<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 June 30, 1999
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 August 12, 1999 was 8,337,437.
The Exhibit Index is on Page 28
Page 1 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Exhibit Index 28
</TABLE>
Page 2 of 49 Pages
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
Page 3 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 21,330,458 $ 15,150,296
Deposits with clearing organizations 7,120,706 7,121,033
Receivable from broker-dealers and customers 26,242,622 16,557,824
Securities owned 12,128,478 11,578,515
Prepaid expenses and other assets 5,009,272 8,268,622
Deferred tax asset 2,420,114 2,442,981
Equity in affiliated companies 2,643,339 2,935,100
Furniture, equipment and leasehold improvements 8,591,488 10,018,602
Intangible assets 991,732 1,196,692
------------- -----------------
Total assets $ 86,478,209 $ 75,269,665
============= =================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 4 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to broker-dealer $ 8,788,904 $ 7,845,490
Accounts payable and accrued liabilities 14,721,852 15,478,695
Accrued compensation payable 19,158,414 14,704,076
Loan payable 1,717,405
Income taxes payable 2,349,205 375,665
Deferred taxes payable 495,636 495,636
Obligations under capitalized leases 668,204 751,747
Notes payable 4,570,787 3,824,842
------------ ------------
52,470,407 43,476,151
------------ ------------
Minority interest in consolidated subsidiary 5,311,349
------------
Redeemable preferred stock:
Series B, 2% cumulative, stated value $1,000
2,000 shares issued at June 30, 1999 and
December 31, 1998 2,000,000 2,000,000
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized; 2,000
shares of Series B issued at June 30, 1999 and December 31, 1998,
reported above
Common stock, $.001 par value; 30,000,000 shares authorized,
11,392,269 shares issued at June 30, 1999 and December 31, 1998 11,392 11,392
Additional paid-in capital 33,187,415 33,187,415
Treasury stock at cost; 3,054,832 and 68,487 shares of common stock held
at June 30, 1999 and December 31, 1998, respectively (5,454,036) (227,932)
Accumulated deficit (2,499,420) (5,100,223)
Accumulated other comprehensive income:
Foreign translation adjustments 1,451,102 1,922,862
------------ ------------
Total stockholders' equity 26,696,453 29,793,514
------------ ------------
Total liabilities and stockholders' equity $ 86,478,209 $ 75,269,665
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Commission income $ 40,265,290 $ 39,043,398 $ 84,677,402 $ 78,168,223
Interest income 466,896 314,825 822,891 782,605
Other income 212,938 386,321 643,031 613,326
------------ ------------ ------------ ------------
40,945,124 39,744,544 86,143,324 79,564,154
------------ ------------ ------------ ------------
Costs and expenses:
Payroll and related costs 28,060,414 25,895,883 57,270,234 52,889,605
Communication costs 3,666,068 3,841,217 7,546,480 7,491,763
Travel and entertainment 2,244,391 2,387,477 4,320,794 4,987,784
Occupancy costs 1,310,920 1,618,902 2,850,834 3,159,075
Depreciation and amortization 1,064,224 1,276,690 2,278,891 2,547,050
Clearing fees 958,016 1,247,846 1,944,377 2,304,313
Interest expense 250,745 264,596 455,935 506,790
General, administrative and other
expenses 1,355,001 1,631,339 3,184,198 3,503,471
------------ ------------ ------------ ------------
38,909,779 38,163,950 79,851,743 77,389,851
------------ ------------ ------------ ------------
Income before provision for income
taxes and minority interest 2,035,345 1,580,594 6,291,581 2,174,303
Provision for income taxes 941,822 1,303,646 2,752,060 2,294,246
------------ ------------ ------------ ------------
Income (loss) before minority interest 1,093,523 276,948 3,539,521 (119,943)
Minority interest in consolidated
subsidiaries (46,520) (272,824) (918,718) (680,224)
------------ ------------ ------------ ------------
Net income (loss) $ 1,047,003 $ 4,124 $ 2,620,803 ($ 800,167)
============ ============ ============ ============
Weighted average common shares
outstanding - basic 10,897,161 11,330,631 11,109,293 11,330,631
Weighted average common shares
outstanding - diluted 10,906,251 11,330,631 11,109,293 11,330,631
Basic earnings per share $ .10 $ .00 $ .23 ($ .07)
Diluted earnings per share $ .10 $ .00 $ .23 ($ .07)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 6 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1998 AND JUNE 30, 1999 (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, 1997 $11,392 $33,187,415 ($ 209,451) ($3,815,073) $2,428,962 $31,603,245
Comprehensive income
Net loss for the year
ended December
31, 1998 ($1,275,150) (1,275,150) (1,275,150)
Other comprehensive
income
Foreign translation
adjustment (net of
income tax benefit
of $163,348) (506,100) (506,100) (506,100)
-----------
Comprehensive income ($1,781,250)
===========
Acquisition of treasury
stock (18,481) (18,481)
Redeemable preferred
stock dividends (10,000) (10,000)
------- ------------ ----------- ----------- ---------- -----------
Balance at December
31, 1998 11,392 33,187,415 (227,932) (5,100,223) 1,922,862 29,793,514
Comprehensive income
Net income for the
six months ended
June 30, 1999 $2,620,803 2,620,803 2,620,803
Other comprehensive
income
Foreign translation
adjustment (net of
income tax benefit
of $192,500) (471,760) (471,760) (471,760)
-----------
Comprehensive income $2,149,043
===========
Acquisition of treasury
stock (5,226,104) (5,226,104)
Redeemable preferred
stock dividends (20,000) (20,000)
------- ------------ ----------- ----------- ---------- -----------
Balance at June 30, 1999 $11,392 $ 33,187,415 ($5,454,036) ($2,499,420) $1,451,102 $26,696,453
======= ============ =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
Page 7 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 2,620,803 ($ 800,167)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,278,891 2,547,050
Provision for doubtful accounts 24,164 35,023
Minority interest in earnings of consolidated
subsidiary 810,084
Undistributed earnings of unconsolidated
subsidiary (558,463)
Net loss on disposal of fixed assets (2,787) (6,470)
Imputed interest expense 15,158 29,714
Deferred income taxes (100,454)
Change in assets and liabilities:
Decrease in deposits with clearing organizations 327 1,087,025
Increase in receivable from broker-dealers and customers (8,295,056) (2,721,080)
(Increase) decrease in securities owned (549,963) 3,731,102
Decrease in prepaid expenses and other assets 3,350,002 1,115,507
Decrease in short-term bank loans (4,379,350)
Increase in payable to broker-dealers and customers 943,414 700,232
Decrease in securities sold, not yet purchased (780,849)
Decrease in accounts payable and accrued liabilities (366,173) (2,215,270)
Increase in accrued compensation payable 4,546,837 542,019
Increase (decrease) in income taxes payable 1,891,565 (1,879,013)
---------- -----------
Net cash provided by (used in) operating activities 7,267,266 (3,653,444)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets (852,044) (2,088,360)
Proceeds from the sale of fixed assets 159,870 254,574
Dividends received from equity affiliates 48,856 35,047
---------- -----------
Net cash used in investing activities (643,318) (1,798,739)
