to a wholly owned subsidiary) without the
Company's consent. Each Share pays a quarterly cumulative dividend, in
arrears, at an annual rate of 2% of its stated value. Each share carries a
liquidation preference equal to its stated value, plus accrued and unpaid
dividends to the date of liquidation. The Shares rank senior to all existing
classes of equity securities of the Company and will also rank senior to any
future issuances of the Company's Preferred Stock unless such other series is
specifically designated to be pari passu.
The Shares are subject to mandatory redemption by the Company on the
tenth anniversary of their issue date. In addition, the Shares (or a
proportionate amount thereof) are subject to mandatory redemption by the
Company at any time within 60 days following a disposition by the Company
(other than to a wholly owned subsidiary) of all or a portion of its
indirectly held cross-ownership investment in Yagi Euro. The Shares are also
subject to optional redemption by the Company at any time or from time to
time, in whole or in part. All redemptions by the Company, whether mandatory
or optional, are at a per share cash redemption price equal to the liquidation
preference per share.
The Shares do not carry any voting rights unless dividends payable
thereon are in arrears and have not been paid in full for the two immediately
preceding quarters, or unless the Company has failed to meet any mandatory
redemption obligation with respect to them, in either of which event the number
of directors constituting the Company's Board of Directors will be increased by
one,
Page 21 of 34 Pages
<PAGE>
with the holders of the Shares, voting separately as a class,
having the right to elect the additional director. In addition, in either such
event the Company would also at such time become subject to certain restrictions
on declaring or paying dividends on or redeeming other securities of the
Company.
The foregoing summary of the terms and conditions of the Series B
Preferred Stock is qualified in its entirety by the Certificate of Designation,
Powers, Preferences and Rights establishing the Series B Preferred Stock, a copy
of which is attached as Exhibit 3.1 to this Report and incorporated herein by
reference.
The sale of the Shares to Yagi Euro was made, without registration of
the Shares, pursuant to the exemption provided by Section 4(2) of the
Securities Act of 1933. Yagi Euro was the sole offeree and purchaser of the
Shares. Yagi Euro has also represented to the Company in a related stock
purchase agreement that it acquired the Shares solely for its own account for
the purpose of investment, and not with a view to the public distribution
thereof. As described above, the Shares are also subject to restrictions on
transfer, and the certificate representing the Shares is legended to such
effect.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
- ------- -----------
3.1 Certificate of Designation, Powers, Preferences and Rights of
Series B Cumulative Redeemable Preferred Stock of Maxcor
Financial Group Inc.
27 Financial Data Schedule (filed in electronic form only)
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during
the three months ended September 30, 1998.
Page 22 of 34 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: November 13, 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
Page 23 of 34 Pages
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
3.1 Certificate of Designation, Powers, Preferences and Rights
of Series B Cumulative Redeemable Preferred Stock of Maxcor
Financial Group Inc. 25
27 Financial Data Schedule (filed in electronic form only) 34
Page 24 of 34 Pages
<PAGE>
Certificate of Designation, Powers, Preferences and Rights
of
Series B Cumulative Redeemable Preferred Stock
of
Maxcor Financial Group Inc.
Pursuant to Section 151 of the General Corporation Law of
The State of Delaware
We, Gilbert D. Scharf, Chairman of the Board, President and
Chief Executive Officer, and Roger E. Schwed, Vice President, General Counsel
and Secretary, of Maxcor Financial Group Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the said
Corporation, the said Board of Directors on September 25, 1998, adopted the
following resolution creating a series of 2,000 shares of Preferred Stock
designated as Series B Cumulative Redeemable Preferred Stock:
RESOLVED, that pursuant to the authority vested in this Board of
Directors in accordance with the provisions of this Corporation's
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and
amount thereof and the powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
(1) Designation; Number of Shares. The
designation of such series of Preferred Stock shall be "Series B
Cumulative Redeemable Preferred Stock" (the "Series B Preferred
Stock") of Maxcor Financial Group Inc., a Delaware corporation (the
"Corporation"). The stated value ("Stated Value") of each share of
the Series B Preferred Stock shall be One Thousand U.S. Dollars
(U.S.$1,000). The maximum number of shares of Preferred Stock
authorized hereby shall be two thousand (2,000). The Series B
Preferred Stock may be issued in fractional shares.
