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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-28191
BGC Partners, Inc. (Exact name of registrant as specified in its charter)
Delaware 13 -4063515 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
499 Park Avenue, New York, NY 10022 (Address of principal executive offices) (Zip Code)
(212) 610-2200 (Registrant’s telephone number, including area code)
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 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non -accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
On August 6, 2008, the registrant had 50,920,062 shares of Class A common stock, $0.01 par value, and 31,848,107 shares of Class B common stock, $0.01 par value, outstanding.
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BGC PARTNERS, INC. TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
ITEM 1 Financial Statements (unaudited) 5 Condensed Consolidated Statements of Financial Condition —At June 30, 2008 and December 31, 2007 5 Condensed Consolidated Statements of Operations—For the Three Months and Six Months Ended June 30, 2008 and June 30, 2007 6 Condensed Consolidated Statements of Cash Flows —For the Six Months Ended June 30, 2008 and June 30, 2007 7 Notes to Condensed Consolidated Financial Statements 9
ITEM 2 Management ’s Discussion and Analysis of Financial Condition and Results of Operations 33
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 52
ITEM 4 Controls and Procedures 53
PART II—OTHER INFORMATION
ITEM 1 Legal Proceedings 53
ITEM 6 Exhibits 54
SIGNATURES 55
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SPECIAL NOTE ON FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward- looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements.
Our actual results and the outcome and timing of certain events may differ significantly from the expectations discussed in the forward- looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to:
• our relationship with Cantor Fitzgerald, L.P. and its affiliates (“Cantor”) and any related conflicts of interest, competition for and
retention of brokers and other managers and key employees;
• pricing and commissions and market position with respect to any of our products and services and those of our competitors;
• the effect of industry concentration and consolidation;
• market conditions, including trading volume and volatility;
• economic or geopolitical conditions or uncertainties;
• the extensive regulation of the Company ’s businesses and risks relating to compliance matters;
• factors related to specific transactions or series of transactions, including credit, performance and unmatched principal risk, as well
as counterparty failure;
• the costs and expenses of developing, maintaining and protecting intellectual property, including judgments or settlements paid or received in connection with intellectual property, or employment or other litigation and their related costs and certain financial
risks, including the possibility of future losses and negative cash flow from operations, risks of obtaining financing and risks of the resulting leverage, as well as interest and currency rate fluctuations;
• the ability to enter new markets or develop new products, trading desks, marketplaces or services and to induce customers to use
these products, trading desks, marketplaces or services and to secure and maintain market share;
• the ability to enter into marketing and strategic alliances and other transactions, including acquisitions, dispositions,
reorganizations, partnering opportunities and joint ventures, and the integration of any completed transactions;
• the ability to hire new personnel;
• the ability to expand the use of technology for screen -assisted, voice -assisted and fully electronic trading;
• effectively managing any growth that may be achieved;
• financial reporting, accounting and internal control factors, including identification of any material weaknesses in our internal
controls and our ability to prepare historical and pro forma financial statements and reports in a timely manner;
• the ability to meet expectations with respect to payment of dividends and repurchases of our common stock or purchases of BGC Holdings, L.P. (“BGC Holdings”) limited partnership interests or other equity interests in our subsidiaries, including from Cantor, our executive officers, and our employees; and
• the risks and other factors described under the heading “Risk Factors” and elsewhere in our final prospectus filed with the Securities
and Exchange Commission (the “SEC ”) on June 6, 2008.
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The foregoing risks and uncertainties, as well as those risks discussed under the headings “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 3—Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this Form 10-Q, may cause actual results to differ materially from the forward-looking statements. The information included herein is given as of the filing date of this Form 10-Q with the SEC, and future events or circumstances could differ significantly from these forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
Our Internet website address is www.bgcpartners.com . Through our Internet website, we make available, free of charge, the following reports as soon as reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our annual reports on Form 10- K; our proxy statements for our annual and special stockholder meetings; our quarterly reports on Form 10-Q; our current reports on Form 8-K; Forms 3, 4 and 5 and Schedules 13D and 13G filed on behalf of Cantor, our directors and our executive officers; and amendments to those reports.
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands) (unaudited)
December 31, June 30, 2008 2007 Assets Cash and cash equivalents $ 305,505 $ 277,299 Cash segregated under regulatory requirements 2,109 2,683 Reverse repurchase agreements 177,209 148,249 Loan receivable from related party — 65,000 Securities owned, at fair value 31,672 34,088 Receivables from brokers, dealers, clearing organizations, customers and related broker -dealers 618,488 221,079 Accrued commissions receivable 156,988 140,887 Forgivable and other loan receivables from employees 67,965 63,304 Fixed assets, net 137,991 137,815 Investments 29,748 12,264 Goodwill 67,826 62,826 Other intangible assets, net 14,529 15,676 Receivables from related parties 102,790 131,811 Other assets 68,204 64,648
Total assets $ 1,781,024 $ 1,377,629
Liabilities and Stockholders ’ and Members ’ Equity Accrued compensation $ 100,526 $ 85,470 Payables to brokers, dealers, clearing organizations, customers and related broker -dealers 400,500 270,465 Securities loaned 289,117 — Payables to related parties 120,512 139,500 Accounts payable and accrued liabilities 210,581 206,847 Deferred revenue 18,843 6,852 Long -term debt to related parties (Note 10) — 196,818 Long -term debt (Note 14) 150,000 —
Total liabilities 1,290,079 905,952 Commitments, contingencies and guarantees (Note 16) — — Redeemable partnership interest (Note 2) 113,354 Minority interest (Note 2) 171,016 2,352 Stockholders ’ and members ’ equity (Note 2) Members ’ equity — 235,454 Class A common stock, par value $0.01 per share, 500,000 shares authorized; 57,582 and 36,796 shares issued at June 30, 2008 and December 31, 2007, respectively, and 50,905 and 30,294 shares outstanding at June 30, 2008 and December 31, 2007, respectively 576 368 Class B common stock, par value $0.01 per share, 100,000 shares authorized; 31,848 and 20,498 shares outstanding at June 30, 2008 and December 31, 2007, respectively, convertible into Class A common stock 318 205 Additional paid -in capital 275,437 313,238 Treasury stock, at cost: 6,677 and 6,502 shares of Class A common stock at June 30, 2008 and December 31, 2007, respectively (63,948 ) (62,597 ) Retained deficit (5,808) (17,282 ) Accumulated other comprehensive loss — (61)
Total stockholders ’ and members ’ equity 206,575 469,325 Total liabilities and other equity $ 1,781,024 $ 1,377,629
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues: Commissions $ 212,541 $ 190,711 $466,572 $380,815 Principal transactions 66,062 58,263 117,958 111,273 Fees from related parties 18,599 7,898 39,512 18,791 Market data 5,101 5,359 10,645 9,732 Software solutions 1,454 2,778 3,537 6,342 Interest income 3,931 5,945 7,784 15,012 Other (losses) revenues (2,216 ) 2,002 (3,426) 4,067
Total revenues 305,472 272,956 642,582 546,032
Expenses: Compensation and employee benefits 176,921 159,613 451,466 318,320 Allocation of net income to founding/working partners units 7,133 — 7,133 — Allocation of net income to REUs 252 — 252 —
Total compensation and employee benefits 184,306 159,613 458,851 318,320 Occupancy and equipment 28,775 29,581 59,497 59,030 Fees to related parties 3,140 4,607 9,680 10,963 Professional and consulting fees 11,803 14,329 27,349 23,854 Communicatons 17,041 13,950 33,761 28,068 Selling and promotion 15,070 13,795 30,305 26,799 Commissions and floor brokerage 6,185 2,588 9,898 7,966 Interest expense 3,628 9,065 11,291 18,748 Other expenses 3,391 14,580 9,626 19,908
Total expenses 273,339 262,108 650,258 513,656
Income (loss) from continuing operations before minority interest and income taxes 32,133 10,848 (7,676) 32,376 Minority interest 11,426 894 12,080 1,049 Provision (benefit) for income taxes 8,723 (2,697 ) 16,793 (365 )
Net income (loss) available to common stockholders $ 11,984 $ 12,651 $ (36,549 ) $ 31,692
Per share data (Note 2):
Basic earnings (loss) per share Net income (loss) available to common stockholders $ 11,984 $ 12,651 $ (36,549 ) $ 31,692
Basic earnings (loss) per share $ 0.16 $ 0.07 $ (0.28) $ 0.17
Basic weighted average shares of common stock outstanding 75,194 184,308 130,081 184,295
Fully diluted earnings (loss) per share Net income (loss) for fully diluted shares $ 30,069 $ 12,651 $ (18,464 ) $ 31,692
Fully diluted earnings (loss) per share $ 0.16 $ 0.07 $ (0.10) $ 0.17
Fully diluted weighted average shares of common stock outstanding 190,121 185,353 186,045 185,451
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITES Net (loss) income available to common stockholders $ (36,549 ) $ 31,692 Adjustments to reconcile net (loss) income to net cash provided by operating activities Compensation related to partner redemptions 84,063 — Allocations of net income to founding/working partners units and REUs 7,385 — Fixed asset depreciation and intangible asset amortization 28,821 30,826 Forgivable loan amortization 15,065 19,471 Stock -based compensation 4,129 1,938 Impairment of long -lived assets — 4,010 Unrealized loss on securities owned — 103 Minority interest 12,080 1,049 Deferred tax provision (benefit) 790 (5,338) Recognition of deferred revenue (4,488 ) (2,359) Equity in net loss of unconsolidated investments 3,072 103 Other (69 ) (72 ) Changes in operating assets and liabilities: Decrease (increase) in cash segregated under regulatory requirements 574 (739 ) Increase in securities purchased under agreements to resell (28,960 ) (29,671 ) Decrease in securities owned 2,416 32,397 Increase in receivables from brokers, dealers, clearing organizations, customers and related broker- dealers (397,409 ) (366,224) Increase in accrued commissions receivable, net of allowance for doubtful accounts (16,101 ) (22,721 ) Increase in receivables from related parties (88,278 ) (3,542) Increase in forgivable loans and other receivables from employees (19,726 ) (30,647 ) (Increase) decrease in other assets (2,125 ) 3,965 Increase in accrued compensation 14,804 52,087 Decrease in securities sold under agreements to repurchase — (24,232) Increase in securities loaned 289,117 19,696 Increase in payable to brokers, dealers, clearing organizations, customers and related broker -dealers 130,035 334,201 Increase (decrease) in payables to related parties 102,665 (11,057 ) Increase in deferred revenue 2,367 3,303 Increase (decrease) in accounts payable, accrued and other liabilities 940 (14,334 )
Net cash provided by operating activities 104,618 23,905
(Continued)
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BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) (in thousands) (unaudited)
Six Months Ended June 30, 2008 2007
CASH FLOWS FROM INVESTING ACTIVITIES: Payments of secured loan by related party 65,000 — Purchases of fixed assets (20,117 ) (15,643 ) Decrease in restricted cash 302 1,827 Capitalization of software development costs (8,438) (11,600 ) Capitalization of patent defense and registration costs (1,057) (766 ) Investment in Radix (5,000) Investment in unconsolidated entities (2,153) (750 )
Net cash provided by (used in) investing activities 28,537 (26,932 )
CASH FLOWS FROM FINANCING ACTIVITIES: Capital distribution upon separation/merger (130,000 ) — Long -term borrowings 150,000 36,991 Intercompany long -term repayments (196,818 ) (46,000 ) Proceeds from primary offering of Class A common stock, net 72,342 — Repurchase of Class A common stock (1,351) (373 ) Proceeds from exercises of stock options and warrants 1,138 165 Excess tax benefit from stock -based compensation 13 49 Cancellation of restricted stock units in satisfaction of withholding tax requirements (273 ) —
Net cash used in financing activities (104,949 ) (9,168)
Net increase (decrease) in cash and cash equivalents 28,206 (12,195 ) Cash and cash equivalents at beginning of period 277,299 130,888
Cash and cash equivalents at end of period $ 305,505 $118,693
Supplemental cash information: Cash paid during the period for taxes $ 7,108 $ 3,576
Cash paid during the period for interest $ 9,404 $ 18,530
Supplemental non -cash information: Conversion of Class B common stock into Class A common Stock $ 10 Investment in unconsolidated entity 18,333 Issuance of equity instruments upon merger (281,650 ) Fees related to primary offering of Class A common stock included in accounts payable and accrued liabilities (4,858) Forgiveness/net settlement of receivables from and payables to related parties, net 4,354
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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BGC PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Organization and Basis of Presentation On April 1, 2008, BGC Partners, LLC merged with and into eSpeed, Inc. (“eSpeed”), which survived the merger and was renamed BGC Partners, Inc. (“BGC Partners,” “BGC” or the “Company”). In the merger, an aggregate of 133,860,000 shares of common stock and rights to acquire shares of BGC Partners were issued. Of these, 56,000,000 were in the form of Class B common stock or rights to acquire Class B common stock, and the remaining 77,860,000 were in the form of Class A common stock or rights to acquire Class A common stock. Stockholders of eSpeed held the same number and class of shares of BGC Partners common stock immediately after the merger that they held in eSpeed immediately prior to the merger. BGC Partners’ Class A common stock trades on the NASDAQ Global Market under the symbol “BGCP.”
BGC Partners is a global inter-dealer broker specializing in trading financial instruments and related derivative products. BGC Partners provides integrated voice and electronic (“hybrid”) execution and other brokerage services to many banks, broker-dealers, investment banks and investment firms for a broad range of financial products globally, including fixed income securities, interest rate swaps, foreign exchange, equity derivatives, credit derivatives, futures, structured products and other instruments. Through its eSpeed and BGCantor Market Data brands, the Company also offers financial technology solutions, market data and analytics related to select financial instruments and markets. The Company’s brokerage services include execution, clearing, processing and other back office services. BGC Partners has offices in New York and London, as well as Beijing (representative office), Chicago, Copenhagen, Hong Kong, Istanbul, Johannesburg, Mexico City, Nyon, Paris, Seoul, Singapore, Sydney, Tokyo and Toronto.
The merger has been accounted for as a combination of entities under common control. eSpeed was deemed the acquirer and BGC Partners, LLC was deemed the acquiree. According to Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, since the merger was a transaction between entities under common control, the assets and liabilities of the BGC Partners, LLC were transferred at historical cost and the results of operations and cash flows have been reflected in the accompanying unaudited condensed consolidated financial statements as if the merger occurred as of the earliest period presented.
The Company’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from this report as is permitted by SEC rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Condensed Consolidated Statements of Financial Condition, the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows of the Company for the interim periods presented. These unaudited condensed consolidated financial statements reflect the historical financial position, results of financial operations and cash flows of BGC Partners as if the merger occurred as of the earliest period presented, with the exception of certain capital and tax modifications which became effective as of April 1, 2008. Specifically, the historical financial statements of BGC Partners, for the periods prior to April 1, 2008, do not give effect to the following matters, which are described in more detail in Note 2, The Separation, Merger and Recapitalization, Note 3, Tax Restructuring and Note 4, Earnings Per Share:
• The capitalization of the acquired net assets of BGC Partners, LLC;
• Modification in tax structure;
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• Allocations of net income (loss) to founding/working partners units and REUs;
• Minority interest held by Cantor; and
• Basic and fully diluted earnings per share calculations. This report should be read in conjunction with the audited supplemental consolidated financial statements and notes for the year ended December 31, 2007, as well as the unaudited supplemental condensed consolidated financial statements and notes for the three months ended March 31, 2008, and the unaudited pro forma consolidated financial statements, included in the Company’s final prospectus filed with the SEC on June 6, 2008. The results of operations for the interim period are not necessarily indicative of results to be expected for the entire year.
Recently Adopted Accounting Pronouncements: SFAS No. 157: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability, in an orderly transaction between market participants. SFAS 157 nullifies the consensus reached in EITF Issue No. 02-3 prohibiting the recognition of day-one gain or loss on derivative contracts where the firm cannot verify all of the significant model inputs to observable market data and verify the model to market transactions. However, SFAS 157 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment. In addition, SFAS 157 prohibits the recognition of block discounts for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market. The provisions of SFAS 157 are to be applied prospectively, except for changes in fair value measurements that result from the initial application of SFAS 157 to existing derivative financial instruments measured under EITF Issue No. 02-3, existing hybrid instruments measured at fair value and block discounts, which are to be recorded as an adjustment to opening retained earnings in the year of adoption. The Company adopted the provisions of SFAS 157 when they became effective on January 1, 2008.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:
• Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
• Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
• Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
In determining fair value, the Company separates its financial instruments owned and its financial instruments sold, but not yet purchased into two categories: cash instruments and derivative contracts.
• Cash Instruments —The Company’s cash instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels
of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, certain sovereign government obligations and active listed equities. Such instruments
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are generally classified within Level 1 of the fair value hierarchy. The Company does not adjust the quoted price for such
instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, certain sovereign government obligations, money market securities, and less liquid listed equities, state, municipal and provincial obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.
• Derivative Contracts —The Company’s derivative contracts can be exchange-traded or OTC. Exchange-traded derivatives typically fall within Level 1 or Level 2 of the fair value hierarchy, depending on whether they are deemed to be actively traded or not. The Company generally values exchange-traded derivatives using the closing price of the exchange-traded derivatives. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to
models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy. See Note 5 for further information on SFAS 157.
SFAS No. 159: In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the Company as of January 1, 2008. On January 1, 2008, the Company adopted the fair value option for its available-for-sale securities. The change in fair value of these instruments is recorded in Principal transactions. As a result, the related unrealized loss of approximately $61,000 for the year ended December 31, 2007 was reclassified from Accumulated other comprehensive loss to beginning Retained deficit, as a cumulative effect adjustment.
New Accounting Pronouncements: SFAS No. 141(R): In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) replaces SFAS 141, Business Combinations. SFAS 141(R) retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141(R) amends the recognition provisions for assets and liabilities acquired in a business combination, including those arising from contractual and non- contractual contingencies. SFAS 141(R) also amends the recognition criteria for contingent consideration. SFAS 141(R) is effective as of January 1, 2009. Early adoption is not permitted. The Company is currently evaluating the potential impact of adopting SFAS 141(R) on its consolidated financial statements.
SFAS No. 160: In December 2007, the FASB issued SFAS No. 160, Non-controlling Interest in Consolidated Financial Statements—an amendment to ARB No. 51 (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective as of January 1, 2009. Early adoption is not permitted. The Company is currently evaluating the potential impact of adopting SFAS 160.
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SFAS No. 161: In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the potential impact of adopting SFAS 161.
FASB Staff Position (“FSP”) No. EITF 03-6-1: In June 2008, the FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF 03-6-1”), which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, Earnings per Share . EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The Company is currently evaluating the potential impact of adopting EITF 03-6-1.
2. The Separation, Merger and Recapitalization The Separation On March 31, 2008, Cantor contributed the businesses of its inter-dealer brokerage business, known as the BGC Division, to BGC Partners, LLC and its subsidiaries. As part of the separation, two operating partnerships, BGC Partners, L.P. (“BGC US”) and BGC Global Holdings, L.P. (“BGC Global”), were established as wholly-owned subsidiaries of BGC Holdings, L.P. (“BGC Holdings”), a wholly-owned subsidiary of BGC Partners, LLC.
In connection with the separation, Cantor redeemed certain limited partnership interests in Cantor held by certain of its limited partners for limited partnership interests in BGC Holdings and rights to receive, following the merger, distributions of the Company’s stock owned by Cantor. The limited partnership interests in BGC Holdings issued at the separation are referred to as founding partner interests.
The Merger On April 1, 2008, BGC Partners, LLC merged with and into eSpeed to form BGC Partners. In connection with the merger, eSpeed contributed its assets and liabilities to BGC US and BGC Global in exchange for limited partnership interests in these entities.
As a result of the separation and merger, the following four economic ownership classes of the Company were established:
Founding/working partners Founding/working partners have a limited partnership interest in BGC Holdings. Prior to the merger, this interest was accounted for as a component of members’ equity in the stockholders’ and members’ equity section of the Condensed Consolidated Statements of Financial Condition. With effect from the merger, the Company accounts for this interest in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities , which states that preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity if they are redeemable upon the occurrence of an event that is not solely within the
12 Table of Contents control of the issuer. Because Cantor has the right of first refusal with respect to the redemption of founding/working partners units, the Company’s obligation to redeem the units is conditional upon events outside its control. Accordingly, the Company classifies the interest of the founding/working partners between liabilities and permanent capital, as Redeemable partnership interest on the Condensed Consolidated Statements of Financial Condition.
Additionally, founding/working partners receive allocations of net income based on their pro rata share of economic ownership. This allocation is reflected on the Company’s Condensed Consolidated Statements of Operations as Allocation of net income to founding/working partners units, which is a separate component of compensation expense.
REUs In connection with the merger, BGC Holdings issued REUs to certain of its limited partners. The REUs entitle the holder to participate in distributions of BGC Holdings’ income and to receive post-termination payments equal to the notional value of the grant in four equal yearly installments after the holder’s termination. At Cantor’s discretion, the REUs may also be exchangeable for Class A common stock on a one- for-one basis. The allocation of income to REUs is reflected on the Company’s Condensed Consolidated Statements of Operations as Allocation of net income to REUs, which is a separate component of compensation expense.
Cantor Cantor’s limited partnership interest in BGC Holdings as a result of its contribution of the BGC Division is reflected as a component of minority interest on the Company’s Condensed Consolidated Statements of Financial Condition. Cantor receives allocations of net income based on its pro rata share of economic ownership. This allocation is reflected as a component of Minority interest on the Company’s Condensed Consolidated Statements of Operations.
Common stockholders Common stockholders’ interest is the interest held by the public, including Cantor, in the form of Class A and Class B common stock. This interest is reflected as Stockholders’ equity on the Company’s Condensed Consolidated Statements of Financial Condition.
Primary and Secondary Offerings On June 10, 2008, the Company closed an underwritten public offering of additional shares of its Class A common stock. The offering was composed of a primary offering (the “Primary Offering”) of 10,000,000 newly issued shares offered by the Company and a secondary offering (the “Secondary Offering”) of 10,000,000 issued and outstanding shares offered by Cantor and certain limited partners of Cantor and founding partners of BGC Holdings (“the Selling Stockholders”). In the Secondary Offering, 3,926,178 shares were offered by Cantor and 6,073,822 shares were offered by certain limited partners of Cantor and founding partners of BGC Holdings.
The offering price to the public was $8.00 per share, and the price, net of underwriters’ discount of 3.5%, was $7.72 per share. The Company received net proceeds of $77.2 million as a result of the Primary Offering. Offering expenses, other than underwriters’ discounts, of approximately $4.9 million were incurred by the Company. The Company did not receive any net proceeds from the sales of common stock offered by the Selling Stockholders in the Secondary Offering.
Immediately following the Primary Offering, the Company repurchased 175,000 shares of Class A common stock from one of its executive officers for $7.72 per share, totaling approximately $1.4 million. BGC Partners contributed the remaining net proceeds from the Primary Offering to BGC US and BGC Global in exchange for additional partnership interests on a one-for-one basis. BGC US and BGC Global expect to use such proceeds for general corporate purposes, including potential acquisitions.
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3. Tax Restructuring eSpeed was a United States corporation and reported and paid U.S. federal income taxes as well as taxes to other jurisdictions in which it or its subsidiaries conducted business. Historically, much of BGC Partners, LLC had operated through entities that were treated as partnerships for U.S. federal income tax purposes. As such, much of the income was not subject to U.S. federal and state income taxes because taxes related to income earned by partnerships represent obligations of the individual partners. BGC Partners, LLC did have certain companies that were incorporated and subject to U.S. federal, state and local income tax and they did report and pay U.S federal, state and local income taxes. Outside the United States, BGC Partners, LLC had operated principally through subsidiary corporations subject to local income taxes. Prior to April 1, 2008, income taxes reported on the consolidated financial statements for BGC Partners, LLC were primarily attributable to taxes incurred by its incorporated U.S entities and by non-U.S. entities. Subsequent to the merger, the consolidated financial statements of the Company include U.S. federal, state and local income taxes on its allocable share of the U.S. results of operations, giving effect to the post- merger structure, as well as taxes payable to jurisdictions outside the U.S.
Income taxes are accounted for using the asset and liability method, as prescribed in SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not those assets will not be realized. No deferred U.S. federal income taxes have been provided for the undistributed foreign corporate earnings since they have been permanently reinvested in the Company’s foreign operations. It is not practical to determine the amount of additional tax that may be payable in the event these earnings are repatriated. Effective January 1, 2007, the Company, adopted Financial Accounting Standards Board Interpretation No. 48, Accounting For Uncertainty in Income Taxes —an interpretation of SFAS No. 109 (“FIN 48”). It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
4. Earnings Per Share SFAS No. 128, Earnings Per Share (“SFAS 128”), establishes standards for computing and presenting earnings per share (“EPS”). SFAS 128 requires the dual presentation of basic and diluted EPS on the face of the accompanying Condensed Consolidated Statement of Operations and requires a reconciliation of numerators (net income (loss)) and denominators (weighted-average shares of common stock outstanding) for both basic and diluted EPS in the footnotes. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted-average shares of common stock outstanding. From April 1, 2008, net income is allocated to each of the four economic ownership classes described above, based on each class’s pro rata economic ownership. The weighted-average shares of common stock outstanding have been retroactively restated to all periods prior to April 1, 2008 to give effect to the shares issued in connection with the merger. There were no net income allocations to founding/working partners units, REUs, or Cantor for the periods prior to April 1, 2008 as it is assumed that all of the Company’s net income (loss) for those periods was allocated to all economic owners, including common stockholders.
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The Company’s earnings for the three months and six months ended June 30, 2008 and 2007 were allocated as follows (in thousands):
Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Net income allocable to founding/working partners units $ 7,133 $ — $ 7,133 $ — Net income allocable to REUs 252 — 252 — Net income allocable to Cantor 10,700 — 10,700 — Net income (loss) available to common stockholders 11,984 12,651 (36,549 ) 31,692
$ 30,069 $12,651 $ (18,464 ) $ 31,692
The following is a reconciliation of the Company’s basic and fully diluted earnings per share (in thousands, except for per share data):
Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Basic earnings (loss) per share: Net income (loss) available to common stockholders $ 11,984 $ 12,651 $ (36,549 ) $ 31,692
Basic weighted average shares of common stock outstanding (1) 75,194 184,308 130,081 184,295
Basic earnings (loss) per share $ 0.16 $ 0.07 $ (0.28 ) $ 0.17
(1) The weighted average shares outstanding for the three and six months ended June 30, 2007 have been retroactively restated to give effect to the shares and rights to acquire shares issued in connection with the merger. Effective with the merger 111,891 were removed from the basic weighted average share count because they ceased to be common stock equivalents for purposes of basic EPS and are now considered potential common shares. Subsequent to the merger, allocations to founding/working partners units, REUs and Cantor have been deducted from net income available to common stockholders.
Fully diluted earnings (loss) per share is calculated utilizing net income available for common stockholders plus net income allocations to the founding/working partners units, REUs, and Cantor; and dividing it by the weighted average number of BGC Holdings units held by founding/working partners and Cantor, the Company’s outstanding shares of common stock, and the potential dilution that could occur if securities or other contracts to issue shares of common stock, including REUs, options, restricted stock units (“RSUs”) and warrants, were exercised, resulting in the issuance of shares of common stock that would then share in earnings in the Company’s net income available to common stockholders. The following is a reconciliation of the Company’s fully diluted earnings (loss) per share (in thousands, except for per share data):
Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Fully diluted earnings (loss) per share: Net income (loss) available to common stockholders $ 11,984 $12,651 $ (36,549 ) $ 31,692 Allocation of net income to founding/working partners units 7,133 — 7,133 — Allocation of net income to REUs 252 — 252 — Allocation of net income to Cantor 10,700 — 10,700 —
Net income (loss) for fully diluted shares $ 30,069 $12,651 $ (18,464 ) $ 31,692
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Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Basic weighted average shares of common stock outstanding (2) 75,194 184,308 130,081 184,295 Stock options/RSUs/warrants 2,905 1,045 — 1,156 REUs 131 — 160 — BGC Holdings units held by founding/working partners 44,757 22,322 22,322 22,322 BGC Holdings units held by Cantor 67,134 33,482 33,482 33,482
Fully diluted weighted average shares of common stock outstanding 190,121 185,353 186,045 185,451
Fully diluted earnings (loss) per share $ 0.16 $ 0.07 $ (0.10 ) $ 0.17
(2) The weighted average shares outstanding for the three and six months ended June 30, 2007 have been retroactively restated to give effect to the shares and rights to acquire shares issued in connection with the merger. Effective with the merger 111,891 were removed from the basic weighted average share count because they ceased to be common stock equivalents for purposes of basic EPS and are now considered potential common shares. Subsequent to the merger, allocations to founding/working partners units, REUs and Cantor have been deducted from net income available to common stockholders.
For the three months ended June 30, 2008 and 2007, approximately 7.3 million and 5.6 million REUs, options, RSUs and warrants, respectively, were not included in the computation of diluted earnings (loss) per share because their effect would have been anti-dilutive because the exercise price exceeded the average share price for the period. For the six months ended June 30, 2008 and 2007, approximately 6.6 million and 15.7 million REUs, options, RSUs and warrants, respectively, were not included in the computation of diluted earnings (loss) per share because their effect would have been anti-dilutive because the exercise price exceeded the average share price for the period.
Stock Repurchase Program The Company’s Board of Directors has authorized the repurchase of up to $100 million of outstanding Class A common stock. During the six months ended June 30, 2008 and June 30, 2007, the Company did not repurchase any shares of its Class A common stocks under this plan. At June 30, 2008, the Company had approximately $58.2 million remaining from its $100 million buyback authorization.
5. Fair Value of Financial Assets and Liabilities The following table sets forth the Company’s financial assets, including those pledged as collateral, and financial liabilities at fair value (in thousands):
June 30, 2008 Assets Liabilities Sovereign obligations $ 28,737 $ — Equities and corporate bonds 2,935 — Derivative contracts 104 106
Total $ 31,776 $ 106
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The following tables set forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under SFAS 157 at June 30, 2008 (in thousands):
Assets at Fair Value at June 30, 2008 (1) Netting and
Level 1 Level 2 Level 3 Collateral Total Sovereign obligations — $ — $28,737 $ $ — $ 28,737 Equities and corporate bonds — 2,650 285 — 2,935 Derivative contracts — — 104 — 104
Total — $ 2,650 $29,126 $ $ — $ 31,776
Liabilities at Fair Value at June 30, 2008 (1) Netting and
Level 1 Level 2 Level 3 Collateral Total Derivative contracts — — $ $ 106 $ $ — $ 106
Total — — $ $ 106 $ $ — $ 106
(1) As required by SFAS 157, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. (See Note 1, Organization and Basis of Presentation, for further information on the fair value hierarchy.)
6. Securities Owned The Company allows certain of its brokerage desks to enter into unmatched principal transactions in the ordinary course of business for the purpose of facilitating transactions, adding liquidity, improving customer satisfaction, increasing revenue opportunities, attracting additional order flow and, in a limited number of instances and subject to risk management limits, for the purpose of proprietary trading. Unmatched principal transactions were $31.7 million at June 30, 2008 and $34.1 million at December 31, 2007.
Securities owned consisted of the following (in thousands):
December 31, June 30, 2008 2007 Sovereign obligations $28,737 $ 30,511 Other 2,935 3,577
Total $31,672 $ 34,088
As of June 30, 2008 and December 31, 2007, the Company had pledged $28.7 million and $31.4 million, respectively, of securities owned to satisfy deposit requirements at various exchanges or clearing organizations.
