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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File Number 0-25056
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MAXCOR FINANCIAL GROUP INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-3262958
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two World Trade Center, 84th Floor, New York, NY 10048
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 748-7000
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of class)
Preferred Stock Purchase Rights
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(Title of class)
Indicate by check mark whether the 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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Common Stock held by non-affiliates
of the registrant (assuming directors, executive officers and 5% stockholders
are affiliates), based on the Nasdaq Stock Market(R) last sales price of $2.50
on March 28, 2000, was approximately $14,000,000.
As of March 28, 2000, there were 8,337,437 shares of Common Stock
outstanding.
Documents Incorporated by Reference: Those portions of registrant's
Proxy Statement for its 2000 Annual Meeting of Stockholders (which registrant
intends to file pursuant to Regulation 14A on or before April 29, 2000) that
contain information required to be included in Part III of this Form 10-K are
incorporated by reference into Part III hereof as provided therein.
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MAXCOR FINANCIAL GROUP INC.
INDEX
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Page
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PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 16
Item 3. Legal Proceedings............................................. 17
Item 4. Submission of Matters to a Vote of Security-Holders........... 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 17
Item 6. Selected Financial Data....................................... 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.......................................................... 33
Item 8. Financial Statements and Supplementary Data................... 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant............ 36
Item 11. Executive Compensation........................................ 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 36
Item 13. Certain Relationships and Related Transactions................ 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 37
Signatures................................................................. 38
Consolidated Financial Statements and Notes................................ F-1
Index to Consolidated Financial Statements................................. F-2
Exhibit Index.............................................................. X-1
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[LOGO] MAXF
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NASDAQ
L I S T E D
PART I
ITEM 1. BUSINESS
Overview
Maxcor Financial Group Inc. (the "Company" or "Maxcor") is a
publicly-held financial services holding company, incorporated in Delaware in
August 1994. The Company maintains a web page at www.maxf.com and its Common
Stock is traded on The Nasdaq Stock Market(R) under the symbol "MAXF."
In a 1996 merger transaction (the "Merger"), the Company acquired Euro
Brokers Investment Corporation ("EBIC"), a privately held domestic and
international inter-dealer broker for a broad range of financial instruments,
having operational roots dating back to 1970. EBIC and its subsidiaries and
affiliates today comprise substantially all of the Company's business and
assets.
Through the Euro Brokers division of its Maxcor Financial Inc.
subsidiary, a U.S. registered broker-dealer, and other EBIC subsidiaries and
affiliates, including Euro Brokers Inc., the Company conducts its principal
business as a leading domestic and international inter-dealer brokerage firm,
specializing in (i) cash deposits and other money market instruments, (ii)
interest rate and currency derivatives, (iii) emerging market debt and related
products, (iv) energy-related products and derivatives, including electricity,
emission allowances, coal and weather, (v) U.S. Treasury repurchase agreements
and (vi) various fixed income securities, including municipal securities,
corporate and yankee bonds, zero coupon Treasuries and convertible bonds.
In addition to its inter-dealer brokerage businesses, the Company
maintains certain specialty subsidiaries. Maxcor Financial Asset Management
Inc., an investment adviser registered with the Securities and Exchange
Commission ("SEC"), is engaged in securities lending through its Euro Brokers
Securities Lending division, as well as other asset management activities.
Maxcor Information Inc. is charged with packaging and exploiting the data and
other information generated by the Company's inter-dealer brokerage businesses
and sells such data online at www.maxcorinfo.com.
The Company has approximately 600 employees worldwide and conducts its
businesses through principal offices in New York, London and Tokyo, other
offices in Stamford (CT), York (PA), Vancouver (WA), Geneva, Toronto and Mexico
City and correspondent relationships with other brokers throughout the world.
Except as described below, the Company operates in each financial center through
wholly-owned subsidiaries. In London, the Company, as of January 1, 1999, formed
a 50/50 equity venture with the European broker, Finacor, to combine their
respective London-based capital market
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operations, as well as Finacor's Paris-based capital markets operations. The
Company's other London operations, primarily comprised of securities businesses,
remain wholly owned. In Tokyo, the Company has historically had a 50% interest
with Yagi Euro Nittan Corporation ("Yagi Euro"), formerly known as Yagi Euro
Corporation, in a partnership (the "Tokyo Partnership") conducting yen
derivative businesses, as well as a 15% minority interest in Yagi Euro itself.
As of January 1, 2000, the Company sold a 10% interest in the Tokyo Partnership
to Nittan Exco Limited, a subsidiary of Nihon Tanshi Co., Limited., thereby
reducing its direct interest in the Tokyo Partnership to 40%.
In its inter-dealer brokerage businesses, the Company functions
primarily as an intermediary, matching up the trading needs of its institutional
client base, which is primarily comprised of well-capitalized banks, investment
banks and other financial institutions, securities dealers and other
broker-dealers and large corporations. The Company assists its clients in
executing trades by identifying counterparties with reciprocal interests. The
Company provides its services through an international network of brokers who
service direct phone lines to most of the Company's clients and through
proprietary screen systems and other delivery systems that provide clients with
historical data and real-time bids, offers and pricing information in the
Company's various products. Clients use the Company's services for several
reasons. First, a client can benefit from the broader access and liquidity
provided by the Company's worldwide broker and telecommunications network, which
communicates with and services most of the largest banks and securities firms.
The result is typically better pricing and faster execution than the client
could achieve acting unilaterally. Second, the Company provides clients with
anonymity, thereby enhancing their flexibility and ability to act without
signaling their intentions to the marketplace. Third, because of its network,
the Company can provide high-quality pricing and market information, as well as
sophisticated analytics and trading and arbitrage opportunities.
The Company's inter-dealer brokerage transactions are principally of
two types: (i) "name give-up" transactions, whereby the Company acts only as an
introducing broker, and (ii) transactions whereby the Company acts as a "matched
riskless principal." Primarily in transactions involving money market
instruments, derivative products and certain repurchase agreements, the trades
are arranged while preserving the clients' anonymity, but executed at the last
instant on a name give-up basis and settled directly between the counterparties.
In these transactions the Company acts solely as an introducing broker who
brings the two counterparties together, and not as a counterparty itself.
Consummation of the transaction may then remain subject to the actual
counterparties who have been matched by the Company accepting the credit of each
other. In the second type of transaction, primarily securities transactions, the
Company acts as a matched riskless principal, connecting the buyer and seller
for the transaction on a fully anonymous basis by acting as the counterparty for
each in matching, reciprocal back-to-back trades. This type of transaction is
then settled through one of various clearing institutions with which the Company
has contractual arrangements, and who will have previously reviewed and approved
the credit of the participating counterparties.
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Products
The Company's inter-dealer brokerage businesses generally fall into the
brokerage of three broad groups of products: (i) money market products, (ii)
derivative products and (iii) securities products.
Money Market Products
In general, money market products take the form of cash deposits or
other negotiable instruments placed by one financial institution with another,
at an agreed-upon rate of interest, for a fixed period of time. Money market
products primarily include offshore deposits (i.e., deposits placed outside the
country of denomination), onshore deposits (i.e., deposits placed within the
country of denomination), certificates of deposit, banker's acceptances and
short-term commercial paper. U.S. dollars continue to be the most actively
traded offshore currency deposit (traditionally known as the "Eurodollar").
Other actively traded offshore currency deposits are denominated in Japanese
yen, U.K. sterling, Swiss francs, Canadian dollars and, since January 1999, the
euro. Examples of onshore deposits include term and overnight U.S. Federal Funds
and Canadian Interbank deposits. The Company brokers money market products
predominantly to multinational banks.
The January 1, 1999 adoption by eleven European countries of the euro
as their common currency has caused international money market traders to alter
their nomenclature regarding offshore deposits. These deposits were formerly
known as "Eurocurrency" deposits, and terms like "Euro sterling" and "Euro yen"
were commonplace. Such terms are now fading from usage in order to avoid
confusion with euro-based foreign exchange transactions.
Derivative Products
A derivative products transaction generally is an agreement entered
into by two parties, in which each commits to a series of payments based upon
the price performance of an underlying financial instrument or commodity for a
specified period of time. This category includes a broad range of sophisticated
financial instruments employed by multinational banks, financial institutions,
securities dealers and corporations. Some of the types of derivatives most
frequently brokered by the Company are interest rate swaps, interest rate
options, and forward rate agreements, in each case conducted in a multitude of
different currencies and localized primarily by office. The Company also brokers
cross-currency swaps and a variety of energy-related derivatives.
In an interest rate swap, two parties agree to exchange interest rate
payment obligations on a notional principal amount over the term of the swap. No
principal is exchanged, and market risk for the parties is limited to
differences in the interest payments. The usual format for swaps involves the
exchange of fixed rate payments based on the term of the swap for floating rate
payments based on a shorter-term rate.
Interest rate options, which include "cap," "floor" and "swaption"
transactions, are transactions in which one party grants the other the right
(but not the obligation) to receive a payment equal to the amount by which an
interest rate either exceeds (for call options) or is less than (for put
options) a specified strike rate.
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Forward rate agreements ("FRAs") are over-the-counter, off-balance
sheet instruments similar to interest rate futures, designed to give the
counterparties protection against a future shift in interest rates for time
deposits. The buyer, or borrower, of a FRA agrees to pay the seller, or lender,
at some specified future settlement date, an amount of interest based on a
notional principal at a fixed rate for a specified period of time. The seller
agrees to pay the buyer, on the same future settlement date, an amount of
interest based on the same amount of notional principal and the same period of
time, but based on the then-prevailing market rate for the time period. No
actual principal is exchanged. On the settlement date, the buyer and the seller
calculate the present value of the net interest owed, and one party pays the
other accordingly.
In cross-currency swaps, interest rate flows denominated in different
currencies are exchanged, based on predetermined notional amounts, in order to
convert exposure in one currency to another.
Energy-related derivatives brokered by the Company primarily consist of
options and physical contracts based on electricity, emission allowances and
coal, and generally are transactions in which payments based on fixed and
floating commodities indices are exchanged. The Company also brokers
weather-related derivatives, which may be based, among other measures, upon the
average temperature or rainfall of a given city during a stated period of time.
The Company brokers most of its derivative products predominantly to
multinational banks and investment banks. Energy-related derivative products,
however, are often traded by utilities and large energy marketing and trading
companies.
Securities Products
Products brokered by the Company in this category primarily consist of
a variety of debt obligations issued by governments, banks and corporations. The
Company brokers transactions in emerging market debt, municipal securities, high
grade corporate bonds, "yankee" bonds, U.S. Treasury zero coupon bonds, U.S.
domestic convertible bonds, floating rate notes and other corporate securities.
This category also includes repurchase agreements.
Emerging market debt, including Brady bonds, global bonds, Eurobonds,
local issues and loans, as well as options on the foregoing, continues to
constitute the largest area within the securities products category, and is
brokered by specialized teams located in New York, London and Mexico City and
through a joint venture in Buenos Aires. The market coverage of the teams from
these locations is worldwide. The Company's brokerage of emerging
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market debt utilizes direct communication phone lines and provides pricing and
other data through proprietary, computerized screen systems located directly in
clients' offices. In most emerging markets transactions, the Company acts as
matched riskless principal and settles trades through a clearing firm.
Repurchase agreements are contractual obligations entered into by two
counterparties, first to sell securities and then to repurchase those same
securities (or the reverse in the case of a buyer) at an agreed upon future date
and price. The Company acts as an intermediary primarily for the U.S. Primary
Government Dealer community (banks and dealers licensed to participate in
auctions of U.S. Treasury securities), as well as for a number of U.S. regional
banks and dealers, in the negotiation and execution of U.S. Treasury and
mortgaged-backed repurchase agreements. As is the case with emerging markets,
the Company disseminates repurchase agreement market information via its
proprietary, computerized screens. Most of the repurchase agreements that the
Company executes for dealers are cleared through the Government Securities
Clearing Corporation, in which the Company's broker-dealer subsidiary, Maxcor
Financial Inc., is a member, although some transactions are brokered on a name
give-up basis.
The Company generally brokers municipal securities on a matched
riskless principal basis, but also uses a small allocation of the firm's capital
to support limited inventory positions. High grade corporate and yankee bonds
are generally brokered on a matched riskless principal basis. U.S. convertible
bonds are generally brokered on a name give-up basis.
The Company brokers securities products predominantly to banks,
investment banks and other financial institutions.
Communications Network and Information and Related Systems
The Company has a global communications network through which it
conducts its inter-dealer brokerage businesses and a sophisticated computerized
information system over which it receives and transmits current market
information. Its teams of computer and communications specialists provide
technological support to the network. The Company is continually upgrading its
technological facilities in order to access and collate market information and
redistribute it virtually instantaneously throughout its network. Through the
continued development and use of proprietary software, computerized screen
displays, digital networks and interactive capabilities, the Company strives to
keep its communication, technology and information systems as current as
possible.
To ensure rapid and timely access to the most current market bids and
offers, the majority of the Company's clients are connected to the Company via
dedicated point to point telephone and data lines around the world. For products
that are screen-brokered, such as emerging market debt, repurchase agreements,
options on emerging market debt, banker's acceptances and commercial paper, the
Company maintains an extensive private network to
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connect the Company's offices and the specific clients who trade in these
products. In this way, all such clients have the simultaneous ability to view
and act upon market bids and offers. The Company has also developed and deployed
an Internet real-time distribution capability for its emerging markets screen
information, which has allowed access to clients in more remote or unproven
brokerage locations without incurring the infrastructure costs associated with
expanding its private network.
Most of the markets in which the Company operates are highly efficient,
offering participants immediate access and enormous liquidity. Some markets are
subject to a high degree of volatility. Even the slightest variation in price
can make the difference between missing or executing a transaction.
Consequently, the Company's businesses depend heavily on the use of advanced
telephone equipment, computer systems and pricing software. Direct line voice
communication, real-time computerized screen systems and rapid trade execution
for its clients are all imperative for the Company's continued success in the
inter-dealer brokerage business. For this reason, the Company continually needs
to expend significant resources on the maintenance, expansion and enhancement of
its communication and information system networks. After payroll, such costs
have historically represented the Company's second largest item of expenditure.
In 1998, in connection with its emerging market debt business, the
Company implemented an electronic blotter system as part of an upgraded front
and middle-office trade processing system. The new system effectively replaced
paper blotters and certain existing software, and has introduced a number of
efficiencies, including the ability to handle significantly increased trading
volumes, identify unbalanced trade conditions as they occur, impose tighter
security and provide clients with more certain and rapid check-outs of their
transactions. In 2000, the Company intends to expand and deploy its electronic
blotter system to its domestic repurchase agreement desks.
The Company continues to explore whether more of its inter-dealer
brokerage businesses should become screen-based and whether interactive trading
systems can be developed and deployed successfully in its businesses. An effort
by the Company in 1997 to deploy an interactive trading system in the Canadian
repurchase market did not succeed in garnering sufficient acceptance or market
share to justify its continuance.
Most recently, as announced in September 1999, the Company entered into
a wide ranging agreement with Tradesoft Technologies, Inc., a privately-held
firm specializing in the design and development of electronic brokerage systems
and matching engine technology, for the exclusive development and deployment
across a number of the Company's Euro Brokers brokerage units of electronic,
interactive trading platforms. The first such platform, designed for the
Company's emerging market debt businesses, and specifically for the trading of
Brady bonds and global bonds, is currently undergoing extensive internal and
client testing and is expected to be deployed for live trading during the second
quarter of 2000.
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Other Businesses
Through the Euro Brokers Securities Lending division of its
SEC-registered investment adviser, Maxcor Financial Asset Management Inc., the
Company conducts a securities lending business. In securities lending, the
Company arranges for the lending of securities held in its clients' portfolios
to securities dealers and other market participants who need them to manage
their own positions. In exchange for such loaned securities, which are primarily
U.S. government and agency securities and U.S. corporate bonds (but also
non-dollar government securities and corporate bonds), the Company receives
either (i) cash collateral, which it then reinvests to earn a spread over the
rebate rate it is required to pay in connection with the underlying loan, or
(ii) non-cash collateral plus fee income from the borrower. In December 1998,
Maxcor Financial Asset Management entered into an agreement with SunGard/DML
Inc., a subsidiary of SunGard Data Systems Inc., to establish a master
securities lending program to offer its securities lending services to existing
and prospective clients of SunGard and its affiliates, as well as to use
SunGard's software and data interface products to automate certain of such
services. Beginning in 1998 and continuing through 1999, Maxcor Financial Asset
Management separately also provided advisory services, as a qualified
professional asset manager, to an unaffiliated investment partnership.
In 1998, the Company's information and data subsidiary, Maxcor
Information Inc., established a subscription-based web page (www.maxEMG.com) for
the sale of both basic and premium information services sourced from the Euro
Brokers emerging market debt inter-dealer brokerage business. In 1999, a
subscription-based web page (www.maxENERGY.com) was added for the sale of
information services sourced from the Euro Brokers commodity derivatives
business. Also in 1999, Maxcor Information Inc. executed a three-year,
non-exclusive agreement with Telerate, Inc. for the sale to Telerate subscribers
of an indicative feed based on such emerging market debt information, as well as
an array of optional "add-on" services.
Capital Structure History
In its December 1994 initial public offering, the Company issued a
total of 3,583,333 units, each comprised of one share of common stock, $.001 par
value ("Common Stock"), and two redeemable common stock purchase warrants
("Series A Warrants"), and raised net proceeds of approximately $20 million.
In its August 1996 Merger acquisition of EBIC, the Company issued
aggregate consideration consisting of approximately $22 million in cash,
4,505,666 shares of Common Stock and 7,566,625 Series B redeemable common stock
purchase warrants ("Series B Warrants" and, together with the Series A Warrants,
the "Warrants"), economically identical in their terms to the Series A Warrants.
In November 1997, the Company consummated an exchange offer, on the
basis of 0.1667 of a share of Common Stock for each Warrant (the "Exchange
Offer"), pursuant to
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which it issued an aggregate of 2,380,975 shares of Common Stock in exchange for
14,283,296 (or approximately 95.1%) of the then-outstanding Warrants. As a
result of the Exchange Offer, the Warrants (and any remaining, related units)
were delisted from trading on The Nasdaq Stock Market(R) and deregistered under
the Securities Exchange Act of 1934, as amended.
Although delisted and deregistered, each Warrant remaining outstanding
continues to entitle the holder thereof to purchase from the Company one share
of Common Stock at an exercise price of $5.00 per share, to expire on November
30, 2001, and to be redeemable at a price of $.01 if the last sales price of the
Common Stock has been at least $8.50 per share for 20 consecutive trading days.
In October 1998, the Company issued 2,000 shares of a newly created
Series B Cumulative Redeemable Preferred Stock ("Preferred Stock") to its 15%
equity affiliate, Yagi Euro, for an aggregate purchase price of $2 million. The
Preferred Stock pays a quarterly cumulative dividend, in arrears, at an annual
rate of 2%, and is subject to optional redemption by the Company at any time,
and to mandatory redemption on the tenth anniversary of its issue. The Preferred
Stock does not have conversion rights or, unless there is a payment default,
voting rights.
In June 1999, the Company repurchased 2,986,345 shares of Common Stock
from various partnerships of the venture capital firm, Welsh, Carson, Anderson &
Stowe. The aggregate purchase price was approximately $5.23 million, or $1.75
per share. The shares repurchased represented approximately 26.4% of the shares
of Common Stock then outstanding.
At December 31, 1999, the Company had outstanding 8,337,437 shares of
Common Stock, 734,980 Warrants and 2,000 shares of Preferred Stock.
Personnel
As of February 29, 2000, the Company employed 447 brokers, plus an
additional administrative staff, including officers and senior managers, of 143
persons, for a total employee headcount of 590. Of the brokers, 203 were located
in the U.S., 170 were located in Europe, and 57 were located in Japan, with the
balance distributed among the Company's other office locations. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with employees to be good and regards
compensation and employee benefits to be competitive with those offered by other
inter-dealer brokerage firms.
Segment and Geographic Data
Note 23 to the Consolidated Financial Statements contains summary
financial information, for each year of the three-year period ended December 31,
1999, with respect to each of the Company's reportable operating segments, which
are based upon the countries in which they operate.
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Competition
The inter-dealer brokerage industry is highly competitive, with the
success of a company within the industry dependent on a variety of key factors.
These factors include:
o the experience of and extent of client networks developed by the
firm and its personnel;
o the range of products and value-added services offered;
o commission rates;
o the quality, speed and reliability of service;
o proficiency in and ability to implement current technology,
including electronic execution and matching platforms;
o salaries and other cost structures; and
o capital resources and perceived creditworthiness.
While there are not many large international inter-dealer brokers and
entry into the industry is costly, the Company encounters intense competition in
all aspects of its businesses from a number of companies which have
significantly greater resources than the Company. Recent consolidations in the
industry have narrowed the field of competition somewhat, but have also produced
combined entities with even greater resources. Moreover, with the recent advent
of electronic brokerage in non-equity markets, new potential competitors have
emerged that do not have traditional inter-dealer brokerage roots, such as the
BrokerTec Global consortium recently formed by a number of the leading
investment banks.
In addition, all brokerage firms are subject to the pressures of
offering their services at a lower price. The recent pace of consolidation in
the banking and financial services community continues to reduce the number of
clients in the marketplace and, accordingly, has further increased the
competition among inter-dealer brokers and the downward pressure on already low
commission rates. The use of volume discounting has also become more widespread
in recent years. As a result, increases in market volumes do not necessarily
result in proportionate increases in brokerage commissions and revenues.
In 1999 and early 2000, the industry has seen an acceleration of the
development of electronic execution systems that provide fully automated trade
matching. In late 1999, one competitor, Cantor Fitzgerald, developed and spun
off an electronic brokerage subsidiary, eSpeed, whose system has to date
successfully garnered considerable liquidity in the U.S. Treasury markets, and
is already being deployed across additional platforms. Other competitors
have also deployed, or announced plans to deploy, their own systems in various
markets. In practice, these systems so far have proved most viable in markets
involving very standardized products, such as spot foreign exchange, Treasuries
and U.S. equities. The Company believes that more complex financial vehicles, in
particular derivatives, are less amenable to fully electronic matching. However,
the number and penetration of such automated trading platforms is increasing. In
addition to the examples cited above, Bloomberg
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L.P., primarily known as a data and analytical service provider, has
increasingly used its network of terminals to facilitate on-line screen-based
trading between authorized parties, especially in electricity products.
The further development and successful deployment of such electronic
systems in advance of, or more successfully than, the Company's efforts to do so
could erode the Company's market shares and ultimately have material adverse
effects on the Company's businesses. Although the Company is devoting
substantial financial and other resources to ensure the success of its own
electronic brokerage initiative (described above under "Communications Network
and Information and Related Systems"), its ability to execute successfully
thereon is subject to a number of uncertainties, not all of which are within the
Company's control. These include, but are not necessarily limited to, successful
further testing of the speed, capacity and interfaces of the system, retaining
sufficient training and maintenance resources, client acceptance of the system,
both at the trader and the information technology department levels, internal
broker support for the system, the timing and success of deployment of
competitive systems, and market conditions at the time of deployment.
The Company is inherently reliant on relationships with clients that
develop over time, and certain of the Company's brokers have established
long-term associations with clients. The Company's success depends to a
significant extent on these relationships and on the performance and experience
of a number of key management and brokerage personnel. The loss of one or more
of these key employees, who are often the target of aggressive recruitment
efforts by competitors within the industry, could have a material adverse effect
on the Company. Moreover, the highly competitive hiring environment by itself
creates upward pressures on broker compensation that can reduce profit margins.