---------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 8 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (continued)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Cash contribution from minority interest 3,691,972
Dividend paid to minority interest (620,253)
Repayment of notes payable (208,523) (197,766)
Repayment of obligations under capitalized leases (191,736) (322,553)
Net borrowings under revolving credit facility 1,717,405
Redeemable preferred stock dividends (20,000)
Acquisition of treasury stock (5,226,104)
Issuance of notes payable 1,000,000
----------- -----------
Net cash provided by (used in) financing activities 142,761 (520,319)
----------- -----------
Effect of exchange rate changes on cash (586,547) 397,813
----------- -----------
Net increase (decrease) in cash and cash equivalents 6,180,162 (5,574,689)
Cash and cash equivalents at beginning of period 15,150,296 18,041,631
----------- -----------
Cash and cash equivalents at end of period $21,330,458 $12,466,942
=========== ===========
Supplemental disclosures of cash flow information
Interest paid $ 374,423 $ 317,355
Income taxes paid 259,578 2,322,677
Non-cash financing activities:
Capital lease obligations incurred 141,352
Contribution of net non-cash assets from minority interest 1,715,378
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 9 of 49 Pages
<PAGE>
MAXCOR FINANCIAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Maxcor Financial Group Inc. ("MFGI") 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, MFGI 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, Paris, 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 consolidated financial statements include the accounts of MFGI and its
majority-owned subsidiaries and other entities over which it exercises control
(collectively, the "Company"). All significant inter-company balances and
transactions have been eliminated. Investments in unconsolidated affiliates
where the Company may exercise significant influence over operating and
financial policies have been accounted for using the equity method. Earnings
from investments accounted for under the equity method have been reflected as
other income in the consolidated statements of operations.
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 amounts to conform with the current period presentation.
Operating results for the interim periods ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the audited consolidated
financial statements of the Company as of December 31, 1998 and 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, 1998 ("1998 Form 10-K").
Page 10 of 49 Pages
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTANT POLICIES
Accounting Developments:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivative
instruments, including certain derivatives embedded in other contracts, 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 accumulated
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. In
June 1999, the FASB issued Statement of Financial Accounting Standards No. 137
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133", which deferred the effective date for
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000 (January 1, 2001 for the Company). Management is currently assessing the
effect SFAS 133 will have on the Company's consolidated results of operations
and financial position.
NOTE 3 - EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the three month and six
month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator (basic and diluted calculation):
Net income (loss) $ 1,047,003 $ 4,124 $2,620,803 ($ 800,167)
Less redeemable preferred stock dividends (10,000) (20,000)
----------- ----------- ---------- ------------
Net income available to common stockholders 1,037,003 4,124 2,600,803 (800,167)
Denominator:
Weighted average common shares
Outstanding (basic calculation) 10,897,161 11,330,631 11,109,293 11,330,631
Dilutive effect of stock options 9,090
----------- ----------- ---------- ------------
Diluted weighted average common
shares outstanding (diluted calculation) 10,906,251 11,330,631 11,109,293 11,330,631
Earnings per share:
Basic .10 .00 .23 (.07)
Diluted .10 .00 .23 (.07)
Antidilutive common stock equivalents:
Options 75,000 1,245,000 1,650,000 1,245,000
Warrants 734,980 734,980 734,980 734,980
</TABLE>
Page 11 of 49 Pages
<PAGE>
NOTE 4 - 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.
At June 30, 1999 and December 31, 1998, the Company had outstanding 2,000 shares
of Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock")
with an aggregate stated value of $2,000,000.
Common stock and warrants:
At December 31, 1998, the Company had outstanding 11,323,782 shares of common
stock, and held 68,487 shares in treasury. On June 17, 1999, the Company
repurchased 2,986,345 shares of its common stock from investment partnerships of
the venture capital group, Welsh, Carson, Anderson & Stowe ("WCAS") for
$5,226,106 or $1.75 per share (the "Repurchase"). As a result, at June 30, 1999,
the Company had outstanding 8,337,437 shares of common stock and held 3,054,832
shares in treasury.
At June 30, 1999 and December 31, 1998, 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 June 30, 1999 and December 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 5 - FORMATION OF JOINT VENTURE SUBSIDIARY:
On January 1, 1999, Euro Brokers International Limited ("EBIL"), a U.K.
subsidiary, completed a Sale and Purchase Agreement (the "Agreement") with
Monecor (London) Limited ("Monecor"), issuing 50% of its share capital to
Monecor in exchange for net assets approximating $5.4 million, consisting of all
the shares of Monecor's subsidiary, Finacor Limited, and the assets and
undertaking of its Finacor Peter branch in Paris. The Agreement combined the
existing interest rate options, U.S. dollar deposit and the euro,
Page 12 of 49 Pages
<PAGE>
British pound sterling and Japanese yen swaps operations of EBIL with the euro
and Scandinavian swaps businesses of Finacor Limited and the euro swaps business
of Finacor Peter. Simultaneously therewith, EBIL changed its name to Euro
Brokers Finacor Limited ("EBFL"). The equity and results of operations for EBFL
are consolidated in the Company's consolidated financial statements with
Monecor's interest presented as minority interest.
NOTE 6 - BORROWING ARRANGEMENTS:
Loan payable:
On June 17, 1999, Euro Brokers Inc. ("EBI"), a U.S. subsidiary, entered into a
Loan and Security Agreement with General Electric Capital Corporation ("GECC")
for a revolving credit facility of up to $5 million (the "Facility") which
expires on June 17, 2004. The Facility is secured by substantially all of EBI's
assets. The borrowing availability under the Facility (which approximated $3.7
million at June 30, 1999) is determined based upon the level and condition of
EBI's billed accounts receivable. The agreement contains certain covenants which
require EBI and the Company as a whole, to maintain certain financial ratios and
conditions. Borrowings under the Facility bear interest at a variable rate based
upon the published rate for 30-day dealer placed commercial paper plus a margin.
Commitment fees of .15% per annum are charged on the unused portion of the
Facility.