7. Collateralized Transactions Securities purchased under agreements to resell (“Reverse Repurchase Agreements”) are accounted for as collateralized financing transactions and are recorded at the contractual amount for which the securities will be resold including accrued interest.
For Reverse Repurchase Agreements, it is the Company’s policy to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under Reverse Repurchase Agreements. Collateral is valued daily and the Company may require counterparties to deposit additional collateral or return collateral pledged when appropriate. Certain Reverse Repurchase Agreements are with Cantor (see Note 10, Related Party Transactions, for more information regarding these agreements). As of June 30, 2008, the
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Company had received, as collateral, U.S. Government and agency securities with a fair value of $178.6 million, of which $172.1 million pertained to Reverse Repurchase Agreements with Cantor. Of the securities received as collateral, securities with a fair value of $28.7 million were repledged to exchanges or clearing organizations to fulfill deposit requirements. As of December 31, 2007, the Company had received, as collateral, U.S. Government and agency securities with a fair value of $150.7 million, of which $143.7 million pertained to Reverse Repurchase Agreements with Cantor. Of the securities received as collateral, securities with a fair value of $28.3 million were repledged to exchanges or clearing organizations to fulfill deposit requirements.
From time to time, the Company enters into securities loaned transactions as a means of financing inventory positions. These securities loaned transactions are recorded at the contractual amount for which the securities were loaned, including accrued interest. As of June 30, 2008, the Company had securities loaned transactions of $289.1 million, for which the fair value of the collateral loaned was $283.9 million. As of December 31, 2007, the Company did not have any securities loaned transactions.
8. Receivables from and Payables to Brokers, Dealers, Clearing Organizations, Customers and Related Broker -Dealers Receivables from and payables to brokers, dealers, clearing organizations, customers and related broker-dealers primarily represent amounts due for undelivered securities, amounts related to open derivative contracts, cash held at clearing organizations and exchanges to facilitate settlement and clearance of matched principal transactions, and spreads on matched principal transactions that have not yet been remitted from/to clearing organizations and exchanges.
The receivables from and payables to brokers, dealers, clearing organizations, customers and related broker-dealers consisted of the following (in thousands):
December 31, June 30, 2008 2007 Receivables from brokers, dealers, clearing organizations, customers and related broker -dealers: Contract values of fails to deliver $ 342,272 $ 93,146 Net pending trades 177,910 — Open derivative contracts 104 23,094 Receivables from clearing organziations 55,394 81,574 Other receivables from brokers, dealers and customers 42,808 23,265
Total $ 618,488 $ 221,079
Payables to brokers, dealers, clearing organizations, customers and related broker -dealers: Contract values of fails to receive $ 328,787 $ 88,873 Net pending trades — 56,231 Open derivative contracts 106 23,450 Payables to clearing organziations 34,530 23,747 Other payables to brokers, dealers and customers 37,077 78,164
Total $ 400,500 $ 270,465
A portion of these receivables and payables is with Cantor (see Note 10, Related Party Transactions, for additional information related to these receivables and payables).
Substantially all open fails to deliver and fails to receive transactions as of June 30, 2008 have subsequently settled at the contracted amounts.
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9. Derivatives The Company has both OTC and exchange-traded derivative contracts. These derivative contracts primarily consist of bond futures, commodities, interest rate and foreign exchange futures, options, forwards and swaps. The Company enters into derivative contracts to facilitate client transactions, to hedge principal positions and to facilitate hedging activities of affiliated companies. Open derivative contracts are recognized at the fair value of the related assets and liabilities as part of Receivables from or payables to brokers, dealers, clearing organizations, customers and related broker dealers on the accompanying Condensed Consolidated Statements of Financial Condition.
Fair values of derivative contracts are determined from quoted market prices or other public price sources. The Company does not designate any derivative contracts as hedges for accounting purposes. The change in fair value of derivative contracts is reported as part of Principal transactions on the accompanying Condensed Consolidated Statements of Operations.
The fair value of derivative financial instruments, computed in accordance with the Company’s netting policy, is set forth below (in thousands):
June 30, 2008 December 31, 2007 Assets Liabilities Assets Liabilities Forward settlement contracts $ 2 $ — $ 110 $ 98 Swap agreements 102 106 22,503 22,975 Futures — — 328 224 Option contracts — — 153 153
Total $ 104 $ 106 $23,094 $ 23,450
Transactions with off-balance-sheet risk are primarily short-term in duration. At June 30, 2008 and December 31, 2007, the notional amounts of derivative instruments used for trading purposes were $734.8 million and $2.2 billion, respectively. These contracts had remaining maturities of less than one year.
A portion of the Company’s derivative contracts is with Cantor. The fair value of derivative financial instruments with Cantor is set forth below (in thousands):
June 30, 2008 December 31, 2007 Assets Liabilities Assets Liabilities Forward settlement contracts $ — $ — $ 78 $ — Swap agreements 32 65 3,282 4,734 Futures — — 328 224
Total $ 32 $ 65 $3,688 $ 4,958
At June 30, 2008 and December 31, 2007, the notional amounts outstanding for derivative contracts with Cantor totaled $734.4 million and $933.5 million, respectively.
The replacement cost of contracts in a gain position at June 30, 2008, summarized by counterparty credit ratings, is as follows (in thousands):.
Rating (a) Net Replacement Cost A $ 2 Other (b) —
(a) Credit ratings based on Standard & Poor ’s. (b) “Other” indicates counterparties for which no credit ratings were available from an independent third-party source. It does not necessarily indicate that the counterparties ’ credit ratings are below investment grade.
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10. Related Party Transactions Administrative Services Agreements In the United States, Cantor provides the Company with administrative services and other support for which Cantor charges the Company based on the cost to Cantor of providing such services. Such support includes allocations for occupancy of office space, utilization of fixed assets and accounting, operations, human resources and legal services. On April 1, 2008, in connection with the services Cantor provides, the Company and Cantor entered into an employee lease agreement whereby certain employees of Cantor are deemed leased employees of the Company, and the Company has the powers and rights of a common law employer of such employees.
The fees paid to Cantor for administrative and support services, other than those to cover the compensation costs of leased employees, are included as part of Fees to related parties on the accompanying Condensed Consolidated Statements of Operations. The fees paid to Cantor to cover the compensation costs of leased employees are included as part of Compensation and employee benefits on the accompanying Condensed Consolidated Statements of Operations.
For the three months ended June 30, 2008, the Company was charged $7.9 million for the services provided by Cantor and its affiliates, of which $4.8 million was to cover compensation to leased employees. For the three months ended June 30, 2007, the Company was charged $4.6 million for the services provided by Cantor and its affiliates. For the six months ended June 30, 2008, the Company was charged $14.5 million for the services provided by Cantor, of which $4.8 million was to cover compensation to leased employees. For the six months ended June 30, 2007, the Company was charged $11.0 million for the services provided by Cantor.
Throughout Europe and Asia, the Company provides Cantor with administrative services and other support for which the Company charges Cantor based on the cost of providing such services plus a mark-up, currently 7.5%. Such support includes allocations for occupancy of office space, utilization of fixed assets, accounting, operations, human resources and legal services. In the UK, the Company provides these services to Cantor through Tower Bridge International Services L.P. (“Tower Bridge”). The Company established Tower Bridge on December 21, 2006, and as of the beginning of January 2007, transferred all of its current UK administrative employees and operations to Tower Bridge. The Company owns 52% of Tower Bridge and consolidates it, and Cantor owns 48%. The Company recognizes minority interest for the investment held by Cantor.
In addition, prior to the merger, the Company had certain agreements with Cantor. Under these agreements, which were terminated upon closing of the merger, eSpeed was entitled to receive a portion of Cantor’s and CO2e’s revenues as fees for providing electronic brokerage services, voice-assisted brokerage services, fulfillment services and related services such as credit risk management, oversight of customer suitability and regulatory compliance, sales position of products and other services customary to marketplace intermediary operations.
Also, through its eSpeed brand, the Company provides technology services to ELX Futures L.P. (“ELX Futures”), a partnership in which the Company holds an approximate 25% interest. Pursuant to a technology services agreement entered into on December 21, 2007, the Company provides a software technology license, monthly maintenance support and other technology services as requested by ELX Futures. (See Note 10, Investments and Joint Ventures, for more information regarding the Company’s interest in ELX Futures and the related technology services agreement.)
For the three months ended June 30, 2008 and 2007, the Company recognized revenues of $18.6 million and $7.9 million, respectively, for the administrative and technology services provided to Cantor and its affiliates and ELX Futures. For the six months ended June 30, 2008 and 2007, the Company recognized revenues of $39.5 million and $18.8 million, respectively, for the administrative and technology services provided to Cantor and its affiliates and ELX Futures. These revenues are included as part of “Fees from related parties” on the accompanying Condensed Consolidated Statements of Operations.
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Underwriting Agreement Cantor Fitzgerald & Co. and CastleOak Securities, L.P., affiliates of the Company, were underwriters of the Primary and Secondary Offerings that closed on June 10, 2008. Pursuant to the underwriting agreement entered into in connection with these offerings, Cantor Fitzgerald & Co. and CastleOak Securities, L.P. agreed to purchase 6,435,000 shares and 200,000 shares, respectively, for approximately 3.5% in underwriting discounts and commissions. In connection with the offerings, Cantor Fitzgerald & Co and CastleOak Securities, L.P. were paid $1,801,800 and $56,000, respectively, in discounts and commissions.
Debt Guaranty Agreements On April 1, 2008, in connection with the Note Purchase Agreement, which authorized the issue and sale of $150.0 million principal amount of the Company’s Senior Notes, Cantor provided a guaranty of payment and performance on such notes. Cantor charges the Company an amount equal to 2.3% of the outstanding principal amount of the loans for the provision of the guaranty. The fees paid to Cantor for the guaranty are included as part of Fees to related parties on the accompanying Condensed Consolidated Statements of Operations.
For the three and six months ended June 30, 2008, the Company recognized expense of approximately $0.9 million in relation to this charge. The Company did not recognize any expense for the three and six months ended June 30, 2007.
Receivables from and Payables to Brokers, Dealers, Clearing Organizations, Customers and Related Broker-Dealers In Europe and the United States, certain trades executed by the Company are cleared and settled by Cantor. Additionally, in the UK, BGC Partners places certain trades on behalf of Cantor and its affiliates.
Amounts due from or to Cantor for undelivered securities or open derivative contracts are included as part of “Receivables from and payables to brokers, dealers, clearing organizations, customers and related broker dealers” on the accompanying Condensed Consolidated Statements of Financial Condition. As of June 30, 2008, the Company did not have any receivables from or payables to Cantor. As of December 31, 2007, the Company had receivables from Cantor of approximately $3.7 million and payables to Cantor of approximately $5.0 million, respectively.
Forgivable Loans and Other Receivables from Employees The Company has entered into various agreements with certain of its employees whereby these employees receive forgivable loans. As of June 30, 2008 and December 31, 2007, the unamortized balance of these forgivable loans was $61.4 million and $55.8 million, respectively. These forgivable loans are included as part of “Forgivable and other loans receivables from employees and partners” on the accompanying Condensed Consolidated Statements of Financial Condition. Amortization expense for these forgivable loans for the three months ended June 30, 2008 and 2007 was $7.1 million and $9.5 million, respectively. Amortization expense for these forgivable loans for the six months ended June 30, 2008 and 2007 was $15.1 million and $19.5 million, respectively. Amortization expense for forgivable loans is included as part of “Compensation and employee benefits” on the accompanying Condensed Consolidated Statements of Operations.
Additionally, from time to time, the Company may enter into agreements with employees to grant bonus and salary advances or other types of loans that are non-forgivable. These advances and loans are repayable in the timeframes outlined in the underlying agreements. As of June 30, 2008 and December 31, 2007, the balance of these advances and non-forgivable loans was $6.6 million and $7.5 million, respectively. These advances and non-forgivable loans are included as part of “Forgivable and other loans receivables from employees and partners” on the accompanying Condensed Consolidated Statements of Financial Condition.
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Securities Purchased Under Agreements to Resell From time to time, the Company enters into overnight Reverse Repurchase Agreements with Cantor, whereby the Company receives government or eligible equity securities as collateral. As of June 30, 2008 and December 31, 2007, the Company had $171.5 million and $140.7 million, respectively, of Reverse Repurchase Agreements with Cantor, of which the fair value of the collateral received from Cantor was $172.1 million and $143.2 million, respectively.
Related Party Loan from Cantor On July 26, 2007, the Company entered into a Secured Promissory Note and Pledge Agreement (the “Secured Loan”) with Cantor in which the Company agreed to lend to Cantor up to $100.0 million (the “Secured Loan Amount”) on a secured basis from time to time. The Secured Loan was guaranteed by a pledge of the Company’s Class A common stock or Class B common stock owned by Cantor equal to 125% of the outstanding Secured Loan amount, as determined on a next day basis. The Secured Loan earned interest at the market rate for equity repurchase agreements plus 0.25% and was payable on demand. The Secured Loan was approved by the Company’s Audit Committee. At June 30, 2008, there was no outstanding loan balance. At December 31, 2007, the outstanding balance of the Secured Loan was $65.0 million.
Notes Payable Historically, the Company had various subordinated loans and notes payable outstanding to Cantor. At December 31, 2007, the amount of outstanding notes payable to Cantor was $196.8 million. All of these notes were repaid upon BGC Partners’ separation from Cantor on March 31, 2008.
The Company did not incur any interest expense related to the notes payable to Cantor for the three months ended June 30, 2008. The Company incurred interest expense related to the notes payable to Cantor of $4.0 million for the three months ended June 30, 2007. Interest expense related to notes payable to Cantor was $4.0 million and $10.1 million for the six months ended June 30, 2008 and 2007, respectively. Interest expense related to these notes is recorded as part of Interest expense on the accompanying Condensed Consolidated Statements of Operations.
Grant Units Prior to the merger, Cantor provided awards to certain employees of the Company in the form of grant units in Cantor (“grant units”). Grant units entitled the employees to participate in quarterly distributions of Cantor’s net income and to receive certain post-termination payments. See Note 15, Stock-Based Compensation, for more information regarding grant units.
Other Transactions In February 2006, a subsidiary of Cantor acquired all of the assets of IDT Horizon GT, Inc. (“Horizon”). Immediately prior to the closing of the acquisition, the Company entered into a software license agreement with Horizon pursuant to which Horizon granted the Company a perpetual, fully paid up, non-transferrable (except to affiliates of the Company) license of Horizon’s GovREPO software, a multi-currency, multi-entity, multi-portfolio, collateral management and trading system for fixed income securities (“the Horizon License”). In consideration for the Horizon License and support services to be provided under the Horizon License, the Company issued to Horizon a warrant, which warrant was not transferred to Cantor. See Note 13, Goodwill and Other Intangible Assets, for more information regarding this transaction.
On August 10, 2006, the Company entered into a Sponsored Research Agreement with a researcher and a U.S. university in which the Company agreed to pay $100,000 per year for five years in exchange for research and certain patent rights. In October 2006, the Company agreed with Cantor that Cantor would pay 75% of all
22 Table of Contents payments to be made by the Company in connection with the Sponsored Research Agreement. Additionally, Cantor agreed that to the extent, if any, that the Company makes charitable contributions to the university, Cantor will make a proportional charitable contribution. In exchange for this agreement, the Company will retain a nonexclusive license to all patents and patent applications resulting from the Sponsored Research Agreement within the field of financial services and Cantor will have patent rights to all other patents and patent applications. The Company further agreed that, in the event that the Company or Cantor grants a license to such technology in the field of fully electronic financial services, the Company and Cantor will each receive 50% of all revenue from any such license.
In January 2007, the Company announced the formation of Aqua Securities, L.P. (“Aqua”), an alternative electronic trading platform which offers new pools of block liquidity to the global equities markets. Aqua is 51% owned by Cantor and 49% owned by the Company. Cantor and the Company have collectively contributed financial, professional and technology assets to the venture, which included all of the Company’s former equities order routing business. See Note 11, Investments and Joint Ventures, for information regarding this transaction.
On April 1, 2008, pursuant to a registration rights agreement entered into by Cantor and the Company in connection with the merger, and a registration rights agreement entered into by BGC Partners, LLC in connection with the separation and assumed by the Company in the merger, Cantor has received piggyback and demand registration rights.
In June 2008, the Company was authorized to enter into loans, investments or other credit support arrangements for Aqua of up to $5.0 million in the aggregate, which arrangements would be proportionally and on the same terms as similar arrangements between Aqua and Cantor. The Company was further authorized to provide counterparty or similar guarantees on behalf of Aqua from time to time, provided that liability for any such guarantees, as well as similar guarantees provided by Cantor, would be shared proportionally with Cantor. As of June 30, 2008, the Company had not entered into any arrangements for the Aqua business.
The Company has a 15% investment in EIP Holdings, LLC (“EIP Holdings”), which in turn has a 99.5% investment in TradeSpark, L.P. (“TradeSpark”), a voice brokerage business in certain energy products. Cantor has an 85% investment in EIP Holdings.
11. Investments and Joint Ventures The Company’s investments consisted of the following (in thousands):
December 31,
June 30, 2008 2007
ELX $17,063 $ — Freedom International Brokerage 9,918 9,913 Aqua Securities, L.P. 1,923 1,529 EIP Holdings 841 819 Tradespark 3 3
Total investments $29,748 $ 12,264
ELX On December 21, 2007, the Company and 11 other leading financial institutions announced the formation of a limited partnership that will establish a fully-electronic futures exchange. The Company holds an approximate 25% interest in ELX Futures, and its holding company general partner, ELX Futures Holdings, LLC (combined “ELX”). Assuming the Company maintains its present ownership percentage, it will be entitled to approximately 25% of distributions from each entity. The Company has also entered into a technology services agreement with
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ELX pursuant to which the Company will provide a software technology license, monthly maintenance support and other technology services as requested by ELX. In conjunction with this transaction, the Company recorded an investment and deferred revenue of approximately $18.3 million in January 2008. The deferred revenue is being amortized over the license agreement term of four years. In addition, the Company will receive approximately $1.1 million per month for providing maintenance services to support the trading platform. For the three and six months ended June 30 2008, approximately $4.6 million and $9.0 million, respectively, was recognized in income and is included as part of Fees from related parties in the accompanying Condensed Consolidated Statements of Operations.
Based on the Company’s 25% ownership in ELX, for the three and six months ended June 30, 2008, the Company’s share of ELX’s net loss was $0.4 million and $1.3 million, respectively, and is included as part of Other (losses) revenues in the accompanying Condensed Consolidated Statements of Operations. There were no gains or losses recorded in 2007 in connection with ELX.
Freedom The Company formed a limited partnership (the “Freedom LP”) to acquire an interest in Freedom International Brokerage (“Freedom”), a Canadian government securities broker-dealer and Nova Scotia unlimited liability company. The Company contributed 414,357 shares of its Class A common stock, valued at the time of the investment at approximately $9.3 million, to the Freedom LP, which entitles the Combined Company to 100.0% of the equity and cumulative profits of the Freedom LP. The Freedom LP exchanged the 414,357 shares for a 66.7% interest in Freedom.
For the three months ended June 30, 2008, the Company’s share of Freedom’s net loss was approximately $13,000. For the six months ended June 30, 2008, the Company’s share of Freedom’s net income was approximately $5,000. The Company’s share of Freedom’s net income/loss is included as part of Other (losses) revenues in the accompanying Condensed Consolidated Statements of Operations.
Aqua In January 2007, the Company announced the formation of Aqua, an alternative electronic trading platform which will offer new pools of block liquidity to the global equities markets. Aqua is 51% owned by Cantor and 49% owned by the Company. In June 2007, the Company contributed to Aqua $0.7 million cash and technology assets with a net book value of approximately $0.6 million. During the fourth quarter of 2007, Aqua received certain FINRA approvals. With that, BGC Partners further contributed to Aqua $0.6 million cash and technology assets with a net book value of approximately $0.5 million. During the six months ended June 30, 2008, the Company contributed an additional $2.2 million to Aqua. For the three and six months ended June 30, 2008, the Company’s share of Aqua’s net loss was approximately $0.9 million and $1.8 million, respectively, and is included as part of Other (losses) revenues in the accompanying Condensed Consolidated Statements of Operations.
EIP Holdings/Tradespark The Company has a 15% investment in EIP Holdings, LLC (“EIP Holdings”), which in turn has a 99.5% investment in TradeSpark, L.P. (“TradeSpark”), a voice broker in certain energy products. Cantor has an 85% investment in EIP Holdings. The Company’s net income from its investment in TradeSpark, through both direct and indirect investments, totaled approximately $16,000 and $9,000 for the three months and six months ended June 30, 2008, respectively, and is included as part of Other (losses) revenues in the accompanying Condensed Consolidated Statements of Operations.
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12. Fixed Assets, net Fixed assets, net consisted of the following (in thousands):
December 31,
June 30, 2008 2007
Computer and communications equipment $ 156,089 $ 149,224 Software, including software development costs 136,901 129,847 Leasehold improvements and other fixed assets 117,750 113,029
410,740 392,100 Less: accumulated depreciation and amortization (272,749 ) (254,285)
Fixed assets, net $ 137,991 $ 137,815
Depreciation expense was $9.1 million and $9.5 million for the three months ended June 30, 2008 and 2007, respectively, and $18.8 million and $19.2 million for the six months ended June 30, 2008 and 2007, respectively. Depreciation is included in the accompanying Condensed Consolidated Statements of Operations as part of Occupancy and equipment.
In accordance with the provisions of Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”), the Company capitalizes qualifying computer software costs incurred during the application development stage and amortizes them over their estimated useful life of three years on a straight-line basis. For the three months ended June 30, 2008 and 2007, software development costs totaling $5.5 million and $5.4 million, respectively, were capitalized. For the six months ended June 30, 2008 and 2007, software development costs totaling $8.4 million and $11.6 million, respectively, were capitalized. Amortization of software development costs totaled $3.7 million and $4.4 million for the three months ended June 30, 2008 and 2007, respectively, and $7.8 million and $8.7 million for the six months ended June 30, 2008 and 2007, respectively.
13. Goodwill and Other Intangible Assets In March 2008, the Company acquired Radix Energy (Singapore) Pte Ltd (“Radix”) for $5.0 million in cash. Radix is an OTC energy broker based in Singapore. This acquisition will enable the Company to offer its clients voice and electronic brokerage services in the world’s energy markets for the first time, with products including crude oil, fuel oil, naptha and middle distillates. Through this acquisition, the Company added approximately 30 brokers who continue to be based in Singapore, serving clients throughout the region and beyond. In addition, certain employees of Radix received awards of REUs with an estimated fair value of $5.0 million issued upon closing of the merger. 526,315 REUs, which vest and become exchangeable into shares of common stock over time as certain performance goals are met, were issued to the employees.
The $5.0 million in cash paid was allocated to goodwill. The purchase price allocation is preliminary and is dependent on the Company’s final analysis of the net assets, including intangibles, which is expected to be completed within the one-year period following the consummation of the acquisition. The results of operations of Radix have been included in the Company’s condensed consolidated financial statements subsequent to the date of acquisition. Goodwill will not be amortized but will be reviewed annually for impairment, or more frequently if impairment indicators arise, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets .
The changes in the carrying amount of goodwill at June 30, 2008 were as follows (in thousands):
Balance at December 31, 2007 $ 62,826 Radix acquisition 5,000
Balance at June 30, 2008 $ 67,826
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Other intangible assets consisted of the following (in thousands):
December 31, June 30, 2008 2007 Definite life intangible assets: Patents $ 33,492 $ 32,474 Customer base/relationships 11,464 11,464 Internally developed software 5,722 5,722 Covenant not to compete 1,628 1,628 Trademarks 1,315 1,315
Total gross definite life intangible assets 53,621 52,603 Accumulated amortization (40,592 ) (38,427 )
Net definite life intangible assets 13,029 14,176
Horizon license 1,500 1,500
Total net intangible assets $ 14,529 $ 15,676
Amortization expense was $1.1 million and $1.1 million for the three months ended June 30, 2008 and 2007, respectively, and $2.2 million and $3.0 million for the six months ended June 30, 2008 and 2007, respectively. Intangible amortization is included as part of Occupancy and equipment in the accompanying Condensed Consolidated Statements of Operations.
14. Long -Term Notes On March 31, 2008, the Company entered into a Note Purchase Agreement pursuant to which it issued $150.0 million principal amount of its Senior Notes to a number of investors. The Notes are due April 1, 2010, with interest payable semiannually at the rate of 5.19% per annum. The Notes are subject to certain covenants, including capital covenants that require the Company to maintain consolidated capital at an amount not less than $227.5 million and debt covenants that require that the Company’s consolidated debt not to exceed 60% of its consolidation capitalization; provided, however, that if the Company’s consolidated debt exceeds 55%, then the applicable interest rate of the notes will be increased by 0.25% per annum. As of June 30, 2008, the Company was in compliance with all debt covenants. The Company recorded interest expense of $1.9 million for the three and six months ended June 30, 2008.
15. Stock-Based Compensation Restricted Stock Units A summary of the activity associated with restricted stock units is as follows:
Weighted Average Weighted Average Remaining Restricted Grant Date Contractual Stock Units Fair Value Term (Years) Balance at December 31, 2007 342,325 $ 9.79 Granted 2,158,287 11.72 Vested (33,666 ) 10.20 Forfeited (59,170 ) 11.70
Balance at June 30, 2008 2,407,776 $ 11.47 1.87
The fair value of the restricted stock units (“RSUs”) is determined on the date of grant based on the market value of Class A common stock, and is recognized, net of the effect of estimated forfeitures, over the vesting period. The Company uses historical data, including historical forfeitures and turnover rates, to estimate expected forfeiture rates.
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Upon closing of the merger on April 1, 2008, the Company issued approximately 2.1 million RSUs to certain employees and others who provide services to BGC Partners. Approximately 1.0 million of these RSUs, with an aggregate estimated fair value of $11.8 million, vest over a two-year period, with 50% vesting in August 2008 and 2009. Approximately 1.1 million of these RSUs, with an aggregate estimated fair value of $12.9 million, vest over a three-year period, with 33.3% vesting in December 2008, 2009 and 2010. At March 31, 2008, these RSUs were accounted for as liability awards under SFAS 123R. Upon closing of the merger, the accumulated amortization was reclassified into stockholders’ equity.
During the three months ended June 2008, the Company issued approximately 48,000 RSUs.
Compensation expense related to RSUs was approximately $1.3 million and $0.4 million for the three months ended June 30, 2008 and 2007, respectively, and $3.9 million and $0.8 million for the six months ended June 30, 2008 and 2007, respectively.
Stock Options A summary of the activity associated with stock options is as follows:
Weighted Weighted Average Remaining Contractual Average Exercise Term Aggregate Options Price (Years) Intrinsic Value Balance at December 31, 2007 15,526,899 $ 14.63 Granted — — Exercised (138,525) 8.22 Forfeited (37,622 ) 13.58
Balance at June 30, 2008 15,350,752 14.69 4.7 $ 5,335,183
Options exercisable at June 30, 2008 15,328,018 $ 14.70 4.7 $ 5,335,183
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Class A common stock for the 2.2 million options that were in-the-money at June 30, 2008. During the six months ended June 30, 2008 and 2007, the aggregate intrinsic value of options exercised was $0.5 million and $0.1 million, respectively, determined as of the date of option exercise. The exercise prices for these options equaled the closing price of the Company’s Class A common stock on the date of grant of each option. The options generally vest ratably on a quarterly basis over four years from the grant date. In December 2007, the Board of Directors accelerated the vesting of the majority of outstanding stock options. Therefore, for the three and six months ended June 30, 2008, there was approximately $0.1 million of total unrecognized compensation expense related to unvested stock options granted under the Amended and Restated Long Term Incentive Plan (“LT Plan”). Total compensation expense related to employee stock options before associated income taxes was approximately $2,800 and $0.4 million for the three months ended June 30, 2008 and 2007, respectively, and $6,300 and $0.8 million for the six months ended June 30, 2008 and 2007, respectively.
Grant Units Prior to 2008, Cantor provided awards to certain employees of the Company in the form of grant units. Grant units entitled the employees to participate in quarterly distributions of Cantors’ net income and to receive certain post-termination payments. Grant units awarded to employees of the Company in 2005 vested immediately upon receipt by the employee. Grant units awarded to employees of the Company in 2006 and 2007 generally vested over a four-year period.
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In connection with BGC Partners’ separation from Cantor, the unvested portion of the grant units that had been awarded to individuals whose partnership interests were contributed to BGC Holdings were transferred to BGC Holdings on March 31, 2008.
As of June 30, 2008 and December 31, 2007, the estimated fair value of the grant units held by the Company’s employees was $2.8 million and $2.8 million, respectively. As of June 30, 2008 and December 31, 2007, the notional amount of grant units outstanding was $6.8 million and $7.2 million, respectively.
Non-cash compensation expense is recorded to account for changes in the estimated fair value. For the three months ended June 30, 2008 and 2007, the Company recorded total non-cash compensation expense of $0.2 million and $0.1 million, respectively. For the six months ended June 30, 2008 and 2007, the Company recorded total non-cash compensation expense of $0 million and $0.3 million, respectively.
REUs The Company provides limited partnership interests in BGC Holdings, termed REUs, to certain employees. These REUs entitle the holder to participate in distributions of BGC Holdings’ income and to receive post-termination payments equal to the notional value of the grant in four equal yearly installments after the holder’s termination provided that the holder has not engaged in any competitive activity with the Company or its affiliates prior to the date each payment is due. These REUs may also be exchangeable for Class A common stock in accordance with the terms and conditions of the grant of such REUs. REUs are accounted for by the Company as liability awards under SFAS 123R. The liability incurred for REUs is re-measured at the end of each reporting period.
On April 1, 2008, the Company granted approximately 1.0 million REUs to certain employees. Approximately 0.5 million of these REUs, which had an aggregate estimated fair value of $5.2 million, vest over a three-year period, with 33.3% vesting in December 2008, 2009 and 2010. Approximately 0.5 million of these REUs, which had an aggregate estimated fair value of $5.0 million, were awarded in connection with the acquisition of Radix on March 3, 2008. These REUs vest over time as certain performance goals of the Radix employees are met.
In addition, on April 1, 2008, certain executives were granted approximately 0.5 million REUs, which had an aggregate estimated fair value of $6.0 million. These REUs vested immediately upon grant date.
Non-cash compensation is recorded to account for changes in the estimated fair value. Compensation expense related to REUs is recognized over the stated service period. The Company recognized compensation expense related to REUs of $0.4 million for the six months ended June 30, 2008. The Company recognized a nominal amount of compensation expense related to REUs for the three months ended June 30, 2008, and did not recognize any compensation expense for the three and six months ended June 30, 2007.
Business Partner Warrants A summary of the activity associated with business partner warrants is as follows (warrants in thousands):
Weighted Weighted Average Remaining Contractual Average Exercise Term Warrants Price (Years) Balance at December 31, 2007 1,986 $ 27.04 Granted — — Exercised — — Forfeited — —
Balance at June 30, 2008 1,986 $ 27.04 3.0
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The Company did not recognize any expense related to the business partner warrants for the three and six months ended June 30, 2008 and 2007, respectively.
