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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-19619
HOENIG GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3625520
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
ROYAL EXECUTIVE PARK, 4 INTERNATIONAL DRIVE, RYE BROOK, NEW YORK 10573
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (914) 935-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
PAR VALUE $.01 PER SHARE
---------------------------
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.
X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
X Yes No
--- ---
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 24, 1997: Common Stock par value $.01 per share,
$24,805,529.
As of March 24, 1997 there were 9,550,477 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Proxy Statement for the 1997 Annual Meeting
of Stockholders are incorporated by reference in Part III as set forth herein.
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PART I
Item 1. Business
GENERAL
Hoenig Group Inc., through its wholly-owned brokerage subsidiaries,
Hoenig & Co., Inc. ("Hoenig"), Hoenig & Company Limited ("Limited") and Hoenig
(Far East) Limited ("Far East"), provides global securities brokerage,
marketing and distribution of proprietary and independent third-party research
and related services to institutional investors. Through its investment
advisory subsidiary, Axe-Houghton Associates, Inc. ("Axe-Houghton"), the
Company provides professional investment management to public and corporate
employee benefit plans, investment partnerships and other institutional
clients. The term "Company" refers to Hoenig Group Inc. and its subsidiaries,
Hoenig, Limited, Far East and Axe-Houghton. The Company's brokerage clients are
primarily banks, insurance companies, corporations, employee benefit plans,
mutual funds, investment advisers, hedge funds, investment partnerships and
other investment professionals. The Company provides its clients with execution
services for equity and fixed income securities transactions. Approximately 84%
of those services are provided in connection with the provision of independent,
third-party research products and services and directed brokerage arrangements.
The Company conducts business from its headquarters in Rye Brook, New
York, its international offices in London, Tokyo and Hong Kong and its regional
offices in New York and Boston. Through its subsidiaries, the Company is a
member of the New York Stock Exchange ("NYSE"), all major regional U.S.
exchanges, the London Stock Exchange ("LSE") and The Stock Exchange of Hong
Kong, and is an associate member of the American Stock Exchange. See Note 10 to
the Financial Statements for specific information regarding operating revenues
and operating profits by location and geographic region.
GLOBAL SECURITIES BROKERAGE
INDEPENDENT RESEARCH
The principal activity of the Company is the marketing and
distribution of third-party research and services to professional investment
managers in exchange for a commitment to direct securities trades which
generate specified amounts of commission revenues ("Independent Research
Arrangements"). These types of arrangements are sometimes referred to as soft
dollar arrangements.
An important aspect of the Company's business involves identifying
independent sources of investment research and information which add value to
its customers' investment decision-making process. The Company seeks research
services from private research groups, independent analysts, information
services organizations and other entities in the United States and overseas and
collaborates with these providers to obtain products and services that assist
the Company's investment management clientele in carrying out their investment
management responsibilities. The Company presently obtains research products
and services from over 300 independent sources and regularly communicates the
availability and suitability of these products and services to its clients.
Through its relationships with independent research analysts and
service providers, the Company offers a wide variety of specialized and
sophisticated research products, including fundamental research, economic
research and forecasting, quantitative analysis, global research services,
quotation, news and fixed income research services, software for securities
analysis, portfolio management and performance measurement services. Many of
these services are available from other brokerage firms, including specialty
firms offering only independent research, as well as firms that provide
proprietary research.
The Company's relationship with independent research providers is
typically one in which the research organization agrees to supply research
products or services to the Company's customers for a specified period
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of time (generally one year or less), and the Company agrees to pay for such
research. Some of these relationships, particularly those with organizations
which supply quotation, news and database systems, are contractual in nature.
The Company's business is not dependent on any one or select number of research
organizations; however, collectively, quotation, news and database systems
represent a significant portion of the independent research provided by the
Company, the loss of which could materially affect the Company's business.
DIRECTED BROKERAGE
The Company also engages in directed brokerage arrangements with
certain institutional investors, particularly corporations, pension plans and
investment limited partnerships. A directed brokerage arrangement is a
contractual arrangement between a brokerage firm and its customer whereby the
broker agrees to pay for certain direct expenses of the customer, such as
custodian fees, or to refund to the customer a portion of commissions paid in
consideration of the customer directing commission business to the broker
("Directed Brokerage Arrangement"). These types of arrangements are commonly
known as Directed Brokerage because the customer typically instructs its money
managers to direct trades for the customer's account to the broker with whom
the customer has a Directed Brokerage Arrangement. In the case of pension
plans, Directed Brokerage Arrangements often involve the payment of commission
refunds to the pension plan and thus are often referred to as "commission
recapture" programs. The term "soft dollars" sometimes is used to describe
directed brokerage arrangements.
The Company's general practice is to require between $1.50 and $2 in
commissions for every $1 in research, other services and commission refunds
provided under Independent Research Arrangements and Directed Brokerage
Arrangements. This ratio is not fixed and may vary on an individual customer
basis. The ratio the Company charges its customers has been, and continues to
be, under competitive pressure in the United States as well as in the United
Kingdom, Europe and the Far East.
The Company's commission rates and ratios generally are negotiated
between the Company's brokers and customers, and vary with the volume and
nature of trading involved. The Company believes that its ability to provide
customers with domestic and international execution capabilities is an
important factor in its ability to compete for customers seeking Independent
Research Arrangements and Directed Brokerage Arrangements. The Company
typically provides a periodic global statement to each customer, which allows
the customer to easily track the research and other services provided, the
commission commitment to the Company and the commissions generated to date.
Although these are extremely competitive businesses, management
believes that by emphasizing its global execution capabilities and marketing
activities it will be able to compete effectively for Independent Research and
Directed Brokerage business. Accordingly, the Company has devoted additional
resources, in terms of both capital and personnel, to developing its Hong Kong
and Tokyo operations. The Company also has committed resources to enhancing its
information systems to meet customer reporting and other business needs. The
Company expects to continue to devote resources to its Asian operations as well
as to establishing execution capabilities in emerging markets, actively working
with independent research service providers in marketing and distributing their
research products and further developing its information systems capabilities.
PROPRIETARY RESEARCH
During 1996, the Company broadened the range of brokerage services it
offers by developing a proprietary research capability. In October 1996, Hoenig
hired Dr. Robert Barbera, a noted Wall Street economist and strategist, as its
Chief Economist, and Dr. Barbera's colleague, Jose Rasco, as Economist.
Together, Dr. Barbera and Mr. Rasco have over 25 years of experience in
providing top-down economic research and market analysis to institutional
investment professionals.
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Dr. Barbera and Mr. Rasco produce a weekly report, which discusses
global economic events and market developments, as well as provides economic
forecasts. In addition, they also produce interim reports which address
important economic and market developments as they occur and periodically
consult with customers on a range of global economic issues and market trends.
The Company provides its customers with this proprietary economic
research and access to its economists in the traditional Wall Street manner,
with the expectation that customers will direct commission business to the
Company. Unlike Independent Research Arrangements, the Company does not expect
a specified amount of commissions from a customer in return for its proprietary
economic research, nor does the Company generally put a dollar price on this
research or offer to sell it for cash rather than commissions.
EXECUTION-ONLY SERVICES
The Company derived approximately 16% of its commission revenues in
1996, and 13% in 1995 and 1994, from Execution-Only Brokerage. Execution-Only
Brokerage refers to the execution of equity trades for customers on a
competitive commission rate basis and the execution of transactions in fixed
income securities as riskless principal. These types of transactions include
corporate stock repurchase programs and accumulations or liquidation's of large
blocks of equity and fixed income securities on a discrete basis. In addition,
the Company generates Execution-Only Brokerage in fixed income securities by
identifying merchandise (i.e., fixed income securities) available in the
market that may meet their particular portfolio needs. This is a growing
part of the Company's Execution-Only Brokerage business.
SALES AND MARKETING
As of December 31, 1996, the sales and marketing staff for the
Company's global brokerage business was comprised of fourteen (14) full-time
professionals: eight (8) in the United States, two (2) in London, three (3) in
Tokyo and one (1) in Hong Kong. These individuals manage established customer
relationships and solicit new business for the Company's brokerage services. In
doing so, the sales and marketing staff works to identify investment styles,
trading techniques, and research requirements of customers.
The sales and marketing representatives are important to the Company's
Independent Research business because they serve as a link between new research
service providers and existing or potential customers. They work closely with
the Company's customers to identify which products and services suit their
investment needs and continuously seek to introduce independent research
products and other services to existing and prospective customers. An important
facet of the relationship between the Company and research providers is the
active cooperation the Company provides in marketing. The Company consults with
these organizations on marketing questions and periodically identifies new
research requirements. Almost all of the Company's research relationships are
non-exclusive arrangements.
Similarly, the Company's sales and marketing personnel seek to
introduce the Company's proprietary economic research to customers. They also
promote and sell the Company's other brokerage services, including its
Execution-Only Brokerage services.
