<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
-----------------
OR
[ ] 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
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Commission File Number 1-9137
ATALANTA/SOSNOFF CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3339071
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 Park Avenue, New York, New York 10178
(Address of principal executive officers) (zip code)
(Registrant's telephone number, including area code) (212) 867-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, par value $.01 per share New York Stock Exchange
- -------------------------------------- -----------------------
Securities registered pursuant to Section 12 (g) of the Act:
NONE
----
(Title of Class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Number of shares of common stock *
outstanding at March 23, 1999: 9,338,401
* (voting; only class outstanding)
Aggregate market value of voting and
non-voting common equity held by non-
affiliates, as of March 23, 1999: $13,850,865
Documents incorporated by reference: Proxy Statement for the 1999 Annual
Meeting of Stockholders (incorporated in part in Form 10-K, Part III)
Exhibit Index is located on page 30.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K under the
captions "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this Report constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; the loss of, or the failure
to replace, any significant clients; changes in the relative investment
performance of client or firm accounts and changes in the financial marketplace,
particularly in the securities markets. These forward-looking statements speak
only as of the date of this Annual Report. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
2
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PART I
Item 1. Business
General
Atalanta/Sosnoff Capital Corporation, a New York Stock Exchange listed
company, through its operating subsidiaries, Atalanta/Sosnoff Capital
Corporation (Delaware) ("Capital") and Atalanta/Sosnoff Management Corporation
("Management"), provides discretionary investment management, brokerage and
other related services. The term "Company" as used herein refers to
Atalanta/Sosnoff Capital Corporation and its subsidiaries. Capital and
Management are both registered investment advisors. Management is also
registered as a broker-dealer.
Client Relationships
General. Investment management clients include corporate and public
retirement plans, endowments, charitable and religious organizations, and
individuals in both taxable and tax-exempt accounts. The Company manages
accounts of its clients under investment advisory agreements. These agreements
are generally terminable upon short notice and provide for compensation based on
the market value of the client assets under management. Generally, annual
institutional account fees are 1% of assets under management, and, for larger
accounts, may include performance fees or reductions in fees on incremental
assets to as low as 0.2%. Individual and smaller institutional account fees are
generally 1% of assets under management. Some institutional account clients have
consented to the use of the Management as broker for certain portfolio
transactions. The Company generally requires that individual and smaller
institutional account clients use Management as broker.
The largest single client generated approximately 3.7% of the Company's
total revenues for the year ended December 31, 1998. The Company's ten largest
clients, as of December 31, 1998, accounted for approximately 25% of total
revenues for the year then ended.
Assets under management decreased 10% in 1998, from $2.68 billion at
December 31, 1997 to $2.41 billion at December 31, 1998. This decline is
primarily the result of net cash outflows in client accounts totaling $874
million in 1998, partially offset by strong performance results. See
"Institutional Clients" on page 4 for further discussion. For a discussion of
this development, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Summary and Assets under
Management."
The following table depicts assets under management at the last three
year-ends by type of client:
($ millions)
1998 1997 1996
---- ---- ----
Institutional $1,963 $2,355 $2,421
High Net Worth 315 198 200
Investment Partnerships 81 72 50
Wrap 41 57 92
Mutual Fund 10 n/a n/a
------- ------- -------
Totals $2,410 $2,682 $2,763
====== ====== ======
3
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Institutional Clients. Capital manages accounts of institutional clients
with assets under management of approximately $1.96 billion as of December 31,
1998, compared with $2.36 billion at the end of 1997, and $2.42 billion at the
end of 1996. Investment performance in 1998 was strong on an absolute and
relative basis for equity, balanced and fixed income accounts. Underperformance
concerns (from 1996 primarily) on the part of consultants caused some large
institutional clients to close their accounts in the 1996-1998 period, while
others took cash away. The following table shows the types of institutional
clients whose assets are managed by Capital and, for each type, the assets under
management as of December 31, 1998:
Dollars in
Type of Account Millions % of Total
--------------- -------- ----------
Corporate employee
benefit plans $380 19%
Not-for-profit
organizations 365 19
Jointly-trusteed
collective bargaining
employee plans 605 31
Governmental employee
benefit plans 420 21
Taxable 193 10
------- ----
Total $1,963 100%
====== ===
Net outflows in client accounts slowed significantly over the last six
months of 1998, and the Company believes its managed asset base has stabilized.
While the Company's performance and peer group rankings improved in 1998, it
will take at least another year of strong performance results before the Company
can expect to add meaningful new institutional assets.
High Net Worth ("HNW") Clients. Since 1984, Management has managed assets
of individual and smaller institutional accounts. Assets under management in
this HNW business increased 59% during 1998, from $198 million at December 31,
1997 to $315 million at December 31, 1998. This increase is primarily the result
of the Company agreeing to manage and service certain accounts (the "SVP
Accounts") previously managed exclusively by a Senior Vice President of
Management, Mr. William M. Knobler. These accounts were previously excluded from
assets under management.
Effective October 1, 1998, the Company entered into a new facilities
agreement with the SVP for the period ending December 31, 2000 under which the
SVP is relinquishing over time the exclusive right to receive the net operating
earnings generated by the investment management and brokerage services provided
to the SVP Accounts to the Company.
4
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Pursuant to this Agreement, the Company will make payments to the SVP in
three installments in January of 1999, 2000 and 2001 based upon a multiple of
annualized revenues of the SVP Accounts in the fourth quarter of 1998, 1999 and
2000, respectively. The Company estimates that the related compensation expense
will total approximately $3 million, based on the SVP Accounts' current asset
value, and will be recognized ratably as compensation expense over the term of
the arrangement.
Additionally, the SVP's compensation related to the pre-tax operating
income generated by the SVP Accounts will decline from 100% in the twelve-month
period ended September 30, 1998, to 50% in the comparable 1999 period, and to
25% in the comparable 2000 period. The SVP will be required to remain an
employee of the Company through 2000, and may remain an employee or consultant
thereafter.
Pursuant to this Agreement, in the fourth quarter of 1998 $375,000 of
compensation expense was recorded.
Wrap Accounts. The Company manages $41 million of accounts custodied at and
sponsored by various brokerage firms (i.e. "Wrap" accounts) at December 31,
1998, compared with $57 million at the end of 1997. The decline in these
accounts is primarily due to performance concerns in 1996.
Company-Sponsored Investment Partnerships. Capital is the general partner
of three investment limited partnerships and the investment manager of an
offshore investment fund, all with different investment objectives and client
profiles, with total aggregate assets of $81 million at December 31, 1998.
Capital receives a basic management fee from each entity at an annual rate of 1%
of total assets. The agreements contain various provisions regarding the bearing
of expenses by each of the entities. One of the partnerships and the offshore
fund, both formed in 1997, are charged by Capital a 20% incentive fee of net
profits earned.
Mutual Fund. In June, 1998 the Company started its first mutual fund, the
Atalanta/Sosnoff Fund. Capital acts as the investment advisor to the Fund, and
Management acts as its distributor. The Company invested $9.1 million in the
Fund and, at December 31, 1998, the market value of the Fund totaled $10
million. Capital earns an advisory fee of .75% per annum on the Fund, but the
Fund is currently waiving that fee and the Company does not expect to begin to
collect an advisory fee until the Fund's assets reach approximately $20 million.
Investment Management and Research
The Company currently manages over $2.4 billion in equity, balanced and
fixed income accounts for corporations, public funds, Taft-Hartley clients,
foundations, charitable organizations and individuals. Institutional clients are
the source of 82% of total managed assets. The Company's subsidiaries have been
registered as investment advisors since 1982 (Capital) and 1984 (Management).
Institutional clients are managed by Capital. High Net Worth clients are managed
by Management, and it also provides brokerage services to some of its advisory
clients and to certain of Capital's clients.
The Company's investment philosophy seeks to identify companies that are
entering into a cycle of accelerating earnings momentum. Clients retain the
Company primarily as a domestic large-cap core equity manager.
The Company's equity methodology focuses on two levels: thematics and stock
selection. Through its Investment Policy Committee, composed of Martin T.
Sosnoff, Craig B. Steinberg and Paul P. Tanico, the Company seeks to identify
change at the margin. Major themes unfold during economic cycles. They embrace
geopolitical realignments, and changes in government regulation and Federal
Reserve Board policy emphasis.
5
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The process seeks to identify and overweight "event-driven" companies and
sectors with benevolent product profile cycles and accelerating earnings. The
Company believes that the vision and motivation of management are common
critical variables in outperformance. The Company's methodology is biased toward
management with meaningful equity participation.
The two principals, Martin T. Sosnoff and Craig B. Steinberg, have worked
together in the investment arena for more than 13 years. The continuity of the
team and its years of experience are critical elements in managing investments.
The portfolio managers are all experienced research analysts. Portfolio
decisions are implemented on behalf of all the Company's clients, subject to
individual client guidelines, restrictions and cash flows.
In August, 1997 the Company terminated without cause the employment of
its former President, Mr. Robert J. Kobel. Mr. Kobel was a principal in the
firm and also a member of the Investment Policy Committee. In September,
1997, Mr. Paul P. Tanico rejoined the Company as Executive Vice President,
Portfolio Manager, and a member of the Investment Policy Committee. Mr.
Tanico has worked for the Company for a total of five years, the last time being
in 1991.
The Company's Investment Policy Committee, headed by Mr. Sosnoff as Chief
Investment Officer, is responsible for managing the portfolios of the Company's
clients. All members of the Committee participate in the management of all
accounts, except the accounts managed directly by Mr. Knobler. When requested,
Mr. Knobler participates in the Investment Policy Committee process on an ad hoc
basis. Each client portfolio is comprised of securities selected by the
Committee, subject to risk tolerances, concentration limits, leverage policies
and other restrictions determined by each client with, in certain cases, the
assistance of the Company. Mr. Sosnoff has managed money since the late-1960's
through several market cycles. Throughout that time, Mr. Sosnoff has applied a
consistent investment style and philosophy to the management of client accounts.
The Company believes that, in addition to performance, client service is
paramount in the money management business. Portfolio managers are particularly
attuned to the needs of the Company's clients. The Company believes that its
consistent investment style since inception and continued emphasis on frequent
communication with clients distinguishes it from other managers.
The Company's mission is to maintain a top quartile performance ranking
year over year, cycle over cycle and decade over decade. However, due to
performance results for clients significantly below relevant benchmarks in 1996,
the Company's current three and five year peer group rankings are very low.
Strong absolute and relative performance results in 1998 have begun to improve
the peer group rankings, but at least another year of good results is necessary
for marketing activity to show significant success.
Marketing and Business Development
Institutional Account Marketing. The Company's institutional clients
generally allocate their assets among several investment managers and may change
the allocation from time to time. In addition, clients allocate their assets
among various market sectors and types of investments, and may change these
allocations in response to prevailing market conditions or changes in the
client's investment objectives.
6
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Net withdrawals from institutional client accounts totaled $909 million in
1998, compared with net withdrawals of $624 million in 1997 and net withdrawals
of $1,166 million in 1996. The Company believes that these net withdrawals are
primarily the result of performance concerns. The Company does not believe its
institutional marketing efforts will add significant new assets for at least
another year, provided investment performance results remain strong.
High Net Worth ("HNW"). Individual and smaller institutional client
portfolios are managed on the same basis as the management of the accounts of
institutional clients. Account service representatives assist new clients in
determining appropriate risk tolerances, concentration limits, leverage policies
and other restrictions, and provide ongoing account servicing to existing
clients. Net additions to HNW client accounts totaled $70 million in 1998,
compared with net withdrawals of $43 million in 1997 and net withdrawals of $12
million in 1996. The Company believes that the net withdrawals are primarily the
result of performance concerns. The 1998 net increase is due to $110 million of
SVP accounts now accounted for in the client asset base of the Company (as
previously discussed), partially offset by net withdrawals in existing accounts
totaling $40 million. The Company has devoted additional resources to this
market going forward.
Wrap Market. The Company began to focus some of its marketing efforts in
1993 on the managed account ("Wrap") programs offered by certain large financial
services firms. As of December 31, 1998, $41 million was under management from
such programs, compared with $57 million at the end of 1997 and $92 million at
the end of 1996. The Company believes this reduction is due to performance
concerns from 1996. The Company believes this business represents an efficient
means to gather assets, and is optimistic about its future growth, subject to
performance considerations. The Company has also devoted additional resources to
this market going forward.
Investment Partnerships. At December 31, 1998 the Company was the general
partner of and managed $81 million in three limited partnership vehicles,
primarily for the benefit of high net worth individuals as limited partners. Two
of the partnerships, Atalanta Partners, L.P. and Atalanta Variable Fund, L.P.,
have been managed by Mr. Martin T. Sosnoff since the late 1960's.
The other limited partnership is the Company's hedge fund, Sabre Partners,
L.P., which began in 1997 and is primarily managed by Mr. Craig B. Steinberg.
Mutual Fund. The Company began its first mutual fund in 1998, the
Atlanta/Sosnoff Fund. The Company invested $9.1 million in this Fund and expects
to market it directly to certain of its current clients and prospects, as well
through several no-transaction-fee programs sponsored by large financial
services companies.
Competition
The investment management business is highly competitive. The Company
competes with numerous investment management firms having varying investment
methods and philosophies. In addition to competition from other discretionary
investment managers, the Company, particularly in its individual and smaller
institutional account business, competes with investment alternatives offered by
mutual funds, insurance companies, banks, securities dealers and other financial
institutions. Also, the allocation by many clients of assets away from active
equity investment has enhanced the ability of firms offering non-equity products
and passive equity management which the Company does not offer, including much
larger firms with diversified product lines, to compete with the Company.
7
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The Company's performance results since inception rank above the median
among peer group money managers. However, due to the 1996 underperformance in
client accounts previously discussed, the Company's current peer group rankings
are low for periods up to and including the last three years. Because of
excellent performance results in 1998, the Company's one year ranking is very
good. The Company believes that the most important factors affecting its
capacity to compete for new business will be a return to sustained top quartile
investment performance results, perceived quality and productivity of investment
professionals, as well as a continued commitment to a strong marketing effort
and an exemplary level of client service.
Most prospective clients perform a thorough review of the investment
manager's background, investment policies and performance before committing
assets to that manager. In many cases, prospective clients invite a number of
competing firms to make presentations. The process of obtaining a new
institutional client typically takes from 12 to 18 months from the time of the
initial contact.