16. Commitments, Contingencies and Guarantees Contingencies In the ordinary course of business, various legal actions are brought and are pending against the Company and its affiliates in the United States and internationally. In some of these actions, substantial amounts are claimed. The Company is also involved, from time to time, in reviews, investigations and proceedings by governmental and self-regulatory agencies (both formal and informal) regarding the Company’s business, judgments, settlements, fines, penalties, injunctions or other relief.
Employment and Competitor-Related Litigation From time to time, the Company and its affiliates are involved in litigation, claims and arbitrations, in the United States and internationally, relating to various employment matters, including with respect to termination of employment, hiring of employees currently or previously employed by its competitors, terms and conditions of employment and other matters. In light of the competitive nature of the brokerage industry, litigation, claims and arbitration between competitors regarding employee hiring are not uncommon.
Other Matters The National Australia Bank Limited (“NAB”) has filed a claim against BGC International (“BGCI”) and BGC Capital Markets (Japan) LLC (formerly known as Cantor Fitzgerald LLC), which we refer to as “BGC Capital Markets (Japan).” From September 2001 through January 2004, NAB employees who traded in foreign exchange options allegedly lost substantial amounts of money and allegedly overstated the positions which they held. NAB claims that it was the object of conduct by BGCI and BGC Capital Markets (Japan) and certain traders on NAB ’s currency options desk, whereby BGCI and BGC Capital Markets (Japan) allegedly provided misleading and deceptive independent revaluation rates to NAB’s middle office, which were then purportedly relied upon by NAB. NAB alleges that the supply of these revaluation rates prevented NAB from discovering the true position of the currency options portfolio and that it subsequently sustained trading losses of AUD 311 million (or, based on an exchange rate of 0.9595 at June 30, 2008, approximately $298 million). The 2006 NAB annual report claims that NAB’s total loss amounted to AUD 539 million (or, based on an exchange rate of 0.9595 at June 30, 2008, approximately $517 million), implying that its consequential losses amounted to AUD 228 million (or, based on an exchange rate of 0.9595 at June 30, 2008, approximately $219 million). BGCI and BGC Capital Markets (Japan) have investigated and are investigating the legal and factual basis of the NAB allegations. At this time, based on the information provided, BGCI and BGC Capital Markets (Japan) believe that they have substantial defenses in respect of the losses claimed by NAB. Accordingly, BGCI and BGC Capital Markets (Japan) do not believe that they are responsible for the losses claimed by NAB. While no specific request for damages is alleged, the amount claimed is expected to be in excess of $600 million. If BGCI and BGC Capital Markets (Japan) do not prevail, BGCI and BGC Capital Markets (Japan) could be subject to substantial liability, and in any event, would likely incur significant legal and other costs in connection with the defense of any such action, however, at this time, BGC Partners is unable to estimate a loss or range of losses. From and after the closing date of the merger, any such losses of BGC US and BGC Global will be allocated to BGC Holdings pursuant to the BGC US limited partnership agreement and BGC Global limited partnership agreement.
In August 2004, Trading Technologies International, Inc. (“TT”) commenced an action in the United States District Court, Northern District of Illinois, Eastern Division, against the Company. In its complaint, TT alleged that the Company infringed U.S. Patent No. 6,766,304, which issued on July 20, 2004, and U.S. Patent 6,772,132, which issued on August 3, 2004. TT later added eSpeed International Ltd., ECCO LLC and ECCOWare Ltd as defendants in a second amended complaint. On January 5, 2006, the Company answered TT’s second amended complaint in which the Company denied the infringement allegations, and the Company filed an
29 Table of Contents amended counterclaim seeking a declaration that the patents in suit are invalid, the Company does not make, use or sell any product that infringes any claims of the patents in suit, the patents in suit are unenforceable because of inequitable conduct before the U.S. Patent and Trademark Office during the prosecution of the patents, and the patents are unenforceable due to TT’s patent misuse. The Court consolidated for certain discovery and Markman hearing purposes the Company’s case with other patent infringement cases brought by TT against other defendants. A Markman hearing was held on August 16-18, 2006. On October 31, 2006, the Court issued a ruling on claim construction, which provides the meanings of the various terms in dispute in the asserted patents. In that ruling, the Court found that the Company correctly defined several of the patents’ key terms. The Court’s ruling supports our consistent position that eSpeed’s and ECCO’s products fall outside the scope of Trading Technologies’ patents. In February 2007, the Court denied TT’s motion for clarification and reconsideration of the Markman decision and reconfirmed its October 2006 ruling. In light of the claim construction ruling, on June 20, 2007, the Court granted eSpeed’s and ECCO’s motion for partial summary judgment on TT’s claims of infringement covering the Dual Dynamic, eSpeedometer and modified eSpeedometer versions of eSpeed and ECCO’s products. As a result, the remaining products at issue in the case are the versions of the eSpeed and ECCO products that have not been on the market in the U.S. since around the end of 2004. TT moved for reconsideration of that summary judgment ruling which the court denied. The trial began on September 10, 2007 and ended on October 4, 2007. On October 10, 2007 a jury rendered a verdict that eSpeed and ECCO willfully infringed. The jury awarded damages in the amount of $3.5 million. On January 3, 2008, the court granted eSpeed’s and ECCO’s general motions for directed verdict on willfulness, finding that eSpeed’s infringement was not willful as a matter of law, and denied eSpeed’s general motions for directed verdict and for new trial. On February 6, 2008, eSpeed’s and ECCO’s remittitur motion was conditionally granted and on February 12, 2008, TT accepted the remittitur. Accordingly, the verdict has been reduced to approximately $2.6 million plus interest. Additionally, TT’s motion for pre-judgment interest was granted and interest was set at the prime rate, compounded monthly. On May 6, 2008, the Court denied eSpeed and ECCO’s counterclaim for a declaration of unenforceability due to inequitable conduct. On May 23, 2008, the Court entered a permanent injunction against eSpeed’s and ECCO’s infringement of the TT patents. On June 11, 2008, the Court denied TT’s request for attorneys’ fees. Both eSpeed and ECCO and TT have appealed to the U.S. Court of Appeals for the Federal Circuit. On July 24, 2008, the trial court, granted eSpeed and ECCO’s motion to stay the judgment without the posting of a bond. TT is seeking costs. If TT ultimately prevails in the litigation, the Company may be required to pay TT damages and/or certain costs and expenses, and the Company may be forced to modify or withdraw certain products from the market. Both parties have requested attorneys’ fees from the other party, which may be awarded by the Court in exceptional cases. If TT ultimately prevails in the litigation, the Company may be required to pay TT damages and/or certain costs and expenses, and the Company may be forced to modify or withdraw certain products from the market. Both parties have requested attorneys’ fees from the other party, which may be awarded by the Court in exceptional cases.
On February 15, 2006, the SEC issued a formal order of investigation into trading by certain inter-dealer brokers in the government and fixed income securities markets. The formal order alleges that the broker-dealers named therein, including the Company, (1) may have made fictitious quotations or made false or misleading statements about the prices at which U.S. Treasury or other fixed income securities would be purchased or sold, (2) may have fabricated market quotations or trading activity in U.S. Treasury or other fixed income securities to stimulate trading and to generate commissions, (3) may have engaged in “front running” or “interpositioning,” (4) may have engaged in fraudulent, deceptive or manipulative acts to induce the purchase or sale of government securities, (5) may have failed to keep and preserve certain books and records as required by the SEC and/or the Treasury and (6) may have failed to supervise with a view to preventing violations of applicable rules and regulations as required by the Exchange Act. We are cooperating in the investigation. Management believes that, based on the currently available information, the final outcome of the investigation will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
In addition to the matters discussed above, the Company is a party to several pending legal proceedings and claims that have arisen during the ordinary course of business. The outcome of such items cannot be determined with certainty, therefore the Company cannot predict what the eventual loss or range of loss related to such
30 Table of Contents matters will be. Management believes that, based on currently available information, the final outcome of these current pending matters will not have a material effect on the Company’s financial condition, results of operations or cash flows.
Legal reserves are established in accordance with SFAS No. 5, Accounting for Contingencies , when a material legal liability is both probable and reasonably estimable. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change.
Letter of Credit Agreements The Company has irrevocable uncollateralized letters of credit with various banks that are used in lieu of margin and deposits with clearing organizations. As of June 30, 2008, the Company was contingently liable for $59.2 million under these letters of credit, and paid an average fee of 0.38 % on letters of credit. As of June 30, 2008, the Company did not have any funds available under these letters of credit.
Risk and Uncertainties The Company generates revenues by providing securities trading and brokerage activities to institutional customers and by executing and, in some cases, clearing transactions for institutional counterparties. Revenues for these services are transaction-based. As a result, revenues could vary based on the transaction volume of global financial markets. Additionally, financing is sensitive to interest rate fluctuations, which could have an impact on its overall profitability.
Guarantees The Company provides guarantees to securities clearing houses and exchanges which meet the definition of a guarantee under FASB Interpretations No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others . Under these standard securities clearing house and exchange membership agreements, members are required to guarantee, collectively, the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the clearing house or exchange, all other members would be required to meet the shortfall. In the opinion of management, the Company’s liability under these agreements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential of being required to make payments under these arrangements is remote. Accordingly, no contingent liability was recorded in the accompanying Condensed Consolidated Statements of Financial Condition for these agreements.
17. Regulatory Requirements Many of the Company’s businesses are subject to regulatory restrictions and minimum capital requirements. These regulatory capital requirements may restrict the ability to withdraw capital from subsidiaries. As of June 30, 2008, $241.9 million of net assets were held by regulated subsidiaries. These subsidiaries had aggregate regulatory net capital, as defined, in excess of the aggregate regulatory requirements, as defined, of $143.1 million.
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18. Geographic Information The Company offers products and services in the United States, Europe and the AMEA region (defined as Africa, Middle East and Asia- Pacific). At June 30, 2008, the United Kingdom and France were the only individual foreign countries that accounted for more than 10% of total revenues and long-lived assets.
Information regarding revenues for the three months and six months ended June 30, 2008 and 2007, respectively, and information regarding long-lived assets (defined as forgivable loans, fixed assets, net of accumulated depreciation, investment, goodwill, other intangible assets, net of accumulated amortization, and rent and other deposits) in geographic areas as of June 30, 2008 and December 31, 2007, respectively, are as follows (in thousands):
Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Revenues: United Kingdom $ 153,796 $ 106,955 $ 294,530 $ 224,379 United States 63,289 94,388 170,190 186,137 France 34,762 33,796 71,178 59,254 AMEA 44,625 34,090 91,535 65,883 Other Europe 7,503 2,435 12,256 7,845 Other Americas 1,497 1,292 2,893 2,534
Total revenues $ 305,472 $ 272,956 $ 642,582 $ 546,032
December 31, June 30, 2008 2007 Long -lived assets: United Kingdom $124,628 $ 125,613 United States 124,984 127,184 France 36,463 26,880 AMEA 22,262 16,618 Other Europe 3,049 3,311 Other Americas 602 1,037
Total long -lived assets $311,988 $ 300,643
19. Subsequent Event In May 2008, the Company’s board of directors and audit committee authorized a dividend policy. On August 4, 2008, pursuant to the dividend policy, the Company’s Board of Directors declared a quarterly cash dividend of $0.13 per share payable on September 30, 2008 to Class A and Class B common stockholders of record as of September 15, 2008.
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ITEM 2. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of BGC Partners, Inc. financial condition and results of operations should be read together with BGC Partners, Inc. condensed consolidated financial statements and notes to those statements, included elsewhere in this document. When used herein, the terms “BGC Partners,” “BGC” the “Company,” “we,” “us” and “our” refer to BGC Partners, Inc., including consolidated subsidiaries.
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward- looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements.
Our actual results and the outcome and timing of certain events may differ significantly from the expectations discussed in the forward- looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to:
• our relationship with Cantor Fitzgerald, L.P. and its affiliates (“Cantor”) and any related conflicts of interest, competition for and
retention of brokers and other managers and key employees;
• pricing and commissions and market position with respect to any of our products and services and those of our competitors;
• the effect of industry concentration and consolidation;
• market conditions, including trading volume and volatility;
• economic or geopolitical conditions or uncertainties;
• the extensive regulation of the Company ’s businesses and risks relating to compliance matters;
• factors related to specific transactions or series of transactions, including credit, performance and unmatched principal risk, as well
as counterparty failure;
• the costs and expenses of developing, maintaining and protecting intellectual property, including judgments or settlements paid or received in connection with intellectual property, or employment or other litigation and their related costs and certain financial
risks, including the possibility of future losses and negative cash flow from operations, risks of obtaining financing and risks of the resulting leverage, as well as interest and currency rate fluctuations;
• the ability to enter new markets or develop new products, trading desks, marketplaces or services and to induce customers to use
these products, trading desks, marketplaces or services and to secure and maintain market share;
• the ability to enter into marketing and strategic alliances and other transactions, including acquisitions, dispositions,
reorganizations, partnering opportunities and joint ventures, and the integration of any completed transactions;
• the ability to hire new personnel;
• the ability to expand the use of technology for screen -assisted, voice -assisted and fully electronic trading;
• effectively managing any growth that may be achieved;
• financial reporting, accounting and internal control factors, including identification of any material weaknesses in our internal
controls and our ability to prepare historical and pro forma financial statements and reports in a timely manner;
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• the ability to meet expectations with respect to payment of dividends and repurchases of our common stock or purchases of BGC Holdings, L.P. (“BGC Holdings”) limited partnership interests or other equity interests in our subsidiaries, including from Cantor, our executive officers, and our employees; and
• the risks and other factors described under the heading “Risk Factors” and elsewhere in our final prospectus filed with the Securities
and Exchange Commission (the “SEC ”) on June 6, 2008. The foregoing risks and uncertainties, as well as those risks discussed under the headings “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 3—Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this Form 10-Q, may cause actual results to differ materially from the forward-looking statements. The information included herein is given as of the filing date of this Form 10-Q with the SEC, and future events or circumstances could differ significantly from these forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This report should be read in conjunction with the audited supplemental consolidated financial statements and notes for the year ended December 31, 2007, as well as the unaudited supplemental condensed consolidated financial statements and notes for the three months ended March 31, 2008, and the unaudited pro forma consolidated financial statements, included in the Company’s final prospectus filed with the SEC on June 6, 2008. The results of operations for the interim period are not necessarily indicative of results to be expected for the entire year.
Overview BGC Partners is a leading global inter-dealer broker specializing in the brokering of a broad range of financial products globally, including fixed income securities, interest rate swaps, foreign exchange, equity derivatives, credit derivatives, commodities, futures, structured products and other instruments. We provide a full range of services, including execution, clearing, processing and other back office services. Through our eSpeed and BGCantor Market Data brands, we also offer financial technology solutions and market data and analytics related to select financial instruments and markets. Our customers include many of the world’s largest and most creditworthy banks, broker-dealers, investment banks and investment firms. Our integrated platform is designed to provide flexibility to customers with regard to price discovery, execution and processing of transactions, and enables them to use voice, screen-assisted, voice-assisted or, where available, fully electronic brokerage services in connection with transactions executed either OTC or through an exchange. BGC Partners has offices in New York and London, as well as in Beijing (representative office), Chicago, Copenhagen, Hong Kong, Istanbul, Johannesburg, Mexico City, Nyon, Paris, Seoul, Singapore, Sydney, Tokyo and Toronto.
Prior to the events of September 11, 2001, our brokerage business was widely recognized as one of the leading full-service wholesale inter-dealer brokers in the world. After September 11, 2001 and the loss of the majority of our U.S.-based employees, our brokerage business operated primarily in Europe. In August 2004, Cantor announced the restructuring of its inter-dealer brokerage business, renaming it “BGC,” in honor of B. Gerald Cantor, Cantor’s co-founder and a pioneer in screen brokerage services and fixed income market data products. Over the past three years, we have re-established our U.S. presence and have continued to expand our global presence through the acquisition and integration of established brokerage companies and the hiring of experienced brokers. Additionally, we have also added departments and staff to many product desks globally to facilitate growth in its business. Through these actions, we have been able to expand our presence in key markets and position our business for sustained growth.
On April 1, 2008, the merger of BGC Partners and eSpeed was completed. eSpeed is a leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to some of the most liquid, efficient and neutral financial markets in the world. eSpeed is an innovator in its core electronic marketplaces, the government bond markets of the world. The merger combined eSpeed’s electronic
34 Table of Contents marketplaces and related electronic trading technology expertise in the government bond and its other markets with BGC Partners’ inter-dealer brokerage businesses. Management believes this combination will position us as one of the few inter-dealer brokers with hybrid capabilities and technology thus allowing us to offer superior execution to our clients and drive higher trading volumes.
Business Environment Over the past several years, the inter-dealer broker sector has been a competitive sector that has experienced robust growth due to several factors. One factor is the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing holders to guard against gains or losses in the price of underlying assets without having to buy or sell the underlying assets. Derivatives are often used to mitigate the risks associated with interest rate movements, equity ownership, changes in the value of foreign currency, credit defaults by corporate and sovereign debtors and changes in the prices of commodity products. Demand from financial institutions, financial services intermediaries and large corporations have increased volumes in the wholesale derivatives market, thereby increasing the business opportunity for inter-dealer brokers.
Another key factor in the growth of the inter-dealer broker sector has been the increase in the number of new products. As market participants and their customers strive to mitigate risk, new types of equity and fixed income securities, futures, options and other financial instruments are developed. These new securities and derivatives are not immediately ready for more liquid and standardized electronic markets, and generally increase the need for trading and require broker-assisted execution.
Finally, the heightened levels of volatility in commodity, currency, interest rate, equity and credit markets have led to continued demand for hedging and risk mitigation by market participants, which, in turn, has led to growth in commodity, equity, interest rate and credit derivatives and currency options markets. We believe this additional volatility, the increasing utilization of derivatives and the continual development of new products, among other factors, will continue to drive growth in the industry for the foreseeable future.
We have invested significantly to capitalize on the current business environment through acquisitions, technology spending and the hiring of new brokers. The business climate for these acquisitions has been competitive, and it is expected that these conditions will persist for the foreseeable future. We have been able to attract businesses and brokers to our platform as they recognize that BGC Partners has the scale, technology, experience and expertise to succeed in the current business environment.
Financial Overview Revenue Growth Total revenues were $305.5 million and $273.0 million for the three months ended June 30, 2008 and 2007, respectively, representing a 11.9% increase as compared to the three months ended June 30, 2007. Total revenues were $642.6 million and $546.0 million for the six months ended June 30, 2008 and 2007, respectively, representing a 17.7% increase as compared to the six months ended June 30, 2007. The main factors contributing to our growth were:
• an increase in our brokerage personnel from 1,204 at June 30, 2007 to 1,281 at June 30, 2008;
• overall volume growth in markets in which we provide brokerage services. For the three months ended June 30, 2008, our
brokerage revenues increased 11.9%;
• a continued focus on, and investment in, growing and higher margin product areas that complement our existing brokerage services;
• the introduction and continued development and expansion of hybrid brokerage capabilities;
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• fees from technology services and software licenses provided to ELX in conjunction with the technology services agreement, which
commenced in January 2008; and
• the continued development, marketing and sale of our data and analytical products.
Net Income For the three months ended June 30, 2008, we had a net income of $12.0 million compared to a net income of $12.7 million for the three months ended June 30, 2007. Included in expense in the second quarter of 2008 were non-cash compensation charges for grant units, REUs and RSUs of $1.5 million and losses from our equity investments in Aqua and ELX of $0.9 million and $0.4 million, respectively.
For the six months ended June 30, 2008, we had a net loss of $36.5 million compared to a net income of $31.7 million for the six months ended Jun 30, 2007. Included in our current year expenses were one-time non-cash, compensation charges of $84.1 million, relating to the redemption of partnership units held by certain of our executive officers to settle outstanding loan obligations, as well as, the activation of exchangeability of founding partner interests held by certain executives, as part of the separation. Also included in expense were non-cash compensation charges for REUs and RSUs of $4.3 million and losses from our equity investments in Aqua and ELX of $1.8 million and $1.3 million, respectively. This charge was partially offset by increased profitability across all product categories. These variances are discussed in more detail under the discussion of “—Results of Operations”.
We intend to continue to grow revenues and expand global presence in 2008 through the development and introduction of new products, organic growth, continued acquisition activity and the hiring of additional highly qualified individuals of various experience levels.
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Results of Operations Revenues and Expenses for the Three Months and Six Months Ended June 30, 2008 Compared with the Three Months and Six Months Ended June 30, 2007
Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 Percentage Percentage Percentage Percentage
Actual of Total Actual of Total Actual of Total Actual of Total Results Revenues Results Revenues Results Revenues Results Revenues Revenues: Commissions $ 212,541 69.6 % $ 190,711 69.9 % $ 466,572 72.6 % $ 380,815 69.7 % Principal transactions 66,062 21.6 58,263 21.3 117,958 18.4 111,273 20.4
Total brokerage revenues 278,603 91.2 248,974 91.2 584,530 91.0 492,088 90.1 Fees from related parties 18,599 6.1 7,898 2.9 39,512 6.1 18,791 3.4 Market data 5,101 1.7 5,359 2.0 10,645 1.7 9,732 1.8 Software solutions 1,454 0.5 2,778 1.0 3,537 0.6 6,342 1.2 Interest income 3,931 1.3 5,945 2.2 7,784 1.2 15,012 2.7 Other (losses) revenues (2,216 ) (0.8 ) 2,002 0.7 (3,426) (0.6 ) 4,067 0.8
Total revenues 305,472 100.0 272,956 100.0 642,582 100.0 546,032 100.0 Expenses: Compensation and employee benefits 176,921 57.9 159,613 58.5 451,466 70.3 318,320 58.3 Allocation of net income to founding/working partners units 7,133 2.3 — — 7,133 1.1 — — Allocation of net income to REUs 252 0.1 — — 252 0.0 — —
Total compensation and employee benefits 184,306 60.3 159,613 58.5 458,851 71.4 318,320 58.3 Occupancy and equipment 28,775 9.4 29,581 10.8 59,497 9.3 59,030 10.8 Fees to related parties 3,140 1.0 4,607 1.7 9,680 1.5 10,963 2.0 Professional and consulting fees 11,803 3.9 14,329 5.2 27,349 4.3 23,854 4.4 Communicatons 17,041 5.6 13,950 5.1 33,761 5.3 28,068 5.1 Selling and promotion 15,070 5.0 13,795 5.1 30,305 4.7 26,799 4.9 Commissions and floor brokerage 6,185 2.0 2,588 0.9 9,898 1.5 7,966 1.5 Interest expense 3,628 1.2 9,065 3.3 11,291 1.8 18,748 3.4 Other expenses 3,391 1.1 14,580 5.4 9,626 1.4 19,908 3.6
Total expenses 273,339 89.5 262,108 96.0 650,258 101.2 513,656 94.0
Income (loss) from continuing operations before minority interest and income taxes 32,133 10.5 10,848 4.0 (7,676) (1.2 ) 32,376 5.9 Minority interest 11,426 3.7 894 0.3 12,080 1.9 1,049 0.2 Provision (benefit) for income taxes 8,723 2.9 (2,697 ) (1.0 ) 16,793 2.6 (365 ) (0.1 )
Net income (loss) available to common stockholders $ 11,984 3.9% $ 12,651 4.7% $ (36,549 ) (5.7 )% $ 31,692 5.8 %
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We offer our brokerage services in four broad product categories: rates, credit, foreign exchange and other asset classes. The chart below details brokerage revenues by product category and by voice/hybrid versus fully electronic ($ in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Brokerage revenue by product (actual results)(1): Rates $143,100 $ 140,611 $ 295,550 $ 286,888 Credit 69,114 55,857 156,307 106,678 Foreign exchange 34,048 32,215 71,514 59,535 Other asset classes 32,341 20,291 61,159 38,987
Total brokerage revenues $278,603 $ 248,974 $ 584,530 $ 492,088
Brokerage revenue by product (percentage)(1): Rates 51.4 % 56.5 % 50.6 % 58.3 % Credit 24.8 22.4 26.7 21.7 Foreign exchange 12.2 12.9 12.2 12.1 Other asset classes 11.6 8.2 10.5 7.9
Total brokerage revenues 100.0% 100.0 % 100.0 % 100.0 %
Brokerage revenue by voice/hybrid and fully electronic (actual results): Voice/hybrid $262,195 $ 227,263 $ 552,057 $ 446,125 Fully electronic 16,408 21,711 32,473 45,963
Total brokerage revenues $278,603 $ 248,974 $ 584,530 $ 492,088
Brokerage revenue by voice/hybrid and fully electronic (percentage): Voice/hybrid 94.1 % 91.3 % 94.4 % 90.7 % Fully electronic 5.9 8.7 5.6 9.3
Total brokerage revenues 100.0% 100.0 % 100.0 % 100.0 %
(1) Reclassifications of revenues across product categories may be reflected retroactively.
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007 Revenues Brokerage Revenues Total brokerage revenues increased by $29.6 million, or 11.9%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. Commission revenues increased by $21.8 million, or 11.4%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. Principal transactions revenues increased by $7.8 million, or 13.4%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007.
The increase in rates revenues of $2.5 million was primarily attributable to growth from brokerage desks covering interest rate derivatives, interest rate swaps, dollar derivatives, repurchase agreements, non-deliverable forwards, non-deliverable swaps and U.S. swaps. However, during the latter part of June 2008, we saw an unexpected decline in our rates business as the markets reacted to economic signals indicating a potential tightening in monetary policy by the Federal Reserve Bank. During the earlier part of the three month period ended June 30, 2008, we had experienced growth more in line with overall revenues.
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The increase in credit brokerage revenues of $13.3 million was driven primarily by continued expansion of our core credit business and development of new structured and other credit businesses, as well as growth in electronically executed transactions in credit products.
The increase in foreign exchange revenues of $1.8 million was driven primarily by increased brokerage revenues from desks covering retail foreign exchange, G8 currency, emerging market foreign exchange options and exotic foreign exchange options, as well as new foreign exchange products introduced since June 30, 2007. The volatility in the currency markets, in response to the strengthening Euro and fluctuating strength of the Dollar and Sterling, also contributed to the increase.
The increase in brokerage revenues from other asset classes of $12.1 million was driven by the global expansion of our cash equity and equity derivatives businesses, as well as the acquisition of Radix, an energy broker, in early 2008.
Fees from Related Parties Fees from related parties increased by $10.7 million, or 135.5%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. This increase was primarily due to revenues earned from technology services and the software license provided to ELX in conjunction with the technology services agreement, which commenced in January 2008, as well as higher fees charged to affiliates for certain administrative and other support, including allocations for occupancy of office space, utilization of fixed assets and accounting, operations, human resources, legal services and technology infrastructure support. Fees from related parties are dependent upon both the costs incurred by us and the amount of administrative services utilized by Cantor.
Market Data Market data revenues decreased by $0.3 million, or 4.8%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007.
Software Solutions Software solutions revenues decreased by $1.3 million, or 47.7%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. This decrease was primarily due to a reduction in license fee revenues.
Interest Income Interest revenues decreased by $2.0 million, or 33.9%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease was primarily due to the decrease in reverse repurchase transactions with Cantor.
Other (Losses) Revenues Other (losses) revenues decreased by $4.2 million, or 210.7%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease is primarily driven by our share of losses in non-consolidated investments.
Expenses Compensation and Employee Benefits Compensation and employee benefits expense increased $17.3 million, or 10.8%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The increase in these expenses was primarily due to increased performance bonuses due in large part to increased brokerage revenues.
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Allocation of Net Income to Founding/Working Partners Units Allocation of net income to founding/working partners units increased to $7.1 million for the three months ended June 30, 2008 from zero for the three months ended June 30, 2007. The recognition of the allocation to founding/working partners units is related to the recapitalization in conjunction with the merger. The allocation of net income to founding/working partners units is based on their pro rata economic ownership, which was 23.7% for the three months ended June 30, 2008.
Allocation of Net Income to REUs Allocation of net income to REUs increased to $0.3 million for the three months ended June 30, 2008 from zero for the three months ended June 30, 2007. The recognition of the allocation to REUs is related to the recapitalization in conjunction with the merger. The allocation of net income to REUs is based on their pro rata economic ownership, which was 0.8% for the three months ended June 30, 2008.
Occupancy and Equipment Occupancy and equipment expense decreased by $0.8 million, or 2.7%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007.
Fees to Related Parties Fees to related parties decreased by $1.5 million, or 31.8%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease was primarily due to the fact that, in conjunction with the merger, we entered into an agreement whereby we leased certain administrative and other support employees, who provide services to us, from Cantor. As a result of this agreement, the compensation costs related to these employees, which had been recorded as part of fees to related parties in prior periods, is now recorded as compensation.
Professional and Consulting Fees Professional and consulting fees decreased by $2.5 million, or 17.6%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease was primarily attributable to the conclusion of certain initiatives related to upgrading our regulatory reporting application to comply with FSA requirements and other initiatives related to the merger.
Communications Communications expense increased by $3.1 million, or 22.2%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The expense, as a percentage of total revenues, remained relatively unchanged across the two periods.
Selling and Promotion Selling and promotion expense increased by $1.3 million, or 9.2%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The expense, as a percentage of total brokerage revenues, remained relatively unchanged across the two periods.
Commissions and Floor Brokerage Commissions and floor brokerage expense increased by $3.6 million, or 139.0%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The increase was primarily due to the increase in principal transactions.
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Interest Expense Interest expense decreased by $5.4 million, or 60.0%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease was primarily due to the debt restructuring as part of our separation from Cantor, which included the repayment of intercompany loans and the issuance of new senior notes at more favorable interest rates.
Other Expenses Other expenses decreased $11.2 million, or 76.7%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The decrease was primarily due to a $4.0 million impairment charge on discarded software and other fixed assets that was taken during the second quarter of 2007, and $3.7 million in merger-related expenses that were also recognized during the second quarter 2007. These charges did not recur in 2008.
Minority Interest Minority interest increased $10.5 million, or 1,178.1%, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The increase was due to the recognition of minority interest for Cantor’s interest in BGC Holdings, which is based on Cantor’s pro rata economic ownership, which was 35.6%. This increase was partially offset by a slight decrease in the minority interest recognized for Cantor’s interest in Tower Bridge Services, L.P.
Provision (Benefit) for Income Taxes Provision (benefit) for income taxes increased $11.4 million, or 423.4% for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 due to an increase in pre-tax earnings. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007 Revenues Brokerage Revenues Total brokerage revenues increased by $92.4 million, or 18.8%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. Commission revenues increased by $85.7 million, or 22.5%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. Principal transactions revenues increased by $6.7 million, or 6.0%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007.
The increase in rates revenues of $8.7 million was primarily attributable to growth from brokerage desks covering interest rate derivatives, interest rate swaps, dollar derivatives, repurchase agreements, non-deliverable forwards, non-deliverable swaps, particularly in Paris.
The increase in credit brokerage revenues of $46.9 million was driven primarily by the continued expansion of our core credit business and development of new structured and other credit businesses, as well as growth in our emerging market bonds business.
The increase in foreign exchange revenues of $12.0 million was driven primarily by increased brokerage revenues from desks covering retail foreign exchange, G8 currency, emerging market foreign exchange options and exotic foreign exchange options, as well as new foreign exchange products introduced since June 30, 2007.
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The increase in brokerage revenues from other asset classes of $22.2 million was driven by the global expansion of our cash equity and equity derivatives businesses, as well as the acquisition of Radix, an energy broker, in early 2008.