(2) Holder. The Series B Preferred Stock is being
issued to a single holder, Yagi Euro Corporation (the "Holder"), for
the business purpose of maintaining cross-ownership between the
Holder and certain subsidiaries of the Corporation, and is subject to
restrictions on transfer as described in paragraph (12) below.
References to multiple holders herein are solely for convenience in
the event that the Holder seeks, and the Corporation consents to,
future transfers of the Series B Preferred Stock, and are not
intended to modify or otherwise alter the restrictions in said
paragraph (12).
(3) Rank. The Series B Preferred Stock shall,
with respect to dividend rights
Page 25 of 34 Pages
<PAGE>
and rights on liquidation, winding up, and dissolution, rank senior to
all series and classes of the Common Stock, par value $.001 per share
(the "Common Stock"), of the Corporation and to the Series A Junior
Participating Preferred Stock, par value $.001 per share, of the
Corporation. Unless specifically designated as being pari passu with
the Series B Preferred Stock with respect to dividend rights or rights
on liquidation, winding up or dissolution, all other series and classes
of Preferred Stock of the Corporation hereinafter authorized or
outstanding shall be junior to the Series B Preferred Stock with
respect to such rights. All securities of the Corporation to which the
Series B Preferred Stock ranks senior, including the Common Stock, are
collectively referred to herein as the "Junior Securities"; and all
securities of the Corporation with which the Series B Preferred Stock
ranks pari passu are collectively referred to herein as the "Parity
Securities."
(4) Dividends.
(i) Amount; Payment Dates. The holders
of shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation,
out of funds legally available for the payment of dividends, cumulative
dividends on each share of Series B Preferred Stock at the annual rate
of two percent (2%) of the Stated Value of such share and no more. Such
dividends shall be payable in arrears in equal quarterly payments on
each of March 31, June 30, September 30 and December 31, commencing
with December 31, 1998 (each of such dates being a "dividend payment
date"), in preference to dividends on any Junior Securities. Such
dividends shall be paid to the holders of record of the Series B
Preferred Stock at the close of business on the business date 10 days
prior to the relevant dividend payment date or such other date as may
be specified by the Board of Directors of the Corporation at the time
such dividend is declared; provided, however, that such date shall not
be more than 60 days nor less than 10 days prior to the relevant
dividend payment date. Each of such quarterly dividends shall be fully
cumulative and shall accrue (whether or not declared and whether or not
there shall be funds legally available for the payment of dividends, at
the annual rate of two percent (2%) compounded quarterly) from the
first day of the quarterly period in which such dividend may be payable
as herein provided, except that with respect to the period prior to the
first dividend payment date, dividends shall accrue from October 1,
1998 (the "Issue Date"). Any dividends paid on the Series B Preferred
Stock shall be deemed to be paid with respect to the earliest dividend
payment dates for which cumulative dividends have not been paid in
full. All references to accrued dividends herein shall be calculated in
accordance with this paragraph (4) (i).
(ii) Form. Any dividends that accrue on
the Series B Preferred Stock shall be paid in cash. All dividends paid
pursuant to this paragraph shall be paid pro rata to the holders
entitled thereto.
(iii) Fractional Shares. Each fractional
share of the Series B Preferred Stock outstanding shall be entitled to
a ratably proportionate amount of all dividends accruing with respect
to each outstanding share of Series B Preferred Stock pursuant to
paragraph (4) (i) hereof.
Page 26 of 34 Pages
<PAGE>
(5) Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, the holders of the shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital or surplus and whether
or not any dividends are declared, an amount in cash equal to the
Stated Value of each share outstanding (the "Liquidation
Preference"), plus an amount in cash equal to all accrued and unpaid
dividends thereon to the date payment is made available to the
holders of the Series B Preferred Stock, before any payment shall be
made or any assets distributed to any holder of Junior Securities.