While the Company has entered into employment agreements with, granted stock
options to, and implemented deferred compensation arrangements for, many of its
key employees, there can be no assurance that such employment agreements or
stock-based or deferred compensation will be effective in retaining such
persons' services or that other key personnel will remain with the Company
indefinitely. Nor can there be any guarantee that the Company will be able to
attract and retain qualified, experienced individuals, whether to replace
current personnel or as a result of expansion, because competition in the
brokerage industry for such individuals is intense.
The Company also faces intense competition from other inter-dealer
brokers to achieve revenues from, and the widest dissemination and acceptance
of, the data generated and collected from its brokerage businesses. In March
1999, the Company concluded its first such third-party information sale,
executing a three-year, non-exclusive agreement with Telerate, Inc. to provide
emerging markets bond pricing and other data to Telerate subscribers.
Regulation
The Company and its subsidiaries, in the ordinary course of their
business, are subject to extensive regulation at international, federal and
state levels by various regulatory bodies
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which are charged with safeguarding the integrity of the securities and other
financial markets and protecting the interests of clients participating in those
markets.
Maxcor Financial Inc. ("MFI"), formerly known as Euro Brokers Maxcor
Inc., is registered as a broker-dealer with the SEC, all applicable states, and
is a member of the National Association of Securities Dealers, Inc. ("NASD").
Broker-dealers are subject to regulations that cover all aspects of the
securities business, including initial licensing requirements, sales and trading
practices, safekeeping of clients' funds and securities, capital structure,
record-keeping and the conduct of directors, officers and employees. The SEC,
other governmental regulatory authorities, including state securities
commissions and self-regulatory organizations, such as NASD Regulation, Inc.
("NASDR") in the case of MFI, have broad oversight powers, including the ability
to institute administrative proceedings that can result in censure, fine, the
issuance of cease-and-desist orders, the suspension or expulsion of a
broker-dealer, its officers or employees or other similar consequences.
MFI is also registered with the Commodity Futures Trading Commission as
a futures commission merchant and is a member of the National Futures
Association. As such, MFI's business activities in the futures and
options-on-futures markets are subject to regulation by these bodies.
MFI is also a member of the Government Securities Clearing Corporation
("GSCC") for the purpose of clearing certain U.S. Treasury repurchase agreements
and other U.S. Treasury securities. Such membership requires MFI to maintain
minimum net capital of $10,000,000, including a minimum deposit with the GSCC of
$5,000,000.
Maxcor Financial Asset Management Inc. ("MFAM") is an SEC-registered
investment adviser, pursuant to its securities lending activities. As a result,
MFAM's investment advisory business is subject to various federal and state laws
and regulations that generally grant supervisory agencies and bodies broad
administrative powers, including the power to limit or restrict MFAM from
carrying on its investment advisory business in the event that it fails to
comply with such laws and regulations and/or to impose other censures and fines.
The Company's businesses are also subject to extensive regulation by
various non-U.S. governments and regulatory bodies, including: (i) in the United
Kingdom, the Financial Services Authority; (ii) in Canada, the Ontario
Securities Commission; (iii) in Japan, the Bank of Japan and the Japanese
Ministry of Finance, and (iv) in Mexico, the Banking and Securities National
Commission. The compliance requirements of these different overseer bodies may
include, but are not limited to, net capital or stockholders' equity
requirements.
Additional legislation and regulations, changes in rules promulgated by
the SEC or other U.S. federal and state governmental regulatory authorities,
self-regulatory organizations or clearing organizations, as well as non-U.S.
governments or governmental regulatory agencies, or changes in the
interpretation or enforcement of laws and rules, may directly affect the manner
of operation and profitability of the Company. In addition, any expansion of the
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Company's activities into new areas may subject the Company to additional
regulatory requirements that could similarly affect such operation and
profitability.
In April 1999, the SEC promulgated new rules regarding the regulation
of alternative trading systems ("Regulation ATS"). Regulation ATS imposes
significant reporting and recordkeeping requirements on so-called "alternative
trading systems" and phases in certain substantive requirements, primarily
depending upon the scope of coverage and market share of the alternative trading
system. Such requirements may include maintaining transparency of certain
pricing information, providing fair and equal access to the system, and taking
necessary steps to ensure the capacity, integrity and security of the system. A
number of the Company's brokerage businesses are subject to Regulation ATS and
its requirements.
Cautionary Statements
As provided under the Private Securities Reform Act of 1995, the
Company desires to caution investors that the following factors, among others
(including the factors discussed above under the "Competition" and "Regulation"
headings, and the factors discussed below under Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Item 7A,
"Quantitative and Qualitative Disclosures about Market Risk"), could affect the
Company's results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this report and
elsewhere by or on behalf of the Company.
Economic and Market Conditions
The Company's brokerage businesses and their profitability are affected
by many factors, including the volatility of securities markets, the volume,
size and timing of securities transactions, the level and volatility of interest
rates, legislation affecting the business and financial communities and the
economy in general. Low trading volume may reduce revenues, which would
generally negatively impact profitability because a portion of the Company's
costs is fixed.
Liability for Unsettled Trades
The Company through its subsidiaries functions as an intermediary,
matching the trading needs of financial institutions by providing specialized
services. Some of these transactions are executed on a name give-up basis, that
is, once the specific economic terms of a proposed transaction are agreed, the
names of the individual counterparties are disclosed and, subject to acceptance
of the credit, the transaction is completed directly by both counterparties.
Other transactions are completed with the subsidiary acting as a matched
riskless principal in which the respective parties to the transaction know the
subsidiary as the counterparty. The transactions are then settled through a
clearing institution. In the process of executing brokerage transactions, from
time to time in the fast moving markets in which such subsidiaries operate,
miscommunications or other errors can arise whereby transactions are
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<PAGE>
completed with only one counterparty ("out trades"), thereby creating a
potential liability for such subsidiaries. If the out trade is promptly
discovered, thereby allowing prompt disposition of the unmatched position, the
risk to the subsidiary is usually limited. If discovery is delayed, the risk is
heightened by the increased possibility of intervening market movements prior to
such disposition. Although out trades usually become known at the time of or
later on the day of the trade, on occasion they are not discovered until later
in the settlement process. When out trades occur and are discovered, the
Company's policy is to have the unmatched position disposed of promptly. Out
trades generally increase with increases in the volatility of the market and,
depending on their number and amount, have the potential to have a material
adverse effect on the financial condition or results of operations of the
Company.
Systems and Technology
In addition to the Company's continuing need to expend significant
resources on the maintenance, expansion and enhancement of its communication
network, information systems and other technology, it also faces the risk that
the systems it currently has or in the future implements, or the software
underlying such systems, will fail in some fashion or be inadequate to the task.
During the Asian and Latin American debt crisis that occurred in late October
1997, the Company's trade processing system for emerging market debt was unable
to handle smoothly the extraordinary spike in trading volume that occurred for a
sustained five-day trading period. As a result, the Company experienced
significant delays and backlogs in the processing and settlement of such trades
and a higher than usual incidence of disputed trades, all of which negatively
impacted 1997 fourth quarter earnings. Although the Company believes that the
electronic blotter and upgraded trade processing system that it implemented in
1998 will mitigate against any such recurrence, there can be no assurance that
there will not be other, unanticipated system or technology failures that could
negatively impact the Company's operations or business.
Clearing Arrangements
In addition to the GSCC, Wexford Clearing Services ("Wexford") and the
Pershing division of Donaldson, Lufkin & Jenrette Securities Corporation
("Pershing") act as the primary clearing agents, on a fully-disclosed basis, for
MFI. Under the terms of these agreements, Wexford clears as principal a
significant portion of MFI's transactions in emerging market debt and Pershing
clears as principal many of MFI's municipal securities and other domestic
fixed-income securities transactions. Among other services, both firms prepare
and mail confirmations and monthly statements to clients. Each of the Wexford
and Pershing agreements is terminable by either party upon 90 days' prior
notice. If either clearing agreement were to be terminated, the Company believes
that it would be able to establish in timely fashion a new clearing arrangement
with another clearing correspondent on terms acceptable to MFI. However, there
can be no assurance that it would be able to do so, and a failure in this regard
could have a material adverse effect on the Company's results of operations and
financial condition.
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<PAGE>
Litigation and Arbitration
Many aspects of the Company's businesses involve varying risks of
liability. In recent years, there has been an increasing incidence of litigation
and arbitration involving participants in the inter-dealer brokerage industry,
including employee claims alleging discrimination or defamation in connection
with terminations and competitor claims alleging theft of trade secrets, unfair
competition or tortious interference in connection with new employee or new desk
hires. A settlement or judgment related to these or similar types of claims or
activities could have a material adverse effect on the Company's financial
condition or results of operations.
Lack of Diversification
From a revenue perspective, the Company's inter-dealer brokerage
businesses account for substantially all of Maxcor's consolidated revenues.
Accordingly, the prospects for the Company's performance and the market prices
for the Common Stock are currently highly dependent upon the performance of the
inter-dealer brokerage businesses. Although the Company is continuously seeking
to strengthen and improve the inter-dealer brokerage businesses, it is also
constantly exploring various options for diversifying the Company's businesses
and sources of revenue (its limited proprietary trading of municipal securities
is one such effort) and for strengthening its capital base. There can be no
assurances, however, that the Company will be successful in achieving these
goals or others related to diversification or, if achieved, whether they will
positively or negatively affect the Company's financial condition or results of
operations.
ITEM 2. PROPERTIES
The Company has offices in each of the following locations: New York,
New York; London, England; Tokyo, Japan; Toronto, Canada; Stamford, Connecticut;
Geneva, Switzerland; Vancouver, Washington; York, Pennsylvania; and Mexico City,
Mexico. The Company leases all of its office space and has material lease
obligations with respect to its New York and London premises. The Company
occupies an aggregate of approximately 49,000 square feet of space in 2 World
Trade Center in downtown New York under leases expiring on various dates from
2004 through 2007 (with a lease break provision in 2002). The Company occupies
approximately 36,000 square feet of space in downtown London under a lease
expiring in 2018 (with a lease break provision in 2003). In September 1998, the
Company subleased approximately one-third of its London premises to a co-tenant
in the building, for a term expiring at the end of 2002.
The Company believes that its facilities are suitable and adequate for
its present and anticipated purposes. See Note 16 to the Consolidated Financial
Statements for further information regarding future minimum rental commitments
under the Company's existing leases.
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ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiaries are subject to various legal
proceedings, arbitrations and claims that arise in the ordinary course of their
businesses. Although the results of legal proceedings and arbitrations cannot be
predicted with certainty, based on information currently available and
established reserves, management believes that resolving any currently known
matters will not have a material adverse impact on the Company's consolidated
financial condition or results of operations. See Note 17 to the Consolidated
Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of its fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock currently trades on The Nasdaq Stock
Market(R) under the symbol "MAXF."
The following table sets forth the range of high and low sales prices
for the Common Stock, as reported by The Nasdaq Stock Market(R), for the
Company's last two fiscal years.
Common Stock: High Low
---- ---
Year Ended December 31, 1999
----------------------------
First Quarter................................... $ 4.00 $ 1.031
Second Quarter.................................. 3.00 1.25
Third Quarter................................... 3.563 2.156
Fourth Quarter.................................. 3.25 1.688
Year Ended December 31, 1998
----------------------------
First Quarter................................... $ 3.125 $ 1.625
Second Quarter.................................. 3.125 1.00
Third Quarter................................... 2.50 0.938
Fourth Quarter.................................. 1.875 0.688
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As of March 28, 2000 there were 68 holders of record of the Common
Stock. The Company is aware that certain holders of record hold a substantial
number of shares of Common Stock as nominees for a significant number of
beneficial owners. Based on a broker-dealer inquiry made by the Company's
transfer agent in April 1999, the Company believes there are approximately 1000
beneficial owners of the Common Stock.
The Company has never declared any cash dividends on the Common Stock.
It is the present intention of the Company's Board of Directors to retain all
earnings, if any, for use in the Company's business operations and, accordingly,
the Company does not anticipate declaring any cash dividends on the Common Stock
in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," each included elsewhere in this report. Statement of Operations
data presented below includes reclassifications of certain revenue and expense
items which are not directly associated with operations. Such reclassifications
include interest income, interest expenses, amortization of intangible assets,
foreign exchange effects and other non-operating items. Because the Merger was
accounted for as a recapitalization of EBIC, with the issuance of shares by EBIC
for the net assets of Maxcor, financial and other information of the Company
presented below for dates and periods prior to the Merger (August 1996)
represent financial and other information of EBIC (and its subsidiaries and
affiliates) for such dates and periods, and per share information for 1995 and
1996 has been presented as if all shares issued in the Merger had been issued as
of January 1, 1995 and were outstanding for the merged and recapitalized entity
since that date.
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<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Revenue:
Commission income $ 153,151,341 $ 149,293,022 $ 163,467,438 $ 178,109,899 $ 171,576,327
Other income 2,618,822 973,908 740,683 360,967 99,554
------------- ------------- ------------- ------------- -------------
155,770,163 150,266,930 164,208,121 178,470,866 171,675,881
------------- ------------- ------------- ------------- -------------
Operating costs:
Payroll and related costs 108,470,659 100,527,090 107,375,812 116,296,606 110,915,257
Communication costs 15,083,928 14,726,069 16,010,272 18,288,441 17,187,573
Travel and entertainment 8,706,358 9,098,311 10,386,202 11,355,183 10,224,384
Occupancy costs 5,400,888 6,065,132 6,053,469 6,539,150 5,854,525
Depreciation and amortization 3,955,500 4,594,622 4,908,979 4,324,097 4,158,160
Clearing fees 3,005,785 4,588,170 6,165,264 4,411,515 3,777,710
General and administrative 5,802,572 5,639,524 7,667,597 7,495,441 7,550,059
------------- ------------- ------------- ------------- -------------
150,425,690 145,238,918 158,567,595 168,710,433 159,667,668
------------- ------------- ------------- ------------- -------------
Operating profit 5,344,473 5,028,012 5,640,526 9,760,433 12,008,213
------------- ------------- ------------- ------------- -------------
Other non-operating (expenses) income:
Interest expense (833,935) (1,079,147) (840,584) (693,132) (775,077)
Amortization of intangible assets (410,004) (410,004) (410,004) (410,004) (410,004)
Other non-operating expenses (1,141,356) (632,247) (295,344)
Other non-operating income 527,018 450,000
Restructuring costs (1,028,893)
(Loss) income from equity affiliates (1,576,644) (19,925) 191,771 229,992 418,498
Interest income 1,879,500 1,737,403 1,718,099 1,801,442 1,462,744
Foreign exchange (loss) gain (319,547) (184,518) 137,449 (8,229) 214,295
------------- ------------- ------------- ------------- -------------
(1,762,505) (1,097,547) 1,246,731 287,822 615,112
------------- ------------- ------------- ------------- -------------
Income before provision for income taxes
and minority interest 3,581,968 3,930,465 6,887,257 10,048,255 12,623,325
Provision for income taxes 1,116,131 3,950,645 5,757,897 6,650,606 7,393,196
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interest 2,465,837 (20,180) 1,129,360 3,397,649 5,230,129
Minority interest 66,375 (1,254,970) (1,398,352) 307,311 (1,767,854)
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 2,532,212 ($ 1,275,150) ($ 268,992) $ 3,704,960 $ 3,462,275
============= ============= ============= ============= =============
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 72,467,958 $ 75,269,665 $ 86,531,513 $ 97,172,715 $ 82,078,742
Obligations under capitalized leases 493,367 751,747 974,186 1,428,764 2,284,806
Notes payable 1,799,870 3,824,842 6,261,839 7,379,762 7,880,032
Loan payable 674,282
Total liabilities 38,162,466 43,476,151 54,928,268 64,721,841 50,185,747
Minority interest 4,885,896 501,731
Redeemable preferred stock 2,000,000 2,000,000
Stockholders' equity 27,419,596 29,793,514 31,603,245 32,450,874 31,391,264
Per Share Information
Net income (loss) - basic $ .26 ($.11) ($.03) $ .41 $ .39
Net income (loss) - diluted .25 (.11) (.03) .41 .39
Book value 3.29 2.63 2.79 3.63 3.51
Weighted average common shares outstanding
- basic 9,711,974 11,327,741 9,243,201 8,949,656 8,949,656
Weighted average common shares outstanding
- diluted 9,846,257 11,327,741 9,243,201 8,949,656 8,949,656
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's revenues currently are derived primarily from commissions
related to its inter-dealer brokerage businesses. Generally, the Company
receives a commission from both counterparties in a trade, although in trades of
certain products only one party pays a commission. The dollar amount of the
average transaction generating a commission varies significantly by the type of
product and the duration of the transaction. Similarly, the applicable
commission will vary according to product and may also reflect discounts for
high transaction volumes or other client rebates.
Other sources of revenues include interest income, derived primarily
from deposits with clearing organizations and interest associated with municipal
securities positions, gains and losses on securities transactions (currently
primarily in connection with the Company's municipal securities business),
income from the sale of data and financial information generated from the
Company's brokerage businesses and foreign exchange gains and losses.
The largest single component of the Company's expenses is compensation
paid to its brokers. Attracting and retaining qualified brokerage personnel with
strong client relationships is a prerequisite in the Company's business and in
the brokerage business in general. Brokers are generally compensated by a
combination of fixed salary and incentive payments based on commissions
generated by them or on the net profitability of their respective products. For
this reason, compensation expense frequently will increase or decrease in rough
proportion to revenues, although the fixed salary component can skew the
correlation in businesses with declining revenues by causing decreases in
compensation to lag behind decreases in revenues, and starting bonuses for new
hires in businesses for which revenue growth is sought can increase compensation
expenses in advance of realizing the anticipated revenue growth. To manage this
area, the Company includes performance-based salary adjustment provisions in
substantially all of its broker contracts and closely tracks revenues and
compensation expenses (as well as other direct costs) by desk (which may involve
one or more products) and by broker, at each location.
Direct client contact, including entertainment, is also an integral
part of the Company's marketing program and represents another significant
component of its expenses. The Company has made it a priority to manage these
expenditures in a more focused and coordinated fashion, and has had reasonable
success in reducing their gross level, as well as the percentage they represent
of operating revenues, over each of the last three years.
The costs of maintaining sophisticated trading room environments and a
worldwide data and communications network comprise another significant portion
of the Company's expenses, and, with the recent advent of electronic execution
and matching systems, the need to invest in new technology and internet
deployment strategies has also increased. The
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<PAGE>
Company's ability to compete effectively is significantly dependent on its
ability to maintain a high level of client service, both through its proprietary
software, computerized screen displays and digital networks and its provision of
whatever additional systems are demanded by clients at any given time. It is
this infrastructure and technological commitment that enables the Company to
support its existing client base and product lines, as well as provide a
platform for offering brokerage or other services in additional or newly
developing financial instruments. Although the Company maintains sizeable
management information services and communications departments, the Company will
also license technology or outsource infrastructure or technology projects,
where practical and consistent with its business goals, in order to manage its
fixed costs in these areas.
To grow revenues and stay competitive, the Company constantly needs to
analyze and pursue growth opportunities in both new and existing product lines.
Product expansion, when undertaken, however, generally leads to an increase in
the number of brokerage personnel, and therefore in compensation expense, since
the markets usually require brokers to specialize in a single product or group
of related products, rather than function as market generalists. Product
expansion, and the effort to grow market share, also typically results in
increased entertainment expenses and the increased infrastructure and
communication costs associated with configuring a new desk and delivering its
product to the necessary client base.
Year Ended December 31, 1999
The year ended December 31, 1999 was a good one for the Company, with a
return to profitability after a difficult 1998. Net income for the year was
approximately $2.53 million, on total revenues of $157.3 million. The
improvement in the Company's bottom line in part reflected management's strategy
of focusing on the Company's core financial centers - New York, London and Tokyo
- - and on those businesses where the Company could either be among the market
leaders or a profitable niche player. It also reflected management's successful
pursuit and implementation of a number of strategic initiatives throughout the
year, including business combinations both in Europe and Asia, the launch of the
Company's information services business and a major stock repurchase.
The year began with the Company combining certain of its London-based
capital markets businesses - interest rate options, dollar deposits and euro,
sterling, dollar and yen swaps - with the London-based euro and scandinavian
swaps businesses of the European brokerage firm, Finacor, as well as Finacor's
Paris-based euro swaps business. The combination provided the Company's London
operations with sufficient critical mass to maintain and improve market share
across a number of desks, and led to a very profitable first half of the year
for the venture, offset in part by losses incurred during a difficult fourth
quarter described in more detail below.
The year ended with the Company agreeing to merge the Tokyo
Partnership, the Tokyo-based derivatives brokering venture in which the Company
had been a 50/50 economic partner with its 15% equity affiliate, Yagi Euro, with
the off-balance sheet brokerage
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<PAGE>
operations of Nittan Exco Ltd. ("Nittan"). The combination saw the Company
retaining a 40% direct interest in the expanded Tokyo Partnership, with Yagi
Euro retaining a 30% interest and Nittan acquiring the remaining 30%. As a
result of the transaction, which closed effective January 1, 2000, the Company
will realize a one-time, after-tax gain in the first quarter of 2000 of
approximately $1.5 million. Yagi Euro and Nittan also agreed, as of the same
effective date, to combine their respective conventional products businesses
into a newly-formed corporation, 50% owned by each. These transactions are
expected to improve the operations of the Tokyo Partnership, which specializes
in multi-currency interest rate swaps, forward rate agreements and interest rate
options, and the operations of Yagi Euro's conventional products business, which
specializes in local money market and forward foreign exchange brokerage, by the
addition of Nittan's strong presence and client base in Japan and the
establishment of correspondent relationships with Nittan's offices elsewhere,
including in Hong Kong and Singapore.
During the first quarter of 1999, the Company executed its first
significant information services agreement, licensing to Telerate, Inc. a
variety of pricing and other data on emerging market bonds. The license, the
revenues from which are reported in "other income" in the Company's Consolidated
Statements of Operations, has an initial term of three years and is
non-exclusive, thereby allowing the Company to seek additional revenues from
further exploitation of the data.
During the second quarter of 1999, the Company consummated the
repurchase from the venture capital firm, Welsh, Carson, Anderson & Stowe, of
2,986,345 shares, or approximately 26.4%, of its outstanding Common Stock. The
total purchase price was $5,226,104, or $1.75 per share, representing an
approximately 36% discount to the Company's $2.74 per share book value at March
31, 1999. Management believes the repurchase was an attractive investment
opportunity for the Company and increased value for the Company's remaining
stockholders.
These management initiatives were played out against a backdrop of
rapid change in the inter-dealer brokerage industry. Whereas a 1998 trend was
continued consolidation in the industry's client base, 1999 saw an acceleration
of consolidation among inter-dealer brokers themselves. The Company views the
consolidations as presenting both challenges and opportunities. The challenge
primarily comes from the increased financial wherewithal and market presence of
the combined entities. The opportunities created, however, include the
possibilities of the Company establishing new business relationships as a result
of incompatible existing business alliances at the merged entities and/or
increasing market share through new hires from overlapping or duplicative desks
at such entities.