BROKERAGE AND CUSTODY
The Company does not maintain custody or possession of customer funds
or securities, except with respect to transactions in securities listed on The
Stock Exchange of Hong Kong. Custody of assets of institutional customers is
normally maintained by banks, trust companies, large brokerage firms or other
custodians selected by each customer. Transactions for such customers generally
are settled on a delivery-versus-payment or receipt-versus-payment basis
directly with the customer through the Company's clearing agents or settlement
accounts. The assets of some customers are maintained in the custody of the
Company's clearing agents. The Company is thus relieved of many of the
significant regulatory and administrative burdens associated with the custody
or possession of customer assets.
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The Company introduces on a fully-disclosed basis all accounts trading
in U.S. equity and fixed income securities through Sanford C. Bernstein & Co.,
Inc. ("Bernstein"). Under the Company's clearing arrangement, Bernstein
performs administrative functions with respect to transactions of the Company's
customers, such as record keeping, confirmation of transactions and preparation
and transmission of monthly statements. Bernstein also extends margin credit to
some of the Company's brokerage customers. The Company has a similar
arrangement (other than the extension of margin credit) with Pershing & Co.
Ltd. in London for accounts trading in the United Kingdom and certain European
securities markets. The Company pays a fee to its clearing and settlement
agents based on a fixed amount per transaction. Commissions, net of clearing
expenses, are paid on a monthly basis by the clearing agents to the Company.
In November 1996, Far East became a member of The Stock Exchange of
Hong Kong, and as a result became a member of the Central Clearing and
Settlement System (CCASS) in December 1996. As a member of CCASS, Far East is
self-clearing only with respect to transactions in securities listed on The
Stock Exchange of Hong Kong. The Company also maintains settlement accounts
with various banks and brokerage firms throughout the world with respect to
transactions in other Asian securities. Transactions for Far East customers
generally are settled on a delivery-versus-payment or receipt-versus-payment
basis directly with the customer or the customer's custodian.
ASSET MANAGEMENT AND BUSINESS DEVELOPMENT
Axe-Houghton, an asset management company registered as an
investment adviser under the Investment Advisers Act of 1940, provides
professional investment management for public and corporate employee benefit
plans and other institutional clients and also acts as the general partner of
two investment limited partnerships. It specializes in active small
capitalization growth equity and active fixed income investment management,
international indexing through the use of American Depositary Receipts (ADRs),
and large capitalization value management.
As of December 1996, Axe-Houghton's assets under management were $4.27
billion, as compared with $3.61 billion at the end of 1995. The greatest growth
in assets during 1996 occurred in assets managed in small capitalization growth
equities. Approximately $1.46 billion of assets under management at December
31, 1996 and $1.27 billion of assets under management at December 31, 1995
represent temporary assignments from one client, which are intended to be of
limited duration. One of these temporary assignments, representing $1.1 billion
in assets under management, ended in mid-February 1997. Assets under management
as of February 28, 1997 were $3.36 billion.
Axe-Houghton's marketing department is comprised of three full-time
professionals. These individuals work directly with potential clients, as well
as various investment management consulting firms, to introduce Axe-Houghton's
different investment styles and performance records to institutional clients.
They also provide administrative services to client accounts.
The Company intends to continue to seek and evaluate, through
acquisition or otherwise, opportunities in investment management and other
financial service businesses which complement the Company's existing
businesses.
EMPLOYEES
At December 31, 1996, the Company employed one hundred fifteen (115)
persons on a full-time basis, of whom ten (10) were in executive positions,
thirty (30) in floor positions or positions as brokers, sixteen (16) in sales
and marketing positions, fourteen (14) in accounting, legal and compliance
positions, eight (8) in investment positions and thirty-seven (37) in clerical
or other positions. Of the one hundred fifteen (115) employees, sixty-eight
(68) are employed by Hoenig, including twelve (12) in Tokyo, six (6) by Hoenig
Group Inc., fourteen (14) by Axe-Houghton, fourteen (14) by Far East, and the
remaining thirteen (13) are employed by
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Limited. All of the Company's offices engage in both marketing and brokerage
activities. The Company considers its relations with employees to be good.
On September 5, 1996, the Company appointed Fredric P. Sapirstein as
Chief Executive Officer and Chairman of the Company's Board of Directors. The
Company expects to hire additional sales and marketing professionals in its
brokerage and asset management operations in 1997.
CUSTOMER RELATIONSHIPS
The Company has existing brokerage relationships with over 500
institutional customers worldwide. The Company's 10 and 20 largest customers
accounted for 29.2% and 40.8%, respectively, of total revenues for the year
ended December 31, 1996 and 28.0% and 41.6%, respectively, of the total
revenues for the year ended December 31, 1995. A significant percentage of the
Company's largest customers are investment limited partnerships and private
investment funds. No single customer accounted for 10% or more of the Company's
revenues for the years ended December 31, 1996, 1995 and 1994.
The Company believes that its brokerage customer list is broadly based
and not dependent on any one sector of the market. Approximately 68% of the
Company's brokerage business is executed in U.S. markets and the majority of
its customers are located in the United States. The Company's ability to allow
its customers to execute securities transactions in the world's major markets
reduces its reliance on volume and trading in any one particular market. Sales
and marketing personnel located in the Company's international offices are
responsible for developing local customer relationships which help to diversify
the Company's customer base.
The Company maintains a limited number of retail brokerage accounts.
These accounts are primarily the accounts of employees (who generally are
required to trade through the Company), relatives and friends of the Company.
The Company does not compete for retail business.
As of December 31, 1996, the Company had thirty-eight (38) advisory
clients which maintained fifty (50) investment advisory accounts. Four of these
accounts are maintained by affiliates. Two of these accounts, representing
$1.46 billion in assets under management as of December 31, 1996, are temporary
assignments from one client. These temporary assignments are intended to be of
a limited duration. In mid-February 1997, one of these assignments,
representing $1.1 billion in assets, ended.
COMPETITION
The institutional brokerage and investment management businesses are
very competitive. The Company's brokerage business competes directly and
indirectly with independent specialty firms as well as traditional full service
brokerage firms, both domestic and foreign, that offer Independent Research and
engage in Directed Brokerage. In addition, the Company competes directly with
traditional full service firms that offer economic research and forecasting
similar to the Company's proprietary economic research and research similar to
the Independent Research provided by the Company. In competing for
Execution-Only Brokerage, the Company generally does not make position bids or
offers or otherwise commit its capital to trading. Consequently, the Company
may not be able to compete for brokerage business in cases where another
broker-dealer commits its own capital.
The Company believes it successfully competes for brokerage business
because of the quality of its trade execution, its global execution
capabilities, and the variety and quality of the independent and proprietary
research and other services it provides. The Company believes that important
competitive factors in the securities brokerage business are the ability of
professional personnel to understand and anticipate the customer's requirements
and expectations and to provide quality services at competitive prices. The
Company must meet price competition commensurate with the products and level of
service it offers.
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The Company's asset management business competes with registered
investment advisers, full service brokerage firms, mutual funds, investment
counselors and other investment professionals. A significant number of these
competitors have greater capital and other resources than the Company and offer
clients a broader range of asset management disciplines and products. Some of
the competing firms offer these services at rates lower than those offered by
the Company. The Company believes that it successfully competes with other
investment professionals because of the quality of the portfolio management
services it provides, which often is more important to attracting and retaining
investment management clients than the fee rate charged.
The low capital requirements of the institutional agency brokerage and
asset management businesses mean that there are no true financial barriers to
entry into these businesses. However, the Company's relationships with major
institutional investors and direct lines of communication to these
institutional investors are not easily duplicated. Established U.S. and
international brokerage firms as well as independent specialty firms are the
most likely candidates to compete successfully for customers seeking
Independent Research Arrangements and Directed Brokerage Arrangements. However,
for some full service firms, this business line is not their primary business
and may conflict with their existing operations.
REGULATION
The Company is subject to extensive regulation under U.S. federal and
state law and by certain U.S. self-regulatory bodies including the NYSE and
various other stock exchanges, the Securities and Exchange Commission ("SEC"),
the National Association of Securities Dealers, Inc. ("NASD") and several
foreign regulatory bodies. The Company's United States brokerage subsidiary,
Hoenig, is registered as a broker-dealer with the SEC and the NASD. The
Company's brokerage operations are subject to regulation by self-regulatory
organizations, including NASD Regulation, Inc. and the NYSE, which has been
designated by the SEC as the primary regulator of the Company's largest
operating subsidiary, Hoenig. The Company's brokerage subsidiaries are
registered as broker-dealers in a number of states and countries. Axe-Houghton
is registered as an investment adviser with the SEC and in a number of states.
Limited is subject to regulation by the Securities and Futures Authority
("SFA") and the LSE. Far East is registered as a dealer and investment adviser
with the Securities and Futures Commission ("SFC") in Hong Kong and is a member
of The Stock Exchange of Hong Kong. Hoenig's Tokyo office is subject to
regulation by the Japanese Ministry of Finance and the Japan Association of
Securities Dealers by virtue of its status as a branch office.