Except as provided in the preceding sentence, the holders of Series B
Preferred Stock shall not be entitled to any distribution in the
event of liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to
pay in full the liquidation payments payable to the holders of
outstanding shares of the Series B Preferred Stock and the holders of
any Parity Securities, then the holders of all such shares and such
Parity Securities shall share ratably in such distribution of assets
in accordance with the amount that would be payable on such
distribution if the amounts to which the holders of outstanding
shares of Series B Preferred Stock and such Parity Securities are
entitled were paid in full. The liquidation payment with respect to
each fractional share of the Series B Preferred Stock outstanding
shall be equal to a ratably proportionate amount of the liquidation
payment with respect to each outstanding share of the Series B
Preferred Stock. For the purposes of this paragraph (5), neither the
voluntary sale, lease, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all the property or assets of the Corporation nor the
consolidation or merger of the Corporation with one or more other
corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, unless such voluntary sale,
lease, conveyance, exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding up of the Corporation.
(6) Redemption.
(i) Optional Redemption. The Corporation
may, at any time or from time to time, redeem in whole or in part, at
its option, the Series B Preferred Stock, to the extent the Corporation
shall have funds legally available for such payment, at a per share
cash redemption price equal to the Liquidation Preference per share,
plus an amount in cash equal to all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Price")
(ii) Mandatory Redemption. (a) On the
tenth anniversary of the Issue Date, the Corporation shall redeem at
the Redemption Price, to the extent the Corporation shall have funds
legally available for such payment, all of the shares of Series B
Preferred Stock then outstanding.
(b) In addition, if any time
the Corporation sells, transfers or otherwise disposes of its
indirectly held investment in the Common Stock of the Holder (whether
Page 27 of 34 Pages
<PAGE>
in whole or in part), other than to another wholly-owned subsidiary of
the Issuer (it being understood that having directors' shares or their
equivalent outstanding shall not prevent a subsidiary from being
considered wholly-owned for purposes of this subparagraph), then,
within sixty (60) days of such sale, transfer or disposition, the
Corporation shall redeem at the Redemption Price, to the extent the
Corporation shall have funds legally available for such payment, a
number of shares of the Series B Preferred Stock that represents a
percentage of the total number of shares of Series B Preferred Stock
then outstanding equal to the percentage that the number of shares of
Common Stock of the Holder so sold, transferred or disposed by the
Corporation (or its subsidiary) represents of the total number of
shares of Common Stock of the Holder then held by the Corporation (or
its subsidiary).
(c) If the Corporation shall
fail to discharge any mandatory redemption obligation pursuant to this
paragraph (6) (ii), such failure shall have the consequences specified
in paragraph (11) below and the Corporation shall discharge such
mandatory redemption obligation as soon as it is able to do so.
(iii) Reacquired Shares. Shares of Series
B Preferred Stock which have been issued and reacquired by the
Corporation in any manner, including shares purchased or redeemed,
shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued
shares of the class of Preferred Stock, undesignated as to any series
of the Preferred Stock; provided, however, that no such issued and
reacquired shares of the Series B Preferred Stock shall be reissued or
sold as Series B Preferred Stock.
(7) Procedure for Redemption.
(i) Selection. In the event that fewer
than all of the outstanding shares of Series B Preferred Stock are to
be redeemed, the shares shall be redeemed pro rata. If less than all of
the shares held by a holder are to be redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder
thereof.
