-----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, Vv0fginfzI1uFAQjhgH6gtyCeGMGVua7NpawJ6Zph9kkhbcLl3Xse0dPix4kwTIZ kV9k8dpOYFtWBaPOVze9Bw== 0000930413-01-500165.txt : 20010409 0000930413-01-500165.hdr.sgml : 20010409 ACCESSION NUMBER: 0000930413-01-500165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K SEC ACT: SEC FILE NUMBER: 000-25056 FILM NUMBER: 1591523 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-K 1 c20487-10k.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to____________ Commission File Number 0-25056 MAXCOR FINANCIAL GROUP INC. ---------------------------- (Exact name of registrant as specified in its charter) DELAWARE 59-3262958 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) TWO WORLD TRADE CENTER, 84TH FLOOR, NEW YORK, NY 10048 - ------------------------------------------------- ------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 748-7000 -------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE --------------------------------------- (Title of class) PREFERRED STOCK PURCHASE RIGHTS ------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _X_ The aggregate market value of the Common Stock held by non-affiliates of the registrant (assuming directors, executive officers and 5% stockholders are affiliates), based on the Nasdaq Stock Market(R) last sales price of $2.00 on March 23, 2001, was approximately $11,067,000. As of March 23, 2001, there were 7,621,893 shares of Common Stock outstanding. Documents Incorporated by Reference: Those portions of registrant's Proxy Statement for its 2001 Annual Meeting of Stockholders (which registrant intends to file pursuant to Regulation 14A on or before April 30, 2001) that contain information required to be included in Part III of this Form 10-K are incorporated by reference into Part III hereof solely to the extent provided therein. MAXCOR FINANCIAL GROUP INC. INDEX PAGE PART I Item 1. Business ........................................................ 3 Item 2. Properties ...................................................... 17 Item 3. Legal Proceedings ............................................... 18 Item 4. Submission of Matters to a Vote of Security-Holders ............. 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ............................................. 18 Item 6. Selected Financial Data ......................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................... 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...... 35 Item 8. Financial Statements and Supplementary Data ..................... 37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................................ 38 PART III Item 10. Directors and Executive Officers of the Registrant ...................................................... 38 Item 11. Executive Compensation .......................................... 38 Item 12. Security Ownership of Certain Beneficial Owners and Management .................................................. 38 Item 13. Certain Relationships and Related Transactions .................. 38 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..................................................... 39 Signatures ................................................................ 40 Consolidated Financial Statements and Notes................................ F-1 Index to Consolidated Financial Statements ................................ F-2 Exhibit Index ............................................................. X-1 2 [LOGO] MAXF NASDAQ LISTED PART I ITEM 1. BUSINESS OVERVIEW Maxcor Financial Group Inc. (the "Company" or "Maxcor") is a publicly-held financial services holding company, incorporated in Delaware in August 1994. The Company maintains a web page at www.maxf.com and its Common Stock is traded on The Nasdaq Stock Market(R) under the symbol "MAXF." In a 1996 merger transaction (the "Merger"), the Company acquired Euro Brokers Investment Corporation ("EBIC"), a privately held domestic and international inter-dealer broker for a broad range of financial instruments, having operational roots dating back to 1970. In 2000, EBIC acquired all of the outstanding capital stock of Tradesoft Technologies, Inc. ("Tradesoft"), a privately held developer of e-commerce technology. Through the Euro Brokers division of its Maxcor Financial Inc. subsidiary, a U.S. registered broker-dealer, and other EBIC subsidiaries and affiliates, including Euro Brokers Inc., the Company conducts its core business as a leading domestic and international inter-dealer brokerage firm, specializing in (i) cash deposits and other money market instruments, (ii) interest rate and currency derivatives, (iii) emerging market debt and related products, (iv) various fixed income securities, including municipal securities, corporate and yankee bonds, zero coupon Treasuries, convertible bonds and, since February 2001, U.S. government agency bonds, (v) U.S. Treasury and government agency repurchase agreements and (vi) products and derivatives relating to emission allowances, coal and bandwidth, Tradesoft is a leading-edge technology provider of electronic trading systems and matching engines that enable customers to deal electronically through the automation of order entry, price distribution, order matching and straight through processing. The Company also maintains certain specialty subsidiaries. Maxcor Financial Asset Management Inc., an investment adviser registered with the Securities and Exchange Commission ("SEC"), is engaged in securities lending through its Euro Brokers Securities Lending division. Maxcor Information Inc. is charged with packaging and exploiting the data and other information generated by the Company's inter-dealer brokerage businesses and offers such data online at www.maxcorinfo.com. The Company has in excess of 500 employees worldwide and conducts its businesses through principal offices in New York, London and Tokyo, other offices in Stamford (CT), York (PA), Vancouver (WA), Geneva and Mexico City, and correspondent relationships with other brokers throughout the world. Except as described below, the Company operates in each 3 financial center through wholly-owned subsidiaries. In London, the Company, as of January 1, 1999, formed Euro Brokers Finacor Ltd. ("EBFL"), a 50/50 equity venture with the European broker, Finacor, that combined their respective London-based capital market operations, as well as Finacor's Paris-based capital markets operations. The Company's other London operations, primarily comprised of securities businesses, are wholly owned. In Tokyo, the Company has historically had a 50% interest with Yagi Euro Nittan Corporation ("Yagi Euro"), formerly known as Yagi Euro Corporation, in a partnership (the "Tokyo Partnership") conducting yen derivative businesses, as well as a 15% minority interest in Yagi Euro itself. As of January 1, 2000, the Company sold a 10% interest in the Tokyo Partnership to Nittan Exco Limited ("Nittan"), a subsidiary of Nihon Tanshi Co., Limited, thereby reducing its direct interest in the Tokyo Partnership to 40%. In its inter-dealer brokerage businesses, the Company functions primarily as an intermediary, matching up the trading needs of its institutional client base, which is primarily comprised of well-capitalized banks, investment banks and other financial institutions, securities dealers and other broker-dealers and large corporations. The Company assists its clients in executing trades by identifying counterparties with reciprocal interests. The Company provides its services through an international network of brokers who service direct phone lines to most of the Company's clients and through proprietary screen systems and other delivery systems that provide clients with historical data and real-time bids, offers and pricing information in the Company's various products. Clients use the Company's services for several reasons. First, a client can benefit from the broader access and liquidity provided by the Company's worldwide broker and telecommunications network, which communicates with and services most of the largest banks and securities firms. The result is typically better pricing and faster execution than the client could achieve acting unilaterally. Second, the Company provides clients with anonymity, thereby enhancing their flexibility and ability to act without signaling their intentions to the marketplace. Third, because of its network, the Company can provide high-quality pricing and market information, as well as sophisticated analytics and trading and arbitrage opportunities. The Company's inter-dealer brokerage transactions are principally of two types: (i) "name give-up" transactions, whereby the Company acts only as an introducing broker, and (ii) transactions whereby the Company acts as a "matched riskless principal." Primarily in transactions involving money market instruments and derivative products, the trades are arranged while preserving the clients' anonymity, but executed at the last instant on a name give-up basis and settled directly between the counterparties. In these transactions the Company acts solely as an introducing broker who brings the two counterparties together, and not as a counterparty itself. Consummation of the transaction may then remain subject to the actual counterparties who have been matched by the Company accepting the credit of each other. In the second type of transaction, primarily securities transactions, the Company acts as a matched riskless principal, connecting the buyer and seller for the transaction on a fully anonymous basis by acting as the counterparty for each in matching, reciprocal back-to-back trades. This type of transaction is then settled through one of various clearing institutions with 4 which the Company has contractual arrangements, and who will have previously reviewed and approved the credit of the participating counterparties. PRODUCTS The Company's inter-dealer brokerage businesses generally fall into the brokerage of three broad groups of products: (i) money market products, (ii) derivative products and (iii) securities products. MONEY MARKET PRODUCTS In general, money market products take the form of cash deposits or other negotiable instruments placed by one financial institution with another, at an agreed-upon rate of interest, for a fixed period of time. Money market products primarily include offshore deposits (i.e., deposits placed outside the country of denomination), onshore deposits (i.e., deposits placed within the country of denomination), certificates of deposit, banker's acceptances and short-term commercial paper. U.S. dollars continue to be the most actively traded offshore currency deposit. Other actively traded offshore currency deposits are denominated in Japanese yen, British pounds sterling, Swiss francs, Canadian dollars and the euro. Examples of onshore deposits include term and overnight U.S. federal funds. The Company brokers money market products predominantly to multinational banks. DERIVATIVE PRODUCTS A derivative products transaction generally is an agreement entered into by two parties, in which each commits to a series of payments based upon the price performance of an underlying financial instrument or commodity for a specified period of time. This category includes a broad range of sophisticated financial instruments employed by multinational banks, financial institutions, securities dealers and corporations. Some of the types of derivatives most frequently brokered by the Company are interest rate swaps, interest rate options and forward rate agreements, in each case conducted in a multitude of different currencies and localized primarily by office. In an interest rate swap, two parties agree to exchange interest rate payment obligations on a notional principal amount over the term of the swap. No principal is exchanged, and market risk for the parties is limited to differences in the interest payments. The usual format for swaps involves the exchange of fixed rate payments based on the term of the swap for floating rate payments based on a shorter-term rate. Interest rate options, which include "cap," "floor" and "swaption" transactions, are transactions in which one party grants the other the right (but not the obligation) to receive a payment equal to the amount by which an interest rate either exceeds (for call options) or is less than (for put options) a specified strike rate. 5 Forward rate agreements ("FRAs") are over-the-counter, off-balance sheet instruments designed to give the counterparties protection against a future shift in interest rates for time deposits. The buyer, or borrower, of a FRA agrees to pay the seller, or lender, at some specified future settlement date, an amount of interest based on a notional principal at a fixed rate for a specified period of time. The seller agrees to pay the buyer, on the same future settlement date, an amount of interest based on the same amount of notional principal and the same period of time, but based on the then-prevailing market rate for the time period. No actual principal is exchanged. On the settlement date, the buyer and the seller calculate the present value of the net interest owed, and one party pays the other accordingly. The Company brokers most of its derivative products predominantly to multinational banks and investment banks. The Company also brokers derivatives related to emission allowances, coal and bandwidth, generally in the form of options on such products for future physical deliveries. These products are often traded by utilities, telecommunication companies and large energy marketing and trading companies. SECURITIES PRODUCTS Products brokered by the Company in this category primarily consist of a variety of debt obligations issued by governments, government agencies, banks and corporations. The Company brokers transactions in emerging market debt, municipal securities, U.S. Treasury and government agency repurchase agreements, high grade and high yield corporate bonds, yankee bonds, U.S. Treasury zero coupon bonds, U.S. domestic convertible bonds, floating rate notes, other corporate securities and, since February 2001, U.S. government agency bonds. Emerging market debt, including Brady bonds, global bonds, Eurobonds, local issues and loans, as well as options on the foregoing, continues to constitute the largest area within the securities products category, and is brokered by specialized teams located in New York, London and Mexico City and through a correspondent broker in Buenos Aires. The market coverage of the teams from these locations is worldwide. The Company's brokerage of emerging market debt utilizes direct communication phone lines and provides historical data and real-time pricing through proprietary, computerized screen systems located in clients' offices or through direct digital feeds. In addition, beginning in mid-2000, the Company deployed to certain of its clients Tradesoft's fully interactive, electronic execution and processing system (the "Tradesoft System") for Brady bonds and global bonds. In most emerging markets transactions, the Company acts as matched riskless principal and settles trades through a clearing firm, although some transactions are brokered on a name give-up basis. Repurchase agreements are contractual obligations entered into by two counterparties, first to sell securities and then to repurchase those same securities (or the reverse in the case of 6 a buyer) at an agreed upon future date and price. The Company acts as an intermediary primarily for the U.S. primary government dealer community (banks and dealers licensed to participate in auctions of U.S. Treasury securities), as well as for a number of U.S. regional banks and dealers, in the negotiation and execution of U.S. Treasury, mortgaged-backed and U.S. government agency repurchase agreements. As is the case with emerging markets, the Company disseminates repurchase agreement market information via its proprietary, computerized screens and digital data feeds. Most of the repurchase agreements that the Company executes for dealers are cleared through the Government Securities Clearing Corporation, in which the Company's broker-dealer subsidiary, Maxcor Financial Inc., is a member, although some transactions are brokered on a name give-up basis. The Company's brokerage of U.S. government agency debt is also generally conducted on a riskless principal basis and with the same client base that participates in U.S. Treasury and government agency repurchase agreements. Dissemination of U.S. government agency debt market information to clients also relies on the Company's proprietary screen system and digital data feeds. The Company brokers municipal securities on a matched riskless principal basis, and also uses an allocation of the firm's capital to support limited inventory positions. Corporate and yankee bonds are generally brokered on a matched riskless principal basis. U.S. convertible bonds are generally brokered on a name give-up basis. The Company brokers securities products predominantly to banks, investment banks and other financial institutions. COMMUNICATIONS NETWORK AND INFORMATION AND RELATED SYSTEMS The Company has a global communications network through which it conducts its inter-dealer brokerage businesses and sophisticated computerized information systems over which it receives and transmits current market information. The Company's proprietary screen system and digital data feeds display to all screen-based clients real-time bid, offer and transaction information for various products offered on the system. The Tradesoft System, deployed in 2000, displays to all Tradesoft subscribers real-time bid, offer and transaction information for certain emerging market debt products, and enables subscribers to initiate bids, offers and trades directly through a dedicated keypad at the subscribers' workstations, with or without contacting a voice broker at the Company. The Tradesoft System is also used to provide a sophisticated and highly automated broker station for the Company's U.S. government agency desk, enhancing brokers' ability to monitor trading activity and relevant market information efficiently and communicate analysis to their clients. The Company's proprietary middle-office trade processing system (the "MEB System"), which incorporates an electronic touchpad blotter system for post-trade data input, is integrated with and captures transactions effected through either the proprietary screen system or the Tradesoft System, and thereafter hands through those transactions for back 7 office processing. The MEB System has effectively replaced paper blotters on most securities desks and, by automating a number of manually-intensive processes, has introduced numerous efficiencies to the Company's trade processing and handling, including the ability to handle significantly increased trading volumes, identify unbalanced trade conditions as they occur, impose tighter security and provide clients with more certain and rapid check-outs of their transactions. To ensure rapid and timely access to the most current market bids and offers, the majority of the Company's clients are connected to the Company via dedicated point to point telephone and data lines around the world. For products that are screen-brokered, such as emerging market debt, U.S. government agency bonds, repurchase agreements, options on emerging market debt, banker's acceptances and commercial paper, the Company maintains an extensive private network to connect the Company's offices and the specific clients who trade in these products. In this way, all such clients have the simultaneous ability to view and act upon market bids and offers. The Company has also developed and deployed an Internet real-time distribution capability for both its emerging markets and repurchase agreement screen information, which has allowed access to clients in more remote or unproven brokerage locations without incurring the infrastructure costs associated with expanding its private network. The Company's teams of computer and communications specialists provide technological support to the network. The Company is continually upgrading its technological facilities in order to access and collate market information and redistribute it virtually instantaneously throughout its network. Through the continued development and use of proprietary software, computerized screen displays, digital networks and interactive capabilities, the Company strives to keep its communication, technology and information systems as current as possible. Most of the markets in which the Company operates are highly efficient, offering participants immediate access and enormous liquidity. Some markets are subject to a high degree of volatility. Even the slightest variation in price can make the difference between missing or executing a transaction. Consequently, many of the Company's businesses depend heavily on the use of direct line voice communications, advanced telephone equipment, real-time computerized screen systems and digital feeds and proprietary pricing software in order to ensure rapid trade executions and timely analyses for its clients. For this reason, the Company continually needs to expend significant resources on the maintenance, expansion and enhancement of its communication and information system networks. After payroll, such costs have historically represented the Company's second largest item of expenditure. The Company continues to explore whether more of its inter-dealer brokerage businesses should become screen-based and whether the Tradesoft System or other interactive trading systems can be developed and deployed successfully in whole or in part for other products brokered by the Company. The Company believes that its clients' diverse needs in each of the products it brokers require the Company to remain flexible in its approaches. The 8 Company currently believes that a hybrid approach to servicing its clients, by providing both quality voice brokering and advanced screen system and other technology, will best enable it to build liquidity and retain client loyalty. OTHER BUSINESSES Through the Euro Brokers Securities Lending division of its SEC-registered investment adviser, Maxcor Financial Asset Management Inc., the Company conducts a securities lending business. In securities lending, the Company arranges for the lending of securities held in its clients' portfolios to securities dealers and other market participants who need them to manage their own positions. In exchange for such loaned securities, which are primarily U.S. government and agency securities and U.S. corporate bonds (but also non-dollar government securities and corporate bonds), the Company arranges for its clients or their custodians to receive either (i) cash collateral, for which the Company then directs the reinvestment to earn a spread over the rebate rate the client is required to pay in connection with the underlying loan, or (ii) non-cash collateral plus fee income from the borrower. The Company's information and data subsidiary, Maxcor Information Inc., is charged with licensing data to third party vendors, and in 1999 executed a three-year, non-exclusive agreement with Telerate, Inc. for the sale to Telerate subscribers of an indicative feed based on information sourced from the Euro Brokers emerging market debt inter-dealer brokerage business, as well as an array of optional "add-on" services. Maxcor Information also maintains a subscription-based web page (www.maxEMG.com) for the sale of both basic and premium emerging market debt information packages. CAPITAL STRUCTURE HISTORY In its December 1994 initial public offering, the Company issued a total of 3,583,333 units, each comprised of one share of common stock, $.001 par value ("Common Stock"), and two redeemable common stock purchase warrants ("Series A Warrants"), and raised net proceeds of approximately $20 million. In its August 1996 Merger acquisition of EBIC, the Company issued aggregate consideration consisting of approximately $22 million in cash, 4,505,666 shares of Common Stock and 7,566,625 Series B redeemable common stock purchase warrants ("Series B Warrants" and, together with the Series A Warrants, the "Warrants"), economically identical in their terms to the Series A Warrants. In November 1997, the Company consummated an exchange offer, on the basis of 0.1667 of a share of Common Stock for each Warrant (the "Exchange Offer"), pursuant to which it issued an aggregate of 2,380,975 shares of Common Stock in exchange for 14,283,296 (or approximately 95.1%) of the then-outstanding Warrants. As a result of the Exchange Offer, the Warrants (and any remaining, related units) were delisted from trading on 9 The Nasdaq Stock Market(R) and deregistered under the Securities Exchange Act of 1934, as amended. Although delisted and deregistered, each Warrant remaining outstanding continues to entitle the holder thereof to purchase from the Company one share of Common Stock at an exercise price of $5.00 per share, to expire on November 30, 2001, and to be redeemable at a price of $.01 if the last sales price of the Common Stock has been at least $8.50 per share for 20 consecutive trading days. In October 1998, the Company issued 2,000 shares of a newly created Series B Cumulative Redeemable Preferred Stock ("Preferred Stock") to its 15% equity affiliate, Yagi Euro, for an aggregate purchase price of $2 million. The Preferred Stock pays a quarterly cumulative dividend, in arrears, at an annual rate of 2%, and is subject to optional redemption by the Company at any time, and to mandatory redemption on the tenth anniversary of its issue. The Preferred Stock does not have conversion rights or, unless there is a payment default, voting rights. In June 1999, the Company repurchased 2,986,345 shares of Common Stock from various partnerships of the venture capital firm, Welsh, Carson, Anderson & Stowe. The aggregate purchase price was approximately $5.23 million, or $1.75 per share. The shares repurchased represented approximately 26.4% of the shares of Common Stock then outstanding. In May 2000, the Company's Board of Directors authorized a repurchase program for up to 10% of its then outstanding Common Stock, or 833,744 shares, with purchases to be made from time to time, as market and business conditions warranted, in open market, negotiated or block transactions. As of December 31, 2000, the Company had repurchased 591,602 shares of Common Stock under this program for an aggregate purchase price of $894,494. On August 11, 2000, the Company issued 375,000 unregistered shares of Common Stock from treasury in connection with the acquisition of Tradesoft. At December 31, 2000, the Company had outstanding 8,120,835 shares of Common Stock, 734,980 Warrants and 2,000 shares of Preferred Stock. In January 2001, the Company completed the repurchase of the full 833,744 shares of Common Stock originally authorized to be repurchased under the May 2000 program. The aggregate purchase price for such shares was $1,187,650, or an average of $1.42 per share. In addition, the Board of Directors authorized an extension of the repurchase program for up to an additional 787,869 shares, or 10% of the Common Stock then outstanding. 