-----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, QM+OdebxU2Qfn6joL93WpNFh76USDN1/7fCzJukwB6kLCYfjwuAdf5BTWOmZqzgg 0nBjxfyZkD30P0+m67LMFw== 0000889812-99-002442.txt : 19990816 0000889812-99-002442.hdr.sgml : 19990816 ACCESSION NUMBER: 0000889812-99-002442 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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-Q SEC ACT: SEC FILE NUMBER: 000-25056 FILM NUMBER: 99688917 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-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1999 Commission File Number 0-25056 MAXCOR FINANCIAL GROUP INC. (Exact name of registrant as specified in its charter) Delaware 59-3262958 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Two World Trade Center New York, New York 10048 (Address of principal executive office) (212) 748-7000 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ _____ The number of shares of common stock, par value $.001 per share, of registrant outstanding as of August 12, 1999 was 8,337,437. The Exhibit Index is on Page 28 Page 1 of 49 Pages MAXCOR FINANCIAL GROUP INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): 3 Consolidated Statements of Financial Condition 4 Consolidated Statements of Operations 6 Consolidated Statements of Changes in Stockholders' Equity 7 Consolidated Statements of Cash Flows 8 Notes to the Consolidated Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 24 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 27 Exhibit Index 28
Page 2 of 49 Pages PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MAXCOR FINANCIAL GROUP INC. CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (Unaudited) Page 3 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 December 31, 1998 ------------- ----------------- (unaudited) ASSETS Cash and cash equivalents $ 21,330,458 $ 15,150,296 Deposits with clearing organizations 7,120,706 7,121,033 Receivable from broker-dealers and customers 26,242,622 16,557,824 Securities owned 12,128,478 11,578,515 Prepaid expenses and other assets 5,009,272 8,268,622 Deferred tax asset 2,420,114 2,442,981 Equity in affiliated companies 2,643,339 2,935,100 Furniture, equipment and leasehold improvements 8,591,488 10,018,602 Intangible assets 991,732 1,196,692 ------------- ----------------- Total assets $ 86,478,209 $ 75,269,665 ============= =================
The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
June 30, 1999 December 31, 1998 ------------- ----------------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Payable to broker-dealer $ 8,788,904 $ 7,845,490 Accounts payable and accrued liabilities 14,721,852 15,478,695 Accrued compensation payable 19,158,414 14,704,076 Loan payable 1,717,405 Income taxes payable 2,349,205 375,665 Deferred taxes payable 495,636 495,636 Obligations under capitalized leases 668,204 751,747 Notes payable 4,570,787 3,824,842 ------------ ------------ 52,470,407 43,476,151 ------------ ------------ Minority interest in consolidated subsidiary 5,311,349 ------------ Redeemable preferred stock: Series B, 2% cumulative, stated value $1,000 2,000 shares issued at June 30, 1999 and December 31, 1998 2,000,000 2,000,000 Stockholders' equity: Preferred stock, $.001 par value; 1,000,000 shares authorized; 2,000 shares of Series B issued at June 30, 1999 and December 31, 1998, reported above Common stock, $.001 par value; 30,000,000 shares authorized, 11,392,269 shares issued at June 30, 1999 and December 31, 1998 11,392 11,392 Additional paid-in capital 33,187,415 33,187,415 Treasury stock at cost; 3,054,832 and 68,487 shares of common stock held at June 30, 1999 and December 31, 1998, respectively (5,454,036) (227,932) Accumulated deficit (2,499,420) (5,100,223) Accumulated other comprehensive income: Foreign translation adjustments 1,451,102 1,922,862 ------------ ------------ Total stockholders' equity 26,696,453 29,793,514 ------------ ------------ Total liabilities and stockholders' equity $ 86,478,209 $ 75,269,665 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenue: Commission income $ 40,265,290 $ 39,043,398 $ 84,677,402 $ 78,168,223 Interest income 466,896 314,825 822,891 782,605 Other income 212,938 386,321 643,031 613,326 ------------ ------------ ------------ ------------ 40,945,124 39,744,544 86,143,324 79,564,154 ------------ ------------ ------------ ------------ Costs and expenses: Payroll and related costs 28,060,414 25,895,883 57,270,234 52,889,605 Communication costs 3,666,068 3,841,217 7,546,480 7,491,763 Travel and entertainment 2,244,391 2,387,477 4,320,794 4,987,784 Occupancy costs 1,310,920 1,618,902 2,850,834 3,159,075 Depreciation and amortization 1,064,224 1,276,690 2,278,891 2,547,050 Clearing fees 958,016 1,247,846 1,944,377 2,304,313 Interest expense 250,745 264,596 455,935 506,790 General, administrative and other expenses 1,355,001 1,631,339 3,184,198 3,503,471 ------------ ------------ ------------ ------------ 38,909,779 38,163,950 79,851,743 77,389,851 ------------ ------------ ------------ ------------ Income before provision for income taxes and minority interest 2,035,345 1,580,594 6,291,581 2,174,303 Provision for income taxes 941,822 1,303,646 2,752,060 2,294,246 ------------ ------------ ------------ ------------ Income (loss) before minority interest 1,093,523 276,948 3,539,521 (119,943) Minority interest in consolidated subsidiaries (46,520) (272,824) (918,718) (680,224) ------------ ------------ ------------ ------------ Net income (loss) $ 1,047,003 $ 4,124 $ 2,620,803 ($ 800,167) ============ ============ ============ ============ Weighted average common shares outstanding - basic 10,897,161 11,330,631 11,109,293 11,330,631 Weighted average common shares outstanding - diluted 10,906,251 11,330,631 11,109,293 11,330,631 Basic earnings per share $ .10 $ .00 $ .23 ($ .07) Diluted earnings per share $ .10 $ .00 $ .23 ($ .07)
The accompanying notes are an integral part of these consolidated financial statements. Page 6 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIODS ENDED DECEMBER 31, 1998 AND JUNE 30, 1999 (unaudited)
Accumulated Additional Other Comprehensive Common Paid-In Treasury Accumulated Comprehensive Income Stock Capital Stock Deficit Income Total ------ ----- ------- ----- ------- ------ ----- Balance at December 31, 1997 $11,392 $33,187,415 ($ 209,451) ($3,815,073) $2,428,962 $31,603,245 Comprehensive income Net loss for the year ended December 31, 1998 ($1,275,150) (1,275,150) (1,275,150) Other comprehensive income Foreign translation adjustment (net of income tax benefit of $163,348) (506,100) (506,100) (506,100) ----------- Comprehensive income ($1,781,250) =========== Acquisition of treasury stock (18,481) (18,481) Redeemable preferred stock dividends (10,000) (10,000) ------- ------------ ----------- ----------- ---------- ----------- Balance at December 31, 1998 11,392 33,187,415 (227,932) (5,100,223) 1,922,862 29,793,514 Comprehensive income Net income for the six months ended June 30, 1999 $2,620,803 2,620,803 2,620,803 Other comprehensive income Foreign translation adjustment (net of income tax benefit of $192,500) (471,760) (471,760) (471,760) ----------- Comprehensive income $2,149,043 =========== Acquisition of treasury stock (5,226,104) (5,226,104) Redeemable preferred stock dividends (20,000) (20,000) ------- ------------ ----------- ----------- ---------- ----------- Balance at June 30, 1999 $11,392 $ 33,187,415 ($5,454,036) ($2,499,420) $1,451,102 $26,696,453 ======= ============ =========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. Page 7 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Six Months Ended June 30, 1999 June 30, 1998 ------------- ------------- Cash flows from operating activities: Net income (loss) 2,620,803 ($ 800,167) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,278,891 2,547,050 Provision for doubtful accounts 24,164 35,023 Minority interest in earnings of consolidated subsidiary 810,084 Undistributed earnings of unconsolidated subsidiary (558,463) Net loss on disposal of fixed assets (2,787) (6,470) Imputed interest expense 15,158 29,714 Deferred income taxes (100,454) Change in assets and liabilities: Decrease in deposits with clearing organizations 327 1,087,025 Increase in receivable from broker-dealers and customers (8,295,056) (2,721,080) (Increase) decrease in securities owned (549,963) 3,731,102 Decrease in prepaid expenses and other assets 3,350,002 1,115,507 Decrease in short-term bank loans (4,379,350) Increase in payable to broker-dealers and customers 943,414 700,232 Decrease in securities sold, not yet purchased (780,849) Decrease in accounts payable and accrued liabilities (366,173) (2,215,270) Increase in accrued compensation payable 4,546,837 542,019 Increase (decrease) in income taxes payable 1,891,565 (1,879,013) ---------- ----------- Net cash provided by (used in) operating activities 7,267,266 (3,653,444) ---------- ----------- Cash flows from investing activities: Purchase of fixed assets (852,044) (2,088,360) Proceeds from the sale of fixed assets 159,870 254,574 Dividends received from equity affiliates 48,856 35,047 ---------- ----------- Net cash used in investing activities (643,318) (1,798,739) ---------- -----------
The accompanying notes are an integral part of these consolidated financial statements. Page 8 of 49 Pages MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
For the Six Months Ended June 30, 1999 June 30, 1998 ------------- ------------- Cash flows from financing activities: Cash contribution from minority interest 3,691,972 Dividend paid to minority interest (620,253) Repayment of notes payable (208,523) (197,766) Repayment of obligations under capitalized leases (191,736) (322,553) Net borrowings under revolving credit facility 1,717,405 Redeemable preferred stock dividends (20,000) Acquisition of treasury stock (5,226,104) Issuance of notes payable 1,000,000 ----------- ----------- Net cash provided by (used in) financing activities 142,761 (520,319) ----------- ----------- Effect of exchange rate changes on cash (586,547) 397,813 ----------- ----------- Net increase (decrease) in cash and cash equivalents 6,180,162 (5,574,689) Cash and cash equivalents at beginning of period 15,150,296 18,041,631 ----------- ----------- Cash and cash equivalents at end of period $21,330,458 $12,466,942 =========== =========== Supplemental disclosures of cash flow information Interest paid $ 374,423 $ 317,355 Income taxes paid 259,578 2,322,677 Non-cash financing activities: Capital lease obligations incurred 141,352 Contribution of net non-cash assets from minority interest 1,715,378