(ii) Notice. In the event the Corporation
shall redeem shares of Series B Preferred Stock, notice of such
redemption shall be given by first class mail, postage prepaid, mailed
not less than 10 days nor more than 60 days prior to the redemption
date, to each record holder of the shares to be redeemed at such
holder's address as the same appears on the stock register of the
Corporation; provided, however, that any failure to give such notice or
any defect therein shall not affect the validity of the proceeding for
the redemption of any shares of Series B Preferred Stock to be redeemed
except as to the holder to whom the Corporation has failed to give said
notice or except as to the holder whose notice was defective. Each such
notice shall state: (a) the redemption date; (b) the number of shares
of Series B Preferred Stock to be redeemed and, if less than all shares
held by such holder are to be redeemed from such holder, the number of
shares to be redeemed from such holder; (c) the Redemption Price
(including a calculation of all accrued
Page 28 of 34 Pages
<PAGE>
and unpaid dividends); (d) the place or places where certificates for
such shares are to be surrendered for payment of the Redemption Price;
and (e) that dividends on the shares to be redeemed will cease to
accrue on such redemption date except to the extent provided in
paragraph (8).
(8) Effect of Redemption. From and after the
redemption date, dividends on the shares of Series B Preferred Stock
so called for redemption shall cease to accrue (unless the
Corporation defaults in promptly providing money for the payment of
the Redemption Price to the holders of the redeemed shares who
deliver shares of Series B Preferred Stock in accordance with the
terms of the notice sent to such holders), and said shares shall no
longer be deemed to be outstanding and shall have the status of
authorized but unissued shares of Preferred Stock, undesignated as to
series, and all rights of the holders thereof as stockholders of the
Corporation in respect of such shares shall cease and terminate
(except the right to receive from the Corporation the Redemption
Price). If notice of redemption shall have been mailed and if prior
to the date of redemption specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited
in trust, for the account of the holders of the shares of the Series
B Preferred Stock to be redeemed, with a bank or trust company (which
shall have combined capital and surplus of at least $100,000,000) in
the borough of Manhattan, City of New York named in such notice,
thereupon and without awaiting the redemption date, all shares of the
Series B Preferred Stock with respect to which such notice shall have
been so mailed and such deposit shall have been so made, shall be
deemed to be redeemed and no longer outstanding and all rights with
respect to such shares of the Series B Preferred Stock shall
forthwith upon such deposit in trust cease and terminate (except the
right of the holders on or after the redemption date to receive from
such deposit in trust the amount payable upon the redemption). In
case the holders of shares of the Series B Preferred Stock that shall
have been called for redemption shall not within one year (or any
longer period if required by law) after the redemption date claim any
amount so deposited in trust for the redemption of such shares, such
bank or trust company shall, upon demand and if permitted by
applicable law, pay over to the Corporation any such unclaimed amount
so deposited with it and shall thereupon be relieved of all
responsibility in respect thereof, and thereafter the holders of such
shares shall, subject to applicable escheat laws, look only to the
Corporation for payment of the redemption price thereof, but without
interest from the date for which redemption was scheduled.
(9) Merger or Consolidation. In the event of a
merger or consolidation of the Corporation with or into any person
pursuant to which the Corporation shall not be the continuing person,
or pursuant to which the Corporation shall become a subsidiary of a
public company, the Series B Preferred Stock shall at the option of
the Corporation either: (i) be redeemed in accordance with the
provisions of paragraph (7) or (ii) be converted into or exchanged
for and shall become preferred shares of such successor, resulting or
public company, having in respect of such successor, resulting or
public company substantially the same powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Series
B Preferred Stock had immediately prior to such transaction.
Page 29 of 34 Pages
<PAGE>
(10) Voting Rights. (i) The holders of shares of
Series B Preferred Stock shall not be entitled to any voting rights
except as provided in this paragraph (10) or as otherwise required by
law.
(ii) (a) If at any time or times (1)
dividends payable on the Series B Preferred Stock shall be in arrears
and shall not have been paid in full for the two immediately preceding
quarters, or (2) the Corporation shall have failed to meet the
mandatory redemption obligation as provided in paragraph (6)(ii), then
the number of directors constituting the Board of Directors, without
further action, shall be increased by one. The directorship created by
the failure to meet mandatory redemption obligations or to declare or
pay dividends on the Series B Preferred Stock shall be referred to as a
"Preferred Stock Director". The holders of Series B Preferred Stock,
voting separately as a class, shall have the right to elect one
Preferred Stock Director, with the remaining directors to be elected by
the other class or classes of stock entitled to vote therefor, at each
meeting of stockholders held for the purpose of electing directors.