10 At March 23, 2001, the Company had repurchased an additional 256,800 shares pursuant to this extension of the program and had 7,621,893 shares of Common Stock outstanding. PERSONNEL As of February 28, 2001, the Company employed 391 brokers, plus an additional administrative staff, including officers and senior managers, of 146 persons, for a total employee headcount of 537. Of the brokers, 191 were located in the U.S., 132 were located in Europe, and 50 were located in Japan, with the balance distributed among the Company's other office locations. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its relations with employees to be good and regards compensation and employee benefits to be competitive with those offered by other inter-dealer brokerage firms. SEGMENT AND GEOGRAPHIC DATA Note 23 to the Consolidated Financial Statements contains summary financial information, for each year of the three-year period ended December 31, 2000, with respect to each of the Company's reportable operating segments, which are based upon the countries in which they operate. COMPETITION The inter-dealer brokerage industry is highly competitive, with the success of a company within the industry dependent on a variety of key factors. These factors include: o the experience of and extent of client networks developed by the firm and its personnel; o the range of products and value-added services offered; o commission rates; o the quality, speed and reliability of service; o proficiency in and ability to implement current technology, including electronic execution and matching platforms; o salaries and other cost structures; and o capital resources and perceived creditworthiness. While there are not many large international inter-dealer brokers and entry into the industry is costly, the Company encounters intense competition in all aspects of its businesses from a number of companies which have significantly greater resources than the Company. Recent consolidations in the industry have narrowed the field of competition somewhat, but have also produced combined entities with even greater resources. Moreover, with the recent advent of electronic brokerage in non-equity markets, new potential competitors have emerged that do not have traditional inter-dealer brokerage roots, such as the BrokerTec Global consortium recently formed by a number of the leading investment banks. In addition, 11 dealer firms within a consortium could elect to conduct a disproportional or increased share of their business between other member firms, thus reducing liquidity in the traditional inter-dealer markets. In addition, all brokerage firms are subject to the pressures of offering their services at a lower price. The recent pace of consolidation in the banking and financial services community continues to reduce the number of clients in the marketplace and, accordingly, has further increased the competition among inter-dealer brokers and the downward pressure on already low commission rates. The use of volume discounting has also become more widespread in recent years. As a result, increases in market volumes do not necessarily result in proportionate increases in brokerage commissions and revenues. During the last several years, the industry has seen an acceleration of the development of electronic execution systems that claim to provide fully automated trade matching. In late 1999, one competitor, Cantor Fitzgerald, developed and spun off an electronic brokerage subsidiary, eSpeed, whose system has to date successfully garnered considerable liquidity in the U.S. Treasury markets, and has already been deployed across additional products. Other competitors have also deployed, or announced plans to deploy, their own systems in various markets. In practice, these systems so far have proved most viable in markets involving very standardized products, such as spot foreign exchange, Treasuries and U.S. equities. The Company believes that more complex financial vehicles, in particular derivatives, are less amenable to fully electronic matching, and that clients in these markets are not inclined to forego talking to voice brokers for information and execution. However, the number and penetration of such automated trading platforms is increasing, and one competitor, Garban Intercapital, recently invested in Blackbird, an electronic trading system for over-the-counter derivatives such as swap contracts. The further development and successful deployment of such electronic systems in advance of, or more successfully than, the Company's efforts to do so itself or to promote hybrid systems combining voice brokering with advanced technology, could erode the Company's market shares and ultimately have material adverse effects on the Company's businesses. Although the Company is devoting substantial financial and other resources to ensure the success of its own electronic brokerage and technology initiatives (described above under "Communications Network and Information and Related Systems"), its ability to execute successfully thereon is subject to a number of uncertainties, not all of which are within the Company's control. These include, but are not necessarily limited to, the speed, capacity and interfaces of systems performing acceptably under both normal and stress conditions, the availability of sufficient funds to develop, refine and promote further the systems, the retention of sufficient training and maintenance resources, the desire for and acceptance of the systems by clients, both at the trader and the information technology department levels, the internal broker support for the systems, the timing and success of deployment of competitive systems, and market conditions at the time of deployment. 12 The Company is inherently reliant on relationships with clients that develop over time, and certain of the Company's brokers have established long-term associations with clients. The Company's success depends to a significant extent on these relationships and on the performance and experience of a number of key management and brokerage personnel. The loss of one or more of these key employees, who are often the target of aggressive recruitment efforts by competitors within the industry, could have a material adverse effect on the Company. Moreover, the highly competitive hiring environment by itself creates upward pressures on broker compensation that can reduce profit margins. While the Company has entered into employment agreements with, granted stock options to, and implemented deferred compensation arrangements for, many of its key employees, there can be no assurance that such employment agreements or stock-based or deferred compensation will be effective in retaining such persons' services or that other key personnel will remain with the Company indefinitely. Nor can there be any guarantee that the Company will be able to attract and retain qualified, experienced individuals, whether to replace current personnel or as a result of expansion, because competition in the brokerage industry for such individuals is intense. The Company also faces intense competition from other inter-dealer brokers to achieve revenues from, and the widest dissemination and acceptance of, the data generated and collected from its brokerage businesses. REGULATION The Company and its subsidiaries, in the ordinary course of their business, are subject to extensive regulation at international, federal and state levels by various regulatory bodies which are charged with safeguarding the integrity of the securities and other financial markets and protecting the interests of clients participating in those markets. Maxcor Financial Inc. ("MFI"), formerly known as Euro Brokers Maxcor Inc., is registered as a broker-dealer with the SEC, all applicable states, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Broker-dealers are subject to regulations that cover all aspects of the securities business, including initial licensing requirements, sales and trading practices, safekeeping of clients' funds and securities, capital structure, record-keeping and the conduct of directors, officers and employees. The SEC, other governmental regulatory authorities, including state securities commissions and self-regulatory organizations, such as NASD Regulation, Inc. ("NASDR") in the case of MFI, have broad oversight powers, including the ability to institute administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders, the suspension or expulsion of a broker-dealer, its officers or employees or other similar consequences. MFI is also a member of the Government Securities Clearing Corporation ("GSCC") for the purpose of clearing certain U.S. Treasury and government agency repurchase agreements and other U.S. Treasury securities, as well as U.S. government agency securities. 13 Such membership requires MFI to maintain minimum net capital of $10,000,000, including a minimum deposit with the GSCC of $5,000,000. MFI is also registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member of the National Futures Association. As such, any business activities by MFI in the futures and options-on-futures markets would be subject to regulation by these bodies. Maxcor Financial Asset Management Inc. ("MFAM") is a SEC-registered investment adviser, pursuant to its securities lending activities. As a result, MFAM's investment advisory business is subject to various federal and state laws and regulations that generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict MFAM from carrying on its investment advisory business in the event that it fails to comply with such laws and regulations and/or to impose other censures and fines. The Company's businesses are also subject to extensive regulation by various non-U.S. governments and regulatory bodies, including: (i) in the United Kingdom, the Financial Services Authority and the Securities and Futures Authority (the "SFA"); (ii) in Japan, the Bank of Japan and the Japanese Ministry of Finance, and (iii) in Mexico, the Banking and Securities National Commission. The compliance requirements of these different overseer bodies may include, but are not limited to, net capital or stockholders' equity requirements. The Company is also subject to SEC rules regarding the regulation of alternative trading systems ("Regulation ATS"). Regulation ATS imposes significant reporting and recordkeeping requirements on so-called "alternative trading systems" and phases in certain substantive requirements, primarily depending upon the scope of coverage and market share of the alternative trading system. Such requirements may include maintaining transparency of certain pricing information, providing fair and equal access to the system, and taking necessary steps to ensure the capacity, integrity and security of the system. A number of the Company's brokerage businesses are subject to Regulation ATS and its requirements. Additional legislation and regulations, changes in rules promulgated by the SEC or other U.S. federal and state governmental regulatory authorities, self-regulatory organizations or clearing organizations, as well as non-U.S. governments or governmental regulatory agencies, or changes in the interpretation or enforcement of laws and rules, may directly affect the manner of operation and profitability of the Company. In addition, any expansion of the Company's activities into new areas may subject the Company to additional regulatory requirements that could similarly affect such operation and profitability. 14 CAUTIONARY STATEMENTS As provided under the Private Securities Reform Act of 1995, the Company desires to caution investors that the following factors, among others (including the factors discussed above under the "Competition" and "Regulation" headings, and the factors discussed below under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 7A, "Quantitative and Qualitative Disclosures about Market Risk"), could affect the Company's results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this report and elsewhere by or on behalf of the Company. ECONOMIC AND MARKET CONDITIONS The Company's brokerage businesses and their profitability are affected by many factors, including the volatility of securities markets, the volume, size and timing of securities transactions, the level and volatility of interest rates, legislation affecting the business and financial communities, and the economy in general. Low trading volume may reduce revenues, which would generally negatively impact profitability because a portion of the Company's costs is fixed. LIABILITY FOR UNSETTLED TRADES The Company through its subsidiaries and relationships with correspondent brokers functions as an intermediary, matching the trading needs of financial institutions by providing specialized services. Some of these transactions are executed on a name give-up basis, that is, once the specific economic terms of a proposed transaction are agreed, the names of the individual counterparties are disclosed and, subject to acceptance of the credit, the transaction is completed directly by both counterparties. Other transactions are completed with the subsidiary acting as a matched riskless principal in which the respective parties to the transaction know the subsidiary as the counterparty. The transactions are then settled through a clearing institution. In the process of executing brokerage transactions, from time to time in the fast moving markets in which such subsidiaries and brokers operate, miscommunications or other errors can arise whereby transactions are completed with only one counterparty ("out trades"), thereby creating a potential liability for such subsidiaries. If the out trade is promptly discovered, thereby allowing prompt disposition of the unmatched position, the risk to the subsidiary is usually limited. If discovery is delayed, the risk is heightened by the increased possibility of intervening market movements prior to such disposition. Although out trades usually become known at the time of or later on the day of the trade, on occasion they are not discovered until later in the settlement process. When out trades occur and are discovered, the Company's policy is to have the unmatched position disposed of promptly. The occurrence of out trades generally rises with increases in the volatility of the market and, depending on their number and amount, have the potential to have a material adverse effect on the financial condition or results of operations of the Company. 15 SYSTEMS AND TECHNOLOGY In addition to the Company's continuing need to expend significant resources on the maintenance, expansion and enhancement of its communication network, information systems and other technology, it also faces the risk that the systems it currently has or in the future implements, or the software underlying such systems, will fail in some fashion or be inadequate to the task. During the Asian and Latin American debt crisis that occurred in late October 1997, the Company's then-existing trade processing system for emerging market debt was unable to handle smoothly the extraordinary spike in trading volume that occurred for a sustained five-day trading period. As a result, the Company experienced significant delays and backlogs in the processing and settlement of such trades and a higher than usual incidence of disputed trades, all of which negatively impacted 1997 fourth quarter earnings. Although the Company believes that the MEB System, with its electronic blotter and upgraded trade processing features, together with periodic stress-testing and monitoring, will mitigate against any such recurrence, there can be no assurance that there will not be other, unanticipated system or technology failures that could negatively impact the Company's operations or business. CLEARING ARRANGEMENTS In addition to the GSCC, Wexford Clearing Services ("Wexford") and the Pershing division of Donaldson, Lufkin & Jenrette Securities Corporation ("Pershing") act as the primary clearing agents, on a fully-disclosed basis, for MFI. Under the terms of these agreements, Wexford clears as principal a significant portion of MFI's transactions in emerging market debt and Pershing clears as principal many of MFI's municipal securities and other domestic fixed-income securities transactions. Among other services, both firms prepare and mail confirmations and monthly statements to clients. Each of the Wexford and Pershing agreements is terminable by either party upon 90 days' prior notice. If either clearing agreement were to be terminated, the Company believes that it would be able to establish in timely fashion a new clearing arrangement with another clearing correspondent on terms acceptable to MFI. However, there can be no assurance that it would be able to do so, and a failure in this regard could have a material adverse effect on the Company's results of operations and financial condition. BUSINESS PARTNERS Many of the Company's overseas brokerage operations are conducted in conjunction with independent business partners, such as Finacor in London, Yagi Euro and Nittan in Tokyo and a correspondent broker in Buenos Aires, over whom the Company does not have control and whose business interests may not always coincide with those of the Company. Although such operations are generally subject to detailed governing documents, any event which negatively affects the financial condition or management of such partners, or their willingness otherwise to conduct such operations in conjunction with the Company (or vice versa), may also have a negative impact on the operations themselves. 16 For example, the ownership of Finacor changed hands at the end of 2000 as the result of a sales process that took almost the full year, and the Company believes that the distractions of that process harmed the operating performance of EBFL and its Paris branch during the period. In addition, the new owner of Finacor is a competitor of the Company across a number of products, and there have been some disputes with them since the change in control, the outcome or effect of which on EBFL are not currently possible to predict. LITIGATION AND ARBITRATION Many aspects of the Company's businesses involve varying risks of liability. Over the years participants in the inter-dealer brokerage industry have been parties to or otherwise involved in numerous litigations, arbitrations, claims and investigations, including employee claims alleging discrimination or defamation in connection with terminations, client claims alleging the occurrence of out trades or other errors in the handling of trade orders, and competitor claims alleging theft of trade secrets, unfair competition or tortious interference in connection with new employee or desk hires or intellectual property infringement in connection with new product launches. A settlement or judgment related to these or similar types of claims or activities could have a material adverse effect on the Company's financial condition or results of operations. LACK OF DIVERSIFICATION From a revenue perspective, the Company's inter-dealer brokerage businesses account for substantially all of Maxcor's consolidated revenues. Accordingly, the prospects for the Company's performance and the market prices for the Common Stock are currently highly dependent upon the performance of the inter-dealer brokerage businesses. Although the Company is continuously seeking to strengthen and improve the inter-dealer brokerage businesses, it is also constantly exploring various options for diversifying the Company's businesses and sources of revenue (its acquisition of Tradesoft and its limited proprietary trading of municipal securities are two such efforts) and for strengthening its capital base. There can be no assurances, however, that the Company will be successful in achieving these goals or others related to diversification or, if achieved, whether they will positively or negatively affect the Company's financial condition or results of operations. ITEM 2. PROPERTIES The Company has offices in each of the following locations: New York, New York; London, England; Tokyo, Japan; Stamford, Connecticut; Geneva, Switzerland; Vancouver, Washington; York, Pennsylvania; and Mexico City, Mexico. The Company leases all of its office space and has material lease obligations with respect to its New York and London premises. The Company occupies an aggregate of approximately 49,000 square feet of space 17 in 2 World Trade Center in downtown New York under leases expiring on various dates from 2004 through 2007 (with a lease break provision in 2002). The Company occupies approximately 36,000 square feet of space in the City of London under a lease expiring in 2018 (with a lease break provision in 2003). In September 1998, the Company subleased approximately one-third of its London premises to a co-tenant in the building, for a term expiring at the end of 2002. The Company believes that its facilities are suitable and adequate for its present and anticipated purposes. See Note 17 to the Consolidated Financial Statements for further information regarding future minimum rental commitments under the Company's existing leases. ITEM 3. LEGAL PROCEEDINGS The Company and/or its subsidiaries are subject to various legal proceedings, arbitrations and claims that generally arise in the ordinary course of their businesses. Although the results of such matters cannot be predicted with certainty, based on information currently available and established reserves, management believes that resolving any currently known matters will not have a material adverse impact on the Company's consolidated financial condition or results of operations. See Note 18 to the Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of its fiscal year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock currently trades on The Nasdaq Stock Market(R) under the symbol "MAXF." The following table sets forth the range of high and low sales prices for the Common Stock, as reported by The Nasdaq Stock Market(R), for the Company's last two fiscal years. 18 COMMON STOCK: HIGH LOW ------ ------ YEAR ENDED DECEMBER 31, 2000 First Quarter .......................... $3.000 $2.000 Second Quarter ......................... 2.500 1.469 Third Quarter .......................... 2.375 1.250 Fourth Quarter ......................... 2.000 0.813 YEAR ENDED DECEMBER 31, 1999 First Quarter .......................... $4.000 $1.031 Second Quarter ......................... 3.000 1.250 Third Quarter .......................... 3.563 2.156 Fourth Quarter ......................... 3.250 1.688 As of March 23, 2001 there were 57 holders of record of the Common Stock. The Company is aware that certain holders of record hold a substantial number of shares of Common Stock as nominees for a significant number of beneficial owners. Based on a broker-dealer inquiry made by the Company's transfer agent in April 2000, the Company believes there are approximately 700 beneficial owners of the Common Stock. The Company has never declared any cash dividends on the Common Stock, nor does the Company currently anticipate declaring any cash dividends in the foreseeable future. However, as described above in Item 1 of this report, under the caption "Capital Structure History," the Company has over the past two years repurchased significant amounts of its Common Stock, both in privately-negotiated transactions and through an open market repurchase program. ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this report. Statement of Operations data presented below includes reclassifications of certain revenue and expense items which are not directly associated with operations. Such reclassifications include interest income, interest expense, amortization of intangible assets, amortization of goodwill, foreign exchange effects and other non-operating items. Because the Merger was accounted for as a recapitalization of EBIC, with the issuance of shares by EBIC in August 1996 for the net assets of Maxcor, financial and other information of the Company presented below for 1996 represents financial and other information of EBIC (and its subsidiaries and affiliates) as if all shares issued in the Merger had been issued as of January 1, 1996 and were outstanding for the merged and recapitalized entity since that date. 19
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------- ------------- ------------- ------------- ------------- STATEMENT OF OPERATIONS Revenue: Commission income $ 144,057,920 $ 153,151,341 $ 149,293,022 $ 163,467,438 $ 178,109,899 Other income 3,497,043 2,618,822 973,908 740,683 360,967 ------------- ------------- ------------- ------------- ------------- 147,554,963 155,770,163 150,266,930 164,208,121 178,470,866 ------------- ------------- ------------- ------------- ------------- Operating costs: Compensation and related costs 106,904,658 108,470,659 100,527,090 107,375,812 116,296,606 Communication costs 13,430,339 15,083,928 14,726,069 16,010,272 18,288,441 Travel and entertainment 8,313,068 8,706,358 9,098,311 10,386,202 11,355,183 Occupancy costs 4,743,986 5,400,888 6,065,132 6,053,469 6,539,150 Depreciation and amortization 3,501,373 3,955,500 4,594,622 4,908,979 4,324,097 Clearing fees 3,307,802 3,005,785 4,588,170 6,165,264 4,411,515 General and administrative 5,111,212 5,802,572 5,639,524 7,667,597 7,495,441 ------------- ------------- ------------- ------------- ------------- 145,312,438 150,425,690 145,238,918 158,567,595 168,710,433 ------------- ------------- ------------- ------------- ------------- Operating profit 2,242,525 5,344,473 5,028,012 5,640,526 9,760,433 ------------- ------------- ------------- ------------- ------------- Other non-operating (expenses) income: Interest expense (594,957) (833,935) (1,079,147) (840,584) (693,132) Amortization of intangible assets (507,564) (410,004) (410,004) (410,004) (410,004) Other non-operating expenses (477,000) (1,141,356) (632,247) Other non-operating income 2,235,511 527,018 450,000 Restructuring costs (541,961) (1,028,893) Income (loss) from equity affiliates 135,890 (1,576,644) (19,925) 191,771 229,992 Interest income 1,823,285 1,879,500 1,737,403 1,718,099 1,801,442 Foreign exchange (loss) gain (21,579) (319,547) (184,518) 137,449 (8,229) ------------- ------------- ------------- ------------- ------------- 2,051,625 (1,762,505) (1,097,547) 1,246,731 287,822 ------------- ------------- ------------- ------------- ------------- Income before provision for income taxes and minority interest 4,294,150 3,581,968 3,930,465 6,887,257 10,048,255 Provision for income taxes 3,543,220 1,116,131 3,950,645 5,757,897 6,650,606 ------------- ------------- ------------- ------------- ------------- Income (loss) before minority interest 750,930 2,465,837 (20,180) 1,129,360 3,397,649 Minority interest 1,251,169 66,375 (1,254,970) (1,398,352) 307,311 ------------- ------------- ------------- ------------- ------------- Net income (loss) $ 2,002,099 $ 2,532,212 ($ 1,275,150) ($ 268,992) $ 3,704,960 ============= ============= ============= ============= ============= YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------- ------------- ------------- ------------- ------------- BALANCE SHEET DATA: Total assets $ 71,799,793 $ 72,467,958 $ 75,269,665 $ 86,531,513 $ 97,172,715 Obligations under capitalized leases 335,635 493,367 751,747 974,186 1,428,764 Notes payable 1,723,169 1,799,870 3,824,842 6,261,839 7,379,762 Loan payable 674,282 Total liabilities 38,151,244 38,162,466 43,476,151 54,928,268 64,721,841 Minority interest 3,407,628 4,885,896 Redeemable preferred stock 2,000,000 2,000,000 2,000,000 Stockholders' equity 28,240,921 27,419,596 29,793,514 31,603,245 32,450,874 PER SHARE INFORMATION Net income (loss) - basic $ .23 $ .26 ($ .11) ($ .03) $ .41 Net income (loss) - diluted .23 .25 (.11) (.03) .41 Book value 3.48 3.29 2.63 2.79 3.63 Weighted average common shares outstanding - basic 8,374,166 9,711,974 11,327,741 9,243,201 8,949,656 Weighted average common shares outstanding - diluted 8,374,166 9,846,257 11,327,741 9,243,201 8,949,656