Specifically, two industry mergers in 1999 directly provided the
Company with the opportunity to establish its business alliance with Nittan,
described above, and to acquire a top-ranked brokerage team in U.S. Treasury
repurchase agreements. In one of the mergers, the two inter-dealer brokers each
had a separate business relationship with a Japan-based broker, one of whom was
Nittan. In the combined entity, these relationships were viewed as
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<PAGE>
competitive and incompatible, thereby providing the Company with the opportunity
to seek out and establish its own business relationship with Nittan. In the
other merger, both constituent companies had strong teams, and excellent market
positions, in the brokering of U.S. Treasury repurchase agreements, an area in
which the Company has struggled over the last several years. As a result of this
overlap, in the fourth quarter the Company was able to a hire a large segment of
one of those teams, which has had an immediate, positive impact on the
operations of that desk.
The other area of rapid change in the industry has been the accelerated
deployment of electronic execution and/or matching systems in products that have
been traditionally voice brokered. As announced last year, the Company, through
a third-party licensing agreement, is developing its own electronic matching
system, with an initial roll-out anticipated in the second quarter of 2000 for
the brokering of Brady bonds and global bonds. The Company believes this
deployment is a competitive necessity to protect its market share in these
products, as a number of its competitors have already deployed, or announced
plans to deploy, such systems. The challenge for the Company is to gain
acceptance for its system with the Company's client base ahead of, and more
successfully than, the competing systems. The opportunity is that, with a
successful deployment, the Company should be able to build on its market share,
reduce its operating costs, and potentially increase its revenues by reaching a
broader client base, ultimately with lower deployment and installation costs. A
successful deployment can also be expected to facilitate roll-outs of the same
or comparable system across additional product lines.
In this constantly evolving landscape, the Company's more mature
brokerage units, cash deposits and interest rate derivatives, performed very
well in 1999, with significant increases in revenues. As a product segment, cash
deposits experienced a relative turnaround, with increased market trading volume
and improved consistency of activity. There were also indications that the
client base was expanding to include stronger activity out of the Asian market,
in particular from Japanese institutions. Interest rate derivatives also
experienced a significant upswing in activity throughout the year, as they
became an ever increasing financial tool used by the major financial
institutions for hedging strategies. The Company also improved its relative
market position in interest rate derivatives, both in New York and London, by
completing several strategic hires of personnel at these locales.
The Company's niche municipal securities bussiness, which engages in
limited proprietary trading as well as traditional brokering activities, also
had a good 1999, with strong increases in revenues and profitability. In what
was otherwise often a difficult market for municipal securities, this unit
focused on using strong research to help indentity undervalued sectors for the
benefit of both its institutional client base and its own proprietary trading to
achieve these results.
Two of the Company's newer brokerage departments, emerging markets and
energy derivatives, continued to suffer from low overall levels of market
activity, in contrast to the significant growth each enjoyed at various times
during prior years. Emerging markets products continued to experience
significantly reduced market trading volumes in the wake of the Russian default
crisis of September 1998. The Company reduced costs in this department
throughout the year to the extent possible without jeopardizing the unit's
leading market position. Nonetheless, the Company effectively has subsidized
losses in these operations in anticipation that emerging market debt trading
volumes will improve in the reasonably near term.
Energy derivatives continued to experience reduced market activity as
well, particularly in the second half of the year. New entrants, such as
Bloomberg's electronic execution system, began to capture market share, putting
additional pressure on already reduced levels of activity. In the course of the
year the Company significantly reduced
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<PAGE>
operating costs associated with the energy derivatives unit, primarily on the
gas and electricity brokerage desks, and in the latter part of the year further
trimmed costs by relocating the portion of the department that was located in
the Company's Connecticut office back to the Company's main office in New York.
The total non-recurring restructuring costs incurred in 1999 related to these
efforts approximated $494,000 and included leasehold improvement write-offs and
occupancy related costs. By year end, the Company believed it had stream-lined
its energy derivatives operations to focus on those segments in which the
Company has a strong market presence and can operate on a profitable basis. The
department continues to broker emission credits, coal, weather derivatives and
electricity in certain regions.
Both the Tokyo Partnership and Yagi Euro's conventional products
business experienced disappointing results in 1999. Competitive pressure and
transitions in brokerage staff resulted in increased operating costs and a loss
of market share in certain products, both of which adversely affected
profitability. Management of these operations is working diligently to reverse
these trends, and the Company believes that the addition of Nittan as a business
partner, as described above, will significantly assist that effort.
The year also saw the Company continue the process of paring down its
already low level of debt. The Company made its final approximately $2 million
payment on some long-outstanding acquisition notes issued in connection with the
purchase of a predecessor business, and ended the year with notes and loans
payable at a historically low level of $2.5 million, down from $3.8 million at
1998 year end.
In the fourth quarter of 1999, in connection with redundancies and
other actions effected by the Tokyo Partnership and Yagi Euro's conventional
products business in anticipation of their respective January 1, 2000
restructurings, the Company incurred a net after-tax charge of approximately
$400,000. This charge primarily reflected the combined effects of the Company's
share of severance costs incurred by the Tokyo Partnership and severance costs
and fixed asset disposals incurred by Yagi Euro's conventional products
business, offset by certain income tax benefits realized by the Company in
anticipation of the closing of the Tokyo Partnership restructuring.
Fourth quarter results were also affected by reduced trading activity
across many of the Company's brokerage desks, especially in London. The Company
believes that many of its clients, in preparation for potential problems
associated with the "Year 2000" transition, significantly reduced their trading
activity during the period, particularly in connection with higher risk
securities that trade with wide bid/offer spreads. Accordingly, the Company
experienced reduced revenues in most of its brokerage units and incurred a loss
for the fourth quarter, inclusive of all non-recurring items, of approximately
$1.1 million.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Commission income for 1999 increased $3,858,319 to $153,151,341,
compared to $149,293,022 for 1998. The increase resulted primarily from
increased brokerage in London
24
<PAGE>
and Geneva, aggregating approximately $14.1 million, offset in part by decreased
brokerage in New York and Mexico City, aggregating approximately $7.0 million,
and decreased brokerage in the Tokyo Partnership of approximately $2.9 million.
The increased brokerage in London and Geneva primarily reflected the expansion,
as of January 1, 1999, of the London operations through the Euro Brokers Finacor
Ltd. ("EBFL") venture 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 activity in both centers in emerging market debt
securities and, in New York, reduced brokerage in energy derivatives, offset in
part by increased brokerage in cash deposits and interest rate derivatives. The
decreased brokerage in the Tokyo Partnership primarily reflected the impact of
increased competitive pressures and reduced market activity.
Interest income for 1999 increased by $142,097 to $1,879,500, compared
to $1,737,403 for 1998. This increase resulted primarily from an increase in the
average inventory of municipal securities held by the Company.
Other income for 1999 increased $1,509,885 to $2,299,275, compared to
$789,390 for 1998, primarily due to an increase in income from the sale of
financial information and data and an increase in trading gains on municipal
securities transactions.
Payroll and related costs for 1999 increased $7,943,569 to
$108,470,659, compared to $100,527,090 for 1998. The increase was primarily the
result of increased employment costs in London and Geneva, aggregating
approximately $9.2 million, reflecting an increase in brokerage staff and
commission income in conjunction with the expansion of the London operations in
EBFL and the new Geneva operations, and increased employment costs in the Tokyo
Partnership, approximating $2.3 million, reflecting increased competitive
pressures and an increase in brokerage staff. These increases were partially
offset by reduced employment costs in New York and Mexico City, aggregating
approximately $3.3 million, primarily reflecting reduced commission income and
implemented cost reductions in the emerging market debt and energy derivatives
areas. As a percentage of operating revenues (commission income, trading gains
and information sales revenue), payroll and related costs increased to
approximately 69.6% for 1999, as compared to approximately 66.9% for 1998,
primarily resulting from certain fixed salary costs in areas which sustained
reduced revenues.
Communication costs were comparable for 1999 and 1998, at $15,083,928
and $14,726,069, respectively, reflecting the net effects of an increase in
London associated with the expanded operations of EBFL, additional costs from
the Geneva operations and a decrease in New York associated with overall cost
reductions in certain areas.
Travel and entertainment costs for 1999 decreased $391,953 to
$8,706,358, compared to $9,098,311 for 1998, primarily as a result of
management's continued focus on reducing these costs, while at the same time
increasing revenues. As a percentage of operating revenues, travel and
entertainment costs decreased to approximately 5.6% for 1999, as compared to
6.1% for 1998.
25
<PAGE>
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. In 1999
these costs decreased $1,191,262 to $4,873,870, compared to $6,065,132 for 1998,
primarily reflecting the combined effect of a reduction in rent and related
costs derived from subletting a portion of the Company's leased space in London,
(which commenced in September 1998), an overall rent tax rate reduction in
London and an approximately $527,000 reduction in certain occupancy related
accruals.
Depreciation and amortization expense consists principally of
depreciation of communication and computer equipment and leased automobiles and
amortization of leasehold improvements and intangible assets. In 1999, the costs
decreased $639,122 to $4,365,504, compared to $5,004,626 for 1998, primarily due
to a reduction in depreciable fixed assets in London.
Clearing fees are fees for transaction settlements and credit
enhancement, which generally are charged by the Company's clearing firms in
transactions where the Company acts as a riskless principal on a fully matched
basis. These expenses decreased $1,582,385 to $3,005,785 for 1999, compared to
$4,588,170 for 1998, due primarily to a decrease in the number of cleared
transactions, primarily in emerging market debt securities.
Restructuring costs of $1,028,893 were incurred during the year ended
December 31, 1999, in connection with the anticipated admission of Nittan to the
Tokyo Partnership and the closing of certain departments within the commodity
derivatives brokerage group. These costs included, among others, employee
severance, the write-off of leasehold improvements and occupancy related costs.
Interest expense for 1999 decreased $245,212 to $833,935, compared to
$1,079,147 for 1998. This decrease was primarily the result of a lesser average
aggregate amount of debt (loan, notes and capitalized lease obligations payable)
outstanding 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. In 1999, these expenses decreased $978,308 to $5,802,572, as
compared to $6,780,880 for 1998, primarily as a result of a decrease in
professional fees, which were higher in 1998 due to the Finacor transaction in
London, the opening of the Geneva office and other corporate matters. In
connection with management's continued efforts to reduce costs, there were also
reductions in various other general and administrative expenses during 1999 in
comparison to 1998, notwithstanding the fact that the 1998 costs were themselves
reduced by reductions to various accruals approximating $462,000.
Loss from equity affiliates for the year ended December 31, 1999
consists of the Company's equity interest in the loss incurred by Yagi Euro.
Approximately $1.0 million of
26
<PAGE>
this loss represented the Company's share of employee severance costs and fixed
asset disposals incurred in anticipation of the 50-50 joint venture in
conventional products formed by Yagi Euro and Nittan, effective January 1, 2000.
In 1998, the loss resulted from a write-off of the Company's equity interest in
a small derivatives broker of $118,000, offset in part by the Company's share of
Yagi Euro's profits for 1998.
Provision for income taxes for 1999 decreased $2,834,514 to $1,116,131,
compared to $3,950,645 for 1998. This decrease was primarily reflective of a
$1,200,000 adjustment during the current period to reduce income tax reserves as
a result of obtaining a favorable resolution to certain contingencies, as well
as a reduction to the deferred tax asset valuation allowance of approximately
$972,000 due to tax planning strategies derived from the Nittan transaction and
improved profitability in certain subsidiaries. Even exclusive of these
adjustments, the Company's effective tax rate was lower for 1999, as compared to
1998, reflecting a lower tax rate on income generated by the Tokyo Partnership
as a result of certain initiatives undertaken effective as of January 1, 1999,
and management's success in reducing the Company's overall level of
non-deductible entertainment expenses.
For 1999, minority interest in consolidated subsidiaries resulted in a
reduction of net losses from such subsidiaries of $66,375, as compared to a
reduction of net income from such subsidiaries of $1,254,970 for 1998, primarily
due to the competitive pressures encountered by the Tokyo Partnership.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Commission income for 1998 decreased $14,174,416 to $149,293,022,
compared to $163,467,438 for 1997. The net decrease primarily resulted from the
combination of reduced brokerage in London and Toronto, primarily resulting from
several departmental closures during 1997, aggregating approximately $10.6
million, and reduced brokerage in New York, reflecting reduced market volumes in
emerging market debt products and energy derivatives, of approximately $5.5
million. These decreases were partially offset by increased brokerage in the
Tokyo Partnership and Mexico City, notwithstanding the strong dollar, and
brokerage generated by the Company's new office in Geneva, which commenced
operations in July 1998.
Interest income for 1998 increased $19,304 to $1,737,403, compared to
$1,718,099 for 1997. This increase was primarily the result of the net effects
of additional interest associated with an increase in the average inventory of
municipal securities positions and a decrease related to reduced cash and
deposit balances and a lower interest rate environment.
Other income for 1998 decreased $88,742 to $789,390, compared to
$878,132 for 1997. The difference was primarily due to the combination of
recording a foreign exchange loss in 1998, as compared with a foreign exchange
gain in 1997, offset in part by an increase in trading gains on municipal
securities transactions. The loss from foreign exchange reflects, in part, the
application of current accounting rules which require that hedges of anticipated
27
<PAGE>
future income streams be marked to market, as compared with being deferred and
matched to the related income stream.
Payroll and related costs for 1998 decreased $6,848,722 to
$100,527,090, compared to $107,375,812 for 1997. The net decrease was primarily
the result of reduced employment costs in London and Toronto, associated with
departmental closures during 1997 and salary reductions during 1998, aggregating
approximately $6.0 million, and reduced employment costs in New York, associated
with reduced commission income and salary reductions during 1998, of
approximately $2.4 million. These decreases were partially offset by increased
employment costs associated with the growth of operations in the Tokyo
Partnership and Mexico City and the commencement of operations in Geneva. As a
percentage of operating revenues, payroll and related costs were comparable at
66.9% and 65.4% for 1998 and 1997, respectively, reflective in part of
management's continued efforts to correlate employment costs more closely to
revenues.
Communication costs for 1998 decreased $1,284,203 to $14,726,069,
compared to $16,010,272 for 1997, primarily due to departmental closures in
London and Toronto during 1997, partially offset by costs incurred by the new
Geneva office.
Travel and entertainment costs for 1998 decreased $1,287,891 to
$9,098,311, compared to $10,386,202 for 1997. As a percentage of operating
revenues, travel and entertainment costs were comparable at 6.1% and 6.3% for
1998 and 1997, respectively, reflective of management's continued efforts to
control these costs.
Occupancy costs increased by $11,663 to $6,065,132 for 1998, compared
to $6,053,469 for 1997, primarily resulting from escalations of rent associated
with pre-existing office locations and rent attributable to new office locations
in the U.S. and Geneva, offset in part by income derived from subletting a
portion of the Company's leased space in London since September 1998.
In 1998, depreciation and amortization expense decreased $314,357 to
$5,004,626, compared to $5,318,983 for 1997, primarily as a result of a
reduction in depreciable fixed assets in London.
Clearing fees decreased $1,577,094 to $4,588,170 for 1998, compared to
$6,165,264 for 1997, due primarily to a decline in the number of cleared
transactions, primarily in emerging market debt securities.
Interest expense for 1998 increased $238,563 to $1,079,147, compared to
$840,584 for 1997. This increase was primarily the result of additional interest
in connection with the financing of an increased average inventory of municipal
securities positions, offset in part by a decrease associated with capitalized
lease obligations.
28
<PAGE>
General, administrative and other expenses decreased by $436,717 to
$6,780,880 for 1998, compared to $7,217,597 for 1997. The net decrease reflects
the effects of a variety of items. In 1998 the Company incurred increased
professional fees due to the expansion of the London operations in EBFL, the
opening of the Geneva office and other corporate matters. These costs were
offset by reductions in various other general and administrative expenses and
the reduction of several accruals by approximately $462,000. In 1997, these
costs included the write-off of approximately $500,000 relating to the
termination of the Company's electronic trading system efforts in Toronto,
offset by the reversal of excess litigation reserves of approximately $450,000.
The loss from equity affiliates of $19,925 for 1998, as compared to
income from equity affiliates of $191,771 for 1997, was the combined result of a
write-off in 1998 of the Company's equity interest in a small derivatives broker
of $118,000, as well as a reduction in income from the Company's equity interest
in Yagi Euro.
Provision for income taxes for 1998 decreased $1,807,252 to $3,950,645,
compared to $5,757,897 for 1997, primarily due to reduced levels of pre-tax
accounting income. The high effective tax rate reflects the heightened effect of
the non-deductibility of certain expenses, principally entertainment expenses,
on lower pre-tax accounting income.
Minority interest in consolidated subsidiaries for 1998 decreased by
$143,382 to $1,254,970, compared to $1,398,352 for 1997, reflecting lower
after-tax net income generated by such subsidiaries.
Liquidity and Capital Resources
Operating Activities
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 receivable 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 client needs and are currently financed by margin
borrowings from a broker-dealer that clears these transactions on the Company's
behalf on a fully-disclosed basis ("Clearing Broker"). At year-end 1999, as
reflected on the Consolidated Statements of Financial Condition, the Company had
net assets relating to securities transactions of approximately $3.5 million,
reflecting securities owned of approximately $9.5 million, financed by a payable
to the Clearing Broker of approximately $6.0 million.
MFI is a member of the GSCC for the purpose of clearing U.S. Treasury
repurchase agreements. Pursuant to such membership, MFI is required to maintain
excess regulatory net
29
<PAGE>
capital of $10,000,000, and a pledge of $5,000,000 in U.S. Treasury securities,
which has been reflected as deposits with clearing organizations on the
Consolidated Statements of Financial Condition.
Net cash provided by operations for 1999 was approximately $9.8
million. This increase in cash was the combined result of net income of
approximately $2.5 million adjusted to reflect the net effect of approximately
$5.8 million of non-cash items, primarily consisting of depreciation and
amortization, undistributed losses of unconsolidated subsidiaries and an
increase to deferred income taxes, and the net positive effects of other working
capital items, principally reduced receivable balances.
Net cash provided by operations for 1998 was approximately $1.1
million. This increase in cash was the combined result of a net loss of
approximately $1.3 million adjusted to reflect approximately $6.8 million of
non-cash items, principally for depreciation and amortization and deferred
income taxes, and the net negative effects of other working capital items,
principally reduced payable balances.
Net cash provided by operations for 1997 was approximately $4.2
million. This increase in cash was the combined result of a net loss of
approximately $269,000 adjusted to reflect approximately $5.0 million of
non-cash items, principally for depreciation and amortization, and the net
negative effects of other working capital items.
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.
Investing Activities
Investing activities for 1999, 1998 and 1997 reflect net cash used of
approximately $1.0 million, $3.6 million and $2.5 million, respectively,
primarily for purchases of fixed assets. The decrease in fixed asset purchases
during 1999 reflects, in part, the Company's increased use of operating leases
to finance much of the upgrading of communication and information systems
necessary to sustain the Company's commitment to maintaining current technology.
Financing Activities
Loan payable of approximately $674,000 at December 31, 1999 represents
amounts borrowed under a revolving credit facility of up to $5 million with
General Electric Capital Corporation ("GECC"), which expires on June 17, 2004.
The facility is secured by
30
<PAGE>
substantially all the assets of Euro Brokers Inc. ("EBI"), a U.S. subsidiary.
The borrowing availability under the facility (which approximated $2.5 million
at December 31, 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 separately, and the Company as a whole, to maintain
certain financial ratios and conditions.
Notes payable at December 31, 1999 of approximately $1.8 million
reflects the remaining installments of approximately $1.3 million due on a fixed
rate note payable to GECC issued in December 1997, which is secured by all owned
equipment of EBI and is payable in monthly installments through December 2002,
and $500,000 in notes issued to investment partnerships of the venture capital
group, Welsh, Carson, Anderson & Stowe, in June 1999 in connection with the
Company's repurchase of Common Stock, and which mature in June 2000. As security
for the Welsh Carson notes, 571,429 of the repurchased treasury shares have been
deposited in an escrow account and will be released upon repayment.
Net cash used in financing activities for 1999 was approximately $4.0
million, primarily reflective of the net effects of cash of approximately $4.2
million used to acquire treasury stock, the repayment of notes payable and
obligations under capitalized leases aggregating approximately $3.4 million, the
cash contribution from minority interest, net of dividends paid to minority
interest, of approximately $3.1 million, and net borrowings under the revolving
credit facility of approximately $674,000.
Net cash used in financing activities for 1998 was approximately
$780,000, primarily reflective of the net effects of the repayment of notes
payable and obligations under capital leases aggregating approximately $2.7
million, and the issuance of the Preferred Stock to Yagi Euro for $2.0 million.
Net cash used in financing activities for 1997 was approximately $2.0
million, primarily reflective of the repayment of notes payable and obligations
under capital leases aggregating approximately $3.6 million, acquisition costs
for treasury stock of approximately $209,000, and expenses relating to the
issuance of Common Stock pursuant to the Exchange Offer of approximately
$344,000, offset in part by cash received of approximately $2.1 million for the
issuance of the GECC fixed rate note.
Effects of Inflation
Because the Company's assets are to a large extent liquid in nature,
they are not significantly affected by inflation. However, increases in certain
Company expenses due to inflation, such as employee compensation, travel and
entertainment and occupancy and communication costs may not be readily
recoverable in the price of its services, particularly for operations domiciled
outside the United States where there are increased inflationary pressures. In
addition, to the extent inflation increases or decreases volatility in the
securities
31
<PAGE>
markets, the Company's brokerage business is likely to be affected by
corresponding increases or decreases in brokerage transaction volumes.
Year 2000 Readiness Disclosure
From January 1, 2000 through the date of this report, the Company has
not experienced any material disruption to its operations as a result of its
computer software applications and systems, or those of key vendors, suppliers
and other third parties, not being able to properly incorporate the "Year 2000"
dating changes necessary to permit correct recording of, and calculations
involving, calendar dates for January 1, 2000 and later. Nor does the Company
currently anticipate any such disruption going forward.
Through December 31, 1999, the Company spent approximately $335,000 on
Year 2000 compliance efforts and has budgeted an additional $25,000 for 2000 to
resolve any related unforeseen issues that subsequently arise. These amounts
reflect the Company's historical and ongoing commitment to maintaining current
technology, making significant hardware and software expenditures solely for
Year 2000 purposes unnecessary, and the fact that the Company was able to
conduct most of its Year 2000 compliance efforts through the use of internal
management information services personnel, without relying heavily on outside
consultants.
Forward Looking Statements
Certain statements contained in this Item 7 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. Wherever possible, the Company has identified these
forward-looking statements by words such as "believes," "anticipates," "expects"
and similar phrases. Such forward-looking statements, which describe the
Company's current beliefs concerning future business conditions and the outlook
for the Company, are subject to significant uncertainties, many of which are
beyond the control of the Company. Actual results or performance could differ
materially from that expected by the Company. Uncertainties include factors such
as market and economic conditions, the success of technology development and
deployment, the status of relationships with employees, clients and clearing
firms, possible third-party litigations or other unanticipated contingencies,
the actions of competitors, and government regulatory changes. For a fuller
description of these and additional uncertainties, reference is made to the
"Competition," "Regulation" and "Cautionary Statements" captions of Item 1 of
this report, the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" caption of Item 7 of this report and the
"Quantitative and Qualitative Disclosures about Market Risk" caption of Item 7A
of this report. The forward-looking statements made herein are only made as of
the date of this report and the Company undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
32
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Management of the Company is actively involved in the evaluation of
risks associated with certain financial instruments and will from time to time
reduce other risks inherent in its businesses through the use of financial
instruments.