(b) Whenever such voting right
shall have vested, such right may be exercised initially at the
holders' election either at a special meeting of the holders of Series
B Preferred Stock, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such annual meeting, or by the unanimous written consent
of all holders of the Series B Preferred Stock. Such voting right shall
continue until such time as (i) all accrued and unpaid dividends on all
outstanding Series B Preferred Stock shall have been paid in full and
(ii) all mandatory redemption obligations which have matured have been
met, at which time such voting right of the holders of Series B
Preferred Stock shall terminate, subject to revesting in the event of
each and every subsequent event of the character indicated above.
(c) At any time when such
voting rights shall have vested in the holders of Series B Preferred
Stock and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the written
request of any holder of record of Series B Preferred Stock then
outstanding,addressed to the Secretary of the Corporation, call a
special meeting of holders of Series B Preferred Stock. Such meeting
shall be held at the earliest practicable date upon the notice
required for annual meetings
Page 30 of 34 Pages
<PAGE>
of stockholders at the place for holding annual meetings of
stockholders of the Corporation or, if none, at a place designated by
the Secretary of the Corporation. If such meeting shall not be called
by the proper officer of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the
Corporation, or within 30 days after mailing the same within the United
States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by
the registered receipt issued by the postal authorities), then the
holders of record of 10% of the shares of Series B Preferred Stock then
outstanding may designate in writing a holder of Series B Preferred
Stock to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be held at the
same place as is elsewhere provided in this paragraph (10) (ii) (c).
Any holder of Series B Preferred Stock that would be entitled to vote
at such meeting shall have access to the stock books of the Corporation
in respect of the Series B Preferred Stock for the purpose of causing a
meeting of stockholders to be called pursuant to the provisions of this
paragraph (10) (ii) (c). Notwithstanding the provisions of this
paragraph (10) (ii) (c), however, no such special meeting shall be
called during a period within 90 days immediately preceding the date
fixed for the next annual meeting of stockholders of the Corporation.
(d) At any meeting held for the
purpose of electing directors at which the holders of Series B
Preferred Stock shall have the right to elect a Preferred Stock
Director as provided herein, the presence in person or by proxy of the
holders of at least a majority of the then outstanding shares of Series
B Preferred Stock shall be required and shall be sufficient to
constitute a quorum of such class for the election of a Preferred Stock
Director by such class. At any such meeting or adjournment thereof, (x)
the absence of a quorum of the holders of Series B Preferred Stock
shall not prevent the election of directors other than the Preferred
Stock Director to be elected, and the absence of a quorum or quorums of
the holders of capital stock entitled to elect such other directors
shall not prevent the election of a Preferred Stock Director to be
elected by the holders of Series B Preferred Stock and (y) in the
absence of a quorum of the holders of shares of Series B Preferred
Stock, a majority of such holders present in person or by proxy shall
have the power to adjourn the meeting for the election of a Preferred
Stock Director that the holders of Series B Preferred Stock may be
entitled to elect, from time to time, without notice (except as
required by law) other than announcement at the meeting, until a quorum
shall be present.
(e) The term of office of the
Preferred Stock Director elected pursuant to this paragraph (10) in
office at any time when the aforesaid voting right is vested in the
holders of Series B Preferred Stock shall terminate upon the election
of such Director's successor at any meeting of stockholders for the
purpose of electing directors of the class of directors to which the
Preferred Stock Director belongs. Upon any termination of the voting
right of the holders of Series B Preferred Stock, the term of office of
the Preferred Stock Director elected pursuant to this paragraph (10)
then in office shall automatically terminate, and, if the number of
directors constituting the Board of Directors was increased by one
pursuant to paragraph (10) (ii) (a), then upon such termination the
number of directors constituting the Board of Directors shall, without
further action, be reduced by one, subject to an increase in the number
of directors pursuant to paragraph (10) (ii) (a) in the case of the
future right of the holders of Series A Preferred stock to elect
directors.