Notes payable:
Upon consummation of the Repurchase, the Company issued notes payable
aggregating $1,000,000 to the relevant WCAS partnerships. Certain of the notes,
aggregating $500,000, mature on December 17, 1999 and bear interest at a rate of
7%. The remaining notes mature on June 16, 2000 and bear interest at a rate of
10%. As security for these notes, 1,142,858 of the repurchased shares have been
deposited in an escrow account and will be released to the Company in
installments as the notes are repaid.
NOTE 7 - NET CAPITAL REQUIREMENTS:
Maxcor Financial Inc. ("MFI"), a U.S. broker-dealer subsidiary, is subject to
the Uniform Net Capital Rule (rule 15c3-1) of the Securities and Exchange
Commission (the "SEC"), 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
June 30, 1999, MFI's regulatory net capital was approximately $13,398,000
Page 13 of 49 Pages
<PAGE>
and exceeded the minimum requirement of $250,000 by approximately $13,148,000.
MFI's membership in the Government Securities Clearing Corporation requires it
to maintain minimum excess regulatory net capital of $10,000,000. 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.
NOTE 8 - SEGMENT REPORTING:
In accordance with the requirements for interim period reporting under Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), the Company is reporting
certain information relating to its operating segments. The Company has defined
its operating segments based upon geographic location. Although all segments are
engaged in the inter-dealer brokerage business, they are managed separately to
reflect their unique market, employment and regulatory environments. The
reportable segments for the three and six month periods respectively ended June
30, 1999 and June 30, 1998 as defined by SFAS 131 consist of the United States,
United Kingdom and Japan. United States amounts are principally derived from the
Company's New York office, but include all U.S. based operations. United Kingdom
and Japan amounts include the consolidated operations of joint ventures the
Company participates in from these locations and consolidates in its financial
statements. Other geographic segments which did not meet the SFAS 131
materiality thresholds for the year ended December 31, 1998 and which are not
expected to meet these thresholds for the year ended December 31, 1999 have been
included in "All Other".
<TABLE>
<CAPTION>
United
United States Kingdom Japan All Other Total
------------- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Three months ended
June 30, 1999
Commission income $ 19,520,149 $ 14,026,891 $ 5,006,204 $ 1,712,046 $ 40,265,290
Net income 559,312 124,412 243,473 119,806 1,047,003
_________________________________________________________________________________________________
Three months ended
June 30, 1998
Commission income 21,920,792 11,054,197 5,471,845 596,564 39,043,398
Net income (loss) 221,269 (435,735) 281,475 (62,885) 4,124
</TABLE>
Page 14 of 49 Pages
<PAGE>
<TABLE>
<CAPTION>
United
United States Kingdom Japan All Other Total
------------- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Six months ended
June 30, 1999
Commission income 38,986,521 31,011,868 11,191,097 3,487,916 84,677,402
Net income 866,418 851,869 775,887 126,629 2,620,803
_________________________________________________________________________________________________
Six months ended
June 30, 1998
Commission income 41,973,114 21,400,522 11,636,036 3,158,551 78,168,223
Net (loss) income (324,822) (1,303,538) 669,629 158,564 (800,167)
</TABLE>
Page 15 of 49 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 June 30, 1999
Compared to the Three Months Ended June 30, 1998
Commission income for the three months ended June 30, 1999 increased $1,221,892
to $40,265,290, compared to $39,043,398 for the comparable period in 1998. The
increase resulted primarily from increased brokerage in London and Geneva,
aggregating approximately $3.8 million, offset in part by decreased brokerage in
New York and Mexico City aggregating approximately $2.1 million and decreased
brokerage in Tokyo of approximately $.5 million. The increased brokerage in
London and Geneva primarily reflected the impact of the completion, as of
January 1, 1999, of the EBFL joint venture, which expanded the Company's core of
brokers and product offerings and the impact of the Geneva operations which
commenced in July 1998. Brokerage in New York and Mexico City declined primarily
as a result of reduced market volumes in emerging market debt securities and
electricity based commodities and related derivatives, and brokerage in Tokyo
declined primarily as a result of reduced market volumes in derivatives.
Interest income for the three months ended June 30, 1999 increased by $152,071
to $466,896, compared to $314,825 for the comparable period in 1998, primarily
reflecting additional interest associated with an increase in the average
inventory of municipal securities during the current period.
Other income for the three months ended June 30, 1999 decreased $173,383 to
$212,938, compared to $386,321 for the three months ended June 30, 1998,
primarily due to foreign exchange losses for the three months ended June 30,
1999 as compared to foreign exchange gains for the three months ended June 30,
1998 and losses from unconsolidated affiliates for the three months ended June
30, 1999 as compared to income from unconsolidated affiliates for the
corresponding period in 1998. These decreases were offset in part by an increase
in trading gains on municipal securities transactions.
Payroll and related costs for the three months ended June 30, 1999 increased
$2,164,531 to $28,060,414, compared to $25,895,883 for the three months ended
June 30, 1998. The
Page 16 of 49 Pages
<PAGE>
increase was primarily the result of increased employment costs in London and
Geneva aggregating approximately $2.3 million primarily as a result of the
increase in commission income and additional brokerage staff in conjunction with
the EBFL joint venture and new Geneva operations, and increased employment costs
in Tokyo approximating $.6 million primarily as a result of increases in
headcount and competitive salary pressures. These increases were partially
offset by reduced employment costs in New York and Mexico City aggregating
approximately $.7 million primarily as a result of reduced commission income and
reductions in headcount and base compensation. As a percentage of commission
income, payroll and related costs increased to approximately 69.7% as compared
to approximately 66.3% for the corresponding period in 1998, primarily
reflective of certain fixed salary costs in areas which sustained reduced
revenues.
Communication costs for the three months ended June 30, 1999 decreased $175,149
to $3,666,068, compared to $3,841,217 for the three months ended June 30, 1998,
primarily as a result of headcount decreases and overall cost reductions in
certain areas in New York, offset in part by the expanded brokerage operations
in London in conjunction with the EBFL joint venture and costs incurred by the
Geneva office.
Travel and entertainment costs for the three months ended June 30, 1999
decreased $143,086 to $2,244,391, compared to $2,387,477 for the three months
ended June 30, 1998. As a percentage of commission income, travel and
entertainment costs decreased to approximately 5.6% for the three months ended
June 30, 1999 as compared to approximately 6.1% for the corresponding period in
1998, reflective of increased brokerage in certain areas and management's
continued efforts to reduce these costs.