The Company reduces market risk related to its municipal securities
positions by limiting both the size of its overall positions and the number of
days positions are held. In addition, the Company from time to time sells
interest rate sensitive financial futures contracts as a means of managing
market risk on its municipal securities positions. Management closely monitors
the Company's municipal securities positions on a daily basis through its review
of daily activity and position reports prepared by operations staff. These
reports detail all executed transactions, the resulting trading gains and sales
commissions and, using independently verified market prices, the closing
positions. At December 31, 1999, the Company held municipal securities positions
with an aggregate market value of approximately $9.5 million.
In the process of executing brokerage transactions, the Company
sometimes experiences "out trades" or other errors in which the Company may have
liability for the resulting unmatched position. Out trades generally increase
with increases in the volatility of the market. If an out trade is promptly
discovered, thereby allowing prompt disposition of the unmatched position, the
risk to the Company is usually limited. If discovery (or disposition) is
delayed, the risk is heightened by the increased possibility of intervening
market movements prior to such disposition. The Company believes that its
electronic blotter system, because of its ability to identify unbalanced trade
conditions as they occur, serves to help limit the market risk exposure when out
trades or other errors occur. To limit its exposure further in such situations,
the Company's policy is to dispose of any resulting unmatched positions promptly
after their discovery.
The Company has various foreign exchange rate exposures, including
commission income earned in a currency other than the functional currency and
foreign income streams which are eventually distributed. Management's strategies
to reduce these risks include the use of foreign currency forward contracts.
Gains and losses on these contracts are included in current operations even
though the offsetting gains and losses on the hedged exposures are not
recognized until realized. As of year-end 1999, the Company has postponed its
hedging practice with respect to anticipated dividends from the Tokyo
Partnership, awaiting a time when it can better predict the income streams
therefrom.
The Company's notes payable and Preferred Stock have interest and
dividend rates that are fixed. Although the Company has theoretical interest
rate exposure with these instruments should market interest rates decline or
rise, management's judgment is that the aggregate future required payments under
these instruments are satisfactory as a business matter, and do not require
application of hedging strategies. In addition, the Company's
33
<PAGE>
exposure to fixed interest rates has declined during 1999 as a result of the
maturing of certain notes payable.
The loan payable at December 31, 1999 represents borrowings under the
new facility with GECC, which bear interest at a variable rate based upon the
published rate for 30-day dealer-placed commercial paper. Management will
monitor the level of borrowings under this facility as well as the interest rate
environment to determine the necessity of a hedging strategy to guard against
increases in market interest rates.
The tables below provide information, at each of December 31, 1999 and
December 31, 1998, about the Company's financial instruments used for other than
trading purposes that are sensitive to either changes in interest rates or
changes in foreign exchange rates. Except as noted above, the Company's market
risk analysis at December 31, 1999 did not materially change from the market
risk analysis at December 31, 1998. For loan and notes payable and Preferred
Stock the table presents principal and redemption cash flows with expected
maturity dates. For foreign currency forward contracts, the table presents
notional amounts with expected maturity dates.
<TABLE>
<CAPTION>
As of December 31, 1999:
- ------------------------
After Fair
2000 2001 2002 2004 Total Value
---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest rate sensitivity:
Loan payable $ 674,282 $ $ $ $ 674,282 $ 674,282
7.9% note secured by
certain equipment 472,501 511,312 316,057 1,299,870 1,299,870
10% note issued in
connection with the
repurchase of
Common Stock 500,000 500,000 500,000
2% Preferred Stock 2,000,000 2,000,000 2,000,000
Exchange rate
sensitivity:
Foreign currency forward
contracts:
Sell U.S. dollars/buy
British pounds
sterling 2,400,000 2,400,000 17,026
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998:
- ------------------------
After Fair
1999 2000 2001 2002 2003 Total Value
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitivity:
6-1/8% notes issued in
connection with the
acquisition of
predecessor business $ 2,088,336 $ $ $ $ $2,088,336 $ 2,088,336
7.9% note secured by
certain equipment 436,636 472,501 511,312 316,057 1,736,506 1,736,506
2% Redeemable
Preferred Stock 2,000,000 2,000,000 2,000,000
Exchange rate
sensitivity:
Foreign currency
forward contracts:
Sell Japanese
yen/buy U.S. dollars 1,735,000 1,735,000 (355,956)
Sell U.S. dollars/buy
British pounds
sterling 3,000,000 3,000,000 113,970
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this
report. See Item 14 and the F-pages that follow.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This Item 9 is not applicable to the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference
to the Company's definitive proxy statement for the Company's 2000 Annual
Meeting of Stockholders (the "Proxy Statement"). The Company intends to file the
Proxy Statement with the SEC on or prior to April 29, 2000.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the Proxy Statement, except that such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(9) of Regulation S-K. The Company intends to file the Proxy
Statement with the SEC on or prior to April 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the Proxy Statement. The Company intends to file the Proxy Statement with the
SEC on or prior to April 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the Proxy Statement. The Company intends to file the Proxy Statement with the
SEC on or prior to April 29, 2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Listed on page F-2 of the Consolidated Financial Statements included in
this report.
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements.
(a)(3) Exhibits
Listed in the Exhibit Index appearing at page X-1 of this report.
(b) Reports on Form 8-K
During the fourth quarter of its fiscal year ended December 31, 1999,
the Company did not file any Current Reports on Form 8-K.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAXCOR FINANCIAL GROUP INC.
By: /s/ Gilbert D. Scharf
----------------------------
Gilbert D. Scharf,
Chairman of the Board, President and
Chief Executive Officer
Dated: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Gilbert D. Scharf Chairman of the Board, President March 29, 2000
- ----------------------------- and Chief Executive Officer
Gilbert D. Scharf
/s/ Keith E. Reihl Chief Financial and Principal March 29, 2000
- ----------------------------- Accounting Officer
Keith E. Reihl and Director
/s/ Steven R. Vigliotti Treasurer March 29, 2000
- -----------------------------
Steven R. Vigliotti
/s/ Larry S. Kopp Director March 29, 2000
- -----------------------------
Larry S. Kopp
/s/ Michael J. Scharf Director March 29, 2000
- -----------------------------
Michael J. Scharf
/s/ James W. Stevens Director March 29, 2000
- -----------------------------
James W. Stevens
/s/ Frederick B. Whittemore Director March 29, 2000
- -----------------------------
Frederick B. Whittemore
/s/ William B. Wigton Director March 29, 2000
- -----------------------------
William B. Wigton
/s/ Oscar M. Lewisohn Director March 29, 2000
- -----------------------------
Oscar M. Lewisohn
/s/ Robin A. Clark Director March 29, 2000
- -----------------------------
Robin A. Clark
</TABLE>
37
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
F-1
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
Contents Page
- --------------------------------------------------------------------------------
Report of Independent Accountants F-3
Consolidated Financial Statements:
Consolidated Statements of Financial Condition F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to the Consolidated Financial Statements F-10
F-2
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
and Stockholders of
Maxcor Financial Group Inc.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of operations, changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Maxcor Financial Group Inc. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 24, 2000
F-3
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1999 1998
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 20,054,275 $ 15,150,296
Deposits with clearing organizations 6,800,390 7,121,033
Receivable from broker-dealers and customers 16,027,907 16,557,824
Securities owned 9,479,694 11,578,515
Prepaid expenses and other assets 7,011,145 8,268,622
Deferred tax asset 3,752,385 2,442,981
Equity in affiliated companies 1,595,852 2,935,100
Furniture, equipment and leasehold improvements 6,959,569 10,018,602
Intangible assets 786,741 1,196,692
------------- --------------
Total assets $ 72,467,958 $ 75,269,665
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
<TABLE>
<CAPTION>
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
Liabilities:
Payable to broker-dealer $ 5,977,929 $ 7,845,490
Accounts payable and accrued liabilities 14,924,573 15,478,695
Accrued compensation payable 13,046,001 14,704,076
Loan payable 674,282
Income taxes payable 723,392 375,665
Deferred taxes payable 523,052 495,636
Obligations under capitalized leases 493,367 751,747
Notes payable 1,799,870 3,824,842
----------- ------------
38,162,466 43,476,151
----------- ------------
Minority interest in consolidated subsidiary 4,885,896
-----------
Commitments and contingencies (Notes 16 and 17)
Redeemable preferred stock:
Series B, 2% cumulative, stated value $1,000,
2,000 shares issued at December 31, 1999 and 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
December 31, 1999 and 1998, reported above
Common stock, $.001 par value, 30,000,000 shares
authorized; 11,392,269 shares issued
at December 31, 1999 and 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 December 31, 1999 and
December 31, 1998, respectively (5,454,036) (227,932)
Accumulated deficit (2,608,011) (5,100,223)
Accumulated other comprehensive income:
Foreign translation adjustments 2,282,836 1,922,862
----------- -----------
Total stockholders' equity 27,419,596 29,793,514
----------- -----------
Total liabilities and stockholders' equity $72,467,958 $75,269,665
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Commission income $153,151,341 $149,293,022 $163,467,438
Interest income 1,879,500 1,737,403 1,718,099
Other income 2,299,275 789,390 878,132
------------ ------------ ------------
157,330,116 151,819,815 166,063,669
------------ ------------ ------------
Costs and expenses:
Payroll and related costs 108,470,659 100,527,090 107,375,812
Communication costs 15,083,928 14,726,069 16,010,272
Travel and entertainment 8,706,358 9,098,311 10,386,202
Occupancy costs 4,873,870 6,065,132 6,053,469
Depreciation and amortization 4,365,504 5,004,626 5,318,983
Clearing fees 3,005,785 4,588,170 6,165,264
Restructuring costs 1,028,893
Interest expense 833,935 1,079,147 840,584
General, administrative and other
expenses 5,802,572 6,780,880 7,217,597
------------ ------------ ------------
152,171,504 147,869,425 159,368,183
------------ ------------ ------------
Subtotal 5,158,612 3,950,390 6,695,486
(Loss) income from equity affiliates (1,576,644) (19,925) 191,771
------------ ------------ ------------
Income before provision for income
taxes and minority interest 3,581,968 3,930,465 6,887,257
Provision for income taxes 1,116,131 3,950,645 5,757,897
------------ ------------ ------------
Income (loss) before minority interest 2,465,837 (20,180) 1,129,360
Minority interest in loss (income) of
consolidated subsidiaries 66,375 (1,254,970) (1,398,352)
------------ ------------ ------------
Net income (loss) $ 2,532,212 ($ 1,275,150) ($ 268,992)
============ ============ ============
Weighted average common shares
outstanding - basic 9,711,974 11,327,741 9,243,201
Weighted average common shares
outstanding - diluted 9,846,257 11,327,741 9,243,201
Basic earnings (loss) per share $.26 ($.11) ($.03)
Diluted earnings (loss) per share $.25 ($.11) ($.03)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Comprehensive Common Paid-in Treasury Accumulated Comprehensive
Income Stock Capital Stock Deficit Income Total
------ ----- ------- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 8,950 $33,533,867 ($3,546,081) $2,454,138 $32,450,874
Issuance of shares in Exchange
Offer 2,381 (2,381)
Comprehensive income
Net loss for the year ended
December 31, 1997 ($ 268,992) (268,992) (268,992)
Other comprehensive income
Foreign translation adjustment
(inclusive of income
tax expense of $111,000) (25,176) (25,176) (25,176)
-----------
Comprehensive income ($ 294,168)
-----------
Issuance of shares to EBIC
shareholders 61 (61)
Acquisition of treasury ($209,451) (209,451)
stock
Expenses incurred in connection
with Exchange Offer (344,010) (344,010)
------- ----------- ----------- ----------- ---------- -----------
Balance at December 31, 1997 11,392 33,187,415 (209,451) (3,815,073) 2,428,962 31,603,245
Comprehensive income
Net loss for the 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 year ended
December 31, 1999 $ 2,532,212 2,532,212 2,532,212
Other comprehensive income
Foreign translation adjustment
(inclusive of income tax
benefit of $111,648) 359,974 359,974 359,974
-----------
Comprehensive income $ 2,892,186
===========
Acquisition of treasury stock (5,226,104) (5,226,104)
Redeemable preferred stock
dividends (40,000) (40,000)
------- ----------- ----------- ----------- ---------- -----------
Balance at December 31, 1999 $11,392 $33,187,415 ($5,454,036) ($2,608,011) $2,282,836 $27,419,596
======= =========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statement
F-7
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,532,212 ($1,275,150) ($ 268,992)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,365,504 5,004,626 5,318,983
Provision for doubtful accounts ( 8,492) 53,777 96,203
Net loss (gain) on disposal of fixed assets 173,635 31,423 ( 36,257)
Gain on sale of exchange memberships ( 8,000)
Undistributed losses (earnings) of unconsolidated subsidiaries 2,271,382 ( 329,082) ( 646,233)
Minority interest in consolidated subsidiaries 244,597
Imputed interest expense 28,035 57,556 83,959
Deferred income taxes ( 1,295,768) 1,957,221 222,733
Change in assets and liabilities:
Decrease (increase) in deposits with clearing organizations 320,643 1,931,334 (1,872,061)
Decrease in receivable from broker-dealers and customers 2,253,197 3,268,139 8,932,584
Decrease (increase) in securities owned 2,098,821 ( 1,081,050) (1,746,189)
Decrease in prepaid expenses and other assets 432,242 181,235 365,840
Decrease in short-term bank loans ( 6,225,928) (3,463,055)
(Decrease) increase in payable to broker-dealer ( 1,867,561) 7,414,513 (1,256,792)
Decrease in securities sold, not yet purchased ( 780,849) ( 943,682)
(Decrease) increase in accounts payable and accrued liabilities ( 241,843) ( 2,489,237) 1,329,824
Decrease in accrued compensation payable ( 1,868,251) ( 4,129,233) (4,436,546)
Increase (decrease) in income taxes payable 360,883 ( 2,456,795) 2,480,599
----------- ----------- ----------
Net cash provided by operating activities 9,799,236 1,132,500 4,152,918
----------- ----------- ----------
Cash flows from investing activities:
Purchase of fixed assets ( 1,299,408) ( 4,073,603) (3,502,633)
Proceeds from the sale of fixed assets 295,062 406,950 488,517
Dividends received from equity affiliates 38,511 36,771 58,520
Net sale of exchange memberships 148,000
Proceeds from the sale of subsidiary 322,622
----------- ----------- ----------
Net cash used in investing activities ( 965,835) ( 3,629,882) (2,484,974)
----------- ----------- ----------
</TABLE>
F-8
<PAGE>
MAXCOR FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Cash contribution from minority interest 3,691,972
Dividend paid to minority interest ( 614,726)
Net borrowings under revolving credit facility 674,282
Repayment of notes payable ( 3,026,697) ( 2,520,331) ( 3,203,573)
Issuance of notes payable 2,140,000
Issuance of redeemable preferred stock 2,000,000
Redeemable preferred stock dividends ( 40,000) ( 10,000)
Repayment of obligations under capitalized leases ( 421,081) ( 231,137) ( 397,717)
Expenses incurred in connection with Exchange Offer ( 344,010)
Acquisition of treasury stock ( 4,226,104) ( 18,481) ( 209,451)
----------- ----------- -----------
Net cash used in financing activities ( 3,962,354) ( 779,949) ( 2,014,751)
----------- ----------- -----------
Effect of exchange rate changes on cash 32,932 385,996 156,512
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 4,903,979 ( 2,891,335) ( 190,295)
Cash and cash equivalents at beginning of year 15,150,296 18,041,631 18,231,926
----------- ----------- -----------
Cash and cash equivalents at end of year $20,054,275 $15,150,296 $18,041,631
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 894,147 $ 1,032,853 $ 768,270
Income taxes paid 934,184 2,773,146 2,124,722
Non-cash financing activities:
Capital lease obligations incurred 180,591
Contribution of non-cash assets from minority interest 1,962,886
Assumption of liabilities of minority interest 247,508
Issuance of notes payable to acquire treasury stock 1,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
MAXCOR FINANCIAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Maxcor Financial Group Inc. ("MFGI") is a publicly-held financial services
holding company that was incorporated in Delaware in 1994. In 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 in connection with a management buyout of
predecessor operations dating to 1970, through its subsidiaries and affiliates
is primarily an inter-dealer broker of money market instruments, derivative
products and selected securities, with principal offices in New York, London and
Tokyo, and other offices in Geneva, Toronto and Mexico City, as well as
correspondent relationships with other brokers throughout the world. EBIC and
its subsidiaries and affiliates currently comprise substantially all of MFGI'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 intercompany 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. Certain
reclassifications have been made to the 1998 and 1997 balances to conform with
the current year presentation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Revenue recognition:
Commission income and related expenses are recognized on a trade date basis.
Revenue from the sale of financial information is included in other income and
is recognized on a pro-rata basis over the terms of the respective agreements.
Any payments received in advance are deferred and are included in accounts
payable and accrued liabilities.
Securities transactions:
Securities transactions are recorded on a trade date basis.
Securities owned are carried at market value, with unrealized gains and losses
reflected in operations.
Cash and cash equivalents:
The Company considers all short-term investments with an initial maturity of
three months or less to be cash equivalents.
Furniture, equipment and leasehold improvements:
Depreciation of furniture and equipment is computed on a straight-line basis
using estimated useful lives of 3 to 5 years. Leasehold improvements are
amortized over the lesser of the terms of the related leases or the estimated
useful lives of the improvements.
Intangible assets:
Intangible assets principally include the values assigned to customer lists and
are being amortized on a straight-line basis over their estimated useful lives,
which approximate 15 years. Accumulated amortization of intangible assets
aggregated approximately $8,397,000 and $7,987,000 at December 31, 1999 and
1998, respectively.
F-10
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
The Company has a policy of reviewing the carrying value of intangible assets to
consider whether events or changes in circumstances have occurred - such as the
loss of significant customers, a significant change in the revenues received
from customers or a significant change in the nature of the brokerage business -
which would indicate that the carrying amount of such assets may not be
recoverable, in which case the Company would evaluate the estimated future cash
flows expected to result from the asset. Should the expected future cash flows
be less than the carrying amount of the asset, an impairment loss would be
recognized to the extent that the carrying value exceeds the fair value of the
assets. There have been no impairment losses with respect to intangible assets.
Foreign currency translation:
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars using exchange rates at the end of the year; revenues and expenses are
translated at average monthly rates during the year.
Gains and losses on foreign currency translation of the financial statements of
operations whose functional currency is other than the U.S. dollar, together
with related hedges and tax effects and the effect of exchange rate changes on
intercompany transactions of a long-term investment nature, are reflected as
foreign translation adjustments in the accumulated other comprehensive income
section of stockholders' equity. Foreign currency exchange gains and losses from
transactions and balances denominated in a currency other than the related
operating subsidiary's functional currency are recorded in operations.
Fair value of financial instruments:
The financial instruments of the Company are reported in the consolidated
statements of financial condition at market values or at carrying amounts that
management estimates approximate fair values as such financial instruments are
short-term in nature or bear interest at rates approximating current market
rates.
Income taxes:
Income taxes are accounted for using the asset and liability method. Deferred
taxes are recognized for the tax consequences of temporary timing differences
between the recognition of tax effects for financial statement purposes and
income tax reporting purposes by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. A valuation allowance is
recorded to reduce a deferred tax asset to only that portion that is judged more
likely than not to be realized.
Use of estimates:
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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
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, if any, SFAS 133 will have on the Company's consolidated results of
operations and financial position.
F-11
<PAGE>
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 years ended December
31, 1999 and 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator (basic and diluted calculation):
Net income (loss) $2,532,212 ($1,275,150) ($ 268,992)
Less redeemable preferred stock dividends ( 40,000) ( 10,000)
---------- ----------- -----------
Net income (loss) available to common
stockholders 2,492,212 ( 1,285,150) ( 268,992)
Denominator:
Weighted average common shares
outstanding (basic calculation) 9,711,974 11,327,741 9,243,201
Dilutive effect of stock options 134,283
---------- ----------- -----------
Diluted weighted average common shares
outstanding (diluted calculation) 9,846,257 11,327,741 9,243,201
Earnings (loss) per share:
Basic .26 (.11) (.03)
Diluted .25 (.11) (.03)
Antidilutive common stock equivalents:
Options 85,000 1,650,000 1,245,000
Warrants 734,980 734,980 734,980
</TABLE>
NOTE 4 - DEPOSITS WITH CLEARING ORGANIZATIONS:
Deposits with clearing organizations at December 31, 1999 and 1998 are comprised
of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Cash $ 388,207 $ 402,452
U.S. Treasury obligations 6,412,183 6,718,581
---------- ----------
$6,800,390 $7,121,033
========== ==========
</TABLE>
Pursuant to its membership in the Government Securities Clearing Corporation
("GSCC"), Maxcor Financial Inc. ("MFI"), a U.S. broker-dealer subsidiary, is
required to maintain a minimum deposit of $5,000,000. The balance of the
deposits is required pursuant to MFI's clearing firm relationships.
NOTE 5 - RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CUSTOMERS:
At December 31, 1999 and 1998, receivable from and payable to broker-dealers and
customers consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- -------------------------
Receivable Payable Receivable Payable
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Commissions receivable $15,047,677 $ $15,453,109 $
Receivable from clearing firm 980,230 1,104,715
Payable to clearing firm 5,977,929 7,845,490
----------- ---------- ----------- ----------
$16,027,907 $5,977,929 $16,557,824 $7,845,490
=========== ========== ========== ==========
</TABLE>
The Company clears its matched riskless principal brokerage transactions and its
municipal securities trading transactions through other broker-dealers on a
fully-disclosed basis pursuant to clearing agreements. The receivable from
clearing firm primarily represents commissions due on matched riskless principal
brokerage transactions, net of transaction fees, while the payable to clearing
firm represents the net amount owed for financing the Company's municipal
securities positions. The clearing agreements provide the clearing firms a lien
on the Company's property held by them to secure the Company's liabilities and
obligations under the clearing agreements. Commissions receivable represent
amounts billed on the Company's name give-up brokerage transactions, net of
allowances for doubtful accounts of approximately $715,000 and $669,000 at
December 31, 1999 and 1998 respectively.
F-12
<PAGE>
NOTE 6 - SECURITIES OWNED:
Securities owned primarily reflect municipal securities positions taken in
connection with the Company's municipal securities business.
Trading gains on municipal securities of approximately $1,215,000, $954,000 and
$691,000 for the years ended December 31, 1999, 1998 and 1997 respectively, have
been included in other income in the consolidated statements of operations.
NOTE 7 - EQUITY AFFILIATES AND MINORITY INTERESTS:
Yagi Euro Nittan Corporation:
The Company's equity in affiliated company at December 31, 1999 and 1998
consists of its 15% equity interest in Yagi Euro Nittan Corporation ("Yagi
Euro"), formerly Yagi Euro Corporation, which operates the business of a broker
of money market and forward foreign exchange products in Tokyo and is the
Company's partner in a Tokyo-based derivatives broking partnership ("Tokyo
Partnership"). Effective January 1, 2000, Yagi Euro completed an agreement to
contribute its money market and forward foreign exchange businesses to a 50-50
joint venture with Nittan Exco Ltd. ("Nittan"). In anticipation of this
transaction Yagi Euro incurred significant employee severance costs and disposed
of certain fixed assets during the year ended December 31, 1999. Included in
loss from equity affiliates for the year ended December 31, 1999 is the
Company's share of these costs on an after-tax basis of approximately
$1,031,000.