Fees from Related Parties Fees from related parties increased by $20.7 million, or 110.3%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. This increase was primarily due to revenues earned from technology services and the software license provided to ELX in conjunction with the technology services agreement, which commenced in January 2008, as well as higher fees charged to affiliates for certain administrative and other support, including allocations for occupancy of office space, utilization of fixed assets and accounting, operations, human resources, legal services and technology infrastructure support. Fees from related parties are dependent upon both the costs incurred by us and the amount of administrative services utilized by Cantor.
Market Data Market data revenues increased by $0.9 million, or 9.4%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase was primarily due to growth in existing customer usage
Software Solutions Software solutions revenues decreased $2.8 million, or 44.2%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease was primarily due to the expiration of the Wagner Patent on February 20, 2007 and a decrease in other license fees.
Interest Income Interest revenues decreased by $7.2 million or 48.1% for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease was primarily due to the decrease in reverse repurchase transactions with Cantor.
Other (Losses) Revenues Other (losses) revenues decreased by $7.5 million, or 184.2%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease is primarily driven by our share of losses in non-consolidated investments.
Expenses Compensation and Employee Benefits Compensation and employee benefits expense increased $133.1 million, or 41.8%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase in these expenses was primarily due to one-time non-cash compensation charges of $84.1 million, $47.3 million of which was in relation to the redemption of partnership units held by certain executive officers to settle outstanding loan obligations, and $36.8 million of which was in relation to the activation of exchangeability of founding partner interests held by certain executives, as part of the separation. The remaining increase in these expenses was primarily due to increased performance bonuses due in large part to increased brokerage revenues.
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Allocation of Net Income to Founding/Working Partners Units Allocation of net income to founding/working partners units increased to $7.1 million for the six months ended June 30, 2008 from zero for the six months ended June 30, 2007. The recognition of the allocation to founding/working partners units is related to the recapitalization in conjunction with the merger. The allocation of net income to founding/working partners units is based on their pro rata economic ownership, which was 23.7%.
Allocation of Net Income to REUs Allocation of net income to REUs increased to $0.3 million for the six months ended June 30, 2008 from zero for the six months ended June 30, 2007. The recognition of the allocation to REUs is related to the recapitalization in conjunction with the merger. The allocation of net income to REUs is based on their pro rata economic ownership, which was 0.8%.
Occupancy and Equipment Occupancy and equipment expense increased by $0.5 million, or 0.8%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007.
Fees to Related Parties Fees to related parties decreased by $1.3 million, or 11.7%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease was primarily due to the fact that, in conjunction with the merger, we entered into an agreement whereby we leased certain administrative and other support employees, who provide services to us, from Cantor. As a result of this agreement, the compensation costs related to these employees, which had been recorded as part of fees to related parties in prior periods, is now recorded as compensation.
Professional and Consulting Fees Professional and consulting fees increased by $3.5 million, or 14.7%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase was primarily attributable to consulting fees incurred to upgrade our regulatory reporting application to comply with FSA requirements, as well as increased audit and other fees in conjunction with the separation and merger, particular in early 2008.
Communications Communications expenses increased by $5.7 million, or 20.3%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. As a percentage of total revenues, communications remained relatively unchanged across the two periods.
Selling and Promotion Selling and promotion expense increased by $3.5 million, or 13.1%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. This expense as a percentage of total revenues remained relatively unchanged across the two periods.
Commissions and Floor Brokerage Commissions and floor brokerage expense increased by $1.9 million, or 24.3%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase is primarily due to the increase in principal transactions.
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Interest Expense Interest expense decreased by $7.5 million, or 39.8%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease was primarily due to the debt restructuring as part of our separation from Cantor, which included the repayment of intercompany loans and the issuance of new senior notes at more favorable interest rates.
Other Expenses Other expenses decreased $10.3 million, or 51.6%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The decrease was primarily due to a $4.0 million impairment charge on discarded software and other fixed assets that was taken during the second quarter of 2007, and $3.7 million in merger-related expenses that were also recognized during the second quarter 2007. These charges did not recur in 2008.
Minority Interest Minority interest increased $11.0 million, or 1,051.6%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase was due to the recognition of minority interest for Cantor’s interest in BGC Holdings LP, which is based on Cantor’s pro rata economic ownership, which was 35.6%.
Provision (benefit) for Income Taxes Provision (benefit) for income taxes increased $17.2 million, or 4,700.8%, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007, due to an increased in pre-tax earnings. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
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Quarterly Results of Operations The following table sets forth, our unaudited quarterly results of operations for the indicated periods (in thousands). Results of any period are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business.
June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
2008 2008 2007 2007 2007 2007 2006 2006 Revenues: Commissions $212,541 $ 254,031 $ 217,908 $ 204,233 $190,711 $ 190,104 $ 159,167 $ 138,157 Principal transactions 66,062 51,896 23,370 70,406 58,263 53,010 27,455 39,354 Fees from related parties 18,599 20,913 21,167 13,851 7,898 10,893 8,123 9,411 Market data 5,101 5,544 4,741 4,508 5,359 4,373 5,287 9,488 Software solutions 1,454 2,083 1,926 2,715 2,778 3,564 4,273 4,513 Interest income 3,931 3,853 3,083 4,873 5,945 9,067 5,696 3,914 Other (losses) revenues (2,216 ) (1,210 ) 36 (1,208 ) 2,002 2,065 9,247 2,332
Total revenues 305,472 337,110 272,231 299,378 272,956 273,076 219,248 207,169 Expenses: Compensation and employee benefits 176,921 274,545 162,595 168,592 159,613 158,707 134,677 156,569 Allocation of net income to founding/working partners units 7,133 — — — — — — — Allocation of net income to REUs 252 — — — — — — —
Total compensation 184,306 274,545 162,595 168,592 159,613 158,707 134,677 156,569 Occupancy and equipment 28,775 30,722 27,696 28,957 29,581 29,449 34,827 33,088 Fees to related parties 3,140 6,540 10,778 10,145 4,607 6,356 8,699 68 Professional and consulting fees 11,803 15,546 22,820 17,558 14,329 9,525 15,946 15,888 Communications 17,041 16,720 15,972 14,295 13,950 14,118 13,741 14,343 Selling and promotion 15,070 15,235 15,183 13,737 13,795 13,004 12,017 15,274 Commissions and floor brokerage 6,185 3,713 11,730 2,354 2,588 5,378 7,580 5,320 Interest expense 3,628 7,663 290 7,213 9,065 9,683 3,591 3,605 Other expenses 3,391 6,235 9,612 21,784 14,580 5,328 19,928 7,036
Total expenses 273,339 376,919 276,676 284,635 262,108 251,548 251,006 251,191 Income (loss) from continuing operations before minority interest and income taxes 32,133 (39,809 ) (4,445 ) 14,743 10,848 21,528 (31,758 ) (44,022 ) Minority interest 11,426 654 928 375 894 155 — — Provision (benefit) for income taxes 8,723 8,070 5,786 3,899 (2,697 ) 2,332 (204 ) (4,212)
Net income (loss) available to common stockholders $ 11,984 $ (48,533 ) $ (11,159 ) $ 10,469 $ 12,651 $ 19,041 $ (31,554 ) $ (39,810 )
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The tables below detail our brokerage revenues by product category (in thousands):
December 31, September 30, December 31, September 30, June 30, March 31, June 30, March 31, 2008 2008 2007 2007 2007 2007 2006 2006 Brokerage revenue by product category: Rates $ 143,100 $ 152,450 $ 117,844 $ 162,375 $ 140,611 $139,511 $ 110,909 $ 110,842 Credit 69,114 87,193 63,439 57,963 55,857 51,862 50,012 38,570 Foreign exchange 34,048 37,466 34,417 36,132 32,215 33,047 21,150 23,737 Other asset classes 32,341 28,818 25,578 18,169 20,291 18,694 4,551 4,362
Total brokerage revenues $ 278,603 $ 305,927 $ 241,278 $ 274,639 $ 248,974 $243,114 $ 186,622 $ 177,511
Brokerage revenue by voice/hybrid and fully electronic: Voice/hybrid $ 262,195 $ 289,862 $ 217,839 $ 251,874 $ 227,263 $218,862 $ 170,678 $ 162,611 Fully electronic 16,408 16,065 23,439 22,765 21,711 24,252 15,944 14,900
Total brokerage revenues $ 278,603 $ 305,927 $ 241,278 $ 274,639 $ 248,974 $243,114 $ 186,622 $ 177,511
Liquidity and Capital Resources Cash Flows Net cash provided by operating activities was $104.6 million for the six months ended June 30, 2008, compared to $23.9 million for the six months ended June 30, 2007, an increase of $80.7 million. This increase was primarily due to increased working capital utilization of $148.9 million partially offset by decreased net income of $68.2 million. The decrease in net income was primarily attributable to a one-time non-cash compensation charge in the amount of $84.1 million in the current year. Net income for the six months ended June 30, 2008 excluding the one-time non-cash compensation charge increased by $15.9 million when compared to net income for the six months ended June 30, 2007. Working capital utilization, excluding the one-time non-cash compensation charge, for the six months ended June 30, 2008, increased by $64.8 million from the six months ended June 30, 2007. This increase was driven primarily by an increase in short-term funding provided by Cantor in the amount of $29.0 million.
Net cash provided by investing activities was $28.5 million for the six months ended June 30, 2008 compared to a use of cash of $26.9 million for the six months ended June 30, 2007. The increase in net cash provided by investing activities was primarily due to the repayment of a secured loan from Cantor in the amount of $65.0 million.
Net cash used in financing activities was $104.9 million for the six months ended June 30, 2008 compared to the use of cash of $9.2 million for the six months ended June 30, 2007. During the six months ended June 30, 2008, in connection with the separation from Cantor, we settled our intercompany long-term debt obligation to Cantor in the amount of $196.8 million and made capital distributions to Cantor in the amount of $130.0 million. Additionally we assumed $150.0 million of Cantor’s senior notes, and received $77.2 million in proceeds, net of underwriting fees, from a primary offering of Class A common stock.
Long-Term Debt On March 31, 2008, we entered into a note purchase agreement pursuant to which $150.0 million principal amount of notes were issued to the investors named in the note purchase agreement. The notes are due April 1, 2010, with interest payable semiannually at the rate of 5.19% per annum; provided, however, that this rate is increased by 0.25% per annum for any fiscal quarter during which the consolidated debt of the Company exceeds 55% but not 60% of its consolidated capitalization, as such terms are defined in the Company guaranty. In addition, the interest rate increases by 0.50% per annum during any period in which any holder of a note is required under applicable insurance
46 Table of Contents regulations to post reserves with respect to the notes greater than the reserve requirement, as such term is defined in the note purchase agreement, in effect immediately prior to March 31, 2008. Under the terms of the guaranty, we are required to maintain consolidated capital of at least $227.5 million as of the end of each fiscal quarter and cannot permit its consolidated debt to exceed 60% of its consolidated capitalization. Also, pursuant to the separation agreement, we will make semi-annual payments to Cantor during the term of the notes equal to the difference between 7.5% and the applicable interest rate of the notes.
Regulatory Requirements Our liquidity and available cash resources are restricted by regulatory requirements of our operating subsidiaries. Many of these regulators, including U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer. In addition, self-regulatory organizations such as the FINRA and the NFA along with statutory bodies such as the FSA and the SEC, require strict compliance with their rules and regulations. The requirements imposed by regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with broker-dealers and are not designed to specifically protect stockholders. These regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements.
As of June 30, 2008, $241.9 million of net assets were held by regulated subsidiaries. As of June 30, 2008, these subsidiaries had aggregate regulatory net capital, as defined, in excess of the aggregate regulatory requirements, as defined, of $143.1 million.
Primary and Secondary Offerings On June 10, 2008, we closed an underwritten public offering of additional shares of our Class A common stock. The offering was comprised of a primary offering (the “Primary Offering”) of 10,000,000 newly issued shares offered by us and a secondary offering (the “Secondary Offering”) of 10,000,000 issued and outstanding shares offered by Cantor and certain limited partners of Cantor and founding partners of BGC Holdings (“the Selling Stockholders”). In the Secondary Offering, 3,926,178 shares were offered by Cantor and 6,073,822 shares were offered by certain limited partners of Cantor and founding partners of BGC Holdings.
The offering price to the public was $8.00 per share, and the price, net of underwriters’ discount of 3.5%, was $7.72 per share. We received net proceeds of $77.2 million as a result of the Primary Offering. Offering expenses, other than underwriters’ discounts, of approximately $4.9 million were incurred by us. We did not receive any net proceeds from the sales of common stock offered by the Selling Stockholders in the Secondary Offering.
Immediately following the Primary Offering, we repurchased 175,000 shares of Class A common stock from one of our executive officers for $7.72 per share totaling approximately $1.4 million. We contributed the remaining net proceeds from the Primary Offering to BGC US and BGC Global in exchange for additional partnership interest on a one-for-one basis. BGC US and BGC Global expect to use such proceeds for general corporate purposes, including potential acquisitions.
Stock Repurchase Program Our Board of Directors has authorized the repurchase of up to $100 million of outstanding Class A common stock. During the six months ended June 30, 2008 and June 30, 2007, we did not repurchase any shares of our Class A common stocks under this plan. At June 30, 2008, we had approximately $58.2 million remaining from its $100 million buyback authorization.
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We anticipate, based on management’s experience and current industry trends, that its existing cash resources, together with the proceeds received by our public offering, will be sufficient to meet its anticipated working capital and capital expenditure requirements for at least the next 12 months. We expect our operating activities going forward to generate adequate cash flows to fund its normal operations, including any dividends issued pursuant to our dividend policy. However, we believe that there are a significant number of capital intensive opportunities for it to maximize its growth and strategic position, including, among other things, acquisitions, strategic alliances and joint ventures potentially involving all types and combinations of equity, debt and acquisition alternatives. As a result, we may need to raise additional funds to:
• increase the regulatory net capital necessary to support operations;
• support continued growth in its business;
• effect acquisitions;
• develop new or enhanced services and markets;
• respond to competitive pressures; and
• respond to unanticipated requirements. We cannot guarantee that it will be able to obtain additional financing when needed on terms that are acceptable to it, if at all.
Market Summary The following table provides certain volume and transaction count information on the eSpeed system for the periods indicated:
2Q07 3Q07 4Q07 1Q08 2Q08 Volume (in billions) Fully Electronic Volume —Excluding New Products (1) $10,281 $12,689 $11,364 $ 13,155 $ 11,043 Fully Electronic Volume —New Products (1) 1,066 990 1,335 1,405 2,054
Total Fully Electronic Volume 11,347 13,679 12,699 14,560 13,097 Voice -Assisted Volume 9,820 10,883 9,769 12,967 13,010 Screen -Assisted Volume 7,317 8,438 7,503 9,016 8,956
Total Voice/Screen -Assisted Volume 17,137 19,321 17,272 21,983 21,966
Total Volume $28,484 $33,000 $29,971 $ 36,543 $ 35,063
Transaction Count (in thousands, except for days) Fully Electronic Transactions —Excluding New Products 1,749 2,661 2,811 3,866 3,531 Fully Electronic Transactions —New Products 154 128 126 248 330
Total Fully Electronic Transactions 1,903 2,789 2,937 4,114 3,861 Voice -Assisted Transactions 210 216 202 232 207 Screen -Assisted Transactions 114 119 117 136 134
Total Voice/Screen -Assisted Volume 324 335 319 368 341
Total Transactions 2,227 3,124 3,256 4,482 4,202
Trading Days 64 63 62 61 64
U.S. Primary Dealer Treasury Volume (in billions) U.S. Treasury Volume $33,100 $39,414 $35,044 $ 41,815 $ 35,689 Average Daily U.S. Treasury Volume $ 517 $ 626 $ 565 $ 685 $ 558
(1) New products are defined as foreign exchange, interest rate swaps, repay futures and credit default swaps.
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Reported volumes and transaction counts include transactions by our brokers that participate in certain of our marketplaces by posting quotations for their accounts and by acting as principal on trades. While the principal participation may vary widely from product to product and may be significant for any given product or period, in no case does the principal participation by our brokers exceed 10% of any of the reported volume or transaction counts, except as otherwise noted. Such activity is intended, among other things, to assist our brokers in managing their proprietary positions, and to facilitate transactions, add liquidity, increase commissions and attract additional order flow to the eSpeed system.
Quarterly Market Activity Fully electronic volume on the eSpeed system, excluding new products, was $11.0 trillion for the three months June 30, 2008, up 7.4% from $10.3 trillion for the three months ended June 30, 2007. Fully electronic volume on the eSpeed system for new products, which we define as foreign exchange, interest rate swaps, repurchase agreements, futures, and credit default swaps was, $2.1 trillion for the three months ended June 30, 2008, up 92.7% from $1.1 trillion for the three months ended June 30, 2007. Our combined voice-assisted and screen-assisted volume in the three months ended June 30, 2008 was $22.0 trillion, an increase of 28.2% from $17.1 trillion in the three months ended June 30, 2007.
Contractual Obligations and Commitments The following table summarizes certain of our contractual obligations at June 30, 2008 (in thousands):
Less than 1 More than 5
Total year 1-3 years 3-5 years years Operating leases $ 156,167 $ 23,592 $ 38,820 $ 30,927 $ 62,828 Long -term debt 150,000 — 150,000 — — Interest in long -term debt 19,688 11,250 8,438 — —
Total contractual obligations $ 325,855 $ 34,842 $ 197,258 $ 30,927 $ 62,828
(1) Operating leases are related to rental payments under various non -cancelable leases, principally for office space. (2) Long-term debt reflects the issuance of $150.0 million of senior notes in connection with our separation from Cantor. (See Note 14, Long-Term Notes, to our condensed consolidated financial statements for more information regarding this long-term debt, including timing of payments and compliance with debt covenants.)
Off-Balance Sheet Arrangements As of June 30, 2008 we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates We have disclosed in Note 1 to our condensed consolidated financial statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our final prospectus filed with the SEC on June 6, 2008 those accounting policies that we consider to be significant in determining our results of operations and financial condition.
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The accounting principles utilized by us in preparing our condensed consolidated financial statements conform in all material respects to generally accepted accounting principles in the United States of America.
Recently Adopted Accounting Pronouncements:
SFAS No. 157: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability, in an orderly transaction between market participants. SFAS 157 nullifies the consensus reached in EITF Issue No. 02-3 prohibiting the recognition of day-one gain or loss on derivative contracts where the firm cannot verify all of the significant model inputs to observable market data and verify the model to market transactions. However, SFAS 157 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment. In addition, SFAS 157 prohibits the recognition of block discounts for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market. The provisions of SFAS 157 are to be applied prospectively, except for changes in fair value measurements that result from the initial application of SFAS 157 to existing derivative financial instruments measured under EITF Issue No. 02 -3, existing hybrid instruments measured at fair value, and block discounts, which are to be recorded as an adjustment to opening retained earnings in the year of adoption. We adopted the provisions of SFAS 157 when they became effective on January 1, 2008.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:
• Level 1 Measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical
unrestricted assets or liabilities.
• Level 2 Measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
• Level 3 Measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
In determining fair value, we separate our financial instruments owned and our financial instruments sold, but not yet purchased into two categories: cash instruments and derivative contracts.
• Cash Instruments —Our cash instruments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and
agency securities, certain sovereign government obligations, and active listed equities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, certain sovereign government obligations, money market securities, and less liquid listed equities, state, municipal and provincial obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.
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• Derivative Contracts —Our derivative contracts can be exchange-traded or OTC. Exchange-traded derivatives, typically fall within Level 1 or Level 2 of the fair value hierarchy depending on whether they are deemed to be actively traded or not. We generally value exchange-traded derivatives using the closing price of the exchange-traded derivatives. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy. See Note 2, Fair Value of Financial Assets and Liabilities, in BGC Partners, Inc.’s condensed consolidated financial statements for the six months ended June 30, 2008 and 2007.
SFAS No. 159: In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for BGC Partners as of January 1, 2008. On January 1, 2008, we adopted the fair value option for available-for-sale securities. The change in fair value of these instruments is recorded in Principal Transaction Revenues. As a result, the related unrealized loss of approximately $61,000 for the year ended December 31, 2007 was reclassed from accumulated other comprehensive loss to beginning accumulated deficit as a cumulative effect adjustment.
New Accounting Pronouncements: SFAS No. 141(R): In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) replaces SFAS 141, Business Combinations. SFAS 141(R) retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141(R) amends the recognition provisions for assets and liabilities acquired in a business combination, including those arising from contractual and noncontractual contingencies. SFAS 141(R) also amends the recognition criteria for contingent consideration. SFAS 141(R) is effective as of January 1, 2009. Early adoption is not permitted. We are currently evaluating the potential impact of adopting SFAS 141(R).
SFAS No. 160: In December 2007, the FASB issued SFAS No. 160, Non-controlling Interest in Consolidated Financial Statements—an amendment to ARB No. 51 (“SFAS 160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary, a parent’s ownership interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non- controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective as of January 1, 2009. Early adoption is not permitted. We are currently evaluating the potential impact of adopting SFAS 160.
SFAS No. 161: In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow. SFAS 161 is effective for financial statements issued for fiscal years and interim
51 Table of Contents periods beginning after November 15, 2008, with early adoption encouraged. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We are currently evaluating the potential impact of adopting SFAS 161.
FASB Staff Position (“FSP”) No. EITF 03-6-1: In June 2008, the FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF 03-6-1”), which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, Earnings per Share . EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The Company is currently evaluating the potential impact of adopting EITF 03-6-1.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our quantitative and qualitative disclosures about market risk are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” contained in our final prospectus filed with the SEC on June 6, 2008. Except as described below in this Form 10-Q, there have been no material changes to those market risks during the three and six months ended June 30, 2008.
Foreign Currency Risk We are exposed to market risk associated with movements in foreign currency exchange rates. There have been no material changes to our risk management policy during the six months ended June 30, 2008. As foreign currency exchange rates change, the U.S. dollar equivalent of revenues and expenses denominated in foreign currencies change. Our UK operations generate a majority of their revenues in the British Pound and Euros. On a daily basis, all cash balances except those necessary to pay short-term expenses are converted to U.S. dollars. Changes in the translation of our net assets are recorded as part of its results of operations and fluctuate with changes in foreign currency conversion rates.
We do not consider the related economic risk to be material to our results of operations. We estimate that a hypothetical 10% adverse change in foreign exchange rates would have resulted in a decrease in net income in our international operations of approximately $3.5 million for the six months ended June 30, 2008.
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ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company’s Co-Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the disclosure controls and procedures of BGC Partners (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report, have concluded that, based on such evaluation, BGC Partners’ disclosure controls and procedures were not effective.
In 2007, the management of the BGC Partners, LLC which was merged with and into the Company on April 1, 2008 identified a material weakness in its internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board, including the lack of a formal, documented closing process designed to identify key financial reporting risks. This weakness may indicate a heightened risk that the BGC Partners, LLC’s and the Company’s annual or interim financial statements could contain a material misstatement. We are in the process of implementing the following initiatives which are aimed at addressing this weakness:
• establishing what we believe are appropriate internal controls for the monthly closing process, including a more formal schedule
and account substantiation and reconciliation tools;
• establishing a single global general ledger with a standard global chart of accounts; and
• taking steps aimed at ensuring that we have the appropriate staff within our organization.
Changes in Internal Controls There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the second fiscal quarter of 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, with the exception of the initiatives aimed at addressing the material weakness that was identified during 2007 for BGC Partners, LLC.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS See Legal Matters in Note 16 “Commitments, Contingencies and Guarantees” to the condensed consolidated financial statements included in Item 1 of this Report on Form 10-Q.
ITEM 1A. RISK FACTORS None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
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ITEM 6. EXHIBITS
Exhibit No. Description 1.1 Underwriting Agreement, dated June 5, 2008, by and between BGC Partners, Inc. and Deutsche Bank Securities Inc. and Cantor Fitzgerald & Co., as representatives of the several underwriters
10.1 Stock Purchase Agreement, dated June 2, 2008, by and between BGC Partners, Inc. and Stephen M. Merkel
10.2 Lease Agreement, dated April 1, 2008, by and between BGC Partners, Inc. and Cantor Fitzgerald Securities
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes -Oxley Act of 2002
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes -Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes -Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q for the quarter ended June 30, 2008 to be signed on its behalf by the undersigned thereunto duly authorized.
BGC Partners, Inc.
/s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Chairman of the Board and Co-Chief Executive Officer
/s/ Robert K. West Name: Robert K. West Title: Chief Financial Officer
Date: August 8, 2008
[Signature page to the Quarterly Report on Form 10-Q for the period ending June 30, 2008 dated August 8, 2008]
55 Exhibit 1.1 Execution Copy
20,000,000 Shares
BGC Partners, Inc.
Class A Common Stock
($0.01 Par Value)
EQUITY UNDERWRITING AGREEMENT
June 5, 2008
Deutsche Bank Securities Inc. and Cantor Fitzgerald & Co. As Representatives of the Several Underwriters c/o Deutsche Bank Securities Inc. 60 Wall Street, 4 th Floor New York, New York 10005 and c/o Cantor Fitzgerald & Co. 110 East 59 th Street New York, New York 10022
Ladies and Gentlemen: BGC Partners, Inc., a Delaware corporation (formerly named eSpeed, Inc.) (the “Company”), and certain stockholders of the Company (the “Selling Stockholders”), including Cantor Fitzgerald, L.P., a Delaware limited partnership and the majority stockholder of the Company (“Cantor”), each propose to sell to the several underwriters (the “Underwriters”) named in Schedule I hereto for whom you are acting as the representatives (the “Representatives”) an aggregate of 20,000,000 shares (the “Firm Shares”) of the Company’s Class A common stock, $0.01 par value (the “Class A Common Stock”), of which 10,000,000 shares will be sold by the Company and 10,000,000 shares will be sold by the Selling Stockholders in the amounts set forth on Schedule II. The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto, and the respective amounts to be sold by the Selling Stockholders are set forth opposite their names in Schedule II hereto. The Company and the Selling Stockholders are sometimes referred to herein collectively as the “Sellers.” The Company and Cantor, at the Company’s election, also propose to sell at the Underwriters’ option an aggregate of up to 3,000,000 additional shares of the Company’s Class A Common Stock (the “Option Shares”).
As the Representatives, you have advised the Company and the Selling Stockholders (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the “Shares.”
Prior to the execution of this Agreement, Cantor completed a series of reorganization transactions and contributed the Transferred Businesses (as defined in the Separation Agreement (as defined below)) to BGC Partners, LLC (“BGC Partners OldCo”) and its subsidiaries (including BGC Partners, L.P., a Delaware limited partnership (“BGC U.S.”), and BGC Global Holdings, L.P., a Cayman Islands limited partnership (“BGC Global” and, together with BGC U.S., the “Opcos”)) pursuant to the Separation Agreement (the “Separation Agreement”), dated as of March 31, 2008, by and among Cantor, BGC Partners OldCo, BGC U.S., BGC Global and BGC Holdings (the “Separation”). On April 1, 2008, BGC Partners OldCo merged (the “Merger”) with and into the Company, which was renamed “BGC Partners, Inc.,” pursuant to the Agreement and Plan of Merger, dated as of May 29, 2007, as amended as of November 5, 2007 and February 1, 2008 (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company contributed certain of its assets and liabilities to the Company’s subsidiaries, including the Opcos. The Company is the general partner of BGC Holdings, L.P., a Delaware limited partnership (“BGC Holdings”). The Company and BGC Holdings each hold, directly and indirectly, limited partnership interests in the Opcos. Cantor and other limited partners of BGC Holdings hold limited partnership interests of BGC Holdings. In addition, the Company holds, directly and indirectly, the general partner and special voting limited partnership interests of BGC Holdings, and BGC Holdings, directly and indirectly, holds the general partnership interest of each of the Opcos and the special voting limited partnership interest of each of the Opcos.
BGC Partners OldCo and its subsidiaries, including the Transferred Businesses, prior to the Separation and Merger, shall be referred to in this Agreement as the “Predecessor Parties.”
In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows:
1. Representations and Warranties of the BGC Parties and the Selling Stockholders (a) The Company, Cantor, the Opcos and BGC Holdings (collectively, the “BGC Parties”), jointly and severally, represent and warrant to each of the Underwriters as follows: (i) A registration statement on Form S-1 (File No. 333-150308) with respect to the Shares has been prepared by the Company in conformity in all material respects with the requirements of the Securities Act of 1933, as amended (the “Act”), and the rules and regulations (the “Rules and Regulations”) of the U.S. Securities and Exchange Commission (the “Commission”) thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) under the Act, is herein referred to as the “Registration Statement,” which shall be deemed to include all information omitted therefrom in reliance upon Rules 430A, 430B or 430C under the Act and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. “Prospectus” means the form of prospectus first filed with the Commission pursuant to and within the time limits described in Rule 424(b) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a “Preliminary Prospectus.”
2 (ii) As of the Applicable Time (as defined below) and as of the Closing Date or the Option Closing Date, as the case may be, neither (A) the General Use Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time, the Preliminary Prospectus dated May 27, 2008 and the information included on Schedule III hereto, all considered together (collectively, the “General Disclosure Package”), nor (B) any individual Limited Use Free Writing Prospectus (as defined below), when considered together with the General Disclosure Package, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the BGC Parties make no representations or warranties as to information contained in or omitted from any Issuer Free Writing Prospectus, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 herein. As used in this subsection and elsewhere in this Agreement: “Applicable Time” means 9:25 am (New York time) on the date of this Agreement or such other time as agreed to by the Company and the Representatives.
“Statutory Prospectus” as of any time means the Preliminary Prospectus relating to the Shares that is included in the Registration Statement immediately prior to that time.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 under the Act, relating to the Shares in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g) under the Act.
3 “General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is identified on Schedule IV to this Agreement.
“Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not a General Use Free Writing Prospectus.
(iii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. Each of the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the “Subsidiaries”) has been duly organized and is validly existing as a corporation, limited liability company or limited partnership or other applicable entity in good standing under the laws of the jurisdiction of its incorporation, organization or formation, with power (corporate, partnership or other) and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. The Subsidiaries are the only subsidiaries, direct or indirect, of the Company, that are required by the Commission to be listed in Exhibit 21 to Item 16(a) of the Registration Statement. The Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect (as defined below). The outstanding shares of capital stock, partnership interests, member interests or other equity interests of each of the Subsidiaries have been duly authorized and validly issued, to the extent applicable, are fully paid and non-assessable and, except as described in the Registration Statement, the General Disclosure Package and the Prospectus, are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and equities and claims; and, other than as described in the Registration Statement, the General Disclosure Package and the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding.
(iv) The outstanding shares of Common Stock (as defined below) of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company and by the Selling Stockholders have been duly authorized and if issued, are or if not yet issued, when issued and paid for as contemplated herein will be validly issued, fully paid and non- assessable; and, except as described in the Registration Statement, the General Disclosure Package and the Prospectus, no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. References herein to Common Stock shall mean collectively, the Company’s Class A Common Stock and the Company’s Class B common stock, $0.01 par value.