The Company believes it has the capacity to continue to increase the number
of client accounts under management without significant increases in fixed costs
or personnel and without adversely affecting the quality of service to existing
clients. The Company has continued to implement enhancements to its proprietary
computerized portfolio accounting, allocation and monitoring systems to enable
it to more efficiently manage client accounts.
Brokerage
Many of the Company's clients use Management as broker for their account
transactions, to the extent consistent with the client's best interests and as
permitted by applicable law. As of December 31, 1998, some of Capital's
institutional clients, accounting for approximately $680 million (34%) in
institutional assets under management, have consented to the use of Management
as broker. The use of Management as broker is an integral part of the services
offered to substantially all of Management's HNW clients (except for those
accounts obtained through Wrap programs). Management also provides brokerage
services to the Company's officers and employees.
Management clears and carries all accounts on a fully-disclosed basis
through Bear, Stearns Securities Corp. ("Bear Stearns"). Under these
arrangements, Bear Stearns performs administrative functions, such as record
keeping, confirmation of transactions and preparation and transmission of
monthly statements. Bear Stearns also extends margin credit to Management's
brokerage customers.
As a member firm of both the New York Stock Exchange, Inc. ("NYSE")
and the Chicago Board Options Exchange, Inc. ("CBOE"), Management owns a
seat on each Exchange. These seats are leased at market rates to others,
and lease rentals for 1998 totaled $248,000.
Employees
At December 31, 1998, the Company employed 39 persons on a full-time basis,
comprised of 3 senior executives, 6 research, 6 sales, 9 client service, 9
operations, accounting and systems, 2 trading and 4 administrative or
secretarial positions. The Company considers its employee relations to be good.
8
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Sales personnel receive additional compensation based upon the advisory
fees of clients which they were responsible for successfully soliciting on
behalf of the Company. In addition, the Company has entered into agreements with
various sales personnel which, among other things, limit the extent to which
such personnel may solicit clients of the Company if their employment is
terminated. Some of these agreements provide that, in certain circumstances, an
employee, in the event of termination, may continue to receive a percentage of
fees received by the Company from clients solicited by that employee. The
amounts payable with respect to these salespersons' agreements are not expected
to be material.
Regulation
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. Management is registered as a
broker-dealer and investment advisor with the Securities and Exchange Commission
("SEC"), and Capital is registered as an investment advisor with the SEC.
Management's brokerage operations are also subject to regulation by
self-regulatory organizations, including the National Association of Securities
Dealers, Inc., the NYSE, and the CBOE. Securities firms are also subject to
regulation by state securities administrators in the states in which they
conduct business. The Company's subsidiaries are registered as a broker-dealer
and/or investment advisor in all 50 states.
Broker-dealers and investment advisors are subject to regulation covering
virtually all aspects of their business. Additional legislation, changes in
rules promulgated by the SEC and self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of the Company. The SEC,
self-regulatory organizations and state securities commissions conduct routine
inspections of the Company's businesses and may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer or an investment advisor, and/or their officers or employees in
the event of violations of the laws and regulations they administer.
The Company's investment advisory agreements with its clients provide that
they may not be assigned without the consent of the client. "Assignment" is
defined in the Investment Advisers Act of 1940 to include the direct or indirect
transfer or hypothecation of a controlling block of the Company's voting
securities. Martin T. Sosnoff, Chairman of the Board of the Company, owns
approximately 75% of the NYSE listed company, Atalanta/Sosnoff Capital
Corporation (the "Holding Company"), which directly or indirectly owns Capital
and Management, both of which are registered investment advisors. Accordingly,
the voluntary transfer (by sale, merger or other disposition) or involuntary
transfer (by death or disability) by him of a controlling block of the Holding
Company's securities would result in such an "assignment" requiring client
consent. Although no assurance can be given in these circumstances, the Company
believes it would be able to retain its existing client base. The Company's
Certificate of Incorporation contains provisions intended to preclude the
possibility that the accumulation by third parties of a substantial position in
the Company's Common Stock would be deemed an "assignment" of the Company's
advisory agreements.
Many of the Company's clients are subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"). The accounts of these clients are subject to a
number of ERISA provisions governing, among other things, fiduciary obligations
and permissible investments and investment methods.
9
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As a member firm of the NYSE, Management is required under the rules of the
NYSE to maintain minimum net capital at all times equal to at least $250,000. In
addition, Management's ratio of aggregate indebtedness to net capital may not
exceed 15 to 1, and equity capital may not be withdrawn, or dividends paid, from
Management if the resulting ratio of aggregate indebtedness to net capital would
exceed 10 to 1. Management's minimum net capital requirement as of December 31,
1998 was $250,000; it had net capital at such date of $9.2 million, and a ratio
of aggregate indebtedness to net capital of 0.08 to 1.
Item 2. Properties.
The Company occupies office space at 101 Park Avenue, New York, New York
under a lease which term expires on August 29, 2002.
Item 3. Legal Proceedings.
There are no legal proceedings to which the Company or any of its property
is subject which, in the opinion of the Company's management, would have a
material adverse effect upon the Company's business or operations.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
10
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholders Matters.
The Company's common stock is listed on the NYSE under the trading symbol
"ATL." The following table sets forth for the quarters indicated, the high and
low closing sales prices of the common stock, as reported on the New York Stock
Exchange Composite Transactions Tape, together with special dividends declared
each year.
<TABLE>
<CAPTION>
1998 1997 1996
Quarter Ended High Low High Low High Low
------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31 $11.81 $8.56 $8.88 $8.25 $13.88 $9.00
June 30 10.88 9.50 11.38 8.75 10.50 9.38
September 30 9.88 7.63 13.13 11.13 10.00 7.50
December 31 9.00 7.00 12.06 11.38 9.63 8.00
Special Dividends
Declared $.25 $.20 $.15
</TABLE>
The approximate number of record holders of common stock was 65 on December
31, 1998.
The Company's Board of Directors will periodically review the Company's
earnings, liquidity and anticipated cash needs and, subject to these
considerations, it may consider the payment of dividends in the future.
For information with respect to stock and option awards made during 1998,
see "Executive Compensation" and "Stock Option and Long Term Incentive Plans" in
the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders,
incorporated by reference in Item 11 of Part III of this Annual Report on Form
10-K. Shares of common stock awarded in 1997 under the Long Term Incentive Plans
were issued to senior executives of the Company without registration under the
Securities Act of 1933 in reliance on the exemption therefrom in Section 4(2)
thereof for transactions not involving a public offering.
11
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FIVE YEAR REVIEW
(dollars and shares in thousands,
except per share amounts) 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net income $ 7,784 $ 9,849 $ 8,802 $ 10,048 $ 5,775
Per share - diluted $ .81 $ 1.08 $ 1.00 $ 1.14 $ .65
- basic $ .81 $ 1.09 $ 1.00 $ 1.14 $ .65
Operating revenues $ 16,980 $ 18,829 $ 20,759 $ 20,049 $ 17,433
Operating expenses $ 13,609 $ 13,707 $ 12,022 $ 12,381 $ 11,583
Operating income $ 3,371 $ 5,123 $ 8,737 $ 7,668 $ 5,850
Operating margin 20% 27% 42% 38% 34%
Per employee:
Operating revenues $ 435 $ 471 $ 472 $ 477 $ 371
Operating expenses $ 349 $ 343 $ 273 $ 295 $ 247
Operating income $ 86 $ 128 $ 199 $ 183 $ 124
Net interest and dividend income $ 1,557 $ 2,997 $ 1,843 $ 1,881 $ 1,330
Net realized and unrealized
gains from investments $ 8,767 $ 9,854 $ 4,783 $ 7,985 $ 3,391
Return on average equity 10% 15% 15% 20% 13%
Yearend Position:
Total assets $ 90,686 $ 75,413 $ 64,696 $ 58,497 $ 47,329
Shareholders' equity $ 82,022 $ 70,556 $ 61,628 $ 54,517 $ 44,340
Book value per share $ 8.78 $ 7.36 $ 6.99 $ 6.19 $ 5.03
Cash dividends declared per share $ .25 $ .20 $ .15 .15 $ .15
Common stock, shares outstanding 9,338 9,587 8,812 8,812 8,812
Number of employees 39 40 44 42 47
Assets under management (millions) $ 2,410 $ 2,682 $ 2,763 $ 3,611 $ 2,754
Average assets under management
(millions) $ 2,402 $ 2,804 $ 3,219 $ 3,267 $ 2,703
Percentage of average assets:
Operating revenues .71% .67% .64% .61% .65%
Operating expenses .57% .49% .37% .38% .43%
Operating income .14% .18% .27% .23% .22%
</TABLE>
12
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Summary
Investment performance, over 31% for equity clients in 1998, was strong on
an absolute and relative basis and continued the improvement since 1996. Our
peer group ranking continued to improve - from the 90th percentile in 1996, to
above median in 1997, to top quartile in 1998. 1996 and 1997 underperformance
concerns led to net client outflows of $874 million in 1998. However, managed
assets declined by only 10% in 1998 because of strong performance results.
Income before taxes declined 24% in 1998, based on a 20% decrease in other
income, and weaker operating results as compared with 1997.
Earnings per share totaled $.81 in 1998, compared with $1.08 in 1997 and
$1.00 in 1996 (all earnings per share amounts represent diluted earnings per
share). Net income was $7.8 million in 1998, compared with $9.8 million in 1997
and $8.8 million in 1996. Operating income was $3.4 million in 1998, compared
with $5.1 million in 1997 and $8.7 million in 1996, owing to the decline in
managed assets over the last three years. The operating margin was 20% in 1998,
compared with 27% in 1997 and 42% in 1996.
During 1998, the Company recorded $2.25 million of non-cash compensation
charges ("NCCC") related to awards of restricted stock in 1997, compared with
$563,000 in 1997 (see Note 10 to the audited financial statements). In the
fourth quarter of 1998, the Company also recorded $375,000 of compensation
expenses related to a Senior Vice President's relinquishment of the exclusive
right to receive the net operating earnings attributable to certain managed
accounts (the "SVP Accounts" - see Note 6 to the audited financial statements)
to the Company. Net income before these two charges totaled $9.3 million in
1998, or $.97 per share.
During 1997, special charges (classified in both separation costs and
general and administrative expenses) totaling $1.9 million ($.12 per share after
taxes) were charged to operations owing to the termination without cause of the
Company's former president ($1.4 million) and the costs incurred by the Company
associated with an abandoned effort to take the Company private. Net income
before special charges totaled $10.9 million in 1997, or $1.20 per share.
Excluding these charges in 1998 and 1997 (see table below), operating
income totaled $6.0 million (35% margin) in 1998, and $7.6 million (40% margin)
in 1997.
<TABLE>
<CAPTION>
Operating Income ($000)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating income, reported $3,371 $5,123 $8,737
Adjustments:
Non-cash compensation charges 2,250 563 ---
SVP account charges 375 -- ---
1997 special charges --- 1,892 --
------ ----- ------
Operating income, adjusted $5,996 $7,578 $8,737
====== ====== ======
</TABLE>
13
<PAGE>
Assets under management declined $272 million (10%) in 1996 to $2.41
billion at year-end. Average assets under management totaled $2.40 billion in
1998, compared with $2.80 billion in 1997, and $3.22 billion in 1996.
Operating revenues totaled $17.0 million in 1998, compared with $18.8
million in 1997 and $20.8 million in 1996, reflecting the declining levels of
managed assets over those periods.
Cash, cash equivalents and marketable securities totaled $78 million at
December 31, 1998, compared with $67 million a year ago. Book value per share
grew 19% to total $8.78 at December 31, 1998, compared with $7.36 at the end of
1997.
Assets Under Management
Managed assets totaled $2.41 billion at the end of 1998, compared with
$2.68 billion at the end of 1997 and $2.76 billion at the end of 1996, broken
down as follows:
<TABLE>
<CAPTION>
($ millions)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Institutional $1,963 $2,355 $2,421
High Net Worth 315 198 200
Investment Partnerships 81 72 50
Wrap 41 57 92
Mutual Fund 10 n/a n/a
------ ------ ------
Total Managed Assets $2,410 $2,682 $2,763
====== ====== ======
</TABLE>
The $272 million net decrease in managed assets during 1998 is comprised
of increases of $14 million in new client accounts and $602 million in positive
performance results, reduced by (i) $683 million in closed client accounts; and
(ii) $205 million in net withdrawals from existing accounts. The closed accounts
are primarily the result of performance concerns. Additionally, the Company's
second largest account ($311 million) terminated in May, 1998. This account
generated 3.8% of the Company's operating revenues in 1997, and 2.8% in 1998.
In the two years ended December 31, 1998, managed assets decreased by $353
million, comprised of increases in new accounts of $33 million and $1,228
million in positive performance results, reduced by (i) $1,097 million in closed
client accounts; and (ii) $517 million in net withdrawals from existing
accounts.
14
<PAGE>
Performance in equity, balanced and fixed income accounts was strong on an
absolute and relative basis in 1998, and the Company's peer group rankings
continue to improve. Net outflows in client accounts slowed significantly over
the last six months of 1998, and the Company believes its managed asset base has
stabilized. Barring a severe market correction, the Company expects its asset
base to resume growth in 1999. Based on the managed asset level at the end of
1998, operating revenues might be lower in 1999 than 1998.
Earnings
Operating revenues declined 10% in 1998 to $17.0 million, compared with
$18.8 million in 1997 and $20.8 million in 1996. Average assets under management
declined 14% in 1998, and 13% in 1997.
In 1998 operating revenues were .71% of average managed assets, compared
with .67% in 1997 and .64% in 1996. This reflects an increase in the weighted
advisory fee yield because the accounts lost over the last two years were
generally larger accounts with lower fee structures.
Advisory fees, which are earned based on the value of assets under
management, are the Company's primary source of operating revenues. Advisory
fees decreased 11% to $15.4 million in 1998, compared with $17.3 million in 1997
and $19.2 million in 1996. Advisory fees were 91% of operating revenues in 1998,
compared with 92% in both 1997 and 1996.
Transaction fees (commissions) earned by Management are the primary source
of the Company's other operating revenues. They are derived from Management's
individual and small institutional accounts, investment partnerships and
specific institutional accounts that have given Management the authority to
execute trades. Commissions decreased 1% to $1.15 million in 1998, compared with
$1.16 million in 1997 and $1.23 million in 1996. The 1998 decline reflects the
decrease in managed assets during 1998, partially offset by increased retention.