20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's revenues currently are derived primarily from commissions related to its inter-dealer brokerage businesses. Generally, the Company receives a commission from both counterparties in a trade, although in trades of certain products only one party pays a commission. The dollar amount of the average transaction generating a commission varies significantly by the type of product and the duration of the transaction. Similarly, the applicable commission will vary according to product and services required and may also reflect discounts for high transaction volumes or other client rebates. Other sources of revenues include interest income, derived primarily from cash and cash equivalents, deposits with clearing organizations and interest associated with municipal securities positions, gains and losses on securities transactions (currently primarily in connection with the Company's municipal securities business), income from the sale of data and financial information generated from the Company's brokerage businesses, and foreign exchange gains and losses. The largest single component of the Company's expenses is compensation paid to its brokers. Attracting and retaining qualified brokerage personnel with strong client relationships is a prerequisite in the Company's business and in the brokerage business in general. Brokers are generally compensated by a combination of fixed salary and incentive payments based on commissions generated by them or on the net profitability of their respective departments. For this reason, compensation expense frequently will increase or decrease in rough proportion to revenues, although the fixed salary component can skew the correlation in businesses with declining revenues by causing decreases in compensation to lag behind decreases in revenues, and starting bonuses for new hires in businesses for which revenue growth is sought can increase compensation expenses in advance of realizing the anticipated revenue growth. To manage this area, the Company includes performance-based salary adjustment provisions in substantially all of its broker contracts and closely tracks revenues and compensation expenses (as well as other direct costs) by department (which may involve one or more products) and by broker, at each location. Direct client contact, including entertainment, is also an integral part of the Company's marketing program and represents another significant component of its expenses. The Company has made it a priority to manage these expenditures in a more focused and coordinated fashion, and has had reasonable success in reducing their gross levels over each of the last three years. The costs of maintaining sophisticated trading room environments and a worldwide data and communications network comprise another significant portion of the Company's expenses, and, with the usage of electronic execution and matching systems, the need to invest 21 in new technology and Internet deployment strategies has also increased. The Company's ability to compete effectively is significantly dependent on its ability to maintain a high level of client service, through its proprietary software, computerized screen displays and digital networks, the Tradesoft System, the MEB System and the Company's provision of whatever additional systems are demanded by clients at any given time. It is this infrastructure and technological commitment that enables the Company to support its existing client base and product lines, as well as provide a platform for offering brokerage or other services in additional or newly developing financial instruments. Although the Company maintains sizeable management information services and communications departments, the Company will also license technology or outsource infrastructure or technology projects, where practical and consistent with its business goals, in order to manage its fixed costs in these areas. To grow revenues and stay competitive, the Company constantly needs to analyze and pursue growth opportunities in both new and existing product lines. Product expansion, when undertaken, however, generally leads to an increase in the number of brokerage personnel, and therefore in compensation expense, since the markets usually require brokers to specialize in a single product or group of related products, rather than function as market generalists. Product expansion, and the effort to grow market share, also typically results in increased entertainment expenses and the increased infrastructure and communication costs associated with configuring a new desk and delivering its product to the necessary client base. YEAR ENDED DECEMBER 31, 2000 The year ended December 31, 2000 was an uneven one for the Company, with operating performances during the first three quarters that were not fully up to the Company's expectations, mitigated in part by the Company's ability to recognize a significant first quarter gain on the strategic restructuring of its Tokyo operations, followed by improvements in fourth quarter performance that have carried over into initial results for the first quarter of 2001. Net income for the full year 2000 was approximately $2.0 million, or $.23 per share, on total revenues of $151.6 million. Based on results to date, the Company anticipates earning in excess of $2.0 million (on an operating and net income basis), or more than $.25 per share, solely in the first quarter of 2001. Management undertook and implemented a number of initiatives during 2000 that the Company believes helped both to address weaknesses in operating performance during the year and position the Company for its strong start in 2001. These included the launching of a number of technology initiatives designed to enhance the Company's services to clients, including the acquisition of an electronic trading platform developer, the refinement and further deployment of a proprietary middle office trade processing system, and the licensing of a third-party secure e-mail trade confirmation system. They also included the further expansion of the Company's brokerage products to include U.S. government agency bonds, the closure of two marginal and under performing foreign offices, the exit of the Company 22 from brokering certain energy derivatives where the Company's market share penetration was inadequate to maintain profitability, the completion of the Company's strategic restructuring of its Tokyo operations, the continued reduction of the Company's outstanding debt borrowings, and the initiation of an open market repurchase program for the Company's Common Stock, all as more fully described below. The year started with the Company completing the merger of the Tokyo Partnership, the Tokyo-based derivatives brokering venture in which the Company had been a 50/50 economic partner with its 15% equity affiliate, Yagi Euro, with the off-balance sheet brokerage operations of Nittan. The combination saw the Company retaining a 40% direct interest in the expanded Tokyo Partnership, with Yagi Euro retaining a 30% interest and Nittan acquiring the remaining 30%. As a result of the transaction, which closed effective January 1, 2000, the Company recognized a one-time, after-tax gain in the first quarter of 2000 of approximately $1.5 million. The Company throughout the year continued its strategy of focusing on its three core financial centers of New York, London and Tokyo. This focus resulted in the closure of the Company's Toronto-based operations, effective June 30, 2000, at an approximate cost of $205,000, and the taking of a charge of approximately $337,000 during the fourth quarter for the decision taken to close the Paris branch operations of the Company's venture with Finacor, EBFL, in early January 2001. Both the Toronto and Paris operations were relatively small, but had been losing money for some time and were no longer considered viable as self-sustaining offices. The Company continued its efforts to grow revenues and improve profitability by expanding into new products when it found reasonable business opportunities to do so. Near the end of 2000, the Company began taking steps that enabled it to hire a core of experienced brokers from several competing firms and establish a brokerage service in U.S. government agency debt. The Company is optimistic about the prospects for the new department, which began formal operations in February 2001. With the reduction in issuances of the 30-year Treasury bond, U.S. government agency bonds are evolving into an increasingly used benchmark and hedging tool. The product also compliments several of the Company's other departments, such as interest rate derivatives, repurchase agreements and overnight federal funds. On the other hand, the Company did not hesitate to exit businesses in 2000 where its market share penetration was proving inadequate to achieve profitability. In this regard, the Company's energy derivatives businesses, which had already been streamlined in 1999, were further cut back, with the Company halting its brokerage of weather derivatives in the second quarter and its brokerage of electricity-related products and derivatives in the third quarter. The Company countered these trends somewhat by establishing a bandwidth brokerage operation in the latter half of 2000, and continues to maintain energy-related businesses in the brokerage of emission credits and coal. 23 The Company's business has always been sensitive to prevailing economic and market conditions, and, in particular, trading levels in the fixed income and derivatives markets in which it is active, and in this respect 2000 saw wide fluctuations. The year began with significant uncertainty surrounding the potential effects of Y2K, which negatively affected trading levels, particularly in emerging markets, and quickly moved to a state of euphoric market expectation in, and focus on, equities. By the end of the year, however, the equity markets were battered by a steep market correction and worldwide economic slowdown, and financial market participants were realigning their risk profiles. Combined with a declining interest rate environment, the market saw increased levels of activity both in fixed income and interest rate derivative products, which helped the Company's brokerage levels in the fourth quarter. On the technology front, the Company continued its efforts to deliver its clients the most advanced brokerage services possible, while also exploring the expansion of its business model into the provision of financial services-related technology and systems. The most significant step in this direction was the Company's third quarter acquisition of the privately-held Tradesoft Technologies, Inc. ("Tradesoft"), a developer and licensor of electronic trading platforms, for a combination of $2.1 million in cash and 375,000 shares of Common Stock. In the third quarter of 1999, the Company had entered into a licensing agreement with Tradesoft for the development of an electronic matching system to broker Brady bonds and global bonds. The completed application, which was deployed to some of the Company's largest clients in emerging markets during the first half of 2000, received significant accolades for its functionality and ease-of-use. As a result of the acquisition of Tradesoft, the Company now owns instead of licenses the Tradesoft System and its related software, and can manage and direct its further development and modification for other products and uses, as well as directly benefit from any revenues generated by third-party licensing arrangements. More recently, the Company utilized Tradesoft's know-how and software to automate the broker interface on its new U.S. government agencies desk. Deployment of the interactive trade execution element on the client end is expected ultimately to follow, but only as an adjunct to voice brokerage operations for those clients who desire it, and not as a substitute. The Company believes that this hybrid approach, which marries quality voice brokering and advanced screen system technology, offers a better opportunity to expand its inter-dealer brokerage business and grow revenues than the model that looks to achieving total electronic execution and automation. Moreover, because the approach is geared to developing and maintaining genuine internal broker support for the Tradesoft System and its related technology, the expectation is that it will build on existing voice brokerage liquidity, rather than cannibalize it to move a small portion of that liquidity to a fully electronic platform. The Company accordingly is also exploring whether and how to modify its prior deployment of the Tradesoft System in emerging markets, where neither its fully electronic execution application nor those of competitors have been successful to date in garnering meaningful liquidity. 24 The Company in 2000 also continued to modify and fine tune the MEB System, its proprietary middle-office trade processing system that also incorporates an electronic touchpad blotter application for capturing trade information. These efforts included deploying the MEB System across the Company's repurchase agreement operations and its new U.S. government agencies desk, as well as developing an interface to feed data directly from the Tradesoft System front end into the MEB System. Although to date the MEB System has only been deployed internally, the Company believes that there may be an untapped revenue potential in licensing the MEB System and its unique technology and risk-management features to third parties. The third quarter of 2000 also saw the Company's licensing of a secure e-mail trade confirmation system from PostX Corporation, with anticipated deployment of the system in mid-2001. The system represents an additional element in the Company's strategy of using advanced technology to provide the best possible client service. Upon its anticipated deployment within the Company's derivatives department, the system is expected to enable the Company to offer its client base the advantage of secure, encrypted trade confirmations delivered by e-mail promptly after execution, and the ability to respond immediately with secure e-mail verifications or queries. After repurchasing 2,986,345 shares of Common Stock in mid-1999 in a single, negotiated transaction at a price of $1.75 per share, the Company's Board of Directors in May 2000 authorized an open market repurchase program for up to 10% of the outstanding Common Stock, or 833,744 shares. By mid-January 2001, the Company had completed the repurchase of the full 833,744 shares authorized under the program, at an average price of $1.42 per share. The Board of Directors then increased the authorization under the program to allow the repurchase of up to an additional 787,869 shares, or 10% of the Common Stock outstanding at that time. As of March 23, 2001, the Company had repurchased an additional 256,800 shares pursuant to this extension of the program, at an average price of $1.66 per share. Management recommended and implemented the repurchase program in the belief that the Common Stock at the market valuations then prevailing represented an attractive long-term investment for the Company and would increase value for the Company's remaining stockholders. The year 2000 also saw the Company continue the process of paring down its already low level of debt, ending the year with notes and loans payable at a historically low level of $1.7 million, down from $2.5 million at 1999 year end and $3.8 million at 1998 year end. These management initiatives were implemented in a business and marketplace environment that continues to be extremely competitive and challenging. The Company's primary client base continues to undergo consolidations, resulting in surviving financial institutions that are increasingly large and have greater purchasing power, as well as fewer market participants. In addition, the inter-dealer brokerage business continues to see new entrants in the form of electronic marketplaces, often with significant capital markets backing. Several have been established by existing money and securities brokers, others by consortia of 25 banks and institutional market participants, and some with a combination of both. The Company believes its own technology initiatives and assortment of product offerings have to date positioned it to meet these competitive threats, but the landscape is constantly evolving and the Company continuously needs to adapt its business methods and strategies. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Commission income for 2000 decreased $9,093,421 to $144,057,920, compared to $153,151,341 for 1999. The decrease resulted primarily from the combined effect of decreased brokerage in London and Geneva of approximately $10.1 million, offset in part by the combined effect of increased brokerage in New York and Mexico City of approximately $1.5 million. The reduction in London primarily resulted from decreased brokerage on interest rate derivative products and the currency effects of translating weakened British pound sterling amounts to U.S. dollars, offset in part by increased brokerage on emerging market debt securities. The decline in Geneva was primarily the result of a reduction in brokerage staff and the transfer of some customer relationships to the London office. In New York, the increase reflected the net effects of an increase in brokerage of U.S. Treasury repurchase agreements as a result of the hiring of a new brokerage team during the fourth quarter of 1999, an increase in brokerage of interest rate derivative products, reflecting both improved market activity and market share, a decrease in brokerage relating to the discontinuance of certain operations in late 1999 and 2000, including parts of the Company's energy-related derivatives operations, and a decrease in brokerage of emerging market debt securities reflecting reduced market activity. The increase in Mexico City primarily resulted from improved market conditions for local market debt. Interest income for 2000 decreased $56,215 to $1,823,285, compared to $1,879,500 for 1999, primarily reflecting a reduction in the average inventory of municipal securities held. Other income for 2000 increased $3,411,700 to $5,710,975, compared to $2,299,275 for 1999, primarily due to a one-time gain on a partial sale of the Company's interest in the Tokyo Partnership, net of related transaction costs, of approximately $2.2 million (approximately $1.5 million on an after-tax basis), a full period of income derived from the Company's licensing agreement with Telerate for a variety of pricing and other data on emerging market bonds, and an increase in trading gains on municipal securities transactions. Compensation and related costs for 2000 decreased $1,566,001 to $106,904,658, compared to $108,470,659 for 1999. The decrease was primarily the result of decreased employment costs in London and Geneva of approximately $4.4 million, reflecting decreased commission income and the currency effects of translating weakened British pound sterling amounts to U.S. dollars. This decrease was partially offset by increased employment costs in New York and Mexico City of approximately $3.3 million, reflecting increased operating revenues (commission income, trading gains and information sales revenue) and improved profitability in certain areas. As a percentage of operating revenues, compensation and related costs increased to 26 72% for 2000 as compared to 70% for 1999, primarily reflecting fixed salary costs in certain derivatives brokerage groups in London that experienced reduced brokerage. Communication costs for 2000 decreased $1,653,589 to $13,430,339, compared to $15,083,928 for 1999, primarily as a result of cost reduction efforts in New York throughout 1999 and into 2000. Travel and entertainment costs for 2000 decreased $393,290 to $8,313,068, compared to $8,706,358 for 1999. As a percentage of operating revenues, travel and entertainment costs were consistent for 2000 and 1999 at 5.6%, reflective of continued efforts to control and correlate these costs to revenue levels. Occupancy costs represent expenses incurred in connection with various operating leases for the Company's office premises and include base rent and related escalations, maintenance, electricity and real estate taxes. In 2000, these costs decreased $129,884 to $4,743,986, compared to $4,873,870 for 1999, primarily reflecting the combined effect of a reduction in leased space in Stamford, Connecticut as a result of the closing of certain departments within the energy-related derivatives group, and a reduction in rent tax rates in London, offset in part by the effect of a reduction in certain occupancy-related accruals in 1999 of approximately $527,000. Depreciation and amortization expense consists principally of depreciation of communication and computer equipment and leased automobiles and amortization of leasehold improvements, software, goodwill and other intangible assets. In 2000, these costs decreased $356,567 to $4,008,937, compared to $4,365,504 for 1999, primarily as a result of a reduction in depreciable equipment, offset in part by an increase in amortizable software, goodwill and other intangible assets. The decrease in depreciable equipment reflected in part the Company's increased use of operating leases to finance the upgrading of communication and information systems during 1999 and 2000, while the increase in amortizable software, goodwill and other intangible assets primarily reflected the effects of the Tradesoft acquisition. Clearing fees are fees for transaction settlements and credit enhancements, which generally are charged by the Company's clearing firms in transactions where the Company acts as a riskless principal on a fully matched basis. In 2000, these expenses increased $302,017 to $3,307,802, compared to $3,005,785 for 1999, primarily due to an increase in the number of cleared U.S. Treasury repurchase agreements transactions, offset in part by a net decrease in the number of cleared emerging market debt transactions. Interest expense for 2000 decreased $238,978 to $594,957, compared to $833,935 for 1999, primarily as a result of the combined effect of a lower average aggregate amount of debt (loan, notes and capitalized lease obligations payable) outstanding and a decrease in average margin borrowings to finance municipal securities positions. 