The accompanying notes are an integral part of these consolidated financial statements. Page 9 of 49 Pages MAXCOR FINANCIAL GROUP INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: Maxcor Financial Group Inc. ("MFGI") was incorporated in Delaware on August 18, 1994 with the objective of acquiring or merging with an operating business in the financial services industry. On August 16, 1996, MFGI acquired Euro Brokers Investment Corporation ("EBIC"), a privately held international and domestic inter-dealer broker, in a merger transaction (the "Merger"). EBIC, incorporated in December 1986, through its subsidiaries and affiliates is primarily an inter-dealer broker of money market instruments, derivative products and selected securities, with offices in major financial centers, including New York, London, Tokyo, Geneva, Paris, Toronto and Mexico City, and correspondent relationships with other brokers throughout the world. EBIC and its affiliates currently comprise substantially all of the Company's business and assets. The consolidated financial statements include the accounts of MFGI and its majority-owned subsidiaries and other entities over which it exercises control (collectively, the "Company"). All significant inter-company balances and transactions have been eliminated. Investments in unconsolidated affiliates where the Company may exercise significant influence over operating and financial policies have been accounted for using the equity method. Earnings from investments accounted for under the equity method have been reflected as other income in the consolidated statements of operations. The accompanying unaudited consolidated condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to the prior period amounts to conform with the current period presentation. Operating results for the interim periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the audited consolidated financial statements of the Company as of December 31, 1998 and 1997 and for each of the years in the three-year period then ended and the footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 ("1998 Form 10-K"). Page 10 of 49 Pages NOTE 2 - SIGNIFICANT ACCOUNTANT POLICIES Accounting Developments: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivative instruments, including certain derivatives embedded in other contracts, be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or accumulated other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133", which deferred the effective date for SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). Management is currently assessing the effect SFAS 133 will have on the Company's consolidated results of operations and financial position. NOTE 3 - EARNINGS PER SHARE: The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three month and six month periods ended June 30, 1999 and 1998:
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Numerator (basic and diluted calculation): Net income (loss) $ 1,047,003 $ 4,124 $2,620,803 ($ 800,167) Less redeemable preferred stock dividends (10,000) (20,000) ----------- ----------- ---------- ------------ Net income available to common stockholders 1,037,003 4,124 2,600,803 (800,167) Denominator: Weighted average common shares Outstanding (basic calculation) 10,897,161 11,330,631 11,109,293 11,330,631 Dilutive effect of stock options 9,090 ----------- ----------- ---------- ------------ Diluted weighted average common shares outstanding (diluted calculation) 10,906,251 11,330,631 11,109,293 11,330,631 Earnings per share: Basic .10 .00 .23 (.07) Diluted .10 .00 .23 (.07) Antidilutive common stock equivalents: Options 75,000 1,245,000 1,650,000 1,245,000 Warrants 734,980 734,980 734,980 734,980
Page 11 of 49 Pages NOTE 4 - STOCKHOLDERS' EQUITY: Preferred stock: Pursuant to the Company's adoption of a shareholder rights plan (the "Plan") in December 1996, the Company authorized the creation of Series A junior participating preferred stock and reserved 300,000 shares thereof for issuance upon exercise of the rights that, pursuant to the Plan, were at the time dividended to holders of common stock. At June 30, 1999 and December 31, 1998, the Company had outstanding 2,000 shares of Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") with an aggregate stated value of $2,000,000. Common stock and warrants: At December 31, 1998, the Company had outstanding 11,323,782 shares of common stock, and held 68,487 shares in treasury. On June 17, 1999, the Company repurchased 2,986,345 shares of its common stock from investment partnerships of the venture capital group, Welsh, Carson, Anderson & Stowe ("WCAS") for $5,226,106 or $1.75 per share (the "Repurchase"). As a result, at June 30, 1999, the Company had outstanding 8,337,437 shares of common stock and held 3,054,832 shares in treasury. At June 30, 1999 and December 31, 1998, the Company had outstanding 685,948 redeemable common stock purchase warrants (issued in connection with the Company's initial public offering) and 49,032 Series B redeemable common stock purchase warrants (issued in connection with the Merger and economically identical in their terms to the other series of warrants). At June 30, 1999 and December 31, 1998, the Company had 734,980 shares of common stock reserved for issuance upon exercise of all warrants and an additional 1,800,000 shares reserved for issuance upon exercise of options that have been and may be granted pursuant to the Company's 1996 Stock Option Plan. NOTE 5 - FORMATION OF JOINT VENTURE SUBSIDIARY: On January 1, 1999, Euro Brokers International Limited ("EBIL"), a U.K. subsidiary, completed a Sale and Purchase Agreement (the "Agreement") with Monecor (London) Limited ("Monecor"), issuing 50% of its share capital to Monecor in exchange for net assets approximating $5.4 million, consisting of all the shares of Monecor's subsidiary, Finacor Limited, and the assets and undertaking of its Finacor Peter branch in Paris. The Agreement combined the existing interest rate options, U.S. dollar deposit and the euro, Page 12 of 49 Pages British pound sterling and Japanese yen swaps operations of EBIL with the euro and Scandinavian swaps businesses of Finacor Limited and the euro swaps business of Finacor Peter. Simultaneously therewith, EBIL changed its name to Euro Brokers Finacor Limited ("EBFL"). The equity and results of operations for EBFL are consolidated in the Company's consolidated financial statements with Monecor's interest presented as minority interest. NOTE 6 - BORROWING ARRANGEMENTS: Loan payable: On June 17, 1999, Euro Brokers Inc. ("EBI"), a U.S. subsidiary, entered into a Loan and Security Agreement with General Electric Capital Corporation ("GECC") for a revolving credit facility of up to $5 million (the "Facility") which expires on June 17, 2004. The Facility is secured by substantially all of EBI's assets. The borrowing availability under the Facility (which approximated $3.7 million at June 30, 1999) is determined based upon the level and condition of EBI's billed accounts receivable. The agreement contains certain covenants which require EBI and the Company as a whole, to maintain certain financial ratios and conditions. Borrowings under the Facility bear interest at a variable rate based upon the published rate for 30-day dealer placed commercial paper plus a margin. Commitment fees of .15% per annum are charged on the unused portion of the Facility. Notes payable: Upon consummation of the Repurchase, the Company issued notes payable aggregating $1,000,000 to the relevant WCAS partnerships. Certain of the notes, aggregating $500,000, mature on December 17, 1999 and bear interest at a rate of 7%. The remaining notes mature on June 16, 2000 and bear interest at a rate of 10%. As security for these notes, 1,142,858 of the repurchased shares have been deposited in an escrow account and will be released to the Company in installments as the notes are repaid. NOTE 7 - NET CAPITAL REQUIREMENTS: Maxcor Financial Inc. ("MFI"), a U.S. broker-dealer subsidiary, is subject to the Uniform Net Capital Rule (rule 15c3-1) of the Securities and Exchange Commission (the "SEC"), which requires the maintenance of minimum regulatory net capital. MFI has elected to use the alternative method, as permitted by the rule, which requires that MFI maintain minimum regulatory net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions, as defined; or 4% of the funds required to be segregated pursuant to the Commodity Exchange Act and regulations thereunder. At June 30, 1999, MFI's regulatory net capital was approximately $13,398,000 Page 13 of 49 Pages and exceeded the minimum requirement of $250,000 by approximately $13,148,000. MFI's membership in the Government Securities Clearing Corporation requires it to maintain minimum excess regulatory net capital of $10,000,000. In addition, a number of the Company's other subsidiaries operating in various countries are subject to capital rules and regulations issued by the designated regulatory authorities to which they are subject. NOTE 8 - SEGMENT REPORTING: In accordance with the requirements for interim period reporting under Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the Company is reporting certain information relating to its operating segments. The Company has defined its operating segments based upon geographic location. Although all segments are engaged in the inter-dealer brokerage business, they are managed separately to reflect their unique market, employment and regulatory environments. The reportable segments for the three and six month periods respectively ended June 30, 1999 and June 30, 1998 as defined by SFAS 131 consist of the United States, United Kingdom and Japan. United States amounts are principally derived from the Company's New York office, but include all U.S. based operations. United Kingdom and Japan amounts include the consolidated operations of joint ventures the Company participates in from these locations and consolidates in its financial statements. Other geographic segments which did not meet the SFAS 131 materiality thresholds for the year ended December 31, 1998 and which are not expected to meet these thresholds for the year ended December 31, 1999 have been included in "All Other".