Broker-dealers and investment advisers are subject to regulation
covering virtually all aspects of their businesses. These regulatory
authorities have adopted rules that govern the securities industry and, as a
normal part of their procedures, conduct periodic examinations of the Company's
securities and investment management operations. Additional legislation,
changes in rules promulgated by the SEC, the SFA or the SFC or any
self-regulatory organization, or changes in the interpretation or enforcement
of existing laws and rules, may directly affect the mode of operation and
profitability of the Company. In the United States, brokerage firms and
investment advisers are also subject to regulation by state securities
commissions in the states in which they conduct business. These regulatory
authorities, including state securities commissions, may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer or investment adviser, its officers or employees. In October
1996, the Congress adopted the National Securities Markets Improvement Act of
1996, which generally preempts state regulation of certain investment
advisers and securities offerings. This Act limits the extent to which
individual States may regulate certain types of offerings and registered
investment advisers with $25 million or more in assets under management. This
portion of the Act is expected to take effect in July 1997.
In the United States, the provision of research to investment
professionals in consideration of commission business is conducted in reliance
upon the safe harbor provided under Section 28(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The protections of Section 28(e)
apply equally to the provision of independent research as well as proprietary
research.
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Section 28(e) permits money managers and other investment fiduciaries
to obtain research from a broker in exchange for portfolio commissions. It
provides, in effect, that it is not a breach of fiduciary duty for an
investment manager to cause an account over which it has investment discretion
to pay a broker a commission in excess of the amount of commission another
broker would have charged for effecting the transaction if the investment
manager determined in good faith that the amount of commission was reasonable
in relation to the value of the brokerage and research services provided by
such broker. The safe harbor protection of Section 28(e) does not extend to
transactions where the broker-dealer executes the transaction as principal or
in a riskless principal transaction. It also does not apply to Directed
Brokerage Arrangements, which generally are governed by contractual agreement
and State or Federal laws, including the Employee Retirement Income Security
Act of 1976 ("ERISA").
The SEC from time to time has been urged by competitors of the Company
and others to seek Congressional reconsideration of Section 28(e) or narrow its
scope through interpretation. Most recently, in November 1996, the SEC's Office
of Compliance, Inspection and Examinations began conducting special
examinations of the soft dollar practices of hundreds of brokerage firms,
investment advisers and mutual funds throughout the United States. The SEC has
stated that the purpose of the examinations is twofold: to gather facts about
soft dollar practices and to uncover non-compliance with existing guidelines
and bring enforcement actions.
The SEC staff has stated that it expects to conclude its examinations
by the end of March 1997, but has not yet specified what, if any, action it
will recommend. The SEC has not proposed specific rule changes or issued new
interpretations relating to soft dollar practices. In November 1996, the SEC
withdrew previously proposed amendments to rules under the Investment Adviser's
Act of 1940 which would have required investment advisers to disclose to their
clients the identity of brokers they use to execute client trades, the
percentage of total commission business done with each broker, the average
commission per share paid and a description of all research and other services
received by the adviser from the broker. It is therefore difficult to assess
the effect, if any, that these special examinations will have on the Company's
brokerage business. Any changes that limit the definition of research provided
in Section 28(e) or exclude independent research from that definition would
have a material adverse effect on the Company's Independent Research business
and place it at a competitive disadvantage as compared to brokerage firms with
greater proprietary research capabilities.
On July 1, 1997, sovereignty over Hong Kong will be transferred from
the United Kingdom to the People's Republic of China, and Hong Kong will
become a Special Administrative Region of China. It is unclear what, if any,
political and economic changes may result from this transfer or what effect,
if any, the transfer may have on the Company's business.
NET CAPITAL REQUIREMENTS
Hoenig is subject to the Uniform Net Capital Rule (Rule 15c3-1) under
the Exchange Act. This rule requires that Hoenig maintain net capital of the
greater of $100,000 or one fifteenth of aggregate indebtedness, as defined. At
December 31, 1996, Hoenig's net capital ratio was .67 to 1. The capital
requirement of Hoenig's Tokyo branch office at December 31, 1996 was (Y)
78,000,000 ($673,000). In accordance with new rules which took effect January
1, 1996, Limited is required to maintain financial resources, as defined, of at
least 110% of its capital requirement. The new rules have not had a material
effect on Limited's financial resource requirement. Far East is required to
maintain liquid capital of the greater of HK$3,000,000 ($388,000) or 5% of the
average quarterly liabilities. The table below summarizes the capital
requirements for each subsidiary:
<TABLE>
<CAPTION>
Minimum Actual
Required Capital Capital Excess of Requirement
---------------- ------- ---------------------
<S> <C> <C> <C>
Hoenig & Co., Inc. $ 512,000 $11,438,000 $ 10,926,000
(pounds (pounds (pounds
Hoenig & Co., Limited sterling 318,000) $ 545,000 sterling 1,152,000) $1,973,000 sterling 834,000) $ 1,428,000
Hoenig Far East Ltd. (HK$ 10,851,000) $1,403,000 (HK$22,041,000) $2,850,000 (HK$11,191,000) $ 1,447,000
</TABLE>
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Axe-Houghton has similar net capital requirements with respect to its
registrations in various states. Its maximum net capital requirement is
$50,000. It is not clear what, if any, net capital requirements Axe- Houghton
will have after the National Securities Markets Improvement Act of 1996 takes
effect.
Item 2. Properties
The Company's headquarters occupies office space of approximately
25,000 square feet at Royal Executive Park, 4 International Drive, Rye Brook,
New York 10573, including 12,000 square feet under a lease which expires on May
31, 2002 and 13,000 square feet under a lease which expires in August 1999. In
February 1997, the Company entered into a lease expiring on May 31, 2002 with
respect to an additional 2,950 square feet at Royal Executive Park. In
addition, the Company leases office space in New York, Boston, London, Hong
Kong, and Tokyo totaling 8,250 square feet. These leases expire or are
terminable at various times through 1998.
Item 3. Legal Proceedings
On September 19, 1995, a complaint was filed in the Supreme Court of
the State of New York, County of Westchester, by Thomas C. Hellman against
Hoenig Group Inc. ("Hoenig Group"), Hoenig, Robert F. Donahue, Alan B. Herzog,
Ronald H. Hoenig, Thomas J. Compono, Stephen D. Garrow, Max H. Levine and
Robert Spiegel as directors and officers of Hoenig. The complaint sought
specific performance of a 1987 agreement to sell to plaintiff Hellman, a former
officer, director and shareholder of Hoenig, 14% of the common stock of Hoenig
and sought an unspecified amount of dividends or other moneys which allegedly
had accrued on the stock. On January 30, 1996, the court dismissed the claims
against defendants Donahue, Herzog, Compono, Garrow, Levine and Spiegel, but
denied the motions of Hoenig Group and Hoenig to dismiss the balance of the
complaint for failure to provide sufficient evidence. On or about March 8,
1996, plaintiff Hellman amended the complaint to add allegations of breach of
contract, conversion and fraud and to seek an accounting, $5 million in
compensatory damages and $5 million in punitive damages. Hoenig Group and
Hoenig answered the complaint, denied its substantive allegations, and filed a
motion for summary judgment seeking dismissal. On September 11, 1996, the
Supreme Court of the State of New York, County of Westchester, granted summary
judgment in favor of defendants Hoenig Group Inc. and Hoenig and dismissed the
amended complaint in its entirety. Mr. Hellman filed a motion to reargue this
decision, which was denied on December 13, 1996. He also filed a notice of
appeal of the decision granting summary judgment in favor of Hoenig Group Inc.
and Hoenig, which is still pending. Information regarding this litigation
previously was disclosed in Item 3 of the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1995 and was referenced in the Company's
Forms 10-Q for the second quarter ended June 30, 1996 and third quarter ended
September 30, 1996.
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 1996.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
The Company's common stock ("Common Stock") is listed on National
Association of Securities Dealers Automatic Quotation System ("NASDAQ") under
the symbol HOEN.
The following table sets forth the high and low sales prices for the
securities as reported by NASDAQ for the eight quarters ending December 31,
1996.
DIVIDENDS
PERIOD ENDED COMMON STOCK PER SHARE
- ------------ ---------------- ---------
HIGH LOW
------ ------
March 31, 1995 $3.625 $ 2.75 $.025
June 30, 1995 3.75 2.625 .025
September 30, 1995 3.75 2.75 .025
December 31, 1995 4.375 3.125 .025
March 31, 1996 4.25 3.0 .025
June 30, 1996 4.75 3.0 .025
September 30, 1996 4.50 3.375 .025
December 31, 1996 5.375 3.75 .025
Based on information supplied by Continental Stock Transfer & Trust
Company, the Company's transfer agent, the Company believes that there were
approximately 737 holders of record and beneficial owners of Common Stock
on March 24, 1997. The closing price of the Common Stock was $4.75 on March
24, 1997.
On February 20, 1997, the Company's Board of Directors voted to
discontinue the payment of a regular quarterly dividend of $0.025 per share.