15
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses ($000)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating expenses, reported $13,609 $13,707 $12,022
Adjustments:
Non-cash compensation charges (2,250) (563) ---
SVP account charges (375) --- ---
1997 special charges --- (1,892) --
------ ------- ------
Operating expenses, adjusted $10,984 $11,252 $12,022
======= ======= =======
</TABLE>
Reported operating expenses totaled $13.6 million in 1998, compared with
$13.7 million in 1997 and $12.0 million in 1996. The 1998 amount reflects $2.63
million in compensation charges detailed above. Before these 1998 items,
operating expenses totaled $11.0 million in 1998. The 1997 amount reflects $1.9
million in special charges and $563,000 in non-cash compensation charges. Before
these 1997 charges, operating expenses totaled $11.3 million in 1997.
Excluding these adjustments, 1998 operating expenses declined 2%
compared with 1997, after a 6% decline in 1997 compared with 1996. Adjusted
operating expenses were 65% of operating revenues and .46% of average managed
assets in 1998, compared with 60% and .40% in 1997, and 58% and .37% in 1996,
reflecting declining asset levels, partially offset by continued cost
containment initiatives.
<TABLE>
<CAPTION>
Compensation Expenses ($000)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Compensation expenses, reported $10,043 $8,070 $8,296
Adjustments:
Non-cash compensation charges (2,250) (563) ---
SVP account charges (375) -- --
------ ------ ------
Compensation expenses, adjusted $7,418 $7,507 $8,296
====== ====== ======
</TABLE>
Reported compensation expenses increased 24% to $10.0 million in 1998,
compared with $8.1 million in 1997 and $8.3 million in 1996, because of the
charges noted above. Compensation expenses adjusted for these items declined 1%
in 1998 to total $7.4 million, compared with $7.5 million in 1997. Adjusted
compensation expenses were 44% of operating revenues and .31% of average managed
assets in 1998, compared with 40% and .27% in 1997, and 40% and .26% in 1996.
16
<PAGE>
The Company has a Management Incentive Plan ("MIP") which covers bonus
payments to certain executives. Under the MIP, the payment of bonuses to
these executives is based on the annual growth in operating income, after
adjusting for non-cash compensation charges. In 1998 and 1997, participating
executives were awarded no bonuses under the MIP, compared with $860,000 awarded
in 1996.
<TABLE>
<CAPTION>
Non-Compensation Expenses ($000)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Non-compensation expenses, reported $3,566 $5,637 $3,726
Adjustments:
1997 special charges --- (1,892) --
------ ------ ------
Non-compensation expenses, adjusted $3,566 $3,745 $3,726
====== ====== ======
</TABLE>
Reported non-compensation expenses declined by 37% to $3.6 million in 1998,
compared with $5.6 million in 1997 and $3.7 million in 1996. The 1998 decrease
and 1997 increase is the result of the $1.9 million in special charges recorded
in 1997. Excluding 1997 special charges, non-compensation expenses declined 5%
to total $3.6 million in 1998, compared with $3.7 million in both 1997 and 1996.
These expenses are primarily fixed in nature and, as a result, they are not
directly related to changes in managed asset levels. Adjusted non-compensation
expenses totaled 21% of operating revenues and .15% of average managed assets in
1998, compared with 20% and .13% in 1997, and 18% and .12% in 1996.
o o o
Other income, which comprises interest, dividends, and realized and
unrealized gains/losses from sales of marketable securities (primarily large-cap
equities), totaled $10.3 million in 1998, compared with $12.9 million in 1997
and $6.6 million in 1996. Net interest and dividend income was $1.6 million in
1998, compared with $3.0 million in 1997 and $1.8 million in 1996. The 1997
amount is primarily due to a special dividend received in 1997 from a company
whose securities were held in the Company's investment portfolio. Net gains from
investments totaled $8.8 million in 1998, compared with $9.9 million in 1997 and
$4.8 million in 1996, reflecting the varying strength of the domestic financial
markets in those years.
17
<PAGE>
Liquidity and Capital Resources
At December 31, 1998 the Company had cash and cash equivalents totaling
$4.0 million, compared with $3.8 million at the end of 1997. Operating
activities provided net cash inflows of $727,000 in 1998, compared with $2.4
million in 1997. This reflects the changing levels of operating income and net
income over those periods. Net cash provided by investing activities totaled
$4.0 million in 1998, compared with a net use of $2.3 million in 1997.
Investments in marketable securities aggregated $73.8 million at December
31, 1998, compared with $63.0 million at the end of 1997. During 1998, the
Company invested $9.1 million in its new mutual fund, the Atalanta/Sosnoff Fund,
and an additional $3 million in investment partnerships. Shareholders' equity
totaled $82.0 million at December 31, 1998, compared with $70.6 million at the
end of 1997, primarily from net income of $7.8 million recorded in 1998 and
unrealized gains on the investment portfolio. The Company has adopted SFAS No.
115, requiring it to reflect a net unrealized gain of $7.5 million in
shareholders' equity at December 31, 1998, compared with $1.3 million at the end
of 1997.
At December 31, 1998, the Company's investment portfolio at market totaled
$85.4 million (cost basis $70.3 million), comprised of cash and cash
equivalents, corporate debt, large-cap equity securities, and investments in
limited partnerships and the Atalanta/Sosnoff Fund (see Note 3 to the audited
financial statements for further details). At year-end, the Company was invested
in 15 separate large-cap securities, in a more concentrated fashion of what it
does for its managed client accounts. The largest position was in Microsoft, at
15.4% of the portfolio, with an unrealized gain of $3.4 million at year-end.
If the equity market (defined as the S&P 500 index) were to decline by 10%,
the Company might experience unrealized losses of approximately $8 million; if
the market were to decline by 20%, the Company might experience unrealized
losses of $16 million. However, incurring unrealized losses of this magnitude is
unlikely with active management of the portfolio. Since the positions are all
large-cap holdings, they can be sold easily on short notice with little market
impact. Ultimately, the Company will raise and hold cash to reduce market risk.
o o o
In 1998, the Company paid a special dividend of $.25 per share, compared
with $.20 per share in 1997. Additionally, in December, 1998, the Company
repurchased 249,000 shares of its own stock at a market price of $8.75 per
share. At December 31, 1998, the Company had no liabilities for borrowed money.
In September, 1997, the Company awarded 775,000 shares of restricted stock at
the issue price of $.01 per share to two senior executives under the terms of
the Long Term Incentive Plan ("LTIP"). Craig B. Steinberg, President, received
600,000 shares and Anthony G. Miller, Executive Vice President and Chief
Operating Officer, received 175,000 shares. Such awards vest over four years.
18
<PAGE>
The difference of $9.0 million between the market value ($11.625 per share) of
the shares awarded on the date of grant and the purchase price of $.01 per share
was recorded as unearned compensation in shareholders' equity and is being
amortized over a four-year period commencing with the fourth quarter of 1997
(approximately $563,000 per quarter and $2.25 million annually).
The Company believes that the foreseeable capital and liquidity
requirements of its existing businesses will continue to be met with funds
generated from operations.
Year 2000
As all businesses in the securities industry, the Company's operating
businesses are materially dependent on the efficient and continuous operation of
their information technology systems (consisting of computer software, hardware,
local and remote communications networks) and the imbedded microprocessors in
its equipment. Substantially all aspects of the securities industry's activities
are time sensitive, including the execution, processing, settlement and
recording of securities transactions, the maintenance and transmission of
information about such transactions and the collection and analysis of
information about issuers, markets and economies. Moreover, all of these
functions are highly interdependent and rely on the functioning of the
information technology systems of other organizations in the securities
industry, including counterparties, brokers, clearing agents and custodians.
Because of the potential impact of the Year 2000 Issue ("Y2K") on the
securities industry, the Securities and Exchange Commission and other regulatory
and self-regulatory securities organizations have monitored and required reports
from their members concerning Y2K and encouraged planning for system wide
function tests. Y2K arises because of concern that there is widely distributed
in information technology systems and imbedded microprocessors date recognition
and processing functions which designate and recognize a year by the year's last
two digits and therefore would not distinguish a year in the twenty-first
century from one in the twentieth century.
The Company has conducted a full assessment of its information technology
systems and imbedded technology to determine whether they are Y2K compliant
(i.e., that they will recognize and specify dates to properly function in the
year 2000 and thereafter). The remediation and testing of all critical systems
was substantially completed by the end of 1998. Point-to-point testing with the
systems of third parties with which our existing systems interface is also
substantially completed. While the Company's existing critical systems are
mostly Y2K compliant, to reduce the cost of maintenance associated with such
systems, the Company has decided to replace its two core critical systems,
trading and portfolio accounting, with off-the-shelf commercial software
packages that are also Y2K compliant. This process is well under way and the
Company expects to make a complete conversion to these two new systems by June
30, 1999.
19
<PAGE>
Implementation of remediation and testing of non-critical systems is
substantially complete. Because much of the Company's information technology
systems are proprietary and maintained by its designer and MIS employees, Y2K
compliance has been conducted in the normal course of business without material
incremental expenditures or personnel. In the cases where external support in
the form of software upgrades or services are required, such support was
provided by suppliers in the fourth quarter of 1998. Based on its progress to
date, the Company does not believe that the costs of Y2K compliance will have a
material effect on its financial position, results of operations or cash flow.
However, the Company is closely monitoring the progress of third parties'
information technology systems in Y2K compliance on which its systems are
dependent. It has solicited and received assurances of progress from such third
parties and is evaluating their responses. The Company has developed contingency
plans in the event of Y2K compliance failure by such third parties based on more
traditional systems for securities execution, processing, settlement and record
keeping which it intends to continue to develop based on the results of testing
next year. The Company is not currently in a position to assess the effect of
critical third parties' ability to achieve Y2K compliance but believes that the
impact of failure would be adverse to its business.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements, and Consolidated
Financial Statement Schedules on page F-1 in Item 14.
Item 9. Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
20
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors -
Information concerning directors of the Company is contained under the
caption "Election of Directors" in the Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
(b) Executive Officers of the Registrant -
MARTIN T. SOSNOFF*, 67, was a founder of the Company and has been Chairman
of the Board, Chief Executive Officer and Chief Investment Officer of
the Company and its subsidiaries since their inceptions. He was a
co-founder of Atalanta Capital Corporation (investment management) and
served as its Chairman and Chief Executive Officer until 1983.
CRAIG B. STEINBERG**, 37, has been President, Director of Research, and
held other offices, with the Company and its subsidiaries since
1985. Mr. Steinberg is a Portfolio Manager, and he was a
securities analyst at Prudential Equity Management from 1983 to 1985.
ANTHONY G. MILLER, 40, has been Executive Vice President, Chief Operating
Officer, Chief Financial Officer, and Secretary, and held other
offices, with the Company and its subsidiaries since 1986. From 1983 to
1986 he was Manager, Foreign Exchange and Money Market Operations, and
held other positions, with the Royal Bank of Canada and, from 1980 to
1983 was a Senior Accountant, and held other positions, with Arthur
Andersen & Co.
PAUL P. TANICO, 43, has been Executive Vice President, Portfolio Manager
with Capital and Management since 1997. Previously, Mr. Tanico was a
Portfolio Manager at Atalanta/Sosnoff from 1983 to 1987, and in
1991. Mr .Tanico began his investment career with David J. Greene in
1981, and in 1992 was one of the original partners at Omega Advisors.
Since 1994, he has served as Managing Partner of Castlerock Partners.
From 1987 through 1990 Mr. Tanico was a Portfolio Manager with
Neuberger & Berman.
- -------------------------------
* Also a director and member of the Executive, Compensation and
Stock Option Committees.
** Also a director and member of the Executive Committee.
21
<PAGE>
WILLIAM M. KNOBLER, 65, has been Senior Vice President of Management
since 1985. Mr. Knobler is a Portfolio Manager, and he was a
securities analyst and voting shareholder of Sanford C. Bernstein &
Co. from 1979 to 1985.
JAMES D. STAUB, 66, has been Senior Vice President, and held other
offices, with Capital and Management since 1984. Mr. Staub is
responsible for West Coast Marketing, and he was a corporate
officer of Alexander & Baldwin, Inc. from 1961 to 1984.
JOHN P. O'BRIEN, 60, has been Vice President, and held other offices, with
the Company and its subsidiaries since their inceptions. Mr. O'Brien
serves as the Controller for the Company and its subsidiaries.
Officers of the Registrant are elected at the meeting of the Board of
Directors held each year immediately after the Annual Meeting of Stockholders
and serve for the ensuing year and until their successors are elected and
qualified.
Item 11. Executive Compensation.
Information concerning executive compensation is contained under the
captions "Election of Directors", "Executive Compensation", "Stock Option and
Long Term Incentive Plans", "Profit-Sharing Plan" and "Management Incentive
Plan" in the Proxy Statement for the 1999 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission and is incorporated herein by
reference.
Item 12. Beneficial Ownership of the Company's Securities.
Information concerning security ownership of certain beneficial owners and
management is contained under the caption "Beneficial Ownership of Securities of
the Company" in the Proxy Statement for the 1999 Annual Meeting of Stockholders
to be filed with Securities and Exchange Commission and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions is
contained under the caption "Agreements and Transactions with Directors and
Executive Officers" in the Proxy Statement for the 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission and is
incorporated herein by reference.
22
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedules on Page F-1 of Item 14.
2. FINANCIAL STATEMENT SCHEDULES
See Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedules on Page F-1 of Item 14.
(b) None.