United United States Kingdom Japan All Other Total ------------- ------- ----- --------- ----- Three months ended June 30, 1999 Commission income $ 19,520,149 $ 14,026,891 $ 5,006,204 $ 1,712,046 $ 40,265,290 Net income 559,312 124,412 243,473 119,806 1,047,003 _________________________________________________________________________________________________ Three months ended June 30, 1998 Commission income 21,920,792 11,054,197 5,471,845 596,564 39,043,398 Net income (loss) 221,269 (435,735) 281,475 (62,885) 4,124
Page 14 of 49 Pages
United United States Kingdom Japan All Other Total ------------- ------- ----- --------- ----- Six months ended June 30, 1999 Commission income 38,986,521 31,011,868 11,191,097 3,487,916 84,677,402 Net income 866,418 851,869 775,887 126,629 2,620,803 _________________________________________________________________________________________________ Six months ended June 30, 1998 Commission income 41,973,114 21,400,522 11,636,036 3,158,551 78,168,223 Net (loss) income (324,822) (1,303,538) 669,629 158,564 (800,167)
Page 15 of 49 Pages Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company was incorporated in Delaware in August 1994 with the objective of acquiring or merging with an operating business in the financial services industry. On August 16, 1996, the Company acquired EBIC, a privately held international and domestic inter-dealer broker for a broad range of financial instruments, in the Merger. EBIC and its subsidiaries currently comprise substantially all of the Company's business and assets. Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30, 1998 Commission income for the three months ended June 30, 1999 increased $1,221,892 to $40,265,290, compared to $39,043,398 for the comparable period in 1998. The increase resulted primarily from increased brokerage in London and Geneva, aggregating approximately $3.8 million, offset in part by decreased brokerage in New York and Mexico City aggregating approximately $2.1 million and decreased brokerage in Tokyo of approximately $.5 million. The increased brokerage in London and Geneva primarily reflected the impact of the completion, as of January 1, 1999, of the EBFL joint venture, which expanded the Company's core of brokers and product offerings and the impact of the Geneva operations which commenced in July 1998. Brokerage in New York and Mexico City declined primarily as a result of reduced market volumes in emerging market debt securities and electricity based commodities and related derivatives, and brokerage in Tokyo declined primarily as a result of reduced market volumes in derivatives. Interest income for the three months ended June 30, 1999 increased by $152,071 to $466,896, compared to $314,825 for the comparable period in 1998, primarily reflecting additional interest associated with an increase in the average inventory of municipal securities during the current period. Other income for the three months ended June 30, 1999 decreased $173,383 to $212,938, compared to $386,321 for the three months ended June 30, 1998, primarily due to foreign exchange losses for the three months ended June 30, 1999 as compared to foreign exchange gains for the three months ended June 30, 1998 and losses from unconsolidated affiliates for the three months ended June 30, 1999 as compared to income from unconsolidated affiliates for the corresponding period in 1998. These decreases were offset in part by an increase in trading gains on municipal securities transactions. Payroll and related costs for the three months ended June 30, 1999 increased $2,164,531 to $28,060,414, compared to $25,895,883 for the three months ended June 30, 1998. The Page 16 of 49 Pages increase was primarily the result of increased employment costs in London and Geneva aggregating approximately $2.3 million primarily as a result of the increase in commission income and additional brokerage staff in conjunction with the EBFL joint venture and new Geneva operations, and increased employment costs in Tokyo approximating $.6 million primarily as a result of increases in headcount and competitive salary pressures. These increases were partially offset by reduced employment costs in New York and Mexico City aggregating approximately $.7 million primarily as a result of reduced commission income and reductions in headcount and base compensation. As a percentage of commission income, payroll and related costs increased to approximately 69.7% as compared to approximately 66.3% for the corresponding period in 1998, primarily reflective of certain fixed salary costs in areas which sustained reduced revenues. Communication costs for the three months ended June 30, 1999 decreased $175,149 to $3,666,068, compared to $3,841,217 for the three months ended June 30, 1998, primarily as a result of headcount decreases and overall cost reductions in certain areas in New York, offset in part by the expanded brokerage operations in London in conjunction with the EBFL joint venture and costs incurred by the Geneva office. Travel and entertainment costs for the three months ended June 30, 1999 decreased $143,086 to $2,244,391, compared to $2,387,477 for the three months ended June 30, 1998. As a percentage of commission income, travel and entertainment costs decreased to approximately 5.6% for the three months ended June 30, 1999 as compared to approximately 6.1% for the corresponding period in 1998, reflective of increased brokerage in certain areas and management's continued efforts to reduce these costs. Occupancy costs represent expenses incurred in connection with various operating leases for the Company's office premises and include base rent and related escalations, maintenance, electricity and real estate taxes. For the three months ended June 30, 1999, these costs decreased $307,982 to $1,310,920, compared to $1,618,902 for the three months ended June 30, 1998, primarily reflecting a reduction in rent and related costs derived from subletting a portion of the Company's leased space in London and an overall rent tax rate reduction in London, offset in part by rent escalations on pre-existing office locations and rent attributable to new office locations in Geneva and Paris. Depreciation and amortization expense consists principally of depreciation of communication and computer equipment and leased automobiles and amortization of leasehold improvements and intangible assets. For the three months ended June 30, 1999, depreciation and amortization decreased $212,466 to $1,064,224, compared to $1,276,690 for the three months ended June 30, 1998, primarily as a result of a reduction in depreciable fixed assets in London. Page 17 of 49 Pages Clearing fees are fees for transaction settlements and credit enhancement, which are charged by clearing institutions where the Company generally acts as a riskless principal on a fully matched basis. These expenses decreased $289,830 to $958,016 for the three months ended June 30, 1999, compared to $1,247,846 for the three months ended June 30, 1998, due primarily to a decrease in the number of cleared transactions, offset in part by an increase in the costs of certain transactions being processed through the Emerging Markets Clearing Corporation ("EMCC"). The EMCC is a clearing corporation established by certain emerging market trading participants for the purpose of reducing settlement risk and ultimately clearing costs. Interest expense for the three months ended June 30, 1999 decreased $13,851 to $250,745, compared to $264,596 for the comparable period in 1998. This decrease was primarily the result of a lesser amount of notes payable and capitalized leases outstanding during the current period, offset in part by an increase in interest expense associated with financing an increased average inventory of municipal securities during the current period. General, administrative and other expenses include such operating expenses as corporate insurance, office supplies and expenses, legal fees, audit and tax fees, consulting fees, food costs and dues to various industry associations. For the three months ended June 30, 1999, these costs decreased $276,338 to $1,355,001 compared to $1,631,339 for the three months ended June 30, 1998, reflective in part of management's continued efforts to reduce such costs. Provision for income taxes for the three months ended June 30, 1999 decreased by $361,824 to $941,822, compared to $1,303,646 for the three months ended June 30, 1998. This decrease was primarily due to a decrease in the pre-tax income generated by the Company's Tokyo joint venture subsidiary, which, prior to a corporate restructuring effective as of January 1999, was taxed at a significantly higher rate than that imposed on the Company's other subsidiaries. The significant decrease in the Company's effective tax rate for the three months ended June 30, 1999 compared to the three months ended June 30, 1998, is primarily the result of the lower tax rate discussed above and the combined favorable impact of lower entertainment expenses, which are in part nondeductible, on higher pre-tax accounting income. Minority interest in consolidated subsidiaries for the three months ended June 30, 1999 decreased by $226,304 to ($46,520), compared to ($272,824) for the three months ended June 30, 1998, reflecting lower net income generated by subsidiaries with minority ownership. Page 18 of 49 Pages Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998 Commission income for the six months ended June 30, 1999 increased $6,509,179 to $84,677,402, compared to $78,168,223 for the comparable period in 1998. The increase resulted primarily from increased brokerage in London and Geneva, aggregating approximately $11.4 million, offset in part by decreased brokerage in New York and Mexico City aggregating approximately $4.3 million and decreased brokerage in Tokyo of approximately $.5 million. The increased brokerage in London and Geneva primarily reflected the impact of the completion, as of January 1, 1999, of the EBFL joint venture which expanded the Company's core of brokers and product offerings and the impact of the Geneva operations which commenced in July 1998. Brokerage in New York and Mexico City declined primarily as a result of reduced market volumes in emerging market debt securities and electricity based commodities and related derivatives, and brokerage in Tokyo declined primarily as a result of reduced market volumes in derivatives. Interest income for the six months ended June 30, 1999 increased by $40,286 to $822,891, compared to $782,605 for the comparable period in 1998. This increase resulted primarily from additional interest associated with an increase in the average inventory of municipal securities during the current period, offset in part by reduced deposit balances and a lower interest rate environment. Other income for the six months ended June 30, 1999 increased $29,705 to $643,031, compared to $613,326 for the six months ended June 30, 1998, primarily due to an increase in trading gains on municipal securities transactions, offset in part by foreign exchange losses for the six months ended June 30, 1999 as compared to foreign exchange gains for the six months ended June 30, 1998, and losses from unconsolidated affiliates for the six months ended June 30, 1999, as compared to income from unconsolidated affiliates for the corresponding period in 1998. Payroll and related costs for the six months ended June 30, 1999 increased $4,380,629 to $57,270,234, compared to $52,889,605 for the six months ended June 30, 1998. The increase was primarily the result of increased employment costs in London and Geneva aggregating approximately $6.1 million primarily as a result of the increase in commission income and additional brokerage staff in conjunction with the EBFL joint venture and new Geneva operations, and increased employment costs in Tokyo approximating $1.0 million primarily as a result of increases in headcount and competitive salary pressures. These increases were partially offset by reduced employment costs in New York and Mexico City aggregating approximately $2.5 million primarily as a result of reduced commission income and reductions in headcount and base compensation. As a percentage of commission income, payroll and related costs were comparable at approximately 67.6% and 67.7% for the six months Page 19 of 49 Pages ended June 30, 1999 and 1998, respectively. Communication costs for the six months