27 Restructuring costs of $541,961 were incurred during 2000, as compared to $1,028,893 in 1999. In 2000, these costs related to the ceasing of operations by the Company's Toronto-based subsidiary in June 2000 and the notice given in December 2000 to close EBFL's Paris branch in January 2001. A portion of the business previously conducted in Toronto has been relocated to New York. The restructuring costs in 1999 were incurred in connection with the anticipated admission of Nittan to the Tokyo Partnership and the closing of certain departments within the energy-related derivatives group. Included in these costs for 2000 and 1999 were employee severance, the disposal/write-off of fixed assets and occupancy-related costs. General, administrative and other expenses include such expenses as corporate insurance, office supplies and expenses, legal fees, audit and tax fees, consulting fees, food costs and dues to various industry associations. In 2000, these expenses decreased $214,360 to $5,588,212, as compared to $5,802,572 for 1999, primarily as a result of a reduction in consumption taxes in Europe and reductions in various other general and administrative expenses due to continued efforts to reduce these costs, offset in part by an increase in professional fees and a one-time charge of $477,000 attributable to Tradesoft's in-process research and development initiatives ongoing at the date of acquisition. For 2000, the Company had income from its 15% equity interest in Yagi Euro of $135,890, as opposed to a loss of $1,576,644 for 1999. Yagi Euro experienced significant restructuring activities in late 1999 and early 2000 relating to Nittan's admission to the Tokyo Partnership and the combining of Yagi Euro's money market and forward foreign exchange businesses with those of Nittan in a separate joint venture. In 2000, the Company's share of a gain realized by Yagi Euro on its restructuring activities was approximately $86,000. In 1999, the Company's share of expenses incurred by Yagi Euro on its restructuring activities approximated $1,031,000. Provision for income taxes for 2000 increased $2,427,089 to $3,543,220, compared to $1,116,131 for 1999. This increase was primarily reflective of a $1,200,000 adjustment during the prior period to reduce income tax reserves as a result of obtaining a favorable resolution to certain contingencies and a reduction of approximately $972,000 during the prior period to the deferred tax asset valuation allowance due to tax planning strategies derived from the Nittan transaction and improved profitability in certain subsidiaries. Exclusive of these adjustments, the Company's effective tax rate was lower for 2000, as compared to 1999, primarily reflecting the impact of the significant loss incurred by the Company's foreign equity affiliate (Yagi Euro) in 1999. For the year ended December 31, 2000, minority interest in consolidated subsidiaries resulted in a reduction of net losses from such subsidiaries of $1,251,169, as compared to a reduction of net losses from such subsidiaries of $66,375 for 1999, primarily as a result of reduced brokerage activity in EBFL. 28 YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Commission income for 1999 increased $3,858,319 to $153,151,341, compared to $149,293,022 for 1998. The increase resulted primarily from increased brokerage in London and Geneva, aggregating approximately $14.1 million, offset in part by decreased brokerage in New York and Mexico City, aggregating approximately $7.0 million, and decreased brokerage in the Tokyo Partnership of approximately $2.9 million. The increased brokerage in London and Geneva primarily reflected the expansion, as of January 1, 1999, of the London operations through the EBFL venture and the impact of the Geneva operations, which commenced in July 1998. Brokerage in New York and Mexico City declined primarily as a result of reduced market activity in both centers in emerging market debt securities and, in New York, reduced brokerage in energy-related derivatives, offset in part by increased brokerage in cash deposits and interest rate derivatives. The decreased brokerage in the Tokyo Partnership primarily reflected the impact of increased competitive pressures and reduced market activity. Interest income for 1999 increased by $142,097 to $1,879,500, compared to $1,737,403 for 1998. This increase resulted primarily from an increase in the average inventory of municipal securities held by the Company. Other income for 1999 increased $1,509,885 to $2,299,275, compared to $789,390 for 1998, primarily due to income derived from the Company's May 1999 licensing agreement with Telerate for a variety of pricing and other data on emerging market bonds and an increase in trading gains on municipal securities transactions. Compensation and related costs for 1999 increased $7,943,569 to $108,470,659, compared to $100,527,090 for 1998. The increase was primarily the result of increased employment costs in London and Geneva, aggregating approximately $9.2 million, reflecting an increase in brokerage staff and commission income in conjunction with the expansion of the London operations in EBFL and the new Geneva operations, and increased employment costs in the Tokyo Partnership, approximating $2.3 million, reflecting increased competitive pressures and an increase in brokerage staff. These increases were partially offset by reduced employment costs in New York and Mexico City, aggregating approximately $3.3 million, primarily reflecting reduced commission income and implemented cost reductions in the emerging market debt and energy-related derivatives areas. As a percentage of operating revenues, compensation and related costs increased to approximately 70% for 1999, as compared to approximately 67% for 1998, primarily resulting from certain fixed salary costs in areas which sustained reduced revenues. Communication costs were comparable for 1999 and 1998, at $15,083,928 and $14,726,069, respectively, reflecting the net effects of an increase in London associated with the expanded operations of EBFL, additional costs from the Geneva operations and a decrease in New York associated with overall cost reductions in certain areas. 29 Travel and entertainment costs for 1999 decreased $391,953 to $8,706,358, compared to $9,098,311 for 1998, primarily as a result of management's continued focus on reducing these costs, while at the same time increasing revenues. As a percentage of operating revenues, travel and entertainment costs decreased to approximately 5.6% for 1999, as compared to 6.1% for 1998. Occupancy costs for 1999 decreased $1,191,262 to $4,873,870, compared to $6,065,132 for 1998, primarily reflecting the combined effect of a reduction in rent and related costs derived from subletting a portion of the Company's leased space in London (which commenced in September 1998), an overall rent tax rate reduction in London and an approximately $527,000 reduction in certain occupancy-related accruals. Depreciation and amortization expense for 1999 decreased $639,122 to $4,365,504, compared to $5,004,626 for 1998, primarily due to a reduction in depreciable fixed assets in London. Clearing fees decreased $1,582,385 to $3,005,785 for 1999, compared to $4,588,170 for 1998, due primarily to a decrease in the number of cleared transactions, primarily in emerging market debt securities. Interest expense for 1999 decreased $245,212 to $833,935, compared to $1,079,147 for 1998. This decrease was primarily the result of a lower average aggregate amount of debt outstanding during the current period. Restructuring costs of $1,028,893 were incurred during 1999, in connection with the anticipated admission of Nittan to the Tokyo Partnership and the closing of certain departments within the energy-related derivatives group. These costs included, among others, employee severance, the write-off of leasehold improvements and occupancy-related costs. General, administrative and other expenses decreased $978,308 to $5,802,572, for 1999, as compared to $6,780,880 for 1998, primarily as a result of a decrease in professional fees, which were higher in 1998 due to the Finacor transaction in London, the opening of the Geneva office and other corporate matters. In connection with management's continued efforts to reduce costs, there were also reductions in various other general and administrative expenses during 1999 in comparison to 1998, notwithstanding the fact that the 1998 costs were themselves reduced by reductions to various accruals approximating $462,000. Loss from equity affiliates for the year ended December 31, 1999 consisted of the Company's equity interest in the loss incurred by Yagi Euro. Approximately $1.0 million of this loss represented the Company's share of employee severance costs and fixed asset disposals incurred in anticipation of the 50-50 joint venture in conventional products formed by Yagi Euro and Nittan, effective January 1, 2000. In 1998, the loss resulted from a write-off of the Company's equity interest in a small derivatives broker of $118,000, offset in part by the Company's share of Yagi Euro's profits for 1998. 30 Provision for income taxes for 1999 decreased $2,834,514 to $1,116,131, compared to $3,950,645 for 1998. This decrease was primarily reflective of a $1,200,000 adjustment during the current period to reduce income tax reserves as a result of obtaining a favorable resolution to certain contingencies, as well as a reduction to the deferred tax asset valuation allowance of approximately $972,000 due to tax planning strategies derived from the Nittan transaction and improved profitability in certain subsidiaries. Even exclusive of these adjustments, the Company's effective tax rate was lower for 1999, as compared to 1998, reflecting a lower tax rate on income generated by the Tokyo Partnership as a result of certain initiatives undertaken effective as of January 1, 1999, and management's success in reducing the Company's overall level of non-deductible entertainment expenses. For 1999, minority interest in consolidated subsidiaries resulted in a reduction of net losses from such subsidiaries of $66,375, as compared to a reduction of net income from such subsidiaries of $1,254,970 for 1998, primarily due to the competitive pressures encountered by the Tokyo Partnership. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES A substantial portion of the Company's assets, similar to other brokerage firms, is liquid, consisting of cash, cash equivalents and assets readily convertible into cash, such as 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 client needs and are currently financed by margin borrowings from a broker-dealer that clears these transactions on the Company's behalf on a fully-disclosed basis. At year-end 2000, as reflected on the Consolidated Statements of Financial Condition, the Company had net assets relating to securities transactions of approximately $3.6 million, reflecting securities owned of approximately $10.7 million, financed by a payable to the clearing broker of approximately $7.1 million. MFI is a member of the GSCC for the purpose of clearing U.S. Treasury and government agency repurchase agreements and other U.S. Treasury securities, as well as U.S. government agency securities. Pursuant to such membership, MFI is required to maintain excess regulatory net capital of $10,000,000, including a pledge of $5,000,000 in U.S. Treasury securities, which has been reflected as deposits with clearing organizations on the Consolidated Statements of Financial Condition. 31 Net cash provided by operations for 2000 was approximately $6.7 million. This increase in cash was the result of net income of approximately $2.0 million adjusted to reflect the net effect of approximately $2.4 million of non-cash items, primarily consisting of depreciation and amortization, the gain on the partial sale of the Company's interest in the Tokyo Partnership, minority interest in the loss of consolidated subsidiaries and the decrease to net deferred income tax assets, and the net positive effects of other working capital items, principally increased accrued compensation and decreased prepaid expenses and other assets. Net cash provided by operations for 1999 was approximately $9.8 million. This increase in cash was the combined result of net income of approximately $2.5 million adjusted to reflect the net effect of approximately $5.8 million of non-cash items, primarily consisting of depreciation and amortization, undistributed losses of unconsolidated subsidiaries and an increase to deferred income taxes, and the net positive effects of other working capital items, principally reduced receivable balances. Net cash provided by operations for 1998 was approximately $1.1 million. This increase in cash was the result of a net loss of approximately $1.3 million adjusted to reflect approximately $6.8 million of non-cash items, principally for depreciation and amortization and deferred income taxes, and the net negative effects of other working capital items, principally reduced payable balances. 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 expects to be able to continue to do so in the future. In London, the Company's wholly-owned securities subsidiary, Euro Brokers Financial Services Limited ("EBFSL"), has been notified by its regulator, the SFA, of an interpretative change by the SFA under its rules in the categorization of EBFSL's business activities, such that increased regulatory capital requirements would apply. Rather than tie up extra capital in EBFSL's business, the Company has decided to transfer the business of EBFSL into a new London branch office of the Company's U.S. broker-dealer subsidiary, MFI (which already conducts the same emerging markets debt business as EBFSL), and has received initial approvals to do so from both the SFA and the NASDR. The transfer is expected to be effected during 2001. 32 INVESTING ACTIVITIES Investing activities for 2000, 1999 and 1998 reflect net cash used of approximately $2.0 million, $1.0 million and $3.6 million, respectively, primarily for purchases of fixed assets. The decrease in fixed asset purchases during 1999 reflected, in part, the Company's increased use of operating leases to finance much of the upgrading of communication and information systems necessary to sustain the Company's commitment to maintaining current technology. Investing activities for 2000 also included approximately $267,000 received, relating to the net effect of proceeds received on the partial sale of the Company's interest in the Tokyo Partnership and the cash portion paid out in the Tradesoft acquisition. FINANCING ACTIVITIES At December 31, 2000, the Company did not have a loan outstanding under its revolving credit facility with General Electric Capital Corporation ("GECC"). The facility provides for borrowings of up to $5 million. It expires on June 17, 2004 and is secured by substantially all the assets of Euro Brokers Inc. ("EBI"), a U.S. subsidiary. The borrowing availability under the facility (which approximated $3.1 million at December 31, 2000) 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 December 31, 2000 of approximately $1.7 million reflects the remaining principal installments of approximately $827,000 due on a fixed rate note payable to GECC issued in December 1997, which is secured by all owned equipment of EBI and is payable in monthly installments through December 2002, and subordinated notes issued by EBFL to Monecor (London) Limited ("Monecor"), a subsidiary of Finacor and the minority shareholder of EBFL, in the aggregate amount of (pound)600,000 (approximately $896,000 at December 31, 2000), due March 31, 2001 (subject to three months' notice and regulatory approval). Net cash used in financing activities for 2000 was approximately $2.6 million, primarily reflective of cash of approximately $894,000 used to acquire treasury stock, the repayment of notes payable and obligations under capitalized leases aggregating approximately $1,196,000, and the net repayment of borrowings under the revolving credit facility of approximately $674,000. Net cash used in financing activities for 1999 was approximately $4.0 million, primarily reflective of the net effects of cash of approximately $4.2 million used to acquire treasury stock, the repayment of notes payable and obligations under capitalized leases aggregating approximately $3.4 million, the cash contribution from minority interest, net of dividends paid to minority interest, of approximately $3.1 million, and net borrowings under the revolving credit facility of approximately $674,000. 33 Net cash used in financing activities for 1998 was approximately $780,000, primarily reflective of the net effects of the repayment of notes payable and obligations under capital leases aggregating approximately $2.7 million, and the issuance of the Preferred Stock to Yagi Euro for $2.0 million. EFFECTS OF INFLATION Because the Company's assets are to a large extent liquid in nature, the Company believes it is less susceptible to the negative effects of inflation than companies with high levels of inventories or fixed assets exposed to increasing replacement costs. Moreover, to the extent the earning power of the Company's liquid assets diminishes in an inflationary environment, the effects tend to be offset by the salutary consequences of inflation on the true cost of paying the Company's current liabilities. However, increases in certain Company expenses due to inflation, such as employee compensation, travel and entertainment and occupancy and communication costs may not be readily recoverable in the price of its services. In addition, to the extent inflation increases or decreases volatility in the securities markets, the Company's brokerage business is likely to be affected by corresponding increases or decreases in brokerage transaction volumes. FORWARD LOOKING STATEMENTS Certain statements contained in this Item 7 and elsewhere in this report, as well as other oral and written statements made by the Company to the public, contain and incorporate by reference forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these forward-looking statements by words such as "believes," "anticipates," "expects" and similar phrases. Such forward-looking statements, which describe the Company's current beliefs concerning future business conditions and the outlook for the Company, are subject to significant uncertainties, many of which are beyond the control of the Company. Actual results or performance could differ materially from that expected by the Company. Uncertainties include factors such as market and economic conditions, the success of technology development and deployment, the status of relationships with employees, clients, business partners and clearing firms, possible third-party litigations or other unanticipated contingencies, the actions of competitors, and government regulatory changes. For a fuller description of these and additional uncertainties, reference is made to the "Competition," "Regulation" and "Cautionary Statements" captions of Item 1 of this report, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" caption of Item 7 of this report and the "Quantitative and Qualitative Disclosures about Market Risk" caption of Item 7A of this report. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 34 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management of the Company is actively involved in the evaluation of risks associated with certain financial instruments and will from time to time reduce other risks inherent in its businesses through the use of financial instruments. The Company reduces market risk related to its municipal securities positions by limiting both the size of its overall positions and the number of days positions are held. In addition, the Company from time to time sells interest rate sensitive financial futures contracts as a means of managing market risk on its municipal securities positions. Management closely monitors the Company's municipal securities positions on a daily basis through its review of daily activity and position reports prepared by operations staff. These reports detail all executed transactions, the resulting trading gains and sales commissions and, using independently verified market prices, the closing positions. At December 31, 2000, the Company held municipal securities positions with an aggregate market value of approximately $10.7 million. In the process of executing brokerage transactions, the Company sometimes experiences "out trades" or other errors in which the Company may have liability for the resulting unmatched position. The occurrence of out trades generally rises with increases in the volatility of the market. If an out trade is promptly discovered, thereby allowing prompt disposition of the unmatched position, the risk to the Company is usually limited. If discovery (or disposition) is delayed, the risk is heightened by the increased possibility of intervening market movements prior to such disposition. The Company believes that the MEB System, including its electronic blotter application, because of its ability to identify unbalanced trade conditions as they occur, serves to help limit the market risk exposure when out trades or other errors occur. To limit its exposure further in such situations, the Company's policy is to dispose of any resulting unmatched positions promptly after their discovery. The Company has various foreign exchange rate exposures, including commission income earned in a currency other than the functional currency and foreign income streams which are eventually distributed. Management's strategies to reduce these risks include the use of foreign currency forward contracts. As a result of the early adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, changes in the deemed highly effective portion of the fair value of foreign currency forward contracts used to hedge commission income earned in a currency other than the functional currency are deferred from recognition into earnings until the forecasted revenue streams are realized. As of year-end 2000 and 1999, the Company has postponed its hedging practice with respect to anticipated dividends from the Tokyo Partnership, awaiting a time when it can better predict the income streams therefrom. If and when foreign currency forward contracts are again used to hedge these anticipated dividends, the gains and losses thereon will be included in current operations even though the offsetting gains and losses on the income streams are not recognized until realized. 35 The Company's note payable to GECC and Preferred Stock have interest and dividend rates that are fixed. Although the Company has theoretical interest rate exposure with these instruments should market interest rates decline or rise, management's judgment is that the aggregate future required payments under these instruments are satisfactory as a business matter, and do not require application of hedging strategies. In addition, the Company's exposure to fixed interest rates has declined during 2000 as a result of the maturing of certain notes payable. The subordinated notes payable to Monecor and any borrowings under the facility with GECC bear interest at variable rates. Management will continue to monitor the level of borrowings under the GECC facility as well as the interest rate environment to determine the necessity of a hedging strategy to guard against increases in market interest rates. The tables below provide information, at each of December 31, 2000 and December 31, 1999, about the Company's financial instruments used for other than trading purposes that are sensitive to either changes in interest rates or changes in foreign exchange rates. Except as noted above, the Company's market risk analysis at December 31, 2000 did not materially change from the market risk analysis at December 31, 1999. For loan and notes payable and Preferred Stock the table presents principal and redemption cash flows with expected maturity dates. For foreign currency forward contracts, the table presents notional amounts with expected maturity dates. 36 AS OF DECEMBER 31, 2000:
AFTER FAIR 2001 2002 2005 TOTAL VALUE ---------- ---------- ---------- ---------- ---------- Interest rate sensitivity: Loan payable $ $ $ $ $ 7.9% note secured by certain equipment 511,312 316,057 827,369 827,369 Subordinated notes issued to minority shareholder 895,800 895,800 895,800 2% Redeemable Preferred Stock 2,000,000 2,000,000 2,000,000 Exchange rate sensitivity: Foreign currency forward contracts: Sell U.S. dollars/buy British pounds sterling 9,600,000 9,600,000 46,177 AS OF DECEMBER 31, 1999: AFTER FAIR 2000 2001 2002 2004 TOTAL VALUE ---------- ---------- ---------- ---------- ---------- ---------- Interest rate sensitivity: Loan payable $ 674,282 $ $ $ $ 674,282 $ 674,282 7.9% note secured by certain equipment 472,501 511,312 316,057 1,299,870 1,299,870 10% note issued in connection with the repurchase of Common Stock 500,000 500,000 500,000 2% Redeemable Preferred Stock 2,000,000 2,000,000 2,000,000 Exchange rate sensitivity: Foreign currency forward contracts: Sell U.S. dollars/buy British pounds sterling 2,400,000 2,400,000 17,026
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item 8 is included as a separate section of this report. See Item 14 and the F-pages that follow. 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This Item 9 is not applicable to the Company. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated herein by reference to the Company's definitive proxy statement for the Company's 2001 Annual Meeting of Stockholders (the "Proxy Statement"). The Company intends to file the Proxy Statement with the SEC on or prior to April 30, 2001. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the Proxy Statement, except that such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(9) of Regulation S-K. The Company intends to file the Proxy Statement with the SEC on or prior to April 30, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the Proxy Statement. The Company intends to file the Proxy Statement with the SEC on or prior to April 30, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the Proxy Statement. The Company intends to file the Proxy Statement with the SEC on or prior to April 30, 2001. Nothing in this Part III, or elsewhere in this report, shall be deemed to specifically incorporate by reference any of the information required by Item 306 of Regulation S-K or referred to in Item 402(a)(9) of Regulation S-K 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS Listed on page F-2 of the Consolidated Financial Statements included in this report. (a)(2) FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements. (a)(3) EXHIBITS Listed in the Exhibit Index appearing at page X-1 of this report. (b) REPORTS ON FORM 8-K During the fourth quarter of its fiscal year ended December 31, 2000, the Company did not file any Current Reports on Form 8-K. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAXCOR FINANCIAL GROUP INC. By: /S/ GILBERT D. SCHARF --------------------------------- Gilbert D. Scharf, Chairman of the Board, President and Chief Executive Officer Dated: March 30, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ GILBERT D. SCHARF Chairman of the Board, March 30, 2001 - ------------------------------ President and Chief Gilbert D. Scharf Executive Officer (Principal Executive Officer) /s/ KEITH E. REIHL Chief Financial Officer March 30, 2001 - ------------------------------ and Director (Principal Keith E. Reihl Financial Officer) /s/ STEVEN R. VIGLIOTTI Treasurer (Principal March 30, 2001 - ------------------------------ Accounting Officer) Steven R. Vigliotti /s/ LARRY S. KOPP Director - ------------------------------ March 30, 2001 Larry S. Kopp /s/ MICHAEL J. SCHARF Director - ------------------------------ March 30, 2001 Michael J. Scharf /s/ JAMES W. STEVENS Director - ------------------------------ March 30, 2001 James W. Stevens /s/ FREDERICK B. WHITTEMORE Director - ------------------------------ March 30, 2001 Frederick B. Whittemore /s/ WILLIAM B. WIGTON Director - ------------------------------ March 30, 2001 William B. Wigton /s/ OSCAR M. LEWISOHN Director - ------------------------------ March 30, 2001 Oscar M. Lewisohn /s/ ROBIN A. CLARK Director - ------------------------------ March 30, 2001 Robin A. Clark 40 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 F-1 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 Contents Page ================================================================================ Report of Independent Accountants F-3 Consolidated Financial Statements: Consolidated Statements of Financial Condition F-4 Consolidated Statements of Operations F-6 Consolidated Statements of Changes in Stockholders' Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to the Consolidated Financial Statements F-10 F-2 [LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP] REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of Maxcor Financial Group Inc. In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Maxcor Financial Group Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP New York, New York March 21, 2001 F-3 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, December 31, 2000 1999 ----------- ----------- ASSETS Cash and cash equivalents $21,465,004 $20,054,275 Deposits with clearing organizations 6,334,093 6,800,390 Receivable from broker-dealers and customers 15,553,303 16,027,907 Securities owned, held at clearing firm 10,720,211 9,479,694 Prepaid expenses and other assets 5,078,271 7,011,145 Deferred tax asset 2,116,581 3,752,385 Equity in affiliated companies 1,552,757 1,595,852 Fixed assets 7,400,494 6,959,569 Intangible assets 1,579,079 786,741 ----------- ----------- Total assets $71,799,793 $72,467,958 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-4 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED) December 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 - ------------------------------------ ------------ ------------ Liabilities: Payable to broker-dealer $ 7,116,240 $ 5,977,929 Accounts payable and accrued liabilities 12,004,494 14,924,573 Accrued compensation payable 15,778,214 13,046,001 Loan payable 674,282 Income taxes payable 114,732 723,392 Deferred taxes payable 1,078,760 523,052 Obligations under capitalized leases 335,635 493,367 Notes payable 1,723,169 1,799,870 ------------ ------------ 38,151,244 38,162,466 ------------ ------------ Minority interest in consolidated subsidiary 3,407,628 4,885,896 ------------ ------------ Commitments and contingencies (Notes 17 and 18) Redeemable preferred stock: Series B, 2% cumulative, stated value $1,000, 2,000 shares issued at December 31, 2000 and 1999 2,000,000 2,000,000 Stockholders' equity: Preferred stock, $.001 par value, 1,000,000 shares authorized; 2,000 shares of Series B issued at December 31, 2000 and 1999, reported above Common stock, $.001 par value, 30,000,000 shares authorized; 11,392,269 shares issued at December 31, 2000 and 1999 11,392 11,392 Additional paid-in capital 33,187,415 33,187,415 Treasury stock at cost; 3,271,434 and 3,054,832 shares of common stock held at December 31, 2000 and December 31, 1999, respectively (5,679,008) (5,454,036) Accumulated deficit (823,247) (2,608,011) Accumulated other comprehensive income: Foreign translation adjustments 1,494,319 2,282,836 Deferred hedging gains 50,050 ------------ ------------ Total stockholders' equity 28,240,921 27,419,596 ------------ ------------ Total liabilities and stockholders' equity $ 71,799,793 $ 72,467,958 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-5 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, December 31, December 31, 2000 1999 1998 ------------ ------------- ------------- Revenue: Commission income $144,057,920 $ 153,151,341 $ 149,293,022 Interest income 1,823,285 1,879,500 1,737,403 Other income 5,710,975 2,299,275 789,390 ------------ ------------- ------------- 151,592,180 157,330,116 151,819,815 ------------ ------------- ------------- Costs and expenses: Compensation and related costs 106,904,658 108,470,659 100,527,090 Communication costs 13,430,339 15,083,928 14,726,069 Travel and entertainment 8,313,068 8,706,358 9,098,311 Occupancy costs 4,743,986 4,873,870 6,065,132 Depreciation and amortization 4,008,937 4,365,504 5,004,626 Clearing fees 3,307,802 3,005,785 4,588,170 Interest expense 594,957 833,935 1,079,147 Restructuring costs 541,961 1,028,893 General, administrative and other expenses 5,588,212 5,802,572 6,780,880 ------------ ------------- ------------- 147,433,920 152,171,504 147,869,425 ------------ ------------- ------------- Subtotal 4,158,260 5,158,612 3,950,390 Income (loss) from equity affiliates 135,890 (1,576,644) (19,925) ------------ ------------- ------------- Income before provision for income taxes and minority interest 4,294,150 3,581,968 3,930,465 Provision for income taxes 3,543,220 1,116,131 3,950,645 ------------ ------------- ------------- Income (loss) before minority interest 750,930 2,465,837 (20,180) Minority interest in loss (income) of consolidated subsidiaries 1,251,169 66,375 (1,254,970) ------------ ------------- ------------- Net income (loss) $ 2,002,099 $ 2,532,212 ($ 1,275,150) ============ ============= ============= Weighted average common shares outstanding - basic 8,374,166 9,711,974 11,327,741 Weighted average common shares outstanding - diluted 8,374,166 9,846,257 11,327,741 Basic earnings (loss) per share $.23 $.26 ($.11) Diluted earnings (loss) per share $.23 $.25 ($.11) The accompanying notes are an integral part of these consolidated financial statements. F-6 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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 year ended December 31, 1999 $ 2,532,212 2,532,212 2,532,212 Other comprehensive income Foreign translation adjustment (inclusive of income tax benefit of $111,648) 359,974 359,974 359,974 ----------- Comprehensive income $ 2,892,186 =========== Acquisition of treasury stock (5,226,104) (5,226,104) Redeemable preferred stock dividends (40,000) (40,000) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1999 11,392 33,187,415 (5,454,036) (2,608,011) 2,282,836 27,419,596 Comprehensive income Net income for the year ended December 31, 2000 $ 2,002,099 2,002,099 2,002,099 Other comprehensive income Foreign translation adjustment (net of income tax benefit of $171,940) (788,517) (788,517) (788,517) Deferred hedging gain (net of income tax expense of $12,519) 50,050 50,050 50,050 ----------- Comprehensive income $ 1,263,632 =========== Acquisition of treasury stock (894,494) (894,494) Issuance of shares from treasury stock 669,522 (177,335) 492,187 Redeemable preferred stock dividends (40,000) (40,000) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2000 $ 11,392 $33,187,415 ($5,679,008) ($ 823,247) $ 1,544,369 $28,240,921 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-7 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, December 31, December 31, 2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ 2,002,099 $ 2,532,212 ($1,275,150) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,008,937 4,365,504 5,004,626 Provision for doubtful accounts (50,635) (8,492) 53,777 Gain on partial sale of subsidiary (2,235,511) In-process research and development from acquisition 477,000 Net loss on disposal of fixed assets 79,420 173,635 31,423 Undistributed (earnings) losses of unconsolidated subsidiaries (373,737) 2,271,382 (329,082) Minority interest in (loss) earnings of consolidated subsidiaries (1,181,135) 244,597 Imputed interest expense 28,035 57,556 Deferred income taxes 1,666,251 (1,295,768) 1,957,221 Change in assets and liabilities, net of effect from purchase of subsidiary: Decrease in deposits with clearing organizations 466,297 320,643 1,931,334 Decrease in receivable from broker-dealers and customers 52,248 2,253,197 3,268,139 (Increase) decrease in securities owned, held at clearing firm (1,240,517) 2,098,821 (1,081,050) Decrease in prepaid expenses and other assets 1,793,188 432,242 181,235 Decrease in short-term bank loans (6,225,928) Increase (decrease) in payable to broker-dealer 1,138,311 (1,867,561) 7,414,513 Decrease in securities sold, not yet purchased (780,849) Decrease in accounts payable and accrued liabilities (2,516,711) (241,843) (2,489,237) Increase (decrease) in accrued compensation payable 3,305,835 (1,868,251) (4,129,233) (Decrease) increase in income taxes payable (652,977) 360,883 (2,456,795) ----------- ----------- ----------- Net cash provided by operating activities 6,738,363 9,799,236 1,132,500 ----------- ----------- ----------- Cash flows from investing activities: Purchase of fixed assets (2,493,760) (1,299,408) (4,073,603) Proceeds from the sale of fixed assets 266,745 295,062 406,950 Dividends received from equity affiliates 38,511 36,771 Proceeds from partial sale of subsidiary 2,399,002 Purchase of subsidiary, net of cash acquired (2,131,896) ----------- ----------- ----------- Net cash used in investing activities (1,959,909) (965,835) (3,629,882) ----------- ----------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-8 MAXCOR FINANCIAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the Year Ended December 31, December 31, December 31, 2000 1999 1998 ----------- ----------- ----------- Cash flows from financing activities: Cash contribution from minority interest 40,000 3,691,972 Dividend paid to minority interest (614,726) Issuance of note payable to minority shareholder 149,300 Net (repayment of) borrowings under revolving credit facility (674,282) 674,282 Repayment of notes payable (972,501) (3,026,697) (2,520,331) Issuance of redeemable preferred stock 2,000,000 Redeemable preferred stock dividends (40,000) (40,000) (10,000) Repayment of obligations under capitalized leases (223,774) (421,081) (231,137) Acquisition of treasury stock (894,494) (4,226,104) (18,481) ----------- ----------- ----------- Net cash used in financing activities (2,615,751) (3,962,354) (779,949) ----------- ----------- ----------- Effect of exchange rate changes on cash (751,974) 32,932 385,996 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,410,729 4,903,979 (2,891,335) Cash and cash equivalents at beginning of year 20,054,275 15,150,296 18,041,631 ----------- ----------- ----------- Cash and cash equivalents at end of year $21,465,004 $20,054,275 $15,150,296 =========== =========== =========== Supplemental disclosures of cash flow information: Interest paid $ 622,080 $ 894,147 $ 1,032,853 Income taxes paid 1,103,001 934,184 2,773,146 Non-cash financing activities: Capital lease obligations incurred 97,762 180,591 Contribution of non-cash assets from minority interest 1,962,886 Assumption of liabilities of minority interest 247,508 Issuance of notes payable to acquire treasury stock 1,000,000 Conversion of account payable to note payable 737,700 Issuance of shares from treasury stock to acquire subsidiary 492,187 The accompanying notes are an integral part of these consolidated financial statements. F-9 MAXCOR FINANCIAL GROUP INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: - ------------------------------------------------ Maxcor Financial Group Inc. ("MFGI") is a publicly-held financial services holding company that was incorporated in Delaware in 1994. In August 1996, MFGI acquired Euro Brokers Investment Corporation ("EBIC"), a privately held international and domestic inter-dealer broker, in a merger transaction (the "Merger"). In August 2000, MFGI acquired Tradesoft Technologies, Inc. ("Tradesoft"), a privately held developer of e-commerce technology. EBIC, incorporated in December 1986 in connection with a management buyout of predecessor operations dating to 1970, through its subsidiaries and affiliates is primarily an inter-dealer broker of money market instruments, derivative products and selected securities, with principal offices in New York, London and Tokyo, and other offices in Geneva and Mexico City, as well as correspondent relationships with other brokers throughout the world. Tradesoft is a developer of leading-edge e-commerce trading systems and matching engines to enable customers to deal electronically through the automation of order entry, price distribution, order matching and straight through processing. The consolidated financial statements include the accounts of MFGI and its majority-owned subsidiaries and other entities over which it exercises control (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. Investments in unconsolidated affiliates where the Company may exercise significant influence over operating and financial policies have been accounted for using the equity method. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: - ----------------------------------------- REVENUE RECOGNITION: - ------------------- Commission income and related expenses are recognized on a trade date basis. Revenue from the sale of financial information is included in other income and is recognized on a pro-rata basis over the terms of the respective agreements. Any payments received in advance are deferred and are included in accounts payable and accrued liabilities. SECURITIES TRANSACTIONS: - ----------------------- Securities transactions are recorded on a trade date basis. Securities owned, held at clearing firm, are carried at market value, with unrealized gains and losses reflected in operations. CASH AND CASH EQUIVALENTS: - ------------------------- The Company considers all short-term investments with an initial maturity of three months or less to be cash equivalents. F-10 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): - ----------------------------------------------------- FIXED ASSETS: - ------------ Depreciation of fixed assets is computed on a straight-line basis using estimated useful lives of 3 to 5 years. Leasehold improvements are amortized over the lesser of the terms of the related leases or the estimated useful lives of the improvements. INTANGIBLE ASSETS: - ----------------- Intangible assets principally include the values assigned to customer lists, assembled work-force and purchased goodwill, and are being amortized on a straight-line basis over their estimated useful lives, which range from 5 to 15 years. Accumulated amortization of intangible assets aggregated approximately $5,872,000 and $5,364,000 at December 31, 2000 and 1999, respectively. The Company has a policy of reviewing the carrying value of intangible assets to consider whether events or changes in circumstances have occurred which would indicate that the carrying amount of such assets may have been impaired. To date there have been no impairment losses with respect to intangible assets. FOREIGN CURRENCY TRANSLATION: - ---------------------------- Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using exchange rates at the end of the year; revenues and expenses are translated at average monthly rates during the year. Gains and losses on foreign currency translation of the financial statements of subsidiary operations whose functional currency is other than the U.S. dollar, together with related hedges and tax effects and the effect of exchange rate changes on intercompany transactions of a long-term investment nature, are reflected as foreign translation adjustments in the accumulated other comprehensive income section of stockholders' equity. Foreign currency exchange gains and losses from transactions and balances denominated in a currency other than the related operating subsidiary's functional currency are recorded in operations. FAIR VALUE OF FINANCIAL INSTRUMENTS: - ------------------------------------ The financial instruments of the Company are reported in the consolidated statements of financial condition at market values or at carrying amounts that management estimates approximate fair values as such financial instruments are short-term in nature or bear interest at rates approximating current market rates. INCOME TAXES: - ------------ Income taxes are accounted for using the asset and liability method. Deferred taxes are recognized for the tax consequences of temporary differences between the recognition of tax effects for financial statement purposes and income tax reporting purposes by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. A valuation allowance is recorded to reduce the deferred tax asset to only that portion that is judged more likely than not to be realized. USE OF ESTIMATES: - ---------------- The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. F-11 NOTE 3 - ACQUISITION OF TRADESOFT TECHNOLOGIES, INC.: - ----------------------------------------------------- On August 11, 2000, the Company acquired Tradesoft in a transaction accounted for as a purchase, for approximately $2.1 million in cash and the issuance of 375,000 shares of MFGI stock from treasury. As a result of the acquisition, approximately $988,000 in goodwill was recorded by the Company, which reflects the adjustments necessary to allocate the purchase price to the fair value of assets acquired (including certain identifiable intangibles) and includes an amount approximating $738,000, offset by an equal amount in deferred taxes payable, to account for the differences between these assigned values and their respective tax bases. The goodwill is being amortized over a 5 year period. The Company also recorded a one-time charge of $477,000 relating to Tradesoft's in-process research and development initiatives ongoing at the date of acquisition. This one-time charge is included in general, administrative and other expenses during the year ended December 31, 2000. The following details the unaudited pro forma consolidated operating revenues (commission income, trading gains, information sales revenue and software development and licensing fees), net income and earnings per share of the Company for the years ended December 31, 2000 and 1999 assuming the Tradesoft acquisition occurred on January 1, 1999. FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Operating revenues $147,646,676 $156,090,758 Net income 1,763,224 2,202,990 Earnings per share: Basic .21 .22 Diluted .21 .22 These results reflect Tradesoft's actual results during 1999 and for the 2000 interim period up to the date of acquisition with certain adjustments to eliminate software development fees between the Company and Tradesoft and the costs incurred by Tradesoft to develop such software, to depreciate and amortize Tradesoft's assets (including intangibles) based upon the fair values assigned in recording the combination, to record incremental interest on the additional revolving debt needed to finance the acquisition and to eliminate the one-time charge for in-process research and development. These results do not necessarily represent results which would have occurred if the acquisition had taken place on the basis noted above, nor are they indicative of future combined operations. F-12 NOTE 4 - EARNINGS PER SHARE: - ---------------------------- The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2000 and 1999 and 1998: 2000 1999 1998 ----------- ------------ ------------ Numerator (basic and diluted calculation): Net income (loss) $ 2,002,099 $ 2,532,212 ($ 1,275,150) Less redeemable preferred stock dividends (40,000) (40,000) (10,000) ----------- ------------ ------------ Net income (loss) available to common stockholders 1,962,099 2,492,212 (1,285,150) Denominator: Weighted average common shares outstanding - basic calculation 8,374,166 9,711,974 11,327,741 Dilutive effect of stock options 134,283 ------------ ------------- ------------ Weighted average common shares outstanding - diluted calculation 8,374,166 9,846,257 11,327,741 Earnings (loss) per share: Basic .23 .26 (.11) Diluted .23 .25 (.11) Antidilutive common stock equivalents: Options 1,755,000 85,000 1,650,000 Warrants 734,980 734,980 734,980 NOTE 5 - DEPOSITS WITH CLEARING ORGANIZATIONS: - ---------------------------------------------- Deposits with clearing organizations at December 31, 2000 and 1999 are comprised of the following: DECEMBER 31, DECEMBER 31, 2000 1999 ---------- ---------- Cash $ 414,687 $ 388,207 U.S. Treasury obligations 5,919,406 6,412,183 ---------- ---------- $6,334,093 $6,800,390 ========== ========== Pursuant to its membership in the Government Securities Clearing Corporation ("GSCC"), Maxcor Financial Inc. ("MFI"), the Company's U.S. broker-dealer subsidiary, is required to maintain a minimum deposit of $5,000,000. The balance of the deposits is required pursuant to MFI's clearing firm relationships. NOTE 6 - RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CUSTOMERS: - -------------------------------------------------------------------- At December 31, 2000 and 1999, receivable from and payable to broker-dealers and customers consist of the following: DECEMBER 31, 2000 DECEMBER 31, 1999 ------------------------ ---------------------- RECEIVABLE PAYABLE RECEIVABLE PAYABLE ----------- ---------- ----------- ---------- Commissions receivable $14,109,772 $ $15,047,677 $ Receivable from clearing firm 1,443,531 980,230 Payable to clearing firm 7,116,240 5,977,929 ----------- ---------- ----------- ---------- $15,553,303 $7,116,240 $16,027,907 $5,977,929 =========== ========== =========== ========== The Company clears its matched riskless principal brokerage transactions and its municipal securities trading transactions through other broker-dealers on a fully-disclosed basis pursuant to clearing agreements. F-13 NOTE 6 - RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CUSTOMERS - -------------------------------------------------------------------------------- (CONTINUED): - ------------ The receivable from clearing firm primarily represents commissions due on matched riskless principal brokerage transactions, net of transaction fees, while the payable to clearing firm represents the net amount owed for financing the Company's municipal securities positions. Commissions receivable represent amounts billed on the Company's name give-up brokerage transactions, net of allowances for doubtful accounts of approximately $647,000 and $715,000 at December 31, 2000 and 1999 respectively. NOTE 7 - SECURITIES OWNED, HELD AT CLEARING FIRM: - ------------------------------------------------- Securities owned, held at clearing firm primarily reflect municipal securities positions taken in connection with the Company's municipal securities business. These securities positions are held by the clearing firm as a pledge against the amount owed (See Note 6) and may be rehypothecated by the clearing firm. Trading gains on municipal securities of approximately $1,493,000, $1,215,000 and $954,000, for the years ended December 31, 2000, 1999 and 1998 respectively, have been included in other income in the consolidated statements of operations. NOTE 8 - EQUITY AFFILIATES AND MINORITY INTERESTS: - -------------------------------------------------- YAGI EURO NITTAN CORPORATION: - ---------------------------- The Company's equity in affiliated company at December 31, 2000 and 1999 consists of its 15% equity interest in Yagi Euro Nittan Corporation ("Yagi Euro"), formerly Yagi Euro Corporation. Effective January 1, 2000, Yagi Euro completed an agreement to contribute its money market and forward foreign exchange businesses to a 50-50 joint venture with Nittan Exco Ltd. ("Nittan"). In anticipation of this transaction, Yagi Euro incurred significant employee severance costs and disposed of certain fixed assets during the year ended December 31, 1999. Included in loss from equity affiliates for the year ended December 31, 1999 is the Company's share of these costs on an after-tax basis of approximately $1,031,000. Yagi Euro is also a partner in a Tokyo-based derivatives brokering partnership ("Tokyo Partnership") with the Company and, effective January 1, 2000, Nittan (see below). Included in income from equity affiliates for the year ended December 31, 2000 is the Company's approximately $86,000 share of an after-tax gain realized by Yagi Euro in 2000 on its restructuring activities. Summarized financial information for Yagi Euro at and for the years ended December 31, 2000 and 1999 is as follows: 2000 1999 ----------- ------------ Total assets $18,093,919 $ 20,165,937 Total liabilities 7,742,208 9,526,924 Revenues -- 6,097,720 Net income (loss) 905,933 (10,510,960) TOKYO PARTNERSHIP: - ----------------- Effective January 1, 2000, the Tokyo Partnership executed an agreement to merge its operations with the off-balance sheet operations of Nittan. This transaction, which included a cash payment to the Company by Nittan, reduced the Company's direct interest in the expanded Tokyo Partnership to 40% and reduced Yagi Euro's interest to 30% with Nittan acquiring the remaining 30% interest. Included in other income for the year ended December 31, 2000 is a gain recognized by the Company on this transaction, net of related transaction costs, of approximately $2.2 million. The Company continues to consolidate the results of operations of the expanded Tokyo Partnership in its consolidated financial statements with the combined interest of Yagi Euro and Nittan presented as minority interest. F-14 NOTE 8 - EQUITY AFFILIATES AND MINORITY INTERESTS (CONTINUED): - -------------------------------------------------------------- EURO BROKERS FINACOR LIMITED: - ---------------------------- On January 1, 1999, Euro Brokers International Limited ("EBIL"), a U.K. subsidiary, completed a Sale and Purchase Agreement with Monecor (London) Limited ("Monecor"), issuing 50% of its share capital to Monecor in exchange for net assets approximating $5.4 million, consisting of all the shares of Monecor's subsidiary, Finacor Limited, and the assets and undertaking of its Finacor Peter branch in Paris. This transaction combined the existing interest rate options, U.S. dollar deposit and the euro, British pound sterling and Japanese yen swaps operations of EBIL with the euro and Scandanavian swaps businesses of Finacor Limited and the euro swaps business of Finacor Peter. Simultaneously therewith, EBIL changed its name to Euro Brokers Finacor Limited ("EBFL"). The equity and results of operations for EBFL are consolidated in the Company's consolidated financial statements with Monecor's interest presented as minority interest. TRADESOFT TECHNOLOGIES, INC.: - ---------------------------- Immediately following the acquisition of Tradesoft by the Company, Tradesoft sold a 10% interest as restricted stock to its Chief Technology Officer. The equity and results of operations for Tradesoft are consolidated in the Company's consolidated financial statements since the date of acquisition (August 11, 2000), with this 10% interest presented as minority interest. NOTE 9 - RESTRUCTURING COSTS: - ----------------------------- During the years ended December 31, 2000 and 1999, the Company incurred certain restructuring costs. During the year ended December 31, 2000, these costs related to the ceasing of operations by the Company's Toronto-based subsidiary in June 2000 and the notice given in December 2000 to close EBFL's branch operations in Paris effective January 2001. A portion of the business previously conducted in Toronto has been relocated to New York. Restructuring costs incurred during the year ended December 31, 1999 related to the anticipated expansion of the Tokyo Partnership (see Note 8) and the closing of certain departments within the energy-related derivatives brokerage group. Restructuring costs for the years ended December 31, 2000 and 1999 are detailed as follows: 2000 1999 ---------- ---------- Employee severance costs $ 441,021 $ 533,980 Loss on disposal of fixed assets 77,992 173,913 Occupancy costs 17,750 171,000 Other 5,198 150,000 ---------- ---------- $ 541,961 $1,028,893 ========== ========== All of the amounts represent costs that are not associated with future revenues and are either incremental or contractual with no economic benefit. The total restructuring reserve of approximately $357,000 at December 31, 2000, representing the unpaid portion of the costs noted above, is expected to be fully paid during 2001. F-15 NOTE 10 - FIXED ASSETS: - ----------------------- Fixed assets at December 31, 2000 and 1999 are summarized below: DECEMBER 31, DECEMBER 31, 2000 1999 ----------- ----------- Furniture and telephone equipment $13,029,307 $13,801,005 Leasehold