23
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION:
Financial Statements
Report of Independent Public Accountants F-2
Consolidated Statements of Financial Condition - December 31, 1998 and 1997 F-3
Consolidated Statements of Income and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7/F-14
Supplementary Financial Information
Selected Quarterly Financial Data (Unaudited) F-15
Computations of Earnings Per Share S-1
</TABLE>
Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is given in the
consolidated financial statements or the notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Atalanta/Sosnoff Capital Corporation:
We have audited the accompanying consolidated statements of financial condition
of Atalanta/Sosnoff Capital Corporation (a Delaware corporation) and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income and comprehensive income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atalanta/Sosnoff Capital
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
New York, New York
February 17, 1999
F-2
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------- -------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 3,993,963 $ 3,805,243
Accounts receivable 3,319,185 3,355,399
Receivable from clearing broker - 1,323,473
Investments, at market 73,802,294 63,039,613
Investments in limited partnerships 7,565,780 1,928,454
Fixed assets, net of accumulated depreciation and amortization of $426,924 659,311 789,361
and $238,279, respectively
Exchange memberships, at cost (market value 402,000 402,000
$1,761,100 and $2,475,000, respectively)
Other assets 943,870 769,281
--------------- ---------------
Total assets $ 90,686,403 $ 75,412,824
=============== ===============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accounts payable and other liabilities $ 773,970 $ 854,039
Accrued compensation payable 648,611 839,424
Income taxes payable 6,541,427 1,763,574
Separation costs payable 700,000 1,400,000
--------------- ---------------
Total liabilities 8,664,008 4,857,037
--------------- ---------------
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, par value $1.00 per share; 5,000,000 shares authorized; - -
none issued
Common stock, par value $.01 per share; 30,000,000 shares authorized; 95,874 95,874
9,587,401 shares issued and outstanding
Additional paid-in capital 24,389,499 24,648,499
Retained earnings 58,412,561 52,963,643
Accumulated other comprehensive income - unrealized gains from investments, 7,494,341 1,286,794
net of deferred tax liabilities of $4,996,227 and $858,156, respectively
Unearned compensation (6,188,615) (8,439,023)
Treasury stock, at cost, 249,000 and 0 shares, respectively (2,181,265) -
--------------- --------------
Total shareholders' equity 82,022,395 70,555,787
--------------- ---------------
Total liabilities and shareholders' equity $ 90,686,403 $ 75,412,824
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Revenues:
Advisory fees $ 15,406,468 $ 17,286,815 $ 19,159,433
Commissions and other 1,573,101 1,542,657 1,599,735
--------------- --------------- ---------------
Total revenues 16,979,569 18,829,472 20,759,168
--------------- --------------- ---------------
Costs and expenses:
Employees' compensation 10,043,375 8,069,548 8,295,815
Clearing and execution costs 562,594 526,964 541,596
Selling expenses 421,052 429,077 466,484
General and administrative expenses 2,582,300 4,681,383 2,718,038
--------------- --------------- ---------------
Total costs and expenses 13,609,321 13,706,972 12,021,933
--------------- --------------- ---------------
Operating income 3,370,248 5,122,500 8,737,235
--------------- --------------- ---------------
Other income (expense):
Interest and dividend income 1,588,280 3,030,836 1,858,166
Interest expense (30,788) (34,087) (15,702)
Realized and unrealized gains from investments, net 8,766,778 9,854,124 4,783,217
--------------- --------------- ---------------
Other income, net 10,324,270 12,850,873 6,625,681
--------------- --------------- ---------------
Income before provision for income taxes 13,694,518 17,973,373 15,362,916
Provision for income taxes 5,911,000 8,124,000 6,561,000
--------------- --------------- ---------------
Net income $ 7,783,518 $ 9,849,373 $ 8,801,916
=============== =============== ===============
Earnings per common share - basic $ .81 $ 1.09 $ 1.00
=============== ============== ==============
Earnings per common share - diluted $ .81 $ 1.08 $ 1.00
=============== ============== ==============
Net income, as presented above $ 7,783,518 $ 9,849,373 $ 8,801,916
=============== =============== ===============
Other comprehensive income:
Net unrealized gains (losses) from investments (net of
income taxes of $4,138,071, $283,747, and $(246,377),
respectively) 6,207,547 425,621 (369,566)
--------------- --------------- ----------------
Comprehensive income $ 13,991,065 $ 10,274,994 $ 8,432,350
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income-Unrealized
Gains (Losses)
Additional From Unearned
Common Paid-in Retained Investments, Compen- Treasury
Stock Capital Earnings Net sation Stock Total
------ ---------- -------- --------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $88,124 $ 15,646,874 $ 37,551,694 $ 1,230,739 $ - - $ 54,517,431
Unrealized losses from
investments, net of
deferred taxes - - - (369,566) - - (369,566)
Net income - - 8,801,916 - - - 8,801,916
Dividends ($.15 per
share) - - (1,321,860) - - - (1,321,860)
-------- ------------ ------------ ------------ ----------- ------------ ------------
BALANCE, December 31, 1996 88,124 15,646,874 45,031,750 861,173 - - 61,627,921
Issuance of 775,000
restricted shares 7,750 9,001,625 - - (9,001,625) - 7,750
Amortization of unearned
compensation - - - - 562,602 - 562,602
Unrealized gains from
investments, net of
deferred taxes - - - 425,621 - - 425,621
Net income - - 9,849,373 - - - 9,849,373
Dividends ($.20 per
share) - - (1,917,480) - - - (1,917,480)
-------- ------------ ------------ ------------ ----------- ------------ ------------
BALANCE, December 31, 1997 95,874 24,648,499 52,963,643 1,286,794 (8,439,023) - 70,555,787
Purchase of treasury
stock - - - - - (2,181,265) (2,181,265)
Amortization of unearned
compensation - (259,000) - - 2,250,408 - 1,991,408
Unrealized gains from
investments, net of
deferred taxes - - - 6,207,547 - - 6,207,547
Net income - - 7,783,518 - - - 7,783,518
Dividends ($.25 per
share) - - (2,334,600) - - - (2,334,600)
------- ------------ ------------ ------------ ----------- ------------ ------------
BALANCE, December 31, 1998 $95,874 $ 24,389,499 $ 58,412,561 $ 7,494,341 $(6,188,615)$ (2,181,265)$ 82,022,395
======= ============ ============ ============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,783,518 $ 9,849,373 $ 8,801,916
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 188,643 150,185 121,987
Amortization of unearned compensation 2,250,408 562,602 -
Realized and unrealized gains from investments, net (8,766,778) (9,854,124) (4,783,217)
Deferred taxes 394,400 (522,264) (103,000)
(Increase) decrease in operating assets-
Accounts receivable 36,214 426,699 576,872
Other assets (174,589) (253,243) (388,368)
Increase (decrease) in operating liabilities-
Accounts payable and other liabilities (80,069) 206,943 98,672
Accrued compensation payable (190,813) (557,675) (935,214)
Income taxes payable (13,909) 977,880 274,885
Separation costs payable (700,000) 1,400,000 -
--------------- ---------------- ---------------
Net cash provided by operating activities 727,025 2,386,376 3,664,533
--------------- ---------------- ---------------
Cash flows from investing activities:
Proceeds from clearing broker, net 1,323,473 1,114,348 (113,169)
Purchases of fixed assets (58,596) (329,314) (622,017)
Purchases of investments (151,336,026) (117,715,145) (128,128,495)
Proceeds from sales of investments 154,048,709 114,672,755 104,216,117
--------------- ---------------- ---------------
Net cash provided by (used in) investing
activities 3,977,560 (2,257,356) (24,647,564)
--------------- ---------------- ---------------
Cash flows from financing activities:
Purchase of treasury stock (2,181,265) - -
Proceeds received for issuance of restricted shares - 7,750 -
Dividends paid (2,334,600) (1,917,480) (1,321,860)
--------------- ---------------- ---------------
Net cash used in financing activities (4,515,865) (1,909,730) (1,321,860)
--------------- ---------------- ---------------
Net increase (decrease) in cash and cash
equivalents 188,720 (1,780,710) (22,304,891)
Cash and cash equivalents, beginning of year 3,805,243 5,585,953 27,890,844
--------------- ---------------- ---------------
Cash and cash equivalents, end of year $ 3,993,963 $ 3,805,243 $ 5,585,953
=============== ================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for-
Interest $ 30,788 $ 34,087 $ 15,702
Income taxes 5,530,511 7,668,384 6,389,115
Noncash financing activity-
Increase (decrease) in additional paid-in capital
related to the issuance of restricted shares (259,000) 9,001,625 -
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Atalanta/Sosnoff Capital Corporation (the "Holding Company") and its direct and
indirect wholly owned subsidiaries, Atalanta/Sosnoff Capital Corporation
(Delaware) ("Capital"), Atalanta/Sosnoff Management Corporation ("Management")
and ASCC Corp. ("ASCC"). Capital is a registered investment advisor. It provides
investment advisory and management services to institutional clients and certain
investment partnerships. Management is a registered investment advisor and a
broker-dealer in securities, with memberships on the New York Stock Exchange,
Inc. and the Chicago Board Options Exchange, Inc. It provides investment
advisory and management services to individual and smaller institutional clients
and brokerage services to its clients and some of the clients of Capital. ASCC
was formed in December, 1998 for investment-related activities which were
previously performed by the Holding Company.
Certain prior year balances have been reclassified in the accompanying
consolidated financial statements to conform to the 1998 presentation.
The Holding Company and its subsidiaries are referred to collectively herein as
the "Company." All intercompany accounts and transactions have been eliminated
in consolidation.
Reportable Operating Segments
The company considers its operations to be one reportable segment for purposes
of presenting financial information and for evaluating its performance. As such,
the financial information presented in the accompanying financial statements is
consistent with the financial information prepared for internal use by
management.
Revenue Recognition
Advisory and management fee income is recognized in the period in which services
are performed based on a percentage of assets under management. Commission
income and expenses arising from customers' securities transactions are
recognized on a settlement date basis. The effect of using the settlement date
instead of the trade date for recognition has been immaterial.
F-7
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
Investments, at Market
The Company records its investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, with the exception
of investments held by Management. The Company has designated those investments
held by the Holding Company, Capital and ASCC in equity and debt securities as
"available for sale," and accordingly recorded at market value with the related
unrealized gains and losses net of deferred taxes reported as a separate
component of shareholders' equity. Investments held by Management are recorded
at market value, with the related unrealized gains and losses reflected in the
consolidated statements of income and comprehensive income.
Investments are recorded on trade date. The cost of investments sold is
determined on the first-in first-out method. Dividends and interest are accrued
as earned. Securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sales price as of the
last business day of the year. Investments in mutual funds are valued based upon
the net asset value of the shares held as reported by the fund. Securities with
no reported sales on such date are valued at their last closing bid price.
Capital serves as a general partner for three Company-sponsored investment
partnerships (the "Partnerships") and as the investment manager for a
Company-sponsored offshore investment fund (the "Offshore Fund"). Investments in
limited partnerships are carried in the accompanying financial statements at the
Company's share of the net asset values as reported by the respective
Partnerships. Limited partners whose capital accounts in the aggregate are
two-thirds of the total capital accounts of all limited partners may, at any
time, require Capital to withdraw as the general partner of the Partnerships.
Therefore, the Company is not deemed to have control of the Partnerships and
accordingly, the accounts of the Partnerships are not included in these
consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
Depreciation and Amortization
Furniture, equipment, computer software and leasehold improvements are stated at
cost, net of accumulated depreciation and amortization computed using the
straight-line method. Depreciation of furniture, equipment and computer software
is provided over estimated useful lives ranging from five to seven years.
Leasehold improvements are amortized over the shorter of their useful lives or
the remainder of the term of the related lease. Accumulated depreciation for
fully depreciated fixed assets is removed from the related accounts for those
assets which have been retired.
F-8
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
Income Taxes
The Company records income taxes in accordance with the provisions of SFAS No.
109. Accordingly, deferred taxes are provided to reflect temporary differences
between the recognition of income and expense for financial reporting and tax
purposes.
Estimates by Management
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 the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
2. EARNINGS PER COMMON SHARE
Basic earnings per common share amounts were computed based on 9,571,711,
9,037,469 and 8,812,401 weighted average common shares outstanding in 1998, 1997
and 1996, respectively.
In accordance with the provisions of SFAS No. 128, dilutive earnings per share
for the three years ended December 31, 1998, were computed based on the weighted
average common shares outstanding provided in the table below. Antidilutive
options were not included in the computation of dilutive earnings per share as
the options' exercise prices were greater than the average market price of the
common shares for each of those respective years.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding 9,571,711 9,037,469 8,812,401
Common stock equivalents-options 10,925 50,936 30,350
-------------- -------------- --------------
Dilutive weighted average common
shares outstanding 9,582,636 9,088,405 8,842,751
============== ============== ==============
Antidilutive options 150,000 - 35,000
============== ============== ==============
</TABLE>
3. INVESTMENTS AND CASH
Included in cash and cash equivalents, the Company had interest-bearing free
credit balances with its clearing broker of $230,727 and $690,870 at December
31, 1998 and 1997, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
Investments at December 31, 1998 and 1997, consisted of the following:
<TABLE>
<CAPTION>
Unrealized
Cost Market Value Gain (Loss)
---- ------------ -----------
<S> <C> <C> <C>
1998:
Available for sale-
Common stock $ 51,735,002 $ 62,778,063 $ 11,043,061
Corporate debt 1,175,964 868,250 (307,714)
Atalanta/Sosnoff Fund 100,000 114,700 14,700
-------------- -------------- ---------------
53,010,966 63,761,013 10,750,047
-------------- -------------- ---------------
Trading-
Atalanta/Sosnoff Fund 9,000,000 10,041,281 1,041,281
-------------- -------------- ---------------
9,000,000 10,041,281 1,041,281
-------------- -------------- ---------------
Other-
Investment in limited partnerships 4,279,487 7,565,780 3,286,293
-------------- -------------- ---------------
4,279,487 7,565,780 3,286,293
-------------- -------------- ---------------
$ 66,290,453 $ 81,368,074 $ 15,077,621
============== ============== ===============
1997:
Available for sale-
Common stock $ 32,022,237 $ 34,107,433 $ 2,085,196
U.S. Government obligations 20,176,377 20,278,120 101,743
Corporate debt 1,183,078 1,152,875 (30,203)
-------------- -------------- ---------------
53,381,692 55,538,428 2,156,736
-------------- -------------- ---------------
Trading-
Common stock 1,231,512 1,674,000 442,488
U.S. Government obligations 5,793,864 5,827,185 33,321
-------------- -------------- ---------------
7,025,376 7,501,185 475,809
-------------- -------------- ---------------
Other-
Investment in limited partnerships 1,150,000 1,928,454 778,454
-------------- -------------- ---------------
1,150,000 1,928,454 778,454
-------------- -------------- ---------------
$ 61,557,068 $ 64,968,067 $ 3,410,999
============== ============== ===============
</TABLE>
4. RECEIVABLE FROM CLEARING BROKER
Receivable from clearing broker represents net amounts due for securities
transactions executed on or prior to year-end but settling thereafter.
5. SEPARATION COSTS PAYABLE
The separation costs relate to the Company's termination without cause of its
former president on August 15, 1997. Such termination is governed by the terms
of the former president's Employment Agreement, whereby he receives two years
severance at his base salary level at the time of termination payable over the
two-year period ending November 15, 1999.