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 June 30, 1999, these costs decreased $307,982 to $1,310,920,
compared to $1,618,902 for the three months ended June 30, 1998, primarily
reflecting a reduction in rent and related costs derived from subletting a
portion of the Company's leased space in London and an overall rent tax rate
reduction in London, offset in part by rent escalations on pre-existing office
locations and rent attributable to new office locations in Geneva and Paris.
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 June
30, 1999, depreciation and amortization decreased $212,466 to $1,064,224,
compared to $1,276,690 for the three months ended June 30, 1998, primarily as a
result of a reduction in depreciable fixed assets in London.
Page 17 of 49 Pages
<PAGE>
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 $289,830
to $958,016 for the three months ended June 30, 1999, compared to $1,247,846 for
the three months ended June 30, 1998, due primarily to a decrease in the number
of cleared transactions, offset in part by an increase in the costs of certain
transactions being processed through the Emerging Markets Clearing Corporation
("EMCC"). The EMCC is a clearing corporation established by certain emerging
market trading participants for the purpose of reducing settlement risk and
ultimately clearing costs.
Interest expense for the three months ended June 30, 1999 decreased $13,851 to
$250,745, compared to $264,596 for the comparable period in 1998. This decrease
was primarily the result of a lesser amount of notes payable and capitalized
leases outstanding during the current period, offset in part by an increase in
interest expense associated with financing an increased average inventory of
municipal securities during the current period.
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 June 30, 1999, these costs decreased $276,338 to
$1,355,001 compared to $1,631,339 for the three months ended June 30, 1998,
reflective in part of management's continued efforts to reduce such costs.
Provision for income taxes for the three months ended June 30, 1999 decreased by
$361,824 to $941,822, compared to $1,303,646 for the three months ended June 30,
1998. This decrease was primarily due to a decrease in the pre-tax income
generated by the Company's Tokyo joint venture subsidiary, which, prior to a
corporate restructuring effective as of January 1999, was taxed at a
significantly higher rate than that imposed on the Company's other subsidiaries.
The significant decrease in the Company's effective tax rate for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998, is
primarily the result of the lower tax rate discussed above and the combined
favorable impact of lower entertainment expenses, which are in part
nondeductible, on higher pre-tax accounting income.
Minority interest in consolidated subsidiaries for the three months ended June
30, 1999 decreased by $226,304 to ($46,520), compared to ($272,824) for the
three months ended June 30, 1998, reflecting lower net income generated by
subsidiaries with minority ownership.
Page 18 of 49 Pages
<PAGE>
Six Months Ended June 30, 1999
Compared to the Six Months Ended June 30, 1998
Commission income for the six months ended June 30, 1999 increased $6,509,179 to
$84,677,402, compared to $78,168,223 for the comparable period in 1998. The
increase resulted primarily from increased brokerage in London and Geneva,
aggregating approximately $11.4 million, offset in part by decreased brokerage
in New York and Mexico City aggregating approximately $4.3 million and decreased
brokerage in Tokyo of approximately $.5 million. The increased brokerage in
London and Geneva primarily reflected the impact of the completion, as of
January 1, 1999, of the EBFL joint venture which expanded the Company's core of
brokers and product offerings and the impact of the Geneva operations which
commenced in July 1998. Brokerage in New York and Mexico City declined primarily
as a result of reduced market volumes in emerging market debt securities and
electricity based commodities and related derivatives, and brokerage in Tokyo
declined primarily as a result of reduced market volumes in derivatives.
Interest income for the six months ended June 30, 1999 increased by $40,286 to
$822,891, compared to $782,605 for the comparable period in 1998. This increase
resulted primarily from additional interest associated with an increase in the
average inventory of municipal securities during the current period, offset in
part by reduced deposit balances and a lower interest rate environment.
Other income for the six months ended June 30, 1999 increased $29,705 to
$643,031, compared to $613,326 for the six months ended June 30, 1998, primarily
due to an increase in trading gains on municipal securities transactions, offset
in part by foreign exchange losses for the six months ended June 30, 1999 as
compared to foreign exchange gains for the six months ended June 30, 1998, and
losses from unconsolidated affiliates for the six months ended June 30, 1999, as
compared to income from unconsolidated affiliates for the corresponding period
in 1998.
Payroll and related costs for the six months ended June 30, 1999 increased
$4,380,629 to $57,270,234, compared to $52,889,605 for the six months ended June
30, 1998. The increase was primarily the result of increased employment costs in
London and Geneva aggregating approximately $6.1 million primarily as a result
of the increase in commission income and additional brokerage staff in
conjunction with the EBFL joint venture and new Geneva operations, and increased
employment costs in Tokyo approximating $1.0 million primarily as a result of
increases in headcount and competitive salary pressures. These increases were
partially offset by reduced employment costs in New York and Mexico City
aggregating approximately $2.5 million primarily as a result of reduced
commission income and reductions in headcount and base compensation. As a
percentage of commission income, payroll and related costs were comparable at
approximately 67.6% and 67.7% for the six months
Page 19 of 49 Pages
<PAGE>
ended June 30, 1999 and 1998, respectively.
Communication costs for the six months ended June 30, 1999 increased $54,717 to
$7,546,480, compared to $7,491,763 for the six months ended June 30, 1998,
primarily as a result of the expanded brokerage operations in London from the
EBFL joint venture and costs incurred by the Geneva office, offset in part by
headcount decreases and overall cost reductions in certain areas in New York.
Travel and entertainment costs for the six months ended June 30, 1999 decreased
$666,990 to $4,320,794, compared to $4,987,784 for the six months ended June 30,
1998. As a percentage of commission income, travel and entertainment costs
decreased to approximately 5.1% for the six months ended June 30, 1999 as
compared to approximately 6.4% for the corresponding period in 1998, reflective
of improved brokerage and management's continued efforts to reduce these costs.
Occupancy costs decreased $308,241 to $2,850,834 for the six months ended June
30, 1999, compared to $3,159,075 for the six months ended June 30, 1998,
primarily reflecting a reduction in rent and related costs derived from
subletting a portion of the Company's leased space in London and an overall rent
tax rate reduction in London, offset in part by rent escalations on pre-existing
office locations and rent attributable to new office locations in Geneva and
Paris.
Depreciation and amortization expense for the six months ended June 30, 1999,
decreased $268,159 to $2,278,891, compared to $2,547,050 for the six months
ended June 30, 1998, primarily as a result of a reduction in depreciable fixed
assets in London.
Clearing fees for the six months ended June 30, 1999 decreased $359,936 to
$1,944,377, compared to $2,304,313 for the six months ended June 30, 1998, due
primarily to a decrease in the number of cleared transactions, offset in part by
an increase in the costs of certain transactions being processed through the
EMCC.
