SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Fee required)
For the fiscal year ended Commission file number
December 31, 1996 1-14416
___Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee
required)
For the transition period from _________ to _________.
FAHNESTOCK VINER HOLDINGS INC.
(Exact name of registrant as
specified in its charter)
Ontario, Canada 98-0080034
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
P.O. Box 2015, Suite 1110 M4R 1K8
20 Eglinton Avenue West
Toronto, Ontario, Canada
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: 416-322-1515
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Class A non-voting shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the Company held by
non-affiliates of the Company cannot be calculated because no class of
voting stock of the Company is publicly traded.
The number of shares of the Company's Class A non-voting shares and Class B
voting shares (being the only classes of common stock of the Company),
outstanding on December 31, 1996 was 12,265,760 and 99,680 shares,
respectively.
TABLE OF CONTENTS
Item
No. Page
PART I
1. Business 1
2. Properties 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote
of Security Holders 14
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 15
6. Selected Financial Data 19
7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 19
8. Financial Statements and Supplementary
Data 24
(See F1-F14)
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 24
PART III
10. Directors and Executive Officers
of the Registrant 25
11. Executive Compensation 27
12. Security Ownership of Certain Beneficial
Owners and Management 32
13. Certain Relationships and Related
Transactions 33
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 34
(See E1-E2)
Signatures 35
PART I
Item 1. BUSINESS
Fahnestock Viner Holdings Inc., formerly called E.A. Viner Holdings
Limited and immediately prior to that called Goldale Investments
Limited (the "Company"), maintains its registered office and
principal place of business at 20 Eglinton Avenue West, Suite 1110,
Toronto, Ontario M4R 1K8 and its telephone number is (416)322-1515.
The Company was originally incorporated under the laws of British
Columbia. Pursuant to Certificate and Articles of Continuation
effective October 12, 1977, the Company's legal existence was
continued under the Business Corporation Act (Ontario) as if it had
been incorporated as an Ontario corporation.
The Company is a holding company and carries on no active business.
It owns, directly or through intermediate subsidiaries, Fahnestock
& Co., Inc. (formerly Edward A. Viner & Co., Inc.), a New York
corporation ("Fahnestock"), Freedom Investments, Inc., a Delaware
corporation ("Freedom"), and Hudson Capital Advisors Inc., a New York
corporation ("Hudson Capital"). Fahnestock, Freedom and Hudson Capital
are sometimes collectively referred to as the "Operating
Subsidiaries". Through the Operating Subsidiaries, the Company is
engaged in the securities brokerage and trading business and offers
investment advisory and other related financial services.
Fahnestock is the principal Operating Subsidiary. Fahnestock is
engaged in the securities brokerage business in the United States
and, through the agency of local licensed broker-dealers,
Fahnestock operates offices in Buenos Aires, Argentina and Caracas,
Venezuela. Freedom provides discount securities brokerage services in
the United States. Hudson Capital is engaged in the investment advisory
business in the United States.
At December 31, 1996, Fahnestock employed 567 full-time registered
representatives and 384 employees in trading, research, investment
banking, investment advisory services, public finance and support
positions for Fahnestock's 47 offices in the United States and for
Freedom in its offices in Omaha, Nebraska. Fahnestock and Freedom
are broker-dealers registered with the Securities and Exchange
Commission (the "SEC") and in all other jurisdictions where their
respective businesses requires registration. Fahnestock, in
addition to its United States operations, conducts business in
Caracas and Buenos Aires through local broker-dealers who are
licensed under the laws of Venezuela and Argentina, respectively.
The operations of the Company and the Operating Subsidiaries are within
a single industry segment. No material part of the Company's revenues,
taken as a whole, are derived from a single customer or group of
customers.
The Operating Subsidiaries are collectively engaged in a broad range of
activities in the securities brokerage business, including retail
securities brokerage, institutional sales, bond trading and investment
banking - offering both corporate and public finance services,
underwriting, research, market making and investment advisory and asset
management services.
Fahnestock and Freedom are members of the New York Stock Exchange, Inc.
("NYSE") and the National Association of Securities Dealers, Inc.
("NASD"); and Fahnestock is a member of the American Stock Exchange,
Inc. ("AMEX"), the Chicago Stock Exchange Incorporated ("CSE"), the
Chicago Board Options Exchange, Inc. ("CBOE"), the Philadelphia Stock
Exchange, Inc. ("PHLX"), the New York Futures Exchange, Inc. ("NYFE"),
the National Futures Association ("NFA") and the Securities Industry
Association ("SIA"). In addition, Fahnestock has satisfied the
requirements of the Municipal Securities Rulemaking Board ("MSRB") for
effecting customer transactions in municipal securities.
Fahnestock, which acts as a clearing broker for Freedom, is also a
member of the Securities Investor Protection Corporation ("SIPC"), which
provides, in the event of the liquidation of a broker-dealer, protection
for customers' accounts (including the customer accounts of other
securities firms when it acts on their behalf as a clearing broker) held
by the firm of up to $500,000 for each customer, subject to a limitation
of $100,000 for claims for cash balances. SIPC is funded through
assessments on registered broker-dealers which may not exceed 1% of a
broker-dealer's gross revenues (as defined); SIPC assessments were
0.095%, 0.095% and 0.073% in 1996, 1995 and 1994, respectively, of the
adjusted combined gross revenues of Fahnestock and Freedom (and until
July, 1995, Pace Securities Inc.). In addition, Fahnestock has purchased
protection from Aetna Casualty and Surety Company of an additional
$9,500,000 per customer. Upon request, Fahnestock, at the customer's
expense, will obtain additional protection for a customer whose
securities account is in excess of $10,000,000.
The following table sets forth the amount and percentage of the
Company's revenues from each principal source for the periods
indicated.
(Dollars in thousands,
except percentages) Year ended December 31,
1996 % 1995 % 1994 %
Commissions $ 73,992 35% $ 69,072 37% $61,259 39%
Principal transactions 80,508 38% 56,430 31% 44,734 29%
Interest 32,981 15% 36,233 19% 23,612 15%
Underwriting fees 8,672 4% 6,540 4% 11,130 7%
Advisory fees 14,189 6% 11,251 6% 12,867 8%
Other 3,646 2% 4,907 3% 3,651 2%
Total revenues $213,988 100% $184,433 100% $157,253 100%
The Company derives most of its revenues from the operations of its
principal subsidiary, Fahnestock. Although maintained as separate
entities, because Fahnestock acts as clearing broker in transactions
initiated by Freedom, the operations of the Company's brokerage
subsidiaries are closely related. Except as expressly otherwise stated,
the discussion below pertains to the operations of Fahnestock.
COMMISSIONS
A significant portion of Fahnestock's revenues is derived from
commissions from retail and, to a lesser extent, institutional customers
on brokerage transactions in exchange-listed and over-the-counter
corporate equity and debt securities. Brokerage commissions are charged
on both exchange and over-the-counter transactions in accordance with a
schedule which Fahnestock has formulated. In certain cases, discounts
are granted to customers, generally on large trades or to active
customers. Fahnestock also provides a range of services in other
financial products to retail and institutional customers, including the
purchase and sale of options on the CBOE, the AMEX and other stock
exchanges as well as futures on indexes listed on various commodities
exchanges.
Commission business relies heavily on the services of account executives
with good sales production records. Competition among securities firms
for such personnel is intense. Retail clients' accounts are serviced by
retail account executives (excluding the institutional account
executives referred to below) in Fahnestock's offices. Fahnestock's
institutional clients, which include mutual funds, banks, insurance
companies, and pension and profit-sharing funds, are served by
institutional brokers. (For a discussion of the regulation of these, see
"Regulation".) The institutional department is supported by the research
department which provides coverage of a number of commercial and
industrial as well as emerging growth companies and special situation
investments.
Securities Clearance Activities
Fahnestock provides a full range of securities clearance services to two
non-affiliated securities firms on a fully-disclosed basis. In addition
to commissions and service charges, Fahnestock derives substantial
interest revenue from its securities clearing activities. See "Interest"
and "Securities Borrowed And Loaned." In most cases, Fahnestock provides
margin financing for the clients of the securities firms for which it
clears, with the securities firms often guaranteeing the accounts of
their clients. Fahnestock also extends margin credit directly to its
correspondent firms to the extent that such firms hold securities
positions for their own account. Because Fahnestock must rely on the
guarantees and general credit of its correspondent firms, Fahnestock may
be exposed to significant risks of loss if any of its correspondents or
its correspondents' customers are unable to meet their respective
financial commitments. See "Risk Management."
The correspondent clearing procedure for fully-disclosed accounts
involves a series of steps: The correspondent broker opens an account
for its customer and takes the customer's order for the purchase and
sale of securities. The order is then executed by the correspondent firm
or Fahnestock. Fahnestock completes the transaction by taking possession
of the customer's cash, if securities are being purchased, or
certificates, if securities are being sold, lending the customer any
amounts required if the purchase is being made on margin, and making
delivery to the broker for the other party to the transaction.
Fahnestock or the correspondent sends the customer a written
confirmation containing the details of each transaction the day after it
is executed, and Fahnestock sends each customer a monthly statement for
the entire account. The execution, clearance, settlement, receipt,
delivery and record-keeping functions involved in the clearing process
require the performance of a series of complex steps, many of which are
accomplished with data processing equipment.
In addition to executing trades, Fahnestock also provides other services
to its correspondents, including performance of accounting functions,
provision of office services, custody of securities and compliance with
regulatory requirements. The responsibilities arising out of
Fahnestock's clearing relationships are allocated pursuant to agreements
with its correspondents. To the extent that the correspondent broker has
resources available, this allocation of responsibilities protects
Fahnestock against claims by customers of correspondent brokers where
the responsibility for the function giving rise to a claim has been
allocated to the correspondent broker. If the correspondent is unable to
meet its obligations to its customers, however, dissatisfied customers
may attempt to obtain recovery from Fahnestock.
Floor Brokerage
In addition to transactions in which Fahnestock executes transactions
for itself or its own customers, Fahnestock acts as agent for the
accounts of other brokers. With its memberships on the various
exchanges, Fahnestock attempts to utilize excess execution capacity by
executing orders for other brokerage firms. Fahnestock bills such other
firms at prevailing rates which are set on a basis competitive with
rates charged by other brokerage firms performing similar functions.
PRINCIPAL TRANASACTIONS
Market-Making
Fahnestock acts as both principal and as agent in the execution of its
customers' orders in the over-the-counter market. Fahnestock buys, sells
and maintains an inventory of a security in order to "make a market" in
that security. (To "make a market" in a security is to maintain firm bid
and offer prices by standing ready to buy or sell round lots at publicly
quoted prices. In order to make a market it is necessary to commit
capital to buy, sell and maintain an inventory of a security.) As of
December 31, 1996, Fahnestock made approximately 1,800 dealer markets in
the common stock or other equity securities of corporate issuers. In
executing customer orders for over-the-counter securities in which it
does not make a market, Fahnestock generally charges a commission and
acts as agent or will act as principal by marking the security up or
down in a riskless transaction, working with another firm which is a
market-maker acting as principal. However, when the buy or sell order is
in a security in which Fahnestock makes a market, Fahnestock normally
acts as principal and purchases from or sells to its customers at a
price which is approximately equal to the current inter-dealer market
price plus or minus a mark-up or mark-down. The stocks in which
Fahnestock makes a market also include those of issuers which are
followed by Fahnestock's research department.
The U.S. Justice Department and the SEC have completed an investigation
of industry over-the-counter trading practices. As a result of the
investigation, the SEC issued "The 21a Report" detailing industry
practices, some of which were deemed anti-competitive. The SEC has
effected a "Firm Quote Rule", an "Order Exposure Rule" and a "Best
Execution Interpretation" (the Rules), all of which are intended to
correct the aforementioned practices and offer public customers better
executions. The Rules became effective on January 10, 1997 and it is not
possible to predict the effect of them on the profitability of the
Operating Subsidiaries.
Trading profits or losses depend on (i) the skills of those employees
engaged in market-making activities, (ii) the capital allocated to
holding positions in securities and (iii) the general trend of prices in
the securities markets. Trading as principal requires the commitment of
capital and creates an opportunity for profits or an exposure to risk of
loss due to market fluctuations. Fahnestock takes both long and short
positions in those securities in which it makes a market.
The size of its securities positions on any one day may not be
representative of Fahnestock's exposure on any other day because
securities positions vary substantially based upon economic and market
conditions, allocations of capital, underwriting commitments and trading
volume. Also, the aggregate value of inventories of stocks which
Fahnestock may carry is limited by the Net Capital Rule. See "Net
Capital Requirements" and Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
To a lesser extent, Fahnestock also buys and sells municipal bonds,
Ginnie Maes, Unit Investment Trusts and U.S. Treasury Securities as well
as other fixed income securities for its own account in the secondary
market and maintains an inventory of municipal bonds and other
securities and resells bonds from its inventory to dealers as well as to
institutional and retail customers.
Other Trading Activities
Fahnestock holds positions in its trading accounts in over-the-counter
securities and in exchange-listed securities in which it does not make a
market, and may engage from time to time in other types of principal
transactions in securities. Fahnestock has several trading departments
including: a convertible bond department, a risk arbitrage department, a
corporate bond dealer department, a municipal bond department, a
government/mortgage backed securities department, a department that
underwrites and trades U.S. government agency issues and a department
that trades high yield securities (commonly referred to as "junk
bonds"). These departments continually purchase and sell securities and
make markets in order to make a profit on the inter-dealer spread.
Although Fahnestock from time to time holds an inventory of securities,
more typically, it seeks to match customer buy and sell orders.
Fahnestock does not carry "bridge loans" (i.e., short-term loans made in
anticipation of intermediate-term or long-term financing). No
substantial losses relating to Fahnestock's risk arbitrage activities
have been incurred.
Investment Income
Dividends and interest earned on securities held in inventory are
treated as investment income.
Principal transactions, including market-making and other trading and
investment activities, accounted for approximately 38%, 31% and 29%,
respectively, of Fahnestock's total revenues for the fiscal years ended
December 31, 1996, 1995 and 1994, respectively.
Risk Management
Fahnestock's principal transactions and brokerage activities expose it
to credit and market risks. When Fahnestock advances funds or securities
to a counterparty in a principal transaction or to a customer in a
brokered transaction, it is subject to the risk that the counterparty or
customer will not repay such advances. If the market price of the
securities purchased or loaned has declined or increased, respectively,
Fahnestock may be unable to recover some or all of the value of the
amount advanced. A similar risk is also present where a customer is
unable to respond to a margin call and the market price of the
collateral has dropped. In addition, Fahnestock's securities positions
are subject to fluctuations in market value and liquidity.
Fahnestock monitors market risks through daily profit and loss
statements and position reports. Each trading department adheres to
internal position limits determined by senior management and regularly
reviews the age and composition of its proprietary accounts. Positions
and profits and losses of each trading department are reported to senior
management on a daily basis.
In addition to monitoring the credit worthiness of its customers,
Fahnestock imposes more conservative margin requirements than those of
the NYSE. Generally, Fahnestock limits customer loans to an amount not
greater than 65% of the value of the securities (or 50% if the
securities in the account are concentrated in a limited number of
issues). In comparison, the NYSE permits loans of up to 75% of the value
of the securities in a customer's account.
INTEREST
Fahnestock derives net interest income from the financing of customer
margin loans and its securities lending activities. See "Customer
Financing" and "Securities Borrowed and Loaned."
Customer Financing
Customers' securities transactions are effected on either a cash or
margin basis. In margin transactions, Fahnestock extends credit to the
customer, collateralized by securities and/or cash in the customer's
account, for a portion of the purchase price, and receives income from
interest charged on such extensions of credit. The customer is charged
for such margin financing at interest rates based upon the brokers call
rate (the prevailing interest rate charged by banks on collateralized
loans to broker-dealers), to which is added an additional amount of up
to 2%.