10
<PAGE>
Item 6. Selected Financial Data
SUMMARY CONSOLIDATED FINANCIAL DATA1
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenues $70,030 $53,527 $59,046 $58,371 $51,410
Operating income (loss) 3,230 (1,862) 4,594 7,231 5,417
Net investment income (loss) & other 1,737 7,252 (121) 1,945 2,138
Income before income taxes 4,967 5,389 4,473 9,176 7,555
Net income 2,887 4,919 2,596 5,347 4,402
Net income per share .31 .50 .25 .45 .38
Dividends per share .10 .10 .125 .10 ----
Weighted average shares outstanding 9,391 9,808 10,263 12,320 12,621
BALANCE SHEET DATA
Total assets 51,528 45,135 40,573 45,474 34,233
Stockholders' equity 37,851 34,458 33,034 33,992 29,428
</TABLE>
- --------------------------
1 Certain reclassifications have been made to Income Statement balances
prior to 1994 to conform to the 1994 Income Statement presentation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
Hoenig Group Inc. provides global securities brokerage to
institutional clients through its wholly-owned brokerage subsidiaries in the
United States, United Kingdom and Hong Kong. The Company's wholly-owned
subsidiary, Axe-Houghton Associates, Inc., provides professional investment
management to public and corporate employee benefit plans, investment
partnerships and other institutional clients.
The Company's principal source of revenues is commissions earned for
executing trades on behalf of its customers. The Company executes trades in
equity securities on all of the world's major stock exchanges, acting as agent
for its customers and, in certain instances as principal, and also executes
trades in U.S. fixed income securities on an agency and riskless principal
basis.
The Company earns commissions in connection with four principal types of
brokerage services: commissions received in exchange for providing independent
research and other services to investment managers ("Independent Research
Arrangements"), commissions received in exchange for paying expenses of, or
commission refunds to, the customer ("Directed Brokerage"), commissions
received in exchange for providing the Company's proprietary research; and
commissions received for execution-only services ("Execution - Only
Brokerage"). See "Business - Global Securities Brokerage - Independent
Research", "- Directed Brokerage", "- Proprietary Research" and "-
Execution-Only Services".
The Company believes that the business of providing Independent
Research and Directed Brokerage Arrangements is relatively mature in the United
States and the United Kingdom, but expects it to grow at a faster rate in
foreign markets, particularly in the Far East. Ratios relating to Independent
Research and Directed Brokerage Arrangements (the ratio of commissions received
by the Company to the cost of research and other services provided or
commission refunds paid) generally have decreased during the past several years
as a result of competition, but they are higher in certain international
markets, particularly in the Far
11
<PAGE>
East. The Company is able to maintain profit margins on commissions earned in
Far East markets that are comparable to the profit margin on U.S. commissions,
notwithstanding higher clearing and execution costs in the Far East. The
Company's profit margin on Execution-Only Brokerage is higher than that on
Independent Research and Directed Brokerage Arrangements because the Company
does not incur direct expenses for research and other services in connection
with Execution-Only Brokerage. The percentage of the Company's commission
revenues attributed to Execution-Only Brokerage increased to 16% in 1996 as
compared with 13% in both 1995 and 1994.
The Company's earnings in any year are affected by its ability to
collect commissions under Independent Research and Directed Brokerage
Arrangements on a timely basis, since revenues are recorded only when earned.
The timing of the collection of these commissions could affect year to year
earnings.
In late 1994 and 1995, the Company committed increased capital and
hired additional personnel in its Hong Kong and Tokyo operations in an effort
to enhance the Company's global execution capabilities and further develop its
client base in Far East markets. During 1996 the Company more than doubled
the amount of commission revenues earned by its Far East Operations. See
Note 10 to the Financial Statements for information regarding operating
revenues and operating profits by location and geographic region. Generally
the costs of doing business are higher in certain international markets.
In particular, the Company has experienced higher operating costs in Tokyo
and Hong Kong. Notwithstanding those higher costs, the Company's Far East
operations were profitable in 1996 as a result of significantly increased
revenues.
The Company's second largest source of revenues is investment
management fees earned by Axe-Houghton Associates, Inc., the Company's asset
management subsidiary, in connection with the provision of asset management
services to institutional clients. The profit margin on the Company's asset
management business is higher than those on the Company's brokerage activities
and also varies with the types of asset management services provided by the
Company. At December 31, 1996, Axe-Houghton had $4.27 billion in assets under
management, of which approximately $1.46 billion represents temporary
assignments that are of limited duration. The temporary assignments represented
$1.27 billion of the assets under management at December 31, 1995.
Approximately $1.1 billion of those assets were withdrawn in February 1997,
resulting in $3.36 billion in assets under management as of February 28, 1997.
It is unclear when the other temporary assignment, which represents
approximately $438 million as of February 28, 1997, will end.
The Company will continue to evaluate opportunities to increase
distribution capabilities, expand its client base and supplement its product
line through acquisitions and the hiring of additional personnel.
YEAR ENDED DECEMBER 31, 1996 VERSUS DECEMBER 31, 1995
The Company's operating income before income taxes for 1996 was $3.2
million versus an operating loss of $(1.9) million in 1995. The increase in
operating income is primarily attributed to a 27.6% increase in commission
revenues, an 85.1% increase in investment management fee revenues, as well as
an increase in the Company's profit margin. The increased profit margin is
attributed to an increase in Execution-Only Brokerage, as well as the timing of
research expense incurred in 1995 relative to the receipt of commissions. The
Company's net income for the twelve months ended December 31, 1996 was $2.9
million versus $4.9 million in the same period in 1995. This decrease was
primarily due to the fact that during the fourth quarter of 1995, the Company
received approximately $4.4 million in insurance proceeds (net of expenses)
following the death of Ronald H. Hoenig, the Company's former Chairman and Chief
Executive Officer.
Operating revenues increased 30.8% to $70.0 million for the year ended
December 31, 1996 from $53.5 million for the year ended December 31, 1995.
Commission revenues, the principal source of the Company's revenues, increased
27.6% to $64.0 million for the year ended December 31, 1996 from $50.2 million
for the year ended December 31, 1995. The increase in commission revenues
resulted from higher
12
<PAGE>
trading volume in all of the major markets in which the Company operates, with
the greatest increases in Far East markets. Commission revenues derived from
international markets represented 32.5% of the Company's total commissions, as
compared to 25.0% for the same period in 1995.
Investment management fees increased 85.1% to $5.6 million in 1996
from $3.0 million in 1995. Assets under management increased in 1996 to $4.27
billion as compared to $3.61 billion in 1995. During 1996, the number of
advisory clients increased from 31 to 38. The increase in investment
management fees reflects increased assets under management, resulting from the
receipt of new assets and appreciation on existing assets, and an increase in
the average investment management fee charged. Approximately 35% of the
increase in assets under management since December 31, 1995 represents assets
managed at the Company's highest fee rates.
Expenses related to research and other services provided to the
Company's clients, including commission refunds, increased 12.6% to $29.1
million in 1996 from $25.8 million in 1995. These expenses were 45.4% of
commissions in 1996 as compared with 51.5% in 1995. These expenses increased at
a lower rate than commission revenues for the year ended December 31, 1996,
primarily due to two factors: the timing of research expenses incurred relative
to the receipt of commissions in 1995 and an increase in Execution-Only
Brokerage during the year ended December 31, 1996.
Clearing, execution, exchange charges and related expenses increased
46.9% to $11.4 million in 1996 from $7.8 million in 1995. These expenses
represented 17.8% of commissions in 1996 and 15.5% of commissions in 1995. The
increase in these expenses as a percentage of commissions is primarily due to
an increase in the percentage of commissions generated in certain Far East
markets where such expenses are charged at higher rates than comparable U.S.
equity trades.
Employee compensation increased 22.5% to $17.2 million in 1996 from
$14.0 million in 1995. This resulted primarily from an increase of: (1) $1.5
million in discretionary and performance-based compensation, and (2) $1.2
million in base compensation of existing and new employees.
All other expenses increased 17.5% to $9.2 million in 1996, compared
to $7.8 million in 1995. This resulted primarily from an increase in consulting
and other professional expenses ($0.6 million) and office-related expenses
($0.4 million) during the year ended December 31, 1996.
Gain (loss) on investment and interest and dividends income decreased
38.1% to $1.7 million in 1996 from $2.8 million in 1995. This decline reflects
unrealized gains of $1.1 million on cash invested in U.S. Government and
corporate obligations during 1995 as compared to a loss of ($0.3) million in
1996.
Insurance proceeds, net of expenses, received during 1995 of $4.4
million related to the death of Ronald H. Hoenig, the Company's former Chairman
and Chief Executive Officer. The Company received $5.5 million in life
insurance proceeds (in excess of recorded cash surrender value) and incurred
$1.1 million in expenses primarily due to certain obligations owed to the
estate of Ronald H. Hoenig (the "Estate") pursuant to Mr. Hoenig's employment
agreement with the Company.
YEAR ENDED DECEMBER 31, 1995 VERSUS DECEMBER 31, 1994
The Company incurred an operating (loss) before income taxes for 1995
of ($1.9 million) versus operating income of $4.6 million in 1994. The
operating loss is primarily attributed to a 12.0% decrease in commission
revenues without a commensurate decrease in expenses associated with research
and other services. The decrease in commission revenues is attributable to
lower trading volume from the Company's clients during 1995 as well as the loss
of certain clients. The resignation of certain trading personnel in the first
quarter 1995 resulted in the loss of certain client accounts and may have been
responsible for the reduction in trading volume of certain clients.