F-10
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
6. RELATED PARTY TRANSACTIONS
As the General Partner for the Partnerships and the investment manager of the
Offshore Fund, Capital earned approximately $1,821,000, $1,258,000 and
$1,099,000 in 1998, 1997 and 1996, respectively, for advisory and management
services (charged at 1% and 1% - 2% of net assets, respectively), and incentive
fees in the case of one partnership. Management earned commissions of
approximately $116,000, $59,000 and $12,000 in 1998, 1997 and 1996,
respectively, for brokerage services provided to the Partnerships. Advisory fees
and brokerage commissions are based on terms comparable to those in agreements
with unrelated parties. Balances receivable from the Partnerships were
approximately $449,000, $110,000 and $92,000 at December 31, 1998, 1997 and
1996, respectively, including approximately $282,000 of incentive fees which
were allocated to net income in 1998.
Investments consist of shares held of the Atalanta/Sosnoff Fund (the "Fund").
Management acts as Distributor to the Fund and Capital acts as Investment
Advisor.
Employment Agreement
In May 1985, Management entered into an employment agreement with an individual
portfolio manager to provide investment expertise to both Management and
Capital. Under the terms of the agreement, the employee is paid the net profits
relating to the managed accounts (the "Net Profits") which represent advisory
fees and commissions for all trades executed for his managed accounts, net of
clearance and floor brokerage charges, allocated payroll, overhead and
out-of-pocket expenses incurred on his behalf by Management. Commissions and
advisory fee revenues related to such investment advisory services for 1998
amounted to $1,501,986 and related compensation expenses amounted to $965,994.
Effective October 1, 1998, Management entered into a new agreement with the
employee for the period ending December 31, 2000, under which the employee is
relinquishing the investment management and brokerage services provided to the
managed accounts to Management. Pursuant to this agreement, Management will make
payments to the employee in three installments in January of 1999, 2000 and
2001, based upon a multiple of annualized revenues from the employee's managed
accounts, which will be recognized ratably as compensation expense over the term
of the arrangement. In addition, Management and the employee agreed to change
the split of Net Profits paid to the employee from 100% during the twelve-month
period ended September 30, 1998 to 50% for the twelve-month period ending
September 30, 1999, 25% for the twelve-month period ending September 30, 2000,
and 0% thereafter. In the fourth quarter of 1998, $375,000 of accrued
compensation was recorded in connection with the Agreement.
F-11
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
7. PROVISION FOR INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
Current income taxes:
<S> <C> <C> <C>
Federal $ 3,822,000 $ 2,982,961 $ 4,197,000
State and local 1,694,600 5,663,303 2,467,000
-------------- -------------- --------------
Total current 5,516,600 8,646,264 6,664,000
-------------- -------------- --------------
Deferred income taxes provision:
Federal 267,100 (180,180) (56,000)
State and local 127,300 (342,084) (47,000)
-------------- -------------- --------------
Total deferred 394,400 (522,264) (103,000)
-------------- -------------- --------------
$ 5,911,000 $ 8,124,000 $ 6,561,000
============== ============== ==============
</TABLE>
A reconciliation of the statutory federal income tax rate and the effective rate
based on consolidated income before income taxes in 1998, 1997 and 1996, is set
forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.5% 34.5% 34.5%
Increase resulting from:
State and local income taxes, net of federal
tax benefit 8.6 10.6 8.0
Other 0.1 0.1 0.2
---- ---- ----
Effective rate 43.2% 45.2% 42.7%
==== ==== ====
</TABLE>
At December 31, 1997 and 1998 the total income taxes payable balance was
$1,763,574 and $6,541,427, respectively. This increase is mostly due to the
increase in deferred tax liabilities from $289,424 at December 31, 1997 to
$6,273,377 at December 31, 1998. The primary reason for the change resulted from
the increase in unrealized gains on the Company's investments as described
below.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized gain on investments $ 6,483,377 $ 1,053,000
Separation costs payable (210,000) (490,000)
Restricted stock award - (224,800)
Other - (48,776)
------------ -------------
$ 6,273,377 $ 289,424
============ =============
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
8. NET CAPITAL REQUIREMENTS
Management is subject to the Securities and Exchange Commission Uniform Net
Capital Rule 15c3-1, which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net capital, both as
defined, not exceed 15 to 1. The net capital rule of the New York Stock Exchange
also provides that equity capital may not be withdrawn or cash dividends paid if
the resulting net capital ratio would exceed 10 to 1. At December 31, 1998,
Management had net capital of $9,198,451, which was $8,948,451 in excess of its
required net capital of $250,000, and had a ratio of aggregate indebtedness to
net capital of .08 to 1.
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office facilities and equipment under various noncancelable
operating leases expiring through 2002. Rent expense was approximately $680,000,
$661,000 and $475,000 in 1998, 1997 and 1996, respectively.
Approximate minimum rental commitments under noncancelable operating leases for
the years subsequent to December 31, 1998, are as follows: 1999 through 2001 are
equal to $626,000 per year and $417,000 for 2002.
Clearance of Securities
Bear, Stearns Securities Corporation, Inc. ("Bear Stearns") has an agreement
with Management to clear securities transactions and carry customers' accounts
on a fully disclosed basis. The agreement states that Management will assume
customer obligations should a customer of Management default. Bear Stearns
controls credit risk of customers by requiring maintenance margin collateral in
compliance with various regulatory and internal guidelines.
10. STOCK OPTION, STOCK PURCHASE,
INCENTIVE AND PROFIT-SHARING PLANS
During 1996, the Company adopted the Long-Term Incentive Plan ("LTIP") under
which awards of stock, restricted stock, options and other stock-based awards
totaling 880,000 shares of common stock may be granted to all full-time
employees, officers and directors of the Company and its subsidiaries. No awards
under the LTIP were granted during 1996.
During 1997, the Company awarded 775,000 shares of restricted stock at the issue
price of $.01 per share to two officers of the Company under the terms of the
LTIP. Such awards vest over four years. The difference of $9,001,625 between
market value ($11.625 per share) on the date of grant and the purchase price was
recorded as unearned compensation in shareholders' equity and is being amortized
over a four-year period commencing with the fourth quarter of 1997.
F-13
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
Options may be granted as either "Qualified Options," "Nonqualified Options" or
"Incentive Options." Generally, Qualified Options and Incentive Options may not
be granted at a per share price that is less than 100% of fair market value on
the date of grant. Nonqualified Options may be granted at prices determined by a
committee comprised of certain members of the Board of Directors.
The Company's previous stock option plan, as amended (the "SOP") was terminated
by the Company in connection with the approval by stockholders of the LTIP. The
SOP provided for options to purchase 900,000 shares of common stock. The
termination of the SOP does not affect options outstanding.
A summary of option transactions for the three years ended December 31, 1998, is
presented below. Each option becomes exercisable as to 20% of the total number
of shares subject to the option six months after the date of grant, and as to an
additional 20% each year thereafter. Generally, options may not expire more than
ten years from the date of grant. Incentive Stock Options were granted at an
exercise price of $6.125 and $9.00 per share in 1996 and 1998, respectively.
Qualified Options were granted at an exercise price of $14.50 per share and
Nonqualified Options were granted at exercise prices equal to market price per
share at the date of grant. Only the LTIP has options available for grant at the
end of 1998.
<TABLE>
<CAPTION>
Incentive Qualified Nonqualified
Stock Stock Stock
Options Options Options Total
--------- --------- ------------- -----
<S> <C> <C> <C> <C>
Outstanding, beginning of 1996 50,000 1,724 835,000 886,724
Expired during 1996 - (1,724) - (1,724)
------------ ---------- ------------- -----------
Outstanding, end of 1996 50,000 - 835,000 885,000
Canceled during 1997 - - (650,000) (650,000)
Expired during 1997 - - (35,000) (35,000)
------------ ---------- ------------- -----------
Outstanding, end of 1997 50,000 - 150,000 200,000
Granted during 1998 50,000 - - 50,000
--------- ---------- ------------- -----------
Outstanding, end of 1998 100,000 - 150,000 250,000
========== ========== ============= ===========
Exercisable, end of 1996 235,000
===========
Exercisable, end of 1997 110,000
===========
Exercisable, end of 1998 150,000
===========
Available for grant, end of 1998 55,000
===========
</TABLE>
The Company accounts for these options under APB Opinion No. 25, under which no
compensation cost has been recognized in the accompanying consolidated
statements of income and comprehensive income. Had compensation cost for these
options been determined consistent with the fair value method required by FASB
Statement No. 123 ("Statement 123"), the Company's
F-14
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Continued
net income and earnings per share would have been the following pro forma
amounts in each of the three years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Net income:
As reported $ 7,783,518 $ 9,849,373 $ 8,801,916
Pro forma 7,580,329 9,626,832 8,322,122
Basic EPS:
As reported $ .81 $ 1.09 $ 1.00
Pro forma .79 1.07 .94
Dilutive EPS:
As reported $ .81 $ 1.08 $ 1.00
Pro forma .79 1.06 .94
</TABLE>
In January 1998, the Company granted 50,000 Incentive Options at an exercise
price of $9.00 per share under the LTIP to an executive officer of the Company.
For the purposes of Statement 123 calculations, the fair value of the options
was $3.27 per share, and was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 5.5%; expected dividend yield of 2.9%; expected option life of
10 years and expected volatility of 33%. The fair value of the options to
purchase 800,000 shares granted in 1995 (of which 650,000 were canceled in 1997)
was $4.71 per share, and was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used: risk
free interest rate of 5.7%, expected dividend yield of 1.6%, expected option
life of 10 years and expected volatility of 40%.
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost and
related impact on net income and earnings per share may not be representative of
that to be expected in future years.
Effective January 1, 1993, the Company adopted the Management Incentive Plan
(the "MIP") for senior executives. Under the MIP, each participant is entitled
to receive his assigned share of the annual award pool, which is computed based
on operating income performance goals, as defined in the MIP. Included in
employees' compensation on the consolidated statement of income and
comprehensive income in 1996 is $860,000 related to the MIP and none in 1997 and
1998.
The Company also has a profit-sharing plan covering substantially all full-time
employees. Contributions to this plan, which in any fiscal year are at the
discretion of the Board of Directors, were approximately $131,000, $135,000 and
$138,000 in 1998, 1997 and 1996, respectively.
F-15
<PAGE>
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------
First Second Third Fourth
------ ------ ----- ------
(000's omitted, except per share amounts)
<S> <C> <C> <C> <C>
1998:
Operating revenues $ 4,444 $ 4,512 $ 3,968 $ 4,056
Operating expenses 3,372 3,446 3,152 3,639
Operating income 1,072 1,066 816 417
Other income, net 2,126 2,186 3,509 2,502
Income before income taxes 3,198 3,252 4,325 2,919
Net income 1,790 1,884 2,439 1,670
Per common share-
Basic .19 .20 .25 .18
Diluted .19 .20 .25 .18
1997:
Operating revenues $ 4,775 $ 4,495 $ 4,789 $ 4,771
Operating expenses 2,768 2,805 4,623 3,511
Operating income 2,007 1,690 166 1,260
Other income, net 2,047 4,909 3,036 2,858
Income before income taxes 4,054 6,599 3,202 4,118
Net income 2,249 3,588 1,746 2,267
Per common share-
Basic .26 .41 .20 .24
Diluted .26 .41 .19 .23
1996:
Operating revenues $ 5,477 $ 5,375 $ 4,983 $ 4,924
Operating expenses 3,308 2,915 2,968 2,829
Operating income 2,169 2,460 2,015 2,095
Other income, net 1,848 1,282 1,440 2,056
Income before income taxes 4,017 3,742 3,445 4,151
Net income 2,300 2,131 1,988 2,385
Per common share-
Basic .26 .24 .23 .27
Diluted .26 .24 .23 .27
</TABLE>
F-16
<PAGE>
(c) Exhibits -
3.1 Certificate of Incorporation (Exhibit 3.1) (1)
3.2 Amendment, dated September 11, 1987 to Certificate of
Incorporation (2)
3.3 By-Laws (Exhibit 3.2) (3)
4. Indenture, dated as of June 15, 1986, between Atalanta/Sosnoff
Capital Corporation and Morgan Guaranty Trust Company of New York
relating to $33,000,000 of 7 1/8% Convertible Senior Debentures
due June 15, 2001. (4)
10.1 Termination and Purchase Agreement, dated as of December 21, 1987,
among Martin T. Sosnoff, Shepard D. Osherow, the Company and its
subsidiaries (Exhibit 10.1)(6).
10.2 Lease Agreement dated as of July 15, 1980 between Martin T.
Sosnoff and Park Tower Associates. (Exhibit 10.2) (1)
10.3 First Lease Modification Agreement dated as of May 20, 1982
between Martin T. Sosnoff and Park Tower Associates.
(Exhibit 10.3)(1)
10.4 Second Lease Modification Agreement dated as of January 1985
between Martin T. Sosnoff and Park Tower Associates.
(Exhibit 10.4)(1)
10.5 Form of Sublease between Martin T. Sosnoff and the Company.
(Exhibit 10.5) (3)
10.6 Assignment of Lease between the Company and North American
Consortium, Inc. (Exhibit 10.7)(7)
10.7 Sublease dated October 18, 1988 between the Company and First City
Capital Corporation (8)
10.8 Employment Agreement between Martin T. Sosnoff and the Company
dated as of March 31, 1986 (Exhibit 10.6.) (1), (14)
10.9 Consulting Agreement between Shepard D. Osherow and the Company
dated December 21, 1987. (Exhibit 10.2) (6), (14)
10.10 Form of Employment Agreement, as executed May 19, 1988 by each
of Robert J. Kobel, Eric A. Stiefel and Brian P. Hull (8), (14)
10.11 Letter Agreement between Martin T. Sosnoff and L. Mark Newman
dated February 14, 1985 and exhibits thereto. (Exhibit 10.20)
(1)
10.12 Agreement between Martin T. Sosnoff and Shepard D. Osherow dated
February 25, 1985 regarding the Letter Agreement between Martin
T. Sosnoff and L. Mark Newman. (Exhibit 10.21) (1)
24
<PAGE>
10.13 1987 Stock Option Plan. (Exhibit 4.1) (5), (14)
10.14 1987 Incentive Stock Purchase Plan. (Exhibit 4.4) (5), (14)
10.15 Restricted Stock Bonus Plan (8), (14)
10.16 Form of Stock Bonus Award Agreements, as executed May 19, 1988
by each of Robert J. Kobel, Eric A. Stiefel and Brian P. Hull
(8), (14)
10.17 Profit Sharing Trust Agreement and Plan dated May 21, 1985
between Atalanta/Sosnoff Capital Corporation and the plan
trustees. (Exhibit 10.24) (1), (14)
10.18 Sub-sublease dated June 23, 1989 between the Company and Ehrlich
Bober & Co., Inc. (9)
10.19 Management Incentive Plan as adopted by the Board of Directors of
the Company on December 9, 1992 (10), (14)
10.20 Executive Employment Agreement dated as of December 9, 1992
between Robert J. Kobel and the Company (10), (14)
10.21 Employment Agreement dated January 1, 1986 between Henry E. Parker
and the Company (10), (14)
10.22 Amended and Restated Management Incentive Plan as adopted by the
Board of Directors of the Company on December 9, 1993 and March 8,
1994 (11), (14)
10.23 Executive Employment Agreement dated July 8, 1993 between Craig B.
Steinberg and the Company (11), (14)
10.24 Executive Employment Agreement dated December 7, 1995 between
Robert J. Kobel and the Company (12), (14)
10.25 Employment Agreement dated July 1, 1986 between James D. Staub and
the Company (12), (14)
10.26 Modification Agreement of Sub-Lease dated February 27, 1996
between the Company and Foote, Cone & Belding Advertising,
Inc. (12)
10.27 1996 Long-Term Incentive Plan (13), (14)
10.28 Restricted Stock Award Agreements dated as of September 17,
1997 executed by each of Craig B. Steinberg and Anthony G.