In each of the last five years, financing activities conducted on behalf
of its customers has provided Fahnestock with a substantial source of
revenue. A substantial portion of these financing activities are
undertaken in connection with Fahnestock's securities clearance business
and its own retail business. See "Commissions." The amount of
Fahnestock's interest revenue is affected by the volume of customer
borrowing and by prevailing interest rates.
The primary source of funds to finance customers' margin account
borrowings are collateralized and uncollateralized bank borrowings,
funds generated by lending securities on a cash collateral basis in
excess of the amount of securities borrowed and free credit balances in
customers' accounts. Free credit balances in customers' accounts, to the
extent not required to be segregated pursuant to SEC rules, may be used
in the conduct of Fahnestock's business, including the extension of
margin credit. Subject to applicable regulations, interest is paid by
Fahnestock on most, but not all, of such free credit balances awaiting
reinvestment by customers. To the extent that the use of free credit
balances reduces borrowings, interest expense is reduced.
Margin lending by Fahnestock is subject to the margin rules of the
Board of Governors of the Federal Reserve System, NYSE margin
requirements and Fahnestock's internal policies. By permitting customers
to purchase on margin, Fahnestock takes the risk of a market decline
that would reduce the value of its collateral below the customer's
indebtedness before the collateral could be sold. Under applicable NYSE
rules, in the event of a decline in the market value of the securities
in a margin account, Fahnestock is obligated to require the customer to
deposit additional securities or cash in the account so that at all
times the loan to the customer for the purchase of marginable securities
is no greater than 75% of the market value of such securities or cash in
the account.
Securities Borrowed and Loaned
In connection with both its trading and brokerage activities, Fahnestock
borrows securities to cover short sales and to complete transactions in
which customers have failed to deliver securities by the required
settlement date, and lends securities to other brokers and dealers for
similar purposes. When borrowing securities, Fahnestock is required to
deposit cash or other collateral, or to post a letter of credit with the
lender and receives a rebate (based on the amount of cash deposited) or
pays a fee calculated to yield a negotiated rate of return.
When lending securities, Fahnestock receives cash or similar collateral
and generally pays a rebate (based on the amount of cash deposited) to
the other party to the transaction. Transactions in which stocks are
borrowed or loaned are generally executed pursuant to written agreements
with counterparties which require that the securities borrowed be marked
to market on a daily basis and that excess collateral be refunded or
that additional collateral be furnished in the event of changes in the
market value of the securities. Margin adjustments are usually made on a
daily basis through the facilities of various clearing houses.
UNDERWRITING BUSINESS
Fahnestock manages the underwriting of both corporate and municipal
securities including the securitization of corporate and other
obligations, and participates as an underwriter in the syndicates of
issues managed by other securities firms. The corporate finance
department is responsible for originating and developing transactions
which include underwriting, mergers and acquisitions, private
placements, valuations, financial advisory work and other investment
banking matters.
The management of and participation in public offerings involve
significant risks. An underwriter may incur losses if it is unable to
resell at a profit the securities it has purchased. Under federal and
state securities and other laws, an underwriter is subject to
substantial liability for misstatements or omissions that are judged to
be material in prospectuses and other communications related to
underwriting.
Underwriting commitments cause a charge against net capital.
Consequently, the aggregate amount of underwriting commitments at any
one time may be limited by the amount of net capital available. The
Company derived 4% of its revenues from underwriting in 1996 compared to
4% and 7%, respectively, in 1995 and 1994. See "Net Capital
Requirements" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
INVESTMENT ADVISORY BUSINESS
Hudson Capital and Fahnestock (through its divisions Fahnestock Asset
Management and Newbold Investment Advisory) provide investment advisory
services for a fee to their respective clients. These equity and debt
management service fees are based on the value of the portfolio under
management. In addition to the management fee, transactions executed for
such accounts may be effected at standard rates of commission or at
discounts from Fahnestock's customary commission schedule.
At December 31, 1996 Fahnestock and Hudson Capital together had
approximately $800 million under management. The agreements under which
the portfolios are managed on behalf of institutions and other investors
generally provide for termination by either party at any time.
ADMINISTRATION AND OPERATIONS
Administration and operations personnel are responsible for the
processing of securities transactions; the receipt, identification and
delivery of funds and securities; the maintenance of internal financial
controls; accounting functions; custody of customers' securities; the
handling of margin accounts for Fahnestock and its correspondents; and
general office services. Fahnestock employs approximately 180 persons in
its administration and operations departments at its head office.
There is considerable fluctuation during any year and from year to year
in the volume of transactions Fahnestock must process. Fahnestock
records transactions and posts its books on a daily basis. Operations
personnel monitor day-to-day operations to assure compliance with
applicable laws, rules and regulations. Failure to keep current and
accurate books and records can render Fahnestock liable for disciplinary
action by governmental and self-regulatory organisations.
Fahnestock executes its own and certain of its correspondents'
securities transactions on all United States exchanges of which it is a
member and in the over-the-counter market. Fahnestock clears all of its
securities transactions (i.e., it delivers securities that it has sold,
receives securities that it has purchased and transfers related funds)
through its own facilities and through memberships in various clearing
corporations and custodian banks.
Fahnestock believes that its internal controls and safeguards are
adequate, although fraud and misconduct by customers and employees and
the possibility of theft of securities are risks inherent in the
securities industry. As required by the NYSE and certain other
authorities, Fahnestock carries a broker's blanket insurance bond
covering loss or theft of securities, forgery of checks and drafts,
embezzlement, fraud and misplacement of securities. This bond provides
coverage of up to an aggregate of $15,000,000 with a self-insurance
retention of $100,000.
COMPETITION
Fahnestock encounters intense competition in all aspects of the
securities business and competes directly with other securities firms, a
significant number of which have substantially greater resources and
offer a wider range of financial services. In addition, there has
recently been increasing competition from other sources, such as
commercial banks, insurance companies and certain major corporations
which have entered the securities industry through acquisition, and from
other entities. Commercial banks have petitioned the Federal Reserve
Board for permission, and have been permitted to enter into various new
financial service activities, such as underwriting certain
mortgage-backed, collateralized and municipal revenue securities, as
well as commercial paper and equities issued by industrial corporations
so long as such activities do not exceed 25% of total revenues.
Additionally, foreign-based securities firms and commercial banks
regularly offer their services in performing a variety of investment
banking functions including: merger and acquisition advice, leveraged
buy-out financing, merchant banking, and bridge financing, all in direct
competition with U.S. broker-dealers. These developments have led to the
creation of a greater number of integrated financial services firms that
may be able to compete more effectively than Fahnestock for investment
funds by offering a greater range of financial services.
Fahnestock believes that the principal factors affecting competition in
the securities industry are the quality and ability of professional
personnel and relative prices of services and products offered.
Fahnestock and its competitors employ advertizing and direct
solicitation of potential customers in order to increase business and
furnish investment research publications in an effort to retain
existing and attract potential clients. Many of Fahnestock's competitors
engage in these programs more extensively than does Fahnestock.
There is substantial commission discounting by broker-dealers competing
for institutional and retail brokerage business. The continuation of
such discounting and an increase in the incidence thereof could
adversely affect Fahnestock. However, an increase in the use of discount
brokerages could be beneficial to Freedom.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal
agency charged with administration of the federal securities laws. Much
of the regulation of broker-dealers has been delegated to
self-regulatory organisations, principally the NASD and the national
securities exchanges such as the NYSE, which has been designated as
Fahnestock's primary regulator with respect to securities activities and
the National Futures Association which has been designated as
Fahnestock's primary regulator with respect to commodities activities.
The CBOE has been designated Fahnestock's primary regulator with respect
to options trading activities. These self-regulatory organizations adopt
rules (subject to approval by the SEC or the Commodities Futures Trading
Commission ("CFTC"), as the case may be) governing the industry and
conduct periodic examinations of Fahnestock's and Freedom's operations.
Securities firms are also subject to regulation by state securities
commissions in the states in which they do business. Fahnestock is
registered as a broker-dealer in 50 states and Puerto Rico.
The regulations to which broker-dealers are subject cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, the use and safekeeping of customers' funds and
securities, capital structure of securities firms, record keeping and
the conduct of directors, officers and employees. The SEC has adopted
rules requiring underwriters to ensure that municipal securities issuers
provide current financial information and imposing limitations on
political contributions to municipal issuers by brokers, dealers and
other municipal finance professionals. Additional legislation, changes
in rules promulgated by the SEC, the CFTC and by self-regulatory
organizations, or changes in the interpretation or enforcement of
existing laws and rules may directly affect the method of operation and
profitability of broker-dealers. The SEC, self-regulatory organizations,
and state securities commissions may conduct administrative proceedings
which can result in censure, fine, issuance of cease and desist orders
or suspension or expulsion of a broker-dealer, its officers, or
employees. The principal purpose of regulating and disciplining
broker-dealers is to protect customers and the securities markets,
rather than to protect creditors and shareholders of broker-dealers.
Fahnestock and Hudson Capital are also subject to regulation by the SEC
and under certain state laws in connection with their businesses as
investment advisors.
Margin lending by Fahnestock is subject to the margin rules of the Board
of Governors of the Federal Reserve System and the NYSE. Under such
rules, Fahnestock is limited in the amount it may lend in connection
with certain purchases of securities and is also required to impose
certain maintenance requirements on the amount of securities and cash
held in margin accounts. In addition, Fahnestock may (and currently
does) impose more restrictive margin requirements than required by such
rules. See "Customer Financing."
NET CAPITAL REQUIREMENTS
As a registered broker-dealer and a member firm of the NYSE, Fahnestock
is subject to certain net capital requirements pursuant to Rule 15c3-l
(the "Net Capital Rule") promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act"). The Net Capital Rule, which specifies
minimum net capital requirements for registered brokers and dealers, is
designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimum part of its assets be
kept in relatively liquid form.
Fahnestock elects to compute net capital under an alternative method of
calculation permitted by the Net Capital Rule. (Freedom computes net
capital under the basic formula as provided by the Net Capital Rule.)
Under this alternative method, Fahnestock is required to maintain a
minimum "net capital", as defined in the Net Capital Rule, at least
equal to 2% of the amount of its "aggregate debit items" computed in
accordance with the Formula for Determination of Reserve Requirements
for Brokers and Dealers (Exhibit A to Rule l5c3-3 under the Exchange
Act) or $250,000, whichever is greater. "Aggregate debit items" are
assets that have as their source transactions with customers, primarily
margin loans. Failure to maintain the required net capital may subject a
firm to suspension or expulsion by the NYSE, the SEC and other
regulatory bodies and ultimately may require its liquidation. The Net
Capital Rule also prohibits payments of dividends, redemption of stock
and the prepayment of subordinated indebtedness if net capital
thereafter would be less than 5% of aggregate debit items (or 7% of the
funds required to be segregated pursuant to the Commodity Exchange Act
and the regulations thereunder, if greater) and payments in respect of
principal of subordinated indebtedness if net capital thereafter would
be less than 5% of aggregate debit items (or 6% of the funds required to
be segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, if greater). The Net Capital Rule also provides that the
total outstanding principal amounts of a broker-dealer's indebtedness
under certain subordination agreements (the proceeds of which are
included in its net capital) may not exceed 70% of the sum of the
outstanding principal amounts of all subordinated indebtedness included
in net capital, par or stated value of capital stock, paid in capital in
excess of par, retained earnings and other capital accounts for a period
in excess of 90 days.
Net capital is essentially defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings minus certain
mandatory deductions that result from excluding assets that are not
readily convertible into cash and deductions for certain operating
charges. The Rule values certain other assets, such as a firm's
positions in securities, conservatively. Among these deductions are
adjustments (called "haircuts") in the market value of securities to
reflect the possibility of a market decline prior to disposition.
Compliance with the Net Capital Rule could limit those operations of the
brokerage subsidiaries of the Company that require the intensive use of
capital, such as underwriting and trading activities and the financing
of customer account balances, and also could restrict the Company's
ability to withdraw capital from its brokerage subsidiaries, which in
turn could limit the Company's ability to pay dividends, repay debt and
redeem or purchase shares of its outstanding capital stock. Under the
Net Capital Rule broker-dealers are required to maintain certain records
and provide the SEC with quarterly reports with respect to, among other
things, significant movements of capital, including transfers to a
holding company parent or other affiliate. The SEC may in certain
circumstances restrict the Company's brokerage subsidiaries' ability to
withdraw excess net capital and transfer it to the Company or to other
of the Operating Subsidiaries.
Item 2. PROPERTIES
The Company maintains offices at 20 Eglinton Avenue West, Toronto,
Ontario, Canada for general administrative activities. Most day-to-day
management functions are conducted at the executive offices of
Fahnestock at 110 Wall Street, New York, New York. This office also
serves as the base for most of Fahnestock's research, operations and
trading, investment banking and investment advisory services, though
other offices also have employees who work in these areas. Generally,
the offices outside of 110 Wall Street, New York serve as bases for
sales representatives who process trades and provide other brokerage
services in co-operation with Fahnestock's New York office using the
data processing facilities located there. Freedom conducts its business
from its offices located at 11422 Miracle Hills Dr., Omaha, Nebraska.
Management believes that its present facilities are adequate for the
purposes for which they are used and have adequate capacity to provide
for presently contemplated future uses.
The Company and its subsidiaries own no real property, but occupy office
space totalling approximately 242,000 square feet in 49 locations under
standard commercial terms expiring between 1997 and 2001. If any leases
are not renewed, the Company believes it could obtain comparable space
elsewhere on commercially reasonable rental terms.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company or its
subsidiaries are parties or to which any of their respective properties
are subject. The Company's subsidiaries are parties to legal proceedings
incidental to their respective businesses. The materiality of legal
matters on the Company's future operating results depends on the level
of future results of operations as well as the timing and ultimate
outcome of such legal matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Class B voting shares (the "Class B Shares"), the Company's
only class of voting securities, are not registered under the
Exchange Act and are not required to be registered. The Class B
Shares have fewer than 500 shareholders of record. Consequently,
the Company is not required under Section 14 of the Exchange Act to
furnish proxy soliciting material or an information statement to
holders of the Class B Shares. However, the Company is required
under applicable Canadian securities laws to provide proxy
soliciting material, including a management proxy circular, to the
holders of its Class B Shares.
Pursuant to the Company's Articles of Incorporation, holders of
Class A non-voting shares (the "Class A Shares"), although not
entitled to vote thereat, are entitled to receive notices of
shareholders' meetings and to receive all informational documents
required by law or otherwise to be provided to holders of Class B
Shares. In addition, holders of Class A Shares are entitled to
attend and speak at all meetings of shareholders, except class
meetings not including the Class A Shares.
In the event of either a "take-over bid" or an "issuer bid", (as
those terms are defined in the Securities Act,(Ontario)) being made
for the Class B Shares and no corresponding offer being made to
purchase Class A Shares, the holders of Class A Shares would have
no right under the Articles of Incorporation of the Company or
under any applicable statute to require that a similar offer be
made to them to purchase their Class A Shares.
No matters were submitted to the Company's shareholders during the
fourth quarter of the Company's fiscal year.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Shares are listed and traded on The New York Stock
Exchange (trading symbol "FVH") and on The Toronto Stock Exchange
(trading symbol "FHV.A"). The Class B Shares are not traded on any stock
exchange in Canada or the United States and, as a consequence, there is
only limited trading in the Class B shares. The Company does not
presently contemplate listing the Class B Shares in the United States on
any national or regional stock exchange or on NASDAQ.