4 (v) The information set forth in the “Capitalization” section in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus. The form of certificates for the Shares conforms in all material respects to the corporate law of the jurisdiction of the Company’s incorporation and to any requirements of the Company’s organizational documents and to the requirements of any stock exchange on which the Shares are listed. Subsequent to the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, except as otherwise described therein or in this Agreement, the Company has not: (A) issued any securities or incurred any material liability (either individually or in the aggregate) or material obligation (either individually or in the aggregate), direct or contingent, for borrowed money; or (B) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
(vi) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus relating to the proposed offering of the Shares, and no proceeding for that purpose or pursuant to Section 8A of the Act has been instituted or, to the BGC Parties’ knowledge, threatened by the Commission. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform to, the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto, as of their respective dates, the date of this Agreement and as of the Closing Date, do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of a material fact; and do not omit, and will not omit, to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the BGC Parties make no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein, it being understood and agreed that the only such information is that described in Section 13 herein.
(vii) Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Shares pursuant to this Agreement or until any earlier date that the Company notified or notifies the Representatives, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement or the Prospectus.
(viii) The BGC Parties have not, directly or indirectly, distributed and will not distribute any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under the Act and consistent with Section 4(a)(ii) below. For the avoidance of doubt, the Custody Agreement, the
5 Power of Attorney and the Selling Stockholder Notice and Questionnaire provided by Company to potential selling stockholders does not constitute any such distribution. The Company has filed and will file with the Commission all Issuer Free Writing Prospectuses in the time required under Rule 433(d) under the Act.
(ix)(A) At the time of filing the Registration Statement and (B) as of the date hereof (with such date being used as the determination date for purposes of this clause (B)), the Company was not and is not an “ineligible issuer” (as defined in Rule 405 under the Act, without taking into account any determination by the Commission pursuant to Rule 405 under the Act that it is not necessary that the Company be considered an ineligible issuer), including, without limitation, for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares as contemplated by the Registration Statement.
(x) The consolidated financial statements of eSpeed, Inc. and its subsidiaries, the combined financial statements of the BGC Division (as defined in the Registration Statement) and the supplemental consolidated financial statements of the Company, together with related notes and schedules as set forth in the Registration Statement, the General Disclosure Package and the Prospectus (collectively, the “Financial Statements”), present fairly in all material respects the financial position and the results of operations and cash flows of the applicable entity or division, at the indicated dates and for the indicated periods. Such Financial Statements and related schedules have been prepared in accordance with generally accepted principles of accounting in the United States (“GAAP”), consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary and selected consolidated financial and statistical data (including any pro forma data) included in the Registration Statement, the General Disclosure Package and the Prospectus presents fairly in all material respects the information shown therein and such data has been compiled on a basis consistent with the Financial Statements presented therein and the books and records of eSpeed, Inc., the BGC Division and the Company, as applicable. The pro forma financial statements and other pro forma financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the BGC Parties, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. All disclosures contained in the Registration Statement, the General Disclosure Package and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the Rules and Regulations) comply with Regulation G of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Item 10 of Regulation S-K under the Act, to the extent applicable. Neither the Company or its subsidiaries has any material liabilities or material obligations, direct or contingent (including any off-balance sheet obligations or any “variable interest entities” within the meaning of Financial Accounting Standards Board Interpretation No. 46), not disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. There are no financial statements (historical or pro forma) that are required by the Commission to be included in the Registration Statement, the General Disclosure Package or the Prospectus that are not included as required.
6 (xi) Deloitte & Touche LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, the General Disclosure Package and the Prospectus, is an independent registered public accounting firm with respect to the supplemental consolidated financial statements of BGC Partners, Inc., the combined financial statements of the BGC Division and the consolidated financial statements of eSpeed, Inc. and its subsidiaries, as the case may be, within the meaning of the Act and the applicable Rules and Regulations and the Public Company Accounting Oversight Board (United States) (the “PCAOB”).
(xii) Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, none of the BGC Parties or any of the Subsidiaries is aware of (A) any material weakness in its internal control over financial reporting or (B) change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
(xiii) Solely to the extent that the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated by the Commission and the Nasdaq Global Market thereunder (the “Sarbanes-Oxley Act”) has been applicable to the Company, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus there is and has been no failure on the part of the Company to comply in all material respects with any provision of the Sarbanes-Oxley Act. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company has taken all reasonably necessary actions to ensure that it is in compliance with all provisions of the Sarbanes-Oxley Act that are in effect and with which the Company is required to comply and is actively taking reasonable steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act not currently in effect or which will become applicable to the Company.
(xiv) There is no action, suit, claim or proceeding pending or, to the knowledge of the BGC Parties, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of the Subsidiaries would either (A) have, individually or in the aggregate, a material adverse effect on the earnings, business, management, properties, assets, rights, operations or condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or (B) prevent the consummation of the transactions contemplated hereby (the occurrence of any such effect or any such prevention described in the foregoing clauses (A) and (B) being referred to as a “Material Adverse Effect”), except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus.
(xv) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in any of the Financial Statements hereinabove described or described in the Registration Statement, the General Disclosure Package and the Prospectus, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such
7 Financial Statements or described in the Registration Statement, the General Disclosure Package and the Prospectus, except as would not have a Material Adverse Effect. The Company and the Subsidiaries occupy their leased properties under valid and binding leases with such exceptions that are not material and conforming in all material respects to the description thereof set forth in the Registration Statement, the General Disclosure Package and the Prospectus.
(xvi) The Predecessor Parties, the Company and the Subsidiaries have filed all material Federal, state, local and foreign tax returns which have been required to be filed or have properly requested extensions thereof and have paid all material taxes indicated by such returns and all material assessments received by any of them to the extent that such taxes have become due and are not being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. All material tax liabilities have been adequately provided for in the Financial Statements of the Company, BGC Division or eSpeed, Inc., as applicable, and the BGC Parties do not know of any actual or proposed additional material tax assessments.
(xvii) Since December 31, 2007 (the date of the latest audited financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus), as each may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, the General Disclosure Package and the Prospectus, as each may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are required to be disclosed and are not disclosed in the Financial Statements of the Company, the BGC Division or eSpeed, Inc., as applicable, which are included in the Registration Statement, the General Disclosure Package and the Prospectus.
(xviii) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, (A) in violation of its certificate or articles of incorporation, by-laws, certificate of formation, limited liability agreement, partnership agreement or other organizational documents, as the case may be, or (B) in violation of or in default under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and, solely with respect to this clause (B), which violation or default would have a Material Adverse Effect. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and the fulfillment of the terms required by this Agreement will not conflict with or result in a breach of (i) any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties is bound, which conflict or breach would have a Material Adverse Effect, (ii) or of the certificate or articles of incorporation or by-laws
8 of the Company or (iii) any law, order, rule or regulation judgment, order, writ or decree applicable to the Company or any Subsidiary of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction, which conflict or breach would have a Material Adverse Effect.
(xix) The execution and delivery of, and the performance by each of the BGC Parties of its obligations under, this Agreement has been duly and validly authorized by all necessary corporate or limited partnership, as the case may be, action on the part of each of the BGC Parties and this Agreement has been duly executed and delivered by each of the BGC Parties.
(xx) Each United States and non-United States approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the Financial Industry Regulatory Authority (the “FINRA”) or any similar non-United States securities regulatory authority which has jurisdiction over the Company in connection with the offering of the Shares as contemplated by the Registration Statement or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws or similar laws or regulations in the non-United States jurisdictions in which it is intended to offer the Shares for sale) has been obtained or made and is in full force and effect; provided that this representation is limited to those non-United States jurisdictions in which the Company is subject to regulation.
(xxi) The Company and each of the Subsidiaries hold all licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses as described in the Prospectus, except as would not have a Material Adverse Effect.
(xxii) Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and the Subsidiaries each own or possess the right to use all patents, patent rights, trademarks, trade names, service marks, service names, copyrights, license rights, know-how (including trade secrets and other unpatented and unpatentable proprietary or confidential information, systems or procedures) and other intellectual property rights (“Intellectual Property”) necessary to carry on the business of the Company and the Subsidiaries taken as a whole in all material respects. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, none of the Predecessor Parties, the Company nor any of the Subsidiaries has infringed, misappropriated or otherwise violated and none of the Predecessor Parties, the Company or the Subsidiaries have received notice of conflict with, any Intellectual Property of any other person or entity, except where such infringement or conflict has not had, or would not reasonably be expected to have, a Material Adverse Effect. The Company has taken all commercially reasonable steps necessary to secure from its contractors appropriate ownership or license rights in all Intellectual Property necessary to carry on the business of the Company and the Subsidiaries taken as a whole. There are no outstanding options, licenses or agreements of any kind relating to the Intellectual Property of the Company or the Subsidiaries that are required to be described in the Registration Statement, the General Disclosure Package and the
9 Prospectus and are not described in all material respects. Neither the Company nor the Subsidiaries is a party to or bound by any options, licenses or agreements with respect to the Intellectual Property of any other person or entity that are required to be set forth in the Prospectus and are not described in all material respects. To the Company’s knowledge, none of the technology employed by the Company or the Subsidiaries has been obtained or is being used by the Company or the Subsidiaries in violation of any contractual obligation binding on the Company or any of its officers, directors or employees. To the Company’s knowledge, the technology employed by the Company and its Subsidiaries functions in all material respects in accordance with the documentation provided to the Company’s and its Subsidiaries’ customers. The Predecessor Parties, the Company or its Subsidiaries have not received any written or oral communications alleging that the Predecessor Parties, the Company or its Subsidiaries have violated, infringed or misappropriated, or, by conducting its business as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, would violate, infringe or misappropriate, any of the Intellectual Property of any other person or entity, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and except as has not, or would not reasonably be expected to have, a Material Adverse Effect. The BGC Parties know of no infringement by others of Intellectual Property owned by or licensed to the Company or its Subsidiaries, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and except as has not, or would not reasonably be expected to have, a Material Adverse Effect.
(xxiii) Neither the Company nor to the BGC Parties’ knowledge, any of the BGC Parties’ affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Class A Common Stock to facilitate the sale or resale of the Shares. The Company acknowledges that the Underwriters may engage in passive market making transactions in the Shares on the Nasdaq Global Market in accordance with Regulation M under the Exchange Act.
(xxiv) Neither the Company nor any Subsidiary is or, after giving effect to the offering and sale of the Shares contemplated hereunder and the application of the net proceeds from such sale as described in the Registration Statement, General Disclosure Package and the Prospectus, will be an “investment company” within the meaning of such term under the Investment Company Act of 1940, as amended (the “1940 Act”), and the rules and regulations of the Commission thereunder.
(xxv) The Company and each of the Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
10 (xxvi) Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, the Company has established and maintains “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act); the Company’s “disclosure controls and procedures” are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the Exchange Act, and that all such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the Chief Executive Officer and Chief Financial Officer of the Company required under the Exchange Act with respect to such reports.
(xxvii) The statistical, industry-related and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources which the BGC Parties reasonably and in good faith believe are reliable and accurate in all material respects, and such data agree with the sources from which they are derived.
(xxviii) The statements contained in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the headings: “Structure of BGC Partners,” “Business—Regulation,” “Business—Capital Requirements,” and “Certain Relationships and Related Transactions,” insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings in all material respects.
(xxix) The statements contained in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the heading: “Description of Capital Stock” insofar as they purport to constitute a summary of the terms of the Shares or legal matters, agreements, documents or proceedings materially summarize the terms of the Shares and such legal matters, agreements, documents or proceedings in all material respects.
(xxx) The discussion set forth in the Registration Statement and the Prospectus (and any similar section or information, if any, contained in the General Disclosure Package) under the heading: “Certain U.S. Federal Tax Considerations For Non-U.S. Holders of Class A Common Stock,” although it does not purport to discuss all possible U.S. federal income tax considerations of the ownership and disposition of the Class A Common Stock applicable to non-U.S. holders, constitutes, in all material respects, a fair and accurate summary of the U.S. federal income tax considerations described therein subject to the limitations and qualifications set forth therein.
(xxxi) To the Company’s knowledge, the operations of the Predecessor Parties, the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and
11 applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Predecessor Parties, the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the BGC Parties’ knowledge, threatened.
(xxxii) Neither the Company nor, to the BGC Parties’ knowledge, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(xxxiii) The Company and each of the Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses.
(xxxiv) The Company and each Subsidiary is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (“ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company and each Subsidiary would have any liability; the Company and each Subsidiary has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the “Code”); and each “pension plan” for which the Company or any Subsidiary would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.
(xxxv) Other than as a partner, officer, stockholder or employee of Cantor and/or the Company or their subsidiaries, to the BGC Parties’ knowledge, there are no ownership affiliations or associations between any member of the FINRA and any of the Company’s officers, directors or 5% or greater securityholders, except as set forth in the Registration Statement or in any written materials provided by the Company to the Underwriters or their counsel in response to the Underwriters’ or their counsel’s inquiry for compliance with FINRA regulation purposes.
(xxxvi) Except as disclosed in the Registration Statement, General Disclosure Package and the Prospectus, neither the Company nor any of the Subsidiaries is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “environmental laws”), owns or operates any real
12 property contaminated with any substance that is subject to environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would, individually or in the aggregate, have a Material Adverse Effect; and the BGC Parties are not aware of any pending investigation which might lead to such a claim that would, individually or in the aggregate, have a Material Adverse Effect.
(xxxvii) To the BGC Parties’ knowledge, except as disclosed in the Registration Statement, Prospectus and the General Disclosure Package, there are no material investigations of any Financial Entity, the Company or any of its Subsidiaries or affiliates that are currently underway by governmental organizations or self-regulatory organizations, including for this purpose routine inquiries as to trading or like matters.
(xxxviii) The Shares have been approved for listing subject to notice of issuance on the Nasdaq Global Market.
(xxxix) There are no relationships or related-party transactions involving the Company or any of the Subsidiaries or any other person that are required by the Act and the Rules and Regulations to be described in the Prospectus which have not been described as required by the Act and the Rules and Regulations.
(xl) None of the Predecessor Parties, the Company nor any of the Subsidiaries has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law which violation is required to be disclosed in the Prospectus.
(xli) As of the date of the initial filing of the Registration Statement referred to in Section 1(a)(i), there were no outstanding personal loans made, directly or indirectly, by the Company to any director or executive officer of the Company that are prohibited pursuant to the Sarbanes Oxley Act.
(xlii) None of the information on (or hyperlinked from) the Company’s websites at www.bgcpartners.com or www.espeed.com includes or constitutes a “free writing prospectus” as defined in Rule 405 under the Act and the Company does not maintain or support any website other than www.bgcpartners.com , www.espeed.com and the websites related to Cantor and its business that are listed on Schedule VI hereto.
(xliii) Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no Subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company.
13 (xliv) None of the Predecessor Parties, the Company nor any of its Subsidiaries nor any director, officer, agent, employee or affiliate of the Predecessor Parties, the Company or any of its Subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Predecessor Parties, the Company, its subsidiaries and its affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.
(xlv) Each of Aqua Securities L.P., BGC Securities, BGC Financial, L.P. and eSpeed Brokerage, L.P. is registered under the Exchange Act as a broker-dealer and is a member in good standing of the FINRA and all other self regulatory organizations of which it is a member; each Subsidiary that is required to be registered under the Exchange Act as a broker-dealer is so registered and is a member in good standing of the FINRA and all other self-regulatory organizations of which it is a member; and to the extent required in connection with their respective businesses, each of the Company and the Subsidiaries is also registered as a broker-dealer in each Federal, state or foreign jurisdiction where such registration is required and a member of each exchange, board of trade, clearing house or association and self - regulatory or similar organization in which such membership is necessary for the conduct of its business as currently conducted.
(xlvi) As to the Company and each Subsidiary, the Company has provided to the Representatives: (A) a complete list of each such entity that acts as a (1) “broker” or “dealer” in securities (as defined in the Securities Act), (2) an investment adviser (as defined in the Investment Advisers Act of 1940 (the “Investment Advisors Act”)), (3) a collective investment fund of any type or registered investment company, (4) a “commodity pool operator,” “commodity trading advisor” or “futures commission merchant” (each as defined in the Commodity Exchange Act), bank or similar entity or insurance company (all such entities in subclauses (A)(1) through (4) are referred to as “Financial Entities” and each a “Financial Entity”); (B) the principal U.S. or non-U.S. governmental scheme under which such entity is regulated; or (C) the basis on which such entity is exempted from registration.
(xlvii) As to each Subsidiary that is a Financial Entity, the Company has provided to the Representatives the current registration forms of such Financial Entity, each of which is complete and correct in all material respects, and each of which has been timely filed with the appropriate regulatory authority.
(xlviii) Except as would not have a Material Adverse Effect, each Subsidiary that is a Financial Entity has in place, and has had in place for the past three years, an appropriate system of legal, regulatory, recordkeeping and financial controls (including for this purpose controls
14 relating to the rules of any self-regulatory organization and controls relating to anti-money laundering, privacy and OFAC), and such controls have not discovered any material violation other than as has been disclosed in writing.
(b) Each of the Selling Stockholders severally and not jointly represents and warrants as follows: (i) Such Selling Stockholder has or will have the right to receive the Firm Shares and, with respect to Cantor, the Option Shares to be sold by such Selling Stockholder, provided that to the extent such Shares are receivable pursuant to such Selling Stockholder’s distribution rights of Cantor (the “Distribution Rights”) assuming acceleration of such Distribution Rights by Cantor, and immediately prior to the Closing Date and the Option Closing Date, as the case may be (as such dates are hereinafter defined), and assuming the Company removes any restrictions imposed by it on the sale by such Selling Stockholder of Firm Shares or, with respect to Cantor, the Option Shares receivable on exchange of founding partner interests, or exchangeable limited partner interests, as the case may be, of BGC Holdings, such Selling Stockholder will have good and valid title to the Firm Shares and, with respect to Cantor, the Option Shares to be sold by such Selling Stockholder, free and clear of any liens, encumbrances, equities and claims, and full right, power and authority, and any approval required by law (other than as required by state securities and Blue Sky laws), to effect the sale and delivery of such Firm Shares and, with respect to Cantor, the Option Shares; and upon the delivery of, against payment for, such Firm Shares and, with respect to Cantor, the Option Shares pursuant to this Agreement, the Underwriters will acquire good and valid title thereto, free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power and authority to execute and deliver this Agreement, the Power of Attorney and the Custody Agreement referred to below and to perform its obligations under such Agreements, other than the Power of Attorney, in the case of Cantor. This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder. Each of the Power of Attorney and the Custody Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder, other than the Power of Attorney, in the case of Cantor, and is a valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles or public policy. The execution and delivery of this Agreement and the consummation by such Selling Stockholder of the transactions contemplated by this Agreement and the fulfillment by such Selling Stockholder of the terms required by this Agreement will not require such Selling Stockholder to obtain any consent, approval, authorization, or other order of any court, regulatory body, administrative agency or other governmental body (except as may be required under the Act, state securities laws or Blue Sky laws) and will not violate or conflict with or result in a breach of (i) the partnership agreement, trust agreement, limited liability company agreement or other constituent document of such Selling Stockholder, if not an individual, or (ii) any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which such Selling Stockholder is a party, or (iii) any order, rule or
15 regulation applicable to such Selling Stockholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction, except in the case of clauses (ii) and (iii) for any such violation, conflict or breach that would not have a material adverse effect on the ability of such Selling Stockholder to perform its obligations under this Agreement, the Custody Agreement and the Power of Attorney, as applicable, or to consummate the transactions contemplated hereby and thereby.
(iii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Class A Common Stock of the Company and, other than as permitted by the Act, such Selling Stockholder will not distribute any prospectus or other offering material in connection with the offering of the Shares.
(iv) The sale of the Firm Shares by such Selling Stockholder and, with respect to Cantor, the Option Shares pursuant hereto is not prompted by any information concerning the Company or any of the Subsidiaries which is not set forth in the Registration Statement, the General Disclosure Package and the Prospectus. The information pertaining to such Selling Stockholder under the caption “Principal and Selling Stockholders” in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) is complete and accurate in all material respects.
(v) Except as disclosed in the Registration Statement, General Disclosure Package and the Prospectus, no consent, approval or waiver is required to be obtained by such Selling Stockholder under any instrument or agreement to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, in connection with the offering, sale or purchase by the Underwriters of any of the Shares which may be sold by such Selling Stockholder under this Agreement or the consummation by such Selling Stockholder of any of the other transactions contemplated hereby, except any such consent, approval, authorization or order which has been duly obtained and is in full force and effect.
(vi) There are no affiliations or associations between any member of the FINRA and such Selling Stockholder or any affiliate of such Selling Stockholder, except as set forth in the Registration Statement, General Disclosure Package and the Prospectus or in the Selling Stockholder Notice and Questionnaire, or except to the extent that any Selling Stockholder is employed by Cantor or any of the broker- dealer entities set forth in Section(a)(xlv) or in any written materials provided by the Company to the Underwriters or their counsel in response to the Underwriters’ or their counsel’s inquiry for compliance with FINRA regulation purposes.
2. Purchase, Sale and Delivery of the Firm Shares. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Sellers agree to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $ 7.72 per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. The number of
16 Firm Shares to be purchased by each Underwriter from each Seller shall be as nearly as practicable in the same proportion to the total number of Firm Shares being sold by each Seller as the number of Firm Shares being purchased by each Underwriter bears to the total number of Firm Shares to be sold hereunder. The obligations of the Company and of each of the Selling Stockholders shall be several and not joint.
(b) Certificates in negotiable form and/or book-entry accounts for the total number of the Shares to be sold hereunder by the Selling Stockholders have been or will be immediately prior to the Closing Date or, with respect to Cantor, the Option Closing Date, as the case may be, placed in custody with American Stock Transfer & Trust Company as custodian (the “Custodian”) pursuant to the Custody Agreement executed by each Selling Stockholder for delivery of all Firm Shares and, with respect to Cantor, any Option Shares to be sold hereunder by the Selling Stockholder. Each of the Selling Stockholders specifically agrees that the Firm Shares and, with respect to Cantor, any Option Shares represented by the certificates or book-entry credits held in custody for the Selling Stockholders under the Custody Agreement are subject to the interests of the Underwriters hereunder, that the arrangements made by the Selling Stockholders for such custody are to that extent irrevocable, and that the obligations of the Selling Stockholders hereunder shall not be terminable by any act or deed of the Selling Stockholders (or by any other person, firm or corporation including the Company, the Custodian or the Underwriters) or by operation of law (including the death of an individual Selling Stockholder or the dissolution of an entity Selling Stockholder) or by the occurrence of any other event or events, except as set forth in the Custody Agreement. If any such event should occur prior to the delivery to the Underwriters of the Firm Shares or, with respect to Cantor, the Option Shares hereunder, certificates or book-entry credits for the Firm Shares or, with respect to Cantor, any Option Shares, as the case may be, shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such event has not occurred. The Custodian is authorized to receive and acknowledge receipt of the proceeds of sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in Federal (same day) funds to an account designated by the Company for the shares to be sold by it and to an account or accounts designated by the Custodian for the shares to be sold by the Selling Stockholders, in each case against delivery of certificates or book-entry credits therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made through the facilities of The Depository Trust Company at 10:00 a.m., New York City time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the “Closing Date.” As used herein, “business day” means a day on which the Nasdaq Global Market is open for trading and on which banks in New York City are open for business and not permitted by law or executive order to be closed.
(d) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and, to the extent of the Company’s election, Cantor, hereby grant an option to the several Underwriters to
17 purchase the Option Shares at the price per share as set forth in Section 2(a). The option granted hereby to purchase the Option Shares may be exercised at any time, from time to time (not to exceed two times) in whole or in part by giving written notice (i) at any time before the Closing Date and/or (ii) at any time, thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company, Cantor and the Custodian setting forth the number of Option Shares as to which the several Underwriters are exercising the option and the time and date at which such certificates are to be delivered. If the option granted hereby is exercised in part, the respective number of Option Shares to be sold by the Company and/or Cantor shall be determined by the Company, adjusted by you in such manner as to avoid fractional shares. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the “Option Closing Date”). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over allotments in the sale of the Firm Shares by the Underwriters. You, as the Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company and Cantor. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in Federal (same day) funds drawn to the order of the Company for the Option Shares to be sold by it and for the Option Shares to be sold by Cantor to an account or accounts designated by the Custodian for the shares to be sold by Cantor, in each case, against delivery of certificates or book-entry credits therefor to the Representatives for the several accounts of the Underwriters.
(e) If on the Closing Date, the Selling Stockholders, individually or collectively, fail to sell Firm Shares in an aggregate amount in excess of $20 million which such Selling Stockholders have agreed to sell on such date as set forth in Schedule II hereto, the Company agrees that it will sell or arrange for the sale of that number of shares of Class A Common Stock to the Underwriters which represents such Firm Shares in an aggregate amount in excess of $20 million which such Selling Stockholders have failed to so sell, as set forth in Schedule II hereto, or such lesser number as may be requested by the Representatives. If on the Option Closing Date, Cantor fails to sell the Option Shares which Cantor has agreed to sell on such date, the Company agrees that it will sell or arrange for the sale of that number of shares of Class A Common Stock to the Underwriters which represents the Option Shares which Cantor has failed to so sell, or such lesser number as may be requested by the Representatives.
3. Offering by the Underwriters. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms.
18 It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters.
4. Covenants of the Company and the Selling Stockholders. (a) The Company covenants and agrees with the several Underwriters that: (i) The Company will (A) prepare and timely file with the Commission under Rule 424(b) under the Act a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rules 430A, 430B or 430C under the Act and (B) not file any amendment to the Registration Statement or distribute an amendment or supplement to the General Disclosure Package or the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing based on the reasonable opinion of the counsel for the Underwriters or which is not in compliance with the Rules and Regulations and (C) file on a timely basis all reports and any definitive proxy or information statements required to be filed by the Company with the Commission subsequent to the date of the Prospectus and prior to the earlier of the termination of the offering of the Shares by the Underwriters pursuant to this Agreement or the termination of this Agreement.
(ii) The Company will (A) not make any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus” (as defined in Rule 405 under the Act) required to be filed by the Company with the Commission under Rule 433 under the Act unless the Representatives approve its use in writing prior to first use (which approval shall not be unreasonably withheld or delayed) (each, a “Permitted Free Writing Prospectus”); provided that the prior written consent of the Representatives hereto shall be deemed to have been given in respect of the Issuer Free Writing Prospectus(es) included in Schedule IV hereto, (B) treat each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, (C) comply with the requirements of Rules 164 and 433 under the Act applicable to any Issuer Free Writing Prospectus, including the requirements relating to timely filing with the Commission, legending and record keeping and (D) not take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Act a free writing prospectus prepared by or on behalf of such Underwriter that such Underwriter otherwise would not have been required to file thereunder.
(iii) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the General Disclosure Package or the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any order preventing or
19 suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus, or of the institution of any proceedings for that purpose or pursuant to Section 8A of the Act. The Company will use its reasonable efforts to prevent the issuance of any such order and to obtain as soon as possible the lifting thereof, if issued.
(iv) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares.
(v) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Issuer Free Writing Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus (or, in lieu thereof, the notice referred to under Rule 173(a) under the Act) is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, one signed copy of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested) and of all amendments thereto, as the Representatives may reasonably request.
(vi) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act, and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus to the extent the offering is not terminated. If during the period in which a prospectus (or, in lieu thereof, the notice referred to under Rule 173(a) under the Act) is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law.
20 (vii) If the General Disclosure Package is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the General Disclosure Package in order to make the statements therein, in the light of the circumstances, not misleading, or to make the statements therein not conflict with the information contained in the Registration Statement then on file, or if it is necessary at any time to amend or supplement the General Disclosure Package to comply with any law, the Company promptly will prepare, file with the Commission (if required) and furnish to the Underwriters and any dealers an appropriate amendment or supplement to the General Disclosure Package so that the General Disclosure Package as so amended or supplemented will not, in the light of the circumstances, be misleading or conflict with the Registration Statement then on file, or so that the General Disclosure Package will comply with law.
(viii) The Company will make generally available to its security holders, as soon as it is practicable to do so, within the time period prescribed by the Rules and Regulations of the Commission, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 under the Act and will advise you in writing when such statement has been so made available.
(ix) Prior to the Closing Date, if available, the Company will furnish to the Underwriters through the Representatives, as soon as final versions have been prepared by or are available to the Company, a copy of any unaudited interim financial statements or pro forma financial statement of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Registration Statement, the General Disclosure Package and the Prospectus; provided that the reports and information described in this subsection (ix) shall only be provided to the Underwriters through the Representatives if such reports and information are not available on the Electronic Data Gathering Analysis and Retrieval (EDGAR) system or the Company’s website.
(x) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 90 days after the date of the Prospectus, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of the Representatives, subject to the following exceptions: the Company and the other BGC Parties may (A) grant options, restricted stock units, REUs of the Company or BGC Holdings and other awards pursuant to the Company’s Long Term Incentive Plan, the Company’s Employee Stock Purchase Plan, the Company’s Incentive Bonus Compensation Plan, the BGC Holdings Participation Plan and the Company’s Deferral Plan; (B) issue shares of Class A Common Stock in connection with acquisitions, stock purchase or similar arrangements, where each recipient signs a Lock-Up Agreement (defined below); (C) issue shares of Common Stock pursuant to the exercise of any warrants or options of the Company or the exchange of any BGC Holdings units outstanding on the date of this
21 Agreement; and/or (D) otherwise transfer or dispose of any shares of Common Stock or derivative of Common Stock (or agreement for such) by (1) gift or for other estate planning purposes or (2) a charitable donation or gift or (3) distribution to partners, members or stockholders of the Company or any of the BGC Parties; provided , however , that in the case of a transfer or disposition pursuant to clause (D)(1) or (3) above, other than in the case of Firm Shares or Option Shares being sold pursuant to this Agreement, it shall be a condition to the transfer that the transferee executed a Lock-Up Agreement. Notwithstanding the foregoing, if (1) during the last 17 days of the 90-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 90-day restricted period, the Company announces that it will release earnings results during the 16-day period following the last day of the 90- day restricted period, then in each case the restrictions imposed by this Agreement shall continue to apply until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of material news or a material event relating to the Company, as the case may be, unless the Representatives waive, in writing, such extension.
(xi) The Company will use its reasonable efforts to list the Shares on the Nasdaq Global Market.
(xii) The Company has caused each officer and director and specific stockholders of the Company listed on Schedule V to furnish to you, on or prior to the date of this agreement, a letter or letters, substantially in the form attached hereto as Exhibit A (the “Lock-Up Agreement”).
(xiii) The Company and the Opcos shall apply the net proceeds of its sale of the Shares as permitted by the language set forth in the Registration Statement, General Disclosure Package and the Prospectus and the Company shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xiv) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the 1940 Act.
(xv) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock.
(xvi) The BGC Parties will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with the several Underwriters that: (i) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other capital stock of the Company or other securities
22 convertible, exchangeable or exercisable for Common Stock or derivative of Common Stock owned by the Selling Stockholder or request the registration for the offer or sale of any of the foregoing (or as to which the Selling Stockholder has the right to direct the disposition of) will be made for a period of 90 days after the date of the Prospectus, directly or indirectly, by such Selling Stockholder otherwise than hereunder or with the prior written consent of the Representatives, subject to the following exceptions: each Selling Stockholder may otherwise transfer or dispose of any shares of Common Stock or derivative of Common Stock (or agreement for such) by (A) gift or for other estate planning purposes, (B) a charitable donation or gift, or (C) distribution to partners, members or stockholders of such Selling Stockholder; provided , however , that in the case of a transfer pursuant to clause (A) or (C) above, other than in the case of Firm Shares or Option Shares being sold pursuant to this Agreement, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the securities subject to the provisions of this subclause (i). Notwithstanding the foregoing, if (1) during the last 17 days of the 90- day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 90-day restricted period, the Company announces that it will release earnings results during the 16-day period following the last day of the 90-day restricted period, then in each case the restrictions imposed by this Agreement shall continue to apply until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of material news or a material event relating to the Company, as the case may be, unless the Representatives waive, in writing, such extension.