ended June 30, 1999 increased $54,717 to $7,546,480, compared to $7,491,763 for the six months ended June 30, 1998, primarily as a result of the expanded brokerage operations in London from the EBFL joint venture and costs incurred by the Geneva office, offset in part by headcount decreases and overall cost reductions in certain areas in New York. Travel and entertainment costs for the six months ended June 30, 1999 decreased $666,990 to $4,320,794, compared to $4,987,784 for the six months ended June 30, 1998. As a percentage of commission income, travel and entertainment costs decreased to approximately 5.1% for the six months ended June 30, 1999 as compared to approximately 6.4% for the corresponding period in 1998, reflective of improved brokerage and management's continued efforts to reduce these costs. Occupancy costs decreased $308,241 to $2,850,834 for the six months ended June 30, 1999, compared to $3,159,075 for the six months ended June 30, 1998, primarily reflecting a reduction in rent and related costs derived from subletting a portion of the Company's leased space in London and an overall rent tax rate reduction in London, offset in part by rent escalations on pre-existing office locations and rent attributable to new office locations in Geneva and Paris. Depreciation and amortization expense for the six months ended June 30, 1999, decreased $268,159 to $2,278,891, compared to $2,547,050 for the six months ended June 30, 1998, primarily as a result of a reduction in depreciable fixed assets in London. Clearing fees for the six months ended June 30, 1999 decreased $359,936 to $1,944,377, compared to $2,304,313 for the six months ended June 30, 1998, due primarily to a decrease in the number of cleared transactions, offset in part by an increase in the costs of certain transactions being processed through the EMCC. Interest expense for the six months ended June 30, 1999 decreased $50,855 to $455,935, compared to $506,790 for the comparable period in 1998. This decrease was primarily the result of a lesser amount of notes payable and capitalized leases outstanding during the current period, offset in part by an increase in interest expense associated with financing an increased average inventory of municipal securities during the current period. General, administrative and other expenses decreased $319,273 to $3,184,198 for the six months ended June 30, 1999 as compared to $3,503,471 for the six months ended June 30, 1998, reflective in part of management's continued efforts to reduce these costs. Page 20 of 49 Pages Provision for income taxes for the six months ended June 30, 1999 increased by $457,814 to $2,752,060, compared to $2,294,246 for the six months ended June 30, 1998, primarily due to increased levels of pre-tax income. The significant decrease in the Company's effective tax rate for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998 is primarily the result of a lower tax rate on income generated by the Company's Tokyo joint venture subsidiary, due to a corporate restructuring effective as of January 1999, and the combined favorable impact of lower entertainment expenses, which are in part nondeductible, on higher pre-tax accounting income. Minority interest in consolidated subsidiaries for the six months ended June 30, 1999 increased by $238,494 to ($918,718), compared to ($680,224) for the six months ended June 30, 1998, reflecting higher net income generated by subsidiaries with minority ownership. Liquidity and Capital Resources A substantial portion of the Company's assets, similar to other brokerage firms, is liquid, consisting of cash, cash equivalents and assets readily convertible into cash, such as receivables from broker-dealers and customers and securities owned. Securities owned principally reflect municipal security positions taken in connection with the Company's brokerage of municipal securities business. Positions are generally held for short periods of time and for the purpose of facilitating anticipated customer needs and are generally financed by margin borrowings from a broker-dealer that clears these transactions on the Company's behalf on a fully-disclosed basis ("Clearing Broker"). At June 30, 1999, as reflected on the Consolidated Statements of Financial Condition, the Company had net assets relating to securities transactions of approximately $3.3 million, reflecting securities owned of approximately $12.1 million, financed by a payable to the Clearing Broker of approximately $8.8 million. MFI is a member of the Government Securities Clearing Corporation for the purpose of clearing U.S. Treasury repurchase agreements. Pursuant to such membership, MFI is required to maintain excess regulatory net capital of $10,000,000, and a pledge of $5,000,000 in U.S. Treasury securities. In addition, MFI's clearing arrangements require certain minimum collateral deposits with its clearing firms. The aforementioned pledge and deposits have been reflected as deposits with clearing organizations on the Consolidated Statements of Financial Condition. Loan payable of approximately $1.7 million at June 30, 1999 represents amounts borrowed under the Facility with GECC which provides for borrowings of up to $5 million and expires on June 17, 2004. The Facility is secured by substantially all of EBI's assets. The borrowing availability under the Facility (which approximated $3.7 million Page 21 of 49 Pages at June 30, 1999) is determined based upon the level and condition of the billed accounts receivable of EBI. The agreement with GECC contains certain covenants, which require EBI, and the Company as a whole, to maintain certain financial ratios and conditions. Notes payable at June 30, 1999 of approximately $4.6 million reflects the remaining installments of principal due on November 30, 1999 on notes issued by the Company in connection with the acquisition of EBIC's predecessor business in December 1986, which aggregate $2.1 million, $1 million in notes issued to the relevant WCAS investment partnerships in connection with the Repurchase and approximately $1.5 million which relates to a secured financing obtained by the Company in December 1997 in the form of a fixed rate note payable to GECC, payable in monthly installments through December 2002. The Series B Preferred Stock, with an aggregate stated value of $2,000,000 is redeemable at anytime at the Company's option and is subject to mandatory redemption on October 1, 2008 or within 60 days of the disposition of the Company's investment in Yagi Euro Corporation, the current holder. All payments required under the terms of the loan, notes and Series B Preferred Stock are expected to be paid in timely fashion from the Company's resources. The Company and its subsidiaries, in the ordinary course of their business, are subject to extensive regulation at international, federal and state levels by various regulatory bodies which are charged with safeguarding the integrity of the securities and other financial markets and protecting the interest of customers. The compliance requirements of these different regulatory bodies may include, but are not limited to, net capital or stockholders' equity requirements. The Company has historically met regulatory net capital and stockholders' equity requirements and believes it will be able to continue to do so in the future. Year 2000 Compliance The Company believes that it has almost completed the process of modifying and upgrading its internal computer software applications and systems to incorporate the "Year 2000" dating changes necessary to permit correct recording of, and calculations involving calendar dates for January 1, 2000 and later. The Company expects to achieve substantial or complete internal compliance by the end of August 1999, and does not currently anticipate any material disruption to its operations as a result of any failure by the Company to be in compliance. In addition, the Company has substantially completed surveying and testing the Year 2000 compliance status and efforts of the key vendors, suppliers and other third parties with whom it conducts business, and has obtained appropriate Year 2000 compliance Page 22 of 49 Pages assurances from substantially all such parties. These efforts are ongoing and expected to continue throughout 1999. The Company has received written responses from substantially all key third party vendors certifying that such vendors are or will be timely year 2000 compliant. The Company intends to continue to seek the necessary written assurances from the remaining third parties, as well as the necessary opportunities to test the compliance status of their relevant systems. To date, the Company has spent approximately $250,000 on Year 2000 compliance efforts, and has budgeted an additional $250,000 for the remainder of 1999. These amounts reflect that the Company, independent of Year 2000 considerations, invests regularly in updating its technology, so that significant hardware and software expenditures solely for Year 2000 purposes have not proven necessary. These amounts also reflect that the Company, to date, has been able to conduct most of its Year 2000 compliance efforts using internal information technology personnel and, going forward, does not expect to rely heavily on outside consultants in connection with such efforts. Although the Company believes that it has already addressed many of the Year 2000 issues facing its business and is well positioned to address the remaining ones, it has also developed a formal contingency plan to address certain Year 2000 failures - mostly of third party providers, including utilities - that might nonetheless occur. The contingency plan, however, does not address all possible Year 2000 failures and, to the extent the Company is forced to operate under portions of its contingency plan, it can be anticipated that some services and operations may be provided at less than their normal level and that the Company's business, financial condition and results of operations might be adversely affected as a result. Accordingly, notwithstanding the Company's current comfort level with the status and results of its Year 2000 compliance efforts, the Company cautions that it cannot predict with certainty: (i) the ultimate outcome or success of its Year 2000 compliance efforts (including, if needed, its contingency plan), (ii) the final costs required to address all of its Year 2000-related issues (including whether the above budget for the remainder of 1999 will prove to be adequate), (iii) whether all necessary third party systems will be timely Year 2000 compliant (or, if not, whether adequate alternatives can be found) or (iv) if the Company's and/or third party compliance efforts (including, if needed, the Company's contingency plan) ultimately prove inadequate in any fashion, the extent to which such deficiencies would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the SEC has recently promulgated final rules that in substance, require all registered broker-dealers, such as the Company's subsidiary, MFI, to have confirmed by August 31, 1999 that their mission critical systems are Year 2000 compliant and that they do not otherwise have material Year 2000 problems. A firm that is unable to do so must either cease conducting securities transactions and carrying customer accounts as of that date or certify to the SEC and the broker-dealer's designated examining Page 23 of 49 Pages authority that any material Year 2000 problems in mission critical systems will be fixed no later than November 15, 1999. The SEC has indicated that it has been and will be examining numerous broker-dealers, including MFI, to assess their Year 2000 readiness and their compliance with the new rules. Although the Company cannot predict with certainty the outcome of any such SEC examination, the Company fully expects MFI to be timely compliant in accordance with the new rules. Forward-Looking Statements Certain statements contained in this Item 2 and elsewhere in this report, as well as other oral and written statements made by the Company to the public, contain and incorporate by reference forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on management's current knowledge, expectations or beliefs and are subject to a number of factors and uncertainties (such as market conditions, the Company's relationships with its employees, counter-parties and clearing firms, the actions of the Company's competitors, the success of the Year 2000 compliance efforts by the Company and its key vendors and suppliers, and government regulatory changes) that could cause actual results to differ materially from these described in the forward-looking statements. Reference is made to the "Cautionary Statements," "Competition," "Regulation" and "Quantitative and Qualitative Disclosures about Market Risk" sections of the Company's 1998 Form 10-K for a fuller description of these and additional uncertainties. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Borrowings under the Facility, which EBI entered into with GECC in June 1999, bear interest at a variable rate based upon the published rate for 30-day dealer-placed commercial paper. Management will monitor the interest rate environment to determine the necessity of a hedging strategy to guard against increases in market interest rates. Other than the item described above, the Company's market risk analysis did not materially change from the market risk analysis as of December 31, 1998 presented in the Company's 1998 Form 10-K. Page 24 of 49 Pages PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On June 9, 1999, the Company held its annual meeting of stockholders (the "Meeting"). At the Meeting, stockholders re-elected three directors - Gilbert D. Scharf, Michael J. Scharf and Larry S. Kopp - as Class III directors of the Company, to serve terms expiring at the Company's third succeeding annual meeting of stockholders. In addition, stockholders at the Meeting ratified the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors for the year ending December 31, 1999. At the Meeting, 10,259,113 shares of the Company's common stock were represented by proxy or ballot, comprising approximately 90.6% of the 11,323,782 shares of common stock outstanding at the close of business on April 28, 1999, the record date for the Meeting. Specific voting results for each of the two proposals described above were as follows: 1. Election of Directors: Gilbert D. Scharf For: 10,161,913 Withheld: 97,200 Michael J. Scharf For: 10,161,913 Withheld: 97,200 Larry S. Kopp For: 10,162,913 Withheld: 96,200 2. Ratification of Appointment of Independent Accountants: For: 10,220,834 Against: 7,733 Abstain: 30,546 Page 25 of 49 Pages Item 5. Other Information In May 1999, MFI concluded an agreement with Wexford Clearing Services Corp. (the "Wexford Clearing Agreement"), the clearing arm of Prudential Securities, for Wexford to serve as the primary clearing agent for MFI's brokerage (through its Euro Brokers division) of emerging market debt securities. Daiwa Securities America currently provides these services to MFI, but has announced plans to exit the correspondent clearing business. The formal transition from Daiwa to Wexford is expected to take place in September of this year. The Wexford Clearing Agreement is attached hereto as Exhibit 10.1 and is hereby incorporated herein by reference. The Company's press release announcing execution of the Wexford Clearing Agreement is attached hereto as Exhibit 99.1 and is also hereby incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description 10.1 Agreement for Securities Clearances Services, dated May 19, 1999, between Wexford Clearing Services Corporation and Maxcor Financial Inc.(1) 27 Financial Data Schedule (filed in electronic form only) 99.1 Press Release, dated June 30, 1999 - ------------------------------------ (1) Portions of this exhibit have been redacted and confidential treatment sought pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (b) Reports on Form 8-K During the three months ended June 30, 1999, the Company filed two current reports on Form 8-K, respectively dated May 10, 1999 and June 17, 1999. The May 10th Form 8-K reported on an amendment to the Company's agreement with WCAS for the Repurchase, the obtaining of a commitment letter from GECC to provide the Facility, and the Company's 1999 first quarter results of operations. The June 17th Form 8-K reported on the consummation of both the Repurchase and the Facility. Page 26 of 49 Pages SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 13, 1999 MAXCOR FINANCIAL GROUP INC. (Registrant) /s/ Gilbert D. Scharf --------------------------------------------------------- Gilbert D. Scharf, Chairman of the Board, President and Chief Executive Officer /s/ Keith E. Reihl --------------------------------------------------------- Keith E. Reihl, Chief Financial and Principal Accounting Officer and Director Page 27 of 49 Pages EXHIBIT INDEX
Exhibit Description Page - ------- ----------- ---- 10.1 Agreement for Securities Clearance Services, dated May 19, 1999, between Wexford Clearing Services Corporation and Maxcor Financial Inc.(1) 29 27 Financial Data Schedule (filed in electronic form only) 47 99.1 Press Release, dated June 30, 1999 48
- ------------------------------------ (1) Portions of this exhibit have been redacted and confidential treatment sought pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Page 28 of 49 Pages EX-10.1 2 AGREEMENT FOR SECURITIES CLEARANCE SERVICES Exhibit 10.1 WEXFORD CLEARING SERVICES CORPORATION May 19, 1999 Maxcor Financial Inc. Two World Trade Center 84th Floor New York, NY 10048-0697 Re: Agreement for Securities Clearance Services Dear Sirs: This letter sets forth our agreement (the "Agreement") concerning certain clearing services to be performed by Wexford Clearing Services Corp. ("Wexford") for Maxcor Financial Inc. ("Introducing Firm") with respect to transactions of Approved Counterparties (as defined below) in the securities specified in Exhibit A hereto ("Specified Securities"). It is understood and agreed that this Agreement is contingent upon the approval of the New York Stock Exchange, Inc. ("NYSE"). Wexford will use its good faith efforts to obtain such approval and have this Agreement effective on or before June 25, 1999. 1. Certain Definitions A. "Applicable Rules" are, to the extent applicable, the Securities Act of 1933 and The Exchange Act of 1934, all rules and regulations thereunder and interpretations by the Securities and Exchange Commission, the rules and regulations of the National Association of Securities Dealers ("NASD") and the NYSE, all as in effect from time to time. B. An "Approved Counterparty" is a dealer trading with Introducing Firm or a customer of Introducing Firm, which Wexford as of the date of this Agreement is accepting as a counterparty for trades brokered by Introducing Firm or to which Wexford hereafter sends a letter in the form of Exhibit B and which, in either case, Wexford continues to consider acceptable; provided, however, that (i) Wexford will make no material changes to the form of Exhibit B without the prior consent of Introducing Firm and (ii) any decision by Wexford to change the status of an Approved Counterparty will be communicated either orally and followed by fax or in writing to Introducing Firm in advance of its implementation. C. A "Back-to-Back Transaction" occurs where Introducing Firm (i) has executed in a recorded conversation a sale by an Approved Counterparty to be settled by Wexford ("Side Page 29 of 49 Pages One") of Specified Securities and a buy to be settled by Wexford by another Approved Counterparty of Specified Securities ("Side Two"), (ii) has confirmed that Side One and Side Two agree on all details of the trade that must be met in order to settle (i.e. that Side One and Side Two are Validated Transactions) and (iii) has transmitted Side One and Side Two to Wexford on the same day. D. "Clearing Corporation" means CEDEL/Euroclear or any other clearing organization that settles Transactions that Wexford clears for Introducing Firm. E. A "Matching Back-to-Back Transaction" is a Back-to-Back Transaction with respect to which the counterparty to Side One and Side Two have both submitted instructions to the Clearing Corporation in the form required to settle Side One and Side Two, and a "Matching Transaction" is a Back-to-Back Transaction with respect to which only one counterparty has submitted instructions to the Clearing Corporation in the form required to settle the side to which such counterparty is a party. F. "Transactions" are any trades transmitted by Introducing Firm hereunder to Wexford for clearing and settlement. G. A "Validated Transaction" is a sale or purchase of Specified Securities with an Approved Counterparty for which the Introducing Firm has confirmed all of the trade details necessary for settlement. 2. Responsibilities of Introducing Firm A. Transmitting Transactions Introducing Firm shall execute orders for purchases and sales of Specified Securities by Approved Counterparties and transmit the Transactions to Wexford three times a day, at approximately 12:00 p.m. and 3:00 p.m., and by no later than 6:00 p.m. (the last of which being referred to as the "Cut-Off Time"). Any Transactions that Wexford receives after the Cut-Off Time shall be subject to the additional fees set forth on Schedule A hereto. (i) Transmitting Back-to-Back Transactions Introducing Firm shall not transmit to Wexford any Transaction that, by the Cut-Off Time, is not a Back-to-Back Transaction, with the following exception. Introducing Firm may transmit only Side One or Side Two, if at the end of the trading day one of the two sides is not a Validated Transaction, subject to the aggregate amount of such one-sided Transactions not exceeding a limit established by Wexford and communicated to Introducing Firm from time to time. Introducing Firm shall exert reasonable best efforts to transmit a Validated Side One or Side Two the following business day. If Introducing Firm has not done so by the end of the day after the settlement date, Wexford may, upon prior notice to Introducing Firm, on the second day after settlement date buy in or sell out the securities to settle the other side. Introducing Firm shall be liable for all loss, costs and expenses relating thereto to the extent set forth in Sections 2.D. and 5.A. The foregoing right of Introducing Firm to delay the transmission of one side is Page 30 of 49 Pages subject to (i) termination at any time that Wexford deems that it is no longer prudent to accept only one side and (ii) satisfactory amounts on deposit in the Collateral Account, in Wexford's sole discretion. In any event, such one-sided Transactions shall give rise to the additional fees established in Section 3.A. (iii) and Schedule A, regardless of when after trade date Introducing Firm transmits to Wexford the other side of the Transaction. B. Responsibility for Accounts Except as otherwise specified in this Agreement, Introducing Firm shall be solely responsible for the opening, approving and monitoring of counterparties (the "Accounts"), and ensuring that Transactions are in compliance with the Applicable Rules. Such responsibility, where applicable, includes, but is not limited to: (i) Using due diligence to learn and on a continuing basis to know the essential facts of each customer, knowing all persons holding power of attorney over any Account, being familiar with each order in any Account and at all times to comply fully with Rule 405 of the NYSE and the Conduct Rules of the NASD, and any interpretations thereof, and all similar Applicable Rules; (ii) selecting, investigating, training and supervising all personnel who open, approve or authorize transaction in the Accounts; (iii) establishing written procedures for the conduct of the Accounts and ongoing review of all Transactions in Accounts, and maintaining compliance and supervisory personnel adequate to implement such procedures; (iv) determining the suitability of all Transactions; (v) ensuring that there is a reasonable basis for all recommendations made; (vi) determining the appropriateness of the frequency of trading in Accounts; (vii) determining the authorization and legality of each transaction in the Account; (viii) determining the amount of any difference between the prices paid or received by an Account for a Specified Security and the prices paid or received by Wexford for said Specified Security; (ix) obtaining and maintaining all documents necessary for the performance of Introducing Firm's responsibilities under this Agreement and retaining such documents in accordance with all the Applicable Rules; (x) responding to all its customer inquiries and complaints, and promptly notifying Wexford in writing of complaints concerning Wexford; (xi) arranging