Summarized financial information for Yagi Euro at and for the years ended
December 31, 1999 and 1998 is as follows:
1999 1998
---- ----
Total assets $ 20,165,937 $ 29,034,031
Total liabilities 9,526,924 9,466,697
Revenues 6,097,720 4,719,847
Net (loss) income (10,510,960) 653,833
Tokyo Partnership:
The results of operations of the Tokyo Partnership are consolidated in the
Company's consolidated financial statements with Yagi Euro's interest presented
as minority interest.
Effective January 1, 2000, the Tokyo Partnership executed an agreement to merge
its operations with the off-balance sheet operations of Nittan. This transaction
reduced the Company's direct interest in the expanded Tokyo Partnership to 40%
and reduced Yagi Euro's interest to 30%, with Nittan acquiring the remaining 30%
interest. As a result of this transaction the Company will record a one-time,
after-tax gain of approximately $1.5 million in the first quarter of 2000.
Euro Brokers Finacor Limited:
On January 1, 1999, Euro Brokers International Limited ("EBIL"), a U.K.
subsidiary, completed a Sale and Purchase 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. This transaction combined the existing interest rate options,
U.S. dollar deposit and the euro, British pound sterling and Japanese yen swaps
operations of EBIL with the euro and Scandanavian 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.
F-13
<PAGE>
NOTE 8 - RESTRUCTURING COSTS:
During the year ended December 31, 1999, the Company incurred certain
restructuring costs in connection with the anticipated expansion of the Tokyo
Partnership (see Note 7) and the closing of certain departments within the
commodity derivatives brokerage group. These costs are detailed as follows:
Employee severance costs $ 533,980
Write-off of leasehold improvements 173,913
Occupancy costs 171,000
Other 150,000
----------
$1,028,893
==========
All of the amounts represent costs that are not associated with future revenues
and are either incremental or contractual with no economic benefit. The total
restructuring reserve of $321,000 at December 31, 1999, representing the unpaid
portion of the costs noted above, is expected to be fully paid during 2000.
NOTE 9 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements at December 31, 1999 and 1998
are summarized below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Furniture and telephone equipment $13,801,005 $13,785,296
Leasehold improvements 7,314,529 7,690,009
Computer and related equipment 14,517,260 13,683,614
Automobiles 764,370 1,025,295
----------- -----------
36,397,164 36,184,214
Less - Accumulated depreciation
and amortization 29,437,595 26,165,612
----------- -----------
$ 6,959,569 $10,018,602
=========== ===========
</TABLE>
NOTE 10 - OBLIGATIONS UNDER CAPITALIZED LEASES:
The Company has purchased automobiles and telecommunications equipment under
capitalized leases. The lease terms generally do not exceed three years. The
following is a schedule of future minimum lease payments under capitalized
leases together with the present value of the net minimum lease payments as of
December 31, 1999:
For the Year Ending December 31,
2000 $264,143
2001 276,227
2002 24,435
-------
Total minimum lease payments 564,805
Less: amount representing interest 71,438
-------
Present value of total minimum lease payments $493,367
========
The gross amounts of assets under capitalized leases are approximately $949,000
and $1,215,000 at December 31, 1999 and 1998, respectively. Such amounts are
principally automobiles and are included in furniture, equipment and leasehold
improvements in the consolidated statements of financial condition. The charges
to income resulting from the amortization of assets recorded under capitalized
leases were approximately $174,000, $221,000 and $297,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-14
<PAGE>
NOTE 11 - 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 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 $2.5 million at
December 31, 1999) is determined based upon the level and condition of EBI's
billed accounts receivable. The agreement contains certain covenants which
require EBI separately, 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:
Notes payable at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
6-1/8% notes issued in connection
with the acquisition of
predecessor business $ $2,088,336
7.9% note secured by certain
equipment 1,299,870 1,736,506
10% notes issued in connection with
the repurchase of common stock 500,000
---------- ----------
$1,799,870 $3,824,842
========== ==========
</TABLE>
The final installment of approximately $2.1 million on the notes issued in
connection with the acquisition of the predecessor business of EBIC was made on
November 30, 1999. These notes were adjusted for financial reporting purposes to
reflect imputed interest at fair market rates at the time of issuance of 7.71%.
The 7.9% note secured by certain equipment was issued in December 1997 to GECC.
This note is secured by all equipment owned by EBI and is payable in monthly
installments (including interest) of $46,545 through December 2001 and $27,482
thereafter through December 2002.
The 10% notes were issued to investment partnerships of the venture capital
group, Welsh, Carson, Anderson & Stowe ("WCAS") on June 17, 1999 in connection
with the Company's repurchase of common stock (see Note 14) and mature on June
16, 2000. As security for these notes, 571,429 of the repurchased treasury
shares have been deposited in an escrow account and will be released upon
repayment.
NOTE 12 - EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) defined contribution plan for the Company's U.S.
operations covering substantially all salaried employees. The Company's
contributions to the 401(k) plan are, subject to a maximum limit, based upon a
percentage of employee contributions. Total 401(k) plan expense approximated
$269,800, $366,000 and $361,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 13 - INCOME TAXES:
Income before provision for income tax and minority interest was taxed under the
following jurisdictions:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Domestic $3,215,299 $ 606,080 $ 625,936
Foreign 366,669 3,324,385 6,261,321
---------- ---------- ----------
Total $3,581,968 $3,930,465 $6,887,257
========== ========== ==========
</TABLE>
F-15
<PAGE>
NOTE 13 - INCOME TAXES (Continued):
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Year Ended
------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Current
Federal $ 69,609 ($ 387,836) $1,623,627
State and local ( 16,163) 61,619 ( 672,374)
Foreign 2,375,561 2,060,265 4,614,209
---------- ----------- ----------
Total 2,429,007 1,734,048 5,565,462
---------- ----------- ----------
Deferred
Federal ( 867,118) ( 136,824) ( 114,331)
State and local ( 32,809) 142,413 31,265
Foreign ( 412,949) 2,211,008 275,501
---------- ----------- ----------
(1,312,876) 2,216,597 192,435
---------- ----------- ----------
Total $1,116,131 $3,950,645 $5,757,897
========== =========== ==========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Assets
Bad debt reserve $ 231,004 $ 212,346
Occupancy reserves 545,979 467,668
Deferred compensation 349,444
Miscellaneous reserves 723,060 614,707
Depreciation and amortization 1,293,211 1,092,876
Unrealized losses 370,686
State and local net
operating losses 832,662 501,262
Foreign tax credits 1,007,117 494,280
Deferred tax asset
valuation allowance (1,251,334) (1,289,602)
---------- ----------
Gross deferred tax assets, after
valuation allowance $3,752,385 $2,442,981
========== ==========
Liabilities
Unrealized foreign exchange gain ($ 138,584) $
Other ( 384,468) ( 495,636)
----------- ----------
Gross deferred tax liabilities ($ 523,052) ($ 495,636)
=========== ==========
</TABLE>
The valuation allowance for deferred tax assets has been established for a
portion of foreign tax credit carryforwards, state and local net operating
losses ("NOLs") and assets arising from various timing differences, due to the
uncertainty regarding their realizability. Foreign tax credit carryforwards of
approximately $165,000, $329,000 and $513,000 expire in the years ended December
31, 2002, 2003 and 2004, respectively. NOLs approximating $1,449,000, $2,941,000
and $72,000 expire in the years ended 2012, 2013 and 2014, respectively.
F-16
<PAGE>
NOTE 13 - INCOME TAXES (Continued):
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income from continuing operations as a result of the following differences:
<TABLE>
<CAPTION>
For the Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------------ ------------
<S> <C> <C> <C>
Tax at U.S. statutory rate $1,217,869 $1,336,358 $2,341,667
Increase (decrease) in tax resulting from:
Higher effective rates on earnings
of foreign operations and tax
benefit of foreign losses not
recognized 1,227,721 1,084,309 1,835,074
Nondeductible meals and
entertainment 1,050,462 1,429,700 1,792,990
Reduction of income tax reserves (1,200,000)
Non-taxable interest income ( 86,618)
Reduction of deferred tax asset
valuation allowance ( 971,536)
State and local taxes, net ( 49,022) 204,032 ( 423,060)
Other ( 27,745) ( 103,754) 211,226
---------- ---------- ---------
$1,161,131 $3,950,645 $5,757,897
========== ========== ==========
</TABLE>
NOTE 14 - 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.
On October 1, 1998 the Company issued 2,000 shares of a newly created Series B
Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") to Yagi Euro
at a purchase price of $1,000 per share ("Stated Value"). Cumulative dividends
at the annual rate of 2% of the Stated Value are payable quarterly in arrears.
The Company may, at any time, redeem the Series B Preferred Stock, in whole or
in part, at its option, at a per share price equal to the Stated Value together
with accrued and unpaid dividends thereon ("Liquidation Preference"). In
addition, the Series B Preferred Stock is subject to mandatory redemption at the
Liquidation Preference on October 1, 2008 or within 60 days of the disposition
of the Company's investment in Yagi Euro. The Series B Preferred Stock does not
have any conversion rights. The Series B Preferred Stock also is non-voting
unless the Company has not paid dividends in full for the two immediately
preceding quarters or has failed to meet any mandatory redemption obligation, in
which case the holders of the Series B Preferred Stock would be entitled to
appoint one additional director to the Company's Board of Directors.
Common stock and warrants:
At December 31, 1996, following the Merger, the Company had outstanding
8,949,656 shares of common stock, 7,566,625 Series B redeemable common stock
purchase warrants ("Series B warrants") issued in connection with the Merger and
7,566,666 warrants issued in connection with the Company's 1994 initial public
offering ("IPO warrants"). Both series of warrants entitle the holder to
purchase from the Company one share of common stock at an exercise price of
$5.00 per share, expire on November 30, 2001 and are redeemable at a price of
$.01 per warrant upon 30 days notice at any time, but only if the last sale
price of the common stock has been at least $8.50 per share for 20 consecutive
trading days ending on the third day prior to the date on which notice of
redemption is given.
F-17
<PAGE>
NOTE 14 - STOCKHOLDERS' EQUITY (Continued):
On November 1, 1997, the Company consummated an exchange offer ("Exchange
Offer"), on the basis of 0.1667 of a share of common stock for each warrant,
pursuant to which it issued an aggregate of 2,380,975 shares of common stock in
exchange for 14,283,296, or approximately 95.1%, of the then outstanding
warrants (6,880,718 of the IPO warrants and 7,402,578 of the Series B warrants).
In May 1997, the Company acquired treasury stock consisting of 61,638 newly
issued shares of common stock and 115,015 Series B warrants. During the fourth
quarter of 1997, the 115,015 Series B warrants were cancelled and returned to
authorized but unissued status. In August 1998, the Company acquired 6,849
shares of common stock and on June 17, 1999 the Company repurchased 2,986,345
shares of its common stock from WCAS investment partnerships for $5,226,104, or
$1.75 per share.
As a result of the foregoing activity, at December 31, 1999 and 1998 the Company
had outstanding 8,337,437 and 11,323,782 shares of common stock, respectively,
and held 3,054,832 and 68,487 shares of common stock in treasury, respectively.
At December 31, 1999 and 1998, the Company also had outstanding 685,948 IPO
warrants and 49,032 Series B warrants.
At December 31, 1999 and 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. (see Note 15)
NOTE 15 - STOCK OPTION PLAN:
The Company's 1996 Stock Option Plan, as amended (the "Plan"), provides for the
granting of stock options, in the form of incentive stock options ("ISOs") and
non-qualified stock options, to directors, executive officers and key employees
of the Company and its subsidiaries, as determined by the compensation committee
of the Company's Board of Directors. Options to purchase a maximum of 1,800,000
shares of common stock are available under the Plan. In the case of ISOs, the
duration of the option may not exceed ten years (five years for a 10% or more
stockholder) and the exercise price must be at least equal to the fair market
value of a share of common stock on the date of grant (110% of the fair market
value for a 10% or more stockholder). Employee options granted to date generally
are ISOs and vest and become exercisable in equal installments on each
anniversary of the date of the grant for periods of four or five years.
Non-employee director options granted to date are non-qualified stock options
and vest in equal 50% installments on the dates that are six and twelve months
following the date of grant. Under the Plan, unless otherwise determined by the
compensation committee, options may only be exercised during the period of
employment or service with the Company or the 30-day period thereafter (or, in
the case of death, disability or retirement, the one-year period thereafter).
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
--------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,650,000 2.00 1,245,000 5.07 1,260,000 5.07
Granted 85,000 2.46 485,000 2.00 45,000 4.90
Canceled ( 65,000) 2.00 ( 80,000) 5.00 ( 60,000) 4.90
---------- ---- ---------- ---- ---------- ----
Outstanding
at end of year 1,670,000 2.03 1,650,000 2.00 1,245,000 5.07
========== ==== ========== ==== ========== ====
Exercisable
at end of year 898,000 2.00 521,000 2.00 292,000 5.08
========== ==== ========== ==== ========== ====
Weighted average
fair value of options
granted during the
year 1.69 1.21 1.20
========== ========== ==========
</TABLE>
F-18
<PAGE>
NOTE 15 - STOCK OPTION PLAN (Continued):
On August 6, 1998 the exercise price of outstanding stock options (1,165,000)
was reset to $2.00 per share, which exceeded the market value of the Company's
common stock on August 6, 1998. As a result of this repricing and the fact that
substantially all stock options subsequently granted during 1998 were at an
exercise price of $2.00 per share, at December 31, 1998, outstanding stock
options had a weighted average exercise price of approximately $2.00 per share.
As allowed by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company has elected to continue
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for the Plan. Accordingly, the Company has
not recognized any compensation cost associated with the Plan since the market
prices of the underlying stock were not greater than the exercise prices on the
grant dates. As required by SFAS 123, however, the Company has disclosed below
its approximate pro forma net income (loss) and earnings (loss) per share if
compensation costs under the Plan had been recognized using the fair value
method of SFAS 123. Because stock options under the Plan have characteristics
significantly different from those of traded options and because changes in
subjective assumptions can materially affect the fair value estimated, the
Company used the Black-Scholes pricing model for 1999, 1998 and 1997 with the
following weighted average assumptions: expected volatility of 81%, 66% and 33%,
respectively; risk free interest rate of 6.09%, 5.44% and 6.16%, respectively;
and an expected option life of five years.
<TABLE>
<CAPTION>
For the Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) As reported $2,532,212 ($1,275,150) ($268,992)
Pro forma 1,892,868 ( 1,768,764) ( 745,211)
Basic earnings (loss) per share As reported .26 ( .11) ( .03)
Pro forma .19 ( .16) ( .08)
Diluted earnings (loss) per share As reported .25 ( .11) ( .03)
Pro forma .19 ( .16) ( .08)
</TABLE>
NOTE 16 - COMMITMENTS:
The Company is obligated under certain non-cancelable leases for office space
and telecommunication services.
The Company has executed various operating leases in respect of premises which
contain escalation clauses for base rent, maintenance, electricity and real
estate tax increases. The Company is currently subleasing portions of certain
leased premises.
Future minimum rental commitments for operating leases (exclusive of payments
post-dating lease-break options available to the Company), net of sublease
income, approximate the following:
<TABLE>
<CAPTION>
Minimum Minimum
Rental Sublease
Year Payments Income Net
---- -------- -------- ---
<S> <C> <C> <C>
2000 $ 9,677,638 $ 840,457 $ 8,837,181
2001 5,635,259 824,449 4,810,810
2002 4,796,485 824,449 3,972,036
2003 834,302 834,302
2004 329,236 329,236
----------- ---------- -----------
$21,272,920 $2,489,355 $18,783,565
=========== ========== ===========
</TABLE>
F-19
<PAGE>
NOTE 17 - CONTINGENCIES:
The Company is subject to various legal proceedings, arbitrations and claims
that arise in the ordinary course of its businesses. Although the results of
legal proceedings and arbitrations cannot be predicted with certainty, based on
information currently available and established reserves, management believes
that resolving any currently known matters will not have a material adverse
impact on the Company's consolidated financial condition or results of
operations.
The Company has received demands from the Department of Social Security ("DSS")
in the United Kingdom for the employer portion of National Insurance
Contributions ("NIC") related to employee bonuses paid during the period from
August 1994 to February 1998 in the amount of approximately 1.7 million pounds
sterling (approximately $2.8 million). The Company has formally challenged these
demands as it feels the respective bonus payment methods used did not require
NIC payments under existing legislation. Based upon its current level of
reserves, management does not anticipate the ultimate outcome of this matter
will have a material adverse effect on its consolidated financial condition or
results of operations.
NOTE 18 - COUNTERPARTY RISK:
In the normal course of its business, certain securities transactions brokered
by the Company are introduced to and settled by the Company's clearing firms. In
the event of non-performance by a counterparty to such transactions, the Company
may be responsible to meet obligations incurred by such non-performance. The
Company and its clearing firms have a policy of reviewing, on an ongoing basis,
the credit standing of the Company's customers, which are primarily major
financial institutions.
NOTE 19 - DERIVATIVE FINANCIAL INSTRUMENTS USED FOR TRADING PURPOSES:
The Company, from time to time, sells financial futures contracts as a means of
managing market risk on municipal securities positions held. Financial futures
contracts are exchange traded contractual commitments to either receive
(purchase) or deliver (sell) a standard amount of a financial instrument at a
specified future date and price. Maintaining a financial futures contract
requires the Company to deposit margin with its clearing broker as security for
its obligations. Financial futures contracts provide for daily cash settlements
with gains or losses based upon fluctuations in market value included in trading
gains on municipal securities transactions (see Note 6). Open equity in
financial futures contracts is recorded as receivable from and payable to
broker-dealers and customers as applicable. At December 31, 1999 and 1998 the
Company had no financial futures contracts outstanding.
NOTE 20 - DERIVATIVE FINANCIAL INSTRUMENTS USED FOR PURPOSES OTHER THAN TRADING:
The Company utilizes foreign currency forward contracts to reduce its exposures
to exchange rate risks associated with anticipated commissions on transactions
denominated in a currency other than the functional currency and anticipated
dividends from the Tokyo Partnership. Pursuant to these foreign currency forward
contracts, the Company receives or pays the difference between the contracted
forward exchange rate (for the purchase or sale of one currency for another) and
the prevailing exchange rate at settlement date. The fair value of foreign
currency forward contracts is included on the consolidated statements of
financial condition as prepaid expenses and other assets or as accounts payable
and accrued liabilities, as applicable. Gains and losses as a result of changes
in the fair value of foreign currency forward contracts have been included in
current operations as other income, even though the offsetting gains and losses
on the hedged exposures are not included in operations until realized.
The notional amounts of the Company's foreign currency forward contracts at
December 31, 1999 and 1998 is detailed below:
1999 1998
---- ----
Sell Japanese yen/buy U.S. dollars $ $1,735,000
Sell U.S. dollars/buy British pounds sterling 2,400,000 3,000,000
F-20
<PAGE>
NOTE 21 - NET CAPITAL REQUIREMENTS:
MFI, as a U.S. broker-dealer, is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule (rule 15c3-1), which requires the
maintenance of minimum regulatory net capital. MFI has elected to use the
alternative method, as permitted by the rule, which requires that MFI maintain
minimum regulatory net capital, as defined, equal to the greater of $250,000 or
2% of aggregate debit items arising from customer transactions, as defined; or
4% of the funds required to be segregated pursuant to the Commodity Exchange Act
and regulations thereunder. MFI's membership in the GSCC requires it to maintain
minimum excess regulatory net capital of $10,000,000. In addition, a number of
other subsidiaries operating in various countries are subject to capital rules
and regulations issued by the designated regulatory authorities to which they
are subject. At December 31, 1999, MFI's regulatory net capital was
approximately $12,710,000 and exceeded the minimum regulatory requirement under
rule 15c3-1 of $250,000 by approximately $12,460,000.
NOTE 22 - INCREASED TRADING VOLUME:
During the four trading-day period of October 23, 1997 through October 28, 1997,
the Company experienced up to an approximately five-fold increase in the typical
daily trading volume of the emerging market debt securities it brokers, together
with unprecedented price volatility in such securities. As a result, the Company
and its clearing firms experienced significant delays and backlogs in the
processing and settlement of such trades and a higher than usual incidence of
disputed trades. Although the temporary increase in volume generated additional
commission income, the delays, backlogs and disputes resulted in additional
costs for the Company, aggregating to approximately $6,000,000, principally
consisting of payments related to settlement of disputes, interest claims by
customers and financing charges from clearing firms. Such payments have been
reflected as a reduction of commission income in the consolidated statements of
operations for the year ended December 31, 1997.
NOTE 23 - SEGMENT REPORTING:
In accordance with 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 each segment is engaged in the inter-dealer brokerage
business, they are managed separately since each geographic region operates in
unique market, employment and regulatory environments. The reportable segments,
as defined by SFAS 131, consist of the United States, United Kingdom, Japan,
Switzerland and Canada. United States amounts are principally derived from the
Company's New York office, but include the balances for all its U.S. based
operations. Japan amounts include the consolidated results of operations of the
Tokyo Partnership and United Kingdom amounts include the consolidated balances
for EBFL. Switzerland amounts are derived from the Company's Geneva office which
commenced operations in July 1998. Other geographic segments which do not meet
the SFAS 131 materiality thresholds for reportable segments have been included
in "All Other".
The accounting policies of the segments are the same as those described in Note
2.