(f) In case of any vacancy
occurring for the Preferred Stock Director so elected, the holders of
Series B Preferred Stock may, at a special meeting of such holders
called as provided above, elect a successor to hold office for the
unexpired term of the director whose place shall be vacant.
(iii) So long as any shares of Series B
Preferred Stock remain outstanding,
Page 31 of 34 Pages
<PAGE>
the Corporation will not, without the affirmative vote at a meeting, or
the written consent (in lieu of a meeting), of the holders of at least
a majority in number of shares of the Series B Preferred Stock then
outstanding, (a) amend, alter or repeal any of the provisions of the
Certificate of Incorporation of the Corporation (including the
Certificate of Designations which creates the Series B Preferred Stock)
so as to affect adversely the powers, preferences or special rights of
the Series B Preferred Stock or (b) increase the authorized number of
shares of the Series B Preferred Stock; provided, however, that nothing
herein shall limit the ability or authority of the Board of Directors
of the Corporation to create, authorize or issue any Junior Securities
or Parity Securities.
(11) Certain Restrictions. If at any time or
times (1) dividends payable on the Series B Preferred Stock shall be in
arrears and shall not have been paid in full for the two immediately
preceding quarters, or (2) the Corporation shall have failed to meet
the mandatory redemption obligation as provided in paragraph (6)(ii),
then, if and so long as any such obligation with respect to dividends
or redemption shall not be fully discharged, the Corporation shall not
(x) declare or pay any dividend or make any distributions on, or
directly or indirectly purchase, redeem or satisfy any mandatory
redemption, sinking fund or other similar obligation in respect of any
Parity Securities or any warrants, rights or options exercisable for or
convertible or exchangeable into Parity Securities (except in
connection with any such obligation to be satisfied pro rata with the
obligation in respect of the Series B Preferred Stock) or (y) declare
or pay any dividend or make any distributions on, or directly or
indirectly purchase, redeem or satisfy any mandatory redemption,
sinking fund or other similar obligation in respect of any Junior
Securities (other than in such Junior Securities) or any warrants,
rights or options exercisable for or convertible or exchangeable into
Junior Securities.
(12) Transfer Restrictions. The Series B Preferred
Stock is being issued to the Holder pursuant to, and is subject to the
terms and restrictions of, the Stock Acquisition Agreement, dated as of
October 1, 1998, between the Holder and the Corporation.
Page 32 of 34 Pages
<PAGE>
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 25th day of September, 1998.
/s/ Gilbert D. Scharf
---------------------------------
Chairman of the Board
Attest:
/s/ Roger E. Schwed
- ---------------------------
Secretary
Page 33 of 34 Pages
<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
September 30, 1998 and is qualified in its entirety by reference to such
Consoldated Financial Statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 9,094,223 9,094,223
<RECEIVABLES> 21,678,225 21,678,225
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 15,385,490 15,385,490
<PP&E> 10,384,042 10,384,042
<TOTAL-ASSETS> 83,028,811 83,028,811
<SHORT-TERM> 0 0
<PAYABLES> 10,831,187 10,831,187
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 6,093,210 6,093,210
0 0
0 0
<COMMON> 11,392 11,392
<OTHER-SE> 30,904,565 30,904,565
<TOTAL-LIABILITY-AND-EQUITY> 83,028,811 83,028,811
<TRADING-REVENUE> 334,118 775,767
<INTEREST-DIVIDENDS> 347,495 1,130,100
<COMMISSIONS> 37,985,620 115,940,843
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 213,558 698,898
<COMPENSATION> 25,187,131 78,116,391
<INCOME-PRETAX> 1,643,273 3,817,576
<INCOME-PRE-EXTRAORDINARY> 1,643,273 3,817,576
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 65,770 (734,397)
<EPS-PRIMARY> 0.01 (0.06)
<EPS-DILUTED> 0.01 (0.06)
</TABLE>