for completion of all Wexford forms and providing any supporting documents required for the opening and maintenance of the Account and (xii) promptly furnishing Wexford with all information concerning its customer and Introducing Firm's relationship with its customer and any related documents that Wexford may reasonably require. Nothing herein shall restrict Wexford from making any further inquiry or investigation as Wexford deems necessary. C. Volume Limitations Introducing Firm shall not transmit to Wexford more than the number of Transactions per day that Wexford informs Introducing Firm from time to time constitute the Introducing Firm's Page 31 of 49 Pages volume limit, as set by Wexford in its reasonable discretion, acting in good faith. Any Transactions in excess of the volume limitation, as in effect from time to time, may be rejected by, Wexford, unless Wexford has earlier indicated orally or in writing in the course of the applicable day that it will accept such Transactions. D. Indemnification Introducing Firm agrees to indemnify and hold harmless Wexford, its officers, directors, employees and affiliates, against any and all losses, costs, claims and expenses (including reasonable attorneys' fees), as incurred, (a) arising out of (i) Wexford acting as clearing broker for Introducing Firm pursuant to this Agreement or (ii) Introducing Firm's failure to perform its obligations under this Agreement or the willful misconduct of Introducing Firm, and (b) constituting Introducing Firm Failure Costs or Counterparty Failure Costs (all referred to as "Indemnified Losses"), but excluding Credit Failure Costs, as defined in Section 5.B., any indirect or consequential losses, lost opportunity costs, or any Indemnified Loss caused by Wexford's negligence, its failure to perform its obligations under this Agreement, or its willful misconduct. Wexford shall give Introducing Firm prompt written notice of any matter that may constitute an Indemnified Loss hereunder, and, if the Indemnified Loss involves a third-party claim, the Introducing Firm may, but shall not be obligated to, assume the defense thereof with counsel of its own choosing and at its own expense. E. Recording, Retaining Tapes Introducing Firm shall record every trading conversation with counterparties to Transactions and shall retain tapes of all such conversations for at least thirty business days, and longer with respect to specified days, Approved Counterparties or Transactions if Wexford so requests, either orally and confirmed by fax or in writing. 3. Responsibilities of Wexford A. Clearing Subject to the exception described in Section 2. A.(i), Wexford is obligated to clear only Matching Back-to-Back Transactions and Matching Transactions with Approved Counterparties in Specified Securities, which entails Wexford taking a position as a fully disclosed principal on Side One and on Side Two of Matching Back-to-Back Transactions (or, in the case of Matching Transactions on the side that is matched) pursuant to the following procedure. (i) Upon receipt of a transmission of Back-to-Back Transactions from Introducing Firm, Wexford may, but is not obligated to, check whether all or any number of such Transactions fail to meet the definition of a Back-to-Back Transaction. Subject to the exception established in Section 2.A.(i), any Transaction that does not meet the definition of a Back-to-Back Transaction may be rejected by, Wexford, and Wexford shall not, unless the Transaction is subsequently accepted by Wexford, be principal to the counterparty nor carry the position on its books. Page 32 of 49 Pages (ii) Wexford shall download to the Clearing Corporation by either the end of the day of trade date or, with respect to Transactions transmitted after the Cut-Off Time, on T +1, the trade details received from Introducing Broker for each Transaction that Wexford has not rejected pursuant to subsection (i) above. (iii) On the business day following the download of information regarding any Transaction to the Clearing Corporation, Wexford shall review a report from the Clearing Corporation indicating whether any Transactions were not Back-to-Back Transactions or were not Matching Back-to-Back Transactions. In either case, if Introducing Firm has transmitted any Transaction to Wexford other than a Back-to-Back Transaction, Introducing Firm shall pay to Wexford the applicable fees set forth in Schedule A, and, as set forth in Section 5.A., Introducing Firm shall reimburse Wexford for all Introducing Firm Failure Costs. Wexford shall settle as fully disclosed principal any Transactions for which it has sent a confirmation, pursuant to Section 3.B. The sending of a confirmation shall mean that Wexford has taken a position as principal and is therefore carrying such Transactions on its books, notwithstanding that Introducing Firm remains financially responsible to Wexford hereunder for any Introducing Firm Failure Costs and Counterparty Failure Costs. Upon prior notice to Introducing Firm, Wexford may take commercially reasonable action to settle or liquidate any unmatched Back-to-Back Transactions for which it has sent a confirmation to the counterparty and has submitted settlement instructions to the Clearing Corporation. B. Confirmations No later than T+1 or one day after Wexford has received a Transaction, whichever is later, Wexford shall deliver confirmations to all counterparties on Transactions that Wexford has not rejected pursuant to Section 3.A.(i) hereof and that Wexford is obligated to transmit to the Clearing Corporation, pursuant to Section 3.A.(ii). From the time that Wexford transmits a confirmation with respect to a Transaction pursuant to this Section 3.B, it shall be acting as principal for and carrying such Transaction on its books for regulatory capital purposes. C. Revenue; Fees Wexford shall receive on settled Matching Back-to-Back Transactions and Matching Transactions revenue in the form of commissions of Introducing Firm or the spread between Side One and Side Two. Wexford shall remit to Introducing Firm within five business days of the end of each calendar month such amounts remaining after Wexford deducts (i) its fee, as established in Schedule A, including any additional fees set forth therein for transmissions after the Cut-Off Time pursuant to Section 2.A. and for transmissions of non Back-to-Back Transactions pursuant to Section 3.A (iii) ("Fees"), (ii) Introducing Firm Failure Costs, (iii) Counterparty Failure Costs and (iv) amounts for any Indemnified Losses. Wexford shall furnish Introducing Firm with a detailed supporting schedule with each revenue payment. Wexford's determination of the amount payable to Introducing Firm with respect to any calendar month shall be conclusive and binding on the parties hereto if Introducing Page 33 of 49 Pages Firm does not object thereto in writing, with details of its objections, within thirty (30) days after its receipt of such supporting schedule and any reasonably requested additional information with respect thereto, provided such request is made no later than 15 days after initial receipt of the supporting schedule. D. Safekeeping/Credit Wexford shall be responsible for (i) the delivery and receipt of funds and/or Specified Securities to and from Accounts, as applicable, and for the transfer of Specified Securities to and from Accounts and (ii) the receipt, timely delivery and safeguarding of funds and securities and maintenance of books and records (including preparation and timely transmittal of the trade confirmations and statements) relating to all Transactions settled by Wexford pursuant to Section 3.A. Although Wexford in no way undertakes to extend credit to any Approved Counterparty, if it were to do so, any credit shall be extended in compliance with Regulation T, Rule 431 of the NYSE Rules and any other applicable margin regulations. E. Indemnification Wexford agrees to indemnify and hold harmless Introducing Firm, its officers, directors, employees and affiliates, against any and all losses, costs, claims and expenses, reasonable legal fees (including reasonable) legal fees incurred in the enforcement of this provision), as incurred, (a) caused by (i) Wexford's failure to perform its obligations under this Agreement or (ii) Wexford's negligence or willful misconduct or (b) constituting Credit Failure Costs, as defined in Section 5.B. (all referred to as "IF Indemnified Losses"), but excluding any indirect or consequential losses, or lost opportunity costs. The Introducing Firm shall give Wexford prompt written notice of any matter that may constitute an IF Indemnified Loss hereunder, and, if the IF Indemnified Loss involves a third party claim, Wexford may, but shall not be obligated to, assume the defense thereof with counsel of its own choosing and at its own expense. F. Reports Wexford will provide Introducing Firm with same-day reports of Transactions that do not constitute Back-to-Back Transactions and with daily morning reports, starting with T+1, of Transactions that are not Matching Transactions. 4. Separate Responsibilities Pursuant to NYSE Rule 382, the parties have allocated between themselves in this Agreement responsibility for compliance with all applicable laws, rules and regulations of the SEC, NYSE and NASD. In addition, for purposes of the Securities and Exchange Commission's financial responsibility rules and SIPC, the Introducing Firm's customers will be considered customers of Wexford and not customers of the Introducing Firm; provided, however, that nothing in this Section shall cause the Introducing Firm's customers to be construed or interpreted as customers of Wexford for any other purpose or to negate the intent of any other Page 34 of 49 Pages Section of this Agreement, including, but not limited to, the delineation of responsibilities as set forth elsewhere in this Agreement. Each party shall be solely responsible for (i) adherence to Applicable Rules and for the supervision of its own operations area and personnel; (ii) compliance with all restricted/control stock requirements, as applicable to it; (iii) compiling and filing its respective regulatory reports, as applicable; and (iv) supplying the other with reasonable access to its relevant records and supplying any information in its possession reasonably requested by such party in order for both parties to properly perform their respective functions under the Agreement. Each party shall be responsible for its own errors with respect to this Section 4. 5. Failure to Match; Failure to Settle; Responsibilities of the Parties A. Not Back-to-Back Transactions/Introducing Firm Failure In the event Wexford receives a Transaction that does not meet the definition of a Back-to-Back Transaction for any reason, including without limitation, (i) the failure of Introducing Firm to transmit to Wexford Validated Transactions or (ii) the failure of Introducing Firm to transmit to Wexford Side One and Side Two on the same day, Introducing Firm shall have full responsibility for, and shall pay to Wexford upon demand, all amounts constituting Wexford's reasonable out-of-pocket costs (whether or not already paid), losses and expenses (including reasonable attorneys' fees) arising therefrom including, without limitation, costs to buy-in, borrow or sell-out the securities, to compel performance by the counterparty, or to pay additional personnel or overtime, but only if such additional personnel or overtime costs are beyond the ordinary course of business. All of the foregoing are referred to as "Introducing Firm Failure Costs". B. Settlement Failure/Counterparty Failure In the event Wexford has transmitted a Back-to-Back Transaction to the Clearing Corporation that becomes a Matching Back-to-Back Transaction but that (i) fails on settlement date due to failure of the counterparty to deliver securities or cash or (ii) fails to become a Matching Back-to-Back Transaction because of the failure of the counterparty to either Side One or Side Two to send to the Clearing Corporation adequate instructions required for settlement, but excluding in either case counterparty failure due to actual or impending bankruptcy or similar insolvency proceedings or credit issues ("Credit Failure Costs"), Introducing Firm shall be responsible for, and shall pay to Wexford upon demand, all amounts constituting Wexford's reasonable out-of-pocket costs (whether or not already paid), losses and expenses (including reasonable attorneys' fees) arising from such fail, including, without limitation, costs to buy-in, borrow or sell-out securities, to compel performance by the counterparty, to pay additional personnel or to pay overtime, but only if such personnel or overtime costs are beyond the ordinary course of business. All of the foregoing costs, losses, and expenses are referred to herein as the "Counterparty Failure Costs". Page 35 of 49 Pages C. Suspension of Certain Trading If at any time the number of Transactions (either Side One or Side Two), with respect to which the counterparty has not provided Clearing Corporation with matching instructions, reaches an amount that Wexford finds unacceptable Wexford may, acting in good faith, suspend accepting Transactions from Introducing Firm, with respect to that counterparty, immediately upon written or oral notice, until such time that Wexford decides that it is prudent to resume accepting such Transactions hereunder. If at any time the number of Transactions that are not Back-to-Back Transactions reaches an amount that Wexford finds unacceptable (subject to Section 2.A.