13
<PAGE>
Operating revenues decreased to $53.5 million for the year ended
December 31, 1995 from $59.0 million for the year ended December 31, 1994
(decreasing 9.3%). Commission revenues, the principal source of the Company's
revenues, decreased to $50.1 million for the year ended December 31, 1995
versus $57.0 million for the year ended December 31, 1994 (decreasing 12.0%).
The decrease in commission revenues is primarily attributed to a decrease in
commissions generated in 1995 in the U.S. equity and Hong Kong market of $4.7
and $2.2 million respectively. In 1995, domestic commission revenues were 75.0%
of commission revenues and international commission revenues were 25.0% of
commission revenues, versus 73.7% and 26.3% of commission revenues,
respectively, in 1994.
Investment management fees increased to $3.0 million in 1995 from $1.4
million in 1994 (increasing 112.9%). Assets under management increased in 1995
to $3.61 billion for 31 advisory clients as compared to $1.21 billion for
23 accounts in 1994.
Expenses related to research and other services provided to the
Company's clients, including commission refunds, decreased 2.6% to $25.8
million in 1995 (which represents 51.5% of commission revenues) from $26.5
million in 1994 (which represents 46.5% of commission revenues). Expenses
related to research and other services as a percentage of commission revenues
for the year ended December 31, 1995 were greater than the comparable period in
1994, primarily due to the incurrence of research and services expense in
advance of the realization of related commission revenues and a reduction in
the ratio charged to certain major customers of the Company during the year
ended December 31, 1995.
Clearing, execution, exchange charges and related expenses decreased
to $7.8 million in 1995 from $9.0 million in 1994 (decreasing 13.9%). These
expenses represented 15.5% of commissions in 1995 and 15.8% of commissions in
1994. These expenses decreased as a percentage of commissions primarily due to
a decrease in clearing and execution costs of domestic equity trades and a
decrease in the percentage of commissions generated in certain Far East markets
where such expenses are charged at higher rates than comparable domestic equity
trades.
Employee compensation increased to $14.0 million in 1995 from $11.8
million in 1994 (increasing 19.1%). This resulted primarily from an increase of
$1.1 million in the compensation of additional personnel hired in the Company's
operations in Hong Kong and Tokyo and an increase of $1.3 million in
compensation for Axe-Houghton employees related to a full year compensation for
senior executives hired during the fourth quarter 1994, and 1995
performance-based compensation.
All other expenses increased to $7.8 million in 1995 compared to $7.1
million in 1994 (increasing 8.9%). This resulted primarily from an increase in
office and other expenses related to the Company's operations in Hong Kong and
Tokyo in 1995.
Gain (loss) on investment and interest and dividends income increased
to $2.8 million in 1995 from a loss of ($0.1) million in 1994. The gain (loss)
on investments is primarily the result of unrealized appreciation or
depreciation of investments of cash invested in U.S. Government obligations.
The $2.9 million increase in 1995 is primarily due to realized gains on
investments of $0.4 million and unrealized gains of $1.1 million on U.S.
Government and corporate obligations. This compares with unrealized losses of
($1.4) million in 1994.
Insurance proceeds, net of expenses, related to the October 1995 death
of Ronald H. Hoenig, the Company's former Chairman and Chief Executive Officer,
were $4.4 million. The Company received $5.5 million in life insurance proceeds
(in excess of recorded cash surrender value) and incurred $1.1 million in
expenses primarily due to certain obligations owed to the Estate pursuant to
Mr. Hoenig's employment agreement with the Company.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continued to remain strong during
1996. At December 31, 1996, the Company had cash, U.S. Government obligations,
accounts receivable and other securities of $43.7 million compared with
$37.8 million at December 31, 1995. Cash and equivalents increased to $18.3
million in 1996 from $18.1 million in 1995. The principal source of cash was
net income of $2.9 million. In addition, the Company increased its accrued
compensation and accrued research/services payable by $2.0 million and $1.7
million respectively (increasing liquidity). These increases were offset by
decreases in accrued expenses of $1.6 million (decreasing liquidity). The
decrease in cash from investing activities was primarily attributed to an
increase in the Company's investment in U.S. Treasury obligations of $5.1
million (decreasing liquidity). The increase in cash from financing activities
was primarily attributed to the issuance of treasury stock of $0.9 million plus
the issuance of Common Stock of $0.2 million, offset by dividends of $0.9
million paid during 1996.
The Company has a line of credit aggregating $7,000,000, of which
$2,000,000 is secured by certain U.S. Government obligations and $5,000,000 is
unsecured. Interest is paid at a variable rate based upon the Federal Funds
rate plus 1%. In addition, the Company maintains overseas overdraft facilities
as follows: (1) (pounds sterling)2,200,000 ($3,767,000), which bears a variable
rate of
interest based upon market rates in the U.K. and Europe; and (2) HK$ 50,000,000
($6,465,000) which bears a variable rate of interest based upon market rates in
Hong Kong. In addition, the Company maintains a $5,000,000 foreign exchange
line for its trading operations in Hong Kong.
At December 31, 1995, the Company had cash, U.S. Government
obligations, accounts receivable and other securities of $37.8 million compared
with $33.6 million at December 31, 1994. Cash and equivalents increased to
$18.1 million in 1995 from $10.4 million in 1994. The principal source of cash
was net income of $4.9 million. In addition, the Company reduced its investment
in U.S. obligations and securities by $1.5 and $2.0 million respectively,
increased its accrued expenses by $2.1 million (increasing liquidity). The
decrease in cash from financing activities was primarily attributed to the
purchase of 650,000 shares of common stock from the Estate ($2.0 million) and
dividends paid during the year ($1.0 million).
The Company believes that its current cash resources and liquidity,
plus additional funds generated by operations, will be sufficient to meet
current and future needs. The Company continues to explore opportunities to
expand existing businesses and to acquire new businesses, which could
potentially have an impact on liquidity and capital resources.
IMPACT OF INFLATION
The Company's business is not capital intensive, and management believes that
the financial results as reported would not have been significantly affected
had such results been adjusted to reflect the effects of inflation and price
changes. However, inflation affects the cost of operations, particularly
salaries and related benefits.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements on Page F-1 in Item 14.
Item 9. Changes in or Disagreements with Accountants and Financial Disclosure
There were no changes in or disagreements with accountants and
financial disclosure.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(A) DIRECTORS
Information concerning directors of the Registrant is contained under
the captions, "Management" and "Proposal I" in the Proxy Statement for the
1997 Annual Meeting of Stockholders to be filed with the SEC and is
incorporated herein by reference.
(B) EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Registrant is
contained under the caption, "Management" in the Proxy Statement for the 1997
Annual Meeting of Stockholders to be filed with the SEC and is incorporated
herein by reference.
Item 11. Executive Compensation
Information concerning executive compensation is contained under the
caption, "Compensation of Executive Officers and Directors" in the Proxy
Statement for the 1997 Annual Meeting of Stockholders to be filed with the SEC
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is contained under the caption, "Ownership of Common Stock of
Certain Beneficial Owners and Management" in the Proxy Statement for the 1997
Annual Meeting of Stockholders to be filed with the SEC 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, "Compensation of Executive Officers and
Directors" in the Proxy Statement for the 1997 Annual Meeting of Stockholders
to be filed with the SEC and is incorporated herein by reference.
16
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report.
(1) Financial statements - The index to consolidated
financial statements appears on page F-1.
(b) Reports on Form 8-K
None.
(c) Exhibits to Form 10-K
3.1 Articles of Incorporation of the Registrant.
3.2 Amended and Restated By-laws of the Registrant.
(Incorporated herein by reference to Exhibit 3(b) to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.)
*10.1 1991 Stock Option Plan. (Incorporated herein by
reference to Exhibit 10(b) to the Registrant's
Registration Statement on Form S-1 filed August 23,
1991.)
*10.2 1994 Stock Option Plan. (Incorporated herein by
reference to Exhibit 99.2 to the Registrant's
Registration Statement on Form S-8 filed September
30, 1994.)
*10.4 Employment Agreement between the Registrant and Max
H. Levine (Incorporated herein by reference to
Exhibit 10(a)(2) to the Registrant's Registration
Statement on Form S-1 filed August 23, 1991.)
*10.5 Employment Agreement between the Registrant and Alan
B. Herzog (Incorporated herein by reference to
Exhibit 10(a)(3) to the Registrant's Registration
Statement on Form S-1 filed August 23, 1991.)
*10.6 Employment Agreement between Axe-Houghton
Associates, Inc. and J. Richard Walton, including
form of Convertible Subordinated Debenture
(Incorporated herein by reference to Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
*10.7 1996 Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-8
filed December 6, 1996).
*10.8 Employment Agreement between the Registrant and
Fredric P. Sapirstein (Incorporated herein by
reference to Exhibit 10.8 to Registrant's Current
Report on Form 8-K filed September 17, 1996).
*10.9 Employment Agreement between the Registrant and Max
H. Levine dated November 25, 1996.
*10.10 Separation Agreement between the Registrant and J.
Richard Walton, dated October 31, 1996.