The following tables set forth the high and low sales prices of the
Class A Shares on The Toronto Stock Exchange and on The New York Stock
Exchange commencing August 28, 1996 and prior to August 28, 1996, the
range of bid and asked quotations on NASDAQ National Market System for
the periods indicated. NASDAQ quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not represent
actual transactions. Prices provided are in Canadian dollars or U.S.
dollars as indicated and are based on data provided by The Toronto Stock
Exchange, The New York Stock Exchange and NASDAQ.
CLASS A SHARES:
TSE NYSE NASDAQ
HIGH LOW HIGH LOW HIGH LOW
(CDN.Dollars) (U.S.Dollars) (U.S.Dollars)
1996 1st quarter $14.50 $11.75 n/a n/a $10.88 $ 8.50
2nd quarter 18.25 14.63 n/a n/a 13.44 10.63
3rd quarter 19.60 15.60 14.13 11.75 14.50 11.25
4th quarter 20.00 15.90 14.63 11.63 n/a n/a
1995 1st quarter $ 9.70 $ 8.60 n/a n/a $ 6.875 $ 6.25
2nd quarter 10.20 9.50 n/a n/a 7.75 6.625
3rd quarter 12.70 9.70 n/a n/a 9.625 7.00
4th quarter 14.00 11.00 n/a n/a 10.50 8.125
The following table sets forth information about the Company's
shareholders as at December 31, 1996 as set forth in the records of
the Company's transfer agent and registrar:
Class A Shares
Total issued and outstanding: 12,265,760
Shareholders of record having Number of Number of
addresses in: shares shareholders
Canada 6,111,823 49.8% 215
United States 6,153,905 50.2 201
Other 32 - 2
12,265,760 100.0 418
Class B shares
Total issued and outstanding: 99,680
Shareholders of record having Number of Number of
addresses in: shares Shareholders
Canada 98,131(1) 98.4% 132
United States 1,541 1.5 72
Other 8 0.1 2
99,680 100.0 206
____________________________
(1)The Company has been informed that 50,000 Class B shares
held by Phase II Financial Limited, an Ontario corporation, are
beneficially owned by A.G. Lowenthal, a U.S. citizen and resident.
See Item 12, "Security Ownership of Certain Beneficial Owners and
Management".
Dividends
Dividend Declaration Record Payment Amount
Type Date Date Date Per Share
Annual Jan.25/96 Feb.9/96 Feb.23/96 U.S.$0.20
Quarterly Apr.19/96 May 9/96 May 23/96 U.S.$0.05
Quarterly Jul.16/96 Aug.9/96 Aug.23/96 U.S.$0.05
Quarterly Oct.17/96 Nov.8/96 Nov.22/96 U.S.$0.05
Quarterly Jan.29/97 Feb.10/97 Feb.21/97 U.S.$0.06
Future dividend policy will depend upon the earnings and financial
condition of the Operating Subsidiaries, the Company's need for funds
and other factors. However, it is the present intention of the Company's
management to pay a quarterly dividend in the amount of U.S.$0.06 per
Class A Share and Class B Share in May, August and November, 1997 and
February, 1998. Dividends may be paid to holders of Class A Shares and
Class B Shares (pari passu), as and when declared by the Company's Board
of Directors, from funds legally available therefor.
Certain Tax Matters
The following paragraphs summarise certain United States and
Canadian federal income tax considerations in connection with the
receipt of dividends paid on the Class A and Class B Shares of the
Company. These tax considerations are stated in brief
and general terms and are based on United States and Canadian law
currently in effect. There are other potentially significant United
States and Canadian federal income tax considerations and state,
provincial or local income tax considerations with respect to
ownership and disposition of the Class A and Class B Shares which
are not discussed herein. The tax considerations relative to
ownership and disposition of the Class A and Class B Shares may
vary from taxpayer to taxpayer depending on the taxpayer's
particular status. Accordingly, prospective purchasers should
consult with their tax advisors regarding tax considerations which
may apply to the particular situation.
United States Federal Income Tax Considerations
Dividends on Class A and Class B Shares paid to citizens or
residents of the U.S. or to U.S. corporations (including any
Canadian federal income tax withheld) will be generally subject to
U.S. federal ordinary income taxation. Such dividends will not be
eligible for the deduction for dividends received by corporations
(unless such corporation owns by vote and value at least 10% of the
stock of the Company, in which case a portion of such dividend may
be eligible for such exclusion).
U.S. corporations, U.S. citizens and U.S. residents will generally
be entitled, subject to certain limitations, to a credit against
their U.S. federal income tax for Canadian federal income taxes
withheld from such dividends. Taxpayers may claim a deduction for
such taxes if they do not elect to claim such tax credit. No
deduction for foreign taxes may be claimed by an individual
taxpayer who does not itemise deductions. Because the application
of the foreign tax credit depends upon the particular circumstances
of each shareholder, shareholders are urged to consult their own
tax advisors in this regard. Under certain limited circumstances,
non-resident alien and foreign corporations will be subject to U.S.
federal income taxation at graduated rates upon dividends or gains
with respect to their Class A and Class B Shares, if such income or
gain is treated as effectively connected with the conduct of the
recipient's trade or business within the United States, and may be
entitled to such tax credit or such deduction.
Canadian Federal Income Tax Considerations
Dividends paid on Class A and Class B Shares held by non-residents
of Canada will generally be subject to Canadian withholding tax.
This withholding tax is levied at the basic rate of 25%, although
this rate may be reduced by the terms of any applicable tax treaty.
The Canada - U.S. tax treaty provides that the withholding rate on
dividends paid to U.S. residents on Class A and Class B Shares is
generally 15%.
Normal Course Issuer Bid
On June 21, 1996 the Company announced that it intended to purchase
up to 800,000 Class A Shares by way of a Normal Course Issuer Bid
through the facilities of The Toronto Stock Exchange. The 800,000
shares represent approximately 8.3% of the public float of Class A
Shares. For the year ended December 31, 1996, through both the currently
outstanding Normal Course Issuer Bid and through the Normal Course
Issuer Bid which expired May 17, 1996, the Company did not purchase any
Class A Shares. Any shares purchased by the Company pursuant to the
Normal Course Issuer Bid will be cancelled. Unless terminated earlier
by the Company, it may continue to purchase shares up to June 24, 1997.
The Company may, at its option, apply to extend the program
for an additional year.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial information derived
from the audited consolidated financial statements of the Company
for the five years ended December 31, 1996. The selected financial
information should be read in conjunction with, and is qualified in
its entirety by reference to, the Consolidated Financial Statements
and notes thereto included elsewhere in this report. See also Item
7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(US dollars in thousands except share amounts)
Year ended December 31,
1996 1995 1994 1993 1992
Revenue $213,988 $184,433 $157,253 $161,985 $139,156
Profit before
extraordinary
item $ 30,279 $ 20,899 $ 11,780 $ 19,022 $ 13,465
Net profit $ 30,279 $ 20,899 $ 11,780 $ 19,022 $ 13,823
Profit before
extraordinary item
per share (1) $2.42 $1.70 $0.96 $1.59 $1.16
Net profit per
share (1)
- basic $2.42 $1.70 $0.96 $1.59 $1.19
- fully-diluted $2.30 $1.64 $0.93 $1.51 $1.14
Total assets $519,916 $623,466 $510,636 $428,315 $318,799
Total current
liabilities $384,048 $516,031 $421,818 $349,825 $258,952
Subordinated
indebtedness,
including
current portion $ 30 $ 30 $ 30 $ 30 $ 30
Cash dividends per
Class A Share and
Class B share $0.35 $0.15 $0.15 $0.10 -
Shareholders'
equity $135,877 $107,405 $ 88,788 $ 78,460 $ 59,817
Book value per
share (1) $10.99 $8.92 $7.34 $6.54 $5.06
Number of shares
of capital stock
outstanding 12,365,440 12,040,090 12,094,680 11,997,530 11,827,530
The Class A Shares and Class B Shares are combined because
they are of equal rank for purposes of dividends and in the event of a
distribution of assets upon liquidation, dissolution or winding up.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business Environment
Fahnestock, the Company's principal operating subsidiary, provides
brokerage and related investment services. Fahnestock is engaged in
proprietary trading and offers other related financial services to
investors in fifteen states from 47 offices in the North-eastern United
States, the Midwest, Florida and California, and from two associated
offices in Caracas, Venezuela and Buenos Aires, Argentina. Client assets
entrusted to the Company as at December 31, 1996 totalled approximately $9
billion. Fahnestock is licensed to offer brokerage and other financial
services in all 50 States. The Company provides investment advisory
services through Hudson Capital and through Fahnestock Asset Management
and Newbold Investment Advisors, operating as divisions of Fahnestock.
Funds under management by the asset management groups totalled $800
million at December 31, 1996. The Company also operates a discount
brokerage business based in Omaha, Nebraska, through Freedom.
The securities industry is highly competitive and sensitive to many
factors and is directly affected by general economic and market
conditions, including the volatility and price level of securities
markets; the volume, size, and timing of securities transactions; the
demand for investment banking services and changes in interest rates,
all of which have an impact on commissions, trading and investment
income as well as on liquidity. In addition, a significant portion of
the Company's expenses are relatively fixed and do not vary with market
activity. Consequently, substantial fluctuations can occur in the
Company's revenues and net income from period to period due to these and
other factors.
The Company anticipates increasing competition from commercial banks and
thrift institutions as these institutions begin to offer investment
banking and financial services traditionally only provided by securities
firms. The Company also anticipates increasing regulation in the
securities industry, making compliance with regulations more difficult
and costly. At present, the Company is unable to predict the extent of
changes that may be enacted, or the effect on the Company's business.
The Company's long-term plan is to continue to grow existing offices by
hiring experienced professionals, thus maximixing the potential of each
office and development of existing trading, investment banking,
investment advisory and other activities. Equally important is the
search for viable candidates for acquisition. As opportunities are
presented, it is the intention of the Company to pursue growth by
acquisition where a comfortable match can be found in terms of corporate
goals and personnel and at a price that would provide the Company's
shareholders with value.
Results of Operations
A strong U.S. economy with low unemployment and stable interest rates
set the stage for U.S. stock markets to reach record levels in 1996.
With inflation at unusually low levels, investors showed their
confidence in the investment environment by adding record amounts into
equity mutual funds.
The Company's revenues in fiscal 1996 increased by 16% compared to
fiscal 1995 reflecting the strong retail environment in 1996 which
produced record commission revenues for the Company as well as record
profits from principal transactions in the firm's proprietary trading
departments. Underwriting and investment advisory fees increased 33% and
26%, respectively, in 1996 compared to 1995. Net profit in fiscal 1996
was $30,279,000 or $2.42 per share, up 45% from $20,899,000 or $1.70 per
share in 1995 which was up 77% from $11,780,000 or $0.96 per share in
1994.
The following table summarises the changes in the major revenue and
expense categories from the consolidated statement of operations for the
past three fiscal years ended December 31, 1996, 1995 and 1994.
Period to Period Change
Increase (Decrease)
1996 1995
versus versus
1995 Percen- 1994 Percen-
Amount tage Amount tage
Revenues-
Commissions $ 4,920,000 7.1% $ 7,813,000 12.8
Principal transactions 24,078,000 42.7 11,696,000 26.1
Interest (3,252,000) -9.0 12,621,000 53.5
Underwriting fees 2,132,000 32.6 (4,590,000) -41.2
Advisory fees 2,938,000 26.1 (1,616,000) -12.6
Other (1,261,000) -25.7 1,256,000 34.4
29,555,000 16.0 27,180,000 17.3
Expenses-
Compensation 15,008,000 17.2 3,427,000 4.1
Clearing and exchange
fees (249,000) -3.3 408,000 5.7
Communications (16,000) -0.1 29,000 0.2
Occupancy costs 871,000 9.4 (172,000) -1.8
Interest (5,216,000) -24.2 9,741,000 82.6
Other 86,000 1.0 (118,000) -1.3
10,484,000 7.0 13,315,000 9.7
Profit before taxes 19,071,000 54.8 13,865,000 66.1
Income taxes 9,691,000 69.6 4,746,000 51.7
Net profit $ 9,380,000 44.9% $ 9,119,000 77.4%
Fiscal 1996 compared to Fiscal 1995
In fiscal 1996, a healthy U.S. economy with stable interest rates and
low inflation, sent the U.S. equity market to record-breaking highs.
Retail commission volumes broke 1995 record levels as the Dow Jones
Industrial average and all other major indices established new highs.
Total revenues for 1996 were $213,988,000, up 16% over $184,433,000 in
1995. Commission income in 1996 was $73,992,000, up 7% over $69,072,000
in 1995. Commission income (the income realized in securities
transactions for which the company acts as agent) increased primarily
due to a general increase in market volumes in 1996 compared to 1995.
Principal transactions (revenues from transactions in which the company
acts as principal in the secondary market trading of over-the-counter
equities and municipal, corporate and government bonds) was $80,508,000,
up 43% from $56,430,000 in 1995. This increase was due primarily to
higher activity levels and profits from the Over-the-Counter equity
department and the convertible bond department. Underwriting fees in
1996 were $8,672,000, an increase of 33% over $6,540,000 in 1995. With
the strong market in corporate Initial Public Offerings (IPOs) business in
1996, the Company was able to increase its underwriting business compared
to 1995. Public finance issuance improved from 1995's depressed levels.
Advisory fees in 1996 were $14,189,000, an increase of 26% over $11,251,000
in 1995. The increase is attributable to the increasing value of assets
managed and the timing of receipts of fees due for such management. In
September, 1996 assets under management were significantly reduced as a
result of the retirement of a key employee of the Hudson Capital Advisors
division. Other revenue was lower in 1996 than 1995 which included a
life insurance benefit which did not recur in 1996.
Interest income was $32,981,000, a decrease of 9% from $36,233,000 in
1995. Interest expense was $16,311,000, a decrease of 24% from
$21,527,000 in 1995. This decrease is primarily the result of lower
stock loan/stock borrow balances in 1996 compared to 1995. Net interest
revenue of $16,670,000 (interest revenue less interest expense) increased
13% in 1996 compared to 1995.
Expenses totalled $160,086,000 in 1996, an increase of 7% over
$149,602,000 in 1995. Compensation and related expenses, which are
largely revenue-driven were $102,059,000 in 1996, an increase of 17%
over $87,051,000 in 1995. Clearing and exchange fees were $7,262,000 in
1996, a decrease of 3% from $7,511,000 in 1995 due to the redirection of
many transactions away from Exchanges. Communications costs of $15,002,000
in 1996 decreased slightly compared to $15,018,000 in 1995. Occupancy costs
were $10,176,000, an increase of 9% compared to $9,305,000 in 1995. This was
due to an increase in the cost of leasing premises and equipment, primarily
due to the commencement of business of Freedom Investments in late 1995.
Fiscal 1995 compared to Fiscal 1994
In fiscal 1995, a reduction in U.S. interest rates set the stage for
record markets. Retail commission volumes reached record levels and the
Dow Jones Industrial average and other major market indices set new
records. Total revenues for 1995 were $184,433,000, up 17% from
$157,253,000 in 1994. Commission income was $69,072,000, up 13% from
$61,259,000 in 1994. Commission income increased primarily due to a
general increase in market volumes in 1995 compared to 1994. Principal
transactions was $56,430,000, up 26% from $44,734,000 in 1994. This
increase was due to higher activity levels in government, corporate and
municipal bond trading and trading in the OTC market. Interest income
was $36,233,000, up 53% from $23,612,000 in 1994. This increase reflects
higher customer debit balances 1995 compared to 1994. Underwriting fees
(which have historically been weighted in favour of municipal business)
declined in 1995, down 41% to $6,540,000 from $11,130,000 in 1994.