(i)), Wexford may, acting in good faith, suspend accepting Transactions from Introducing Firm immediately upon written or oral notice, until such time that Wexford decides that it is prudent to resume accepting Transactions hereunder. D. Regulatory Capital It is understood that in no event shall Introducing Firm Failure Costs, Counterparty Failure Costs or Indemnified Losses include any costs or expenses of Wexford incurred in connection with capital charges for Transactions. 6. Fees and Charges Introducing Firm agrees to pay Wexford the fees and charges set forth in Schedule A hereto. 7. Introducing Firm Representations and Covenants Introducing Firm represents, warrants and covenants to Wexford as follows: (i) It is a member in good standing of the NASD. (ii) It is and during the term of this Agreement will remain duly registered or licensed and in good standing as a broker/dealer under the Applicable Rules. (iii) It has all the requisite authority in conformity with all Applicable Rules to enter into this Agreement and to retain the services of Wexford in accordance with the terms hereof and has taken all necessary action to authorize the execution of this Agreement and the performance of the obligations hereunder. (iv) It is in compliance, and during the term of this Agreement will remain in compliance with (a) the capital and financial reporting requirements of any and all national securities exchange or other securities exchange and/or securities association of which it is a member, (b) the capital requirements of the Securities and Exchange Commission and (c) the NASD Conduct Rules. Page 36 of 49 Pages (v) It shall provide representatives of any governmental body having jurisdiction over the respective businesses of the parties with reasonable access to the records relating to Accounts and their owners. (vi) It shall keep confidential any information it may acquire as a result of this Agreement regarding the business and affairs of Wexford, which requirements shall survive the termination of this Agreement. 8. Wexford Representations and Covenants Wexford represents, warrants and covenants to Introducing Firm as follows: (i) Wexford is a member in good standing of the NASD and of the NYSE. (ii) Wexford is and during the term of this Agreement will remain duly licensed and in good standing as a broker/dealer under the Applicable Rules. (iii) Wexford has all the requisite authority, in conformity with all Applicable Rules to enter into and perform this Agreement and has taken all necessary action to authorize the execution of this Agreement and the performance of the obligations hereunder. (iv) Wexford is in compliance, and during the term of this Agreement will remain in compliance with (a) the capital and financial reporting requirements of every national securities exchange and/or other securities exchange or association of which it is a member, (b) the capital requirements of the Securities and Exchange Commission and (c) the NASD Conduct Rules. (v) The names and addresses of Introducing Firm's customers which have or which may come to Wexford's attention in connection with the clearing and related functions it has assumed under this Agreement are confidential and shall not be utilized by Wexford except in connection with the functions performed by Wexford pursuant to this Agreement. Notwithstanding the foregoing, should any customer of Introducing Firm request, on an unsolicited basis that Wexford become its broker, acceptance of such Account by Wexford shall in no way violate this representation and warranty, nor result in a breach of this Agreement. (vi) Wexford shall keep confidential any information it may acquire as a result of this Agreement regarding Introducing Firm's business and affairs, which requirement shall survive the termination of this Agreement. 9. Nature of Relationship A. Wexford shall limit its services pursuant to the terms of this Agreement to that of the clearing and the specified related functions described herein, and Introducing Firm shall not hold itself out as an agent of Wexford or of any subsidiary or company controlled directly or Page 37 of 49 Pages indirectly by or affiliated with Wexford. Neither this Agreement nor any operation hereunder shall create a general or limited partnership, association or joint venture or agency relationship between the parties. B. Introducing Firm shall not, without the prior written approval of Wexford, place any advertisement in any newspaper, publication, periodical or any other media if such advertisement in any manner makes reference to Wexford or to the clearing arrangements set forth in this Agreement; provided, however, that the public parent company of Introducing Firm may name Wexford and accurately describe this Agreement in any filing such company makes with the Securities and Exchange Commission pursuant to either the Securities Act of 1933 or the Securities Exchange Act of 1934. C. Should Introducing Firm in any way hold itself out as, advertise or represent that it is the agent of Wexford, Wexford may, at its option, terminate this Agreement and Introducing Firm shall be liable for any loss, liability, damage, claim, cost or expense (including but not limited to reasonable fees and expenses of legal counsel) sustained or incurred by Wexford as a result of such a representation of agency or apparent authority to act as an agent of Wexford or agency by estoppel. 10. Deposit of Collateral A. To ensure Introducing Firm's performance of its obligations under this Agreement (including, without limitation, the payment of Fees, Introducing Firm Failure Costs, Counterparty Failure Costs and Indemnified Losses), there shall be established a securities holding account with Wexford to be opened in the name of Introducing Firm and designated as the Introducing Firm Collateral Account (the "Collateral Account"). The Collateral Account shall at all times contain cash, securities, or a combination of both, having a market value of not less than the sum required by Wexford as of the date of this Agreement; provided that Wexford shall have the right, in its reasonable discretion, to increase upon not less than three business days notice to Introducing Firm, the Collateral Amount to reflect materially changed conditions relating to the Introducing Firm or its business or an unusually high number or value of unresolved errors or fails with respect to Transactions (the "Collateral Amount"). Said securities shall consist only of direct obligations issued by or guaranteed as to principal and interest by the United States and such other securities as Wexford may in writing consent to, in its sole discretion, from time to time. As collateral security for all of its obligations to Wexford under and with respect to this Agreement, Introducing Firm hereby pledges, assigns and grants a first priority security interest and lien to Wexford in and upon all property from time to time now or hereafter in the Collateral Account, and Wexford shall have all rights and remedies with respect thereto of a secured party under the New York Uniform Commercial Code or other applicable law, as well as its other rights hereunder. Introducing Firm represents and warrants that any Collateral shall be free of any lien, pledge or interest other than that of Wexford. Introducing Firm shall be entitled to receive all cash distributions made on or in respect of the securities unless the market value of the cash and/or securities in the Collateral Account is less than the Collateral Amount. If the Collateral Account consists of cash, Wexford shall pay interest to the Introducing Firm on this cash held from time to time at an agreed upon rate. If at any time the Page 38 of 49 Pages market value of the cash and/or securities in the Collateral Account fall below 90% of the Collateral Amount, as determined by Wexford, Wexford may, by notice to Introducing Firm, demand that Introducing Firm deliver additional collateral to the Collateral Account no later than the third following business day to increase the market value to the full Collateral Amount. B. Except as provided herein, Introducing Firm shall not have access to, nor have any right to transfer or withdraw any cash or securities from, the Collateral Account without the prior written consent of Wexford. The Collateral Account shall not be deemed to be margin for any Approved Counterparty accounts. C. Wexford shall have the right to deduct the amount of any and all amounts owed to Wexford hereunder, including without limitation, Fees, Introducing Firm Failure Costs and Counterparty Failure Costs and Indemnified Losses, from the securities collateral, and, in such event, Wexford shall have the right to liquidate the securities in a commercially reasonable manner; provided, however, Wexford agrees to deduct the foregoing amounts first from revenue, pursuant to Section 3.C. and then, to the extent revenue is insufficient, from the Collateral Account. Any amounts deducted from revenue or the Collateral Account, which are subsequently determined (by Wexford, mutual agreement, arbitration or otherwise) to be incorrect, excessive or otherwise not the responsibility of Introducing Firm, shall be promptly reimbursed by Wexford to Introducing Firm together with interest thereon (from the date of deduction to the date of reimbursement) calculated at a comparable Treasury rate. D. Within thirty (30) days of the termination of this Agreement, Wexford will (a) effect the payment and delivery to Introducing Firm of the funds and/or securities in the Collateral Account, less any amounts Wexford is entitled to withdraw under the preceding paragraph; provided, however, that Wexford may retain in the Collateral Account such amount as it reasonably deems appropriate for its protection from any claim or proceeding of any type then threatened or pending, until the final determination thereof is made, and (b) deliver or cause to be delivered to Introducing Firm (without the reproduction or other copying thereof) all documents and other materials, including customer lists, prepared in connection with this Agreement or the business of Introducing Firm, except for such documents and other materials as Wexford may have destroyed in the normal course of its business or may be required to keep for regulatory purposes or otherwise as may be required by law. In any event, Wexford agrees that no such documents or other materials will be distributed by it to any person or group in or outside Wexford that does not have responsibility for the administration, legal or audit review of this Agreement or transactions thereunder. 11. Assignment This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns. Introducing Firm may not assign its rights and/or obligations hereunder without the prior written consent of Wexford, which consent shall not be unreasonably withheld. 12. Amendments; Waiver; Integration Any amendment or supplement to this Agreement and any waiver of any rights hereunder Page 39 of 49 Pages must be in writing signed by the Parties. Further, without limiting the foregoing, no failure to enforce a right, no act or pattern of conduct shall constitute an amendment, supplement or waiver. This Agreement supersedes all other agreements between the parties with respect to the subject matter hereof. 