(ii) Pursuant to the Underwriters’ reporting and withholding obligations under applicable U.S. Treasury Regulations, with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or at the Closing Date a properly completed and executed applicable United States Treasury Department Form W-8 or W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
(iv) Such Selling Stockholder agrees that it will not prepare or have prepared on its behalf or use or refer to, any “free writing prospectus” (as defined in Rule 405 under the Act), and agrees that it will not distribute any written materials in connection with the offer or sale of the Shares.
(v) During the Prospectus Delivery Period, such Selling Stockholder will advise the Representatives promptly, and will confirm such advice in writing to the Representatives, of any change in the information relating to such Selling Stockholder in the Registration Statement, the Prospectus or any document comprising the General Disclosure Package.
5. Costs and Expenses. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Sellers under this Agreement, including, without limiting the generality of the
23 foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company and the Selling Stockholders; any roadshow expenses relating to air travel (other than cost of full fare first-class air travel on commercial airlines by representatives of the Underwriters); the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Issuer Free Writing Prospectuses, the Prospectus, this Agreement, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including reasonable legal fees and disbursements) incident to securing any required review by the FINRA of the terms of the sale of the Shares; the Listing Fee of the Nasdaq Global Market; the reasonable costs and reasonable expenses associated with the reforming of any contracts for sale of the Shares made by the Underwriters caused by a breach of the representation in Section 1(a)(ii); and the expenses, including the reasonable and documented fees and out of pocket disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws. To the extent, if at all, that any of the Selling Stockholders engage special legal counsel to represent them in connection with this offering, the fees and expenses of such counsel shall be borne by such Selling Stockholder. Any transfer taxes imposed on the sale of the Shares to the several Underwriters will be paid by the Sellers pro rata. The Sellers shall not, however, be required to pay for any of the Underwriter’s expenses (other than those related to qualification under FINRA regulation and State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11(a)(i) hereof, or by reason of any failure, refusal or inability on the part of the Company or the Selling Stockholders to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure, refusal or inability is due primarily to the default or omission of any Underwriter, the Company shall reimburse the several Underwriters for reasonable and documented out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company and the Selling Stockholders shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters. The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Applicable Time, the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Stockholders contained herein, and to the performance by the Company and the Selling Stockholders of their covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and the Prospectus and each Issuer Free Writing Prospectus required shall have been filed as required by Rules 424, 430A, 430B, 430C or 433 under the Act, as applicable, within the time period prescribed by, and in compliance with, the Rules and
24 Regulations, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to its reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose or pursuant to Section 8A under the Act shall have been taken or, to the knowledge of the Company or the Selling Stockholders, shall be contemplated or threatened by the Commission and no injunction, restraining order or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Stephen M. Merkel, general counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters with executed copies for each of the Underwriters, and in form and substance reasonably satisfactory to the Representatives, substantially in the form set forth in Exhibit B hereto.
(c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Wachtell, Lipton, Rosen & Katz, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters with executed copies for each of the Underwriters, and in form and substance reasonably satisfactory to the Representatives, substantially in the form set forth in Exhibit C hereto.
(d) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Morgan, Lewis & Bockius LLP, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters with executed copies for each of the Underwriters, and in form and substance reasonably satisfactory to the Representatives.
(e) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Morgan, Lewis & Bockius LLP, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters with executed copies for each of the Underwriters, and in form and substance reasonably satisfactory to the Representatives.
(f) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Stuarts Walker Hersant, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters with executed copies for each of the Underwriters, and in form and substance reasonably satisfactory to the Representatives, substantially in the form set forth in Exhibit D hereto.
(g) The Representatives shall have received from Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representatives.
25 (h) The Representatives shall have received at or prior to the Closing Date from Skadden, Arps, Slate, Meagher & Flom LLP a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company.
(i) You shall have received, on each of the dates hereof, the Closing Date and, if applicable, the Option Closing Date, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Deloitte & Touche LLP confirming that they are an independent registered public accounting firm with respect to the supplemental consolidated financial statements of BGC Partners, Inc., the combined financial statements of BGC Division and the consolidated financial statements of eSpeed, Inc. and its subsidiaries, as the case may be, within the meaning of the Act and the applicable Rules and Regulations and the PCAOB and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement, the General Disclosure Package and the Prospectus comply in form in all material respects with the applicable accounting requirements of the Act and the related Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants’ “comfort letters” to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(j) The Representatives shall have received on the Closing Date and, if applicable, the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company and the general partner or an appropriate officer of each of the other BGC Parties to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement or no order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus has been issued, and no proceedings for such purpose or pursuant to Section 8A of the Act have been taken or are, to his or her knowledge, contemplated or threatened by the Commission;
(ii) The representations and warranties of the BGC Parties contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be, subject to the qualifications and exceptions contained therein relating to knowledge, materiality or Material Adverse Effect;
(iii) All filings required to have been made pursuant to Rules 424, 430A, 430B or 430C under the Act have been made as and when required by such rules;
26 (iv) Such officer has examined the General Disclosure Package and any individual Limited Use Free Writing Prospectus and, in his opinion, as of the Applicable Time, the statements contained in the General Disclosure Package and any individual Limited Use Free Writing Prospectus did not contain any untrue statement of a material fact, and such General Disclosure Package and any individual Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(v) Such officer has examined the Registration Statement and, in his opinion, as of the effective date of the Registration Statement, the Registration Statement and any amendments thereto did not contain any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment;
(vi) Such officer has examined the Prospectus and, in his opinion, as of its date and the Closing Date or the Option Closing Date, as the case may be, the Prospectus and any amendments and supplements thereto did not contain any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and
(vii) Since December 31, 2007 (the date of the latest audited financial statements included in the Registration Statement, the General Disclosure Package and Prospectus), there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business.
(k) The Representatives shall have received on the Closing Date and, with respect to Cantor, if applicable, the Option Closing Date, as the case may be, a certificate of each Selling Stockholder (executed by an Attorney-in-Fact or Cantor, as applicable) to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The representations and warranties of such Selling Stockholder contained in Section 1 hereof are true and correct as of the Closing Date or, with respect to Cantor, the Option Closing Date, as the case may be, subject to the qualifications and exceptions contained therein relating to knowledge, materiality or Material Adverse Effect; and
(ii) Such Selling Stockholder has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or prior to such date.
27 (l) On the date hereof, the Attorneys-in-Fact for the Selling Stockholders other than Cantor, and Cantor, shall have furnished for review by the Representatives executed copies of the Power of Attorney and Custody Agreement, as applicable.
(m) The Company and the Selling Stockholders shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested.
(n) The Firm Shares and Option Shares, if any, have been approved for listing upon notice of issuance on the Nasdaq Global Market.
(o) The Lock-Up Agreements described in Section 4(a)(xii) are in full force and effect.
The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are reasonably satisfactory to the Representatives and to Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters.
If any of the conditions herein provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company and the Selling Stockholders of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be.
In such event, the Company, the Selling Stockholders and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers. The obligations of the Sellers to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened.
8. Indemnification. (a) The BGC Parties, jointly and severally, agree: (1) to indemnify and hold harmless each Underwriter, the directors and officers of each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities
28 (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, or any other materials or information provided to investors by, or with the approval of, the Company in connection with the offering, including in any “road show” (as defined in Rule 433 under the Securities Act) for the offering (“Marketing Materials”), (ii) with respect to the Registration Statement or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) with respect to any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, or any Marketing Materials, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; provided , however , that none of the BGC Parties will be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus, or such amendment or supplement, or any Marketing Materials, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 13 herein; provided , further , however, that notwithstanding the foregoing, Cantor shall only be liable under this Section 8(a) if, and only to the extent that, the other BGC Parties fail to perform their obligations under this Section 8(a) in full, and only up to such amount equal to the net proceeds received by Cantor pursuant to this Agreement ( provided that in no event, shall Cantor’s indemnification obligations under Sections 8(a) and 8(b) in the aggregate be greater than the net proceeds received by Cantor pursuant to this Agreement); and
(2) to reimburse each Underwriter, each Underwriters’ directors and officers, and each such controlling person upon demand for any legal or other out-of-pocket expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding. In the event that it is finally judicially determined that the Underwriters were not entitled to receive payments for legal and other expenses pursuant to this subparagraph, the Underwriters will promptly return all sums that had been advanced pursuant hereto.
(b) Each Selling Stockholder severally and not jointly, in proportion to the number of Shares to be sold by such Selling Stockholder hereunder agrees to indemnify and hold harmless each Underwriter, directors and officers and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which such Underwriter or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages
29 or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, or any Marketing Material, (ii) with respect to the Registration Statement or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) with respect to any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, or any Marketing Materials, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; provided , however , that each Selling Stockholder shall be liable hereunder only with respect to any written information furnished by such Selling Stockholder to the Company expressly for use in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, or any Marketing Material, and only up to such amount equal to the net proceeds received by such Selling Stockholder pursuant to this Agreement ( provided that in no event, shall Cantor’s indemnification obligations under Sections 8(a) and 8(b) in the aggregate be greater than the net proceeds received by Cantor pursuant to this Agreement). This indemnity obligation will be in addition to any liability obligation which the Company may otherwise have and to Cantor’s indemnity obligation under Section 8(a) of this Agreement.
(c) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement (including by power of attorney), the Selling Stockholders, and each person, if any, who controls the Company or the Selling Stockholders within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, Selling Stockholder or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, (ii) with respect to the Registration Statement or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) with respect to any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any amendment or supplement thereto, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, Selling Stockholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided , however , that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or such amendment or
30 supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 13 herein. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing. No indemnification provided for in Section 8(a), (b) or (c) shall be available to any party who shall fail to give notice as provided in this Section 8(d) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a), (b) or (c). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the reasonable and documented fees and out of pocket disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the reasonable and documented fees and out of pocket expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) or (b) and by the Company and the Selling Stockholders in the case of parties indemnified pursuant to Section 8(c). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim,
31 action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding.
(e) To the extent the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the BGC Parties and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the BGC Parties and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the BGC Parties and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The BGC Parties, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (iii) no Selling Stockholder shall be required to contribute any amount in excess of the proceeds received by such Selling Stockholder from the Underwriters in the offering. The Underwriters’ obligations in this Section 8(e) to contribute are several in proportion to their respective underwriting obligations and not joint.
32 (f) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join it as an additional defendant in any such proceeding in which such other contributing party is a party. BGC Global hereby consents to the jurisdiction of the courts of the State of New York and personal service with respect thereto. BGC Global agrees that a final judgment in any action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon it and may be enforced in any other courts to the jurisdiction of which BGC Global is or may be subject, by suit upon such judgment. BGC Global hereby appoints, without power of revocation, BGC Partners, L.P., as its agent to accept and acknowledge on its behalf service of any and all process which may be served in any action, proceeding or counterclaim in any way relating to or arising out of this Agreement.
(g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the BGC Parties set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter, its directors or officers or any person controlling any Underwriter, the BGC Parties and the BGC Parties’ respective directors or officers or any person controlling any of the BGC Parties, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, its directors or officers or any person controlling any Underwriter, or to the any of the BGC Parties, the BGC Parties respective directors or officers, or any person controlling any of the BGC Parties, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters. (a) If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or a Selling Stockholder), you, as Representatives of the Underwriters, shall use your reasonable best efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Stockholders such amounts as may be agreed upon and upon the terms set forth herein, the Shares which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such
33 Representatives, shall not have procured such other Underwriters, or any others, to purchase the Shares agreed to be purchased by the defaulting Underwriter or Underwriters, then, the Company and the Selling Stockholders shall be entitled to a further period of 36 hours within which to procure another party or other parties satisfactory to you to purchase such shares on such terms.
(b) If, after giving effect to any arrangement for the purchase of the Shares of a defaulting Underwriter or Underwriters by the Representatives and the Company and the Selling Stockholders as provided in subsection (a) above, (i) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Shares to be purchased on the Closing Date or the Option Closing Date, as the case may be, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Shares which they are obligated to purchase hereunder, to purchase the Shares which such defaulting Underwriter or Underwriters failed to purchase, or (ii) if the aggregate number of Shares with respect to which such default shall occur exceeds 10% of the Shares to be purchased on the Closing Date or the Option Closing Date, as the case may be, the Company and the Selling Stockholders or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or of the Selling Stockholders except to the extent provided in Sections 5 and 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement, the General Disclosure Package or in the Prospectus or in any other documents or arrangements may be effected. The term “Underwriter” includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
10. Notices. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities Inc., 60 Wall Street, 4 th Floor, New York, New York 10005; Attention: Syndicate Manager and to Cantor Fitzgerald & Co., 110 East 59 th Street, New York, New York 10022, Attention: Stephen M. Merkel, with a copy to Deutsche Bank Securities Inc., 60 Wall Street, New York, New York 10005, Attention: General Counsel and with a copy to Cantor Fitzgerald, L.P., 110 East 59 th Street, New York, New York 10022, Attention: General Counsel; if to the BGC Parties, to BGC Partners, Inc., 499 Park Avenue, New York, New York 10022 Attention: General Counsel, with a copy to Wachtell Lipton Rosen & Katz, 51 West 52 nd Street, New York, New York, 10019, Attention: Craig D. Wasserman and Gavin D. Solotar; and if to Cantor as a Selling Stockholder, to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178, Attention: Christopher T. Jensen and George G. Yearsich, and if to any other Selling Stockholder, to the Attorneys-in-Fact at BGC Partners, Inc., 499 Park Avenue, New York, New York 10022, Attention: Stephen M. Merkel and Howard W. Lutnick.
34 11. Termination. This Agreement may be terminated by you by notice to the Sellers (a) at any time prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to Option Shares) if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis (including, without limitation, an act of terrorism) or material change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, materially impair the investment quality of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Global Market or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on any such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company or its Subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by United States or New York State authorities, (vi) the suspension of trading of the Company’s Class A Common Stock by the Nasdaq Global Market, the Commission, or any other governmental authority, or (vii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (b) as provided in Sections 6 and 9 of this Agreement.
12. Successors. This Agreement has been and is made solely for the benefit of the Underwriters, the BGC Parties and the Selling Stockholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters. Each of the BGC Parties, the Selling Stockholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus consists of the information set forth in the third, ninth, and tenth through sixteenth paragraphs under the caption “Underwriting” in the Prospectus.
35 14. Miscellaneous. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the BGC Parties or their respective directors or officers or any Selling Stockholder or controlling person thereof, as the case may be, and (c) delivery of and payment for the Shares under this Agreement.
The Company and the Selling Stockholders acknowledge and agree that each Underwriter in providing investment banking services to the Company and the Selling Stockholders in connection with the offering, including in acting pursuant to the terms of this Agreement, has acted and is acting as an independent contractor and not as a fiduciary and the Company and the Selling Stockholders do not intend such Underwriter to act in any capacity other than as an independent contractor, including as a fiduciary or in any other position of higher trust.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, including, without limitation, Section 5-1401 of the New York General Obligations Law.
The Underwriters, on the one hand, and each of the BGC Parties and the Selling Stockholders (on its own behalf and, to the extent permitted by law, on behalf of its stockholders), on the other hand, waive any right to trial by jury in any action, claim, suit or proceeding with respect to the your engagement as underwriter or your role in connection herewith.
If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among each of the BGC Parties, the Selling Stockholders and the several Underwriters in accordance with its terms.
36 Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action.
Very truly yours,
BGC PARTNERS, INC.
By: /s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Chairman and Co -Chief Executive Officer
CANTOR FITZGERALD, L.P.
By: CF GROUP MANAGEMENT, INC., its Managing General Partner
By: /s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Chairman and Chief Executive Officer
BGC PARTNERS, L.P.
By: BGC HOLDINGS, LLC, its Sole General Partner
By: /s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Co -Chief Executive Officer
BGC GLOBAL HOLDINGS, L.P.
By: BGC GLOBAL HOLDINGS GP LIMITED, its Sole General Partner
By: /s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Director
[Signature Page to Underwriting Agreement, by and among BGC Partners, Inc., BGC Partners, L.P., BGC Global Holdings, L.P., BGC Holdings, L.P. and certain selling stockholders and the representatives of the underwriters] BGC HOLDINGS, L.P.
By: BGC GP, LLC, its Sole General Partner
By: /s/ Howard W. Lutnick Name: Howard W. Lutnick Title: Co -Chief Executive Officer
[Signature Page to Underwriting Agreement, by and among BGC Partners, Inc., BGC Partners, L.P., BGC Global Holdings, L.P., BGC Holdings, L.P. and certain selling stockholders and the representatives of the underwriters] SELLING STOCKHOLDERS LISTED ON SCHEDULE II (OTHER THAN CANTOR FITZGERALD, L.P.)
By: /s/ Howard W. Lutnick Attorney -in -Fact
[Signature Page to Underwriting Agreement, by and among BGC Partners, Inc., BGC Partners, L.P., BGC Global Holdings, L.P., BGC Holdings, L.P. and certain selling stockholders and the representatives of the underwriters] The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written.
DEUTSCHE BANK SECURITIES INC.
As a Representative of the several Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By: Authorized Officer
By: Authorized Officer
CANTOR FITZGERALD & CO.
As a Representative of the several Underwriters listed on Schedule I
By: Cantor Fitzgerald & Co.
By: /s/ Howard W. Lutnick Authorized Officer
[Signature Page to Underwriting Agreement, by and among BGC Partners, Inc., BGC Partners, L.P., BGC Global Holdings, L.P., BGC Holdings, L.P. and certain selling stockholders and the representatives of the underwriters] SCHEDULE I
S CHEDULE OF U NDERWRITERS
Number of Firm Shares
Underwriter to be Purchased Deutsche Bank Securities Inc. 10,296,000 Cantor Fitzgerald & Co. 1 6,435,000 BMO Capital Markets Corp. 1,188,000 CastleOak Securities, L.P. 200,000 Keefe, Bruyette & Woods, Inc. 396,000 Wachovia Securities 1,485,000
Total 20,000,000
1 Notwithstanding anything to the contrary contained in this Agreement or in any other agreement, the parties agree that any Shares purchased by Cantor Fitzgerald & Co. pursuant to this Agreement shall be purchased exclusively from the Company, and that for no purposes shall Cantor Fitzgerald & Co. be deemed to have acquired an interest in any other Shares purchased pursuant to this Agreement. SCHEDULE II
S CHEDULE OF S ELLING S TOCKHOLDERS
Selling Stockholder Number of Firm Shares to be Sold CANTOR FITZGERALD, L.P. 3,926,178 VINCENT AGOGLIA 5,192 KARL ALBENSOEDER 4,387 XAVIER ALCAN 217,380 ANDREW ALDEEN 9,891 DEAN ALDERUCCI 16,194 JOSEPH ALLEGUE 5,454 SEBASTIAN ALOI 6,315 WILLIAM ALSFORD 3,239 ALEX ANASTASIOU 1,619 PETER ANGELI 27,661 THOMAS ANZALONE 9,979 PALIN ARCHER 4,534 ANTHONY ARGYROPOULOS 12,872 OZAN ARNAVUT 4,858 PATRICK ASSEMAN 14,699 BURAK ATALAY 13,375 EDDIE AU 3,252 JEAN -PIERRE AUBIN 63,092 AYAL AVNI 35,352 ADAM BAETU 914 KEITH BAILEY 3,211 CRAIG BANNISTER 6,316 PAUL BANTON 18,475 DOUGLAS BARNARD 18,624 PETER BARTKO 14,251 CHRISTOPHER BARTLETT 4,967 DANIEL BARTLETT 16,728 STEPHEN BARTLETT 20,083 LAWRENCE BAYFORD 14,714 BRIAN BEHRENS 2,025 YASSINE BELGHITI 7,072 MEIR BENAMRAM 1,911 RAYMOND BENNETT 16 PETER BENYIK 7,389 RENAND BERENGUIER 3,822 TODD BERLENT 5,182 RICARDO BERNABEI 2,435 HOLLY BIGMORE 9,375 SIMON BISSETT 5,481 JAMES BLACKSHAW 15,172 DAVID S. BLAKESLEE 5,588 IAN A BLAKESLEE 962 STEPHEN BLAKLEY 857 JONATHAN S. BLUM 5,769 JENNIFER BOCCIO 1,943 JASON BODNER 3,239 JAMES BOND 11,451 GIOVANNI BONOMO 14,998 MATTHEW BRADY 12,049 SHAWN BRAGDON 15,385 WILLIAM BREITSCHMID 1,620 STEVE BRENNER 6,228 CARTER BRERETON 9,615 SEBASTIAN BRITSCHU 3,238 ROBERT BROWN 10,515 DAVID BUIK 1,375 DEAN BURGER 14,662 WARREN BURGER 38,218 KEVIN BURMAN 2,524 JAMES BUSH 10,606 ANTHONY CABRERA 27,852 ANTHONY CACIOPPO 68,166 ROGER CAMPBELL 4,746 THOMAS CANTWELL 3,295 MICHAEL CAPRA 24,089 JOHN CAPUANO 6,478 BRIAN CARTER 5,385 VINCENT CATANZARO 456 STEVEN CAVALIERE 6,315 ANTHONY CENTRELLA 1,923 MAN HIN HENRY CHAN 3,239 PATRICK CHEAH 3,252 SIMON CHIPCHASE 3,238 KEVIN CHRISTIE 12,632 JOOSONG CHUA 5,995 CHUA LEONG CHUAN SIMON 3,238 PHILIP CHUNG 8,162 KEVIN CLARK 20,589 ROBIN CLARK 40,065 WILLIAM G. CLARK 3,077 WILLIAM T. CLARKE JR. 59,335 MATTHEW CLAUS 28,552 JAMES COFFEY 4,687 DARYL COLLYER 100 MICHAEL CONDELLI 4,980 JEROME CONTENSOU 8,098 DAVID COOPER 12,682 STUART COOPER 3,252 BRIAN CORMACK 3,239 SAMUEL CORNEY 3,238 DENNIS CORTES 7,415 GRAHAM COWDREY 3,752 BRYAN COYNE 129,555 CHRISTOPHER W CROSBY 2,885 TIMOTHY CROSS 36,355 MATTHEW CULLING 1,538 CRAIG D. CUMMINGS 37,135 CHRISTOPHER CURRAN 317 JOHN CZARNOWSKI 7,692 CHRISTOPHER DALTON 996 DRYW DANIELSON 11,658 JOHN D ’ANTONIO 6,803 DANIEL DAVIES 25,596 CHRISTOPHER DEARBORN 202 YVES DELEPAU 5,178 JAMES DEMARINIS 2,245 BURKE DEMPSEY 24,292 YEVETTE DEPINTO 42,515 JEROME DePRENEUF 3,822 CONRAD DE VELASCO 89 CHRISTOPHER DICKSON 17,611 JOHN DOCKER 5,268 WILLIAM DOCKERY 2,692 JOHN S. DODS 8,615 BRIAN DOHERTY 19,109 MATTHEW DONNELLY 8,097 MIKE DORBANDT 894 STEVEN MICHAEL DOWNHAM 5,972 STEVEN DRUMMOND 4,858 OLIVER DUFEK 8,113 LESLIE EDWARD DYER 36,342 JON ECKERT 103,286 BRIAN EDMONDS 9,615 NEIL EDWARDS 6,640 KARIM EL SALAKAWI 3,238 WILLIAM MERVYN EMUS 1,923 JERRY ENGLISH 5,047 LARRY FABIAN 10,628 MARK FAIRHURST 1,375 MARK FALZONE 20,257 SIMON FERGUSON 4,494 ADRIAN FERNLEY 4,158 MICHAEL FIELD 3,238 EPHRAIM BRIAN FINKELSTEIN 8,097 FRANCIS FIOLEK 6,725 GILBERT FISCHER 8,097 WENDALL P. FLODEEN 3,391 WILLIAM FLYNN 2,915 KEVIN FOLEY 67,368 CORA FONG 3,252 GREGORY FORDE 32,388 NEIL FORDHAM 29,764 JAMES FORMISANO 29,151 RANDY FOWLER 10,714 JEROME FRANK 30,385 PHILIP FREIFELD 2,915 JOSEPH GABOR 1,154 LAWRENCE GAGE 1,116 ROBERT GAME 3,238 JENNIFER GARDNER 72,790 TIMOTHY GARWOOD 13,462 JOHN GATENS 27,852 EDWARD GE 3,348 ANDREW GERALD 10,777 RON GETTO 8,131 CHRISTOPHER GIBSON 7,787 JAMES DARREN GILCHRIST 1,541 JANE GINSBURG 810 MICHAEL GIRARDI 10,567 CARSTEN GIRST 125,109 KATHLEEN T. GIUGGIO 18,968 ADAM GOERN 2,417 SCOTT GOLDEN 13,939 SEAN GOODRICH 19,231 COLM GORMLEY 10,606 BRAD GOWENLOCK 5,242 CHRISTINE GRANDSTAFF 3,462 JOHN F. GRECCO 962 FREDERICK GREGSON 3,238 KEVIN GRIFFIN 24,536 MICHAEL GUZMAN 543 LAWRENCE HAAG 6,461 ANDREW HADDON 100,692 FAHMI HAKURA 73,620 JOHN HALLIDAY 5,481 PAUL HALPIN 25,240 ESSYA HANACHI 9,983 MICHAEL HANDLER 49,798 THOMAS HARDMAN 7,692 YANKEL HASSAN 787 STEVE HATCH 3,750 TONY HERBERT 11,628 STUART HERSCH 15,769 ROBERT HILL 3,334 OLIVIER HOCHBERG 28,240 THOMAS HOGAN 1,620 MARK HOGBEN 8,097 GARY HOM 1,989 ROBERT HUBBELL 385 RONALD HUEBSCH 7,692 ROGER HUGHES 6,124 MICHAEL HULL 6,526 DAVID HURLEY 1,443 EDWARD IANNONE 5,465 JENNIFER JAMES 41,975 CERI JONES 3,211 RILEY JONES 1,154 SYLVAIN JORET 232 RICKY KAM 1,626 BERK KANGAL 13,375 KENT KAROSEN 6,531 DAVID HENRY KENDRICK 7,086 JOSEPH KENNY 18,268 JOHN KERSSE 3,662 EDWARD KESLO 29,151 KEVIN SC KIM 3,252 KEVIN KIRBY 3,077 ROBERT KITCHIN 24,692 DENIS KLOTZ 3,238 LEE KNIGHT 3,247 CHRISTOPHER KNOLL 2,105 CHARLES KNOTT 5,373 DAVID KNOTT 3,846 BEN KOSKAS 1,295 CAROLINE A KOSTER 2,704 DAVID KRAVETTE 7,763 RUMESH KUMARAN 3,978 RICHARD LABENSKI 6,478 JOHN LAIRD 7,320 GARY LAMBERT 8,578 RICK LAMBERT 5,769 MAX LANDGRAF 3,644 HELEN LANGAN 2,187 STEPHEN LARRABEE 4,656 EDWIN LAU 1,626 MELVIN LAU 3,238 EDWARD LAUX 21,736 STEVEN LAWDAY 2,685 WILLIAM LAWHORN 8,401 CHRISTOPHER LEE 18,066 KOOK HUN (CHRIS) LEE 6,477 SHERMAN LEE 3,348 TIMOTHY LEES 3,238 JOHN F LENNON 4,015 BART LEOHNER 769 STEVEN LEWIS 23,632 DOMINICA LI 6,802 ARTHUR LIEW 3,252 AARON LINDBLOM 870 HENRY LO 1,626 MARK LOCKEY 3,238 JEAN -BAPTISTE LOISEAU 3,522 GRACE LOK 1,626 ALICIA LONG 3,239 PETER LOSARDO 3,238 LORD LOVAT INC 192,308 JOSEPH (JAY) LUDOVICO 2,429 JEFFREY LUMBY 17,133 JASON LYONS 8,485 GARY MA 1,538 ANGUS MACKAY 1,619 STEFAN MAGNUSSON 4,048 KITTY MAK 3,872 PATRICK MALCOLM 962 MATTHEW MANCUSO 6,617 JOHN MANNING 7,355 ANTHONY MANZO 18,472 ANTHONY J MANZO 2,953 PHILLIP MARBER 317,527 MICHAEL MARESCA 4,428 HOWARD MARKS 3,822 KEVIN MARKS 1,923 FRANK MASSARO 6,803 JONATHAN MASTERS 9,078 STEVEN MATTEO 13,758 ADAM R MATTESSICH 6,729 CHRISTOPHER MATUCH 432 SUSAN MC BRIDE 10,617 DAVID MCCANN 6,592 COLUM A. McCORMACK 26,167 GERALD MCFADDEN 49,301 SEAN MCGEE 1,923 ROBERT MCKENNA 295 PATRICK MCNELIS 11,658 KEVIN MCNULTY 51,085 MATTHEW MCTAMANEY 16,194 BARRY P. MC TIERNAN 10,051 PAUL MCVEETY 51,823 WAYNE MEISEL 11,969 JOHN MELNYK 3,320 ERIC MEYER 3,237 GEORGE MICHELL 3,248 D’ARCY MIELL 32,640 WILLIAM M. MILLAR 31,831 PAUL MILORA 3,498 CHARLES MICHAEL MIZON 63,877 HYIM MOGILNER 17,651 FRANCIS MOK 1,626 FRANK MONTELEONE 1,680 ROBERT A. MOORE 5,965 SCOTT MOORE 10,248 ALEX MORGAN HUGHES 3,846 THOMAS MORRA 3,012 MARK MORRIS 5,612 PETER MORRIS 5,438 CRAIG MORSE 1,619 NADIM MOURAD 97,140 SUSAN MOYER 6,616 GREGG MULLEN 4,697 JASON MULLEM 12,349 JASON NESBITT 3,218 PARADE NG 1,626 JOSEPH C. NOVIELLO 26,923 ROBERT NUNZIATO 9,449 HEIDI OLSON 3,588 DEAN O ’NEIL 1,206 PECK GUAN DAVID ONG 1,732 MARK OSTROFF 4,986 PAUL O ’TOOLE 2,834 JORDAN OUIDA 122,597 TOBY PAGE 115,385 ARNOLD PALATNEK 2,429 DEAN PANULLO 8,045 WILLIAM PARRY -OKEDEN 5,466 STEVE PASH 3,238 BIJOY PAUL 16,194 DAVID PEARN 11,345 ROBERT L PELLATI 5,649 KEN PETERSEN 4,858 ALAN PETTIT 3,238 GERARD PHELAN 4,731 PAUL M. PION 13,462 JAMES PITTS 506 VICTOR PONZO 12,469 DENNIS POTTER 14,897 DARREN POULTER 18,750 RICHARD POWELL 3,257 ANDREW H. PRITCHARD 9,809 STEVE PRYOR 16,194 CHRIS PUMA 32,758 RYAN QUINN 4,858 JOERG RAABE 7,702 CHRISTIAN RAJAC 3,822 ARTHUR RASKIN 2,423 GARY LEONARD READ 19,231 CHARLOTTE REDPATH 3,335 KEITH REIHL 21,052 BRETT RICE 891 WILLIAM RICE 13,742 NEIL RILEY 3,238 GEORGE ROBERTS 85 PATRICE ROBIQUET 955 JASON ROGERS 7,954 PAUL ROGERS 14,142 PETER ROGERS 47,126 LAURENCE ROSE 25,075 DAVID A. ROSMARIN 2,617 NICK RUDDELL 32,388 R. JOHN RUDOLPH 18,976 MARK SADLER 2,914 CHRISTOPHER SAGE 3,238 ATSUHIKO SAIKI 755 ANDREW SALE 16,201 JAFFAR SALIM 1,348 DEAN SALMON 25,860 THOMAS SAPIO 22,339 LIONEL SAYAG 5,556 CRAIG SCHNEIDER 6,917 LINDA SCHOFF 2,584 ARNOLD SCHONBRUN 1,677 JACOB W SCHRADER 5,935 SEBASTIAN SCHUETT 211 THOMAS SCOTT 4,858 MICHAEL SECRETAN 25,506 PATRICK SEJEAN 422 PAUL SELBY 5,303 RUSSELL M. SELLEARS 14,865 JAMES SHAFFER 13,926 ANDREW SHAPIRO 5,288 ANDY SHARP 39,811 RICHARD SHARPE 3,211 ALLAN SHAW 21,425 ROBERT SHAW 3,498 MARK SHELTON 1,881 MICHAEL SHEN 4,835 MATTHEW SHIMAITIS 5,769 WON GEUN SHIN 3,109 SUSAN SIMON 4,858 JEAN FRANCOIS SIMZAC 15,537 BHAGWANT SINGH 5,065 JEREMY SINGER 8,097 SARAH SMART 15,478 EDWARD SMITH 3,551 ROBERT MARK SNELLING 1,154 CHRISTOPHER S. SORENSON 1,386 PHILIPPE SOSSAH 955 TIM SPARKES 17,771 MARK SPRING 17,328 CHARLES SQUIRE 13,629 LAURENT St AUBIN 3,822 KEVIN STEINHAUER 405 IAN STOKES 17,125 DANIEL SULLIVAN 3,353 ROBERT SUTTON 3,846 MICHAEL SWEETING 28,523 WARREN PAUL SWICK 7,831 JOHN C. TALANIAN 12,077 KENG SHENG TAN 1,613 BEN TASSELL 6,530 KEVIN TAYLOR 1,619 MICHAEL TERRY 4,858 GUILLAUME THIBAULT 1,911 RAYMOND THIBODEAU 3,239 NICK THOMPSON 35,800 ANGELO TOGLIA 7,774 DANIELE TONDO 13,982 CARL TOSNER 4,491 SALVATORE TRANI 19,438 DRU TRIBBLE 2,692 KEN TRICKER 4,777 KLK TRUST 1,538 ADAM TURNBALL 3,238 ROBERT TWOHIG 2,915 CARMINE URCIUOLI 8,098 PATRICK UZAN 1,574 HAIK VARTANY 54,022 ANDREW VEALE 2,762 STEPHEN VECCHIONE 46,640 THIERRY VERGEAU 10,251 PETER VERITAS 32,388 LEE VICTORY 23,566 JOSEPH VIETRI 9,838 PRASAD VISWAMBHARAN 3,238 VITO VITELLO 11,658 PETER VOLINO 2,125 FRANK B. WALCZAK 4,231 BAJANI WALID 61 RAYMOND WALTON 23,077 PETER JOHN WELLS 12,600 ANDREW WELS 7,662 ANTHONY NEIL WENHAM 1,470 STEVEN WHALE 11,157 OLIVER WHITE 22,023 BRAD WHITENER 2,429 STEVEN WINICK 9,068 PO MING WONG 1,538 REBECCA WONG 9,202 MARK S. WOODCOCK 15,286 DAVID WORK 29,998 HOWARD WRIGHT 24,915 MATTHEW WYANT 4,178 RICHARD YEABSLEY 38,462 RALPH ZAGRABBE 1,154 GRAND TOTAL 10,000,000 SCHEDULE III
PRICING INFORMATION
1. Public offering price: $8.00 SCHEDULE IV
I SSUER F REE W RITING P ROSPECTUSES
1. Free Writing Prospectus filed pursuant to Rule 433 with the Commission on June 5, 2008. SCHEDULE V
L OCK - UP L ETTER P ARTIES
Cantor Fitzgerald, L.P. CF Group Management, Inc. Howard W. Lutnick Lee M. Amaitis Shaun D. Lynn Stephen M. Merkel Robert K. West John H. Dalton Albert M. Weis Barry R. Sloane Catherine P. Koshland SCHEDULE VI
SCHEDULE OF WEBSITES www.lexnet.com cantordirect.com virtualspecialist.net tw.espeed.com storagemarkets.com statements.cantorclearing.com vmkts.com jobs.espeed.com videoipo.net jobs.cantor.com www.espeed.com teamwork.cantor.com www.cantor.com www.bgcpartners.com www.cantortelecom.com cantorfits.com cantordata.com kleos.biz new.espeed.com financefone.com www.creditadmin.espeed.com www.helixfs.com www.cantorusa.com www.castleoaklp.com www.tradespark.com www.bgcfx.com www.bgcantor.com yups.cantor.com http://cantorrelief.org continuity.espeed.com www.emissionstrading.com features.espeed.com equityderivatives.cantor.com www.aquaequities.com beta.tradespark.com demo.lexnet.com spectrumexchange.com cantorexchange.com towerexchange.com https://www.cantorclearing.com/cancsa/Cantor EXHIBIT A
FORM OF LOCK -UP AGREEMENT FOR OFFICERS, DIRECTORS AND STOCKHOLDERS
[Date]
BGC Partners, Inc. 499 Park Avenue New York, New York 10022 and Deutsche Bank Securities Inc. and Cantor Fitzgerald & Co.