Although the market for corporate new issue business increased in 1995
compared to 1994, the market for municipal issues continued to decline.
Advisory fees in 1995 were down 13% to $11,251,000 from $12,867,000 in
1994 due to the timing of billings and somewhat lower activity levels
from investment banking assignments. In the ordinary course of business,
the company carries life insurance on its executives and former
executives. Other income increased to $4,907,000 from $3,651,000 in 1994
primarily due to the proceeds from such insurance.
Expenses totalled $149,602,000 in 1995, an increase of 10% from
$136,287,000 in 1994. Compensation and related expenses, which are
largely volume-related, increased 4% to $87,051,000 from $83,624,000 in
1994. The comparative increase in compensation costs was partially
off-set by the reduction by the latter part of 1994 of certain fixed
costs associated with Reich & Co. Inc., which was acquired in December,
1993. Clearing and exchange fees which are also partially volume-related
were $7,511,000, up 6% from $7,103,000 in 1994. Communications costs
were $15,018,000, up slightly from $14,989,000 in 1994 due to
externally-driven cost increases. Occupancy costs were $9,305,000, down
2% from $9,477,000 in 1994 due to restructuring of certain branches and
favourable lease negotiations. Interest expense of $21,527,000 in 1995
represented an increase of 83% from $11,786,000 in 1994. Funding of
higher customer debit balances was largely accomplished through stock
lending activity. Such funding activity increased the cost of borrowing
during 1995 compared to 1994. Other expenses were $9,190,000, down 1%
from $9,308,000 in 1994.
Liquidity and Capital Resources
The increase in the Company's financial assets during the last three
years has been primarily the result of the expansion in its business and
the growth in earnings. Customer-related receivables and securities
inventory are highly liquid and represent a substantial percentage of
total assets. The principal sources of financing for the Company's
assets are stockholders' equity, customer free credit balances, proceeds
from securities lending, bank loans and other payables. The Company has
not utilized long-term financing. Cash generated from operations,
increased earnings, proceeds from stock purchased by employee stock
plans, and cash proceeds upon the exercise of employee stock options
supplemented bank borrowings during the past three years. At December
31, 1996, Fahnestock had bank lines of credit and call loan arrangements
with outstanding borrowings thereunder of $11,800,000.
The Company paid cash dividends to its shareholders totalling $4,296,000,
during 1996, from internally-generated cash.
Because of the Company's strong financial condition, size and earnings
history, management believes adequate sources of credit would be
available to finance higher trading volumes, branch expansion, and major
capital expenditures, as needed.
Inflation
Because the assets of the Company's brokerage subsidiaries are highly
liquid, and because securities inventories are carried at current market
values, the impact of inflation generally is reflected in the financial
statements. However, the rate of inflation affects the Company's costs
relating to employee compensation, rent, communications and certain
other operating costs, and such costs may not be recoverable in the
level of commissions charged. To the extent inflation results in rising
interest rates and has other adverse effects upon the securities
markets, it may adversely affect the Company's financial position and
results of operations.
Factors Affecting "Forward-Looking Statements"
From time to time, the Company may publish "Forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended ( the "Act"), and Section 21E of the Exchange Act or make oral
statements that constitute forward-looking statements. These forward-
looking statements may relate to such matters as anticipated financial
performance, future revenues or earnings, business prospects, projected
ventures, new products, anticipated market performance, and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order to comply with the
terms of the safe harbor, the Company cautions readers that a variety
of factors could cause the Company's actual results to differ materially
from the anticipated results or other expectations expressed in the
Company's forward-looking statements. These risks and uncertainties,
many of which are beyond the Company's control, include, but are not
limited to: (i)transaction volume in the securities markets, (ii)the
volatility of the securities markets, (iii)fluctuations in interest
rates, (iv)changes in regulatory requirements which could affect the
cost of doing business, (v)fluctuations in currency rates, (vi)general
economic conditions, both domestic and international, (vii)changes in
the rate of inflation and the related impact on the securities markets,
(viii)competition from existing financial institutions and other new
participants in the securities markets, (ix)legal developments affecting
the litigation experience of the securities industry, and (x)changes in
federal and state tax laws which could affect the popularity of products
sold by the Company. The Company does not undertake any obligation to
publicly update or revise any forward-looking statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this Item is
submitted hereinafter following the signature pages hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General
Directors of the Company are elected annually by the holders of the
Class B Shares to serve until the next annual meeting of
shareholders or until their successors are appointed. Executive
officers are appointed annually by the directors or until their
successors are appointed. Certain information concerning the
executive officers and directors of the Company as at December 31,
1996 is set forth below.
Name Age Positions held
John L. Bitove 68 A Director of the Company since
February 1980; Chairman of The
Bitove Corporation (a holding
company for subsidiaries engaged
in food and beverage services)
since 1987.
- Member of the Audit and Compensation
and Stock Option Committees.
Richard Crystal 56 A Director of the Company since
1992; Partner, Whitman Breed
Abbott & Morgan (Attorneys-at-
Law), U.S. counsel to the Company
since 1985.
- Member of the Compensation and
Stock Option Committee.
Albert G. Lowenthal 51 Chairman of the Board, Chief
Executive Officer and a Director
of the Company since 1985;Chairman
of the Board and Chief Executive
Officer of Fahnestock since 1985;
between March 1985 and September
1985, Mr. Lowenthal was
self-employed; prior to March
1985, Mr. Lowenthal was President
of Cowen Securities Inc., a New
York stock brokerage firm and a
general partner of Cowen & Co., a
New York brokerage firm.
Kenneth W. McArthur 61 A Director of the Company since 1996;
President and C.E.O. of Shurway Capital
Corporation (a private corporation),
since July 1993; Senior Vice-President
Bank of Montreal Investment Counsel
between January 1992 and July 1993;
Senior Vice-President Nesbitt Thomson
Inc. between July 1989 and January 1993.
- Member of the Audit Committee
A. Winn Oughtred 54 A Director of the Company since
1979; a Director of Fahnestock
since 1983; Secretary of the
Company since June, 1992 and prior
to June, 1991; Partner, Borden &
Elliot (Law firm), Canadian counsel
to the Company since 1979.
Elaine K. Roberts 45 President, Treasurer and a
Director of the Company since
1977; Treasurer and a Director of
Fahnestock since 1983.
Burton Winberg 72 A Director of the Company since
1979; President of Rockport
Holdings Limited (a real estate
development company) since 1959.
- Member of the Audit and Compensation
and Stock Option Committees.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file by specific
dates with the SEC initial reports of ownership and reports of changes
in ownership of equity securities of the Company. Officers, directors
and greater than ten percent stockholders are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms that they
file. The Company is required to report in this annual report on Form
10-K any failure of its directors and executive officers and greater
than ten percent stockholders to file by the relevant due date any of
these reports during the two preceding fiscal years.
Except as described below, to the Company's knowledge, based solely on
review of copies of such reports furnished to the Company during the two
fiscal years ended December 31, 1996, all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater
than ten percent stockholders were complied with.
The Company has been advised that as at December 31, 1996, Kenneth
McArthur, Director, had not filed a Form 3 with respect to initial
statement of ownership of shares of the Company. The Company has been
advised that Mr. McArthur has now complied with the filing requirements.
Item 11. EXECUTIVE COMPENSATION
General
The following table sets forth total annual compensation paid or
accrued by the Company to or for the account of the Company's chief
executive officer and each of the four most highly paid executive
officers of the Company whose total cash compensation for the
fiscal year ended December 31, 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
#Securities
$Rest- Under
Name and $Other ricted Options/ $All
Principal Annual Stock SARs $LTIP Other
Occupation Year $Salary $Bonus Comp. Awards Granted Payouts Comp.
A.G. Lowenthal, 1996 300,000 400,000 10,400 0 0 386,694 6,730
Chairman, CEO, 1995 300,000 300,000 10,350 0 0 238,306 5,000
and Director of 1994 300,000 187,500 11,270 0 150,000 0 3,200
the Company;
Chairman and CEO
of Fahnestock
Robert Neuhoff, 1996 230,000 175,000 0 0 0 0 6,730
Executive Vice 1995 230,000 125,000 0 0 0 0 5,000
President of 1994 195,000 75,000 0 0 25,000 0 3,200
Fahnestock
Eric Shames (*) 1996 150,000 75,000 0 0 15,000 0 6,595
Secretary of 1995 115,000 50,000 0 0 0 0 0
Fahnestock
(*) Mr. Shames joined the Company in January 1995.
Robert Maimone 1996 135,000 75,000 0 0 25,000 0 6,730
Senior Vice 1995 115,000 50,000 0 0 0 0 4,905
President of 1994 100,000 32,000 0 0 0 0 3,200
Fahnestock
E.K. Roberts, 1996 120,000 70,000 10,400 0 0 0 0
President, 1995 120,000 50,000 10,350 0 0 0 0
Treasurer and 1994 120,000 30,000 11,270 0 75,000 0 0
Director of the
Company
OTHER ANNUAL COMPENSATION - Includes Directors Fees of Cdn$10,000 per year
plus Cdn$600 per meeting attended and which were converted to $US at the
average rate prevailing during the year.
RESTRICTED STOCK AWARDS - The Company does not have a plan for granting
restricted stock awards.
LTIP PAYOUTS - See discussion under 'Stock Appreciation Agreement", described
herein. LTIP payouts are paid in January following the year for which they
were accrued.
ALL OTHER COMPENSATION - This represents Company contributions to the 401(k)
Plan.
OPTION EXERCISES AND YEAR-END VALUE TABLE
$ Year-end
# of shares value of options
Underlying unexercised
unexercised in-the-money
Shares options/SARs options
acquired $ Value exercisable/ exercisable/
Name on exercise Realized unexercisable unexercisable
A.G. Lowenthal 0 0 112,500/187,500 892,500/1,309,500
R. Neuhoff 50,000 315,000 6,250/18,750 34,750/104,250
E. Shames 0 0 0/15,000 0/45,750
R. Maimone 12,500 67,500 0/25,000 0/76,250
E.K. Roberts 0 0 18,750/56,250 104,250/312,750
Details of number of shares and value of exercisable and unexercisable options
are as follows:
These options are exercisable in $CDN and have been converted at the exchange
rate as at December 31, 1996.
# of Option Price at Value Total
shares Price Dec.31/96 Per Share Value
A.G. Lowenthal -
exercisable 75,000 $5.38 $14.50 $9.12 $684,000
unexercisable 75,000 $5.38 $14.50 $9.12 $684,000
exercisable 37,500 $8.94 $14.50 $5.56 $208,500
unexercisable112,500 $8.94 $14.50 $5.56 $625,500
R. Neuhoff -
exercisable 6,250 $8.94 $14.50 $5.56 $34,750
unexercisable 18,750 $8.94 $14.50 $5.56 $104,250
E. Shames -
exercisable 0 n/a n/a n/a n/a
unexercisable 15,000 $11.45 $14.50 $3.05 $45,750
R. Maimone -
exercisable 0 n/a n/a n/a n/a
unexercisable 25,000 $11.45 $14.50 $3.05 $76,250
E.K. Roberts -
exercisable 18,750 $8.94 $14.50 $5.56 $104,250
unexercisable 56,250 $8.94 $14.50 $5.56 $312,750
OPTION/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 1996.
Individual Grants
Number of % of total Potential Realizable Value
Securities options/ at assumed rates of stock
underlying SARs Exercise or price appreciation for
option/SARs granted to base price Expiry option term
granted employees $s/share date 5% 10%
Robert Maimone 25,000 7.5% Cdn$15.70 May 28,2001 $61,750 $133,000
Eric Shames 15,000 4.5% Cdn$15.70 May 28,2001 $37,050 $ 79,800
Pension Plan
The Company has no pension plans for its officers and employees other
than a savings plan qualified under Section 401(k) of the Internal
Revenue Code, pursuant to which the Company may make an annual cash
contribution based on compensation for each employee. Should
participants in the plan elect to receive their employer contribution in
the form of Class A Shares, the Company may make an additional
contribution of Class A Shares equal in market value to 15% of the
purchase price of the Class A Shares. On January 18, 1994, with respect
to the 1993 fiscal year, the Company issued 111,000 Class A Shares from
Treasury at Cdn.$10.58 (US$7.965) per share to the Company's 401(k)
plan. On January 27 , 1995, with respect to the 1994 fiscal year, the
Company issued 92,000 Class A Shares from Treasury at Cdn.$9.00
(US$6.75). On January 10, 1996, with respect to the 1995 fiscal year,
the Company issued 113,000 Class A Shares from Treasury at Cdn.$12.24
(US$8.85) per share to the Company's 401(k) plan. On January 14, 1997,
with respect to the 1996 fiscal year, the Company issued 70,000 Class A
Shares from Treasury at U.S.$14.375 per share to the Company's 401(k)
plan.
In addition, employees of the Company and its subsidiaries are entitled
to group health benefits and group life insurance coverage pursuant to
plans which do not discriminate in scope, terms, or operation in favour
of officers or directors of the Company, and which are generally
available to all salaried employees.
Employee Stock Option Plans
In 1996, the Company established its 1996 Equity Incentive Plan (the
"EIP"). The 1986 Incentive Stock Option Plan (the "ISO") and the 1986
Employee Stock Option Plan (the "ESO") which were established in 1986
expired in April 1996. (The EIP, the ISO and the ESO are sometimes
hereinafter collectively referred to as the "Plans".) The Plans permit
the compensation and stock option committee of the board of directors of
the Company to grant options to purchase Class A Shares of the Company to
officers and key employees of the Company and its subsidiaries. Under an
amendment to the ESO in June 1992 grants of options are made to the Company's
independent directors on a formula basis. Options generally vest at the
rate of 25% of the amount granted for each year held. Under the
provisions of the Internal Revenue Code, options granted under the ISO
qualify as "incentive stock options" and options granted under the ESO
do not qualify. The EIP was amended in January 1997 to increase the
authorised number of Class A Shares that may be subject to options to
1,850,000. This amendment is subject to shareholder approval.
The Compensation and Stock Option Committee of the board of directors of
the Company administers and interprets the provisions of the Plans,
except as the Plans relate to grants to independent directors which are
made pursuant to a formula. The committee's responsibilities include
determining (i) which employees are eligible for participation in the
Plans, (ii) when to grant options under the Plans, (iii) the number of
shares that may be subject to options, and (iv) the times at which
options may be exercised.
Stock Appreciation Agreement
In February, 1995 Fahnestock entered into a Stock Appreciation Agreement
(the "Stock Appreciation Agreement") with Albert G. Lowenthal, the
Chairman and Chief Executive Officer of the Company and of Fahnestock,
pursuant to the recommendation of the Company's Compensation Committee
and the approval of the Board of Directors. The purpose of the Stock
Appreciation Agreement is to provide additional compensation to Mr.
Lowenthal for his past services (so as to bring Mr. Lowenthal's
compensation more into line with the compensation paid to chief
executive officers of comparable companies in the financial services
industry) linked to the future market price of the Company's stock.
Under the terms of the Stock Appreciation Agreement, Mr. Lowenthal was
entitled to receive a cash award in January 1996 of U.S.$238,306, being
the greater of (x) U.S.$150,000 or (y) the difference between Cdn.$9.00
and the Market Value (as defined in the Stock Appreciation Agreement)
for the Company's Class A Shares on The Toronto Stock Exchange as of
December 31, 1995, multiplied by 100,000. Mr. Lowenthal was entitled to
additional payment of U.S.$386,694 in January 1997 based upon this
formula and restricted by the proviso that the aggregate paid with
respect to 1995 and 1996 not exceed U.S.$625,000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth information as of December 31, 1996
as to the only persons known to the Company which own beneficially more
than 5% of the Class B Shares (the only class of voting stock of the
Company). There are no outstanding rights to acquire beneficial
ownership of any Class B Shares.