Interest expense for the six months ended June 30, 1999 decreased $50,855 to
$455,935, compared to $506,790 for the comparable period in 1998. This decrease
was primarily the result of a lesser amount of notes payable and capitalized
leases outstanding during the current period, offset in part by an increase in
interest expense associated with financing an increased average inventory of
municipal securities during the current period.
General, administrative and other expenses decreased $319,273 to $3,184,198 for
the six months ended June 30, 1999 as compared to $3,503,471 for the six months
ended June 30, 1998, reflective in part of management's continued efforts to
reduce these costs.
Page 20 of 49 Pages
<PAGE>
Provision for income taxes for the six months ended June 30, 1999 increased by
$457,814 to $2,752,060, compared to $2,294,246 for the six months ended June 30,
1998, primarily due to increased levels of pre-tax income. The significant
decrease in the Company's effective tax rate for the six months ended June 30,
1999 as compared to the six months ended June 30, 1998 is primarily the result
of a lower tax rate on income generated by the Company's Tokyo joint venture
subsidiary, due to a corporate restructuring effective as of January 1999, and
the combined favorable impact of lower entertainment expenses, which are in part
nondeductible, on higher pre-tax accounting income.
Minority interest in consolidated subsidiaries for the six months ended June 30,
1999 increased by $238,494 to ($918,718), compared to ($680,224) for the six
months ended June 30, 1998, reflecting higher net income generated by
subsidiaries with minority ownership.
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.
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 margin
borrowings from a broker-dealer that clears these transactions on the Company's
behalf on a fully-disclosed basis ("Clearing Broker"). At June 30, 1999, as
reflected on the Consolidated Statements of Financial Condition, the Company had
net assets relating to securities transactions of approximately $3.3 million,
reflecting securities owned of approximately $12.1 million, financed by a
payable to the Clearing Broker of approximately $8.8 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.
Loan payable of approximately $1.7 million at June 30, 1999 represents amounts
borrowed under the Facility with GECC which provides for borrowings of up to $5
million and expires on June 17, 2004. The Facility is secured by substantially
all of EBI's assets. The borrowing availability under the Facility (which
approximated $3.7 million
Page 21 of 49 Pages
<PAGE>
at June 30, 1999) is determined based upon the level and condition of the billed
accounts receivable of EBI. The agreement with GECC contains certain covenants,
which require EBI, and the Company as a whole, to maintain certain financial
ratios and conditions.
Notes payable at June 30, 1999 of approximately $4.6 million reflects the
remaining installments of principal due on November 30, 1999 on notes issued by
the Company in connection with the acquisition of EBIC's predecessor business in
December 1986, which aggregate $2.1 million, $1 million in notes issued to the
relevant WCAS investment partnerships in connection with the Repurchase and
approximately $1.5 million which relates to a secured financing obtained by the
Company in December 1997 in the form of a fixed rate note payable to GECC,
payable in monthly installments through December 2002.
The Series B Preferred Stock, with an aggregate stated value of $2,000,000 is
redeemable at anytime at the Company's option and is subject to mandatory
redemption on October 1, 2008 or within 60 days of the disposition of the
Company's investment in Yagi Euro Corporation, the current holder.
All payments required under the terms of the loan, notes and Series B Preferred
Stock 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 believes that it has almost completed the process of modifying and
upgrading its internal computer software applications and systems to incorporate
the "Year 2000" dating changes necessary to permit correct recording of, and
calculations involving calendar dates for January 1, 2000 and later. The Company
expects to achieve substantial or complete internal compliance by the end of
August 1999, and does not currently anticipate any material disruption to its
operations as a result of any failure by the Company to be in compliance.
In addition, the Company has substantially completed surveying and testing the
Year 2000 compliance status and efforts of the key vendors, suppliers and other
third parties with whom it conducts business, and has obtained appropriate Year
2000 compliance
Page 22 of 49 Pages
<PAGE>
assurances from substantially all such parties. These efforts are ongoing and
expected to continue throughout 1999. The Company has received written responses
from substantially all key third party vendors certifying that such vendors are
or will be timely year 2000 compliant. The Company intends to continue to seek
the necessary written assurances from the remaining third parties, as well as
the necessary opportunities to test the compliance status of their relevant
systems.
To date, the Company has spent approximately $250,000 on Year 2000 compliance
efforts, and has budgeted an additional $250,000 for the remainder of 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.
Although 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, it has also developed a formal contingency plan to address certain Year
2000 failures - mostly of third party providers, including utilities - that
might nonetheless occur. The contingency plan, however, does not address all
possible Year 2000 failures and, to the extent the Company is forced to operate
under portions of its contingency plan, it can be anticipated that some services
and operations may be provided at less than their normal level and that the
Company's business, financial condition and results of operations might be
adversely affected as a result. Accordingly, notwithstanding the Company's
current comfort level with the status and results of its Year 2000 compliance
efforts, the Company cautions that it cannot predict with certainty: (i) the
ultimate outcome or success of its Year 2000 compliance efforts (including, if
needed, its contingency plan), (ii) the final costs required to address all of
its Year 2000-related issues (including whether the above budget for the
remainder of 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 (including, if needed, the Company's contingency plan)
ultimately prove inadequate in any fashion, the extent to which such
deficiencies would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the SEC has recently promulgated final rules that in substance,
require all registered broker-dealers, such as the Company's subsidiary, MFI, to
have confirmed by August 31, 1999 that their mission critical systems are Year
2000 compliant and that they do not otherwise have material Year 2000 problems.
A firm that is unable to do so must either cease conducting securities
transactions and carrying customer accounts as of that date or certify to the
SEC and the broker-dealer's designated examining
Page 23 of 49 Pages
<PAGE>
authority that any material Year 2000 problems in mission critical systems will
be fixed no later than November 15, 1999. The SEC has indicated that it has been
and will be examining numerous broker-dealers, including MFI, to assess their
Year 2000 readiness and their compliance with the new rules. Although the
Company cannot predict with certainty the outcome of any such SEC examination,
the Company fully expects MFI to be timely compliant in accordance with the new
rules.
Forward-Looking Statements
Certain statements contained in this Item 2 and elsewhere in this report, as
well as 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 knowledge, expectations or beliefs and are subject to a number of
factors and uncertainties (such as market conditions, the Company's
relationships with its employees, counter-parties 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
these described in the forward-looking statements. Reference is made to the
"Cautionary Statements," "Competition," "Regulation" and "Quantitative and
Qualitative Disclosures about Market Risk" sections of the Company's 1998 Form
10-K for a fuller description of these and additional uncertainties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Borrowings under the Facility, which EBI entered into with GECC in June 1999,
bear interest at a variable rate based upon the published rate for 30-day
dealer-placed commercial paper. Management will monitor the interest rate
environment to determine the necessity of a hedging strategy to guard against
increases in market interest rates.