As Representatives of the Several Underwriters c/o Deutsche Bank Securities Inc. 60 Wall Street, 4 th Floor New York, New York 10005 and c/o Cantor Fitzgerald & Co. 110 East 59 th Street New York, New York 10022
Ladies and Gentlemen: The undersigned understands that Deutsche Bank Securities Inc., and Cantor Fitzgerald & Co., as representatives (the “Representatives”) of the several underwriters (the “Underwriters”), proposes to enter into an Equity Underwriting Agreement (the “Underwriting Agreement”) with BGC Partners, Inc. (the “Company”), Cantor Fitzgerald, L.P., BGC Partners, L.P., BGC Global Holdings, L.P., BGC Holdings, L.P. and the Selling Stockholders set forth in Schedule II thereof providing for the public offering by the Underwriters, including the Representatives, of Class A common stock, par value $0.01 (the “Class A Common Stock”), of the Company (the “Public Offering”). References herein to Common Stock shall mean collectively, the Company’s Class A Common Stock and the Company’s Class B common stock, $0.01 par value.
A-1 To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned agrees that, without the prior written consent of the Representatives, the undersigned will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of any shares of Common Stock (including, without limitation, shares of Common Stock of the Company which may be deemed to be beneficially owned by the undersigned on the date hereof in accordance with the rules and regulations of the U.S. Securities and Exchange Commission, shares of Common Stock which may be issued upon exercise of a stock option or warrant and any other security convertible into or exchangeable for Common Stock) or enter into any Hedging Transaction (as defined below) relating to the Common Stock (each of the foregoing referred to as a “Disposition”) during the period specified in the following paragraph (the “Lock-Up Period”). The foregoing restriction is expressly intended to preclude the undersigned from engaging in any Hedging Transaction or other transaction which is designed to or reasonably expected to lead to or result in a Disposition during the Lock-Up Period even if the securities would be disposed of by someone other than the undersigned. “Hedging Transaction” means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock.
The initial Lock-Up Period will commence on the date hereof and continue until, and include, the date that is 90 days after the date of the effectiveness of the final Prospectus relating to the Public Offering (the “Initial Lock-Up Period”); provided , however , that if (1) during the last 17 days of the Initial Lock-Up Period, (A) the Company releases earnings results or (B) material news or a material event relating to the Company occurs, or (2) prior to the expiration of the Initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period following the last day of the Initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of material news or a material event relating to the Company, as the case may be, unless the Representatives waives, in writing, such extension.
Notwithstanding the foregoing, the undersigned may transfer (a) shares of Common Stock to the Underwriters pursuant to the Underwriting Agreement or, with respect to sales of shares of Common Stock directly to BGC Partners as described in the Prospectus (as defined in the Underwriting Agreement), shares of Common Stock to the Company, (b) shares of Common Stock acquired in open market transactions by the undersigned after the completion of the Public Offering, and (c) any or all of the shares of Common Stock or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivatives of Common Stock owned by the undersigned on the date of the Underwriting Agreement or Common Stock issuable upon exercise of options or warrants held by the undersigned on the date of the Underwriting Agreement if the transfer is (i) by gift or for other estate planning purposes, (ii) a charitable donation or gift, or (iii) distribution to partners, members or stockholders of the undersigned; provided , however , that in the case of a transfer pursuant to clause (c) (i) or (iii) above, other than in the case of Firm Shares or Options Shares (each as defined in the Underwriting Agreement) being sold pursuant to the
A-2 Underwriting Agreement, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the securities subject to the provisions of this Lock-Up Agreement.
In addition, the undersigned hereby waives any and all notice requirements and rights with respect to registration of securities pursuant to any agreement, understanding or otherwise setting forth the terms of any security of the Company held by the undersigned, including any registration rights agreement to which the undersigned and the Company may be party; provided that such waiver shall apply only to the proposed Public Offering, and any other action taken by the Company in connection with the proposed Public Offering.
The undersigned hereby agrees that, to the extent that the terms of this Lock-Up Agreement conflict with or are in any way inconsistent with any registration rights agreement to which the undersigned and the Company may be a party, this Lock-Up Agreement supersedes such registration rights agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.
Notwithstanding anything herein to the contrary, if the closing of the Public Offering has not occurred prior to June 30, 2008 or if the Underwriting Agreement shall be terminated, this agreement shall be of no further force or effect.
Signature:
Print Name:
Number of shares owned Certificate numbers: subject to warrants, options or convertible securities:
A-3 EXHIBIT B
FORM OF OPINION OF STEPHEN M. MERKEL
[BGC Partners Letterhead]
[•], 2008
Deutsche Bank Securities Inc. and Cantor Fitzgerald & Co.
As representatives of the several Underwriters c/o Deutsche Bank Securities Inc. 64 Wall Street, 4th Floor New York, NY 10005 and c/o Cantor Fitzgerald & Co. 110 East 59th Street New York, New York 10022
Ladies and Gentlemen: I am the Executive Vice President, General Counsel and Secretary of BGC Partners, Inc., a Delaware corporation (formerly named eSpeed, Inc.) (the “ Company ”), and as such have acted as counsel to the Company and the other BGC Parties (as defined below) in connection with the registration under the Securities Act of 1933, as amended (the “ 1933 Act ”), and the public offering of, in accordance with the Equity Underwriting Agreement (the “Underwriting Agreement”), dated as of June 5, 2008, by and among the Company, BGC Partners, L.P., a Delaware limited partnership (“ BGC U.S. ”), BGC Global Holdings, L.P., a Cayman Islands company (“ BCC Global ”), BGC Holdings, L.P., a Delaware limited partnership (“ BGC Holdings ”), Cantor Fitzgerald, L.P., a Delaware limited partnership (“ Cantor ”), certain stockholders of the Company party thereto (the “ Selling Stockholders ”), and Deutsche Bank Securities, Inc. and Cantor Fitzgerald & Co., as representatives of the several Underwriters named therein (the “ Underwriters ”), an aggregate of 10,000,000 shares of Class A common stock, par value $0.01 per share (“ Common Stock ”), of the Company, by the Company (the “ Primary Shares ”) and an aggregate of 10,000,000 shares of Common Stock by the Selling Stockholders (the “ Secondary Shares ”). The Company, Cantor, BGC U.S. and BGC Holdings are collectively referred to herein as the “ BGC Parties ”. This opinion is rendered to you pursuant to Section 6(b) of the Underwriting Agreement. All terms not otherwise defined herein shall have the meanings ascribed to them in the Underwriting Agreement.
B-1 In connection with rendering this opinion letter, I, or attorneys working under my direction, have examined originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records, agreements, certificates of public officials and other instruments as I have deemed necessary or appropriate for the purposes of this opinion, including, among others, the following: (a) the Registration Statement on Form S-1 (Registration No. 333-150308), as filed with the Securities and Exchange Commission, as amended through the date hereof (the “ Registration Statement ”), (b) the preliminary prospectus dated May 27, 2008, relating to the offering of the Shares, (c) the pricing information included in Schedule III of the Underwriting Agreement, (d) the free writing prospectus dated June 5, 2008, filed pursuant to Rule 433 under the 1933 Act, (e) the prospectus dated June 5, 2008 (the “ Prospectus ”), relating to the offering of the Shares, in the form filed with the Commission pursuant to Rule 424(b) under the 1933 Act, (f) the Underwriting Agreement, (g) the Amended and Restated Certificate of Incorporation of the Company, (h) the Amended and Restated Bylaws of the Company, as amended through the date hereof, (i) a specimen certificate evidencing the Shares as executed by the Company, (j) the resolutions adopted by the Board of Directors of the Company on April 11, 2008, (k) the resolutions adopted by the General Partners of each of BGC U.S., BGC Holdings and Cantor on June 5, 2008, relating to the Underwriting Agreement, (l) the Certificate of Limited Partnership of BGC Holdings and the Certificates of Amendment thereto, (m) the Amended and Restated Limited Partnership Agreement of BGC Holdings, dated as of March 31, 2008, (n) the Certificate of Limited Partnership of BGC U.S. and the Certificates of Amendment thereto, (o) the Amended and Restated Limited Partnership Agreement of BGC U.S., dated as of March 31, 2008, (p) the Certificate of Limited Partnership of BGC Global and the Certificates of Amendment thereto, (q) the Amended and Restated Limited Partnership Agreement of BGC Global, dated as of March 31, 2008, (r) the Certificate of Limited Partnership of Cantor and the Certificates of Amendment thereto, (s) the Amended and Restated Limited Partnership Agreement of Cantor, dated as of May 12, 2008, and (t) Opinion of Stuarts Walker Hersant, dated [•]. I have also examined the certificates and other documents delivered at the Closing and such other corporate records, certificates and other documents as I have deemed necessary or appropriate.
I have relied, to the extent I deem appropriate, on oral advice of the Staff of the U.S. Securities and Exchange Commission and, as to matters of fact, on certificates of responsible officers of the Company, and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the BGC Parties and the Subsidiaries. I have not independently verified such information and assumptions.
I express no opinion herein other than as to (i) the federal securities laws of the United States of America, (ii) the internal laws of the State of New York (excluding any political subdivision), (iii) to the extent expressly stated herein, the General Corporation Law of the State of Delaware (the “DGCL”) and (iv) to the extent relevant to the opinions set forth in (vi), (vii), (viii) and (ix) below, such Federal, state and foreign laws applicable to the Company and its Subsidiaries.
B-2 Based on and subject to the foregoing, I am of the opinion that: (ii) Nothing has come to my attention which leads me to believe that (A) the Registration Statement, at the time it became effective under the 1933 Act (including the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 430A under the 1933 Act) and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) the General Disclosure Package, as of the Applicable Time, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) the Prospectus, or any supplement thereto, as of its date and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (other than the financial statements and related schedules and notes or other financial data (including any pro forma data) included therein, as to which I do not express an opinion).
(iii) Each of the Subsidiaries has been duly organized and is validly existing as a corporation, limited liability company or limited partnership or other applicable entity in good standing under the laws of the jurisdiction of its organization, including, to the extent applicable, under the DGCL, with power and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus, including, to the extent applicable, under the DGCL; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or except where the failure to be so qualified would not have a Material Adverse Effect; the outstanding shares of capital stock, partnership interests, member interests or other equity interests of each of the Subsidiaries have been duly authorized and validly issued and, to the extent applicable, are fully paid and non-assessable and, except as described in the Registration Statement, the General Disclosure Package and the Prospectus, are owned by the Company or a Subsidiary, including, to the extent applicable, under the DGCL; and the outstanding shares of capital stock of each of the Subsidiaries are owned free and clear of all liens, encumbrances and equities and claims, and other than as described in the Registration Statement, the General Disclosure Package and the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding, including, to the extent applicable, under the DGCL (in rendering the opinion in this clause, I have relied upon, and believe I am justified in relying upon, opinions of local counsel and in respect of matters of fact, upon certificates of officers of the Company);
(iv) The Company has the authorized and outstanding capital stock as set forth under the caption “Capitalization” in the Registration Statement and the Prospectus (and any similar section or information, if any, contained in the General Disclosure Package), including, to the extent applicable, under the DGCL; the authorized shares of the Company’s Common Stock have been duly authorized, including, to the extent applicable, under the DGCL; the outstanding
B-3 shares of the Company’s Common Stock, including the Shares to be sold by the Selling Stockholders, have been duly authorized and validly issued and are fully paid and non-assessable, including, to the extent applicable, under the DGCL; all of the Shares conform in all material respects to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus, including, to the extent applicable, under the DGCL; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form, including, to the extent applicable, under the DGCL; and except as described in the Registration Statement, the General Disclosure Package and the Prospectus, no preemptive rights of stockholders exist with respect to any of the Shares or the issue or sale thereof, including, to the extent applicable, under the DGCL.
(v) Except as described in or contemplated by the Registration Statement, the General Disclosure Package and the Prospectus, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock, including, to the extent applicable, as applicable, under the DGCL; and except as described in the Registration Statement, the General Disclosure Package and the Prospectus, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the 1933 Act of any shares of Common Stock or other securities of the Company, including, to the extent applicable, under the DGCL.
(vi) There is no action, suit, claim or proceeding pending or, to my knowledge, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise, except as would not have a Material Adverse Effect or except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus.
(vii) The statements contained in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the headings “Business—Regulation” and “Business—Capital Requirements” insofar as they constitute a summary of the legal matters, agreements, documents or proceedings discussed therein, accurately and fairly summarize such legal matters, agreements, documents or proceedings in all material respects, including, to the extent applicable, under the DGCL.
(viii) Each of Aqua Securities, L.P., BGC Financial, L.P., eSpeed Brokerage, L.P. and BGC Securities is registered as a broker-dealer under the Exchange Act and in each Federal, state or foreign jurisdiction where such registration is required and a member in good standing of FINRA and each exchange, board of trade, clearing house or association and self-regulatory or similar organization in which such membership is necessary for the conduct of its business as currently conducted;
B-4 (ix) To my knowledge, the Company and each of the Subsidiaries hold all material licenses, certificates and permits from Federal, state and foreign governmental and regulatory authorities, including, to the extent applicable, under the DGCL, which are necessary to the conduct of their businesses as described in the Prospectus, except as would not have a Material Adverse Effect;
(x) The execution and delivery of the Underwriting Agreement and the consummation of the transactions contemplated herein (including without limitation, the sale of the Shares) do not and will not (A) conflict with, violate or result in a breach of, or default under, any agreement, lease, contract, indenture or other instrument or obligation to which the Company, any of the Subsidiaries is a party or by which the Company, any of the Subsidiaries may be bound, except as could not reasonably have a Material Adverse Effect or (B) conflict with any law, order, rule or regulation judgment, order, writ or decree applicable to the Company, any of the Subsidiaries of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction over any of the foregoing, including, to the extent applicable, under the DGCL, except as could not reasonably be expected to have a Material Adverse Effect. The execution and delivery of the Underwriting Agreement and the consummation by Cantor of the transactions contemplated by the Underwriting Agreement and the fulfillment by Cantor of the terms required by the Underwriting Agreement will not violate or conflict with or result in a breach of (x) the partnership agreement of Cantor, or (y) any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which Cantor is a party, or (z) any order, rule or regulation applicable to Cantor of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction, including, to the extent applicable, under the DGCL, except in the case of clauses (y) and (z) for any such violation, conflict or breach that would not have a material adverse effect on the ability of Cantor to perform its obligations under the Underwriting Agreement, the Custody Agreement and the Power of Attorney, as applicable, or to consummate the transactions contemplated hereby and thereby.
(xi) Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and the Subsidiaries each own or possess the right to use all Intellectual Property necessary to carry on the business of the Company and the Subsidiaries taken as a whole in all material respects. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, none of the Predecessor Parties, the Company nor any of the Subsidiaries has infringed, misappropriated or otherwise violated and none of the Predecessor Parties, the Company or the Subsidiaries have received notice of conflict with, any Intellectual Property of any other person or entity, except where such infringement or conflict has not had, or would not reasonably be expected to have, a Material Adverse Effect. The Company has taken all commercially reasonable steps necessary to secure from its contractors appropriate ownership or license rights in all Intellectual Property necessary to carry on the business of the
B-5 Company and the Subsidiaries taken as a whole. There are no outstanding options, licenses or agreements of any kind relating to the Intellectual Property of the Company or the Subsidiaries that are required to be described in the Registration Statement, the General Disclosure Package and the Prospectus and are not described in all material respects. Neither the Company nor the Subsidiaries is a party to or bound by any options, licenses or agreements with respect to the Intellectual Property of any other person or entity that are required to be set forth in the Prospectus and are not described in all material respects. To my knowledge, none of the technology employed by the Company or the Subsidiaries has been obtained or is being used by the Company or the Subsidiaries in violation of any contractual obligation binding on the Company or any of its officers, directors or employees. To my knowledge, the technology employed by the Company and its Subsidiaries functions in all material respects in accordance with the documentation provided to the Company’s and its Subsidiaries’ customers. The Predecessor Parties, the Company or its Subsidiaries have not received any written or oral communications alleging that the Predecessor Parties, the Company or its Subsidiaries have violated, infringed or misappropriated, or, by conducting its business as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, would violate, infringe or misappropriate, any of the Intellectual Property of any other person or entity, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and except as has not, or would not reasonably be expected to have, a Material Adverse Effect. I know of no infringement by others of Intellectual Property owned by or licensed to the Company or its Subsidiaries, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and except as has not, or would not reasonably be expected to have, a Material Adverse Effect (in rendering the opinion in this clause, I have relied upon, and believe I am justified in relying upon, opinions of local counsel (not including jurisdictions for which I am opining) and in respect of matters of fact, upon certificates of officers of the Company).
In addition, all of the opinions expressed herein are subject to the following assumptions, limitations and qualifications: I have assumed with your consent that (1) each signatory to the Underwriting Agreement (other than the BGC Parties) is duly organized, validly existing and in good standing under the jurisdiction of its organization and has all the necessary power and authority under applicable federal, state and foreign law to enter into such agreement and perform its respective obligations thereunder and (2) the Underwriting Agreement has been duly authorized, executed and delivered by each signatory thereto (other than the BGC Parties) and represents the valid and binding obligation of each signatory thereto (other than the BGC Parties), enforceable against such other party in accordance with its terms.
This opinion is furnished by me to you the Underwriters, and is solely for your benefit, and is not to be otherwise used, circulated or relied upon without my express written consent. This opinion is rendered only to you and is solely for your benefit in connection with the Registration Statement. This opinion may not be relied upon by you for any other purpose, or relied upon by, nor a copy of this opinion provided to, any other person, entity, firm or corporation for any purpose without my prior written consent (other than your successor in interest by means of merger, consolidation, transfer of a business or other similar transaction).
B-6 The opinions contained herein are limited to the matters expressly stated herein and are given as of the date hereof only, and no opinion may be inferred or may be implied beyond the matters expressly stated herein and you acknowledge that I have no obligation to, and will not, update any such opinion provided herein.
Very truly yours,
B-7 EXHIBIT C
FORM OF OPINION OF WACHTELL, LIPTON, ROSEN & KATZ
[WLRK Letterhead]
[ — ], 2008
Deutsche Bank Securities Inc. and Cantor Fitzgerald & Co.
As representatives of the several Underwriters c/o Deutsche Bank Securities Inc. 64 Wall Street, 4th Floor New York, NY 10005 and c/o Cantor Fitzgerald & Co. 110 East 59th Street New York, New York 10022
Ladies and Gentlemen: We have acted as special counsel to BGC Partners, Inc., a Delaware corporation (formerly named eSpeed, Inc.) (the “ Company ”) and the other BGC Parties (as defined below), in connection with the registration under the Securities Act of 1933, as amended (the “ 1933 Act ”), and the public offering of, in accordance with the Equity Underwriting Agreement (the “ Underwriting Agreement ”), dated as of June 5, 2008, by and among the Company, BGC Partners, L.P., a Delaware limited partnership (“ BGC U.S. ”), BGC Global Holdings, L.P., a Cayman Islands company (“ BCC Global ”), BGC Holdings, L.P., a Delaware limited partnership (“ BGC Holdings ”), Cantor Fitzgerald, L.P., a Delaware limited partnership (“ Cantor ”), certain stockholders of the Company party thereto (the “ Selling Stockholders ”), and Deutsche Bank Securities, Inc. and Cantor Fitzgerald & Co., as representatives of the several Underwriters named therein (the “ Underwriters ”), an aggregate of 10,000,000 shares of Class A common stock, par value $0.01 per share (“ Common Stock ”), of the Company, by the Company (the “ Primary Shares ”) and an aggregate of 10,000,000 shares of Common Stock by the Selling Stockholders (the “ Secondary Shares ”). The Company, Cantor, BGC U.S. and BGC Holdings are collectively referred to herein as the “ BGC Parties ”. This opinion is rendered to you pursuant to Section 6(c) of the Underwriting Agreement. All terms not otherwise defined herein shall have the meanings ascribed to them in the Underwriting Agreement.
C-1 In connection with rendering this opinion letter, we have examined originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records, agreements, certificates of public officials and other instruments as we have deemed necessary or appropriate for the purposes of this opinion, including, among others, the following: (a) the Registration Statement on Form S-1 (Registration No. 333-150308), as filed with the Securities and Exchange Commission, as amended through the date hereof (the “ Registration Statement ”), (b) the preliminary prospectus dated May 27, 2008, relating to the offering of the Shares, (c) the pricing information included in Schedule III of the Underwriting Agreement, (d) the free writing prospectus dated June 5, 2008, filed pursuant to Rule 433 under the 1933 Act, (e) the prospectus dated June 5, 2008 (the “ Prospectus ”), relating to the offering of the Shares, in the form filed with the Commission pursuant to Rule 424(b) under the 1933 Act, (f) the Underwriting Agreement, (g) the Amended and Restated Certificate of Incorporation of the Company (the “ Certificate of Incorporation ”), (h) the Amended and Restated Bylaws of the Company, as amended through the date hereof (the “ Bylaws ”), (i) a specimen certificate evidencing the Shares as executed by the Company, (j) the resolutions adopted by the Board of Directors of the Company on April 11, 2008, relating to the issuance of the Shares, (k) the resolutions adopted by the General Partners of each of BGC U.S., BGC Holdings and Cantor on June 5, 2008, relating to the Underwriting Agreement, (l) the Certificate of Limited Partnership of BGC Holdings and the Certificates of Amendment thereto (collectively, the “ BGC Holdings Certificate ”), (m) the Amended and Restated Limited Partnership Agreement of BGC Holdings, dated as of March 31, 2008 (the “ BGC Holdings Limited Partnership Agreement ”), (o) the Certificate of Limited Partnership of BGC U.S. and the Certificates of Amendment thereto (collectively, the “ BGC U.S. Certificate ”), (p) the Amended and Restated Limited Partnership Agreement of BGC U.S., dated as of March 31, 2008 (the “ BGC U.S. Limited Partnership Agreement ”), (q) the Certificate of Limited Partnership of BGC Global and the Certificates of Amendment thereto, (r) the Amended and Restated Limited Partnership Agreement of BGC Global, dated as of March 31, 2008, (s) the Certificate of Limited Partnership of Cantor and the Certificates of Amendment thereto (collectively, the “ Cantor Certificate ”), and (t) the Amended and Restated Limited Partnership Agreement of Cantor, dated as of May 12, 2008 (the “ Cantor Limited Partnership Agreement ”). We have also examined the certificates and other documents delivered at the Closing and such other corporate records, certificates and other documents as we have deemed necessary or appropriate.
We have relied, to the extent we deem appropriate, on oral advice of the Staff of the U.S. Securities and Exchange Commission and, as to matters of fact, on certificates of responsible officers of the Company, and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the BGC Parties and upon the representations and warranties of the BGC Parties contained in the Underwriting Agreement, except with respect to matters upon which we express an opinion herein. We have not independently verified such information and assumptions.
C-2 Members of our firm are admitted to the Bar in the State of New York, and the opinions expressed in this letter are limited to the effects of (i) the federal securities laws of the United States of America, (ii) the internal laws of the State of New York (excluding any political subdivision), (iii) to the extent expressly stated herein, the General Corporation Law of the State of Delaware (the “ DGCL ”), and (iv) to the extent relevant to the opinion set forth in (v) below with respect to the statements set forth in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the caption “Certain U.S. Federal Tax Considerations For Non-U.S. Holders of Class A Common Stock”, the United States federal income tax laws. The laws referred to in subsections (i), (ii) and (iii) of the preceding sentence shall be referred to herein as the “ Applicable Laws ”.
Based on and subject to the foregoing, we are of the opinion that:
(i) The Registration Statement has become effective under the 1933 Act and, to our knowledge, no stop order proceedings with respect thereto and to our knowledge, no proceeding for that purpose or pursuant to Section 8A of the 1933 Act have been instituted or are pending or threatened under the 1933 Act.
(ii) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations thereunder (other than the financial statements and related schedules and notes or other financial data (including any pro forma data), as to which we do not express an opinion).
(iii) The statements contained in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the headings “Structure of BGC Partners” and “Certain Relationships and Related Transactions” insofar as they constitute a summary of the legal matters (including, to the extent applicable, under the DGCL), agreements, documents or proceedings discussed therein, accurately and fairly summarize such legal matters, agreements, documents or proceedings in all material respects.
(iv) The statements contained in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the heading “Description of Capital Stock” insofar as they purport to constitute a summary of the terms of the Shares or legal matters, agreements, documents or proceedings materially summarize the terms of the Shares and such legal matters, agreements, documents or proceedings in all material respects, including, to the extent applicable, under the DGCL.
(v) The discussion set forth in the Registration Statement and the Prospectus (and any similar section or information contained in the General Disclosure Package) under the heading “Certain U.S. Federal Tax Considerations For Non-U.S. Holders of Class A Common Stock”, although it does not purport to discuss all possible U.S. federal income tax considerations of the ownership and disposition of the Class A Common Stock applicable to non-U.S. holders, constitutes, in all material respects, a fair and accurate summary of the U.S. federal income tax considerations described therein subject to the limitations and qualifications set forth therein.
C-3 (vi) We do not know of any contracts or documents required by the 1933 Act and the Rules and Regulations to be filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus which are not so filed or described as required by the 1933 Act and the Rules and Regulations, and such contracts and documents as are summarized in the Registration Statement, the General Disclosure Package or the Prospectus are accurately and fairly summarized in all material respects.
(vii) The Company has been duly organized and is validly existing in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus.
(viii) Each of BGC U.S., BGC Holdings and Cantor has been duly organized under the laws of the State of Delaware and is in good standing, with power and authority to own or lease its properties and conduct its business as described in the Prospectus.
(ix) Each of the Company, BGC U.S., BGC Holdings and Cantor has the power and authority to execute and deliver the Underwriting Agreement, including, to the extent applicable, pursuant to the DGCL, and to consummate the transactions contemplated thereby.
(x) The Primary Shares have been duly authorized by the Company pursuant to the DGCL and, when delivered to and paid for by the Underwriters in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable under the DGCL and free and clear of any preemptive rights or any similar rights arising under the DGCL, the Company’s Certificate of Incorporation or the Company’s Bylaws.