Title of Identity of Person Mailing Amount Percent
Class or Group Address Owned of Class
Class B Shares
A.G.Lowenthal c/o Fahnestock 50,000(1) 50.2%
& Co. Inc.
110 Wall Street
NY, NY
O.Roberts c/o Fahnestock 44,309(2) 44.4%
Viner Holdings Inc.
20 Eglinton Ave.W.
Toronto, Ontario
___________________________________
1. All shares are held of record by Phase II Financial Limited,
an Ontario corporation ("Phase II") wholly-owned by Mr.
Lowenthal who is Chairman of the Company.
2. Mrs. Roberts, who is the mother of Elaine Roberts, President
of the Company, owns 100 shares directly and 44,209
shares indirectly through Elka Estates Limited, an Ontario
corporation ("Elka") is wholly-owned by Mrs. Roberts.
(b) The following table sets forth information as of December 31, 1996
as to the ownership of Class A Shares and Class B Shares, the only
classes of equity securities of the Company, by persons who are
directors of the Company, naming them, and as to directors and officers
of the Company as a group, without naming them.
Title of Identity of Person Percentage
Class or Group Amount Owned of Class
Class A Shares Albert G Lowenthal 2,301,060(1),(2) 18.8%
Elaine K. Roberts 93,244(4) 0.8%
Burton Winberg 700 *%
A. Winn Oughtred 500 *%
John Bitove 580 *%
Richard Crystal 5,500(5) *%
Kenneth McArthur 35,000 0.3%
Officers and Directors as a group (7 members;2,436,584
shares or 19.9% in aggregate) (1), (2), (4)and (5)
Title of Identity of Person Percentage
Class or Group Amount Owned of Class
Class B Shares A.G.Lowenthal 50,000(3) 50.1%
E.K. Roberts 108 *%
John Bitove 20 *%
Officers and Directors as a group (7 members;50,128
shares or 50.3% in aggregate)(3)
__________________________
*Less than 1%
(1) Mr. Lowenthal is the sole general partner of Phase II
Financial L. P., a New York limited partnership, ("Phase II
L.P.") which is the record holder of 2,182,150 Class A
Shares. Mr. Lowenthal holds 6,410 Class A Shares through the
Company's 401(k) plan.
(2) 112,500 Class A Shares are beneficially owned in respect of
Class A Shares currently issuable upon exercise of options
issued under the Company's ISO and ESO.
(3) Phase II, an Ontario corporation wholly-owned by Mr.
Lowenthal, is the holder of record of all such shares.
(4) 18,750 Class A Shares are beneficially owned in respect of
Class A Shares currently issuable upon exercise of options
issued under the Company's ESO.
(5) 5,000 Class A Shares are beneficially owned in respect of
Class A Shares currently issuable upon exercise of options
issued under the Company's ESO.
(c) There are no arrangements, known to the Company, the operation of
which may at a subsequent date result in a change of control of the
Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of the directors or officers of the Company or any associate of any
such director or officer was indebted to the Company or its subsidiaries
at any time during the last three years except as follows:
During the last three years Albert G. Lowenthal and Phase II L.P. have
maintained margin accounts with Fahnestock. Such margin accounts are
substantially on the same terms, including interest rates and
collateral, as those prevailing from time to time for comparable
transactions with non-affiliated persons and do not involve more than
the normal risk of collectability. The maximum amount of borrowings
outstanding during 1996 was $178,000( nil in 1994 and 1995). Mr. Robert
Neuhoff also maintains a margin account with Fahnestock. The maximum
borrowings outstanding during 1996 was $427,000 (nil in 1994 and 1995).
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (i)Financial Statements
The response to this portion of Item 14 is
submitted as a separate section of this report.
See pages F-1 to F-14
(ii)Financial Statement Schedules
Not Applicable
(iii)Listing of Exhibits
The exhibits which are filed with this Form
10-K or are incorporated herein by reference
are set forth in the Exhibit Index which
immediately precedes the exhibits to this
report.
(b) Reports on Form 8-K
The Company was not required to file any
reports on Form 8-K during the last quarter of
1996 or thereafter to date.
(c) Exhibits
See the Exhibit Index included hereinafter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 26th day of February,
1997.
FAHNESTOCK VINER HOLDINGS INC.
BY:/s/E.K. Roberts
E.K. Roberts, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/J.L. Bitove Director Feb.26, 1997
J.L. Bitove
/s/R. Crystal Director Feb.26, 1997
R. Crystal
/s/A.G. Lowenthal Chairman, Chief Executive Feb.26, 1997
A.G. Lowenthal Officer, Director
/s/K.W. McArthur Director Feb.26, 1997
K.W. McArthur
/s/A.W. Oughtred Secretary, Director Feb.26, 1997
A.W. Oughtred
/s/E.K. Roberts President, Treasurer, Feb.26, 1997
E.K. Roberts Chief Financial Officer, Director
/s/ B. Winberg Director Feb.26, 1997
B. Winberg
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FAHNESTOCK VINER HOLDINGS INC.
Management's Responsibility
for Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheet
as of December 31, 1996 and 1995 F-3
Consolidated Statement of Retained Earnings
for the three years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statement of Operations
for the three years ended
December 31, 1996, 1995 and 1994 F-6
Consolidated Statement of Cash Flows
for the three years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Fahnestock Viner
Holdings Inc. were prepared by management in accordance with generally
accepted accounting principles in the United States, which conform
in all material respects with accounting principles generally
accepted in Canada. The significant accounting policies of the
Company are described in Note 1 to the consolidated financial
statements.
Management is responsible for the integrity and objectivity of the
information contained in the consolidated financial statements. In
order to present fairly the financial position of the Company and
the results of its operations and the changes in its financial
position, estimates which are necessary are based on careful
judgements and have been properly reflected in the consolidated
financial statements. Management has established systems of
internal control which are designed to provide reasonable assurance
that assets are safeguarded from loss or unauthorized use and to
produce reliable accounting records for the preparation of
financial information.
Coopers & Lybrand, the Company's independent auditors, conduct an
audit of the consolidated financial statements in accordance with
generally accepted auditing standards. Their audit includes a review
and evaluation of the Company's systems of internal control, and such
tests and procedures as they consider necessary in order to form an
opinion as to whether the consolidated financial statements are
presented fairly in accordance with accounting principles generally
accepted in the United States.
The Board of Directors is responsible for ensuring that management
fulfils its responsibilities for financial reporting and internal
control. The Board of Directors is assisted in this responsibility
by its Audit Committee, a majority of whose members are not
officers of the Company. The Audit Committee meets with management
as well as with the independent auditors to review the internal
controls, consolidated financial statements, and the auditor's
report. The Audit Committee reports its findings to the Board of
Directors for its consideration in approving the consolidated
financial statements for issuance to the shareholders.
Management recognizes its responsibility for conducting the
Company's affairs in compliance with established financial
standards, and applicable laws and regulations, and for maintaining
proper standards of conduct for its activities.
/s/A.G. Lowenthal /s/E.K. Roberts
A.G. Lowenthal, E.K. Roberts,
Chairman of the Board President and
and Chief Executive Officer Treasurer
January 29, 1997
F-1
AUDITORS' REPORT
TO THE SHAREHOLDERS OF FAHNESTOCK VINER HOLDINGS INC.
We have audited the consolidated balance sheets of Fahnestock Viner
Holdings Inc. as at December 31, 1996 and 1995 and the consolidated
statements of operations, retained earnings and cash flows for the
years ending December 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 1996 and 1995 and the results of its
operations and cash flows for the years ended December 31, 1996,
1995 and 1994 in accordance with accounting principles generally
accepted in the United States.
/s/Coopers & Lybrand
Chartered Accountants
Toronto, Canada
January 29, 1997
F-2
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
As at December 31 1996 1995
(Expressed in U.S. dollars)
ASSETS
Current assets
Cash $ 9,363,000 $ 9,707,000
Restricted deposits (note 2) 1,902,000 1,242,000
Receivable from brokers and
clearing organizations 186,543,000 303,610,000
Receivable from customers 266,142,000 253,184,000
Securities owned, at market value
(notes 3 and 5) 41,596,000 36,850,000
Demand notes receivable 30,000 30,000
Other 10,143,000 14,686,000
515,719,000 619,309,000
Other assets
Stock exchange seats (approximate market
value $3,503,000; 1995-$2,911,000) 1,411,000 1,446,000
Fixed assets, net of accumulated
depreciation of $3,853,000; 1995-
$3,118,000 1,856,000 1,595,000
Goodwill, at amortized cost 930,000 1,116,000
4,197,000 4,157,000
$ 519,916,000 $ 623,466,000
(See accompanying notes to consolidated financial statements)
F-3
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
As at December 31 1996 1995
(Expressed in U.S. dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Drafts payable $ 12,439,000 $ 16,821,000
Bank call loans (note 5) 11,800,000 41,200,000
Payable to brokers and clearing
organizations 193,965,000 319,843,000
Payable to customers 91,880,000 79,494,000
Securities sold, but not yet purchased,
at market value (note 3) 32,756,000 25,940,000
Accounts payable and other liabilities 29,366,000 23,627,000
Income taxes payable (note 8) 11,803,000 9,106,000
384,009,000 516,031,000
Subordinated loans payable (note 4) 30,000 30,000
Shareholders' equity
Share capital (note 6)
12,265,760 Class A non-voting shares 39,688,000 37,513,000
(1995-11,940,410 shares)
99,680 Class B voting shares 133,000 133,000
39,821,000 37,646,000
Contributed capital (note 7) 1,099,000 785,000
Retained earnings 94,957,000 68,974,000
135,877,000 107,405,000
$ 519,916,000 $ 623,466,000
Commitments and contingencies (notes 10 and 12)
(See accompanying notes to consolidated financial statements)
F-4
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Retained Earnings
For the Year Ended December 31
1996 1995 1994
(Expressed in U.S. dollars)
Retained earnings,
beginning of year $ 68,974,000 $ 49,902,000 $39,974,000
Net profit for the year 30,279,000 20,899,000 11,780,000
Dividends paid (4,296,000) (1,827,000) (1,852,000)
Retained earnings,
end of year $ 94,957,000 $ 68,974,000 $49,902,000
(See accompanying notes to consolidated financial statements
F-5
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Operations
For the Year Ended December 31
1996 1995 1994
(Expressed in U.S. dollars)
Revenue
Commissions $ 73,992,000 $ 69,072,000 $ 61,259,000
Principal transactions 80,508,000 56,430,000 44,734,000
Interest 32,981,000 36,233,000 23,612,000
Underwriting fees 8,672,000 6,540,000 11,130,000
Advisory fees 14,189,000 11,251,000 12,867,000
Other 3,646,000 4,907,000 3,651,000
213,988,000 184,433,000 157,253,000
Expenses
Compensation and related
expense 102,059,000 87,051,000 83,624,000
Clearing and exchange fees 7,262,000 7,511,000 7,103,000
Communications 15,002,000 15,018,000 14,989,000
Occupancy costs 10,176,000 9,305,000 9,477,000
Interest 16,311,000 21,527,000 11,786,000
Other 9,276,000 9,190,000 9,308,000
160,086,000 149,602,000 136,287,000
Profit before income taxes 53,902,000 34,831,000 20,966,000
Income taxes (note 8) 23,623,000 13,932,000 9,186,000
Net profit for the year $ 30,279,000 $20,899,000 $11,780,000
Profit per share (note 9)
- -basic $2.42 $1.70 $0.96
- -fully diluted $2.30 $1.64 $0.93
(See accompanying notes to consolidated financial statements)
F-6
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Cash Flows
For the Year Ended December 31
1996 1995 1994
(Expressed in U.S. dollars)
Cash flows from operating activities:
Net profit for the year $ 30,279,000 $20,899,000 $11,780,000
Adjustments to reconcile
net profit to net cash
provided by operating
activities:
Non-cash items included in
net profit:
Depreciation and amortization 955,000 579,000 590,000
Decrease (increase) operating
assets:
Restricted deposits ( 660,000) (48,000) 92,000
Receivable from brokers,
and clearing organizations 117,067,000 (85,412,000) (47,930,000)
Receivable from customers (12,958,000) (16,428,000) (36,938,000)
Securities owned ( 4,746,000) (6,683,000) 7,515,000
Other 4,543,000 (5,734,000) (1,423,000)
Drafts payable ( 4,382,000) 3,902,000 475,000
Payable to brokers and
clearing organizations (125,878,000) 59,331,000 69,089,000
Payable to customers 12,386,000 1,527,000 6,566,000
Securities sold, but not yet
purchased 6,816,000 13,899,000 (1,859,000)
Accounts payable and
other liabilities 5,739,000 3,069,000 (1,050,000)
Income taxes payable 2,697,000 7,110,000 (4,442,000)
Net cash provided (used)
by operating activities 31,858,000 (3,989,000) 2,465,000
Cash flows from investing and other activities:
Proceeds from sale
of exchange seat - 164,000 32,000
Purchase of fixed assets (995,000) (597,000) (653,000)
Purchase of exchange seat - (7,000) -
Net cash used in investing
and other activities (995,000) (440,000) (621,000)
Cash flows from financing activities:
Cash dividends paid on
Class A non-voting and
Class B shares ( 4,296,000) (1,827,000) (1,852,000)
Issuance of Class A
non-voting shares 2,175,000 691,000 1,493,000
Tax benefit from employee
options exercised 314,000 - 580,000
Repurchase of Class A
non-voting shares - (1,146,000) (1,673,000)
Increase in bank call loans (29,400,000) 5,375,000 3,214,000
Net cash provided (used)
in financing activities (31,207,000) 3,093,000 1,762,000
Increase (decrease) in cash ( 344,000) (1,336,000) 3,606,000
Cash, beginning of year 9,707,000 11,043,000 7,437,000
Cash, end of year $ 9,363,000 $ 9,707,000 $ 11,043,000
(See accompanying notes to consolidated financial statements)
F-7
FAHNESTOCK VINER HOLDINGS INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 1996
GENERAL
Fahnestock Viner Holdings Inc. (the "Company") is incorporated under the laws
of Ontario. The Company's principal subsidiary, Fahnestock & Co. Inc.
("Fahnestock"), is a member of the New York Stock Exchange , the American
Stock Exchange and several other regional exchanges.
1. Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for the purpose
of inclusion in the annual report on Form 10-K. In all material respects,
they conform with accounting principles generally accepted in Canada which
have been used to prepare the consolidated financial statements for purposes
of inclusion in the annual report to shareholders.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. The
most significant estimates are related to income taxes and contingencies.
Actual results could be materially different from these estimates.
Since operations are predominantly based in the United States, these
consolidated financial statements are presented in U.S. dollars.
The following is a summary of significant accounting policies followed in the
preparation of these consolidated financial statements:
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company and
all subsidiaries. The major subsidiaries, wholly-owned and operated in the
U.S., are as follows:
Fahnestock & Co. Inc. broker/dealer in securities
Freedom Investments, Inc. discount broker in securities
Hudson Capital Advisors Inc. investment advisory services
Significant inter-company balances and transactions have been eliminated upon
consolidation.
(b) Brokerage operations
Transactions in proprietary securities and related revenues and expenses are
recorded on a trade date basis. Customer securities and commodities
transactions are reported on a settlement date basis which is generally three
business days. Related commission income and expense is recorded on a trade
date basis. Securities owned are recorded at market value based upon quoted
prices. Securities owned and securities sold not yet purchased used for
trading purposes are reported at market value. Realized and unrealized changes
in market value are recognized in net trading revenues in the period in which
the change occurs. Other financial instruments are carried at fair value or
amounts that approximate fair value.