Miller (13), (14)
10.29 Employment Agreement dated December 22, 1997 between James D.
Staub and the Company (13), (14)
25
<PAGE>
10.30 Agreement dated October 29, 1998 between William M. Knobler and
the Company - FILED HEREWITH (14)
10.31 Amended and Restated Management Incentive Plan as adopted by
the Board of Directors of the Company on March 10, 1999 - FILED
HEREWITH (14)
11. Computation of Earnings per Share - FILED HEREWITH
22. Subsidiaries of the Registrant. (Exhibit 22) (1)
25. Power of Attorney (included as part of the "Signatures" page).
27. Financial Data Schedule - FILED HEREWITH
- ------------------------
(1) Incorporated by reference to the exhibit number indicated to the
Company's Registration Statement on Form S-1 filed April 21, 1986
(Registration No. 33-5028) (the "S-1")
(2) Incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987.
(3) Incorporated by reference to the exhibit number indicated to Amendment
No. 2 to the S-1 filed June 10, 1986.
(4) Incorporated by reference to Exhibit 4 to the Company's Form 10-Q for the
quarter ended June 30, 1986.
(5) Incorporated by reference to the exhibit number indicated to the
Company's Registration Statement on Form S-8 filed March 31, 1987
(Registration No.33-13063)
(6) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 8-K filed December 22, 1987.
(7) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1986.
(8) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31,
1988.
(9) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1989.
(10) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1992.
26
<PAGE>
(11) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1993.
(12) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1995.
(13) Incorporated by reference to the exhibit numbers indicated to the
Company's Form 10-K for the year ended December 31, 1997.
(14) Required to be filed pursuant to the instructions to Item 14(c) of
Form 10-K.
27
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Martin T. Sosnoff, Craig B.
Steinberg, and Anthony G. Miller, and each of them (with full power of each of
them to act alone), his true and lawful attorneys-in-fact and agents, for him
and on his behalf, and in his name, place and stead, to execute and sign all
amendments or supplements to this Annual Report on Form 10-K, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do himself, and the registrant hereby confers like authority on its
behalf.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
issuer has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on this 10th day of March, 1999.
ATALANTA/SOSNOFF CAPITAL CORPORATION
By: s/ Martin T. Sosnoff
Martin T. Sosnoff
Chairman of the Board and
Chief Executive Officer
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
s/ William Landberg
William Landberg Senior Vice President, March 10, 1999
Director
s/ Anthony G. Miller
Anthony G. Miller Executive Vice President, March 10, 1999
Chief Operating Officer,
Chief Financial Officer
(Principal Financial
and Accounting Officer)
s/ Martin T. Sosnoff
Martin T. Sosnoff Chairman, Chief March 10, 1999
Executive Officer,
Director (Principal
Executive Officer)
s/ Craig B. Steinberg
Craig B. Steinberg President and March 10, 1999
Director of Research,
Director
s/ Thurston Twigg-Smith
Thurston Twigg-Smith Director March 10, 1999
29
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
10.30 Agreement between William M. Knobler and
the Company
10.31 Amended and Restated Management Incentive Plan
11 Computation of Earnings per Share
27 Financial Data Schedule
30
<PAGE>
Exhibit 10.30
AGREEMENT OF PURCHASE AND SALE
AGREEMENT made as of this 29th day of October, 1998 by and between
William M. Knobler ("Knobler") residing at Marie Major Drive, Alpine, New Jersey
07620 and Atalanta/Sosnoff Management Corporation ("Management"), a New York
corporation, with its principal executive offices at 101 Park Avenue, New York,
NY 10178.
WHEREAS, Knobler owns, operates and retains the right to transfer an
investment management business (the "Knobler Business") conducted on the
premises of Management (and its affiliates Atalanta/Sosnoff Capital Corporation
(Delaware) ("Capital') and Atalanta/Sosnoff Capital Corporation ("Atalanta"))
(Management, Capital and Atalanta are collectively referred to herein as the
"Atalanta Entities.") in which he and his employees provide investment
supervisory and brokerage services to accounts of individuals and small
institutions (the "Accounts") on a discretionary basis pursuant to written
investment advisory agreements (A schedule of all of the Accounts in the Knobler
Business is annexed hereto as Schedule 1. A copy of the form of discretionary
account agreement currently in use in the Knobler Business is annexed hereto as
Exhibit A.);
WHEREAS, Knobler is a Senior Vice President of Management and, as an
employee of Management, is registered as a representative of Management with the
<PAGE>
regulatory and self-regulatory agencies which have jurisdiction of the business
of Management, which, for regulatory purposes, includes the Knobler Business,
and Knobler is subject to the supervision of the designated compliance officers
of the Atalanta Entities and from time to time on an ad hoc basis participates
without separate compensation in the activities of the Investment Committee of
Capital and Management.
WHEREAS, currently, pursuant to a facilities agreement between Knobler
and the Atalanta Entities (the "Facilities Agreement"), Knobler receives all of
the pre-tax income of the Knobler Business ("Pre-Tax Income") determined by
deducting from the gross revenues received by the Atalanta Entities attributable
to the advisory fees and brokerage commissions generated by the Accounts managed
in the Knobler Business (the "Gross Revenues") the following amounts paid by the
Atalanta Entities: (i) sales payouts consisting of amounts due in respect of any
Account's advisory fees for finding and securing the Account for the Knobler
Business ("Sales Payouts"), (ii) direct expenses consisting of the salaries,
bonuses and benefits (excluding Sales Payouts) of persons who work directly and
exclusively in the Knobler Business, other itemized expenses, including clearing
and execution charges, direct general and administrative expenses and travel and
entertainment charges ("Direct Expenses"), and (iii) indirect facilities and
support expenses representing a charge for the indirect overhead expenses
attributable to the operation of the Knobler Business consisting of charges for
the use of the premises of the Atalanta Entities and administrative and
accounting support and related services provided to the Knobler Business
("Indirect Expenses").
2
<PAGE>
(A schedule of the Gross Revenues, Sales Payouts, Direct and Indirect Expenses
for the six months ended June 30, 1998 is annexed hereto as Schedule 2.)
WHEREAS, under the Facilities Agreement Knobler instructs the Atalanta
Entities how the Pre-Tax income of the Knobler Business is allocated and paid to
him in the form of salary and bonus each calendar year based upon his and the
Atalanta Entities projection of Gross Revenues, Sales Payouts and Direct and
Indirect Expenses.
WHEREAS, Knobler has determined that he wishes to sell, transfer,
assign and dispose of the Knobler Business to Management upon the terms and
conditions hereinafter set forth and to relinquish his rights to (i) sell,
transfer, assign or dispose of it to any other person and (ii) enforce the
Facilities Agreement, except to the extent expressly set forth herein, and
Management wishes to purchase, accept the transfer and assignment of, and
acquire the Knobler Business on the terms and conditions hereinafter set forth;
and
WHEREAS, Management has requested that, to assist it in the transition
to full direct operation and control of the Knobler Business, Knobler agree to
remain as an employee of Management for a two-year period and Knobler has agreed
to render such assistance.
NOW, THEREFORE, This Agreement
3
<PAGE>
W I T N E S S E T H:
For and in consideration of the mutual and dependent promises
hereinafter set forth and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Purchase and Sale
(a) Effective Date. The Effective Date of the transfer of the
Knobler Business shall be deemed to occur as of September 30, 1998.
(b) No Closing. No closing shall occur in connection with the
purchase and sale of the Knobler Business.
2. Purchase Price
(a) Determination. The purchase price for the Knobler Business
shall be determined by multiplying the Gross Revenues earned by the Knobler
Business during the three months ended December 31, 1998 by 4 and multiplying
the product of that calculation by 2.25. The purchase price as so determined
(the "Purchase Price") shall be subject to adjustment as provided in Paragraph
2(c) hereof.
(b) Installment Payments. The Purchase Price shall be paid in
three
4
<PAGE>
installments of the indicated percentage of the Purchase Price as defined under
Paragraph 2(a) on the dates specified:
(i) The First Installment representing 50% of the
Purchase Price shall be paid on January 31, 1999;
(ii) The Second Installment ("Second Installment")
representing 25% of the Purchase Price shall be paid
on January 31, 2000; and
(iii) The Third Installment ("Third Installment")
representing 25% of the Purchase Price shall be paid
on January 31, 2001.
No interest shall be paid by Management on the deferred payment of the
Purchase Price.
(c) Adjustment in Installment Payments
(i) Based on Change in Gross Revenues
(A) Second Installment. The Second
Installment shall be adjusted by
adding to (or subtracting from) the
Second Installment 25% of the
positive (or negative) difference
between (x) the product of (i) 2.25
5
<PAGE>
multiplied by Gross Revenues for the
three months ended December 31,
1999, and (ii) 4 and (y) the
Purchase Price as determined in
accordance with Paragraph 2(a)
hereof.
(B) Third Installment. The Third
Installment shall be adjusted by
adding to (or subtracting from) the
Third Installment 25% of the
positive (or negative) difference
between (x) the product of (i) 2.25
multiplied by Gross Revenues for
the three months ended December 31,
2000, and (ii) 4 and (y) the
Purchase Price as determined in
accordance with Paragraph 2(a)
hereof.
(ii) Based on Termination of Employment of
Knobler prior to September 30, 2000. In the
event that Knobler's "Termination of
Employment" (as hereinafter defined in
paragraph 3(e) hereof) shall occur prior to
September 30, 2000, notwithstanding anything
to the contrary contained herein, instead of
the Purchase Price as computed in accordance
with Paragraph 2(a) hereof and adjusted in
accordance with Subparagraph 2(c)(i) and
paid as provided in Paragraph 2(b) hereof,
Knobler (his committee, estate or
6
<PAGE>
legal representatives) shall receive,
instead of the Second and/or Third
Installments, if Knobler's Termination of
Employment occurs prior to the respective
measuring dates for the adjustment thereof,
an adjusted amount determined on the basis
of the date of the Termination of Employment
and paid as set forth below. If the date of
Termination of Employment occurs:
(A) On or prior to September 30, 1999,
then instead of the Second and Third
Installments Knobler shall receive
50% of the product of (i) 4
multiplied by the Gross Revenues
earned by the Knobler Business
during the second full calendar
quarter following the date of
Termination of Employment, and (ii)
2.25.
(B) Prior to September 30, 2000 and on
or after October 1, 1999, then
instead of the Third Installment
Knobler shall receive 25% of the
product of (i) 4 multiplied by the
Gross Revenues earned by the Knobler
Business during the second full
calendar quarter following the date
of Termination of Employment (as
hereinafter defined), and (ii) 2.25.
7
<PAGE>
Payment of amounts due pursuant to clauses
2(c)(ii)(A) or (B) hereof shall be made
within 45 days of the end of the second full
calendar quarter following the date of
Termination of Employment. For the purposes
of this subparagraph 2(c)(ii) only, the date
of Termination of Employment shall be deemed
to have occurred as of the last day of the
calendar quarter immediately preceding the
date of Termination of Employment as
otherwise determined hereunder.
3. Employment of Knobler; Consulting by Knobler
(a) Duties and Title. Knobler shall devote his full time and
energies during regular business hours to the management of the Knobler Business
reporting to the President and/or Chief Operating Officer of Management (as they
shall determine between them) and the Board of Directors of Management. He shall
continue to have the title of Senior Vice President.
(b) Term. Knobler shall be employed hereunder by Management
from the date hereof until December 31, 2000, unless a Termination of Employment
shall occur sooner as provided herein.
(c) Authority. Knobler shall have general operational
authority over the
8
<PAGE>
Knobler Business purchased hereunder by Management, subject to his reporting
obligations, and shall exercise the discretion he has exercised heretofore,
subject to the following guidelines to assure that during the period of
transition to full direct operation and control of the Knobler Business by
Management personnel, other than Knobler, the value of the Knobler Business is
preserved and enhanced:
(i) Knobler shall regularly consult with the
President and/or Chief Operating Officer (as
they shall determine between them) with
respect to all aspects of the Knobler
Business and shall actively seek to directly
involve one of them or their designee in all
aspects of the Knobler Business.
(ii) Management shall identify to Knobler and
allocate to the Knobler Business on a part
time basis a mutually acceptable research
person who shall work closely with Knobler
for the purpose of learning about and
emulating, to the extent deemed appropriate,
the investment supervisory services
currently provided by Knobler and of being
introduced to the clients in the Knobler
Business with a view to assuming direct
responsibility for the provision of such
services without Knobler's assistance by
December 31, 2000.
(iii) Knobler shall retain the authority to
authorize expenditures
9
<PAGE>
on behalf of the Knobler Business, subject
to the following limitations on expenses
authorized by him:
(A) Direct Expenses of the Knobler
Business, including Direct Expenses
set forth in clause 3(c)(iii)(B),
shall not exceed 35% of Gross
Revenues.
(B) Employee salaries, bonuses and
benefits (excluding Sales Payouts
and salary, bonuses and benefits
payable to Knobler) shall not exceed
the larger of (i) $180,000 per
annum, or (ii) 15% of Gross
Revenues;
(C) Sales payouts shall not exceed 20%
of Gross Revenues generated by any
Account; and
(D) Payments in respect of Indirect
Expenses of the Knobler Business
shall be maintained at levels in
effect as of the date hereof, shall
not be separately charged to
Knobler and effectively shall be
shared by Knobler and Management in
the same proportions in which they
share Pre-Tax Income hereunder by
reason of the deduction of Indirect
Expenses from Gross Revenues in
determining Pre-Tax Income.