<TABLE>
<CAPTION>
United United Switzer- All
States Kingdom Japan land Canada Other Total
------ ------- ----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Commission
income $72,366,091 $54,155,703 $20,259,059 $3,180,648 $ 933,568 $2,256,272 $153,151,341
Interest income 1,781,438 586,927 64,915 679 7,977 2,985 2,444,921
Interest expense 841,737 554,594 2,916 109 1,399,356
Depreciation and
amortization 2,824,531 1,240,339 69,501 47,974 183,159 4,365,504
Provision for
income taxes ( 11,521) 783,623 153,500 64,718 ( 34,340) 160,151 1,116,131
Loss from
unconsolidated
affiliates ( 1,576,644) ( 1,576,644)
Net income (loss) 1,769,869 ( 163,594) 766,622 494,433 ( 85,353) ( 249,765) 2,532,212
Assets 67,032,170 25,184,192 8,270,218 1,109,637 466,486 1,628,390 103,691,093
Capital
expenditures 741,064 500,969 269 57,106 1,299,408
</TABLE>
F-21
<PAGE>
NOTE 23 - SEGMENT REPORTING (Continued):
<TABLE>
<CAPTION>
United United Switzer- All
States Kingdom Japan land Canada Other Total
------ ------- ----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment in
unconsolidated
affiliates 1,595,852 1,595,852
1998
Commission
income $78,832,769 $42,354,005 $23,172,310 $831,970 $1,280,407 $ 2,821,561 $149,293,022
Interest income 1,875,942 541,652 337,004 5,714 2,888 2,763,200
Interest expense 1,295,220 789,970 19,754 2,104,944
Depreciation and
amortization 2,869,495 1,877,927 10,904 68,766 177,534 5,004,626
Provision for
income taxes 243,326 45,567 3,510,831 2,307 ( 1,143) 149,757 3,950,645
Income from
unconsolidated
affiliates ( 19,925) ( 19,925)
Net (loss) income ( 506,071) ( 2,375,260) 1,920,758 ( 93,451) ( 459,440) 238,314 ( 1,275,150)
Assets 76,188,122 21,984,556 7,548,750 1,140,517 564,829 2,048,939 109,475,713
Capital
expenditures 2,405,177 1,282,038 246,243 46,144 94,001 4,073,603
Investment in
unconsolidated
affiliates 2,935,100 2,935,100
1997
Commission
income $84,313,196 $51,478,803 $22,865,358 $2,800,872 $ 2,009,209 $163,467,438
Interest income 2,000,642 485,142 101,470 12,456 3,187 2,602,897
Interest expense 808,833 911,896 4,653 1,725,382
Depreciation and
amortization 2,671,647 2,198,062 326,448 122,826 5,318,983
Provision for income
taxes 703,814 573,899 4,396,558 83,626 5,757,897
Income from
unconsolidated
affiliates 191,771 191,771
Net income (loss) 260,663 ( 1,010,821) 1,763,005 (1,413,804) 131,965 ( 268,992)
Assets 82,574,464 24,528,695 10,084,590 1,352,458 3,096,351 121,636,558
Capital
expenditures 1,996,364 799,469 319,824 386,976 3,502,633
Investment in
unconsolidated
affiliates 2,606,987 2,606,987
</TABLE>
F-22
<PAGE>
NOTE 23 - SEGMENT REPORTING (Continued):
Included below are reconciliations of reportable segment items to the Company's
consolidated totals as reported in the consolidated financial statements.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Interest income:
Total for reportable segments $ 2,441,936 $ 2,760,312 $ 2,599,710
Other interest 2,985 2,888 3,187
Elimination of intersegment
interest income ( 565,421) ( 1,025,797) ( 884,798)
------------ ------------ ------------
Consolidated total $ 1,879,500 $ 1,737,403 $ 1,718,099
============ ============ ============
Interest expense:
Total for reportable segments $ 1,399,356 $ 2,104,944 $ 1,725,382
Elimination of intersegment
interest expense ( 565,421) ( 1,025,797) ( 884,798)
------------ ------------ ------------
Consolidated total $ 833,935 $ 1,079,147 $ 840,584
============ ============ ============
Assets:
Total for reportable segments $102,062,703 $107,426,774 $118,540,207
Other assets 1,628,390 2,048,939 3,096,351
Elimination of intersegment
receivables ( 15,558,510) ( 17,842,245) ( 20,779,815)
Elimination of investments in
other segments ( 15,664,625) ( 16,363,803) ( 14,325,230)
------------ ------------ ------------
Consolidated total $ 72,467,958 $ 75,269,665 $ 86,531,513
============ ============ ============
</TABLE>
NOTE 24 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited):
The following is a summary of unaudited quarterly statements of operations for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
For the Three Months Ended:
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1999
Revenues $45,210,343 $40,986,820 $38,349,256 $32,783,697
Income before provision for income
taxes and minority interest 4,256,236 2,035,345 642,671 ( 3,352,284)
Net income (loss) 1,573,800 1,047,003 1,047,599 ( 1,136,190)
Weighted average common shares
outstanding-basic 11,323,782 10,897,161 8,337,437 8,337,437
Weighted average common shares
outstanding-diluted 11,323,782 10,906,069 8,698,564 8,337,437
Basic earnings (loss) per share .14 .10 .12 (.14)
Diluted earnings (loss) per share .14 .10 .12 (.14)
1998
Revenues $39,815,633 $39,739,274 $39,016,653 $33,248,255
Income before provision for income
taxes and minority interest 593,710 1,580,594 1,643,273 112,888
Net (loss) income (804,290) 4,124 65,770 (540,754)
Weighted average common shares
outstanding-basic 11,330,631 11,330,631 11,326,015 11,323,782
Weighted average common shares
outstanding-diluted 11,330,631 11,330,631 11,326,015 11,323,782
Basic (loss) earnings per share (.07) .00 .01 (.05)
Diluted earnings (loss) per share (.07) .00 .01 (.05)
</TABLE>
F-23
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of March 8, 1996, as
amended, by and among the Registrant, EBIC Acquisition Corp.
and Euro Brokers Investment Corporation ("EBIC"), without
exhibits and schedules (incorporated herein by reference to
Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996 (the "Form
10-Q"))
2.2 Registration Rights Agreement, dated as of August 16, 1996, by
and among the Registrant and the persons listed in Annexes I,
II and III thereto (the "Registration Rights Agreement")
(incorporated by reference to Exhibit 2.5 of the Registrant's
Current Report on Form 8-K, dated August 16, 1996)
2.2a Amendment, dated as of June 17, 1999, to the Registration
Rights Agreement*
2.3 Securities Purchase Agreement, dated as of March 24, 1999, by
and among the Registrant, Welsh, Carson, Anderson & Stowe VI,
L.P. ("WCAS VI") and WCAS Information Partners, L.P. ("WCAS
Info") (incorporated herein by reference to Exhibit 2.3 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 ("1998 Form 10-K")
2.4 Escrow Agreement, dated as of March 24, 1999, by and among the
Registrant, WCAS VI, WCAS Info and Continental Stock Transfer &
Trust Company (incorporated herein by reference to Exhibit 2.4
of the 1998 Form 10-K)
2.5 Sale and Purchase Agreement, dated 21 December 1998, by and
among Euro Brokers International Limited, Euro Brokers Holdings
Limited, Monecor (London) Limited and Finacor Peter, without
schedules (incorporated herein by reference to Exhibit 2.5 of
the 1998 Form 10-K)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant*
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.2 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996
("1996 Form 10-K"))
4.1 Form of Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 of Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (No.
33-85346), dated November 23, 1994 ("Amendment No. 1"))
X-1
<PAGE>
4.2 Form of Redeemable Common Stock Purchase Warrant
(incorporated herein by reference to Exhibit 4.2 of Amendment
No. 1)
4.3 Warrant Agreement, dated as of November 30, 1994, by and
between the Registrant and Continental Stock Transfer & Trust
Company (incorporated herein by reference to Exhibit 4.4 of
Amendment No.1)
4.4 Form of Series B Redeemable Common Stock Purchase Warrant
(incorporated herein by reference to Exhibit 4.5 of the
Registrant's Registration Statement on Form S-4 (No. 333-06753)
dated June 25, 1996) (the "Form S-4"))
4.5 Warrant Agreement, dated as of June 5, 1996, by and between
the Registrant and Continental Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 4.3 of the Form
S-4)
4.6 Rights Agreement, dated as of December 6, 1996, between the
Registrant and Continental Stock Transfer & Trust Company, as
rights agent (incorporated herein by reference to Exhibit 1 to
the Registrant's Registration Statement on Form 8-A, dated
December 6, 1996)
4.7 Agreement to furnish Debt Instruments*
10.1 Agreement of Lease, dated September 10, 1992, by and between
Euro Brokers Inc. and The Port Authority of New York and New
Jersey (the "NY Lease") (incorporated herein by reference to
Exhibit 10.1 of the 1996 Form 10-K)
10.2 Supplement No. 1 to the NY Lease, dated March 21, 1993
(incorporated herein by reference to Exhibit 10.2 of the 1996
Form 10-K)
10.3 Supplement No. 2 to the NY Lease, dated July 1, 1994
(incorporated herein by reference to Exhibit 10.3 of the 1996
Form 10-K)
10.4 Underlease of Premises, dated 28 May 1993, between
Chestermount Properties Limited and Euro Brokers Holdings
Limited (the "London Underlease") (incorporated herein by
reference to Exhibit 10.4 of the 1996 Form 10-K)
10.5 Supplemental Deed to the London Underlease, dated 28 May 1993
(incorporated by reference to Exhibit 10.5 of the 1998 Form
10-K)
10.6+ The Registrant's 1996 Stock Option Plan, as amended*
10.7+ Amended and Restated Employment Agreement, dated as of August
14, 1998, by and between the Registrant and Gilbert Scharf
(incorporated herein by reference to Exhibit 10.7 of the 1998
Form 10-K)
10.8+ Employment Agreement, dated as of August 14, 1998, by and
between the Registrant and Keith Reihl (incorporated herein
by reference to Exhibit 10.8 of the 1998 Form 10-K)
X-2
<PAGE>
10.9+ Amended and Restated Employment Agreement, dated as of August
14, 1998, by and between the Registrant and Roger Schwed
(incorporated herein by reference to Exhibit 10.9 of the 1998
Form 10-K)
10.10+ Employment Agreement, dated 1 September 1998, by and between
Euro Brokers International Limited and Robin Adrian Clark
(incorporated herein by reference to Exhibit 10.10 of the 1998
Form 10-K)
10.11+ Employment Agreement, dated as of August 14, 1998, by and
between Euro Brokers Investment Corporation and Walter E.
Dulski (incorporated herein by reference to Exhibit 10.11 of
the 1998 Form 10-K)
10.12+ Employment Agreement, dated as of May 4, 1998, by and between
Euro Brokers Inc. and Steven Vigliotti*
10.13 Agreement for Securities Clearance Services, dated May 9,
1999, by and between Wexford Clearance Services Corporation
and Maxcor Financial Inc. (incorporated herein by reference
to Exhibit 10.1 of the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999) (1)
21 Subsidiaries of the Registrant*
27 Financial Data Schedule (filed in electronic form only)
- --------------------------
* Filed herewith
+ Connotes a management contract or compensatory plan or arrangement in which
a director or executive officer of the Registrant participates.
(1) Portions of this exhibit have been redacted and confidential treatment
granted pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.
X-3
<PAGE>
Exhibit 2.2a
------------
AMENDMENT ("Amendment"), dated as of June 17, 1999, by and among Maxcor
Financial Group Inc., a Delaware corporation (formerly known as Financial
Services Acquisition Corporation) (the "Company"), Welsh, Carson, Anderson &
Stowe VI, L.P., a Delaware limited partnership ("WCAS VI"), WCAS Information
Partners, L.P., a Delaware limited partnership ("WCAS Info" and, together with
WCAS VI, the "WCAS Entities") and the individuals listed on Annex I hereto and
signatory hereto (the "Individuals"), to that certain Registration Rights
Agreement, dated as of August 16, 1996 (the "Agreement"), by and among, the
Company, the WCAS Entities, the Individuals and certain others.
WHEREAS, concurrent with the execution and delivery of this Amendment, the
Company is purchasing from the WCAS Entities (the "Purchase") all of the shares
of the Common Stock, par value $.001 per share ("Common Stock"), of the Company
owned by the WCAS Entities;
WHEREAS, the Agreement, by its terms, permits amendments and waivers to
the Agreement if executed by each of (i) the Company, (ii) Management
Stockholders then holding, in the aggregate, a majority of the Registrable Stock
then held by all Management Stockholders as a whole and (iii) Investor
Stockholders then holding, in the aggregate, a majority of the Registrable Stock
then held by all Investor Stockholders as a whole:
WHEREAS, each of the Individuals are Management Stockholders who, in the
aggregate, hold a majority of the Registrable Stock currently held by all
Management Stockholders as a whole;
WHEREAS, each of the WCAS Entities are Investor Stockholders who, in the
aggregate, hold a majority of the Registrable Stock currently held by all
Investor Stockholders as a whole;
WHEREAS, this Amendment is being entered into in connection with and as a
condition to the Company consummating the Purchase;
NOW THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties signatory hereto agree as follows:
1. Terms used herein without separate definition shall have the meaning
assigned to them in the Agreement.
2. The Agreement is hereby terminated, effective as of the date of this
Amendment, with all registration rights granted thereunder being
extinguished as a result of such termination.
3. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the parties hereto as of the day and year first above written.
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
By WCAS VI Partners, L.P., General Partner
By: /s/ Welsh, Carson, Anderson & Stowe VI, L.P.
------------------------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By WCAS INFO Partners, L.P., General Partner
By: /s/ WCAS Information Partners, L.P.
--------------------------------------
General Partner
MAXCOR FINANCIAL GROUP INC.
By: /s/ Maxcor Financial Group Inc.
--------------------------------------------
Gilbert Scharf, President
/s/ Gilbert Scharf
------------------------------------
Gilbert Scharf
/s/ Michael Scharf
------------------------------------
Michael Scharf
/s/ Frederick B. Whittemore
------------------------------------
Frederick B. Whittemore
/s/ Larry S. Kopp
------------------------------------
Larry S. Kopp
/s/ Keith E. Reihl
------------------------------------
Keith E. Reihl
/s/ Walter E. Dulski
------------------------------------
Walter E. Dulski
/s/ Brian G. Clark
------------------------------------
Brian G. Clark
<PAGE>
Exhibit 3.1
-----------
RESTATED CERTIFICATE OF INCORPORATION
OF
MAXCOR FINANCIAL GROUP INC.
- --------------------------------------------------------------------------------
Pursuant to Section 245 of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
MAXCOR FINANCIAL GROUP INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. The name of the Corporation is Maxcor Financial Group Inc.
2. The original Certificate of Incorporation of the Corporation was
filed under the name Financial Services Acquisition Corporation with the
Secretary of State of the State of Delaware on August 18, 1994.
3. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented, and, except
as permitted by Section 245(c) of the General Corporation Law of the State of
Delaware [see bracketed provisions], there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.
4. This Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware.
5. The text of the Restated Certificate of Incorporation of Maxcor
Financial Group Inc. is set forth in full immediately below.
<PAGE>
FIRST: The name of the Corporation is Maxcor Financial Group Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle 19801. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 31,000,000, of which
30,000,000 shares shall be Common Stock of the par value of $0.001 per share and
1,000,000 shares shall be Preferred Stock of the par value of $0.001 per share.
A. Preferred Stock. The Board of Directors is expressly authorized
to provide for the issue of all or any shares of the Preferred Stock, in one or
more series, and to fix for each such series such voting powers, full or
limited, and such designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series (a "Preferred Stock Designation") and as may be permitted by the GCL. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together as
a single class, without a separate vote of the holders of the Preferred Stock,
or any series thereof, unless a vote of any such holders is required pursuant to
any Preferred Stock Designation.
[Attached as Exhibit A is a Preferred Stock Designation creating the
Corporation's "Series A Junior Participating Preferred Stock".]
[Attached as Exhibit B is a Preferred Stock Designation creating the
Corporation's "Series B Cumulative Redeemable Preferred Stock".]
B. Common Stock. Except as otherwise required by law or as otherwise
provided in any Preferred Stock Designation, the holders of the Common Stock
shall exclusively possess all voting power and each share of Common Stock shall
have one vote.
2
<PAGE>
FIFTH: [Omitted pursuant to GCL Section 245(c)]
SIXTH: A. The business of the Corporation shall be managed by or
under the direction of its Board of Directors, which shall consist of not less
than three nor more than twelve directors, the exact number of directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the entire Board of Directors. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. Initially, the number of
directors shall be eight, with two Class I directors elected for a one-year
term, three Class II directors elected for a two-year term, and three Class III
directors elected for a three-year term. At each succeeding annual meeting of
stockholders beginning in 1997, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting of the
stockholders for the year in which his or her term expires and until his or her
successor shall be elected and qualified, subject, however, to prior death,
resignation, retirement or removal from office for cause. Except as the GCL may
otherwise require, any vacancy on the Board of Directors that results from an
increase in the authorized number of directors or any other vacancy occurring in
the Board of Directors (including any unfilled vacancy resulting from the
removal of any director for cause) may be filled by a majority of the remaining
directors then in office, although less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his
predecessor or, if such director has no predecessor, as that of the class of
directors to which such director has been elected. Notwithstanding the
foregoing, whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately by series, to
elect directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation or any
Preferred Stock Designation pursuant to Article FOURTH or as may be permitted by
the GCL, and such directors so elected shall not be divided into classes
pursuant to this Article SIXTH unless expressly provided by such terms.
B. Subject to the rights of the holders of shares of any series of
Preferred Stock to elect additional directors under specified circumstances or
to consent to actions taken by the Corporation which specifically require the
approval of such holders, any action required or permitted to be taken by the
stockholders of the Corporation must be
3
<PAGE>
effected at an annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing in lieu of a meeting of such
stockholders.
C. Subject to the rights of the holders of any class or series of
Preferred Stock, and notwithstanding anything to the contrary in the by-laws of
the Corporation, special meetings of the Corporation may be called only by the
Chairman of the Board, the President of the Corporation or by the affirmative
vote of a majority of the members of the Board of Directors.
D. Notwithstanding any other provision of this Certificate of
Incorporation or the by-laws of the Corporation, the affirmative vote of the
holders of record of shares of Voting Stock representing at least eighty percent
(80%) of the votes entitled to be cast by holders of all the then outstanding
shares of Voting Stock, voting together as a single class, without a separate
vote of the holders of the Preferred Stock, or any series thereof, unless a vote
of any such holders is required pursuant to any Preferred Stock Designation,
shall be required to alter, amend or repeal this Article SIXTH or to adopt any
provision inconsistent herewith.
SEVENTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
A. Election of directors need not be by ballot unless the by-laws of
the Corporation so provide.
B. The Board of Directors shall have the power, without the assent
or vote of the stockholders, to make, alter, amend, change, add to or repeal the
by-laws of the Corporation as provided in the by-laws of the Corporation.
C. The directors in their discretion may submit any contract or act
for approval or ratification at any annual meting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the Corporation, whether or not the contract or act would otherwise be open to
legal attack because of directors' interests, or for any other reason.
D. In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such
4
<PAGE>
powers and do all such acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this Certificate of Incorporation, and to any by-laws from time to
time made by the stockholders; provided, however, that no by-law so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
EIGHTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
directors' duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is amended to authorize corporate action, further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this paragraph A by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to events occurring
prior to the time of such repeal or modification.
B. The Corporation, to the full extent permitted by Section 145 of
the GCL, as amended from time to time, shall indemnify all persons whom it may
indemnify pursuant thereto. Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding for which such officer or director may
be entitled to indemnification hereunder shall be paid by the Corporation in
advance of the final deposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized hereby.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in summary way
of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any
5
<PAGE>
reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Restated
Certificate of Incorporation and affirmed that this Restated Certificate of
Incorporation is the act and deed of the Corporation and the facts stated herein
are true.
Date: March 16, 2000
/s/ Gilbert Scharf
------------------------------------
Gilbert Scharf,
Chairman of the Board, Chief Executive
Officer and President
7
<PAGE>
EXHIBIT A
---------
The Powers, Preferences and Rights
of
Series A Junior Participating Preferred Stock
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 300,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the fifteenth day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of
(a) $1.00 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares
of Common Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on the Common Stock, par
value $0.001 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after December 6,
1996 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in Paragraph (A)
above
A-1
<PAGE>
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1.00 per share on the Series A Junior Participating Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date when, as and if declared by the Board of Directors out of
funds legally available for the purpose.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to one vote on all matters submitted to a
vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal
to six (6) quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein called a
"default period") which
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shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise
by the holders of Preferred Stock of such voting right. At any
meeting at which the holders of Preferred Stock shall exercise such
voting right initially during an existing default period, they shall
have the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to
two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so
elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary
to permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right to
elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein
provided or pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Junior Participating
Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of
special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or the
Secretary of the Corporation. Notice of such meeting and of any
annual meeting at which holders of Preferred Stock are entitled to
vote pursuant to this Paragraph (C) (iii) shall be given to each
holder of record of Preferred Stock by mailing a copy of such notice
to
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him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier
than 20 days and not later than 60 days after such order or request
or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this Paragraph
(C) (iii), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors until
the holders of Preferred Stock shall have exercised their right to
elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have
been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as
provided in Paragraph (C) (ii) of this Section 3) be filled by vote
of a majority of the remaining Directors theretofore elected by the
holders of the class of stock which elected the Director whose
office shall have become vacant. References in this Paragraph (C) to
Directors elected by the holders of a particular class of stock
shall include Directors elected by such Directors to fill vacancies
as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in
the certificate of incorporation or by-laws irrespective of any
increase made pursuant to the provisions of Paragraph (C) (ii) of
this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
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Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in
full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except dividends
paid ratably on the Series A Junior Participating Preferred Stock
and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series
or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under Paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
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Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by
(ii) 100 (as appropriately adjusted as set forth in subparagraph (C) below
to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount
of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating
Preferred Stock and Common Stock, respectively, holders of Series A Junior
Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to
such Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably
to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
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(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series A Junior Participating Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to
100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets,
unless the terms of such series shall provide otherwise.
Section 10. Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in any
manner which would materially alter or change the powers, preferences or
special rights of the Series A Junior Participating Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
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Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series A Junior
Participating Preferred Stock.
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<PAGE>
EXHIBIT B
---------
The Powers, Preferences and Rights
of
Series B Cumulative Redeemable Preferred Stock
(1) Designation; Number of Shares. The designation of such
series of Preferred Stock shall be "Series B Cumulative Redeemable
Preferred Stock" (the "Series B Preferred Stock") of Maxcor Financial
Group Inc., a Delaware corporation (the "Corporation"). The stated value
("Stated Value") of each share of the Series B Preferred Stock shall be
One Thousand U.S. Dollars (U.S.$1,000). The maximum number of shares of
Preferred Stock authorized hereby shall be two thousand (2,000). The
Series B Preferred Stock may be issued in fractional shares.
(2) Holder. The Series B Preferred Stock is being issued to
a single holder, Yagi Euro Corporation (the "Holder"), for the business
purpose of maintaining cross-ownership between the Holder and certain
subsidiaries of the Corporation, and is subject to restrictions on
transfer as described in paragraph (12) below. References to multiple
holders herein are solely for convenience in the event that the Holder
seeks, and the Corporation consents to, future transfers of the Series B
Preferred Stock, and are not intended to modify or otherwise alter the
restrictions in said paragraph (12).
(3) Rank. The Series B Preferred Stock shall, with respect
to dividend rights and rights on liquidation, winding up, and dissolution,
rank senior to all series and classes of the Common Stock, par value $.001
per share (the "Common Stock"), of the Corporation and to the Series A
Junior Participating Preferred Stock, par value $.001 per share, of the
Corporation. Unless specifically designated as being pari passu with the
Series B Preferred Stock with respect to dividend rights or rights on
liquidation, winding up or dissolution, all other series and classes of
Preferred Stock of the Corporation hereinafter authorized or outstanding
shall be junior to the Series B Preferred Stock with respect to such
rights. All securities of the Corporation to which the Series B Preferred
Stock ranks senior, including the Common Stock, are collectively referred
to herein as the "Junior Securities"; and all securities of the
Corporation with which the Series B Preferred Stock ranks pari passu are
collectively referred to herein as the "Parity Securities."
(4) Dividends.
(i) Amount; Payment Dates. The holders of shares of
Series B Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors of the Corporation, out of funds
legally available for the payment of dividends, cumulative dividends on
each share of Series B Preferred Stock at the annual rate of two percent
(2%) of the Stated Value of such share and no more. Such dividends shall
be payable in arrears in equal quarterly payments on each of March 31,
June 30, September 30 and December 31, commencing with December 31, 1998
(each of such dates being a "dividend payment date"), in preference to
dividends on any Junior Securities. Such dividends shall be paid to the
holders of record of the Series B Preferred Stock at the close of business
on the business date 10 days prior to the relevant dividend payment date
or
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such other date as may be specified by the Board of Directors of the
Corporation at the time such dividend is declared; provided, however, that
such date shall not be more than 60 days nor less than 10 days prior to
the relevant dividend payment date. Each of such quarterly dividends shall
be fully cumulative and shall accrue (whether or not declared and whether
or not there shall be funds legally available for the payment of
dividends, at the annual rate of two percent (2%) compounded quarterly)
from the first day of the quarterly period in which such dividend may be
payable as herein provided, except that with respect to the period prior
to the first dividend payment date, dividends shall accrue from October 1,
1998 (the "Issue Date"). Any dividends paid on the Series B Preferred
Stock shall be deemed to be paid with respect to the earliest dividend
payment dates for which cumulative dividends have not been paid in full.