(c) Goodwill
Goodwill, acquired upon the acquisition of Fahnestock and Fahnestock
International Inc., is being amortized to operations on a straight-line basis
over twenty years. Negative goodwill arising as a result of the acquisition of
Hopper Soliday Corporation and subsidiaries and Reich & Co., Inc. is being
amortized to operations on a straight- line basis over twenty years.
F-8
(d) Fixed assets
Fixed assets and stock exchange seats are stated at cost. Depreciation and
amortization are provided based on the straight-line method over the useful
life of these assets.
(e) Foreign currency translations
Canadian currency balances have been translated into U.S. dollars as follows:
monetary assets and liabilities at exchange rates prevailing at year end;
revenue and expenses at average rates for the year; and non-monetary assets
and share capital at historic rates.
(f) Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes".
Deferred income tax assets and liabilities arise from "temporary differences"
between the tax basis of an asset or liability and its reported amount in the
consolidated financial statements. Deferred tax balances are determined by
applying the enacted tax rates.
2. Restricted deposits
Deposits of $1,902,000 (1995-$1,242,000) were held at year end in a special
reserve bank account for the exclusive benefit of customers in accordance with
regulatory requirements. To the extent permitted, these deposits are invested
in interest bearing accounts collateralized by qualified securities.
3. Securities owned and sold, but not yet purchased
1996 1995
Securities owned consist of:
Corporate equities $22,846,000 $20,756,000
Corporate debt 10,963,000 8,311,000
U.S. government and agency and state
and municipal government obligations 5,782,000 6,757,000
Securities purchased to resell 2,005,000 1,016,000
Certificate of deposit - 10,000
$41,596,000 $36,850,000
Securities sold, not yet purchased
consist of:
Corporate equities $30,170,000 $24,146,000
Corporate debt 512,000 671,000
U.S. government and agency and state
and municipal government obligations 2,074,000 1,123,000
$32,756,000 $25,940,000
4. Subordinated loans payable
1996 1995
Due in 1999 at 5.5% $ 30,000 $ 30,000
5. Bank call loans
Bank call loans bear interest at various rates but not exceeding the broker
call rate, which was 6 7/8% at December 31, 1996. These loans,
collateralized by firm and customer securities with a market value of
approximately $19,201,000 and $33,288,000, respectively, are primarily
with one major money center bank. Details of the bank call loans are
as follows:
December 31 1996 1995 1994
Year-end balance $11,800,000 $41,200,000 $35,825,000
Weighted interest rate 6.343% 7.250% 7.250%
(at end of year)
Maximum balance $23,150,000 $41,200,000 $69,050,000
(at any month end)
Average amount outstanding $10,867,000 $17,446,000 $29,634,000
(during the year) (2)
Weighted average interest rate 5.97% 5.093% 2.116%
(during the year) (1)
F-9
(1) The weighted average interest rate during the year was computed by
dividing the actual interest expense by the average bank call loans
outstanding.
(2) The average amount outstanding during the year was computed by adding
amounts outstanding at the end of each month and dividing by twelve.
Aggregate interest paid by the Company on a cash basis during the years ended
December 31, 1996, 1995 and 1994 was $17,721,000; $22,900,000 and $11,546,000,
respectively.
6. Share capital
The Company's authorized share capital consists of (a) an unlimited number of
first preference shares issuable in series; (b) an unlimited number of Class
A non-voting shares; and (c) 99,680 Class B voting shares.
The Class A non-voting and the Class B voting shares are equal in all
respects except that the Class A non-voting shares are non-voting.
All of the above-referenced classes of shares are without par value.
The Company's issued and outstanding share capital is as follows:
1996 1995 1994
12,265,760 (11,940,410 in 1995 and
11,995,000 in 1994) Class A
non-voting shares $39,688,000 $37,513,000 $37,968,000
99,680 Class B voting shares 133,000 133,000 133,000
$39,821,000 $37,646,000 $38,101,000
The Company has outstanding options with certain employees to purchase a total
of 1,033,000 Class A non-voting shares as follows:
Number Date
of shares of Grant Option price Expiry date
100,000 June 1, 1992 Cdn.$ 7.88 May 31, 1997
150,000 January 27, 1993 Cdn.$ 7.38 January 26,1998
100,000 January 28, 1994 Cdn.$12.50 February 28, 1999
250,000 March 1, 1994 Cdn.$12.25 February 28, 1999
100,000 June 6, 1994 Cdn.$ 9.00 June 5, 1999
20,000 January 2, 1996 Cdn.$12.62 January 1, 2001
147,000 May 29, 1996 Cdn.$15.70 May 28, 2001
140,000 July 16, 1996 Cdn.$15.75 July 15, 2001
21,000 December 16, 1996 US $14.375 December 15, 2001
5,000 December 31, 1996 Cdn.$19.80 December 31, 2001
During 1996, options to purchase 212,350 Class A non-voting shares (21,875
in 1995 and 246,250 in 1994) were exercised for cash totalling $1,175,000
($70,000 in 1995 and $609,000 in 1994). The number of options vested at
December 31, 1996 was 223,750 (263,625 in 1995 and 169,000 in 1994). The
authorized number of Class A non-voting shares that may be made subject to
options under the Company's employee stock option plans is 1,850,000
The Company issued Class A non-voting shares from Treasury to the Company's
401(k) plan as follows:
Number Date Issue
Year of shares of issue Price per share
1994 92,000 January 27, 1995 Cdn.$ 9.00
1995 113,000 January 10, 1996 Cdn.$12.24
1996 70,000 January 14, 1997 US $14.50
F-10
In 1996 the Company paid cash dividends to holders of Class A non-voting and
Class B shares as follows (US$0.15 in 1995):
Dividend
per share Record Date Payment Date
US$0.20 February 9, 1996 February 23, 1996
US$0.05 May 9, 1996 May 23, 1996
US$0.05 August 9, 1996 August 23, 1996
US$0.05 November 8, 1996 November 22, 1996
US$0.35
The Company may purchase up to 800,000 Class A non-voting shares by way of
a Normal Course Issuer Bid through the facilities of The Toronto Stock
Exchange. During the year ended December 31, 1996, the Company made no such
purchases. Unless terminated earlier by the Company, it may purchase shares
up to June 24, 1997.
7. Contributed capital
Contributed capital represents the tax benefit on the difference between
market price and exercise price on employee stock options exercised in 1992,
1994 and 1996.
8. Income taxes
The income tax provision shown in the consolidated statement of operations is
reconciled to amounts of tax that would have been payable (recoverable) from
the application of combined federal, state, provincial and local tax rates
to pre-tax profit as follows:
1996 1995 1994
Profit before income tax $53,902,000 $34,831,000 $20,966,000
U.S. federal tax at 35% $18,876,000 $12,268,000 $ 7,533,000
Canadian tax at 44% (13,000) (97,000) (245,000)
Combined state and local tax 7,378,000 4,564,000 2,870,000
Income taxes before
undernoted 26,241,000 16,735,000 10,158,000
Tax effect of non-taxable
interest and dividends (271,000) ( 269,000) (201,000)
Tax effect on other
differences between
accounting and taxable
income (2,347,000) (2,534,000) (771,000)
Income taxes $23,623,000 $13,932,000 $ 9,186,000
Profit before income
tax provision
Canadian operations $ (29,000) $ (220,000) $ (557,000)
U.S. operations $53,931,000 $35,051,000 $21,523,000
The current U.S. income tax provision in 1996 is $23,623,000 ($13,932,000 in
1995 and $9,186,000 in 1994). The current Canadian income tax provision in
1996, 1995 and 1994 is nil.
Aggregate deferred tax assets, which relate to fixed assets and acquired net
operating losses, are included in other assets and amounted to $190,000.
On a cash basis, the Company paid income taxes for the years ended December 31,
1996, 1995 and 1994 in the amounts of $19,467,000, $6,731,000 and $7,337,000,
respectively.
F-11
9. Profit per share
1996 1995 1994
Basic weighted average number
of shares outstanding 12,519,947 12,330,552 12,221,985
Additional shares issuable on
exercise of options 809,250 648,750 509,500
Fully diluted common shares 13,329,197 12,979,302 12,731,485
Net profit $30,279,000 $20,899,000 $11,780,000
Imputed earnings, net of
income taxes, on cash
which would be received
on the exercise of
options and warrants 337,000 327,000 110,000
Fully diluted net income $30,616,000 $21,226,000 $11,890,000
Basic profit per share $2.42 $1.70 $0.96
Fully diluted profit per share $2.30 $1.64 $0.93
FASB Statement No.123 "Accounting for Stock-Based Compensation" ("SFAS 123")
was issued in 1995, and if fully adopted, changes the method for recognition
of cost on stock compensation plans similar to those of the Company.
Adoption of SFAS 123's fair value recognition method is optional. The Company
has chosen to continue to apply Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock compensation plans.
The proforma results if compensation expense for the Company's 1996 grants
for stock compensation had been determined in accordance with SFAS 123 are
as follows:
As reported Proforma
Net profit $30,279,000 $30,117,000
Net profit per Class A Share
and Class B Share $2.42 $2.41
For purposes of the proforma presentation, the Company determined fair value
using an option pricing model with the following weighted average assumptions
for grants in 1996: risk-free interest rates ranging from 5.41% to 6.66%,
expected dividend yield of 1.4%, expected life of 5 years and expected
volatility of 25%. The weighted average fair value of options granted during
1996 was $958,000. The fair value is being amortized over five years on an
after-tax basis, where applicable for purposes of proforma presentation.
Stock options generally expire five years after the date of grant or three
months after the date of retirement, if earlier. Stock options vest over a
five year period with 0% in year one, and 25% of the shares becoming
exercisable on each of the next four anniversaries of the grant date.
The effects of applying SFAS 123 in this proforma presentation are not
indicative of future amounts because it does not take into consideration
future grants, any difference between actual and assumed forfeitures, and
only reflects grants subsequent to December 15, 1994.
10. Commitments and contingencies
(a) The Company and its subsidiaries are obligated under lease agreements to
pay the following future minimum rentals:
1997 $5,149,000
1998 3,399,000
1999 807,000
2000 183,000
2001 79,000
$9,617,000
Certain of the leases contain provisions for rent escalation based on
increases in costs incurred by the lessor.
F-12
(b) The Company's rent expense for the years ended December 31, 1996, 1995
and 1994 was $5,566,000, $5,411,000 and $6,063,000, respectively.
(c) The Company maintains a contribution based retirement plan covering
substantially all full-time U.S. employees. The plan provides that the
Company may make discretionary contributions. The Company made contributions
to the plan of $1,922,000, $1,600,000 and $1,110,000 in 1996, 1995 and 1994,
respectively.
(d) The Company's bankers have issued letters of credit for $17,000,000
deposited with one clearing organization of which $11,697,000 is
collateralized by securities owned.
(e) The Company is involved in certain litigation arising in the ordinary
course of business. Management believes, based upon discussion with counsel,
that the outcome of this litigation will not have a material effect on the
Company's financial position. The materiality of legal matters on the
Company's future operating results depends on the level of future results of
operations as well as the timing and ultimate outcome of such legal matters.
(f) The Company's subsidiary, Fahnestock, is subject to the uniform net
capital requirements of the Securities and Exchange Commission ("SEC") under
Rule 15c3.1. Fahnestock computes its net capital requirements under the
alternative method provided for in the Rule which requires that Fahnestock
maintain net capital equal to two percent of aggregate customer related debit
items, as defined in SEC Rule 15c3-3. At December 31, 1996, Fahnestock had
net capital of $118,539,000 which was $112,546,000 in excess of the
$5,994,000 required to be maintained at that date.
12.Financial instruments with off-balance sheet risk and concentration
In the normal course of business, the Company's securities activities involve
execution, settlement and financing of various securities transactions for
customers. These activities may expose the Company to risk in the event
customers, other brokers and dealers, banks, depositories or clearing
organizations are unable to fulfil their contractual obligations.
The Company is exposed to off-balance sheet risk of loss on unsettled
transactions in the event customers and other counterparties are unable to
fulfil their contractual obligations. It is the Company's policy to review,
as necessary, the credit standing of each counterparty with which it conducts
business.
Securities sold, but not yet purchased represent obligations of the Company to
deliver the specified security at the contracted price and thereby create a
liability to repurchase the security in the market at prevailing prices.
Accordingly, these transactions result in off-balance-sheet risk, as the
Company's ultimate obligation to satisfy the sale of securities sold, but not
yet purchased may exceed the amount recognised on the balance sheet. Inventory
positions are monitored on a daily basis to minimize the risk of loss.
The Company's customer financing and securities lending activities require the
Company to pledge customer securities as collateral for various secured
financing sources such as bank loans and securities loaned. At December 31,
1996, approximately $49,700,000 of securities loaned are collateralized by
customer securities. Included in receivable from brokers and clearing
organizations are receivables from four major broker-dealers totalling
$107,928,000. The Company monitors the market value of collateral held and
the market value of securities receivable from others. It is the Company's
policy to request and obtain additional collateral when exposure to loss
exists. In the event the counterparty is unable to meet its contractual
obligation to return the securities, the Company may be exposed to
off-balance sheet risk of acquiring securities at prevailing market prices.
13. Impact of Recently Issued Accounting Standards
New accounting standards issued but not effective would not have a material
impact on the Company's financial statements.
F-13
14.Subsequent event
On January 29, 1997, a cash dividend of U.S.$0.06 per share (totalling
$746,000) was declared payable on February 21, 1997 to holders of Class A
non-voting and Class B shares of record February 10, 1997.
F-14
EXHIBIT INDEX
Unless designated by an asterisk indicating that such document has
been filed herewith, the Exhibits listed below have been heretofore
filed by the Company pursuant to Section 13 or 15(d) of the
Exchange Act and are hereby incorporated herein by reference to the
pertinent prior filing.
Number Description
3(a) Articles of Incorporation, as amended, of
Fahnestock Viner Holdings Inc. (previously
filed as exhibits to Form 20-F for the
fiscal years ended December 31, 1986 and
1988).
3(b) By-Laws, as amended, of Fahnestock Viner
Holdings Inc. (previously filed as an
exhibit to Form 20-F for the fiscal year
ended December 31, 1987).
10(a) Lease documentation for the premises at 110
Wall Street, New York, New York, including
the Lease Modification Agreement dated
January 25, 1991 between The 110 Wall Company
and Fahnestock & Co. Inc.(previously filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1990 and the Lease Agreement
dated January 5, 1987 between The 110 Wall
Company and Fahnestock & Co. Inc. and the Lease
dated November 18, 1980 between The 110 Wall
Company and Fahnestock & Co. Inc. (previously
filed as exhibits to Form 20-F for the fiscal
year ended December 31,1988).
10(b) Supplemental Legend to 1986 Incentive Stock
Option Plan (previously filed as an exhibit
to the registrant's registration statement on
Form S-8 (file no. 33-38134)).
10(c) Supplemental Legend to 1986 Employee Stock
Option Plan (previously filed as an exhibit
to the registrant's registration statement on
Form S-8 (file no. 33-38134)).