- --------
* Each asterisk identifies a management contract or compensatory plan or
arrangement as defined in Item 601 (b)(10)(iii) of Regulation S-K of the
Exchange Act of 1934.
17
<PAGE>
*10.11 Section 162(m) Cash Bonus Plan.
*10.12 Hoenig Group Inc. Long-Term Stock Incentive Plan.
10.13 Rights Agreement dated as of January 14, 1997
between the Registrant and Continental Stock
Transfer & Trust Company (Incorporated herein by
reference to Exhibit 1 to the Registrant's Form 8-A
filed on January 21, 1997.)
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consents of Experts and Counsel.
27.1 Financial Data Schedule
- --------
* Each asterisk identifies a management contract or compensatory plan or
arrangement as defined in Item 601 (b)(10)(iii) of Regulation S-K of the
Exchange Act of 1934.
18
<PAGE>
`
HOENIG GROUP INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES (ITEM 1(A))
PAGE
----
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
FINANCIAL STATEMENTS:
Independent Auditors' Report F-2
Consolidated Financial Statements:
Statements of Financial Condition
December 31, 1996 and 1995 F-3
Statements of Income
Years Ended December 31, 1996, 1995 and 1994 F-4
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-7 - F-15
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Hoenig Group Inc.
Rye Brook, New York
We have audited the accompanying consolidated statements of financial condition
of Hoenig Group Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Hoenig Group Inc. and subsidiaries
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 18, 1997
F-2
<PAGE>
`
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and equivalents $18,307,886 $18,115,361
U.S. Government obligations, at market value 16,782,412 11,655,594
Securities owned, at market value 1,458,761 2,231,868
Investment in limited partnerships 503,588 998,745
Receivables from correspondent brokers and dealers 6,164,129 4,749,703
Receivables from customers 436,326 -
Exchange memberships - at cost 1,347,522 836,250
Equipment, furniture and leasehold improvements
- net of accumulated depreciation and amortization 2,090,649 1,921,225
Deferred research/services expense 632,914 869,923
Other assets 3,803,708 3,756,806
--------- ----------
Total Assets $51,527,895 $45,135,475
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Payable to brokers and dealers $ 640,705 $ 162,428
Payable to customers 229,367 -
Accrued research/services payable 6,553,125 4,846,939
Accrued compensation 4,449,089 2,373,905
Accrued expenses 963,745 2,565,284
Other liabilities 840,574 728,674
------- ------------
Total Liabilities 13,676,605 10,677,230
---------- ----------
STOCKHOLDERS' EQUITY
Common stock $.01 par value per share;
Voting-authorized 40,000,000 shares, issued
-10,763,350 shares in 1996 and 10,637,160 shares in 1995 107,634 106,372
Additional paid in capital 26,111,404 25,724,382
Foreign currency translation adjustment (826,848) (814,382)
Retained earnings 16,611,177 14,656,408
---------- ----------
42,003,367 39,672,780
Less treasury stock at cost - 1,239,540
shares in 1996 and 1,532,040 shares in 1995 (4,152,077) (5,214,535)
----------- -----------
Total Stockholders' Equity 37,851,290 34,458,245
---------- ----------
Total Liabilities and Stockholders' Equity $51,527,895 $45,135,475
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
F-3
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
OPERATING REVENUES 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gross commissions ................................. $64,015,412 $50,162,073 $57,014,058
Investment management fees........................ 5,616,415 3,033,857 1,425,153
Other............................................. 398,413 331,465 606,364
------------ ------------ ------------
Total operating revenues........................ 70,030,240 53,527,395 59,045,575
------------ ------------ ------------
EXPENSES
Clearing, floor brokerage and exchange charges.... 11,415,464 7,771,721 9,024,765
Employee compensation............................. 17,150,265 14,001,004 11,752,566
Independent research and services................. 29,083,205 25,831,594 26,527,705
Other............................................. 9,151,384 7,785,188 7,146,812
------------ ------------ ------------
Total expenses................................. 66,800,318 55,389,507 54,451,848
------------ ------------ ------------
OPERATING INCOME (LOSS)............................ 3,229,922 (1,862,112) 4,593,727
INVESTMENT INCOME AND OTHER
Interest, dividends............................... 1,577,749 1,329,100 1,507,522
Gain (loss) on investments, other................. 159,140 1,476,164 (1,628,084)
Insurance proceeds, net of expenses............... - 4,446,334 -
------------ ------------ ------------
Net investment income and other................... 1,736,889 7,251,598 (120,562)
------------ ------------ ------------
Income before income taxes........................ 4,966,811 5,389,486 4,473,165
Provision for income taxes........................ 2,080,024 470,141 1,876,730
------------ ------------ ------------
Net income ........................................ $2,886,787 $4,919,345 $2,596,435
============ ============ ============
Net income per share primary...................... $ .31 $ .50 $ .25
============ ============ ============
Net income per share fully diluted................ $ .30 $ .50 $ .25
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
ARE AN INTEGRAL PART HEREOF.
F-4
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Paid In Retained Treasury Translation
Stock Capital Earnings Stock Adjustment Totals
-------- ---------- -------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $106,227 $25,595,439 $ 9,387,626 $(700,000) $(397,546) $33,991,746
Net income 2,596,435 2,596,435
Dividends (1,271,798) (1,271,798)
Employee stock options 93,928 93,928
Issuance of common stock 145 1,305 1,450
Common stock offering costs (8,962) (8,962)
Purchase of treasury stock (2,545,075) (2,545,075)
Foreign currency translation
adjustment 176,680 176,680
---------- ------------ ------------- ----------- ---------- ----------
Balance, December 31, 1994 106,372 25,681,710 10,712,263 (3,245,075) (220,866) 33,034,404
Net income 4,919,345 4,919,345
Dividends (975,200) (975,200)
Employee stock options 95,372 95,372
Issuance of treasury stock (52,700) 54,250 1,550
Purchase of treasury stock (2,023,710) (2,023,710)
Foreign currency translation
adjustment (593,516) (593,516)
---------- ------------ ------------- ----------- ---------- ----------
Balance, December 31, 1995 106,372 25,724,382 14,656,408 (5,214,535) (814,382) 34,458,245
Net income 2,886,787 2,886,787
Dividends (932,018) (932,018)
Employee stock options and
purchase plans 303,465 303,465
Issuance of treasury stock (151,959) 1,062,458 910,499
Issuance of common stock 1,262 235,516 236,778
Foreign currency translation
adjustment (12,466) (12,466)
---------- ------------ ------------- ----------- ---------- ----------
Balance, December 31, 1996 $ 107,634 $26,111,404 $16,611,177 $(4,152,077) $(826,848) $37,851,290
=========== ============ ============= ============ ========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
F-5
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,886,787 $4,919,345 $2,596,435
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 855,016 735,948 617,527
Foreign currency translation adjustment (12,466) (593,516) 176,680
Issuance of stock options 303,465 95,372 93,928
Change in unrealized loss (appreciation) on investments 14,958 (992,440) 1,287,918
Changes in assets and liabilities:
Securities owned, net (47,438) 135,587 (180,062)
Receivable from correspondent brokers and dealers (1,414,426) 655,958 4,652,938
Receivable from customers (436,326) - -
Payable to customers 229,367 - -
Deferred research/services expense 237,009 (320,879) (164,523)
Other assets (46,902) (2,325) (781,483)
Payable to brokers and dealers 478,277 (48,156) 23,870
Accrued research/services payable 1,706,186 208,613 230,280
Accrued compensation 2,012,684 989,419 780,356
Accrued expenses (1,601,539) 2,087,903 99,976
Other liabilities 198,224 (150,478) (615,603)
------- --------- ---------
Net cash provided by operations 5,362,876 7,720,351 8,818,237
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government obligations (5,104,758) 1,492,975 7,130,381
Investment in limited partnership 605,842 346,543 -
Investment in securities 649,018 1,990,024 (1,644,916)
Acquisition of exchange seat (511,272) - -
Purchase of equipment, furniture and leasehold
improvements (1,024,440) (817,106) (316,142)
----------- ---------- ------------
Net cash (used in) provided by investing activities (5,385,610) 3,012,436 5,169,323
----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (932,018) (975,200) (1,271,798)
Treasury stock purchased - (2,023,710) (2,545,075)
Issuance of treasury stock 910,499 1,550 -
Issuance of common stock 236,778 - 1,450
Short term bank loans payable - - (4,382,387)
Subordinated debentures - - 62,500
Common stock offering costs - - (8,962)
------------- ----------- --------------
Net cash provided by(used in) financing activities 215,259 (2,997,360) (8,144,272)
----------- --------- ------------
Net increase in cash and equivalents 192,525 7,735,427 5,843,288
Cash and equivalents beginning of period 18,115,361 10,379,934 4,536,646
Cash and equivalents end of period $18,307,886 $18,115,361 $10,379,934
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid: $ 40,767 $ 116,957 $ 156,134
Taxes paid: $ 1,419,169 $ 753,704 $2,489,047
</TABLE>
- Non cash item: 1996 conversion of subordinated debenture to common
stock was $62,500.