Other than the item described above, the Company's market risk analysis did not
materially change from the market risk analysis as of December 31, 1998
presented in the Company's 1998 Form 10-K.
Page 24 of 49 Pages
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 9, 1999, the Company held its annual meeting of stockholders (the
"Meeting"). At the Meeting, stockholders re-elected three directors - Gilbert D.
Scharf, Michael J. Scharf and Larry S. Kopp - as Class III directors of the
Company, to serve terms expiring at the Company's third succeeding annual
meeting of stockholders.
In addition, stockholders at the Meeting ratified the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the year
ending December 31, 1999.
At the Meeting, 10,259,113 shares of the Company's common stock were represented
by proxy or ballot, comprising approximately 90.6% of the 11,323,782 shares of
common stock outstanding at the close of business on April 28, 1999, the record
date for the Meeting. Specific voting results for each of the two proposals
described above were as follows:
1. Election of Directors:
Gilbert D. Scharf
For: 10,161,913
Withheld: 97,200
Michael J. Scharf
For: 10,161,913
Withheld: 97,200
Larry S. Kopp
For: 10,162,913
Withheld: 96,200
2. Ratification of Appointment of Independent Accountants:
For: 10,220,834
Against: 7,733
Abstain: 30,546
Page 25 of 49 Pages
<PAGE>
Item 5. Other Information
In May 1999, MFI concluded an agreement with Wexford Clearing Services Corp.
(the "Wexford Clearing Agreement"), the clearing arm of Prudential Securities,
for Wexford to serve as the primary clearing agent for MFI's brokerage (through
its Euro Brokers division) of emerging market debt securities. Daiwa Securities
America currently provides these services to MFI, but has announced plans to
exit the correspondent clearing business. The formal transition from Daiwa to
Wexford is expected to take place in September of this year. The Wexford
Clearing Agreement is attached hereto as Exhibit 10.1 and is hereby incorporated
herein by reference. The Company's press release announcing execution of the
Wexford Clearing Agreement is attached hereto as Exhibit 99.1 and is also hereby
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
10.1 Agreement for Securities Clearances Services, dated May 19, 1999,
between Wexford Clearing Services Corporation and Maxcor Financial
Inc.(1)
27 Financial Data Schedule (filed in electronic form only)
99.1 Press Release, dated June 30, 1999
- ------------------------------------
(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
During the three months ended June 30, 1999, the Company filed two current
reports on Form 8-K, respectively dated May 10, 1999 and June 17, 1999. The May
10th Form 8-K reported on an amendment to the Company's agreement with WCAS for
the Repurchase, the obtaining of a commitment letter from GECC to provide the
Facility, and the Company's 1999 first quarter results of operations. The June
17th Form 8-K reported on the consummation of both the Repurchase and the
Facility.
Page 26 of 49 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: August 13, 1999
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 and Principal Accounting
Officer and Director
Page 27 of 49 Pages
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
10.1 Agreement for Securities Clearance Services, dated
May 19, 1999, between Wexford Clearing Services
Corporation and Maxcor Financial Inc.(1) 29
27 Financial Data Schedule (filed in electronic form only) 47
99.1 Press Release, dated June 30, 1999 48
</TABLE>
- ------------------------------------
(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 28 of 49 Pages
<PAGE>
Exhibit 10.1
WEXFORD CLEARING SERVICES CORPORATION
May 19, 1999
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 Wexford Clearing Services Corp.
("Wexford") 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"). Wexford will use its good faith efforts to obtain such
approval and have this Agreement effective on or before June 25, 1999.
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.
B. An "Approved Counterparty" is a dealer trading with Introducing Firm
or a customer of Introducing Firm, which Wexford as of the date of this
Agreement is accepting as a counterparty for trades brokered by Introducing Firm
or to which Wexford hereafter sends a letter in the form of Exhibit B and which,
in either case, Wexford continues to consider acceptable; provided, however,
that (i) Wexford will make no material changes to the form of Exhibit B without
the prior consent of Introducing Firm and (ii) any decision by Wexford 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 Wexford ("Side
Page 29 of 49 Pages
<PAGE>
One") of Specified Securities and a buy to be settled by Wexford 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 Wexford on the same day.
D. "Clearing Corporation" means CEDEL/Euroclear or any other clearing
organization that settles Transactions that Wexford 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 Wexford 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
Wexford 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 Wexford receives after the Cut-Off Time shall be
subject to the additional fees set forth on Schedule A hereto.
(i) Transmitting Back-to-Back Transactions
Introducing Firm shall not transmit to Wexford 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 Wexford 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, Wexford 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
Page 30 of 49 Pages
<PAGE>
subject to (i) termination at any time that Wexford deems that it is no longer
prudent to accept only one side and (ii) satisfactory amounts on deposit in the
Collateral Account, in Wexford'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 Wexford 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 Conduct Rules 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
Wexford 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 Wexford in writing of
complaints concerning Wexford; (xi) arranging for completion
of all Wexford forms and providing any supporting documents
required for the opening and maintenance of the Account and
(xii) promptly furnishing Wexford with all information
concerning its customer and Introducing Firm's relationship
with its customer and any related documents that Wexford may
reasonably require. Nothing herein shall restrict Wexford from
making any further inquiry or investigation as Wexford deems
necessary.
C. Volume Limitations
Introducing Firm shall not transmit to Wexford more than the number of
Transactions per day that Wexford informs Introducing Firm from time to time
constitute the Introducing Firm's
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volume limit, as set by Wexford 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, Wexford, unless Wexford 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 Wexford, 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) Wexford acting as clearing broker for Introducing Firm
pursuant to this Agreement or (ii) Introducing Firm's 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 Wexford's negligence, its
failure to perform its obligations under this Agreement, or its willful
misconduct. Wexford 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 Wexford so requests, either orally
and confirmed by fax or in writing.
3. Responsibilities of Wexford
A. Clearing
Subject to the exception described in Section 2. A.(i), Wexford is
obligated to clear only Matching Back-to-Back Transactions and Matching
Transactions with Approved Counterparties in Specified Securities, which entails
Wexford 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, Wexford 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, Wexford, and
Wexford shall not, unless the Transaction is subsequently
accepted by Wexford, be principal to the counterparty nor
carry the position on its books.