10(d) Fahnestock Viner Holdings Inc. 1986 Incentive
Stock Option Plan (Amended and Restated as at
April 26, 1991) (previously filed as an exhibit
to Form 10-K for the year ended December 31,
1992)
E-1
10(e) Fahnestock Viner Holdings Inc. 1986 Employee
Stock Option Plan (Amended and Restated as at
April 26, 1991) (previously filed as an exhibit
to Form 10-K for the year ended December 31, 1992)
10(f) Fahnestock Viner Holdings Inc. 1996 Equity Incentive
Plan, Amended and Restated as at January 7, 1997
(filed herewith).*
21 Subsidiaries of the Registrant (previously filed as
an exhibit to Form 10-K for the year ended
December 31, 1995)
23(a) Consent of Coopers & Lybrand (filed herewith).*
27 Financial Data Schedule, as required by
Item 601(c)(2)(I) of Regulations S-K and S-B
(filed herewith).*
E-2
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
[letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report dated January 28, 1997 with
respect to the consolidated balance sheets of Fahnestock Viner
Holdings Inc. for the years ended December 31, 1996 and 1995 and
the consolidated statements of operations, cash flows and retained
earnings for each of the years in the three year period ended
December 31, 1996 included in the 1996 Annual Report (Form 10-K).
/s/Coopers & Lybrand
Chartered Accountants
Toronto, Canada
March 11, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> BD
<NAME> FAHNESTOCK VINER HOLDINGS INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,265,000
<RECEIVABLES> 305,544,000
<SECURITIES-RESALE> 2,005,000
<SECURITIES-BORROWED> 157,314,000
<INSTRUMENTS-OWNED> 39,591,000
<PP&E> 1,855,000
<TOTAL-ASSETS> 519,916,000
<SHORT-TERM> 24,239,000
<PAYABLES> 147,004,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 183,010,000
<INSTRUMENTS-SOLD> 32,756,000
<LONG-TERM> 30,000
<COMMON> 39,821,000
0
0
<OTHER-SE> 96,056,000
<TOTAL-LIABILITY-AND-EQUITY> 519,916,000
<TRADING-REVENUE> 80,508,000
<INTEREST-DIVIDENDS> 32,981,000
<COMMISSIONS> 73,992,000
<INVESTMENT-BANKING-REVENUES> 8,672,000
<FEE-REVENUE> 14,189,000
<INTEREST-EXPENSE> 16,311,000
<COMPENSATION> 102,059,000
<INCOME-PRETAX> 53,902,000
<INCOME-PRE-EXTRAORDINARY> 53,902,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,279,000
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.30
</TABLE>
[DESCRIPTION] EXHIBIT 10(f)
FAHNESTOCK VINER HOLDINGS INC.
1996 EQUITY INCENTIVE PLAN
AMENDED AND RESTATED
AS AT JANUARY 7, 1997
Table of Contents
Section Page
1. Purpose 1
2. Definitions 1
3. Shares Subject to the Plan 2
4. Grant of Awards and Award Agreements 4
5. Duration of the Plan 5
6. Terms and Conditions of Incentive Stock
Options 5
7. Terms and Conditions of Nonqualified
Options 6
8. Automatic Grant of Options to
Directors of the Company Who are not
Employees of the Company 6
9. Provisions Relating to Options 7
10. Other Stock Awards 9
11. Certificates for Awards of Class A
Shares 9
12. Beneficiary 10
13. Administration of the Plan 11
14. Amendment or Discontinuance 12
15. Adjustments in Event of Change in Class
A Shares 13
16. Miscellaneous 13
17. Effective Date and Stockholder Approval 16
FAHNESTOCK VINER HOLDINGS INC.
1996 Equity Incentive Plan
Amended and Restated as at January 7, 1997
1. Purpose
The purpose of the Fahnestock Viner Holdings Inc. 1996 Equity Incentive Plan
(the "Plan) is to provide additional compensation incentives for high levels
of performance and productivity of key employees, officers and directors of
the Participating Companies. The Plan is intended to strengthen the
Participating Companies' existing operations and its ability to attract and
retain outstanding key employees, officers and directors upon whose judgment,
initiative and efforts the continued success, growth and development of the
Participating Companies is dependent. Such incentive awards may consist of
Class A non-voting shares of the Company, incentive stock options or
nonqualified stock options.
2. Definitions
When used herein, the following terms shall have the following meanings:
(a) "Award" means an award, in the form of Class A Shares or Options,
granted to any Eligible Employee in accordance with the provisions of
the Plan.
(b) "Award Agreement" means the written agreement or certificate evidencing
each Award granted to an Eligible Employee under the Plan.
(c) "Beneficiary" means the beneficiary or beneficiaries designated pursuant
to Section 12 to receive the amount, if any, payable under the Plan upon the
death of an Eligible Employee.
(d) "Board" means the Board of Directors of the Company.
(e) "Class A Shares" means the Class A non-voting shares of the Company.
(f) "Code" means the United States Internal Revenue Code of 1986, as amended.
(g) "Company" means Fahnestock Viner Holdings Inc. and its successors and
assigns.
(h) "Committee" means the Committee appointed by the Board pursuant to
Section 13.
(i) "Effective Date" means April 19, 1996.
(j) "Eligible Employee" means an employee, officer or director of any
Participating Company whose responsibilities and decisions, in the judgment
of the Committee, directly affect the management, growth, performance or
profitability of any Participating Company. When required by the context,
"Eligible Employee" includes an individual who has been granted an Award but
is no longer an employee of any Participating Company. Except as provided
in Section 8, the directors of the Company who are not employees or officers
of the Company shall not be eligible for Awards hereunder.
(k) "Fair Market Value" means, the closing price of the Class A Shares as
reported by The Toronto Stock Exchange or the New York Stock Exchange (or if
such shares are not listed on The Toronto Stock Exchange or the New York
Stock Exchange, or only on another national stock exchange or a national
quotation system, as reported or quoted by such exchange or system) on the
date of grant. (Amended effective January 7, 1997.)
(l) "Participating Company" means the Company and any "subsidiary" within
the meaning of Section 424 of the Code.
(m) "Plan" means the Fahnestock Viner Holdings Inc. 1996 Equity Incentive
Plan, as the same may be amended, administered or interpreted from time to
time.
(n) "Option" means an option to purchase Class A Shares subject to the
applicable provisions of Sections 6, 7, 8 and 9 and awarded in accordance
with the terms of the Plan and which may be an incentive stock option under
Section 422 of the Code or a nonqualified stock option.
(o) "Total Disability" means the complete and permanent inability of an
Eligible Employee to perform all of his or her duties under the terms of his
or her employment with any Participating Company, as determined by the
Committee upon the basis of such evidence, including independent medical
reports and data, as the Committee deems appropriate or necessary.
3. Shares Subject to the Plan
(a) The maximum number of Class A Shares which may be issued pursuant to
Awards granted under the Plan and awards or options granted under another
plan or program of the Company shall be 1,850,000 shares, except for
adjustments as provided in Section 15 of this Plan. Such shares shall be
made available from authorized and unissued shares or shares held by the
Company in its treasury.
(The Plan as approved by the shareholders of the Company on May 29, 1996,
provided for a maximum of 1,224,421 Class A Shares. On July 16, 1996, the
Committee and the Board approved amendments to the Plan including an
increase in the maximum number of Class A Shares to 1,850,000 which amendment
has been approved by The Toronto Stock Exchange but does not become effective
until confirmed by a resolution passed by a simple majority of the votes cast
by the holders of the Class B voting shares of the Corporation at a meeting
duly called for such purpose (the "shareholder approval").
(b) The maximum number of Class A Shares which may be issuable in any one
year period under the Plan or under another Plan or program of the Company to
Insiders as a group may not exceed 10% of the issued Class A Shares and
Class B voting shares of the Company or to any one Insider may not exceed 5%
of the issued Class A Shares and Class B voting shares. For the purposes
hereof "Insider" means:
(i) every director or senior officer of the Company,
(ii) every director or senior officer of a company that is itself an insider
of the Company,
(iii) any person or company who beneficially owns, directly or indirectly,
voting securities of the Company or who exercises control or direction over
voting securities of the Company or a combination of both carrying more than
10 per cent of the voting rights attached to all voting securities of the
Company for the time being outstanding other than voting securities held by
the person or company as underwriter in the course of a distribution.
(iv) any company of which a person named in (i), (ii) and (iii) beneficially
owns, directly or indirectly, voting securities carrying more than 10 per
cent of the voting rights attached to all voting securities of the company
for the time being outstanding,
(v) any partner of a person or company named in (i), (ii), (iii) and (iv),
(vi) any trust or estate in which a person or company named in (i), (ii),
(iii) and (iv) has a substantial beneficial interest or as to which such
person or company serves as trustee or in a similar capacity,
(vii) any relative of a person named in (i), (ii), (iii) and (iv) who resides
in the same home as that person,
(viii) any person of the opposite sex who resides in the same home as a
person named in (i), (ii), (iii) and (iv) and to whom that person is married
or with whom that person is living in a conjugal relationship outside
marriage, or (ix) any relative of a person mentioned in (viii) who has the
same home as that person;
(c) The maximum number of Class A Shares which may be issuable at any time
to Insiders under Awards granted under the Plan and awards or options
granted under another plan or program of the Company shall not exceed 10%
of the then outstanding Class A Shares and Class B voting shares of the
Company. (Amended effective July 16, 1996.)
(d) If, for any reason, any Class A Shares awarded or subject to purchase
or issuance under the Plan are not delivered or are reacquired by the Company
for reasons including, but not limited to, a forfeiture, termination,
expiration or a cancellation of an Award, such Class A Shares shall be deemed
not to have been issued pursuant to Awards under the Plan.
4. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan and the requirements of The
Toronto Stock Exchange (and in the case of Awards in the form of Class A
Shares to the prior approval of The Toronto Stock Exchange), the Committee
shall
(i) determine and designate from time to time those Eligible Employees or
groups of Eligible Employees to whom Awards are to be granted; (ii) grant
awards to Eligible Employees; (iii) determine the form or forms of Award to
be granted to any Eligible Employee; (iv) determine the amount or number of
Class A Shares subject to each Award; (v) determine the terms and conditions
(which need not be identical) of each Award; (vi) determine the price at
which Class A Shares may be offered under each Award, which price may be
zero; (vii) interpret, construe and administer the Plan and any related
Award Agreement and define the terms employed therein; and (viii) make all of
the determinations necessary or advisable with respect to the Plan or any
Award granted thereunder. (Amended effective January 7, 1997.)
(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement, in a form approved by the Committee. Such agreement shall be
subject to and incorporate the express terms and conditions, if any, required
under the Plan or as required by the Committee for the form of Award granted
and such other terms and conditions as the Committee may specify.
(c) Subject to the applicable policies and requirements of The Toronto Stock
Exchange, the Committee may permit the voluntary surrender of all or a
portion of any Award granted under the Plan to be conditioned upon the
granting of a new Award, or may require such voluntary surrender as a
condition to a grant of a new Award. Any such new Award shall be subject to
such terms and conditions as are specified by the Committee at the time the
new Award is granted, determined in accordance with the provisions of the
Plan without regard to the terms of the surrendered Award. (Amended
effective January 7, 1997.)
5. Duration of the Plan
Subject to the provisions of Section 14, the Plan shall remain in effect
until April 19, 2006.
6. Terms and Conditions of Incentive Stock Options
Incentive stock options shall be evidenced by Award Agreements, which
agreements shall be subject to the terms and conditions set forth in Section
9 of this Plan and shall contain in substance the following terms and
conditions and such other terms and conditions not inconsistent therewith as
the Committee may approve:
(a) Option Price. Except as hereinafter provided, the option price per
Class A Share underlying each incentive stock option shall be 100% of the
Fair Market Value of a Class A Share at the time such Option is granted.
(b) Ten Percent Shareholders. The option price per Class A Share underlying
any incentive stock option granted to any individual who, at the time of the
grant, owns shares possessing more than ten (10) percent of the total
combined voting power of all classes of shares of the Company or any of its
subsidiary corporations shall be 110% of the Fair Market Value of a Class A
Share at the time such Option is granted.
(c) Annual Limit. No incentive stock option may be granted under this Plan
if such grant, together with applicable prior grants which are incentive
stock options within the meaning of Section 422 of the Code, would exceed any
maximum established under the Code for incentive stock options that may be
granted to an individual employee. To the extent such maximum is exceeded,
the Option shall be treated as a nonqualified option.
(d) Medium and Time of Payment. An Option shall be exercised by giving
written notice of exercise to the Company. Such notice shall specify the
number of Class A Shares to be purchased and shall be accompanied by a
certified cheque, cashier's cheque, money order or bank draft for the full
purchase price therefor. In addition, the employee shall, upon notification
of the amount due and prior to, or concurrently with, the delivery to the
employee of a certificate representing the Class A Shares, pay promptly any
amount necessary to satisfy applicable federal, provincial, state or local
tax requirements with respect to the issue or transfer of shares.
(e) Withholding. It shall be a condition to the performance of the
Company's obligation to issue or transfer Class A Shares upon exercise of
an Option or Options that the optionee pay, or make provision satisfactory
to the Company for the payment of, any taxes (other than stock transfer
taxes) which the Company is obligated to collect with respect to the issue
or transfer of Class A Shares upon such exercise.
(f) Exercise. No Option granted which is an incentive stock option shall
be exercisable unless the grantee remains in the employ of a Participating
Company for at least two years from the date of grant, and until the
expiration of such two-year period, except as provided in Section 9 hereof.
7. Terms and Conditions of Nonqualified Options
Nonqualified options shall be evidenced by Award Agreements which shall be
subject to the terms and conditions set forth in Section 9 of this Plan and
shall contain in substance the terms and conditions set forth in
subparagraphs (d) and (e) of Section 6 of this Plan and the following terms
and such other terms and conditions not inconsistent therewith as the
Committee may approve. The option price per Class A Share under a
nonqualified option shall be determined by the Committee at the time of the
grant of each Option in accordance with the requirements of any stock
exchange upon which the Class A Shares are listed.
8. Automatic Grant of Options to Directors of the Company Who are not
Employees of the Company
Subject to:
(a) the confirmation by a simple majority of the votes cast by the holders
of the Class B voting shares of the Company at the annual and special meeting
of the shareholders of the Company on May 29, 1996, or at any adjournment
thereof (which confirmation was obtained on May 29, 1996);
(b) compliance by the Company with all applicable securities regulatory
requirements; and
(c) there being a sufficient number of Class A Shares issuable under the
Plan to accommodate the automatic grant of Options provided for in this
Section 8;
Options to purchase Class A Shares shall be granted to directors of the
Company who are not employees of the Company ("Non-Employee Directors"),
including members of the Committee as follows:
(i) Commencing on December 31 of the year in which a Non-Employee Director
shall have served as a director of the Company for three full years and on
each December 31 thereafter, each Non-Employee Director shall be granted
automatically an Option (a "Director's Option") to purchase 5,000 Class A
Shares for each year of service as a director; provided, however, the total
number of Class A Shares subject to Options granted to a Non-Employee
Director with respect to any five-year period shall not exceed 25,000 shares
(reduced by the number of shares subject to any option granted to such
Director under another plan or program of the Company). On the fifth
anniversary of the date of grant of a Director's Option or a Director's
Option under the Company's 1986 Employee Stock Option Plan (collectively,
a "Prior Option") shall be granted automatically a new Director's Option to
purchase the same number of Class A Shares that were subject to the
Prior Option. Each Director's Option shall be exercisable on a cumulative
basis as to 25% of the Class A Shares covered by each such Director's Option
commencing on the last days of each of the 24th, 36th, 42nd and 48th months
after the date of grant and shall expire on the fifth anniversary of the
grant of each Director's Option. (Amended effective January 7, 1997.)
(ii) Each Director's Option shall be exercisable at a price per share equal
to 100% of the Fair Market Value. (Amended effective January 7, 1997.)
(iii) Except as specifically otherwise provided in this Section 8,
all Director's Options shall be subject to the provisions of the Plan as if
the Non-Employee director were an officer or employee of the Company.