13. Governing Law This agreement shall be construed and interpreted in accordance with the internal laws of the state of New York without reference to choice of law principles. 14. Arbitration Each party agrees that any claim, dispute, grievance or controversy arising under this Agreement or any Transactions executed or arising therefrom or thereunder shall be settled by arbitration pursuant to and in accordance with Article XI of the NYSE Constitution and the NYSE Arbitration Rules. Each party further agrees to service of process in any arbitration proceeding by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by telex, to it at an address for notices under this Agreement; and agrees that nothing herein shall affect the other party's right to effect service of process in any other manner permitted by NYSE Arbitration Rules, and that each party shall have the right to bring a proceeding for enforcement of a judgment entered by any arbitration panel against the other party in any court or jurisdiction in accordance with applicable law. 15. Termination This Agreement may be terminated by either party upon ninety days' written notice given to the other party at any time, or immediately upon written notice following an Event of Default which event shall occur if (i) either party shall fail to perform or observe any term, covenant or condition to be performed or observed by it hereunder and such failure shall continue to be unremedied for a period of five business days after written notice from the non-defaulting party to the defaulting party specifying the failure and demanding that the same be remedied; (ii) any representation or warranty made by either party shall prove to be incorrect at any time in any material respect; (iii) a receiver, liquidator or trustee of either party, or of any material property held by either party, is appointed by court order; or either party is adjudicated bankrupt or insolvent; or any of its material property is sequestered by court order and such order is not appealed and stayed within fifteen days of its entrance; or a petition is filed against either party under the bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect and is not dismissed within fifteen days of such filing, or (iv) either party makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee or liquidator of either party, or of any property held by either party. 16. Notices Written notices shall be properly made if hand delivered, mailed (registered mail) or Page 40 of 49 Pages telecopied ("faxed") to the party entitled to receive such notices at the following address or telephone number: To Introducing Firm: Maxcor Financial Inc. 2 World Trade Center - 84th Floor New York, N.Y. 10048-0697 Tel. No: 212-748-7040 Fax No.: 212-748-7049 Attn.: Steven Vigliotti Chief Financial Officer To Wexford: Wexford Clearing Services Corp. One New York Plaza, 11th Floor New York, New York 10292-2011 Tel. No.: 212-778-1750 Fax No.: 212-778-7622 Attn.: Edward Schlitzer President/CEO 17. Miscellaneous There will be no Account opened on behalf of any employee or officer of any New York Stock Exchange member organization, self-regulatory organization or other financial institution without the prior written consent of Wexford. This Agreement and all transactions in the Accounts, will be subject to the applicable constitution, rules, by-laws, regulations and customs of any securities market, association, exchange or clearing house where such transactions are effected, and also to all applicable NYSE and NASD Rules and to all U.S. federal and state laws and regulations. All telephone conversations in connection with Transactions under the Agreement may be electronically recorded and may be used to resolve any uncertainty or any dispute arising in connection with this Agreement or any transaction hereunder. Please indicate your agreement with the foregoing by signing and returning the enclosed copy of this letter. Page 41 of 49 Pages Very truly yours, WEXFORD CLEARING SERVICES CORP. By: /s/ Patricia A. Jamison ------------------------------- Name: Patricia A. Jamison ------------------------------ Title: Executive Vice President/COO ----------------------------- ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: MAXCOR FINANCIAL INC. By: /s/ Steven R. Vigliotti ---------------------------- Name: Steven R. Vigliotti -------------------------- Title: Chief Financial Officer ------------------------- Page 42 of 49 Pages Exhibit A Schedule of Specified Securities -------------------------------- 1. Securitized Adjustable Rate Mortgages 2. Asset-backed Securities bearing a credit rating of AA or better 3. Collateralized Mortgage Obligations bearing a credit rating of AA or better 4. GNMA, FNMA and Freddie Mac Securities 5. Brady Bonds 6. U.S. Government and Agency Securities 7. Sovereign Debt - EuroClear/CEDEL/DTC Eligible 8. Euro Bonds 9. Corporate Securities 10. Convertible Bonds 11. Municipal Securities Page 43 of 49 Pages Schedule A Schedule A has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Page 44 of 49 Pages Exhibit B [Wexford Letterhead] ___________, 19__ [Customer Name and Address] Re [Name of Introducing Firm]: Allocation of Brokerage Account Responsibilities Ladies and Gentlemen: As you know, your account has been introduced to Wexford Clearing Services Corporation ("Wexford") by your brokerage firm, Maxcor Financial Inc. ("MFI"), for the purpose of Wexford clearing trades, as fully-disclosed principal, in certain specified securities pursuant to the clearing service agreement between MFI and Wexford. Once Wexford enters a trade on its books, you will be considered a customer of Wexford for purposes of the Securities and Exchange Commission's financial responsibility rules and the Securities Investor Protection Act. Nothing herein shall cause customers of MFI to be construed as customers of Wexford for any other purpose. In establishing this relationship, MFI is acting solely on your behalf and not on behalf of or as the agent of Wexford. MFI shall remain responsible for the ongoing relationship with you, and for the following: - Learning your investment objectives and opening, approving and monitoring your account, and in all respects complying with Rule 405 of the New York Stock Exchange. - Reviewing your account and all orders on it and supervising all investment advice. - Accepting or rejecting your orders and correcting errors in trade details in order to transmit only matching transactions to Wexford. - Ensuring that all the transactions conducted in your account are in compliance with all applicable law and rules. - Responding to any inquiries or complaints you may make concerning your account. Page 45 of 49 Pages Allocation of Brokerage Account Responsibilities Page 2 - Supervising all functions performed by MFI's employees, including, investment advisory, sales, trading and account opening and approving activities. Additionally, MFI is responsible to Wexford for supplying all documentation required by Wexford, notwithstanding the fact that Wexford has at all times the right to contact you directly regarding its information requirements. Wexford has at all times the right, exercisable in its sole discretion, to refuse to accept orders for your account. Wexford will be responsible for the following: - Clearing, as principal, transactions in your account pursuant to MFI's instruction. - Maintaining books and records and filing regulatory reports. - Delivering from and receiving funds and securities for your account, receiving and holding dividends or interest and handling exchange or tender offers, warrants and redemptions, all in accordance with the last instructions received either from you or MFI. - Safeguarding funds and securities. - Preparing and transmitting confirmations and statements. Any questions you may have concerning the conduct of your account should be addressed directly to MFI. You agree that any and all telephone conversations between us with respect to the contemplated transactions may be tape recorded and you hereby waive further notice of tape recording. In the event of any dispute, tapes can be used in any forum in which a dispute is sought to be resolved. Very truly yours, By: ___________________________________ WEXFORD CLEARING SERVICES CORPORATION Edward Schlitzer President/CEO Page 46 of 49 Pages EX-27 3 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 June 30, 1999 and is qualified in its entirety by reference to such Consolidated Financial Statements. 3-MOS YEAR DEC-31-1999 DEC-31-1999 APR-01-1999 JAN-01-1999 JUN-30-1999 JUN-30-1999 21,330,458 21,330,458 26,242,622 26,242,622 0 0 0 0 12,128,478 12,128,478 8,591,488 8,591,488 86,478,209 86,478,209 0 0 8,788,904 8,788,904 0 0 0 0 0 0 4,570,787 4,570,787 2,000,000 2,000,000 0 0 11,392 11,392 26,685,061 26,685,061 86,478,209 86,478,209 285,805 872,005 466,896 822,891 40,265,290 84,677,402 0 0 0 0 250,745 455,935 28,060,414 57,270,234 2,035,345 6,291,581 2,035,345 6,291,581 0 0 0 0 1,047,003 2,620,803 0.10 0.23 0.10 0.23
EX-99.1 4 PRESS RELEASE Exhibit 99.1 Maxcor Financial FOR IMMEDIATE RELEASE Contact: Maxcor Financial Group Inc. Two World Trade Center, 84th Floor New York, NY 10048 (212) 748-7000, Roger Schwed (Investor Relations) Wexford to succeed Daiwa as Euro Brokers' primary clearing agent for emerging market debt securities New York, New York, June 30, 1999 - Maxcor Financial Group Inc. today announced that the Euro Brokers division of its U.S. broker-dealer subsidiary, Maxcor Financial Inc., has concluded an agreement with Wexford Clearing Services, the clearing arm of Prudential Securities, for Wexford to serve as the primary clearing agent for Euro Brokers' brokerage of emerging market debt securities. Pursuant to the agreement, Wexford will provide clearing services, as principal and on a fully-disclosed basis, to Euro Brokers (including its London-based affiliates). Daiwa Securities America currently provides these services to Euro Brokers, but has announced plans to exit the correspondent clearing business. Wexford is also hiring a significant portion of the correspondent clearing staff of Daiwa and purchasing Daiwa's proprietary middleware application for accepting trade information. The formal transition from Daiwa to Wexford is expected to take place in September of this year. "We are very pleased by this arrangement," Maxcor Financial Group's chairman and chief executive officer, Gilbert D. Scharf, said. "Because Wexford is picking up the key clearing staff and software applications from Daiwa, we expect the transition to be seamless both for ourselves and our customers. We also take comfort in knowing that Wexford has the full backing and support of its parent, Prudential Securities." Thomas Dillon, formerly executive vice president of correspondent services at Daiwa, and who will continue as an executive vice president at Wexford, commented that "Euro Brokers is, and has been, our number one customer in emerging market debt securities, and we are delighted that we will be able to continue and enhance that relationship at Wexford." Implementation of the agreement remains subject to the approval of Wexford's and Euro Brokers' respective designated regulators, the New York Stock Exchange, Inc. and NASD Regulation, Inc. Other terms of the agreement were not announced. Maxcor Financial Group Inc., through its various Euro Brokers entities, is a leading domestic and international inter-dealer brokerage firm specializing in emerging market products, cash deposits and other money market instruments, interest rate and currency derivatives, energy products (including natural gas, Page 48 of 49 Pages electricity, physical emissions and weather) and other fixed income securities (including repurchase agreements). Maxcor Financial Inc. is the Company's U.S. registered broker-dealer subsidiary which, in addition to the inter-dealer brokerage activities of its Euro Brokers division, engages in investment banking and related activities. Maxcor Financial Asset Management Inc. is the Company's SEC registered investment adviser subsidiary, conducting securities lending and other asset management businesses. The Company employs approximately 625 persons and maintains principal offices in New York, Stamford, London, Tokyo, Geneva, Toronto and Mexico City. The Company's common stock is traded on the Nasdaq National Market under the symbol "MAXF". Page 49 of 49 Pages -----END PRIVACY-ENHANCED MESSAGE-----