All references to accrued dividends herein shall be calculated in
accordance with this paragraph (4) (i).
(ii) Form. Any dividends that accrue on the
Series B Preferred Stock shall be paid in cash. All dividends paid
pursuant to this paragraph shall be paid pro rata to the holders entitled
thereto.
(iii) Fractional Shares. Each fractional share
of the Series B Preferred Stock outstanding shall be entitled to a ratably
proportionate amount of all dividends accruing with respect to each
outstanding share of Series B Preferred Stock pursuant to paragraph (4)
(i) hereof.
(5) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of the shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether such
assets are capital or surplus and whether or not any dividends are
declared, an amount in cash equal to the Stated Value of each share
outstanding (the "Liquidation Preference"), plus an amount in cash equal
to all accrued and unpaid dividends thereon to the date payment is made
available to the holders of the Series B Preferred Stock, before any
payment shall be made or any assets distributed to any holder of Junior
Securities. Except as provided in the preceding sentence, the holders of
Series B Preferred Stock shall not be entitled to any distribution in the
event of liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the holders of outstanding shares
of the Series B Preferred Stock and the holders of any Parity Securities,
then the holders of all such shares and such Parity Securities shall share
ratably in such distribution of assets in accordance with the amount that
would be payable on such distribution if the amounts to which the holders
of outstanding shares of Series B Preferred Stock and such Parity
Securities are entitled were paid in full. The liquidation payment with
respect to each fractional share of the Series B Preferred Stock
outstanding shall be equal to a ratably proportionate amount of the
liquidation payment with respect to each outstanding share of the Series B
Preferred Stock. For the purposes of this paragraph (5), neither the
voluntary sale, lease, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all
the property or assets of the Corporation nor the consolidation or merger
of the Corporation with one or more other corporations shall be deemed to
be a liquidation,
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dissolution or winding up, voluntary or involuntary, unless such voluntary
sale, lease, conveyance, exchange or transfer shall be in connection with
a plan of liquidation, dissolution or winding up of the Corporation.
(6) Redemption.
(i) Optional Redemption. The Corporation may, at any
time or from time to time, redeem in whole or in part, at its option, the
Series B Preferred Stock, to the extent the Corporation shall have funds
legally available for such payment, at a per share cash redemption price
equal to the Liquidation Preference per share, plus an amount in cash
equal to all accrued and unpaid dividends thereon to the date of
redemption (the "Redemption Price")
(ii) Mandatory Redemption. (a) On the tenth anniversary
of the Issue Date, the Corporation shall redeem at the Redemption Price,
to the extent the Corporation shall have funds legally available for such
payment, all of the shares of Series B Preferred Stock then outstanding.
(b) In addition, if any time the Corporation
sells, transfers or otherwise disposes of its indirectly held investment
in the Common Stock of the Holder (whether in whole or in part), other
than to another wholly-owned subsidiary of the Issuer (it being understood
that having directors' shares or their equivalent outstanding shall not
prevent a subsidiary from being considered wholly-owned for purposes of
this subparagraph), then, within sixty (60) days of such sale, transfer or
disposition, the Corporation shall redeem at the Redemption Price, to the
extent the Corporation shall have funds legally available for such
payment, a number of shares of the Series B Preferred Stock that
represents a percentage of the total number of shares of Series B
Preferred Stock then outstanding equal to the percentage that the number
of shares of Common Stock of the Holder so sold, transferred or disposed
by the Corporation (or its subsidiary) represents of the total number of
shares of Common Stock of the Holder then held by the Corporation (or its
subsidiary).
(c) If the Corporation shall fail to discharge
any mandatory redemption obligation pursuant to this paragraph (6) (ii),
such failure shall have the consequences specified in paragraph (11) below
and the Corporation shall discharge such mandatory redemption obligation
as soon as it is able to do so.
(iii) Reacquired Shares. Shares of Series B Preferred
Stock which have been issued and reacquired by the Corporation in any
manner, including shares purchased or redeemed, shall (upon compliance
with any applicable provisions of the laws of the State of Delaware) have
the status of authorized and unissued shares of the class of Preferred
Stock, undesignated as to any series of the Preferred Stock; provided,
however, that no such issued and reacquired shares of the Series B
Preferred Stock shall be reissued or sold as Series B Preferred Stock.
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(7) Procedure for Redemption.
(i) Selection. In the event that fewer than all of the
outstanding shares of Series B Preferred Stock are to be redeemed, the
shares shall be redeemed pro rata. If less than all of the shares held by
a holder are to be redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(ii) Notice. In the event the Corporation shall redeem
shares of Series B Preferred Stock, notice of such redemption shall be
given by first class mail, postage prepaid, mailed not less than 10 days
nor more than 60 days prior to the redemption date, to each record holder
of the shares to be redeemed at such holder's address as the same appears
on the stock register of the Corporation; provided, however, that any
failure to give such notice or any defect therein shall not affect the
validity of the proceeding for the redemption of any shares of Series B
Preferred Stock to be redeemed except as to the holder to whom the
Corporation has failed to give said notice or except as to the holder
whose notice was defective. Each such notice shall state: (a) the
redemption date; (b) the number of shares of Series B Preferred Stock to
be redeemed and, if less than all shares held by such holder are to be
redeemed from such holder, the number of shares to be redeemed from such
holder; (c) the Redemption Price (including a calculation of all accrued
and unpaid dividends); (d) the place or places where certificates for such
shares are to be surrendered for payment of the Redemption Price; and (e)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date except to the extent provided in paragraph (8).
(8) Effect of Redemption. From and after the redemption
date, dividends on the shares of Series B Preferred Stock so called for
redemption shall cease to accrue (unless the Corporation defaults in
promptly providing money for the payment of the Redemption Price to the
holders of the redeemed shares who deliver shares of Series B Preferred
Stock in accordance with the terms of the notice sent to such holders),
and said shares shall no longer be deemed to be outstanding and shall have
the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof as
stockholders of the Corporation in respect of such shares shall cease and
terminate (except the right to receive from the Corporation the Redemption
Price). If notice of redemption shall have been mailed and if prior to the
date of redemption specified in such notice all said funds necessary for
such redemption shall have been irrevocably deposited in trust, for the
account of the holders of the shares of the Series B Preferred Stock to be
redeemed, with a bank or trust company (which shall have combined capital
and surplus of at least $100,000,000) in the borough of Manhattan, City of
New York named in such notice, thereupon and without awaiting the
redemption date, all shares of the Series B Preferred Stock with respect
to which such notice shall have been so mailed and such deposit shall have
been so made, shall be deemed to be redeemed and no longer outstanding and
all rights with respect to such shares of the Series B Preferred Stock
shall forthwith upon such deposit in trust cease and terminate (except the
right of the holders on or after the redemption date to receive from such
deposit in trust the amount payable upon the redemption). In case the
holders of shares of the Series B Preferred Stock that shall have been
called for redemption shall not within one year (or any longer period if
required
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<PAGE>
by law) after the redemption date claim any amount so deposited in trust
for the redemption of such shares, such bank or trust company shall, upon
demand and if permitted by applicable law, pay over to the Corporation any
such unclaimed amount so deposited with it and shall thereupon be relieved
of all responsibility in respect thereof, and thereafter the holders of
such shares shall, subject to applicable escheat laws, look only to the
Corporation for payment of the redemption price thereof, but without
interest from the date for which redemption was scheduled.
(9) Merger or Consolidation. In the event of a merger or
consolidation of the Corporation with or into any person pursuant to which
the Corporation shall not be the continuing person, or pursuant to which
the Corporation shall become a subsidiary of a public company, the Series
B Preferred Stock shall at the option of the Corporation either: (i) be
redeemed in accordance with the provisions of paragraph (7) or (ii) be
converted into or exchanged for and shall become preferred shares of such
successor, resulting or public company, having in respect of such
successor, resulting or public company substantially the same powers,
preferences and relative participating, optional or other special rights,
and the qualifications, limitations or restrictions thereon, that the
Series B Preferred Stock had immediately prior to such transaction.
(10) Voting Rights. (i) The holders of shares of Series B
Preferred Stock shall not be entitled to any voting rights except as
provided in this paragraph (10) or as otherwise required by law.
(ii)(a) If at any time or times (1) dividends payable
on the Series B Preferred Stock shall be in arrears and shall not have
been paid in full for the two immediately preceding quarters, or (2) the
Corporation shall have failed to meet the mandatory redemption obligation
as provided in paragraph (6)(ii), then the number of directors
constituting the Board of Directors, without further action, shall be
increased by one. The directorship created by the failure to meet
mandatory redemption obligations or to declare or pay dividends on the
Series B Preferred Stock shall be referred to as a "Preferred Stock
Director". The holders of Series B Preferred Stock, voting separately as a
class, shall have the right to elect one Preferred Stock Director, with
the remaining directors to be elected by the other class or classes of
stock entitled to vote therefor, at each meeting of stockholders held for
the purpose of electing directors.
(b) Whenever such voting right shall have
vested, such right may be exercised initially at the holders' election
either at a special meeting of the holders of Series B Preferred Stock,
called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at such annual
meeting, or by the unanimous written consent of all holders of the Series
B Preferred Stock. Such voting right shall continue until such time as (i)
all accrued and unpaid dividends on all outstanding Series B Preferred
Stock shall have been paid in full and (ii) all mandatory redemption
obligations which have matured have been met, at which time such voting
right of the holders of Series B Preferred Stock shall terminate, subject
to revesting in the event of each and every subsequent event of the
character indicated above.
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(c) At any time when such voting rights shall
have vested in the holders of Series B Preferred Stock and if such right
shall not already have been initially exercised, a proper officer of the
Corporation shall, upon the written request of any holder of record of
Series B Preferred Stock then outstanding, addressed to the Secretary of
the Corporation, call a special meeting of holders of Series B Preferred
Stock. Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of stockholders at the place for
holding annual meetings of stockholders of the Corporation or, if none, at
a place designated by the Secretary of the Corporation. If such meeting
shall not be called by the proper officer of the Corporation within 30
days after the personal service of such written request upon the Secretary
of the Corporation, or within 30 days after mailing the same within the
United States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registered receipt issued by the postal authorities), then the holders of
record of 10% of the shares of Series B Preferred Stock then outstanding
may designate in writing a holder of Series B Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for annual meetings
of stockholders and shall be held at the same place as is elsewhere
provided in this paragraph (10) (ii) (c). Any holder of Series B Preferred
Stock that would be entitled to vote at such meeting shall have access to
the stock books of the Corporation in respect of the Series B Preferred
Stock for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph (10) (ii) (c).
Notwithstanding the provisions of this paragraph (10) (ii) (c), however,
no such special meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders of the Corporation.
(d) At any meeting held for the purpose of
electing directors at which the holders of Series B Preferred Stock shall
have the right to elect a Preferred Stock Director as provided herein, the
presence in person or by proxy of the holders of at least a majority of
the then outstanding shares of Series B Preferred Stock shall be required
and shall be sufficient to constitute a quorum of such class for the
election of a Preferred Stock Director by such class. At any such meeting
or adjournment thereof, (x) the absence of a quorum of the holders of
Series B Preferred Stock shall not prevent the election of directors other
than the Preferred Stock Director to be elected, and the absence of a
quorum or quorums of the holders of capital stock entitled to elect such
other directors shall not prevent the election of a Preferred Stock
Director to be elected by the holders of Series B Preferred Stock and (y)
in the absence of a quorum of the holders of shares of Series B Preferred
Stock, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting for the election of a Preferred Stock
Director that the holders of Series B Preferred Stock may be entitled to
elect, from time to time, without notice (except as required by law) other
than announcement at the meeting, until a quorum shall be present.
(e) The term of office of the Preferred Stock
Director elected pursuant to this paragraph (10) in office at any time
when the aforesaid voting right is vested in the holders of Series B
Preferred Stock shall terminate upon the election of such Director's
successor at any meeting of stockholders for the purpose of electing
B-6
<PAGE>
directors of the class of directors to which the Preferred Stock Director
belongs. Upon any termination of the voting right of the holders of Series
B Preferred Stock, the term of office of the Preferred Stock Director
elected pursuant to this paragraph (10) then in office shall automatically
terminate, and, if the number of directors constituting the Board of
Directors was increased by one pursuant to paragraph (10) (ii) (a), then
upon such termination the number of directors constituting the Board of
Directors shall, without further action, be reduced by one, subject to an
increase in the number of directors pursuant to paragraph (10) (ii) (a) in
the case of the future right of the holders of Series A Preferred stock to
elect directors.
(f) In case of any vacancy occurring for the
Preferred Stock Director so elected, the holders of Series B Preferred
Stock may, at a special meeting of such holders called as provided above,
elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
(iii) So long as any shares of Series B Preferred
Stock remain outstanding, the Corporation will not, without the
affirmative vote at a meeting, or the written consent (in lieu of a
meeting), of the holders of at least a majority in number of shares of the
Series B Preferred Stock then outstanding, (a) amend, alter or repeal any
of the provisions of the Certificate of Incorporation of the Corporation
(including the Certificate of Designations which creates the Series B
Preferred Stock) so as to affect adversely the powers, preferences or
special rights of the Series B Preferred Stock or (b) increase the
authorized number of shares of the Series B Preferred Stock; provided,
however, that nothing herein shall limit the ability or authority of the
Board of Directors of the Corporation to create, authorize or issue any
Junior Securities or Parity Securities.
(11) Certain Restrictions. If at any time or times (1)
dividends payable on the Series B Preferred Stock shall be in arrears and
shall not have been paid in full for the two immediately preceding
quarters, or (2) the Corporation shall have failed to meet the mandatory
redemption obligation as provided in paragraph (6)(ii), then, if and so
long as any such obligation with respect to dividends or redemption shall
not be fully discharged, the Corporation shall not (x) declare or pay any
dividend or make any distributions on, or directly or indirectly purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of any Parity Securities or any warrants, rights or
options exercisable for or convertible or exchangeable into Parity
Securities (except in connection with any such obligation to be satisfied
pro rata with the obligation in respect of the Series B Preferred Stock)
or (y) declare or pay any dividend or make any distributions on, or
directly or indirectly purchase, redeem or satisfy any mandatory
redemption, sinking fund or other similar obligation in respect of any
Junior Securities (other than in such Junior Securities) or any warrants,
rights or options exercisable for or convertible or exchangeable into
Junior Securities.
(12) Transfer Restrictions. The Series B Preferred
Stock is being issued to the Holder pursuant to, and is subject to the
terms and restrictions of, the Stock Acquisition Agreement, dated as of
October 1, 1998, between the Holder and the Corporation.
B-7
<PAGE>
Exhibit 4.7
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[Letterhead of Maxcor Financial Group Inc.]
March 30, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, D.C. 20549
Dear Sirs or Madams:
This will confirm that Maxcor Financial Group Inc. (the "Company") will
furnish to the Securities and Exchange Commission upon request a copy of the
following Note:
(i) Secured Promissory Note, dated December 10, 1997 issued by Euro
Brokers Inc. to General Electric Capital Corporation.
The amount of the foregoing Note does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis.
Very truly yours,
/s/ Roger E. Schwed
<PAGE>
Exhibit 10.6
------------
MAXCOR FINANCIAL GROUP INC.
1996 STOCK OPTION PLAN
----------------------
1. Purpose; Types of Awards; Construction.
The purpose of the Financial Services Acquisition Corporation 1996
Stock Option Plan (the "Plan") is to align the interests of executive officers,
other key employees and nonemployee directors of Financial Services Acquisition
Corporation and its subsidiaries with those of the stockholders of Financial
Services Acquisition Corporation, to afford an incentive to such officers,
employees and directors to continue as such, to increase their efforts on behalf
of the Company and to promote the success of the Company's business. To further
such purposes, the Committee may grant options to purchase shares of the
Company's common stock. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934 and of
Section 162(m) of the Internal Revenue Code of 1986, and shall be interpreted in
a manner consistent with the requirements thereof, as now or hereafter
construed, interpreted and applied by regulations, rulings and cases.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated below:
(a) "Agreement" shall mean a written agreement entered into
between the Company and an Optionee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause," when used in connection with the termination of
an Optionee's employment by the Company or the cessation of an Optionee's
service as a member of the Board, shall mean (i) the conviction of the Optionee
for the commission of a felony, (ii) the willful and continued failure by the
Optionee substantially to perform his duties and obligations to the Company or a
Subsidiary (other than any such failure resulting from his incapacity due to
physical or mental illness), or (iii) the willful engaging by the Optionee in
misconduct that is demonstrably injurious to the Company or a Subsidiary. For
purposes of this Section 2(c), no act, or failure to act, on an Optionee's part
shall be considered "willful" unless done, or omitted to be done, by the
Optionee in bad faith and without reasonable belief that his action or omission
was in the best interest of the Company. The Committee shall determine whether a
termination of employment is for Cause for purposes of the Plan.
As amended through 3/16/00
<PAGE>
(d) "Change in Control" shall mean the occurrence of the event
set forth in any of the following paragraphs:
(i) any Person (as defined below) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its subsidiaries)
representing 50% or more of the combined voting power of the Company's
then outstanding securities; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for
election by the Company's stockholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(iii) there is consummated a merger or consolidation of
the Company or a direct or indirect subsidiary thereof with any other
corporation, other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, at least 50% of the combined voting power of the
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its subsidiaries)
representing 50% or more of the combined voting power of the Company's
then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 50% of the combined voting power of the
voting securities of which are owned by Persons in
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substantially the same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 2(d), "Person" shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean a committee established by the
Board to administer the Plan.
(g) "Common Stock" shall mean shares of common stock, par
value $.001 per share, of the Company.
(h) "Company" shall mean Financial Services Acquisition
Corporation, a corporation organized under the laws of the State of Delaware, or
any successor corporation.
(i) "Disability" shall mean an Optionee's inability to perform
his duties with the Company or on the Board by reason of any medically
determinable physical or mental impairment, as determined by a physician
selected by the Optionee and acceptable to the Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(k) "Fair Market Value" per share as of a particular date
shall mean (i) if the shares of Common Stock are then listed on a national
securities exchange, the closing sales price per share of Common Stock on the
national securities exchange on which the Common Stock is principally traded for
the last preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are then traded in an
over-the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last preceding
date on which there was a sale of such Common Stock in such market, or (iii) if
the shares of Common Stock are not then listed on a national securities exchange
or traded in an over-the-counter market, such value as the Committee, in its
sole discretion, shall determine.
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<PAGE>
(l) "Incentive Stock Option" shall mean any option intended to
be and designated as an incentive stock option within the meaning of Section 422
of the Code.
(ll) "Nonemployee Director" shall mean a member of the Board
who is not an employee of the Company.
(m) "Nonqualified Option" shall mean an Option that is not an
Incentive Stock Option.
(n) "Option" shall mean the right, granted hereunder, to
purchase shares of Common Stock. Options granted by the Committee pursuant to
the Plan may constitute either Incentive Stock Options or Nonqualified Stock
Options.
(o) "Optionee" shall mean a person who receives a grant of an
Option.
(p) "Option Price" shall mean the exercise price of the shares
of Common Stock covered by an Option.
(q) "Parent" shall mean any company (other than the Company)
in an unbroken chain of companies ending with the Company if, at the time of
granting an Option, each of the companies other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other companies in such chain.
(r) "Plan" shall mean this Financial Services Acquisition
Corporation 1996 Stock Option Plan, as it may be amended from time to time.
(s) "Retirement" shall mean the retirement of an Optionee in
accordance with the terms of any tax-qualified retirement plan maintained by the
Company or a Subsidiary in which the Optionee participates. If the Optionee is
not a participant in such a plan, such term shall mean the termination of the
Optionee's employment or cessation of the Optionee's service as a member of the
Board, other than by reason of death, Disability or Cause on or after attainment
of the age of 65.
(t) "Rule 16b-3" shall mean Rule 16b-3, as from time to time
in effect, promulgated by the Securities and Exchange Commission under Section
16 of the Exchange Act, including any successor to such Rule.
(u) "Subsidiary" shall mean any company (other than the
Company) in an unbroken chain of companies beginning with the Company if, at the
time of granting an Option, each of the companies other than the last company in
the unbroken
4
<PAGE>
chain owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other companies in such
chain.
(v) "Ten Percent Stockholder" shall mean an Optionee who, at
the time an Incentive Stock Option is granted, owns (or is deemed to own
pursuant to the attribution rules of Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary.
3. Administration.
The Plan shall be administered by the Committee, the members of
which shall, except as may otherwise be determined by the Board, be "nonemployee
directors" under Rule 16b-3 and "outside directors" under Section 162(m) of the
Code.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine the purchase
price of the shares of Common Stock covered by each Option; to determine the
persons to whom, and the time or times at which awards shall be granted; to
determine the number of shares to be covered by each award; to interpret the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the Agreements (which need not be
identical) and to cancel or suspend awards, as necessary; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, including
delegating to one or more of the Company's management employees the authority to
grant Options to employees who are not "insiders" for purposes of Section 16 of
the Exchange Act and who are not "covered employees" for purposes of Section
162(m) of the Code, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the Plan. The
Board shall have sole authority, unless expressly delegated to the Committee, to
grant Options to Nonemployee Directors. All decisions, determination and
interpretations of the Committee shall be final and binding on all Optionees of
any awards under this Plan.
The Board shall have the authority to fill all vacancies, however
caused, in the Committee. The Board may from time to time appoint additional
members to the Committee, and may at any time remove one or more Committee
members. One member of the Committee shall be selected by the Board as chairman.
The Committee shall hold
5
<PAGE>
its meetings at such times and places as it shall deem advisable. All
determinations of the Committee shall be made by a majority of its members
either present in person or participating by conference telephone at a meeting
or by written consent. The Committee may appoint a secretary and make such rules
and regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. Eligibility.
Awards may be granted to executive officers and other key employees
of the Company, EBIC and their Subsidiaries, including officers and directors
who are employees, and to Nonemployee Directors. In determining the persons to
whom awards shall be granted and the number of shares to be covered by each
award, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the Company
and such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan.
5. Stock.
The maximum number of shares of Common Stock reserved for the grant
of awards under the Plan shall be 1,800,000, subject to adjustment as provided
in Section 9 hereof. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company.
If any outstanding award under the Plan should for any reason
expire, be cancelled or be forfeited without having been exercised in full, the
shares of Common Stock allocable to the unexercised, cancelled or terminated
portion of such award shall (unless the Plan shall have been terminated) become
available for subsequent grants of awards under the Plan.
In no event may an Optionee be granted during any calendar year an
Option to acquire more than 500,000 shares of Common Stock.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by an
Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Agreement shall comply with and
be subject to the following terms and conditions, unless otherwise specifically
provided in such Option Agreement:
6
<PAGE>
(a) Number of Shares. Each Option Agreement shall state the
number of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically
state that the Option constitutes an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Option Price. Each Option Agreement shall state the Option
Price, which shall not be less than one hundred percent (100%) of the Fair
Market Value of the shares of Common Stock covered by the Option on the date of
grant unless, with respect to Nonqualified Stock Options, otherwise determined
by the Committee. The Option Price shall be subject to adjustment as provided in
Section 9 hereof. The date as of which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such Option is
granted, unless such resolution specifies a different date.
(d) Medium and Time of Payment. The Option Price shall be paid
in full, at the time of exercise, in cash or in shares of Common Stock then
owned by the Optionee having a Fair Market Value equal to such Option Price or
in a combination of cash and Common Stock or, unless the Committee shall
determine otherwise, by a cashless exercise procedure through a broker-dealer.