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(ii) Wexford 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 Wexford 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, Wexford 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 Wexford other than a
Back-to-Back Transaction, Introducing Firm shall pay to
Wexford the applicable fees set forth in Schedule A, and, as
set forth in Section 5.A., Introducing Firm shall reimburse
Wexford for all Introducing Firm Failure Costs. Wexford 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 Wexford has taken a
position as principal and is therefore carrying such
Transactions on its books, notwithstanding that Introducing
Firm remains financially responsible to Wexford hereunder for
any Introducing Firm Failure Costs and Counterparty Failure
Costs. Upon prior notice to Introducing Firm, Wexford 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.
B. Confirmations
No later than T+1 or one day after Wexford has received a Transaction,
whichever is later, Wexford shall deliver confirmations to all counterparties on
Transactions that Wexford has not rejected pursuant to Section 3.A.(i) hereof
and that Wexford is obligated to transmit to the Clearing Corporation, pursuant
to Section 3.A.(ii). From the time that Wexford 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
Wexford 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. Wexford shall remit to Introducing
Firm within five business days of the end of each calendar month such amounts
remaining after Wexford 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.
Wexford shall furnish Introducing Firm with a detailed supporting
schedule with each revenue payment. Wexford'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
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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
Wexford 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 Wexford
pursuant to Section 3.A.
Although Wexford 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
Wexford agrees to indemnify and hold harmless Introducing Firm, its
officers, directors, employees and affiliates, against any and all losses,
costs, claims and expenses, reasonable legal fees (including reasonable) legal
fees incurred in the enforcement of this provision), as incurred, (a) caused by
(i) Wexford's failure to perform its obligations under this Agreement or (ii)
Wexford'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 Wexford 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, Wexford may, but shall not be obligated to, assume
the defense thereof with counsel of its own choosing and at its own expense.
F. Reports
Wexford 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+1, 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 Wexford
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 Wexford for any other purpose or to negate the
intent of any other
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<PAGE>
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 Wexford 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 Wexford Validated
Transactions or (ii) the failure of Introducing Firm to transmit to Wexford Side
One and Side Two on the same day, Introducing Firm shall have full
responsibility for, and shall pay to Wexford upon demand, all amounts
constituting Wexford'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".
B. Settlement Failure/Counterparty Failure
In the event Wexford 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 Wexford
upon demand, all amounts constituting Wexford'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".
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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 Wexford finds
unacceptable Wexford 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 Wexford 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 Wexford finds unacceptable (subject to
Section 2.A.(i)), Wexford may, acting in good faith, suspend accepting
Transactions from Introducing Firm immediately upon written or oral notice,
until such time that Wexford decides that it is prudent to resume accepting
Transactions hereunder.
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 Wexford incurred in connection with capital charges for Transactions.
6. Fees and Charges
Introducing Firm agrees to pay Wexford the fees and charges set forth
in Schedule A hereto.
7. Introducing Firm Representations and Covenants
Introducing Firm represents, warrants and covenants to Wexford 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 Wexford 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 Conduct Rules.
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(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 Wexford, which requirements shall survive the
termination of this Agreement.
8. Wexford Representations and Covenants
Wexford represents, warrants and covenants to Introducing Firm as
follows:
(i) Wexford is a member in good standing of the NASD and of
the NYSE.
(ii) Wexford 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) Wexford 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) Wexford 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 Conduct
Rules.
(v) The names and addresses of Introducing Firm's customers
which have or which may come to Wexford's attention in
connection with the clearing and related functions it has
assumed under this Agreement are confidential and shall not be
utilized by Wexford except in connection with the functions
performed by Wexford pursuant to this Agreement.
Notwithstanding the foregoing, should any customer of
Introducing Firm request, on an unsolicited basis that Wexford
become its broker, acceptance of such Account by Wexford shall
in no way violate this representation and warranty, nor result
in a breach of this Agreement.
(vi) Wexford 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.
9. Nature of Relationship
A. Wexford 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 Wexford or
of any subsidiary or company controlled directly or
Page 37 of 49 Pages
<PAGE>
indirectly by or affiliated with Wexford. 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
Wexford, place any advertisement in any newspaper, publication, periodical or
any other media if such advertisement in any manner makes reference to Wexford
or to the clearing arrangements set forth in this Agreement; provided, however,
that the public parent company of Introducing Firm may name Wexford 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.
C. Should Introducing Firm in any way hold itself out as, advertise or
represent that it is the agent of Wexford, Wexford 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 Wexford as a result of such
a representation of agency or apparent authority to act as an agent of Wexford
or agency by estoppel.
10. 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 Wexford 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 Wexford as of the date of this Agreement; provided
that Wexford 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 Wexford may in writing consent to, in its sole discretion, from
time to time. As collateral security for all of its obligations to Wexford under
and with respect to this Agreement, Introducing Firm hereby pledges, assigns and
grants a first priority security interest and lien to Wexford in and upon all
property from time to time now or hereafter in the Collateral Account, and
Wexford 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 Wexford. 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, Wexford 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
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<PAGE>
market value of the cash and/or securities in the Collateral Account fall below
90% of the Collateral Amount, as determined by Wexford, Wexford 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 Wexford. The Collateral
Account shall not be deemed to be margin for any Approved Counterparty accounts.
C. Wexford shall have the right to deduct the amount of any and all
amounts owed to Wexford hereunder, including without limitation, Fees,
Introducing Firm Failure Costs and Counterparty Failure Costs and Indemnified
Losses, from the securities collateral, and, in such event, Wexford shall have
the right to liquidate the securities in a commercially reasonable manner;
provided, however, Wexford 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 Wexford, mutual
agreement, arbitration or otherwise) to be incorrect, excessive or otherwise not
the responsibility of Introducing Firm, shall be promptly reimbursed by Wexford
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,
Wexford will (a) effect the payment and delivery to Introducing Firm of the
funds and/or securities in the Collateral Account, less any amounts Wexford is
entitled to withdraw under the preceding paragraph; provided, however, that
Wexford 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 Wexford 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,
Wexford agrees that no such documents or other materials will be distributed by
it to any person or group in or outside Wexford that does not have
responsibility for the administration, legal or audit review of this Agreement
or transactions thereunder.
11. 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
Wexford, which consent shall not be unreasonably withheld.
12. Amendments; Waiver; Integration
Any amendment or supplement to this Agreement and any waiver of any
rights hereunder
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<PAGE>
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.
13. 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.
14. 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.
15. Termination
This Agreement may be terminated by either party upon ninety 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.
16. Notices
Written notices shall be properly made if hand delivered, mailed
(registered mail) or
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<PAGE>
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.: Steven Vigliotti
Chief Financial Officer
To Wexford:
Wexford Clearing Services Corp.