(xi) The Underwriting Agreement has been duly authorized, executed and delivered, including, to the extent applicable, pursuant to the DGCL, by each of the Company, BGC U.S., BGC Holdings and Cantor.
(xii) The Underwriting Agreement has been duly executed and delivered by BGC Global, solely to the extent such execution and delivery are governed by the laws of the State of New York.
(xiii) The execution and delivery of this Agreement and the consummation of the transactions contemplated herein do not and will not (A) conflict with or violate any of the terms or provisions of the Certificate of Incorporation, the Bylaws, the BGC Holdings Certificate, the BGC Holdings Limited Partnership Agreement, the BGC U.S. Certificate, the BGC U.S. Limited Partnership Agreement, the Cantor Certificate or the Cantor Limited Partnership Agreement, or (B) violate or conflict with, or result in any contravention law, order, rule or regulation judgment, order, writ or decree applicable to the Company, any of the Subsidiaries or Cantor of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction (including, to the extent applicable, the DGCL), which
C-4 conflict would have a Material Adverse Effect (except that we express no opinion as to federal or state security or the Financial Industry Regulatory Authority (the “FINRA”) or any similar non-United States securities regulatory authority which has jurisdiction over the Company in connection with the offering of the Shares as contemplated by the Registration Statement or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws or similar laws or regulations in the non- United States jurisdictions in which it is intended to offer the Shares for sale with respect to this subparagraph).
(xiv) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body (including, to the extent applicable, the DGCL) is necessary in connection with the execution and delivery of the Underwriting Agreement and the consummation of the transactions therein contemplated (except such additional steps as may be required by the FINRA or any similar non-United States securities regulatory authority which has jurisdiction over the Company in connection with the offering of the Shares as contemplated by the Registration Statement or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws or similar laws or regulations in the non-United States jurisdictions in which it is intended to offer the Shares for sale as to which we do not express an opinion) except such as have been obtained or made, specifying the same.
We have participated with officers and representatives of the BGC Parties, representatives of the independent accountants of the Company and you and your representatives in conferences and discussions in connection with the preparation of the Registration Statement, the General Disclosure Package and the Prospectus and amendments or supplements thereto, but have not independently verified the accuracy, completeness or fairness of the statements contained therein and the limitations inherent in our examination and the knowledge made available to us are such that we are unable to assume, and do not assume, any responsibility for such accuracy, completeness or fairness (except as otherwise specifically stated in paragraphs (iii), (iv), (v) and (vi) of this opinion).
Although we have not verified, are not passing upon, and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement, the Prospectus and the General Disclosure Package, except for those referred to in paragraphs (iii), (iv), (v) and (vi) of this opinion, nothing has come to our attention which lead us to believe that (A) the Registration Statement, at the time it became effective under the 1933 Act (including the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 430A under the 1933 Act) and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) the General Disclosure Package, as of the Applicable Time (other than the financial statements and related schedules and notes or other financial data (including any pro forma data) included therein, as to which we do not express an opinion), contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) the Prospectus, as of its date
C-5 and as of the date hereof (other than the financial statements and related schedules and notes or other financial data (including any pro forma data) included therein, as to which we do not express an opinion), contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
In addition, all of the opinions expressed herein are subject to the following assumptions, limitations and qualifications:
(a) We have assumed with your consent that (1) each signatory to the Underwriting Agreement (other than the Company, BGC U.S., BGC Holdings and Cantor) is duly organized, validly existing and in good standing under the jurisdiction of its organization and has all the necessary power and authority under applicable federal, state and foreign law to enter into such agreement and perform its respective obligations thereunder, (2) the Underwriting Agreement has been duly authorized, executed and delivered by each signatory thereto (other than the Company, BGC U.S., BGC Holdings and Cantor) and represents the valid and binding obligation of each signatory thereto (other than the Company, BGC U.S., BGC Holdings and Cantor), enforceable against such other party in accordance with its terms and (3) all of the representations and warranties contained in the Underwriting Agreement, with respect to factual (but not legal) matters, are accurate, true and correct; and
(b) Our opinion set forth in paragraph (xiv) above is based upon our consideration of only those federal statutes, rules and regulations which, in our experience, are normally applicable to securities underwriting transactions.
This opinion is furnished by us as special counsel for the Company to you the Underwriters, and is solely for your benefit, and is not to be otherwise used, circulated or relied upon without our express written consent. This opinion is rendered only to you and is solely for your benefit in connection with the Registration Statement. This opinion may not be relied upon by you for any other purpose, or relied upon by, nor a copy of this opinion provided to, any other person, entity, firm or corporation for any purpose without our prior written consent (other than your successor in interest by means of merger, consolidation, transfer of a business or other similar transaction). The opinions contained herein are limited to the matters expressly stated herein and are given as of the date hereof only, and no opinion may be inferred or may be implied beyond the matters expressly stated herein and you acknowledge that we have no obligation to, and will not, update any such opinion provided herein.
* * * *
Any U.S. federal income tax statements contained herein are not confidential, and nothing herein shall limit the disclosure of the U.S. federal income tax treatment, tax structure or any tax strategy in connection with the registration under the 1933 Act, and the public offering of, in accordance with the Underwriting Agreement, an aggregate of 10,000,000 Primary Shares and an aggregate of 10,000,000 Secondary Shares.
C-6 Any tax advice contained in this opinion (1) was not intended or written to be used, and cannot be used, for the purposes of avoiding penalties and (2) was written to support the promotion or marketing of a transaction. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
* * * *
Very truly yours,
C-7 EXHIBIT D
FORM OF OPINION OF STUARTS WALKER HERSANT
DRAFT OPINION LETTER
Deutsche Bank Securities Inc. And
Cantor Fitzgerald & Co. As Representatives of the Several Underwriters c/o Deutsche Bank Securities Inc. 60 Wall Street, 4th Floor New York, New York 10005 and c/o Cantor Fitzgerald & Co. 110 East 59th Street New York, New York 10022
[10] June 2008
Dear Sirs
Re: BGC Global Holdings, L.P. (the “Partnership ”) We have acted as counsel as to Cayman Islands law to the Partnership, a Cayman Islands exempted limited partnership, and to BGC Global Holdings GP Limited, the Partnership’s
D-1 general partner (the “ General Partner ”), a Cayman Islands exempted company, in connection with the entering into of an Equity Underwriting Agreement among the General Partner for and on behalf of the Partnership, BGC Partners, Inc., Cantor Fitzgerald, L.P., BGC Partners, L.P. BGC Holdings, L.P. and the Selling Stockholders listed on schedule II thereto and you, as representatives of the several underwriters named in Schedule I thereto (each an “ Underwriter ” and, collectively, the “ Underwriters ”) dated [4] June 2008 (the “ Underwriting Agreement ”).
Documents We have reviewed originals, copies, drafts or conformed copies of the following documents:
1. the certificate of incorporation and memorandum and articles of association of the General Partner;
2. the certificate of registration of the Partnership as an exempted limited partnership under section 9 of the Exempted Limited Partnerships Law (2007 Revision) (the “ Law ”);
3. the resolutions of the board of directors of the General Partner dated [4] June 2008 and the corporate records of each of the General Partner and the Partnership maintained at their respective registered offices in the Cayman Islands;
4. the initial Limited Partnership Agreement dated 7 December 2006 and the draft Amended and Restated Limited Partnership Agreement dated 31 March 2008 between the General Partner and each of the limited partners named therein (collectively the “ Partnership Agreement ”);
5. the Certificate of Good Standing in relation to the General Partner issued by the Registrar of Companies dated [9] June 2008;
6. the Certificate of Good Standing in relation to the Partnership issued by the Registrar of Exempted Limited Partnerships dated [9] June 2008 (together with the Certificate of Good Standing in relation to the General Partner referred to as the “ Certificates of Good Standing ”);
7. the Certificate of the General Partner dated [10] June 2008, a copy of which is attached hereto (the “ General Partner’s Certificate ”); and
8. The following transaction documents entered into or to be entered into by the Partnership:
a. The Underwriting Agreement;
b. Services of Process Agent letter dated [10] June 2008 between the General Partner for and on behalf of the Partnership and
BGC Partners, L.P;
D-2 c. such other documents as we have considered necessary for the purposes of rendering this opinion.
(the document listed in paragraphs 8(a) to 8(b) above inclusive are collectively referred to in this opinion as the “ Documents ”).
Assumptions The following opinion is given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion. This opinion only relates to the laws of the Cayman Islands which are in force at the date of this opinion. In giving this opinion, we have relied (without further verification) as to matters of facts and not legal conclusions upon the accuracy of the General Partner’s Certificate and the Certificates of Good Standing. We have relied upon the following assumptions, which we have not independently verified:
1. the Documents have been or, as the case may be, will be authorised and duly executed and delivered by or on behalf of all relevant parties (other than the General Partner acting on behalf of the Partnership and the General Partner acting on its own behalf, as a matter of Cayman Islands law), in accordance with all relevant laws (other than the laws of the Cayman Islands);
2. the Documents are, or will be legal, valid, binding and enforceable against all relevant parties in accordance with their terms under New York law and all other relevant laws (other than the laws of the Cayman Islands);
3. the choice of New York law as the governing law of the Documents has been made in good faith and is a valid and binding selection which will be upheld by the courts of the State of New York as a matter of New York law and all other relevant laws (other than the laws of the Cayman Islands);
4. the choice of Cayman Islands law as the governing law of the Partnership Agreement has been made in good faith;
5. copy documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals;
6. all signatures, initials and seals are genuine;
7. the power, authority and legal right of all parties under all relevant laws and regulations (other than, as a matter of Cayman Islands law, the Partnership, the General Partner acting on behalf of the Partnership and the General Partner acting on its own behalf) to enter into, execute, deliver and perform their respective obligations under the Partnership Agreement and the Documents;
D-3 8. that at all times the affairs of each of the General Partner and the Partnership will be conducted in accordance with the Partnership Agreement and strictly within the provisions of the Law; and
9. there is nothing under any law (other than the laws of the Cayman Islands) which would or might affect the opinions hereinafter appearing. Specifically, we have made no independent investigation of the laws of New York.
Opinions Based upon, and subject to, the foregoing and the qualifications set out below, and having regard to such legal considerations as we deem relevant, we are of the opinion that:
1. The General Partner has been duly incorporated as an exempted company and is validly existing and in good standing under the laws of the Cayman Islands. The General Partner can sue and can be sued in its own name under the laws of the Cayman Islands.
2. The General Partner has the power and authority under its memorandum and articles of association to enter into execute and perform its obligations under the Partnership Agreement.
3. The execution and delivery by the General Partner of the Partnership Agreement and the performance of the terms and conditions thereof does not conflict with or result in a breach of any of the terms or provisions of the memorandum or articles of association of the General Partner or any order, law, public rule or regulation applicable to it currently in force in the Cayman Islands.
4. The Partnership has been duly established and registered and is validly existing and in good standing as an exempted limited partnership under the laws of the Cayman Islands.
5. The Partnership acting through the General Partner has all requisite capacity, power and authority under the Partnership Agreement to enter into and perform its obligations under the Documents.
6. The execution and delivery by the General Partner on behalf of the Partnership and the Partnership’s performance of its obligations under the Documents will not conflict with or result in a breach of any of the terms of provisions of the Partnership Agreement or any order, law, public rule or regulation applicable to the General Partner or the Partnership currently in force in the Cayman Islands.
7. The Partnership Agreement has been authorised and duly executed by the General Partner.
8. Each of the Documents have been authorised and duly executed by the General Partner as the general partner of the Partnership.
D-4 9. Each of the Documents constitute the legal, valid and binding obligations of the Partnership enforceable in accordance with its terms.
10. No authorisations, consents, approvals, licenses, validations or exemptions are required by law from any governmental authorities or agencies, courts or other official bodies in the Cayman Islands in connection with:
a. the execution, creation or delivery by the General Partner and the Limited Partners of the Partnership Agreement or the
Documents;
b. subject to the payment of the appropriate stamp duty, enforcement of the Partnership Agreement or the Documents; or
c. the performance by the General Partner of its obligations under the Partnership Agreement or the performance by the
Partnership acting through the General Partner of the Documents.
11. No taxes, fees or charges (other than stamp duty) are payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of:
a. the execution or delivery by the General Partner and the Limited Partners of the Partnership Agreement or the Documents;
b. the enforcement of the Documents;
c. payments made under, or pursuant to the Documents.
12. The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.
13. The courts of the Cayman Islands will observe and give effect to the choice of New York law as the governing law of the Documents and the choice of Cayman Islands law as the governing law of the Partnership Agreement.
14. Based solely on our inspection of the Register of Writs and Other Originating Process maintained by the Clerk of the Grand Court in the Cayman Islands, there were no actions pending against the Partnership or the General Partner in the courts of the Cayman Islands as at the close of business, Cayman time on [9] June 2008.
15. Under the laws of the Cayman Islands, the submission of the General Partner for and on behalf of the Partnership to the jurisdiction of any New York State or Federal court sitting in the City of New York and the appointment of BGC Partners, L.P. as its authorised agent for the purposes described in Section 8 (f) of the Underwriting Agreement are valid and binding; and service of process effected in the manner set forth in Section 8 (f) of the Underwriting Agreement will be effective under the laws of the Cayman Islands to confer personal jurisdiction over the General Partner for and on behalf of the Partnership, assuming this to be the case under the laws of New York.
D-5 16. Although there is no statutory enforcement in the Cayman Islands of foreign judgments in the courts of the Cayman Islands will recognise a foreign judgment as the basis for a claim at common law in the Cayman Islands provided such judgment:
a. is given by a competent foreign court;
b. imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given;
c. is final;
d. is not in respect of taxes, a fine or a penalty; and
e. was not obtained in a manner and is not of a kind the enforcement of which is contrary to the public policy of the Cayman
Islands.
17. It is not necessary to ensure the legality, validity, enforceability, perfection or admissibility in evidence of the Partnership Agreement or the Documents that any document be filed, recorded or enrolled with any governmental department or other authority in the Cayman Islands.
Qualifications The opinions expressed above are subject to the following qualifications:
1. The term “ enforceable ” whenever used in this opinion means that the obligations assumed by the General Partner and the Partnership under the relevant instrument are of a type which the courts of the Cayman Islands will enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms. In particular:
a. enforcement may be limited by bankruptcy, insolvency, liquidation, reorganisation, readjustment of debts or moratorium or
other laws of general application relating to or affecting the rights of creditors;
b. enforcement may be limited by general principles of equity. For example, equitable remedies such as specific performance
may not be available, inter alia , where damages are considered to be an adequate remedy;
c. some claims may become barred under the statutes of limitation or may be or become subject to defenses of set-off,
counterclaim, estoppel and similar defenses;
D-6 d. where obligations are to be performed in a jurisdiction outside the Cayman Islands, they may not be enforceable in the
Cayman Islands to the extent that performance would be illegal under the laws of that jurisdiction;
e. the Cayman Islands court has jurisdiction to give judgment in the currency of the relevant obligation and statutory rates of interest payable upon judgments will vary accordingly to the currency of the judgment. If the Partnership becomes insolvent or the partners are made subject to an insolvency proceeding, the Cayman Islands court will require all debts to be proved in a common currency, which is likely to be the “functional currency” of the Partnership. Currency indemnity provisions have not been tested, so far as we are aware, in the courts of the Cayman Islands;
f. obligations to make payments that may be regarded as penalties will not be enforceable; and
g. the courts of the Cayman Islands may decline to exercise jurisdiction in relation to substantive proceedings brought under or in relation to the Documents in matters where they determine that such proceedings may be tried in a more appropriate forum.
2. Cayman Islands stamp duty may be payable if the Partnership Agreement or the Documents are brought to or executed in the Cayman Islands.
3. To maintain the General Partner and the Partnership in good standing under the laws of the Cayman Islands, annual filing fees must be paid and returns made to the Registrar of Companies and the Registrar of Exempted Limited Partnerships.
4. The obligations of the General Partner or the Partnership may be subject to restrictions pursuant to United Nations sanctions as implemented under the laws of the Cayman Islands.
5. Under the laws of the Cayman Islands any term of the Partnership Agreement may be amended orally or by conduct by the parties thereto, notwithstanding any provision to the contrary contained therein.
6. Section 4(3) of the Law requires a general partner of an exempted limited partnership to act at all times in good faith in the interests of that partnership. We reserve our opinion to the extent that any provision of the Partnership Agreement purports to waive or reduce that responsibility.
7. Any provision of the Partnership Agreement purporting to impose obligations on or grant rights to a person who is not party to the Partnership Agreement (a “third party ”) is unenforceable by or against that third party.
D-7 8. In the case of an exempted limited partnership formed under the Law the general partner(s) are liable for partnership debts (i.e. debts validly contracted by them on behalf of the partnership) to the extent the partnership assets are insufficient to meet those debts, and the liability of the limited partners is limited to the extent provided in the Law. The general partner(s) (in the case of an exempted limited partnership) enter into all agreements on behalf of the exempted limited partnership under general legal principles of agency as modified by the terms of the partnership agreement and the Partnership Law (2002 Revision). Under the terms of the Law, any property of the exempted limited partnership which is conveyed to or vested in or held by the general partner (and if more than one then by the general partners jointly upon trust) is an asset of the exempted limited partnership in accordance with the terms of the partnership agreement.
9. A Limited Partner shall not be liable for the debts or obligations of the Partnership except in the following circumstances:
a. a Limited Partner expressly undertakes liability for the debts and obligations of the Partnership under the Partnership
Agreement;
b. a Limited Partner who takes part in the conduct of the business of the Partnership with third parties will be liable for all debts and obligations of the Partnership for the period during which he takes part in the conduct of the business as though he were for such period a General Partner, provided that his liability is to persons who transacted business with the Partnership during such period with actual knowledge of such participation and who then reasonably believe such Limited Partner to be a general partner; and/or
c. a Limited Partner is liable to refund the Partnership together with simple interest at the rate of 10% per annum (calculated on a daily basis) in respect of any capital contribution, or part thereof, returned to him (including a waiver of contribution) for a
period of six months from the date of receipt by him if, at the time of, or immediately following such return of capital, the Partnership was not solvent.
10. A certificate, determination, calculation or designation of any party to the Partnership Agreement or the Documents as to any matter provided therein might be held by a Cayman Islands court not to be conclusive final and binding if, for example, it could be shown to have an unreasonable or arbitrary basis, or in the event of manifest error.
11. In principle a Cayman Islands court will award costs and disbursements in litigation in accordance with the relevant contractual provisions but there remains some uncertainty as to the way in which the rules of the Grand Court will be applied in practice. Whilst it is clear that costs incurred prior to judgment can be recovered in accordance with the contract, it is likely that post-judgment costs (to the extent recoverable at all) will be subject to taxation in accordance with Grand court Rules Order 62.
D-8 12. Under Section 15(2) of the Law, on application by a partner or creditor, the Cayman Islands court may decree dissolution of an exempted limited partnership and may make such orders and give such directions for the winding up of its affairs as may be just and equitable. Although there is no decided authority on the point, we express reservations as to the enforceability of an undertaking of a partner not to dissolve the Partnership if upon application of a partner the Cayman Islands court were to hold it just and equitable to make an order for the dissolution of the Partnership.
13. Section 7(7)(a) of the Law provides that no limited partner may, save with the prior written consent of at least one general partner (which may be withheld in the sole discretion of such general partner notwithstanding any express or implied term of the partnership agreement to the contrary), assign either absolutely or by way of mortgage the whole or any part of his partnership interest. Subject to such consent, an assignee shall, to the extent of such assignment, become a limited partner with the rights and subject to the obligations of the assignor (and, subject as set forth below, wholly or partly in place of and to the exclusion of the assignor as the case may be) in accordance with the partnership agreement and the Law.
14. Section 15(1) of the Law provides that a partnership shall not be dissolved by an act of the partners until a notice of dissolution signed by a general partner has been filed with the Registrar of Exempted Limited Partnerships. In the event of death, insanity, retirement, bankruptcy, commencement of liquidation proceedings, resignation, insolvency or dissolution of the sole or last remaining general partner of the partnership the partnership will be automatically dissolved under s.15(3) of the Law subject to the proviso that, if within ninety days of such date of dissolution, the limited partners unanimously elect one or more new general partners, the business of the exempted limited partnership is not required to be wound up but may be assumed and continued as provided for in the partnership agreement.
15. We reserve our opinion as to the extent to which a Cayman Islands court would, in the event of any relevant illegality, sever the offending provisions and enforce the remainder of the transaction of which such provisions form a part, notwithstanding any express provisions in this regard.
16. We express no view as to the commercial terms of the Documents or whether such terms represent the intentions of the parties, and make no comment with regard to the representations which may be made by the General Partner or the partners.
17. Legal proceedings against an exempted limited partnership may be instituted in the name of the general partner(s) or in the partnership’s name.
We are Attorneys-at-Law in the Cayman Islands and express no opinion as to any laws other than the laws of the Cayman Islands in force and as interpreted at the date hereof. Except as explicitly stated herein, we express no opinion in relation to any representation or warranty contained in the Documents nor upon the commercial terms of the transactions contemplated by the Documents.
D-9 This opinion is limited to the matters referred to herein and shall not be construed as extending to any other matter or document not referred to herein. This opinion is given to the persons to whom it is addressed for their sole benefit and the benefit of their legal advisers acting in that capacity in relation to this transaction. Except with our written consent, it is not to be disclosed to or relied upon by any other person (other than by your successor in interest by means of merger, consolidation, transfer of a business or other similar transaction). We bring to your attention that our maximum aggregate liability in respect of all claims for breach of contract or breach of duty or fault or negligence or otherwise arising out of or in connection with this opinion shall be limited to the lesser of three times the professional fees recovered by us in providing this opinion and the total amount of our professional indemnity insurance cover available from time to time.
This opinion only relates to the laws of the Cayman Islands as we presently understand them and is given on the basis that the opinion will be governed by and construed in accordance with the laws of the Cayman Islands and that the Cayman courts will have exclusive jurisdiction in relation to any matter arising out of it. We have made no investigation of any laws other than the laws of the Cayman Islands and do not express or imply any opinion on any such laws.
This opinion is given as at the date shown at the top of this letter. We have no continuing obligation under the terms of this opinion to inform you of changes of law or fact occurring after the date of this letter or of facts of which we become aware after such date.
Yours faithfully
STUARTS WALKER HERSANT
D-10 Exhibit 10.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is dated as of June 2, 2008 (this “ Agreement ”), by and between BGC Partners, Inc., a Delaware corporation (the “ Purchaser ”), and the person named on the signature page hereto (the “ Seller ”).
RECITALS
WHEREAS, the Seller owns or will own prior to the Closing (as defined in Section 3) shares of Class A common stock, par value $0.01 per share, of the Purchaser (the “ Class A Common Stock ”); and
WHEREAS, the Purchaser proposes to effect an underwritten firm commitment public offering of shares of Class A Common Stock (the “ Offering ”) pursuant to an Equity Underwriting Agreement (the “ Underwriting Agreement ”) to be entered into by and among the Purchaser, certain stockholders of the Purchaser, including Cantor Fitzgerald L.P., and the underwriters listed on Schedule I to the Underwriting Agreement (the “ Underwriters ”); and
WHEREAS, contingent upon the closing of the Offering, the Purchaser desires to purchase from the Seller and the Seller desires to sell to the Purchaser 175,000 shares of Class A Common Stock (collectively, the “ Shares ,” and individually, a “ Share ”), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements hereinafter set forth, the Purchaser and the Seller hereby agree as follows: 1. Purchase of the Shares . Upon the terms and subject to the conditions of this Agreement, at the Closing, the Purchaser agrees to purchase from the Seller, and the Seller agrees to sell to the Purchaser, the Shares, free and clear of any liens, encumbrances, equities and claims.
2. Consideration for the Purchase of the Shares . In consideration for the purchase of the Shares by the Purchaser, the Purchaser shall pay to the Seller a purchase price per Share equal to the purchase price per share of Class A Common Stock paid by the Underwriters to the Purchaser in the Offering. Payment for the Shares to be purchased hereunder is to be made at or as soon as practicable following the Closing via check at the address indicated by the Seller to the Purchaser against the Seller’s delivery at the Closing of certificates therefor and/or other evidence (including an executed stock power with a signature guarantee) of the good and valid transfer of the Shares to the Purchaser. The Seller agrees that there may be deducted from the purchase price paid to the Seller for the Shares any applicable taxes, insurance payment or other similar liability.
3. Closing . The closing of the purchase and sale of the Shares (the “ Closing ”) shall be contingent upon, and shall take place immediately following, the closing of the Offering pursuant to the Underwriting Agreement.
4. Representations and Warranties of the Seller . The Seller hereby represents and warrants to the Purchaser that the statements in this Section 4 are true, complete and correct in all respects as of the date hereof and shall be true, complete and correct in all respects as of the Closing as if made at and as of such time, except to the extent that any such representation and warranty, by its terms, is expressly limited to a specific date, in which case, as of such specific date.
(a) As of the Closing, the Seller shall (i) have good and valid title to the Shares to be sold by the Seller to the Purchaser, free and clear of any liens, encumbrances, equities and claims, and (ii) have full right, power and authority to effect the sale and delivery of such Shares to the Purchaser; and upon the delivery of, against payment for, such Shares pursuant to this Agreement, the Purchaser shall acquire good and valid title thereto, free and clear of any liens, encumbrances, equities and claims. There are no outstanding securities, options, warrants, calls, rights, conversion rights, preemptive rights, rights of first refusal, redemption rights, repurchase rights, plans, “tag-along” or “drag along” rights, commitments, agreements, arrangements or undertakings giving any person other than the Purchaser a right to acquire, directly or indirectly, any of the Shares.
(b) The Seller has full right, power and authority to execute and deliver this Agreement and to perform his obligations under this Agreement. This Agreement has been duly authorized, executed and delivered by or on behalf of the Seller. The execution and delivery of this Agreement, the consummation by the Seller of the transactions contemplated herein and the fulfillment by the Seller of the terms hereof will not require any consent, approval, authorization, or order of any court, regulatory body, administrative agency or other governmental body and will not result in a breach of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Seller is a party, or of any order, rule or regulation applicable to the Seller of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction over the Seller or the Shares.
(c) As of the Closing, no consent, approval or waiver is required under any instrument or agreement to which the Seller is a party or by which the Seller or the Shares are bound or under which Seller is entitled to any right or benefit in connection with the sale by the Seller of Shares to the Purchaser under this Agreement.
5. Counterparts; Facsimile Execution and Delivery . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile or other reproduction hereof.
6. Further Assurances . Each party hereto shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of its obligations under this Agreement.
2 7. Entire Agreement . This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.
8. Amendments; Waiver . This Agreement may not be amended except by written instrument executed by each of the parties. The failure by any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance. Any waiver made by any party hereto in connection with this Agreement shall not be valid unless set forth in writing by such party.
9. Binding Effect; Persons Benefiting; No Assignment . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement is intended or shall be construed to confer upon any entity or person other than the parties hereto and their respective successors and permitted assigns any right, remedy or claim under or by reason of this Agreement or any part hereof. This Agreement may not be assigned by any party hereto without the prior written consent of the other party hereto, and any purported assignment without such consent shall be void and unenforceable.
10. Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law provisions or rule that could cause the application of the laws of any other jurisdiction.
11. Termination . If the Closing has not yet occurred, this Agreement shall terminate on the earlier to occur of (i) the termination of the Underwriting Agreement pursuant to its terms; or (ii) December 31, 2008.
[Signature page follows]
3 IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed as of the date first above written.
BGC PARTNERS, INC.
By: /s/ Stephen M. Merkel Name: Stephen M. Merkel Title: Executive Vice President, General Counsel and Secretary
SELLER
/s/ Stephen M . Merkel Stephen M. Merkel
4 Exhibit 10.2 LEASE AGREEMENT
AGREEMENT dated as of the 1 st day of April, 2008 by and between BGC Partners, Inc., a Delaware corporation with offices at 499 Park Avenue, New York, New York 10022 (“BGC”), and Cantor Fitzgerald Securities (“CFS”), a New York general partnership with offices at 499 Park Avenue, New York, New York 10022.
RECITALS
WHEREAS, BGC and CFS desire to enter into a lease agreement for the provisions of services by certain designated employees of CFS to BGC;
NOW, THEREFORE, in consideration of the mutual agreements set forth below, BGC and CFS agree as follows:
1. This Agreement shall apply to the CFS employees, set forth on Schedule I , as such schedule may be amended from time to time
(together the “Leased Employees ”).
2. Both BGC and CFS shall have the right to direct the activities of the Leased Employees and shall have the right to fire and
discipline the Leased Employees.
3. BGC shall have all powers and rights of a common law employer of the Leased Employees except as otherwise set forth herein.
4. CFS agrees that it shall pay any and all payroll taxes on the compensation paid to the Leased Employees for the services provided
by the Leased Employees to BGC.
5. BGC shall have the exclusive right to determine the economic value of the services provided by the Leased Employees, including any wages (as provided for in the Administrative Services Agreement) and the number of stock options and the value of stock compensation granted.
6. The Leased Employees shall have the ability to participate in BGC’s employee benefit plans on the same basis as comparable
employees of BGC to the extent permitted by applicable law.
7. To the extent applicable, BGC agrees that it shall remit funds sufficient to cover the complete compensation, including all payroll
taxes, of the Leased Employees at such time as directed by CFS.
8. This Agreement may be executed in various counterparts each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, and shall be governed by and construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of laws thereof.
9. No modification of this Agreement shall be effective except where in writing signed by the parties hereto. No waiver or modification shall be deemed to be a subsequent waiver or modification of the same or any other term, covenant or condition in this Agreement. IN WITNESS WHEREOF, the parties have written this Agreement of the date first above written.
CANTOR FITZGERALD SECURITIES BGC PARTNERS, INC.
By: /s/ Douglass Barnard By: /s/ Robert K. West Schedule I
Leased Employees consist of all employees of CFS for whom 15% or more of their expense has been allocated to BGC each quarter, as well as any additional employees of CFS which have been agreed by the parties in writing with respect to a particular period. EXHIBIT 31.1 CERTIFICATION
I, Howard W. Lutnick, certify that:
1. I have reviewed this report on Form 10 -Q of BGC Partners, Inc. for the quarter ended June 30, 2008;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and with respect to BGC Partners, Inc. have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant ’s auditors and the audit committee of the registrant ’s board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant ’s internal control over financial reporting.
/s/ Howard W. Lutnick Howard W. Lutnick Chairman of the Board and Co-Chief Executive Officer
Date: August 8, 2008 EXHIBIT 31.2 CERTIFICATION
I, Robert K. West, certify that:
1. I have reviewed this report on Form 10 -Q of BGC Partners, Inc. for the quarter ended June 30, 2008;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and with respect to BGC Partners, Inc. have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant ’s auditors and the audit committee of the registrant ’s board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant ’s internal control over financial reporting.
/s/ Robert K. West Robert K. West Chief Financial Officer
Date: August 8, 2008 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of BGC Partners, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended June 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), each of Howard W. Lutnick, Co-Chief Executive Officer of the Company, and Robert K. West , Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Form 10 -Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Howard W. Lutnick /s/ Robert K. West Name: Howard W. Lutnick Name: Robert K. West Title: Chairman of the Board and Title: Chief Financial Officer Co-Chief Executive Officer Date: August 8, 2008