(e) Exercise Schedule and Period of Options. Each Option
Agreement shall provide the exercise schedule for the Option as determined by
the Committee; provided, however, that, the Committee shall have the authority
to accelerate the exercisability of any outstanding Option at such time and
under such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be ten (10) years from the date of the grant of the Option
unless otherwise determined by the Committee; provided, however, that, in the
case of an Incentive Stock Option, such exercise period shall not exceed ten
(10) years from the date of grant of such Option. The exercise period shall be
subject to earlier termination as provided in Sections 6(f) and 6(g) hereof. An
Option may be exercised, as to any or all full shares of Common Stock as to
which the Option has become exercisable, by written notice delivered in person
or by mail to the Secretary of the Company, specifying the number of shares of
Common Stock with respect to which the Option is being exercised.
(f) Termination. Except as provided in this Section 6(f) and
in Section 6(g) hereof, an Option may not be exercised unless (i) with respect
to an Optionee who is an employee of the Company, the Optionee is then in the
employ of the Company or a Subsidiary (or a company or a Parent or Subsidiary
company of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Optionee has remained
continuously so employed since the date of grant of the Option and (ii) with
respect to an Optionee who is a Nonemployee Director, the Optionee is then
serving as a member of the Board or as a member of a board of directors of a
company or a Parent or Subsidiary company of such company
7
<PAGE>
issuing or assuming the Option. In the event that the employment of an Optionee
shall terminate or the service of an Optionee as a member of the Board shall
cease (other than by reason of death, Disability, Retirement or Cause), all
Options of such Optionee that are exercisable at the time of such termination
may, unless earlier terminated in accordance with their terms, be exercised
within thirty (30) days after the date of such termination or service (or such
different period as the Committee shall prescribe).
(g) Death, Disability or Retirement of Optionee. If an
Optionee shall die while employed by the Company or a Subsidiary or serving as a
member of the Board, or within thirty (30) days after the date of termination of
such Optionee's employment or cessation of such Optionee's service (or within
such different period as the Committee may have provided pursuant to Section
6(f) hereof), or if the Optionee's employment shall terminate or service shall
cease by reason of Disability or Retirement, all Options theretofore granted to
such Optionee (to the extent otherwise exercisable) may, unless earlier
terminated in accordance with their terms, be exercised by the Optionee or by
his beneficiary, at any time within one year after the death, Disability or
Retirement of the Optionee (or such different period as the Committee shall
prescribe). In the event that an Option granted hereunder shall be exercised by
the legal representatives of a deceased or former Optionee, written notice of
such exercise shall be accompanied by a certified copy of letters testamentary
or equivalent proof of the right of such legal representative to exercise such
Option. Unless otherwise determined by the Committee, Options not otherwise
exercisable on the date of termination of employment shall be forfeited as of
such date.
(h) Other Provisions. The Option Agreements evidencing awards
under the Plan shall contain such other terms and conditions not inconsistent
with the Plan as the Committee may determine, including penalties for the
commission of competitive acts.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to
constitute Nonqualified Stock Options and shall be subject only to the general
terms and conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to
constitute Incentive Stock Options and shall be subject to the following special
terms and conditions, in addition to the general terms and conditions specified
in Section 6 hereof. An Incentive Stock Option may not be granted to a
Nonemployee Director.
(a) Value of Shares. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the shares
of Common Stock with respect to which Incentive Stock Options granted under this
Plan
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<PAGE>
and all other option plans of any subsidiary become exercisable for the first
time by each Optionee during any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the shares
of Common Stock on the date of grant of such Incentive Stock Option, and (ii)
the exercise period shall not exceed five (5) years from the date of grant of
such Incentive Stock Option.
9. Effect of Certain Changes.
(a) In the event of any extraordinary dividend, stock
dividend, recapitalization, merger, consolidation, stock split or other similar
transactions, each of the number of shares of Common Stock available for awards,
the number of such shares covered by outstanding awards, and the price per share
of Options, as appropriate, shall be equitably adjusted by the Committee to
reflect such event and preserve the value of such awards; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated.
(b) Unless otherwise specifically provided in an Agreement,
upon the occurrence of a Change in Control, each Option granted under the Plan
and then outstanding but not yet exercisable shall thereupon become fully
exercisable.
10. Surrender and Exchange of Awards.
The Committee may permit the voluntary surrender of all or a portion
of any Option granted under the Plan or any option granted under any other plan,
program or arrangement of the Company or any Subsidiary ("Surrendered Option"),
to be conditioned upon the granting to the Optionee of a new Option for the same
number of shares of Common Stock as the Surrendered Option, or may require such
voluntary surrender as a condition precedent to a grant of a new Option to such
Optionee. Subject to the provisions of the Plan, such new Option may be an
Incentive Stock Option or a Nonqualified Stock Option, and shall be exercisable
at the price, during such period and on such other terms and conditions as are
specified by the Committee at the time the new Option is granted.
11. Period During Which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time within
a period of ten (10) years from the date the Plan is adopted by the Board, or
the date the Plan is approved by the shareholders of the Company, whichever is
earlier, unless the Board shall terminate the Plan at an earlier date.
9
<PAGE>
12. Nontransferability of Awards.
Except as otherwise determined by the Committee, awards granted
under the Plan shall not be transferable otherwise than by will or by the laws
of descent and distribution, and awards may be exercised or otherwise realized,
during the lifetime of the Optionee, only by the Optionee or by his guardian or
legal representative.
13. Approval of Shareholders.
The Plan shall take effect upon its adoption by the Board and shall
terminate on the tenth anniversary of such date, but the Plan (and any grants of
awards made prior to the shareholder approval mentioned herein) shall be subject
to the approval of Company's shareholders, which approval must occur within
twelve months of the date the Plan is adopted by the Board.
14. Agreement by Optionee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise of a
Nonqualified Stock Option (a "Tax Event"), each Optionee who is not a
Nonemployee Director shall agree that no later than the date of the Tax Event,
such Optionee will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the Tax Event. Alternatively, the Committee
may provide that such an Optionee may elect, to the extent permitted or required
by law, to have the Company deduct federal, state and local taxes of any kind
required by law to be withheld upon the Tax Event from any payment of any kind
due the Optionee. The withholding obligation may be satisfied by the withholding
or delivery of Common Stock.
15. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that, unless otherwise determined
by the Board, an amendment that requires stockholder approval in order for the
Plan to continue to comply with Rule 16b-3, Section 162(m) of the Code or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders. Except as provided in
Section 9(a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted, unless the written
consent of the Optionee is obtained.
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16. Rights as a Shareholder.
An Optionee or a transferee of an award shall have no rights as a
shareholder with respect to any shares covered by the award until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distribution of other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 9(a) hereof.
17. No Rights to Employment or Service as a Director.
Nothing in the Plan or in any award granted or Agreement entered
into pursuant hereto shall confer upon any Optionee the right to continue in the
employ of the Company or any Subsidiary or as a member of the Board or to be
entitled to any remuneration or benefits not set forth in the Plan or such
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary to terminate such Optionee's employment or service. Awards
granted under the Plan shall not be affected by any change in duties or position
of an employee Optionee as long as such Optionee continues to be employed by the
Company or any Subsidiary.
18. Beneficiary.
An Optionee may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Optionee, the executor or administrator of the Optionee's estate
shall be deemed to be the Optionee's beneficiary.
19. Governing Law.
The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Delaware.
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Exhibit 10.12
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EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 4th day of May, 1998 (this "Agreement"),
between EURO BROKERS INC., a Delaware corporation ("Euro Brokers"), with offices
at Two World Trade Center, 84th Floor, New York, New York 10048, and Steven
Vigliotti ("Vigliotti"), residing at 165 Hicks Street, Brooklyn, NY 11201.
Insofar as Euro Brokers desires to secure the exclusive services of
Vigliotti, and Vigliotti desires to be employed exclusively by Euro Brokers, it
is hereby agreed, in consideration of the covenants and agreements herein
contained, as follows:
1. Employment, Acceptance and Term
Subject to the provisions hereof, Euro Brokers agrees to employ the
exclusive services of Vigliotti, and Vigliotti agrees to provide his services
exclusively to Euro Brokers, for a term commencing on the date hereof and ending
on April 30, 2000, which date (the "Initial Termination Date") shall also be the
date upon which this Agreement shall terminate (except for such provisions
hereof as shall expressly survive termination or expiration). Notwithstanding
the foregoing, this Agreement and the term of employment of Vigliotti hereunder
(the "Term") will automatically continue past the Initial Termination Date
unless and until terminated by Euro Brokers or Vigliotti on not less than three
(3) months prior written notice expiring on or after the Initial Termination
Date (a "Notice of Termination").
2. Duties and Authority
2.1 During the Term hereof, Vigliotti shall faithfully and
diligently devote Vigliotti's full time, best efforts, skills and energies to
the business (the "Business") of Euro Brokers and its subsidiary and affiliated
companies, including its public parent company, Maxcor Financial Group Inc.
(collectively, the "Euro Brokers group companies"). Vigliotti's initial position
shall be as Chief Financial Officer of Euro Brokers Investment Corporation.
Vigliotti agrees not to accept any other employment or render advisory services
during the Term, nor shall Vigliotti permit such personal business interests as
Vigliotti may have to interfere with the performance of Vigliotti's duties
hereunder. Vigliotti agrees to faithfully and diligently perform, to the best of
Vigliotti's abilities, such duties, consistent with his appointment hereunder,
as may from time to time be assigned to Vigliotti by the Chief Executive
Officer, Chief Operating Officer and/or Board of Directors of Euro Brokers
Investment Corporation (or any designee of the foregoing). Vigliotti agrees to
serve without additional compensation, if elected or appointed thereto, as a
director and/or officer of any of the Euro Brokers group companies and as a
member of any committees of the board of directors of any such corporations.
Vigliotti will duly, punctually and faithfully perform and observe all rules
that Euro Brokers may from time to time establish concerning the conduct of any
aspect of the Business in which Vigliotti is engaged.
2.2 Vigliotti grants Euro Brokers the right to obtain insurance on
Vigliotti's life during the Term hereof for the benefit of Euro Brokers in such
amount as Euro Brokers shall deem appropriate and hereby agrees to execute all
such documents and perform all such acts as Euro Brokers shall reasonably
require in connection therewith.
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EMPLOYMENT AGREEMENT: Steven Vigliotti
May 4, 1998
Page 2
3. Compensation
3.1 During the Term hereof, Euro Brokers shall pay Vigliotti
compensation at the rate of U.S. $150,000 per annum ("Base Salary"), payable
periodically in accordance with Euro Brokers' then-prevailing payroll
procedures.
3.2 In addition, during the Term Vigliotti shall be eligible to
receive such semi-annual bonus payments as the Chief Executive Officer of Euro
Brokers, in his or her sole discretion, may determine to award to Vigliotti.
Such bonuses are contingent upon Vigliotti performing all of Vigliotti's
obligations under this Agreement, Vigliotti not having delivered a Notice of
Termination more than 45 days prior to the relevant bonus payment date and
Vigliotti's continued employment by Euro Brokers on the relevant bonus payment
date.
3.3 All payments to Vigliotti under this Agreement shall be subject
to reduction by the amount of any applicable withholding and other items that
Euro Brokers may be required or authorized by applicable law to deduct.
4. Expenses
In addition to the compensation payable to Vigliotti pursuant to
Section 3 hereof, Euro Brokers shall pay or reimburse Vigliotti, upon submission
of proper vouchers in respect thereof, all reasonable and necessary
transportation, hotel, living and related expenses incurred by Vigliotti on
business trips and all other reasonable and necessary business and entertainment
expenses, provided that all such expenses shall have been incurred in accordance
with Euro Brokers' policies or procedures or approved in advance by the Chief
Operating Officer of Euro Brokers or his or her designee.
5. Additional Benefits
Vigliotti shall be entitled to 15 days annual vacation, to be taken
at such time or times as shall be mutually agreed between Euro Brokers and
Vigliotti; provided, however, that vacation not taken shall not accrue from
year-to-year or be compensated for at the end of the Term. Vigliotti shall also
be entitled to participate in all medical, health, retirement, insurance,
hospitalization, disability and other plans which Euro Brokers may in its sole
discretion establish from time to time for the benefit of similarly-situated
employees, provided that Vigliotti is eligible by the terms thereof to
participate therein.
6. Termination of Employment
6.1 Notwithstanding anything to the contrary herein, Vigliotti's
employment hereunder shall automatically terminate as follows, and Euro Brokers
shall have no obligations hereunder other than to pay sums due to Vigliotti (or
heirs of Vigliotti) as of the date of such termination: (i) upon Vigliotti's
death; (ii) upon written notice given by Euro Brokers following Vigliotti's
failure to perform the duties of the position for a period of 45 consecutive
days, or 60 days in the aggregate during any twelve-month period (except as may
<PAGE>
EMPLOYMENT AGREEMENT: Steven Vigliotti
May 4, 1998
Page 3
be prohibited by federal, state or local disability laws); (iii) upon expiration
of a Notice of Termination given by either Euro Brokers or Vigliotti, for any
reason or no reason, in accordance with Section 1 of this Agreement; (iv) upon
termination of this Agreement by mutual consent of the parties; or (v) upon
prior written notice to Vigliotti of action taken by Euro Brokers to discharge
Vigliotti for Cause, which notice shall specify the reasons therefor.
6.2 "Cause" as used herein shall mean Vigliotti's (i) breach of any
material term hereof that is not cured by Vigliotti promptly after written
notice thereof from Euro Brokers, (ii) failure to act in accordance with any
direction of the Chief Executive Officer, Chief Operating Officer or Board or
Directors of Euro Brokers Investment Corporation (or any designee of the
foregoing) where the direction is reasonable, lawful and not inconsistent with
Vigliotti's position, (iii) commission of a felony, (iv) commission of any
material act of disloyalty against any of the Euro Brokers group companies, (v)
fraud, misappropriation or dishonesty in connection with Vigliotti's employment
hereunder, (vi) alcohol or drug abuse, (vii) material failure to comply with the
applicable written internal policies or procedures of the Business or (ix)
violation of any material statute, rule or regulation governing the Business.
6.3 This Section 6 (including as it references Section 1 hereof)
sets forth the exclusive reasons and methods for terminating this Agreement and
Vigliotti's employment hereunder.
7. Confidential Information; Other Employees
7.1 Vigliotti acknowledges that due to Vigliotti's position and
duties with Euro Brokers, Vigliotti will have access to the trade secrets,
client lists, customer preferences, computer software programs, financial
models, technology practices and other proprietary and/or confidential
information (collectively, "Confidential Information") of or relating to the
Business and/or the Euro Brokers group companies. Accordingly, Vigliotti agrees
that Vigliotti shall not at any time (whether during or after the Term hereof)
use outside the scope of Vigliotti's employment hereunder or disclose to anyone
any Confidential Information. At or prior to the end of the Term, Vigliotti
shall return to Euro Brokers all copies of any written (or otherwise stored,
including electronically) Confidential Information (including any notes,
extracts or other documents reflecting such information) in Vigliotti's
possession.
7.2 Both during the Term hereof and during the twelve-month period
immediately following any end of the Term, Vigliotti agrees that Vigliotti shall
not in any manner, directly or indirectly, without Euro Brokers' prior written
consent, enter into any arrangement with or otherwise solicit, entice or
encourage any person who is, or within six months prior to the end of the Term
was, an employee of any of the Euro Brokers group companies (i) to terminate
such employee's employment with such Euro Brokers group company or (ii) to apply
for or accept employment with any business that is competitive with the
Business.
<PAGE>
EMPLOYMENT AGREEMENT: Steven Vigliotti
May 4, 1998
Page 4
8. Certain Remedies
8.1 Vigliotti acknowledges that given Vigliotti's special skills and
unique responsibilities with Euro Brokers and Vigliotti's access to Confidential
Information, and given the vital importance to Euro Brokers of its human
resources and of preserving information and businesses developed at its expense,
that any breach or violation, or threatened breach or violation, by Vigliotti of
the provisions of the preceding Section 7 shall cause irreparable harm to Euro
Brokers, which harm cannot be fully redressed by the payment of damages to Euro
Brokers. Accordingly, Vigliotti agrees that Euro Brokers shall be entitled, in
addition to any other right and remedy it may have, at law or in equity, to an
injunction, without the posting of any bond or other security, enjoining or
restraining Vigliotti from any such breach or violation or threatened breach or
violation of said Section 7.
8.2 Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under all applicable
laws. However, in the event that any such provision or portion thereof shall be
held by an arbitrator or court of competent jurisdiction to be invalid, illegal
or unenforceable, all other provisions of this Agreement shall remain in full
force and effect, and not be affected by such invalidity, illegality or
unenforceability of the Invalid Provision or any modification thereof or
substitution therefor.
8.3 Should Euro Brokers or Vigliotti be required to engage legal
counsel and/or to institute any action, arbitration or proceeding (including
seeking an injunction) to enforce or prevent the breach or threatened breach of
any of the provisions of this Agreement and/or to seek any other remedy at law
or in equity, then the prevailing party in such action, arbitration or
proceeding (or, if there is no single prevailing party, the party that prevails
with respect to the preponderance of the issues in dispute) shall be entitled to
recover from the other party all costs and expenses incurred thereby, including,
but not limited to, reasonable attorneys' fees, expenses and all other costs.
8.4 This Section 8, Section 7 above and Sections 9, 10 and 15 below
shall survive the Term, the cessation of Vigliotti's employment with Euro
Brokers and any termination of this Agreement.
9. Representations and Warranties of Vigliotti
Vigliotti represents and warrants that Vigliotti is free to enter
into this Agreement and to perform the duties required hereunder, and that there
are no employment contracts, restrictive covenants or other restrictions that
would be breached by or prevent the performance of Vigliotti's duties hereunder.
10. Inventions, Discoveries, Etc.
10.1 Vigliotti shall promptly and fully disclose to Euro Brokers and
with all necessary detail for a complete understanding of the same, all
developments, knowhow,
<PAGE>
EMPLOYMENT AGREEMENT: Steven Vigliotti
May 4, 1998
Page 5
discoveries, inventions, improvements, concepts, ideas, writings, formulae,
processes and methods (whether copyrightable, patentable or otherwise) made,
received, conceived, acquired or written during working hours or otherwise by
Vigliotti (whether or not at the request or upon the suggestion of Euro Brokers)
during the Term, solely or jointly with others, in or relating to any activities
of any of the Euro Brokers group companies or any of their respective customers
known to Vigliotti as a consequence of Vigliotti's employment (collectively
referred to as the "Subject Matter").
10.2 Vigliotti hereby assigns and transfers, and agrees to assign
and transfer, to Euro Brokers, all Vigliotti's right, title and interest in and
to the Subject Matter, and Vigliotti further agrees to deliver to Euro Brokers
any and all drawings, notes, specifications and data relating to the Subject
Matter and to execute, acknowledge and deliver all such further papers,
including applications for copyrights and patents for any thereof in any and all
countries, and to vest title thereto in Euro Brokers. Vigliotti shall assist
Euro Brokers in obtaining such copyrights or patents during the Term and any
time thereafter and to testify in any prosecution or litigation involving any of
the Subject Matter.
11. Notices
All notices hereunder shall be in writing and delivered by hand or
sent by registered mail or overnight courier, addressed to such party at its
address referred to above, or at such other address as such party may from time
to time designate by notice to the other party. Any such notice shall be deemed
to have been given on the date delivered by hand, the business day after deposit
with an overnight courier, or on the fifth day following the mailing thereof.
12. Waivers
The failure of either party to insist in any one or more instances
upon strict performance of any of the terms or conditions of this Agreement
shall not be construed as a waiver of any right granted hereunder or of the
future performance of any such term or condition. No waiver of any term or
condition of, or consent, authorization or notice under, this Agreement shall be
made except by a written instrument, specifically referring to this Agreement,
executed by the party (in the case of Euro Brokers, by either its Chief
Executive Officer or Chief Operating Officer) charged with the waiver or
providing the consent, authorization or notice. No waiver of any breach of any
provision of this Agreement shall be deemed to constitute a waiver of any other
breach of such provision or a waiver of any breach of any other provision of
this Agreement.
13. Agreement Complete; Amendments; Counterparts
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, and there are no oral agreements or
understandings with respect to or affecting this Agreement. This Agreement may
not be amended, supplemented, canceled or discharged except by a written
instrument specifically referring to this Agreement and
<PAGE>
EMPLOYMENT AGREEMENT: Steven Vigliotti
May 4, 1998
Page 6
executed by each of the parties hereto. This Agreement may be executed in two or
more counterparts, all of which, taken together, shall constitute one and the
same instrument.
14. Assignment
Vigliotti acknowledges that the services to be rendered by Vigliotti
are personal in nature and, accordingly, agrees not to assign any of Vigliotti's
rights or delegate any of Vigliotti's duties or obligations under this Agreement
(and any such assignment or delegation shall be null and void). The rights and
obligations of Euro Brokers under this Agreement shall inure to the benefit of,
and shall be binding upon, any successor or assign of Euro Brokers.
15. Governing Law and Exclusive Jurisdiction
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
EURO BROKERS INC.
By: /s/ Keith E. Reihl
-------------------------------
Name: Keith E. Reihl
Title: Chief Operating Officer
Agreed and Accepted:
/s/ Steven Vigliotti
- ----------------------------
Steven Vigliotti
<PAGE>
MAXCOR FINANCIAL GROUP INC. Exhibit 21
SUBSIDIARIES OF THE REGISTRANT ----------
JURISDICTION
SUBSIDIARY OF INCORPORATION
- ----------------------------------- ------------------
EURO BROKERS INVESTMENT CORPORATION DELAWARE
EURO BROKERS HOLDINGS INC. NEW YORK
EURO BROKERS INC. NEW YORK
MAXCOR FINANCIAL INC. NEW YORK
MAXCOR FINANCIAL ASSET MANAGEMENT INC. DELAWARE
MAXCOR FINANCIAL SERVICES INC. DELAWARE
MAXCOR INFORMATION INC. DELAWARE
E-B FUNDING CORPORATION DELAWARE
EURO BROKERS TECHNOLOGY INC. NEVADA
EURO BROKERS HOLDINGS LTD. ENGLAND
EURO BROKERS FINACOR LTD. ENGLAND
EURO BROKERS FINANCIAL SERVICES LTD. ENGLAND
EURO BROKERS SERVICES LTD. ENGLAND
EURO BROKERS TOKYO INC. DELAWARE
YAGI EURO NITTAN CORPORATION JAPAN
EURO BROKERS CANADA, LTD. CANADA
EURO BROKERS MEXICO, S.A. de C.V. MEXICO
EURO BROKERS (SWITZERLAND) S.A. SWITZERLAND
<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
December 31, 1999 and is qualified in its entirety by reference to such
Consolidated Fianancial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,054,275
<RECEIVABLES> 16,027,907
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 9,479,694
<PP&E> 6,959,569
<TOTAL-ASSETS> 72,467,958
<SHORT-TERM> 0
<PAYABLES> 5,977,929
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 1,799,870
2,000,000
0
<COMMON> 11,392
<OTHER-SE> 27,408,204
<TOTAL-LIABILITY-AND-EQUITY> 72,467,958
<TRADING-REVENUE> 1,215,233
<INTEREST-DIVIDENDS> 1,879,500
<COMMISSIONS> 153,151,341
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 833,935
<COMPENSATION> 108,470,659
<INCOME-PRETAX> 3,581,968
<INCOME-PRE-EXTRAORDINARY> 3,581,968
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,532,212
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.25
</TABLE>