One New York Plaza, 11th Floor
New York, New York 10292-2011
Tel. No.: 212-778-1750
Fax No.: 212-778-7622
Attn.: Edward Schlitzer
President/CEO
17. 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 Wexford.
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.
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Very truly yours,
WEXFORD CLEARING SERVICES CORP.
By: /s/ Patricia A. Jamison
-------------------------------
Name: Patricia A. Jamison
------------------------------
Title: Executive Vice President/COO
-----------------------------
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
MAXCOR FINANCIAL INC.
By: /s/ Steven R. Vigliotti
----------------------------
Name: Steven R. Vigliotti
--------------------------
Title: Chief Financial Officer
-------------------------
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<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
Page 43 of 49 Pages
<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.
Page 44 of 49 Pages
<PAGE>
Exhibit B
[Wexford 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 Wexford Clearing
Services Corporation ("Wexford") by your brokerage firm, Maxcor Financial Inc.
("MFI"), for the purpose of Wexford clearing trades, as fully-disclosed
principal, in certain specified securities pursuant to the clearing service
agreement between MFI and Wexford.
Once Wexford enters a trade on its books, you will be considered a
customer of Wexford for purposes of the Securities and Exchange Commission's
financial responsibility rules and the Securities Investor Protection Act.
Nothing herein shall cause customers of MFI to be construed as customers of
Wexford for any other purpose.
In establishing this relationship, MFI is acting solely on your behalf
and not on behalf of or as the agent of Wexford. MFI 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 on 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 Wexford.
- 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.
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<PAGE>
Allocation of Brokerage Account Responsibilities
Page 2
- Supervising all functions performed by MFI's employees, including,
investment advisory, sales, trading and account opening and approving
activities.
Additionally, MFI is responsible to Wexford for supplying all
documentation required by Wexford, notwithstanding the fact that Wexford has at
all times the right to contact you directly regarding its information
requirements. Wexford has at all times the right, exercisable in its sole
discretion, to refuse to accept orders for your account.
Wexford will be responsible for the following:
- Clearing, as principal, transactions in your account pursuant to
MFI'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, warrants and redemptions, all in accordance with the
last instructions received either from you or MFI.
- 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 MFI.
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:
___________________________________
WEXFORD CLEARING SERVICES CORPORATION
Edward Schlitzer
President/CEO
Page 46 of 49 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
June 30, 1999 and is qualified in its entirety by reference to such Consolidated
Financial Statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 21,330,458 21,330,458
<RECEIVABLES> 26,242,622 26,242,622
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 12,128,478 12,128,478
<PP&E> 8,591,488 8,591,488
<TOTAL-ASSETS> 86,478,209 86,478,209
<SHORT-TERM> 0 0
<PAYABLES> 8,788,904 8,788,904
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 4,570,787 4,570,787
2,000,000 2,000,000
0 0
<COMMON> 11,392 11,392
<OTHER-SE> 26,685,061 26,685,061
<TOTAL-LIABILITY-AND-EQUITY> 86,478,209 86,478,209
<TRADING-REVENUE> 285,805 872,005
<INTEREST-DIVIDENDS> 466,896 822,891
<COMMISSIONS> 40,265,290 84,677,402
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 250,745 455,935
<COMPENSATION> 28,060,414 57,270,234
<INCOME-PRETAX> 2,035,345 6,291,581
<INCOME-PRE-EXTRAORDINARY> 2,035,345 6,291,581
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,047,003 2,620,803
<EPS-BASIC> 0.10 0.23
<EPS-DILUTED> 0.10 0.23
</TABLE>
<PAGE>
Exhibit 99.1
Maxcor Financial
FOR IMMEDIATE RELEASE
Contact:
Maxcor Financial Group Inc.
Two World Trade Center, 84th Floor
New York, NY 10048
(212) 748-7000, Roger Schwed (Investor Relations)
Wexford to succeed Daiwa as Euro Brokers' primary clearing agent
for emerging market debt securities
New York, New York, June 30, 1999 - Maxcor Financial Group Inc. today
announced that the Euro Brokers division of its U.S. broker-dealer subsidiary,
Maxcor Financial Inc., has concluded an agreement with Wexford Clearing
Services, the clearing arm of Prudential Securities, for Wexford to serve as the
primary clearing agent for Euro Brokers' brokerage of emerging market debt
securities.
Pursuant to the agreement, Wexford will provide clearing services, as
principal and on a fully-disclosed basis, to Euro Brokers (including its
London-based affiliates). Daiwa Securities America currently provides these
services to Euro Brokers, but has announced plans to exit the correspondent
clearing business. Wexford is also hiring a significant portion of the
correspondent clearing staff of Daiwa and purchasing Daiwa's proprietary
middleware application for accepting trade information. The formal transition
from Daiwa to Wexford is expected to take place in September of this year.
"We are very pleased by this arrangement," Maxcor Financial Group's
chairman and chief executive officer, Gilbert D. Scharf, said. "Because Wexford
is picking up the key clearing staff and software applications from Daiwa, we
expect the transition to be seamless both for ourselves and our customers. We
also take comfort in knowing that Wexford has the full backing and support of
its parent, Prudential Securities."
Thomas Dillon, formerly executive vice president of correspondent
services at Daiwa, and who will continue as an executive vice president at
Wexford, commented that "Euro Brokers is, and has been, our number one customer
in emerging market debt securities, and we are delighted that we will be able to
continue and enhance that relationship at Wexford."
Implementation of the agreement remains subject to the approval of
Wexford's and Euro Brokers' respective designated regulators, the New York Stock
Exchange, Inc. and NASD Regulation, Inc. Other terms of the agreement were not
announced.
Maxcor Financial Group Inc., through its various Euro Brokers entities,
is a leading domestic and international inter-dealer brokerage firm specializing
in emerging market products, cash deposits and other money market instruments,
interest rate and currency derivatives, energy products (including natural gas,
Page 48 of 49 Pages
<PAGE>
electricity, physical emissions and weather) and other fixed income securities
(including repurchase agreements). Maxcor Financial Inc. is the Company's U.S.
registered broker-dealer subsidiary which, in addition to the inter-dealer
brokerage activities of its Euro Brokers division, engages in investment banking
and related activities. Maxcor Financial Asset Management Inc. is the Company's
SEC registered investment adviser subsidiary, conducting securities lending and
other asset management businesses. The Company employs approximately 625 persons
and maintains principal offices in New York, Stamford, London, Tokyo, Geneva,
Toronto and Mexico City. The Company's common stock is traded on the Nasdaq
National Market under the symbol "MAXF".
Page 49 of 49 Pages