9. Provisions Relating to Options
Except as otherwise provided in Section 8 with respect to Director's Options,
all Options granted under this Plan shall be subject to the following
provisions:
(a) Term. An Option shall have such term as is fixed by the Committee,
provided that no Option may be exercised after the expiration of ten (10)
years from the date of grant of such Option, further provided that no
incentive stock option granted to any individual who, at the time of the
grant, owns shares of the Company possessing more than ten per cent of the
total combined voting power of all classes of shares of the Company or any
of its subsidiary companies may be exercised after the expiration of five
(5) years from the date of grant of such Option.
(b) Exercise. Each Option granted under the Plan shall be exercisable with
respect to such number of Class A Shares and, subject to the provisions of
Section 9 hereof, at such time or times, including periodic instalments, as
may be determined by the Committee at the time of the grant.
(c) Rights as a Shareholder. A recipient of Options shall have no rights as
a shareholder with respect to any shares issuable or transferable upon
exercise thereof until the date of issuance of a stock certificate to him for
such shares. Except as otherwise expressly provided in the Plan, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
(d) Non-Assignability of Options. No Option shall be assignable or
transferable by the recipient except by will or by the laws of descent and
distribution. During the lifetime of a recipient, Options shall be
exercisable only by him.
(e) Effect of Termination of Employment, Disability or Death. Subject to
the other provisions of Section 9 hereof, any unexercised portion of any
Option granted under the Plan automatically shall terminate and have no
further force or effect whatsoever upon the grantee's ceasing to be employed
by a Participating Company, (or by a corporation or subsidiary of such
corporation issuing a new stock option or assuming such stock option in a
transaction to which Section 424 of the Code is applicable), unless (i) such
cessation of employment shall be because of (a) involuntary termination of
employment by the employer corporation which the board of directors of the
employer corporation in its sole discretion shall determine to be without
cause, or (b) retirement in accordance with and as permitted by the terms
and conditions of a retirement plan adopted by the employer corporation, in
each of which cases the Option shall be exercisable within a period of three
(3) months following the date of such cessation of employment, (ii) such
cessation of employment shall be because of Total Disability (as determined
by the Committee in its discretion), in which case the Option shall be
exercisable within a period of one (1) year following the date of cessation
of employment by the grantee, his guardian, committee or other authorized
representative, or (iii) such cessation of employment shall be because of
death, in which case an incentive stock option shall be exercisable within
a period of three (3) months, and a non-qualified stock option shall be
exercisable within a period of one (1) year following the date of death by
the estate of the grantee or by the person or persons to whom the grantee's
rights under the Option shall pass by the grantee's will or the laws of
descent and distribution; provided, however, that in no event may an Option
be exercised after the expiration date thereof. (Amended effective October
17, 1996.)
(f) Acceleration. Notwithstanding anything to the contrary set forth in
this Plan, but subject to Section 3(b) of this Plan, the Board of Directors
of the Company shall have the power to cause all Options then outstanding to
be deemed to have been amended to permit the exercise hereof in whole or in
part by the holder at any time or from time to time. To the extent that an
acceleration of the exercisability of an incentive stock option pursuant to
this paragraph causes the aggregate Fair Market Value of Class A Shares
(determined as of the time the Option with respect to such stock was granted)
with respect to which incentive stock options are exercisable for the first
time by an employee during any calendar year under the Plan (or any other
plan of the Company or a parent or subsidiary thereof providing for the grant
of incentive stock options) to exceed US$100,000, such Options shall be
treated as nonqualified options. (Amended effective January 7, 1997.)
(g) General Restriction. Each Option granted under the Plan shall be
subject to the requirement that, if at any time the Board of Directors
shall determine, in its discretion, that the listing, registration, or
qualification of the Class A Shares issuable or transferable upon exercise
thereof upon any securities exchange or under any state, provincial or
federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the
granting of such Option or the issue or transfer of Class A Shares thereunder,
such Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors.
10. Other Stock Awards
The Committee may grant other Awards under the Plan which are denominated in
stock units or pursuant to which Class A Shares may be acquired, including
Awards valued using measures other than market value, if deemed by the
Committee in its discretion to be consistent with the purposes of the Plan
and in compliance with applicable securities laws and the requirements of
any stock exchange on which the Class A Shares are listed. Subject to the
terms of the Plan, the Committee shall determine the form of such Awards,
the number of Class A Shares to be granted or covered pursuant to such Awards
and all other terms and conditions of such Awards.
11. Certificates for Awards of Class A Shares
(a) Subject to Section 6(d), each Eligible Employee entitled to receive
Class A Shares under the Plan shall be issued a certificate for such shares.
Such certificate shall be registered in the name of the Eligible Employee,
and shall bear an appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such shares and shall be subject to
appropriate stop-transfer orders.
(b) The Company shall not be required to issue or deliver any certificates
for Class A Shares prior to (i) the listing of such shares on any stock
exchange or quotation system on which the Class A Shares may then be listed
or quoted and (ii) the completion of any registration, qualification,
approval or authorization of such Class A Shares under any federal,
provincial or state law, or any ruling or regulation or approval or
authorization of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
(c) All certificates for Class A Shares delivered under the Plan shall also
be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Class A Shares are then listed and any applicable federal,
provincial or state securities laws, and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference
to such restrictions. The foregoing provisions of this Section 11(c) shall not
be effective if and to the extent that the Class A Shares delivered under
the Plan are covered by an effective and current registration statement under
the Securities Act of 1933, or if and so long as the Committee determines
that application of such provisions is no longer required or desirable. In
making such determination, the Committee may rely upon an opinion of counsel
for the Company.
(d) Each Eligible Employee who receives an award of Class A Shares shall
have all of the rights of a shareholder with respect to such shares,
including the right to vote the shares and receive dividends and other
distributions. No Eligible Employee shall have any right as a shareholder
with respect to any shares subject to such Award prior to the date of
issuance to him or her of a certificate or certificates for such shares.
12. Beneficiary
(a) Each Eligible Employee shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled
to receive the Award, if any, payable under the Plan upon his or her death.
An Eligible Employee may from time to time revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Committee. The last such designation, or
change or revocation thereof, shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective
unless received by the Committee prior to the Eligible Employee's death, and
in no event shall it be effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of an
Eligible Employee's death, or if no designated Beneficiary survives the
Eligible Employee or if such designation conflicts with law, the Eligible
Employee's estate shall be entitled to receive the Award, if any, payable
under the Plan upon his or her death. If the Committee is in doubt as to
the right of any person to receive such Award, the Company may retain such
Award, without liability for any interest thereon, or the Company may pay
such Award into any court of appropriate jurisdiction and such payment shall
be a complete discharge of the liability of the Company therefor.
13. Administration of the Plan
(a) The Plan shall be administered by the Committee, which shall consist of
two or more persons, as appointed by the Board and serving at the Board's
pleasure. Each member of the Committee shall be a member of the Board and a
"disinterested person" within the meaning of Rule 16b-3(c)(2) under the
Securities Exchange Act of 1934 or any successor rule or regulation. Except
as provided in Section 8, no member of the Committee shall have been granted
Options under the Plan or have been granted or awarded an Option or other
right with respect to equity securities of the Company pursuant to any other
plan of the Company at the time within the one-year period immediately
preceding the member's appointment to the Committee.
(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole discretion of the Committee and shall be final, conclusive and binding
on all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and nay part thereof and any
related Award agreement, and its interpretations and constructions thereof
and actions taken thereunder shall be, except as otherwise determined by
the Board, final, conclusive and binding on all persons for all purposes.
(d) The Committee shall have full power, discretion and authority to
prescribe and rescind rules, regulations and policies for the administration
of the Plan.
(e) The Committee's decisions and determinations under the Plan and with
respect to any Award granted thereunder need not be uniform and may be made
selectively among Eligible Employees, whether or not such Eligible Employees
are similarly situated.
(f) The Committee shall keep minutes of its actions under the Plan. The act
of a majority of the members present at a meeting duly called and held shall
be the act of the Committee. Any decision or determination reduced to
writing and signed by all members of the Committee shall be fully as
effective as if made by unanimous vote at a meeting duly called and held.
(g) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly employed by
the Company, consultants a nd agents as the Committee may deem appropriate
for the administration of the Plan and may rely upon any opinion received
from any such counsel or consultant and any computations received from
any such consultant or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including without limitation,
meeting fees and expenses and professional fees, shall be paid by the
Company.
(h) No member or former member of the Committee or the Board shall be
liable for any action or determination made in good faith with respect
to the Plan or any Award granted or not granted under it. Each member
of former member of the Committee or the Board shall be indemnified and
held harmless by the Company against all cost or expense (including counsel
fees and expenses) or liability (including any sum paid in settlement of
a claim with the approval of the Board) arising out of an act or omission
to act in connection with the Plan unless arising out of such member's or
former member's own fraud or bad faith. Such indemnification shall be
in addition to any rights of indemnification or insurance the members or
former members may have as directors or under the by-laws of the Company
or otherwise.
14. Amendment or Discontinuance
The Board may, at any time, amend or terminate the Plan, except that no
amendment shall increase the maximum number of shares which may be optioned
(except in accordance wit the provisions of Section 15 hereof), change the
class of employees eligible to receive Options, decrease the option price,
or extend the terms of the Plan without the prior approval of a simple
majority of the votes cast by the holders of the Class B voting shares of
the Company at a meeting duly called for such purpose. All such amendments
to the Plan, whether or not requiring shareholder approval, shall be subject
to the approval, if applicable, or any stock exchange upon which the shares
of the Company are listed. The Plan may also be amended by the Committee,
provided that all such amendments shall be reported to the Board. No
amendment shall become effective unless approved by affirmative vote of the
Company's shareholders if such approval is necessary or desirable for the
continued validity of the Plan or if the failure to obtain such approval
would adversely affect the compliance of the Plan with Rule 16b-3 or any
successor rule under the Securities Exchange Act of 1934, or any other rule
or regulation. No amendment or termination shall, when taken as a whole,
adversely and materially affect the rights of any recipient of a previously
granted award without his or her consent unless the amendment or termination
is necessary of desirable for the continued validity of the Plan or its
compliance with Rule 16b-3 or any successor rule under the Securities
Exchange Act of 1934 or any other rule or regulation.
15. Adjustments in Event of Change in Class A Shares
In the even of any recapitalization, reclassification, stock dividend,
split-up or consolidation of Class A Shares, amalgamation, merger or
consolidation of the Company, or other event affecting the Class A Shares
as determined by the Committee, the Committee shall make appropriate
adjustments in the number and kind of securities which may be issued pursuant
to Awards under the Plan, including Awards then outstanding, and the
Committee may make such adjustments to the terms, conditions or restrictions
on securities or Awards as the Committee deems equitable.
16. Miscellaneous
(a) Nothing in this Plan or any Award granted hereunder shall confer upon
any employee any right to continue in the employee of any Participating
Company or interfere in any way with the right of any Participating Company
to terminate his or her employment at any time.
(b) No Award payable under the Plan shall be deemed salary or compensation
for the purpose of computing benefits under any employee benefit plan or
other arrangement of any Participating Company for the benefit of its
employees unless the Company shall determine otherwise.
(c) No Eligible Employee shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires a
right to receive payments from the Company under this Plan, such right shall
be no greater than the right of an unsecured general creditor of the Company.
All payments of Awards provided for under the Plan shall be paid by the
Company either by issuing Class A Shares or by delivering cash from the
general funds of the Company or other property of the Company; provided,
however, that such payments shall be reduced by the amount of any payments
made to the participant or his or her dependents, beneficiaries or estate
from any trust or special or separate fund established in connection with
this Plan. The Company shall not be required to establish a special or
separate fund or other segregation of assets to assure any payments, and, if
the Company shall make any investments to aid it in meeting its obligations
hereunder the participant shall have no right, title or interest whatever in
or to any such investments except as may otherwise be expressly provided in
a separate written instrument relating to such investments.
(d) At the time of any exercise of any Option under the Plan, the Committee
may, if it shall deem it necessary or desirable for any reason connected
with any applicable law or regulation of any governmental authority relating
to the regulation of securities, require as a condition to the issuance of
any Class A Shares to the optionee that the optionee represent in writing to
the Company that it is his then intention to acquire the shares for
investment and not with a view to the distribution thereof. In the event such
a representation is required and made, no shares shall be issued to the
optionee unless and until the Company is satisfied with the correctness of
such representation. Certificates for shares as to which such representation
is required and made may, in the discretion of the Committee, and subject to
any applicable securities laws or the requirements of any stock exchange
upon which the Class A Shares are listed, be endorsed with a legend noting
such representations.
(e) Any optionee who disposes of any Class A Shares acquired through the
exercise of an option granted under the Plan either (a) within two years
from the date of the grant of the Option pursuant to which the subject
shares were acquired or (b) within one year after the issue of such shares
of the optionee, shall promptly notify the Company of such disposition and
the amount of consideration realized upon such disposition.
(f) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment due
him or her (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid
to his or her spouse, a child, a relative, an institution maintaining or
having custody of such person, or any other person deemed by the Committee
to be a proper recipient on behalf of such person otherwise entitled to
payment. Any such payment shall be a complete discharge of the liability
of the Company therefor.
(g) The right of any Eligible Employee or other person to any Award under
the Plan may not be assigned, transferred, pledged or encumbered, either
voluntarily or by operation of law, except as provided in Section 9 with
respect to the designation of a Beneficiary or as may otherwise be required
by law. If, by reason of any attempted assignment, transfer, pledge or
encumbrance or any bankruptcy or other event happening at any time, any
amount payable under the Plan would be made subject to the debts or
liabilities of the Eligible Employee or his or her Beneficiary or would
otherwise devolve upon anyone else and not be enjoyed by the Eligible
Employee or his or her Beneficiary, then the Committee may terminate such
person's interest in any such payment and direct that the same be held and
applied to or for the benefit of the Eligible Employee, his or her
Beneficiary or any other persons deemed to be the natural objects of his or
her bounty, taking into account the expressed wishes of the Eligible
Employee, (or, in the event of his or her death, those of his or her
Beneficiary) in such manner as the Committee may deem proper.
(h) Copies of the Plan and all amendments, administrative rules and
procedures and interpretations shall be made available for review to all
Eligible Employees at all reasonable times at the Company's administrative
offices.
(i) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the Eligible
Employee or his or her Beneficiary, for the withholding of any federal,
provincial, state or local taxes. The Committee may in its discretion permit
the payment of such withholding taxes by authorizing the Company to withhold
Class A Shares to be issued, or by delivering to the Company shares of Class
A Shares owned by the Eligible Employee or Beneficiary, in either case having
a Fair Market Value equal to the amount of such taxes.
(j) The Plan and the grant of Awards shall be subject to all applicable
federal, state and provincial laws, rules and regulations and to such
approvals by any governmental or regulatory agency as may be required.
(k) All elections, designations, requests, notices, instructions and other
communications from an Eligible Employee, Beneficiary or other person to the
Committee, required or permitted under the Plan, shall be in such form as is
prescribed from time to time by the Committee and shall be mailed by first
class mail or delivered to such location as shall be specified by the
Committee.
(l) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(m) Absence on leave approved by a duly constituted officer of the Company
shall not be considered interruption or termination of employment for any
purposes of the Plan; provided, however, that no Award may be granted to an
employee while he or she is absent on leave.
(n) Captions preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provisions hereof.
17. Effective Date and Stockholder Approval
The Effective Date of the Plan shall be April 19, 1996, subject to approval
by the holders of a majority of Class B voting Shares present in person or by
proxy at the Company's 1996 Annual Meeting of Shareholders. No Awards will
be granted under the Plan after the expiration of ten years from the
Effective Date.
THIS DOCUMENT CONSTITUTES PART OF THE PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF THE UNITED STATES.
February 6, 1997
