-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EoWgF432dyxBJ6flAO6CSHW9d4cbAtzbaEX98+O+dt2kgaER8pCcunue9qJssPRf 89hI6BuKXBu28ovOZ3HqAg== 0000889812-00-001502.txt : 20000331 0000889812-00-001502.hdr.sgml : 20000331 ACCESSION NUMBER: 0000889812-00-001502 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXCOR FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000931707 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 593262958 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25056 FILM NUMBER: 588528 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CTR STREET 2: 84TH FL CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2127487000 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 84TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: FINANCIAL SERVICES ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19941020 10-K405 1 ANNUAL REPORT 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 ------- MAXCOR FINANCIAL GROUP INC. --------------------------- (Exact name of registrant as specified in its charter) Delaware 59-3262958 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Two World Trade Center, 84th Floor, New York, NY 10048 - ------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 748-7000 -------------- 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 --------------------------------------- (Title of class) Preferred Stock Purchase Rights ------------------------------- (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. MAXCOR FINANCIAL GROUP INC. INDEX ----- Page ---- 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 2 [LOGO] MAXF ---- 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 3 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. 4 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. 5 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 6 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 7 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. 8 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 9 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. 10 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 11 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 12 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 13 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 14 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. 15 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. 16 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 17 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. 18
Year Ended December 31, --------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- 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 ============= ============= ============= ============= ============= Year Ended December 31, -------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ 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
19 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 20 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 21 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 22 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 23 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 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 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 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 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 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 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 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 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 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 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.
As of December 31, 1999: - ------------------------ After Fair 2000 2001 2002 2004 Total Value ---- ---- ---- ---- ----- ----- 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
34
As of December 31, 1998: - ------------------------ After Fair 1999 2000 2001 2002 2003 Total Value ---- ---- ---- ---- ---- ----- ----- 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
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 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 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. /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
37 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 F-1 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 [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 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31, ASSETS 1999 1998 - ------ ------------ ------------ 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 ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. F-4 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
December 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 - ------------------------------------ ------------ ------------ 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 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, December 31, December 31, 1999 1998 1997 ------------ ------------ ------------ 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)
The accompanying notes are an integral part of these consolidated financial statements. F-6 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Accumulated Additional Other Comprehensive Common Paid-in Treasury Accumulated Comprehensive Income Stock Capital Stock Deficit Income Total ------ ----- ------- ----- ------- ------ ----- 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 ======= =========== =========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statement F-7 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended ---------------------------------------------------------- December 31, December 31, December 31, 1999 1998 1997 ------------ ------------ ------------ 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) ----------- ----------- ----------
F-8 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Year Ended December 31, December 31, December 31, 1999 1998 1997 ------------ ------------ ------------ 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
The accompanying notes are an integral part of these consolidated financial statements. F-9 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 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 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:
1999 1998 1997 ---- ---- ---- 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
NOTE 4 - DEPOSITS WITH CLEARING ORGANIZATIONS: Deposits with clearing organizations at December 31, 1999 and 1998 are comprised of the following:
December 31, 1999 December 31, 1998 ----------------- ----------------- Cash $ 388,207 $ 402,452 U.S. Treasury obligations 6,412,183 6,718,581 ---------- ---------- $6,800,390 $7,121,033 ========== ==========
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:
December 31, 1999 December 31, 1998 ------------------------- ------------------------- Receivable Payable Receivable Payable ----------- ---------- ----------- ---------- 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 =========== ========== ========== ==========
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 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 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:
December 31, 1999 December 31, 1998 ----------------- ----------------- 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 =========== ===========
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 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:
December 31, 1999 December 31, 1998 ----------------- ----------------- 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 ========== ==========
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:
For the Year Ended December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ------------------ ----------------- 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 ========== ========== ==========
F-15 NOTE 13 - INCOME TAXES (Continued): The components of the provision for income taxes are as follows:
For the Year Ended ------------------------------------------------------------------ December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ------------------ ----------------- 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 ========== =========== ==========
Deferred tax assets (liabilities) are comprised of the following:
December 31, 1999 December 31, 1998 ----------------- ----------------- 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) =========== ==========
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 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:
For the Year Ended December 31, December 31, December 31, 1999 1998 1997 ------------ ------------------ ------------ 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 ========== ========== ==========
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 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:
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 --------- -------- --------- -------- --------- -------- 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 ========== ========== ==========
F-18 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.
For the Year Ended December 31, December 31, December 31, 1999 1998 1997 ------------ ------------ ------------ 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)
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:
Minimum Minimum Rental Sublease Year Payments Income Net ---- -------- -------- --- 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 =========== ========== ===========
F-19 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 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.
United United Switzer- All States Kingdom Japan land Canada Other Total ------ ------- ----- ------- ------ ----- ----- 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
F-21 NOTE 23 - SEGMENT REPORTING (Continued):
United United Switzer- All States Kingdom Japan land Canada Other Total ------ ------- ----- ------- ------ ----- ----- 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
F-22 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.
1999 1998 1997 ----------- ------------ ------------ 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 ============ ============ ============
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:
For the Three Months Ended: March 31 June 30 September 30 December 31 ----------- ----------- ------------ ----------- 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)
F-23 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 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 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 EX-2.2A 2 AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT 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. 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 EX-3.1 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 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. 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 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 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 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 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 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 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 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 A-2 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 A-3 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. A-4 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. A-5 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. A-6 (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. A-7 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. A-8 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 B-1 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, B-2 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. B-3 (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 B-4 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. B-5 (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 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 EX-4.7 4 AGREEMENT TO FURNISH DEBT INSTRUMENTS Exhibit 4.7 ----------- [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 EX-10.6 5 THE REGISTRANT'S 1996 STOCK OPTION PLAN 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 (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 2 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. 3 (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 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 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 (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 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 8 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 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. 10 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. 11 EX-10.12 6 EMPLOYMENT AGREEMENT Exhibit 10.12 ------------- 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. 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 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. 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, 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 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 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 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 EX-27 8 FINANCIAL DATA SCHEDULE
BD 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. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 20,054,275 16,027,907 0 0 9,479,694 6,959,569 72,467,958 0 5,977,929 0 0 0 1,799,870 2,000,000 0 11,392 27,408,204 72,467,958 1,215,233 1,879,500 153,151,341 0 0 833,935 108,470,659 3,581,968 3,581,968 0 0 2,532,212 0.26 0.25
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