improvements 6,860,184 7,314,529 Computer and related equipment 11,132,689 10,439,643 Software 7,031,794 4,077,617 Automobiles 623,088 764,370 ----------- ----------- 38,677,062 36,397,164 Less - Accumulated depreciation and amortization 31,276,568 29,437,595 ----------- ----------- $ 7,400,494 $ 6,959,569 =========== =========== NOTE 11 - OBLIGATIONS UNDER CAPITALIZED LEASES: - ----------------------------------------------- The Company has purchased automobiles under capitalized leases. The lease terms generally do not exceed three years. The following is a schedule of future minimum lease payments under capitalized leases together with the present value of the net minimum lease payments as of December 31, 2000: For the Year Ending December 31, 2001 $276,802 2002 62,557 2003 45,387 -------- Total minimum lease payments 384,746 Less - amount representing interest 49,111 -------- Present value of total minimum lease payments $335,635 ======== The gross amounts of assets under capitalized leases are approximately $536,000 and $949,000 at December 31, 2000 and 1999, respectively. Such amounts are for automobiles and are included in fixed assets in the consolidated statements of financial condition. The charges to income resulting from the amortization of assets recorded under capitalized leases were approximately $133,000, $174,000 and $221,000 for the years ended December 31, 2000, 1999 and 1998, respectively. NOTE 12 - BORROWING ARRANGEMENTS: - --------------------------------- LOAN PAYABLE: - ------------ On June 17, 1999, Euro Brokers Inc. ("EBI"), a U.S. subsidiary, entered into a Loan and Security Agreement with General Electric Capital Corporation ("GECC") for a revolving credit facility of up to $5 million which expires on June 17, 2004. The facility is secured by substantially all of EBI's assets. The borrowing availability under the facility (which approximated $3.1 million at December 31, 2000) is determined based upon the level and condition of EBI's billed accounts receivable. The agreement contains certain covenants which require EBI separately, and the Company as a whole, to maintain certain financial ratios and conditions. Borrowings under the facility bear interest at a variable rate based upon the published rate for 30-day dealer placed commercial paper plus a margin. Commitment fees of .15% per annum are charged on the unused portion of the facility. F-16 NOTE 12 - BORROWING ARRANGEMENTS (CONTINUED): - --------------------------------------------- NOTES PAYABLE: - ------------- Notes payable at December 31, 2000 and 1999 consist of the following: DECEMBER 31, DECEMBER 31, 2000 1999 ----------- ---------- Variable rate subordinated notes issued to minority shareholder for regulatory capital adequacy requirements $ 895,800 $ 7.9% note secured by certain equipment 827,369 1,299,870 10% notes issued in connection with the repurchase of common stock 500,000 ----------- ---------- $ 1,723,169 $1,799,870 =========== ========== The variable rate subordinated notes were issued by EBFL to Monecor for the purpose of maintaining the regulatory capital adequacy requirements of the Financial Services Authority ("FSA"), a U.K. regulatory body. These notes are denominated in British pounds sterling ((pound)600,000), are subordinated to all present and future liabilities of EBFL and bear interest at a rate equal to the National Westminster Bank base rate plus a margin. These notes are payable on or after March 31, 2001 upon three months prior notice by EBFL or Monecor and with the prior consent of the FSA. The 7.9% note secured by certain equipment was issued in December 1997 to GECC. This note is secured by all equipment owned by EBI and is payable in monthly installments (including interest) of $46,545 through December 2001 and $27,482 thereafter through December 2002. The 10% notes were issued to investment partnerships of the venture capital group, Welsh, Carson, Anderson & Stowe ("WCAS") on June 17, 1999 in connection with the Company's repurchase of common stock (see Note 15). NOTE 13 - EMPLOYEE BENEFIT PLAN: - -------------------------------- The Company maintains a 401(k) defined contribution plan for the Company's U.S. operations covering substantially all salaried employees. The Company's contributions to the 401(k) plan are, subject to a maximum limit, based upon a percentage of employee contributions. Total 401(k) plan expense approximated $270,000 for each of the years ended December 31, 2000 and 1999, and $366,000 for the year ended December 31, 1998. NOTE 14 - INCOME TAXES: - ----------------------- Income before provision for income tax and minority interest was taxed under the following jurisdictions: FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ----------- ---------- ---------- Domestic $ 4,528,705 $3,215,299 $ 606,080 Foreign (234,555) 366,669 3,324,385 ----------- ---------- ---------- Total $ 4,294,150 $3,581,968 $3,930,465 =========== ========== ========== F-17 NOTE 14 - INCOME TAXES (CONTINUED): - ----------------------------------- The components of the provision for income taxes are as follows: FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ----------- ----------- ----------- Current Federal $ 1,012,798 $ 69,609 ($ 387,836) State and local 75,190 (16,163) 61,619 Foreign 693,595 2,375,561 2,060,265 ----------- ----------- ----------- Total 1,781,583 2,429,007 1,734,048 ----------- ----------- ----------- Deferred Federal 797,989 (867,118) (136,824) State and local (49,643) (32,809) 142,413 Foreign 1,013,291 (412,949) 2,211,008 ----------- ----------- ----------- 1,761,637 (1,312,876) 2,216,597 ----------- ----------- ----------- Total $ 3,543,220 $ 1,116,131 $ 3,950,645 =========== =========== =========== Deferred tax assets (liabilities) are comprised of the following: DECEMBER 31, DECEMBER 31, 2000 1999 ----------- ---------- Assets Bad debt reserve $ 186,475 $ 231,004 Occupancy reserves 620,416 545,979 Miscellaneous reserves 82,097 723,060 Depreciation and amortization 1,495,924 1,293,211 Unrealized losses 59,738 370,686 State and local net operating losses 1,111,242 832,662 Foreign tax credits 21,894 1,007,117 Capital loss carryforwards 514,217 534,006 Deferred tax asset valuation allowance (1,975,422) (1,785,340) ---------- ---------- Gross deferred tax assets, after valuation allowance $2,116,581 $3,752,385 ========== ========== Liabilities Differential on assigned values and tax basis for acquired assets ($ 682,466) $ Unrealized foreign exchange gain (36,049) (138,584) Other (360,245) (384,468) ----------- --------- Gross deferred tax liabilities ($1,078,760) ($523,052) =========== ========= The valuation allowance for deferred tax assets has been established for capital loss carryforwards, state and local net operating losses ("NOLs") and assets arising from various timing differences, due to the uncertainty regarding their realizability. Foreign tax credit carryforwards of approximately $22,000 expire in 2002. NOLs approximating $1,413,000, $3,008,000, $494,000 and $1,040,000 expire in the years ended 2012, 2013, 2014 and 2015, respectively. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences: F-18 NOTE 14 - INCOME TAXES (CONTINUED): - ----------------------------------- For the Year Ended December 31, December 31, December 31, 2000 1999 1998 ---------- ---------- ---------- Tax at U.S. statutory rate $1,460,011 $1,217,869 $1,336,358 Increase (decrease) in tax resulting from: Higher effective rates on earnings of foreign operations and tax benefit of foreign losses not recognized 874,803 1,496,720 1,084,309 Nondeductible meals and entertainment 1,147,462 1,095,002 1,429,700 Nondeductible in-process research and development 162,180 Nondeductible goodwill amortization 25,189 Reduction of income tax reserves (1,200,000) Non-taxable interest income (104,977) (86,618) Increase (decrease) to deferred tax asset valuation allowance 153,958 (971,536) State and local taxes, net 16,860 (49,022) 204,032 Other (192,266) (341,284) (103,754) ---------- ---------- ---------- $3,543,220 $1,161,131 $3,950,645 ========== ========== ========== NOTE 15 - 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, par value $0.001 per share ("Series A Preferred Stock"), and reserved 300,000 shares thereof for issuance upon exercise of the preferred stock purchase rights (each, a "Right") that, pursuant to the Plan, were at the time dividended to holders of common stock on the basis of one Right, expiring December 6, 2006, for each share of common stock. Each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock for $22.50, subject to adjustment. The Rights, however, generally do not become exercisable until ten days after a person or group acquires (or commences a tender or exchange offer to acquire) 15% or more beneficial ownership of the common stock. Upon occurrence of such event (subject to certain conditions and exceptions more fully described in the Plan), and subject to the Rights no longer being redeemable, each Right would entitle the holder thereof (other than the person or group triggering such exercisability) to buy (with certain limited exceptions) common stock of the Company (or, if the Company is acquired, common shares of the surviving entity) having a market value equal to twice the exercise price of the Right. The Rights may be redeemed by the Company, generally at any time prior to the triggering events described above, at a price of $.01 per Right On October 1, 1998 the Company issued 2,000 shares of a newly created Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") to Yagi Euro at a purchase price of $1,000 per share ("Stated Value"). Cumulative dividends at the annual rate of 2% of the Stated Value are payable quarterly in arrears. The Company may, at any time, redeem the Series B Preferred Stock, in whole or in part, at its option, at a per share price equal to the Stated Value together with accrued and unpaid dividends thereon ("Liquidation Preference"). F-19 NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED): - ------------------------------------------- In addition, the Series B Preferred Stock is subject to mandatory redemption at the Liquidation Preference on October 1, 2008 or within 60 days of the disposition of the Company's investment in Yagi Euro. The Series B Preferred Stock does not have any conversion rights. The Series B Preferred Stock also is non-voting unless the Company has not paid dividends in full for the two immediately preceding quarters or has failed to meet any mandatory redemption obligation, in which case the holders of the Series B Preferred Stock would be entitled to appoint one additional director to the Company's Board of Directors. COMMON STOCK AND WARRANTS: - ------------------------- At December 31, 1997, the Company had outstanding 11,330,631 shares of common stock and held 61,638 shares of common stock in treasury. In August 1998, the Company repurchased 6,849 shares of common stock for $18,481 and in June 1999, the Company repurchased 2,986,345 shares of its common stock from WCAS investment partnerships for $5,226,104, or $1.75 per share. In May 2000, the Company's Board of Directors authorized a repurchase program for up to 10% of its then outstanding common stock, or 833,744 shares, with purchases to be made from time to time as market and business conditions warranted, in open market, negotiated or block transactions. As of December 31, 2000, the Company had purchased 591,602 shares of its common stock under this program at an aggregate purchase price of $894,494. On August 11, 2000, the Company issued 375,000 shares from treasury in connection with the Tradesoft acquisition (see Note 3). This issuance resulted in an increase in accumulated deficit of $177,335, equal to the difference between the fair value of these shares on August 11, 2000 and the average cost of shares in treasury on that date. As a result of the foregoing activity, at December 31, 2000 and 1999, the Company had outstanding 8,120,835 and 8,337,437 shares of common stock, respectively, and held 3,271,434 and 3,054,832 shares of common stock in treasury, respectively. At December 31, 2000 and 1999, the Company had outstanding 685,948 redeemable common stock purchase warrants issued in connection with the Company's 1994 initial public offering and 49,032 Series B redeemable common stock purchase warrants issued in connection with the Merger. Both series of warrants entitle the holder to purchase from the Company one share of common stock at an exercise price of $5.00 per share, expire on November 30, 2001 and are redeemable at a price of $.01 per warrant upon 30 days notice at any time, but only if the last sale price of the common stock has been at least $8.50 per share for 20 consecutive trading days ending on the third day prior to the date on which notice of redemption is given. At December 31, 2000 and 1999, 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 may be granted pursuant to the Company's 1996 Stock Option Plan (see Note 16). In January 2001, the Company completed the repurchase of the 833,744 shares under the May 2000 authorization for a total purchase price of $1,187,650 and the Board of Directors authorized an additional repurchase of up to 787,869 shares, or 10% of its then outstanding common stock. F-20 NOTE 16 - STOCK OPTION PLAN: - ---------------------------- The Company's 1996 Stock Option Plan, as amended (the "Plan"), provides for the granting of stock options, in the form of incentive stock options ("ISOs") and non-qualified stock options, to directors, executive officers and key employees of the Company and its subsidiaries, as determined by the compensation committee of the Company's Board of Directors. Options to purchase a maximum of 1,800,000 shares of common stock are available under the Plan. In the case of ISOs, the duration of the option may not exceed ten years (five years for a 10% or more stockholder) and the exercise price must be at least equal to the fair market value of a share of common stock on the date of grant (110% of the fair market value for a 10% or more stockholder). Employee options granted to date generally are ISOs and vest and become exercisable in equal installments on each anniversary of the date of the grant for periods of four or five years. Non-employee director options granted to date are non-qualified stock options and vest in equal 50% installments on the dates that are six and twelve months following the date of grant. Under the Plan, unless otherwise determined by the compensation committee, options may only be exercised during the period of employment or service with the Company or the 30-day period thereafter (or, in the case of death, disability or retirement, the one-year period thereafter). A summary of the Company's stock option activity follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 --------------------- --------------------- --------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price --------- ----- ---------- ----- ---------- ----- Outstanding at beginning of year 1,670,000 2.03 1,650,000 2.00 1,245,000 5.07 Granted 335,000 2.61 85,000 2.46 485,000 2.00 Canceled (250,000) 2.02 (65,000) 2.00 (80,000) 5.00 --------- ----- ---------- ----- ---------- ----- Outstanding at end of year 1,755,000 2.14 1,670,000 2.03 1,650,000 2.00 ========= ===== ========== ===== ========== ===== Exercisable at end of year 1,079,750 2.04 898,000 2.00 521,000 2.00 ========= ===== ========== ===== ========== ===== Weighted average fair value of options granted during the year $1.83 $1.69 $1.21 ===== ===== =====
On August 6, 1998 the exercise price of outstanding stock options (1,165,000) was reset to $2.00 per share, which exceeded the market value of the Company's common stock on August 6, 1998. As a result of this repricing and the fact that substantially all stock options subsequently granted during 1998 were at an exercise price of $2.00 per share, at December 31, 1998, outstanding stock options had a weighted average exercise price of approximately $2.00 per share. Options outstanding at December 31, 2000 had exercise prices ranging from $2.00 to $2.61 and a weighted-average remaining contractual life of approximately 6.4 years. F-21 NOTE 16 - STOCK OPTION PLAN (CONTINUED): - ---------------------------------------- As allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for the Plan. Accordingly, the Company has not recognized any compensation cost associated with the Plan since the market prices of the underlying stock were not greater than the exercise prices on the grant dates. As required by SFAS 123, however, the Company has disclosed below its approximate pro forma net income (loss) and earnings (loss) per share if compensation costs under the Plan had been recognized using the fair value method of SFAS 123. Because stock options under the Plan have characteristics significantly different from those of traded options and because changes in subjective assumptions can materially affect the fair value estimated, the Company used the Black-Scholes pricing model for 2000, 1999 and 1998 with the following weighted average assumptions: expected volatility of 83%, 81% and 66%, respectively; risk free interest rate of 6.7%, 6.1% and 5.4%, respectively; and an expected option life of five years. For the Year Ended December 31, December 31, December 31, 2000 1999 1998 ---------- ---------- ------------ Net income (loss) As reported $2,002,099 $2,532,212 ($1,275,150) Pro forma 1,249,158 1,892,868 (1,768,764) Basic earnings (loss) per share As reported .23 .26 (.11) Pro forma .14 .19 (.16) Diluted earnings (loss) per share As reported .23 .25 (.11) Pro forma .14 .19 (.16) NOTE 17 - COMMITMENTS: - ---------------------- The Company is obligated under certain non-cancelable leases for office space, equipment and telecommunication services. The Company has executed various operating leases in respect of premises which contain escalation clauses for base rent, maintenance, electricity and real estate tax increases. The Company is currently subleasing portions of certain leased premises. Future minimum rental commitments for operating leases (exclusive of payments post-dating lease-break options available to the Company), net of sublease income, approximate the following: MINIMUM MINIMUM RENTAL SUB-RENTAL YEAR PAYMENTS INCOME NET ---- ----------- ----------- ----------- 2001 $ 9,049,112 $ 760,661 $ 8,288,451 2002 5,485,029 760,661 4,724,368 2003 931,271 931,271 2004 358,346 358,346 2005 29,111 29,111 ----------- ----------- ----------- $15,852,869 $ 1,521,322 $14,331,547 =========== =========== =========== Rental expense, net of sub-rental income, amounted to approximately $2,878,000, $3,309,000 and $3,376,000 in 2000, 1999 and 1998, respectively. F-22 NOTE 18 - CONTINGENCIES: - ------------------------ The Company is subject to various legal proceedings, arbitrations and claims that arise in the ordinary course of its businesses. Although the results of such matters cannot be predicted with certainty, based on information currently available and established reserves, management believes that resolving any currently known matters will not have a material adverse impact on the Company's consolidated financial condition or results of operations. The Company has received demands from the Inland Revenue in the United Kingdom for the employer portion of National Insurance Contributions ("NIC") related to employee bonuses paid during the period from August 1994 to February 1998 in the amount of approximately (pound)1.7 million (approximately $2.5 million at December 31, 2000), plus interest estimated at approximately (pound)325,000 at December 31, 2000 (approximately $485,000). The Company has formally challenged these demands as it feels the respective bonus payment methods used did not require NIC payments under existing legislation. Based upon its current level of reserves, management does not anticipate the ultimate outcome of this matter will have a material adverse effect on its consolidated financial condition or results of operations. NOTE 19 - COUNTERPARTY RISK: - ---------------------------- In the normal course of its business, certain securities transactions brokered by the Company are introduced to and settled by the Company's clearing firms. In the event of non-performance by a counterparty to such transactions, the Company may be responsible to meet obligations incurred by such non-performance. The Company and its clearing firms have a policy of reviewing, on an ongoing basis, the credit standing of the Company's customers, which are primarily major financial institutions. NOTE 20 - DERIVATIVE FINANCIAL INSTRUMENTS USED FOR TRADING PURPOSES: - --------------------------------------------------------------------- The Company, from time to time, sells financial futures contracts as a means of managing market risk on municipal securities positions held. Financial futures contracts are exchange traded contractual commitments to either receive (purchase) or deliver (sell) a standard amount of a financial instrument at a specified future date and price. Maintaining a financial futures contract requires the Company to deposit margin with its clearing broker as security for its obligations. Financial futures contracts provide for daily cash settlements with gains or losses based upon fluctuations in market value included in trading gains on municipal securities transactions (see Note 7). Open equity in financial futures contracts is recorded as receivable from and payable to broker-dealers and customers as applicable. At December 31, 2000 and 1999 the Company had no financial futures contracts outstanding. NOTE 21 - DERIVATIVE FINANCIAL INSTRUMENTS USED FOR HEDGING ACTIVITIES: - ----------------------------------------------------------------------- On July 1, 2000, the Company elected to early-adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"). SFAS 133 requires that all derivative instruments, including certain derivatives embedded in other contracts, be recorded on the statement of financial condition at their fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Since the Company did not have any outstanding unrecorded derivative instruments or ongoing hedging activities at June 30, 2000, there is no transition adjustment necessary as a result of the early adoption of SFAS 133. F-23 NOTE 21 - DERIVATIVE FINANCIAL INSTRUMENTS USED FOR HEDGING ACTIVITIES - ---------------------------------------------------------------------- (CONTINUED): - ------------ The Company utilizes foreign currency forward contracts to reduce its exposure to exchange rate risk associated with anticipated commissions on transactions denominated in a currency other than the functional currency (foreign currency cash flow hedge). Pursuant to these foreign currency forward contacts, the Company receives or pays the difference between the contracted forward exchange rate (for the purchase or sale of one currency for another) and the prevailing exchange rate at settlement date. The Company has entered into foreign currency forward contacts with equal notional amounts maturing at successive month-end dates through December 31, 2001 based upon a portion of such commission revenues the Company reasonably anticipates realizing during this time period. In accordance with SFAS 133, the Company has excluded from its assessment of hedge effectiveness the portion of the fair value of the foreign currency forward contracts attributable to the spot-forward difference and has recorded the present value of the changes in such amounts in earnings. For the six months ended December 31, 2000, the changes in these excluded portions approximated $41,000. Under SFAS 133, the fair value of these foreign currency forward contracts attributable to the present value of the forecasted cash flows based on the spot rate is considered a highly effective hedge. Therefore, no amounts related to the changes in these amounts are included in earnings until such contracts mature to coincide with the forecasted revenue streams. These deferred amounts are included in the accumulated other comprehensive income section of stockholders' equity. Approximately $50,000 of the deferred gains included in accumulated other comprehensive income, net of tax, is expected to be reclassified to earnings within the next twelve months. NOTE 22 - NET CAPITAL REQUIREMENTS: - ----------------------------------- MFI, as a U.S. broker-dealer, is subject to the Securities and Exchange Commission's Uniform Net Capital Rule (rule 15c3-1), which requires the maintenance of minimum regulatory net capital. MFI has elected to use the alternative method, as permitted by the rule, which requires that MFI maintain minimum regulatory net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions, as defined; or 4% of the funds required to be segregated pursuant to the Commodity Exchange Act and regulations thereunder. MFI's membership in the GSCC requires it to maintain minimum excess regulatory net capital of $10,000,000. In addition, a number of other subsidiaries operating in various countries are subject to capital rules and regulations issued by the designated regulatory authorities to which they are subject. At December 31, 2000, MFI's regulatory net capital was approximately $12,550,000 and exceeded the minimum regulatory requirement of $250,000 by approximately $12,300,000. NOTE 23 - SEGMENT REPORTING: - ---------------------------- In accordance with Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the Company is reporting certain information relating to its operating segments. For the purpose of this disclosure, operating revenues include commission income, trading gains and information sales revenue. The Company has defined its operating segments based upon geographic location as such units are managed separately to reflect their unique market, employment and regulatory environments. The reportable segments, as defined by SFAS 131, consist of the United States, United Kingdom, Japan, Switzerland and Canada. United States amounts are principally derived from the Company's New York office, but include the balances for all its U.S. based operations. Japan amounts include the consolidated results of operations of the Tokyo Partnership with net income amounts net of minority interests in the Tokyo Partnership. United Kingdom amounts include the consolidated balances for EBFL, with net income (loss) amounts net of Monecor's minority interest. Switzerland amounts are derived from the Company's Geneva office which commenced operations in July 1998. Other geographic segments which do not meet the SFAS 131 materiality thresholds for reportable segments have been included in "All Other". F-24 NOTE 23 - SEGMENT REPORTING (CONTINUED): - ---------------------------------------- The accounting policies of the segments are the same as those described in Note 2.