10
<PAGE>
Expenses incurred, authorized by Knobler and not within the foregoing
limitations, shall be charged to amounts otherwise due Knobler hereunder.
(d) Salary and Bonus
In accordance with the course of dealing heretofore in effect
between Knobler and Management as modified by this Agreement, for periods prior
to Knobler's Termination of Employment, Knobler shall receive as compensation
for his services in maintaining the value of the Knobler Business for the
account of Management and assisting in the transition of the Knobler Business to
the direct control and operation thereof by Management, an amount equal to 50%
of the Pre-Tax Income of the Knobler Business during the twelve month period
ended September 30, 1999, 25% of the Pre-Tax Income of the Knobler Business
during the twelve month period ended September 30, 2000 and 15% of the Gross
Revenues of the Knobler Business, payable quarterly in arrears, during the three
month period ended December 31, 2000. Should the Termination of Employment of
Knobler occur on a date other than the foregoing enumerated dates, the amount
shall be prorated for the number of whole months during which Knobler was
employed during the applicable period. Payouts to Knobler may be made in the
form of salary or bonus, as Knobler and Management shall agree.
(e) Termination of Employment
The employment of Knobler hereunder shall terminate
on the date
11
<PAGE>
of Termination of Employment of Knobler. Termination of Employment shall mean
the first to occur of the following:
(i) December 31, 2000
(ii) Knobler's death
(iii) Knobler's resignation
(iv) Knobler's "disability". For the purposes
hereof, "disability" shall mean the
inability of Knobler to perform his work on
a substantially full time basis for more
than six consecutive months or nine
non-consecutive months during the two year
and three month term of his employment
hereunder by reason of physical or mental
illness as determined by a physician
selected by Management.
(v) The dismissal of Knobler for "cause". For
the purposes hereof "cause" shall mean that
Knobler shall have been convicted of a crime
involving moral turpitude or have been found
in a non-appealable judgment to have
committed fraud involving securities or
commodities related activities.
12
<PAGE>
(f) Consulting/Continued Employment. Subject to such
additional terms and conditions as Knobler and Management shall agree, and
Knobler's and Management's agreement to continue Knobler's involvement in the
Knobler Business, Knobler may continue to participate in the management of the
Knobler Business as a consultant or as an employee of Management after December
31, 2000. During such period of consulting activities or his tenure as an
employee, Knobler shall receive compensation equal to 15% of the Gross Revenues
of the Knobler Business, payable quarterly in arrears.
(g) Restricted Activities
(i) During the period Knobler is
employed hereunder and during the
period, if any, when he provides
consulting services hereunder, and
for a period of two (2) years after
the end of such periods (the
"Non-Competition Period"), Knobler
shall not, directly or indirectly
whether as owner, partner,
investor, consultant, agent,
employee, coventurer or otherwise,
compete with the Atalanta Entities
within the United States or
undertake with any third party any
planning for any business
competitive with the Atalanta
Entities. Specifically, but without
limiting the foregoing, Knobler
agrees not to engage in any manner
in any activity
13
<PAGE>
that is directly or indirectly
competitive with the business of the
Atalanta Entities as conducted or
under active development at any time
during the periods of Knober's
employment or consultancy. For the
purposes hereof, the business of the
Atalanta Entities shall include the
direct or indirect provision of
investment supervisory or management
services and/or brokerage services
on a direct basis or through
registered or unregistered
investment pools such as investment
partnerships, corporations or
trusts.
(ii) Knobler agrees that, during his
employment or consultancy hereunder,
he will not undertake any outside
activity, whether or not competitive
with the business of the Atalanta
Entities, that could reasonably give
rise to a conflict of interest or
otherwise interfere with his duties
and obligations to the Atalanta
Entities.
(iii) Knobler further agrees that while he
is employed by or consults to
Management hereunder and during the
Non-Competition Period, Knobler will
not hire or
14
<PAGE>
attempt to hire any employee of the
Atalanta Entities, assist in such
hiring by any Person, encourage any
such employee to terminate his or
her relationship with the Atalanta
Entities, or solicit or encourage
any client or vendor of the Atalanta
Entities to terminate or diminish
its relationship with them or, in
the case of a client, to conduct
with any Person any business or
activity which such client conducts
or could conduct with the Atalanta
Entities. "Person" means an
individual, a corporation, an
association, a partnership, an
estate, a trust and any other entity
or organization, other than the
Atalanta Entities.
(h) Enforcement. Knobler recognizes that his agreement to the
terms and conditions of Paragraph (g) represents a material inducement to the
Atalanta Entities to purchase the Knobler Business and continue the Knobler
employment. Knobler acknowledges that irreparable injury may result to the
Atalanta Entities and that the Atalanta Entities will have no adequate remedy at
law in the event that Knobler breaches any of the provisions of Paragraph (g).
Accordingly, Knobler agrees that in the event of a breach by Knobler of any of
the provisions of Paragraph (g), the Atalanta Entities shall, in addition to all
other rights and remedies, be entitled to injunctive relief with respect to such
breach and/or to a decree for specific performance of the terms of such
subparagraph, in each instance without the necessity of showing any irreparable
15
<PAGE>
injury or special damages. Notwithstanding the foregoing, Paragraph (g) hereof
shall not be enforcible if prior to the breach of any of the provisions thereof,
Management shall have failed to make payments to Knobler required to be made by
the terms of this Agreement.
4. Representations and Warranties About Knobler Business
(a) Sole Ownership. Knobler represents and warrants that he is
the sole owner of the Knobler Business and that no other person has any
interest, direct or indirect, fixed or contingent, beneficial or legal, in the
Knobler Business, including any interest in Gross Revenues, except as set forth
on Schedule 1 annexed hereto and except for such interest as may inure to the
Atalanta Entities under the Facilities Agreement.
(b) Authority to Convey; No Conflicts. Knobler represents and
warrants that he has the sole power and authority to convey the Knobler Business
without the participation or consent of any other person, except to the extent
that he may be required to secure the consent of his clients to the transfer
thereof, and that no filings with any public or private regulatory or
self-regulatory bodies are required in connection therewith. The sale, transfer,
assignment and conveyance of the Knobler Business to Management does not
conflict with, is not inconsistent with, is not prohibited by and does not give
rise to any right of action in any person, under any contract, agreement,
arrangement or understanding with Knobler or any judgment or
16
<PAGE>
order to which the Knobler Business is subject.
(c) Absence of Claims. Knobler represents and warrants that no
person has asserted any claim, and no state of facts exists which could form the
basis for any claim, for damages allegedly arising out, relating to or otherwise
connected with, the conduct of the Knobler Business by Knobler or by (i) persons
reporting to Knobler whose salaries, bonuses and fringe benefits are part of the
Direct Expenses of the Knobler Business ("Knobler Employees"), or (ii) by any
other person who asserts that he is acting as an agent or representative for
Knobler or the Knobler Employees.
(d) Lawful Conduct of Knobler Business. Knobler represents and
warrants that he and the Knobler Employees have not engaged in any conduct or
course of dealing, by action or omission, alone or with others, or caused or
permitted the Knobler Business to engage in any such conduct or course of
dealing, which violates any federal or local securities or commodities laws or
regulations or the rules of any regulatory or self-regulatory agency having
jurisdiction over Knobler, the Knobler Employees or the Knobler Business.
5. Notice to Clients of Knobler Business.
Knobler shall provide prompt written notice to the clients of
the Knobler Business of the transfer to be effected by this Agreement. Knobler
shall consult with counsel to determine whether the transfer of ownership of the
Knobler Business to
17
<PAGE>
Management constitutes an assignment of the investment advisory contracts of the
clients of the Knobler Business under the Investment Advisors Act of 1940 which
requires such clients' consent. If required, Knobler shall solicit their active
or "negative consent". The notice to clients and any required client consent
solicitation shall be subject to Management's review and approval.
6. Further Assurances
Knobler shall take all steps necessary, appropriate or
desirable to vest in Management ownership of all right, title and interest in
and to the Knobler Business and shall, at Management's request, furnish to it or
any third party such documentation with respect to such transfer and
Management's ownership as Management shall reasonably require.
7. Indemnity; Right of Set-Off
Knobler shall indemnify and hold harmless the Atalanta
Entities and their officers, directors, employees and agents from and against
any claim, judgment, award or damages (including the costs of investigation and
of any settlement) arising out of, relating to or connected with (i) the breach
of any representation or warranty made herein by Knobler or the conduct of
Knobler and the Knobler Employees in the operation of the Knobler Business prior
to the date hereof or (ii) for the conduct of Knobler or the Knobler Employees,
subject to his direct supervision and control and
18
<PAGE>
arising as a direct result of his actions or omissions, during the transition
period ended December 31, 2000. Any damages resulting therefrom may be satisfied
by application of, and set off against, amounts otherwise due Knobler hereunder.
8. Successors
(a) Management will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Management, by agreement in
form and substance satisfactory to Knobler, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that Management
would be required to perform it if no such succession had taken place. As used
in this Agreement, Management shall mean Management as hereinbefore defined and
any successor to its business and/or assets as aforesaid which executes and
delivers the Agreement provided for in this paragraph or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
(b) In the event Knobler's employment under this Agreement
shall terminate for any reason while any amounts have been earned but not paid
as of the applicable Termination of Employment as defined herein or are
otherwise due Knobler under the terms hereof or by reference thereto, then the
right to receive such amount shall survive and be enforceable after the
Termination of Employment hereunder by Knobler, his successors, assigns,
executors, administrators, heirs, legatees, devisees
19
<PAGE>
or legal representatives.
9. Notices
For the purposes of this Agreement, any notices or other
communications provided for or permitted in this Agreement shall be in writing
and shall be deemed to have been duly given three days after it is mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, when it is transmitted by facsimile transmission or delivered by
messenger addressed as follows:
If to Knobler: William M. Knobler
Marie Major Drive
Alpine, New Jersey 07620
If to the Company: Atalanta/Sosnoff Management Corporation
101 Park Avenue
New York, New York 10178
Attention: Anthony G. Miller,
Executive Vice President and
Chief Operating Officer
With a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
230 Park Avenue
New York, New York 10169
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
20
<PAGE>
10. Amendment and Waiver
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Knobler and a duly authorized officer of Management. No waiver by
either party hereto at any time of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
11. Choice of Law
The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York without
reference to conflicts of laws.
12. Severability; Survivability
It is the intent of the parties hereto that in case any one or more of
the provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not
21
<PAGE>
affect the other provisions of this Agreement, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. The provisions of Paragraphs 3(g) and 3(h) of this Agreement
shall survive the expiration of termination of Knobler's employment hereunder,
whether during the period set forth in Paragraph 3(b) of this Agreement or
thereafter, and the termination of this Agreement.
13. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Only Agreement
From and after the Effective Date, this Agreement shall
supersede any and all prior employment or facilities agreements between the
parties.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
ATALANTA/SOSNOFF MANAGEMENT CORPORATION
By: s/ Martin T. Sosnoff
---------------------------------------
Martin T. Sosnoff, Chairman of the Board
and Chief Executive Officer
s/ William M. Knobler
---------------------------------------
William M. Knobler
23
<PAGE>
Exhibit 10.31
ATALANTA/SOSNOFF CAPITAL CORPORATION (AND SUBSIDIARIES)
AMENDED AND RESTATED
MANAGEMENT INCENTIVE PLAN
FOR THE
FIVE YEARS ENDING DECEMBER 31, 2003
WHEREAS, in December 1992, the Board of Directors of Atalanta/Sosnoff
Capital Corporation and its direct and indirect subsidiaries (the "Company")
adopted a Management Incentive Plan (the "Original Plan") effective January 1,
1993 for the senior executive officers of the Company and identified the
participants therein for the three years ended December 31, 1995, subject to,
and upon the recommendation and approval of, the Compensation Committee (the
"Committee") of the Board of Directors, composed of the then two non-employee
directors, Messrs. Kenneth H. Iscol and Thurston Twigg-Smith, (the "Outside
Directors") and Martin T. Sosnoff, Chairman of the Board;
WHEREAS, the Compensation Committee duly recommended and approved the
Original Plan in January 1993 and reported its recommendation and approval of
the Original Plan to the stockholders of the Company in its Report included in
the proxy statement of the Company furnished to stockholders in connection with
the 1993 Annual Meeting of Stockholders of the Company and the Company described
the Original Plan in that proxy statement;
WHEREAS, subsequent to the adoption by the Board and the approval by
the Committee of the Original Plan, the Omnibus Budget Reconciliation Act of
1993 (the "Act") became law. Effective for fiscal years beginning on or after
January 1, 1994, the Act denies deductions for federal income tax purposes for
compensation in excess of $1,000,000 per year to the chief
<PAGE>
executive officer and to any of the four other most highly compensated officers,
unless such compensation is excluded from the deduction limitation. Compensation
under the Original Plan was excluded from the deduction limitation since (i) the
performance goals were established by a compensation committee consisting solely
of two or more outside directors (a Compensation Sub-Committee was established
for that purpose (the "Compensation Sub-Committee")), (ii) the material terms
under which the compensation was to be paid, including the performance goals,
were disclosed to and approved by stockholders of the Company in a separate
vote, and (iii) prior to payment, the Compensation Sub-Committee certified that
the performance goals and any other material terms were in fact satisfied. The
Act also provides that stockholder approval and certification by the
Compensation Sub-Committee as described above must be made conditions to the
right of the executive to receive the performance based compensation. To comply
with the provisions of the Act to qualify the compensation payable to certain
executives under the Management Incentive Plan as performance based compensation
eligible for exclusion from the deduction limit, the Management Incentive Plan
as amended and restated was submitted to the stockholders for approval at the
1994 Annual Meeting of Stockholders. Consistent with the Act, the approval by
stockholders and certification by the Compensation Sub-Committee were made
conditions to the rights of a participant to receive any benefits under the
Management Incentive Plan with respect to fiscal years of the Company beginning
after December 31, 1993;
WHEREAS, Subsequent to its initial restatement, pursuant to its
recommendation and adoption by the Compensation Sub-Committee and the approval
of the Board of Directors, subject to stockholder approval, the Original Plan
was amended on July 29, 1996 (the "First Amendment") to change the method of
allocating Bonuses from the Annual Award Pool and the
2
<PAGE>
identity of the Participants therein for the three years ended December 31, 1998
and the First Amendment was duly approved by stockholders at the 1996 Annual
Meeting of Stockholders;
WHEREAS, pursuant to its recommendation and adoption by the
Compensation Sub-Committee and the approval of the Board of Directors on March
10, 1999 and, subject to stockholder approval to be sought at the 1999 Annual
Meeting of Stockholders, the Original Plan, as restated, and as amended by the
First Amendment, has been amended and restated as provided herein (the "Second
Amendment") for the five years ending December 31, 2003. (The Original Plan as
previously restated, and as amended by the First Amendment and, as amended and
restated as provided herein is referred to herein as the "Plan".);
WHEREAS, the purpose of setting forth the Plan herein is to confirm the
terms of the Plan as adopted by the Board of Directors and recommended and
approved by the Compensation Sub-Committee for the five years ending December
31, 2003; and
WHEREAS, a Compensation Sub-Committee of the Compensation Committee
consisting of an outside director has established the performance goals set
forth in the Plan (which shall be reconfirmed by the outside directors of such
Sub-Committee), and has approved and adopted the Plan and recommended its
approval by the stockholders of the Company.