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
F-6
<PAGE>
HOENIG GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying Financial Statements include the accounts of Hoenig Group
Inc. and its wholly-owned subsidiaries Hoenig & Co., Inc. ("Hoenig"), Hoenig &
Company Limited ("Limited"), Hoenig (Far East) Limited ("Far East") and
Axe-Houghton Associates, Inc. ("Axe-Houghton") referred to as the "Company".
The Company, through its wholly-owned brokerage subsidiaries, provides global
securities brokerage, marketing and distribution of proprietary and independent
third-party research and other related services to institutional clients. The
Company's wholly-owned investment management subsidiary provides professional
investment management to public and corporate employee benefit plans,
investment partnerships and other institutional clients. All material
intercompany accounts and transactions have been eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies followed by the Company in the preparation of its financial
statements:
Securities transactions and the related revenues and expenses are
recorded on a trade date basis. Securities owned are recorded at market value.
Unrealized gains and losses are reflected in the Statement of Income.
Independent research and directed brokerage arrangements are accounted
for on an accrual basis in accordance with generally accepted accounting
principles. Commission revenue is recorded when earned on a trade date basis.
Deferred research/services expense and accrued research/services payable
pursuant to these arrangements are accounted for on a customer-by-customer
basis and separately identified on the Statement of Financial Condition.
Included in accrued research/services payable and in the Company's Statement of
Income under Independent Research and Services are accruals for commission
refunds and services to be provided under directed brokerage arrangements as
well as for independent research services provided in accordance with Section
28(e) of the Securities Exchange Act of 1934.
The preparation of the consolidated 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 disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of consolidated
revenues and expenses during those periods. Actual results could differ from
those estimates.
Furniture, equipment and leasehold improvements are stated at cost,
net of accumulated depreciation and amortization, computed using the
straight-line method. Depreciation of furniture and equipment is provided over
estimated useful lives ranging from three to seven years. Leasehold
improvements are amortized over the shorter of their useful lives or the
remainder of the term of the related lease.
F-7
<PAGE>
EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements are summarized as follows:
December 31,
--------------------------
1996 1995
---- ----
Equipment $2,051,843 $1,428,852
Furniture 833,040 830,815
Leasehold Improvements 1,096,613 1,011,119
---------- ----------
Total 3,981,496 3,270,786
Less: Accumulated depreciation and amortization (1,890,847) (1,349,561)
---------- ----------
$2,090,649 $1,921,225
========== ==========
Assets and liabilities of Limited, Far East and Hoenig's branch office
in Tokyo are translated at year-end rates of exchange, and revenues and
expenses are translated at average rates of exchange during the year. Gains or
losses from foreign currency transactions are included in net income. Gains or
losses resulting from translating foreign currency financial statements are
accumulated in a separate component of stockholders' equity.
For the purposes of the Statement of Cash Flows, the Company considers
money market funds and certificates of deposit with maturities of three months
or less when acquired to be cash equivalents.
Investments in limited partnerships are accounted for under the equity
method.
The Company uses the asset and liability method for accounting for
income taxes (Statement of Financial Accounting Standard 109).
The Financial Accounting Standards Board has adopted Statement of
Financial Accounting Standard No. 123, effective for fiscal years that begin
after December 15, 1995. The Company has adopted the pro-forma disclosure
requirements of this standard.
Amounts due from correspondent brokers and dealers represent net
commissions and other brokerage transactions earned but not yet paid. All
receivables from correspondent brokers and dealers are fully collectible,
therefore no provision for uncollectibles is required. Receivables from and
payables to customers represent amounts due on cash securities transactions.
3. COMMITMENTS. The Company has leases covering office space and automobiles
which expire or are terminable on various dates through 2002. Future minimum
annual rental payments under these leases approximate $905,000 in 1997,
$717,000 in 1998, $452,000 in 1999, $302,000 in 2000 and 2001 and $126,000
thereafter. Various leases contain provisions for escalation based on increases
in certain costs incurred by the landlord. The composition of total rental
expense for the years ended December 1996, 1995 and 1994 was as follows:
1996 1995 1994
---- ---- ----
Minimum rentals $ 925,000 $ 676,000 $626,000
Contingent rentals 155,000 223,000 165,000
------- ------- -------
Total rental expense $1,080,000 $899,000 $791,000
========== ======== ========
F-8
<PAGE>
Pursuant to employment agreements expiring on December 31, 1999 and
December 31, 1998, the Company is obligated to pay two executive officers
aggregate minimum annual compensation of $1,250,000. Pursuant to an
employment agreement expiring December 31, 1998, Hoenig is obligated to pay
one employee aggregate minimum compensation of $175,000. Axe-Houghton is
obligated to pay seven individuals aggregate minimum annual compensation of
$1,020,000 pursuant to employment agreements expiring on April 8, 1998.
The Company and each of the holders of Common Stock outstanding prior
to the Company's 1991 initial public offering have entered into a shareholders'
agreement whereby upon the death of each such holder, the shareholder's estate
has an option to sell shares of Common Stock to the Company at a price equal to
10% below the market value of these shares, as defined. The Company is
obligated to purchase the number of shares of Common Stock which results in an
aggregate purchase price equal to the greater of the actual insurance proceeds
received by the Company or $1,000,000. The Company is the beneficiary of life
insurance policies on certain shareholders to cover its liability under these
shareholder agreements.
4. NET CAPITAL AND RESERVE REQUIREMENTS. Hoenig is subject to the Uniform Net
Capital Rule (Rule 15c3- 1) under the Securities Exchange Act of 1934. This
rule requires that the Company maintain net capital of the greater of $100,000
or one fifteenth of aggregate indebtedness as defined. At December 31, 1996,
Hoenig's net capital ratio was .67 to 1 and its net capital was approximately
$11,438,000, which was approximately $10,926,000 in excess of regulatory
requirements. Hoenig's Tokyo office (a branch of Hoenig & Co., Inc.) capital
requirement at December 31, 1996 was (Y)78,000,000 ($673,000). Limited is
required to maintain financial resources, as defined, of at least 110% of its
capital requirement. Limited's financial resources requirement at December 31,
1996, was (pounds sterling)318,000 ($545,000). It had excess financial
resources at such
date of (pounds sterling)834,000 ($1,428,000). Far East is required to
maintain liquid
capital of the greater of HK$ 3,000,000 ($388,000) or 5% of the average
quarterly liabilities. Far East's required liquid capital was approximately
HK$10,851,000 ($1,403,000) at December 31, 1996, and it had excess liquid
capital of approximately HK$ 11,191,000 ($1,447,000).
5. PENSION PLAN. The Company has defined contribution plans covering
substantially all of its regular employees. Contributions under these plans are
made annually at the discretion of management. Contributions were approximately
$423,000 for 1996, $237,000 for 1995, and $245,000 for 1994.
6. CONCENTRATION OF CREDIT RISK. Hoenig, Far East and Limited are securities
broker-dealers engaged in various trading and brokerage activities on behalf of
institutional customers, including insurance companies, pension plans, mutual
funds, limited partnerships and other financial institutions on an agency and
riskless principal basis only. Their exposure to off balance sheet credit risk
occurs in the event a customer, clearing agent or counterparty does not fulfill
its obligations arising from a transaction. The agreement between Hoenig and
its clearing broker provides that Hoenig is obligated to assume any exposure
related to nonperformance by its customers. Hoenig monitors its customer
brokerage activity by reviewing information it receives from its clearing
brokers on a daily basis.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS. Substantially all of the Company's
financial instrument assets and liabilities are carried at fair value or
contracted amounts which approximate fair value.
8. INCOME TAXES. The Company and its U.S. affiliates file consolidated Federal
and combined New York State and New York City income tax returns. Deferred
income taxes are recorded to reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end. The primary differences are deferred
compensation charges and unrealized losses and gains on investments.
F-9
<PAGE>
Income from operations before provision for taxes on income is
comprised of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $4,434,054 $5,702,415 $3,470,058
Foreign 532,757 (312,929) 1,003,107
------- --------- ----------
$4,966,811 $5,389,486 $4,473,165
========== ========== ==========
The provision for taxes on income from operations consists of:
1996 1995 1994
---- ---- ----
Current tax expense (benefit)
Federal $1,418,766 $ (70,208) $1,732,986
State and local 489,704 70,037 673,025
Foreign 15,021 (21,646) 323,853
------ -------- ----------
Total current provision (benefit) 1,923,491 (21,817) 2,729,864
--------- -------- ---------
Deferred tax expense (benefit) 156,533 491,958 (853,134)
------- ------- ---------
Total $2,080,024 $470,141 $1,876,730
========== ======== ==========
Deferred taxes are comprised of the following:
1996 1995 1994
ASSETS ASSETS ASSETS
(LIABILITIES) (LIABILITIES) (LIABILITIES)
------------- ------------- -------------
Current assets and liabilities
Fixed assets $157,688 $159,994 $107,604
Accrued compensation 301,451 526,042 106,567
Investments - - 433,005
Other 34,344 85,885 119,345
------ ------ --------
Gross deferred assets 493,483 771,921 766,521
Deferred tax liabilities - Investments (393,059) (497,358) -
--------- --------- --------
Net deferred taxes receivable $100,424 $ 274,563 $766,521
======== ========== ========
</TABLE>
The provision for taxes on income for the years ended December 31,
1996, 1995 and 1994, differed from the amount computed by applying the
statutory federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed tax provision $1,688,716 $ 1,832,425 $1,520,876
Insurance proceeds - (1,878,531) -
State and local taxes net of
federal benefit 277,821 53,063 280,218
Differential on foreign tax rates 166,116 84,749 52,311
Other (52,629) 378,435 23,325
-------- ------- ------------
Totals $2,080,024 $ 470,141 $1,876,730
========== ======== ==========
Effective tax rate 41.9% 8.7% 42.0%
============ =========== ============
</TABLE>
F-10
<PAGE>
9. SHORT-TERM BORROWINGS. The Company has a committed line of credit
aggregating $7,000,000 of which $2,000,000 is secured by certain U.S.