UNITED UNITED ALL STATES KINGDOM JAPAN SWITZERLAND CANADA OTHER TOTAL ----------- ----------- ----------- ---------- ---------- ---------- ------------ 2000 Operating revenues $76,309,398 $46,669,303 $20,310,361 $ 603,624 $ 323,064 $3,339,213 $147,554,963 Interest income 1,578,110 541,475 208 1,030 3,386 5,190 2,129,399 Interest expense 528,406 333,484 39,181 901,071 Depreciation and amortization 2,722,509 1,061,304 62,210 17,980 144,934 4,008,937 Provision for income taxes 1,166,757 522,008 1,921,281 (2,221) (115,668) 51,063 3,543,220 Income from unconsolidated affiliates 135,890 135,890 Net income (loss) 1,745,148 (681,634) 1,392,576 (508,509) (239,874) 294,392 2,002,099 Assets 67,747,976 22,488,708 8,201,126 603,276 32,199 1,433,167 100,506,452 Capital expenditures 1,981,620 496,892 15,305 2,493,817 Investment in unconsolidated affiliates 1,552,757 1,552,757 1999 Operating revenues $74,984,913 $54,155,703 $20,259,059 $3,180,648 $ 933,568 $2,256,272 $155,770,163 Interest income 1,781,438 586,927 64,915 679 7,977 2,985 2,444,921 Interest expense 841,737 554,594 2,916 109 1,399,356 Depreciation and amortization 2,824,531 1,240,339 69,501 47,974 183,159 4,365,504 Provision for income taxes (11,521) 783,623 153,500 64,718 (34,340) 160,151 1,116,131 Loss from unconsolidated affiliates (1,576,644) (1,576,644) Net income (loss) 1,769,869 (163,594) 766,622 494,433 (85,353) (249,765) 2,532,212 Assets 67,032,170 25,184,192 8,270,218 1,109,637 466,486 1,628,390 103,691,093 Capital expenditures 741,064 500,969 269 57,106 1,299,408 Investment in unconsolidated affiliates 1,595,852 1,595,852
F-25 NOTE 23 - SEGMENT REPORTING (CONTINUED): - ----------------------------------------
UNITED UNITED ALL STATES KINGDOM JAPAN SWITZERLAND CANADA OTHER TOTAL ----------- ----------- ----------- ---------- ---------- ---------- ------------ 1998 Operating revenues $79,806,677 $42,354,005 $23,172,310 $ 831,970 $1,280,407 $2,821,561 $150,266,930 Interest income 1,875,942 541,652 337,004 5,714 2,888 2,763,200 Interest expense 1,295,220 789,970 19,754 2,104,944 Depreciation and amortization 2,869,495 1,877,927 10,904 68,766 177,534 5,004,626 Provision for income taxes 243,326 45,567 3,510,831 2,307 (1,143) 149,757 3,950,645 Income from unconsolidated affiliates (19,925) (19,925) Net (loss) income (506,071) (2,375,260) 1,920,758 (93,451) (459,440) 238,314 (1,275,150) Assets 76,188,122 21,984,556 7,548,750 1,140,517 564,829 2,048,939 109,475,713 Capital expenditures 2,405,177 1,282,038 246,243 46,144 94,001 4,073,603 Investment in unconsolidated affiliates 2,935,100 2,935,100
Included below are reconciliations of reportable segment items to the Company's consolidated totals as reported in the consolidated financial statements. 2000 1999 1998 ----------- ----------- ----------- Interest income: Total for reportable segments $ 2,124,209 $ 2,441,936 $ 2,760,312 Other interest 5,190 2,985 2,888 Elimination of intersegment interest income (306,114) (565,421) (1,025,797) ----------- ----------- ----------- Consolidated total $ 1,823,285 $ 1,879,500 $ 1,737,403 =========== =========== =========== Interest expense: Total for reportable segments $ 901,071 $ 1,399,356 $ 2,104,944 Elimination of intersegment interest expense (306,114) (565,421) (1,025,797) ----------- ----------- ----------- Consolidated total $ 594,957 $ 833,935 $ 1,079,147 =========== =========== =========== Assets: Total for reportable segments $99,073,285 $102,062,703 $107,426,774 Other assets 1,433,167 1,628,390 2,048,939 Elimination of intersegment receivables (15,738,154) (15,558,510) (17,842,245) Elimination of investments in other segments (12,968,505) (15,664,625) (16,363,803) ----------- ----------- ----------- Consolidated total $71,799,793 $72,467,958 $75,269,665 =========== =========== =========== F-26 NOTE 24 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): - -------------------------------------------------------- The following is a summary of unaudited quarterly statements of operations for the years ended December 31, 2000 and 1999:
FOR THE THREE MONTHS ENDED: MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ------------ ------------ -------------- 2000 Revenues $43,688,220 $ 36,228,004 $ 35,076,656 $ 36,599,300 Income before provision for income taxes and minority interest 3,587,546 660,249 (1,294,041) 1,340,396 Net income (loss) 2,263,335 307,872 (624,945) 55,837 Weighted average common shares outstanding-basic 8,337,437 8,317,488 8,461,820 8,378,903 Weighted average common shares outstanding-diluted 8,618,880 8,317,488 8,461,820 8,378,903 Basic earnings (loss) per share .27 .04 (.08) .01 Diluted earnings (loss) per share .26 .04 (.08) .01 1999 Revenues $45,210,343 $ 40,986,820 $ 38,349,256 $ 32,783,697 Income before provision for income taxes and minority interest 4,256,236 2,035,345 642,671 (3,352,284) Net income (loss) 1,573,800 1,047,003 1,047,599 (1,136,190) Weighted average common shares outstanding-basic 11,323,782 10,897,161 8,337,437 8,337,437 Weighted average common shares outstanding-diluted 11,323,782 10,906,069 8,698,564 8,337,437 Basic earnings (loss) per share .14 .10 .12 (.14) Diluted earnings (loss) per share .14 .10 .12 (.14)
F-27 EXHIBIT INDEX Exhibit No. Description - ---------- ----------- 2.1 Agreement and Plan of Merger, dated as of March 8, 1996, as amended, by and among the Registrant, EBIC Acquisition Corp. and Euro Brokers Investment Corporation ("EBIC"), without exhibits and schedules (incorporated herein by reference to Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996) 2.2 Registration Rights Agreement, dated as of August 16, 1996, by and among the Registrant and the persons listed in Annexes I, II and III thereto (the "Registration Rights Agreement") (incorporated by reference to Exhibit 2.5 of the Registrant's Current Report on Form 8-K, dated August 16, 1996) 2.2a Amendment, dated as of June 17, 1999, to the Registration Rights Agreement (incorporated herein by reference to Exhibit 2.2a of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 ("1999 Form 10-K")) 2.3 Securities Purchase Agreement, dated as of March 24, 1999, by and among the Registrant, Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS VI") and WCAS Information Partners, L.P. ("WCAS Info") (incorporated herein by reference to Exhibit 2.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 ("1998 Form 10-K")) 2.4 Escrow Agreement, dated as of March 24, 1999, by and among the Registrant, WCAS VI, WCAS Info and Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 2.4 of the 1998 Form 10-K) 2.5 Sale and Purchase Agreement, dated 21 December 1998, by and among Euro Brokers International Limited, Euro Brokers Holdings Limited, Monecor (London) Limited and Finacor Peter, without schedules (incorporated herein by reference to Exhibit 2.5 of the 1998 Form 10-K) 2.6 Stock Purchase Agreement, dated as of August 11, 2000, by and between the Registrant and the stockholders of Tradesoft Technologies, Inc., without exhibits and schedules (incorporated herein by reference to Exhibit 2.6 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 (the "September 30, 2000 Form 10-Q")) 3.1 Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 of the 1999 Form 10-K) X-1 3.2 Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 ("1996 Form 10-K")) 4.1 Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 of Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (No. 33-85346), dated November 23, 1994 ("Amendment No. 1")) 4.2 Form of Redeemable Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.2 of Amendment No. 1) 4.3 Warrant Agreement, dated as of November 30, 1994, by and between the Registrant and Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.4 of Amendment No.1) 4.4 Form of Series B Redeemable Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.5 of the Registrant's Registration Statement on Form S-4 (No.333-06753) dated June 25, 1996) (the "Form S-4")) 4.5 Warrant Agreement, dated as of June 5, 1996, by and between the Registrant and Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.3 of the Form S-4) 4.6 Rights Agreement, dated as of December 6, 1996, between the Registrant and Continental Stock Transfer & Trust Company, as rights agent (incorporated herein by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A, dated December 6, 1996) 4.7 Agreement to furnish Debt Instruments* 10.1 Agreement of Lease, dated September 10, 1992, by and between Euro Brokers Inc. and The Port Authority of New York and New Jersey (the "NY Lease") (incorporated herein by reference to Exhibit 10.1 of the 1996 Form 10-K) 10.2 Supplement No. 1 to the NY Lease, dated March 21, 1993 (incorporated herein by reference to Exhibit 10.2 of the 1996 Form 10-K) 10.3 Supplement No. 2 to the NY Lease, dated July 1, 1994 (incorporated herein by reference to Exhibit 10.3 of the 1996 Form 10-K) 10.4 Underlease of Premises, dated 28 May 1993, between Chestermount Properties Limited and Euro Brokers Holdings Limited (the "London Underlease") (incorporated herein by reference to Exhibit 10.4 of the 1996 Form 10-K) 10.5 Supplemental Deed to the London Underlease, dated 28 May 1993 (incorporated by reference to Exhibit 10.5 of the 1998 Form 10-K) X-2 10.6+ The Registrant's 1996 Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.6 of the 1999 Form 10-K) 10.7+ Amended and Restated Employment Agreement, dated as of August 14, 1998, by and between the Registrant and Gilbert Scharf (incorporated herein by reference to Exhibit 10.7 of the 1998 Form 10-K) 10.8+ Employment Agreement, dated as of August 14, 1998, by and between the Registrant and Keith Reihl (incorporated herein by reference to Exhibit 10.8 of the 1998 Form 10-K) 10.9+ Amended and Restated Employment Agreement, dated as of August 14, 1998, by and between the Registrant and Roger Schwed (incorporated herein by reference to Exhibit 10.9 of the 1998 Form 10-K) 10.10+ Employment Agreement, dated 1 October 2000, by and between Euro Brokers Finacor Limited and Robin Adrian Clark* 10.11+ Employment Agreement, dated as of August 14, 1998, by and between Euro Brokers Investment Corporation and Walter E. Dulski (the "Dulski Employment Agreement") (incorporated herein by reference to Exhibit 10.11 of the 1998 Form 10-K) 10.12+ Employment Agreement, dated as of May 4, 1998, by and between Euro Brokers Inc. and Steven Vigliotti (incorporated herein by reference to Exhibit 10.12 of the 1999 Form 10-K) 10.13 Agreement for Securities Clearance Services, dated as of March 20, 2000, by and between Wexford Clearance Services Corporation and Maxcor Financial Inc. (incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000) (1) 10.14+ Amendment, dated as of August 11, 2000, to the Dulski Employment Agreement (incorporated herein by reference to Exhibit 10.14 of the September 30, 2000 Form 10-Q) 21 Subsidiaries of the Registrant* - -------------------------- * Filed herewith + Connotes a management contract or compensatory plan or arrangement in which a director or executive officer of the Registrant participates. (1) Portions of this exhibit have been redacted and confidential treatment sought pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. X-3 EX-4.7 2 c20487-ex47.txt CORRESPONDENCE Exhibit 4.7 MAXCOR FINANCIAL GROUP INC. ROGER E. SCHWED March 30, 2001 Vice President and General Counsel Direct Dial: (212) 748-8860 Direct Fax: (212) 748-7979 E-Mail: rschwed@ebi.com Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, NW Washington, D.C. 20549 Dear Sirs or Madams: This will confirm that Maxcor Financial Group Inc. (the "Company") will furnish to the Securities and Exchange Commission upon request a copy of the following Note and Loan Agreements: (i) Secured Promissory Note, dated December 10, 1997 issued by Euro Brokers Inc. to General Electric Capital Corporation. (ii) Subordinated Loan Agreements, entered into at various dates throughout 2000, between Euro Brokers Finacor Limited and Monecor (London) Ltd. Neither the amount of the foregoing Note, nor the aggregate amount of the foregoing Subordinated Loan Agreements, exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Very truly yours, /s/ Roger E. Schwed -------------------- TWO WORLD TRADE CENTER, 84TH FLOOR, NEW YORK, NEW YORK 10048 o TEL. 212-748-7000 o FAX. 212-748-7329 EX-10 3 c20487_ex1010.txt Exhibit 10.10 DATED 1 OCTOBER 2000 EURO BROKERS FINACOR LIMITED - AND - ROBIN ADRIAN CLARK ----------------- AGREEMENT ----------------- AN AGREEMENT MADE ON 1 OCTOBER 2000 BETWEEN: (1) EURO BROKERS FINACOR LIMITED of 133 Houndsditch, London EC3A 7AJ ("the Company"), and (2) ROBIN ADRIAN CLARK of 45 Upper Park, Loughton, Essex, IG10 4EQ. In accordance with the requirements of Section 1 of the Employment Rights Act 1996, this Agreement incorporates a statement of the main terms and conditions binding upon you at the date hereof. Any amendments or additions to this Contract (other than as to rates of pay) will be issued as a supplement to individual employees and should be affixed to this Agreement. 1. JOB TITLE 1.1 You are hereby initially appointed as Joint Managing Director of the Company. Because of the changing nature of the business, the obligations upon you will inevitably vary and develop. The Company reserves the right at any time during your employment, upon reasonable notice, to require you to undertake any duties which fall within your capabilities for the Company or another Group Company. 1.2 Whilst in the Company's employment you may not have an interest or an involvement in another business or other employment, including working on your own account, without specific prior approval from the Company's Board of Directors. On no account will an interest or an involvement in another business or other employment which conflicts with the interests of the Company or another Group Company be permitted. 1.3 Whilst in the Company's employment, you must always use your best endeavours to promote and protect the interests of the Company and the other Group Companies, and must not do anything which is harmful or disloyal to those interests. 2 2. COMMENCEMENT DATE AND DURATION 2.1 This Agreement shall be deemed to have commenced on 1 October 2000 ("the Commencement Date") and subject to the provisions of clause 2.2 shall continue for a minimum term of three years and thereafter unless terminated by you or the Company giving six months notice in writing to expire at any time on or after the expiry of the minimum term. 2.2 Provided always that in the event of the Company or Maxcor Financial Group Inc. ("Maxcor") suffering a Change of Control you shall, with effect from the effective date of such Change of Control, be entitled (i) in the case of a Change of Control of the Company, if the Company does not at such time make provision to assign this Agreement to another Group Company that is still controlled by Maxcor, at any time thereafter to terminate this Agreement by giving to the Company four months notice in writing or (ii) in the case of a Change of Control of Maxcor, at any time thereafter to terminate this Agreement by giving to the Company four months notice in writing. For the avoidance of doubt, any Change of Control shall not in any way affect the relevant notice the Company may be required to give to you in order to terminate this Agreement. 2.3 For the purposes of this clause 2.2 "Change of Control" means, in relation to either of the Company or Maxcor, the acquisition by any person (or any combination thereof acting together) of the power to secure whether by contract, voting rights or otherwise and whether directly or indirectly, that the affairs of the Company or Maxcor are conducted in accordance with the wishes of that person, such person being a person who did not previously have control and is not a subsidiary of either of the Company or Maxcor. 2.4 Your period of continuous employment commenced on 1 August 1994. Employment with any previous employer before this date does not count as part of the continuous employment. 2.5 Your retiring age shall be 50 and unless otherwise agreed, this Agreement or any agreement with the company shall automatically determine when you reach that age. 3 3. REMUNERATION 3.1 Your remuneration shall be a fixed salary of (pound)300,000 per annum for the duration of this Agreement unless otherwise agreed, payable by twelve monthly instalments by direct credit transfer to your bank account on or about the last working day of every month. Any future changes will be notified to you in writing. 3.2 You may in addition be entitled to receive a performance bonus currently payable in February and August of each year but awarded at the entire discretion of the Company. To be eligible for a discretionary bonus you must be employed (and not under notice whether given by you or the Company) on the date when the payment is made. 4. HOURS OF WORK AND EXPENSES 4.1 Your hours of work are market hours, Monday to Friday each week. You may be required to vary your start and finishing times of work, or to work reasonable additional hours in order to satisfactorily complete your duties and satisfy the business interests of the Company and you will not be entitled to receive any payments for work performed outside normal business hours. 4.2 You are entitled to be reimbursed for all reasonable out of pocket expenses wholly and exclusively incurred by you on the Company's business (including entertainment and travelling expenses) which should be evidenced in the manner required and as approved by the Company. 4.3 In this position you must be willing to travel and work overseas, staying away for periods of up to several weeks duration as required. 5. STATUTORY REQUIREMENTS AND CONFIDENTIALITY 5.1 You must adhere at all times to all statutory requirements and laws relating to the business of the Company or any other Group Company with which you are involved, including in particular those controlling dealing and broking operations, together with any requirements laid down by the regulatory bodies which from time to time regulate 4 the conduct of the business of the Company or any Group Company or associates. In this regard, you accept that you have read and will adhere to the requirements of both the Grey Paper and the Securities and Futures Authority, and you are required to sign an S.F.A. undertaking acknowledging your full compliance with Part 5 of The Criminal Justice Act 1993 (Appendix 1). The Company reserves the right to require you to sign any other undertakings or acknowledgements that it deems necessary in order to comply with all relevant laws, statutes or regulations, or to promote the good conduct of the business of the Company or any Group Company. 5.2(a) You shall not make use of or divulge to any person, and you shall use your best endeavours to prevent the use, publication or disclosure of, any information of a confidential or secret nature: (i) concerning the business of the Company or any Group Company and which comes to your knowledge during the course of or in connection with your employment or your holding any office within the Group from any source within the Company or any Group Company; or (ii) concerning the business of any person having dealings with the Company or any Group Company and which is obtained from any person outside the Company or any Group Company who has required the Company or any Group Company to keep any such information confidential. For the purposes of paragraph (i) above, information of a confidential or secret nature includes but is not limited to rates of brokerage, levels of discount provided to clients and levels of brokerage earned from clients. Additionally rates of pay and bonuses paid are confidential (including those of yourself) and must not be discussed with anyone except the Board of Directors of the Group Company to which they relate or as required by law. (b) This clause shall not apply to information which is: (i) used or disclosed in the proper performance of your duties or with the prior written consent of the Company or the relevant Group Company; or (ii) ordered to be disclosed by a Court or competent jurisdiction or otherwise required to be disclosed by law. 5 (c) This clause shall continue to apply after the termination of your employment (whether terminated lawfully or not) without limit in time. (d) Each of the restrictions in each paragraph or subclause above shall be enforceable independently of each of the others and its validity shall not be affected if any of the others is invalid. If any of those restrictions is void but would be valid if some part of the restriction were deleted, the restriction in question shall apply with modification as may be necessary to make it valid. 