Section 1. Purpose. The purpose of the Company's Plan is to provide a
stimulus to Participants to a continuing high level of commitment to further
improvement in the financial performance of the Company by giving them a direct
interest in the financial performance of the Company through basing incentive
compensation on exceeding base year adjusted operating earnings and relevant
benchmarks in investment performance.
Section 2. Term. Subject to stockholder approval, pursuant to Section
10, the Plan
3
<PAGE>
shall be effective as of January 1, 1999 (the "Effective Date"),
and shall be applicable for each of the five fiscal years of the Company during
the period ending December 31, 2003, unless amended or terminated by the Company
pursuant to Section 9.
Section 3. Coverage. For purposes of the Plan, the term "Participant"
shall include the senior executive officers of the Company serving as such at
any time during the fiscal year who are selected by the Compensation
Sub-Committee. As used herein, the term "Company" includes both the Company and
its direct and indirect subsidiaries, unless the context otherwise requires. The
Participants for the five fiscal years during the period ending December 31,
2003 were determined by the Compensation Sub-Committee and have been approved by
the Board of Directors and stockholders of the Company and their names and
titles and the Annual Award Pool in which they participate are set forth on
Exhibit A annexed hereto.
Section 4. Annual Award Pool.
4.1. For each fiscal year of the Company, each Participant shall be
entitled to receive a bonus award (a "Bonus") payable from an annual award pool
in which he participates, in an amount determined as provided in Section 5. For
each fiscal year, each Participant who was not a full year Participant shall be
entitled to a Bonus for such fiscal year to the extent set forth in Section 5.2
hereof. The annual award pools (each an "Annual Award Pool") shall consist of an
Operating Earnings Pool (the "Earnings Pool") and an Investment Performance Pool
(the "Performance Pool").
4.2. The Earnings Pool and the Performance Pool for each fiscal year
shall be determined and paid as soon as practicable after the end of such fiscal
year of the Company and in no event later than 45 days thereafter and shall be
an amount determined as follows:
4
<PAGE>
(a) If the Company's Adjusted Operating Earnings as defined in
Section 4.2(c) hereof for the fiscal year in which an Earnings Pool is to be
computed hereunder (the "Computation Year") exceeds the level of Adjusted
Operated Earnings achieved in fiscal year 1998 of $5,996,000 (the "Base Year"),
then subject to the limitation set forth in subsection (b) hereof, the Earnings
Pool shall be an amount equal to the positive difference, if any, between
Adjusted Operating Earnings in the Computation Year and the Base Year multiplied
by fifty percent (50%).
(b) In no event shall the Earnings Pool as determined in
accordance with subsection (a) hereof exceed an amount which when subtracted
from the consolidated earnings of the Company would result in the reduction of
net earnings per share by more than ten percent 10%.
(c) For purposes of this Plan, the "Adjusted Operating
Earnings" for a fiscal year shall be the consolidated operating earnings of the
Company and its subsidiaries, determined in accordance with generally accepted
accounting principles, plus amounts paid or accrued with respect to amounts
payable (i) under the Restricted Stock Bonus Plan of the Company, (ii) under the
1996 Long Term Incentive Plan of the Company, (iii) under this Plan, (iv) as a
result of acquisitions, and (v) such other amounts paid, payable, accrued and/or
chargeable to operating income as the Sub-Committee shall determine in its
discretion should not be deducted from revenues for purposes of the Plan. By way
of example, but not limitation, the Sub-Committee has determined that amounts
chargeable to compensation expense in the acquisition of the business of William
M. Knobler should be added as an adjustment to operating earnings for purposes
of the Plan.
5
<PAGE>
(d) The Performance Pool for each fiscal year (a
"ComputationYear") during which the Plan is in effect shall be computed by
determining the investment performance of the Company's proprietary account,
consisting of cash, cash equivalents, investments at market and investments in
limited partnerships (the "Account") in such ComputationYear and comparing it to
a blended index composed of 70% of the performance of the S&P500 and 30% of the
performance of the Lehman Brothers Intermediate Government Bond Index (the
"Benchmark") for such Computation Year. The Investment Pool shall be an amount
equal to twenty percent (20%) of the positive difference, if any, by which the
investment performance of the Account in any Computation Year exceeds the
Benchmark, multiplied by the average market value of the Account during such
Computation Year, provided, however, that no amount shall be credited to the
Performance Pool unless the investment performance of the Account is positive.
By way of example of the foregoing, if (i) the Account had an average market
value of $100 million during the Computation Year, (ii) the investment
performance of the Account was 10%, and (iii) the Benchmark's performance was 8%
in the ComputationYear, then the positive difference of 2% in performance would
be multiplied by 20% and the product of 0.4% would be multiplied by the average
market value of the Account during the Computation Year, resulting in a
Performance Pool of $400,000.
(e) In no event shall the Performance Pool, as determined in
accordance with subsection (d) hereof, considered separately from the Earnings
Pool and without aggregation with it, exceed an amount which when subtracted
from the consolidated earnings of the Company would result in the reduction of
net earnings per share by more than ten percent (10%).
6
<PAGE>
Section 5. Allocations.
5.1. A Bonus shall be allocated to each Participant from the Annual
Award Pool in which he participates in the percentages assigned to such
Participant in Exhibit A.
5.2. Notwithstanding anything in this Plan to the contrary, any
Participant who ceases to be an employee of the Company for any reason (other
than death or disability) prior to the end of a fiscal year shall not be
entitled to a Bonus with respect to such year. If such Participant ceased to be
an employee of the Company by reason of death or disability prior to fiscal
year-end then a Bonus shall be allocated to such Participant for the full fiscal
year.
5.3. The Compensation Sub-Committee may elect as to any or all of the
Participants to pay to any such Participant a portion of such Participant's
Bonus in shares of Common Stock, par value $.01 per share, of the Company valued
by the Compensation Sub-Committee as it shall determine in its discretion based
on the market value at the date of the issuance of such stock to such
Participant, the average market value thereof for an appropriate period prior to
such issuance, and taking into account, as it shall deem appropriate, the
non-marketability, of such stock or book value as determined in accordance with
generally accepted accounting principles, at the time of issuance provided,
however, that any proposed discount from market value for the Common Stock as so
determined to take account of such non-marketability, resulting in an increase
in the number of shares of the Common Stock issuable to any such Participant
shall not be taken if, upon advice of counsel, the Compensation Sub-Committee
determines that such discount would constitute an impermissible exercise of
discretion by the Compensation Sub-Committee increasing any such Participant's
Bonus and resulting in any portion of such Participant's compensation under the
Plan not being qualified performance based compensation deductible by the
Company for federal income tax purposes under Section 162(m) of the Internal
7
<PAGE>
Revenue Code of 1986, as amended. In no event shall Company Common Stock issued
to any such Participant as so valued represent more than 25% of the value of
such Participant's Bonus for any fiscal year. The Participant shall acknowledge
that the disposition of any Common Stock awarded as a Bonus is subject to
restriction under federal and state securities laws and shall agree to such
other restrictions as the Compensation Sub-Committee may impose as a condition
to the issuance of such stock. The Compensation Sub-Committee may determine that
payment of a portion of the Bonuses shall be deferred, the periods of such
deferrals and the interest, if any, to be paid in respect to deferred payments.
The Compensation Sub-Committee may also define such other conditions of payment
of Bonuses as it may deem desirable in carrying out the purposes of the Plan.
Any Participant, prior to December 1 of any Computation Year, may elect to defer
receipt of his Bonus for such period, not exceeding ten years, as he shall
determine.
5.4 The aggregate Bonuses awarded for any year shall not exceed the
applicable Annual Award Pool for such year, including amounts awarded to
Participants who were not employees of the Company for the entire fiscal year.
In any fiscal year, any balance in either Annual Award Pool attributable to a
forfeiture of Bonus under Section 5.3 as a result of a Participant ceasing to be
an employee during such year (collectively, "Unawarded Bonuses"), or any portion
thereof, shall be distributed among all remaining Participants in proportion to
their respective shares.
Section 6. Administration and Interpretation. The Plan shall be
administered by the Compensation Sub-Committee, which shall have the sole
authority to make rules and regulations for the administration of the Plan. The
interpretations and decisions of the Compensation Sub-
8
<PAGE>
Committee with regard to the Plan shall be final and conclusive. The
Compensation Sub-Committee may request advice or assistance or employ such
persons (including, without limitation, legal counsel and accountants) as it
deems necessary for the proper administration of the Plan.
Section 7. Administrative Expenses. Any expense incurred in the
administration of the Plan shall be borne by the Company out of its general
funds and not charged against the Annual Award Pool, except insofar as such
expenses shall be taken into account in determining Adjusted Operating Earnings
hereunder.
Section 8. Amendment or Termination.
(a) The Compensation Sub-Committee of the Company may from
time to time amend the Plan in any respect or terminate the Plan in whole or in
part (and shall terminate the Plan upon the happening of an event described in
subsection (b) hereof), provided, however, that no such action shall
retroactively impair or otherwise adversely affect the rights of any Participant
to benefits under the Plan which have accrued prior to the date of such action
and, provided, further, that no amendment to the Plan shall effect a change in
the material terms thereof which would result in any portion of a Bonus made
hereunder not being deductible for federal income tax purposes under Section
162(m) of the Internal Revenue Code of 1986, as amended.
(b) The Plan shall be terminated upon a "change in control" as
defined herein. For the purposes hereof a change in control shall mean:
(i) a change in the majority of the Board of
Directors so that a majority of its members
are comprised of persons not nominated by
existing members of the Board of Directors;
9
<PAGE>
(ii) consummation of a transaction or series of
transactions as a result of which persons
who currently own 50% of the outstanding
common stock of the Company cease to own 50%
thereof; or
(iii) the Company shall cease to have a class of
equity securities registered pursuant to
Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended.
Section 9. No Assignment. The rights of a Participant hereunder,
including without limitation the right to receive a Bonus, shall not be sold,
assigned, transferred, encumbered or hypothecated by a Participant (except by
testamentary disposition or intestate succession), and during the lifetime of
any recipient any payment of a Bonus shall be payable only to such recipient.
Section 10. Stockholder Approval. This Plan shall be subject to
approval by an affirmative vote of the stockholders of the Company holding a
majority of the Common Stock of the Company outstanding at the 1999 Annual
Meeting of Stockholders with respect to all Bonuses accrued on or after January
1, 1999, and such stockholder approval shall be a condition to the right of a
Participant to receive any such Bonus hereunder.
Section 11. Certification by Compensation Sub-Committee. As a condition
to the right of a Participant to receive any Bonus under this Plan for fiscal
years beginning after December 31, 1998 the Compensation Sub-Committee shall
first be required to certify, by written resolution of the Compensation
Sub-Committee or other appropriate written certification, that the performance
goals set forth in Section 4.2 have been satisfied and that the applicable
Annual Award Pool and the Bonus for each Participant has been accurately
determined in
10
<PAGE>
accordance with the provisions of this Plan.
Section 12. No Preclusion. Nothing in the Plan shall preclude the Board
of Directors of the Company, or any Committee or Sub-Committee of the Board
thereunto duly authorized, where circumstances warrant, from making
discretionary bonus payments to any of the Participants or to any other employee
of the Company, not made pursuant hereto.
Date Adopted: March 10, 1999
Date Approved
by Stockholders: May 6, 1999
Date reconfirmed
by Sub-Committee: May 6, 1999
11
<PAGE>
EXHIBIT A
1999-2003 PARTICIPANTS IN THE ANNUAL AWARD POOLS
OF THE
MANAGEMENT INCENTIVE PLAN
<TABLE>
<CAPTION>
NAME TITLE PERCENTAGE
---- ----- ----------
<S> <C> <C>
EARNINGS POOL
Martin T. Sosnoff, Chairman of the Board and 35%
Chief Executive Officer
Craig B. Steinberg, President and Director of Research 35%
Anthony G. Miller, Executive Vice President, Chief Operating 15%
Officer, Chief Financial Officer, Secretary
Paul P. Tanico Executive Vice President,
Portfolio Manager (of Subsidiaries) 15%
PERFORMANCE POOL
Martin T. Sosnoff Chairman of the Board and
Chief Executive Officer 100%
</TABLE>
<PAGE>
EXHIBIT 11
ATALANTA/SOSNOFF CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Earnings-
Net income $ 7,783,518 $ 9,849,373 $ 8,801,916
============= ============== ==============
Basic earnings per share:
Shares - weighted average number of common 9,571,711 9,037,469 8,812,401
shares outstanding
Basic earnings per share: $ .81 $ 1.09 $ 1.00
============= ============= ==============
Dilutive earnings per share:
Common stock equivalents - options 10,926 50,936 30,350
------------- -------------- --------------
Shares - weighted average number of common shares
and common equivalent shares outstanding 9,582,637 9,088,405 8,842,751
============= ============== ==============
Dilutive earnings per share: $ .81 $ 1.08 $ 1.00
============= ============== ==============
Antidilutive shares as of December 31 150,000 - 35,000
============= ============== ==============
</TABLE>
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANTS
ANNUAL REPORT ON FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FINANCIAL STATEMENTS IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,994
<SECURITIES> 73,802
<RECEIVABLES> 3,319
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,681
<PP&E> 1,086
<DEPRECIATION> (427)
<TOTAL-ASSETS> 90,686
<CURRENT-LIABILITIES> 8,664
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 81,926
<TOTAL-LIABILITY-AND-EQUITY> 90,686
<SALES> 16,980
<TOTAL-REVENUES> 27,335
<CGS> 0
<TOTAL-COSTS> 13,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 13,695
<INCOME-TAX> 5,911
<INCOME-CONTINUING> 7,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,784
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