5.3 All documents provided to you and all documents, notes and memoranda created by you in the course of your employment are and remain the property of the Company or the relevant Group Company. Documents for this purpose includes information held on computer or in any other form. Any such documents shall be given to the Company or the relevant Group Company on request (together with any copies) and in any event on termination of your employment. 5.4 It is strictly forbidden to offer to any third party or accept any benefit whether financial or in kind from any other party (other than your proper remuneration from the Company). It is strictly forbidden to accept gifts or hospitality other than by way of a token nature from any person or business with whom they are involved on Company business. You must always clear the position with the Company's Board of Directors before accepting any gift or hospitality whatever the nature. 6. COMPANY CAR 6.1 Entitlement to the use and continued use of a company car is discretionary and dependent upon the approval of the Board of Directors of the Company. If you have or become entitled to the use of a company car, it will be provided to you subject to and upon the Terms and Conditions of the rules issued by the Company. The Company reserves the right to change the size or nature of the car being used by you or to remove the entitlement at its discretion in the light of an assessment of the current requirements of the job. You will be responsible for ensuring that the vehicle is always maintained in a clean and roadworthy condition. In the event of your employment with the Company terminating for any reason whatsoever, you may be required to reimburse same monies 6 to the Company if the car is not due for replacement for a period of more than 6 months on the date on which your employment terminates. You will find attached to this statement the rules and regulations relating to the Company Car Scheme (Appendix 3). Please also sign this document as it will constitute an integral part of your Contract of Employment. 6.2 Entitlement to a company car will cease on either party giving notice to terminate this contract under clause 2 or 14 or on the date your employment terminates, whichever is the earlier date. 7. HOLIDAY ENTITLEMENT 7.1 The holiday year starts on 1 January. Entitlement in a full year is 30 working days, or pro rata for a part-year's service, plus 8 statutory holidays each year. 7.2 The Company reserves the right to allocate up to 5 days holiday each year for all employees. 7.3 Any excess of days holiday actually taken over holiday entitlement at the time of leaving service will be translated to an equivalent number of days at basic rate and deducted from the final payment made to the employee. 7.4 No payment for holiday entitlement will be made. 7.5 No carry-over of holiday entitlement will be permitted to the following holiday year, unless exceptionally given in writing by the Company's Board of Directors. 7.6 For full details of the Company's Holiday Arrangements see Appendix 4. 8. SICKNESS AND INJURY - GENERAL RULES (APPENDIX 5) 8.1 If you are absent from work as a result of sickness or injury, you must notify the Company of the reason for your absence by 9.00 am on the first day of absence. 7 8.2 Employees must self-certificate absences from work up to seven days including weekends. Failure to complete a Self-Certificate under these circumstances, or the provision of false information will be disciplinary offences. 8.3 If you are absent for a period of 8 days or more you must provide a Doctor's certificate which should be sent to the Personnel Department immediately and on return to work you must provide a medical certificate which states you are fit to resume your duties unless the previous certificate gives the date on which you may resume work. 8.4 Provided that you have complied with the sickness and injury procedure as laid down by the company, employees with more than 6 months continuous service may at the Company's discretion be entitled up to a maximum of 26 weeks pay during any period of 12 months absence. Any Company sickness absence payments will be at the basic rate less the value of any state benefits or Statutory Sick Payments to which the employee is entitled. Qualifying Days for Statutory Sick Pay purposes are Monday to Friday each week. 8.5 It is a condition of your employment that you will agree to have a medical examination with a Company nominated Doctor if required by the Company and agree that the results of such examination may, on request, be disclosed to the Company. 9. PENSIONS AND MEDICAL CARE 9.1 Initially, you will be automatically entered into the State Pension Scheme unless you are a member of an Approval Personal Pension Scheme. 9.2 The Company operates four insurance schemes for the benefit of employees after they are appointed to the permanent staff: (a) Salary Sacrifice Scheme to provide pensions and if required life assurance benefits. (b) Group Disability scheme to enable you to receive a permanent income in case of illness or permanent disability. 8 (c) Medical Insurance to enable you and your family to receive private medical treatment currently with PPP. (d) Life Assurance cover of four times your annual salary as at 1 February of each year, capped at a maximum figure as determined by the Inland Revenue. Scheme (a) requires that you authorise the Company to deduct your agreed contribution at source. Schemes (b), (c) and (d) will be paid for by the Company. Benefits under the Schemes are provided subject to their rules or the terms of any insurance policy under which they are provided, from time to time. Full details of any of these schemes can be obtained from the Personnel Department. 10. GARDEN LEAVE 10.1 The Company may suspend any of your duties and powers (and may require you not to attend at the Company's premises) during the whole or any one or more parts of any period after notice of termination of your employment has been given by the Company or you. In particular the Company may exercise this right in circumstances where it is reasonable for the Company to believe that you will or intend to be interested or concerned in a business, company or firm carrying on, or about to commence, a business which is, or is likely to be, competitive with any part of the business of the Company or any Group Company with which you were engaged or concerned in the 12 months before the suspension started. In addition or alternatively, the Company may during the whole or any one or more parts of such period require you to perform duties (including any modified duties the Company may reasonably require you to perform) at such locations as the Company may reasonably require which shall include requiring you to carry out duties that do not involve contact with the Group's clients. Throughout any such period of suspension your salary and the other benefits to which you are entitled under this Agreement shall continue to be paid or provided by the Company. 9 10.2 If you hold any directorship or other office in a Group Company, at any time during such period you shall, at the request of the Company, immediately resign, without claim for compensation, from that office. If you do not resign the Company is irrevocably authorised to appoint some person in your name and on your behalf to do all such things and execute all such documents as may be necessary for or incidental to giving effect to your resignation. 11. PROTECTIVE COVENANTS 11.1 You covenant with the Company (for itself and as trustee for each Group Company) that you will not: (a) for a period of the shorter of the notice period you are required to give to terminate your employment or 12 months from the Relevant Date be concerned in any business which is competitive or likely to be competitive with any business with which you were actively involved during the course of your employment during the 12 months ending on the Relevant Date and which is carried on by the Company or another Group Company at the Relevant Date. (b) for a period of the shorter of the notice period you are required to give to terminate your employment or 12 months after the Relevant Date be concerned in any business within a radius of 5 miles of the Bank of England and which is competitive or likely to be competitive with any business in which you were actively involved in the course of your employment during the 12 months ending on the Relevant Date and which is carried on by the Company or another Group Company at the Relevant Date. (c) for a period of the shorter of the notice period you are required to give to terminate your employment or 12 months from the Relevant Date (except as expressly authorised by the Company or a Group Company) deal with (whether directly or indirectly) in relation to or in connection with services similar to or competitive with those being provided by the Company or any Group Company at the Relevant Date and with which you were involved in the course of your employment during the twelve months ending on the Relevant Date, any person who is at that date or who has been at any time within the year ending on that date a client of the Company or a Group Company with whom you 10 or the Desk are, or have been engaged or concerned or about whom you have been provided information. (d) for a period of the shorter of the notice period you are required to give to terminate your employment or the 12 months from the Relevant Date (except as expressly authorised by the Company or a Group Company) canvass or solicit business, orders or custom (whether directly or indirectly) for services similar to or competitive with those being provided by the Company or any Group Company at the Relevant Date and with which you were involved in the course of your employment during the 12 months ending on the Relevant Date, from any person who is at that date or who has been at any time within the year ending on that date a client of the Company or a Group Company with whom you were engaged or concerned or about whom you have been provided information, (e) for a period of twelve months from the Relevant Date induce or attempt to induce (whether directly or indirectly) any supplier of the Company or a Group Company to cease to supply, or to restrict or vary the terms of supply to, that company; or (f) for a period of 12 months from the Relevant Date induce or attempt to induce or encourage (whether directly or indirectly) any senior employee of the Company or a Group Company or any person who is employed as a broker by the Company or a Group Company (and in either case, insofar as this restriction applies following the termination of your employment was employed at the date on which your employment terminates), to leave the employment of that company. 11.2 For the purposes of sub-clause 11.1: (a) "Relevant Date" means the earlier of the date on which your employment with the Company terminates OR the date upon which notice of such termination is given. (b) You are concerned in a business if you carry it on as a principal or agent or if: (i) you are directly or indirectly a partner, director, employee, secondee, consultant or agent in, of or to any person who carries on the business; or 11 (ii) you have any direct or indirect financial interest (as shareholder or otherwise) in any person who carries on the business; or (iii) you are directly or indirectly a partner, director, employee, secondee, consultant or agent in, of or to any person who has direct or indirect financial interest (as a shareholder or otherwise) in any person who carries on the business (disregarding any financial interest of a person in securities which are listed or dealt in on any Recognised Investment Exchange if that person, you and any person connected with you (within the meaning of section 839 of the Income and Corporation Taxed Act 1988) are interested in securities which amount to less than one per cent of the issued securities of that class and which, in all circumstances, carry less than one per cent of the voting rights (if any) attaching to the issued securities of that class); and (c) reference to a Group Company shall mean any parent, subsidiary or affiliate of the Company and shall include its and their successors in business. 11.3 The restrictions in each paragraph or sub-clause above shall be enforceable independently of each of the others and its validity shall not be affected if any of the others is invalid; if any of those restrictions is void but would be valid if some part of the restrictions were deleted the restriction in question shall apply with such modification as may be necessary to make it valid. 11.4 You acknowledge that the above provisions of this clause are no more extensive than is reasonable to protect the Company and the Group. 12. DISCIPLINARY PROCEDURE 12.1 If you have a grievance relating to your employment or are dissatisfied with any disciplinary decision, the issue should be raised initially with the Company's Board of Directors to whom you may also apply to inspect the Company's Disciplinary Rules and Procedures and Grievance Procedure (Appendices 6 & 7) and any appeal from a disciplinary decision should be to the Board of Directors of EBIC. 12.2 You hereby agree with the Company to exclude any claim which you may have in respect of your rights to a redundancy payment or to compensation for unfair dismissal 12 under the Employment Rights Act 1996 (or any statutory modification or re-enactment thereof for the time being in force) in the event of the expiry of the terms of this agreement in accordance with the provisions of Clause 2.1 without its being renewed. 13. TERMINATION OF APPOINTMENT If: 13.1 you are unable properly to perform your duties by reason of ill-health, accident or otherwise for a period or periods aggregating at least 60 days in any period of 12 consecutive months; or 13.2 fail to act in accordance with any lawful direction of the President, Chief Executive Officer or Board of Directors of Euro Brokers Investment Corporation ("EBIC") or the Company (or any designee of the foregoing), or are guilty of any serious breach of your obligations under this agreement (including any consent granted under it): or 13.3 you are guilty of serious misconduct or any other conduct which affects or is likely to affect prejudicially the interests of the Company or any Group Company or you are convicted of an arrestable offence (other than a road traffic offence for which a non-custodial penalty is imposed); or 13.4 you become bankrupt or make any arrangement or composition with your creditors; or 13.5 you are disqualified from being a director of any company by reason of any order made by any competent court; or 13.6 you are guilty of any breach or non-observance of any code of conduct, rule or regulation referred to in clause 5 or fail or cease to be registered (where such registration is, in the opinion of the Board, required for the performance of your duties) by any regulatory authority in the United Kingdom or elsewhere; the Company may (whether or not any notice of termination has been given under clause 2 above) by written notice to you, terminate the Appointment with immediate effect. 13 14. CONTINUING EFFECT OF AGREEMENT A termination of this Agreement for any reason shall not operate to affect those provisions in this Agreement which are intended to have effect after termination. Without limiting the application of the preceding sentence, such termination shall not release you from the continuing observance and performance by you of your obligations contained in Clauses 5.2 and 11. 15. REFERENCES The Employee authorises the Company to provide a reference when requested by a potential employer, a regulatory body or a provider of credit facilities. The Employee agrees that any such reference, which is provided in good faith, will not give rise to any liability of the Company to him. 16. RELEVANT LAW This Agreement shall be governed and construed under English Law and each of the parties here to submits to the jurisdiction of the English Courts. 17. PREVIOUS CONTRACTS 17.1 This Agreement is in substitution for and supersedes all previous contracts of employment between the Company and yourself which shall be deemed to have been terminated by mutual consent as from the date on which this Agreement commences together with all and any rights and obligations under such previous contracts of employment which have been and shall be treated as replaced by the terms and conditions of employment set out in this Agreement. This Agreement constitutes the entire understanding between the parties as to the arrangements contemplated herein. 17.2 For the avoidance of doubt, any instructions, waivers or agreements of the Company under this Agreement may not be given by yourself, in your capacity as Joint Managing Director, but must instead by given by another authorized officer of the Company or, in 14 the absence of any such other authorized officer, by the Chief Executive Officer of EBIC. 17.3 In the event of a Change of Control of the Company, it is understood that the Company may, with effect as of or immediately prior to such Change of Control, assign this Agreement to any other Group Company that, after such Change of Control, is still controlled by Maxcor. THE TERMS AND CONDITIONS OF YOUR EMPLOYMENT ARE IN ACCORDANCE WITH, AND SUBJECT TO THE COMPANY'S RULES AND POLICY DOCUMENTS AS DETAILED IN THE APPENDICES 1 - 11 OF THIS CONTRACT AND CURRENT EMPLOYMENT LEGISLATION. THE RELEVANT COMPANY DOCUMENTS ARE AVAILABLE FOR YOUR INSPECTION UPON REQUEST. THIS DOCUMENT SUPERSEDES AND REPLACES ANY EARLIER PARTICULARS OF TERMS OF EMPLOYMENT AND LETTER OF APPOINTMENT ISSUED TO YOU. ANY FUTURE CHANGES TO YOUR TERMS AND CONDITIONS OF EMPLOYMENT WILL BE RECORDED AND NOTIFIED TO YOU IN WRITING GIVING THE APPROPRIATE PERIOD OF NOTICE. SIGNED by WILLIAM PASK } for and on behalf of the } Company in the presence } /s/ William Pask of:- } SIGNED by ROBIN CLARK } in the presence of:- } /s/ Robin Clark APPENDICES 1 -11 TO BE ATTACHED 15 EX-21 4 c20487_ex21.txt SUBSIDIARIES MAXCOR FINANCIAL GROUP INC. Exhibit 21 ---------- SUBSIDIARIES OF THE REGISTRANT JURISDICTION SUBSIDIARY OF INCORPORATION - ------------------------------------------ --------------------- EURO BROKERS INVESTMENT CORPORATION DELAWARE EURO BROKERS HOLDINGS INC. NEW YORK EURO BROKERS INC. NEW YORK MAXCOR FINANCIAL INC. NEW YORK MAXCOR FINANCIAL ASSET MANAGEMENT INC. DELAWARE MAXCOR FINANCIAL SERVICES INC. DELAWARE MAXCOR INFORMATION INC. DELAWARE TRADESOFT TECHNOLOGIES, INC. DELAWARE E-B FUNDING CORPORATION DELAWARE EURO BROKERS TECHNOLOGY INC. DELAWARE EURO BROKERS HOLDINGS LTD. ENGLAND EURO BROKERS FINACOR LTD. ENGLAND EURO BROKERS FINANCIAL SERVICES LTD. ENGLAND EURO BROKERS SERVICES LTD. ENGLAND EURO BROKERS TOKYO INC. DELAWARE YAGI EURO NITTAN CORPORATION JAPAN EURO BROKERS CANADA, LTD. CANADA EURO BROKERS MEXICO, S.A. de C.V. MEXICO EURO BROKERS (SWITZERLAND) S.A. SWITZERLAND -----END PRIVACY-ENHANCED MESSAGE-----