Government obligations and $5,000,000 is unsecured. The line was not utilized
at December 31, 1996 and 1995. Interest is paid at a variable rate of the
Federal Funds rate plus 1%.
In addition, the Company maintains overseas overdraft facilities as
follows: (1) (pounds sterling)2,200,000 (approximately $3,767,000)
which bears a variable
rate of interest based upon prevailing market rates in the U.K. and Europe; and
(2) HK$ 50,000,000 (approximately $6,465,000) which bears a variable rate of
interest based upon current market rates in Hong Kong. The balance outstanding
as of December 31, 1996 was $29,570. The lines were not utilized as of December
31, 1995.
10. GEOGRAPHIC AREA DATA/MAJOR CUSTOMERS. The Company's brokerage subsidiaries
provide independent third-party and proprietary research, securities brokerage
and other services primarily to institutional clients from its United States,
United Kingdom, Hong Kong and Tokyo offices. The Company's wholly-owned asset
management subsidiary provides professional investment management to public and
corporate employee benefit plans, investment partnerships and other
institutional clients. The table below summarizes the Company's operations by
geographic region and location. The following assumptions were made when
computing the information below.
Operating Revenues by brokerage location includes commissions from
unaffiliated customers of the location indicated and other operating revenues
earned by the location. Operating Revenues by geographic region represents
commissions and other operating revenues based on transactions executed in
markets within the geographic region. Operating revenues for asset management
include fees earned by the Company's asset management subsidiary. Operating
profit is calculated based on total operating revenues less operating expenses
by location. In computing operating profit, corporate expenses have not been
allocated to the locations.
Assets are those used primarily by each location. General corporate
assets primarily include loan receivables, cash surrender value of life
insurance policies, certain fixed assets and intangibles.
OPERATING REVENUES BY LOCATION: 1
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States brokerage $42,250,929 $37,033,664 $44,752,693
United Kingdom brokerage 8,685,138 8,637,830 8,643,144
Far East brokerage 13,477,758 4,822,045 4,216,603
---------- --------- ------------
Total Brokerage 64,413,825 50,493,539 57,612,440
Asset management 5,616,415 3,033,856 1,433,135
--------- --------- ---------
Total $70,030,240 $53,527,395 $59,045,575
=========== =========== ===========
OPERATING REVENUES BY GEOGRAPHIC REGION: 1
1996 1995 1994
---- ---- ----
United States brokerage $43,607,954 $37,912,263 $41,945,329
United Kingdom brokerage 3,809,105 4,110,242 4,722,325
Far East brokerage 16,996,766 8,471,034 10,944,786
---------- --------- ----------
Total Brokerage 64,413,825 50,493,539 57,612,440
Asset management 5,616,415 3,033,856 1,433,135
--------- --------- ---------
Total $70,030,240 $53,527,395 $59,045,575
=========== =========== ===========
F-11
<PAGE>
1996 1995 1994
---- ---- ----
OPERATING PROFITS BY LOCATION: 1
United States brokerage $5,284,621 $2,483,750 $7,380,583
United Kingdom brokerage (227,683) (96,522) 551,612
Far East brokerage 258,004 (1,409,934) (370,279)
------- ----------- ---------
Total Brokerage 5,314,942 977,294 7,561,916
Asset management 744,368 (613,685) (902,127)
Interest expense (74,766) (116,957) (151,059)
General corporate expenses (2,754,622) (2,108,764) (1,915,003)
----------- ----------- -----------
Total $3,229,922 $(1,862,112) $4,593,727
========== ============ ==========
ASSETS:1
1996 1995 1994
---- ---- ----
United States brokerage $34,257,830 $30,992,930 $28,433,109
United Kingdom brokerage 3,995,605 3,565,816 4,578,352
Far East brokerage 9,241,618 7,196,570 4,436,724
--------- --------- ---------
Total Brokerage 47,495,053 41,755,316 37,448,185
Asset management 2,390,227 1,792,313 1,029,253
General corporate 1,642,615 1,587,846 2,095,798
--------- --------- ---------
Total $51,527,895 $45,135,475 $40,573,236
=========== =========== ===========
</TABLE>
1 Certain reclassifications have been made to periods prior to 1996 to conform
to the 1996 presentation.
No one single customer accounted for greater than 10% of total revenues
for the years ended December 31, 1996, 1995 and 1994.
11. STOCKHOLDERS' EQUITY. The Company, which was incorporated in Delaware in
August 1991, has 40,000,000 authorized shares of common stock with a par value
of $.01 per share and 1,000,000 authorized shares of preferred stock with a par
value of $.01 per share.
The Board of Directors of the Company has the power, without further
action by the shareholders, to issue 1,000,000 shares of preferred stock as a
class without series, or in one or more series, and to fix the voting rights,
designations, preferences and relative, participating, optional, and other
special rights, and the qualifications, limitations and restrictions applicable
thereto. As of December 31, 1996, no preferred stock had been issued.
During the fourth quarter 1992, the Company's Board of Directors approved
a stock repurchase program which would enable the Company to repurchase up to
one million shares of its Common Stock from time to time. In November 1994, the
Company's Board of Directors authorized management to repurchase, from time to
time, an additional one million shares of Common Stock in open market and
private transactions. As of December 31, 1996, the Company had repurchased (net
of shares reissued out of Treasury Stock) a total of 1,239,540 shares of Common
Stock in open market and private transactions at a total cost of $4,152,077.
12.STOCK OPTIONS. The Company has three compensation plans which provide for
stock-based awards, the 1994 Stock Option plan (the "1994 Plan"), the 1991
Stock Option plan (the "1991 Plan"), and the 1996 Long Term Stock Incentive
Plan (the "1996 Plan"). The 1994 Plan provides for an aggregate of up to
1,000,000 shares of Common Stock to be made available for the grant of stock
options. Stock options may be either U.S. Stock Options (which may be either
incentive stock options that qualify for certain tax treatment under the
Internal Revenue Code or non-qualified options) or U.K. Stock Options (which
meet certain qualifications and
F-12
<PAGE>
are intended to qualify for favorable treatment under the tax laws of the
United Kingdom). The component of the 1994 Plan regarding U.K. Stock Options
has been approved by the United Kingdom Board of Inland Revenue under the
Income and Corporation Taxes Act of 1988.
The 1991 Stock Option Plan consists of the U.S. Plan (the "U.S. Plan")
and the 1991 UK Approved Stock Option Plan (the "UK Plan") (collectively the
"1991 Plan") pursuant to which options to purchase the Company's Common Stock
may be granted. The U.S. Plan includes a component which conforms to the
requirements of the Internal Revenue Code (the "Incentive Plan") and also
includes a component which does not conform to the requirements of the Code
(the "Non-Qualified Plan"). The UK Plan has been approved by the United Kingdom
Board of Inland Revenue under the Income and Corporation Taxes Act of 1988. A
total of 2,000,000 shares of Common Stock initially were reserved for issuance
upon exercise of options that may be granted under the 1994 Plan and the 1991
Plan.
The 1996 Long-Term Stock Incentive Plan provides for the Company to award
or grant to directors, officers and other key employees and consultants of the
Company and its subsidiaries, U.S. stock options, U.K. stock options, SARs,
restricted stock, deferred stock and stock granted as a bonus or in lieu of
other awards as authorized by the Compensation and Stock Option Committee.
The 1996 Incentive Plan was adopted by the Board on November 14, 1996, subject
to stockholder approval at the 1997 Annual Meeting of Stockholders. Upon
approval of the 1996 Incentive Plan by stockholders, the 1991 Plan and 1994
Plan will be merged into the 1996 Incentive Plan. The total amount of shares
reserved under the 1996 Incentive Plan shall be the aggregate of 1,000,000
shares plus the number of shares of stock that otherwise would have been
available under the Company's 1991 Plan and 1994 Plan.
Transactions related to Incentive Stock Options and U.K. Stock Options granted
under the 1994, 1991 and the 1996 Plans were as follows:
<TABLE>
<CAPTION>
WEIGHTED NUMBER
NUMBER OF OPTION PRICE AVERAGE OF SHARES
SHARES PER SHARE PER SHARE EXERCISABLE
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1993 436,800 4.625-6.325 .31 336,800
=======
Granted . . . . . . 101,000 3.75-4.750 4.55
Expired . . . . . . (14,200) 4.84
-------- ----
Outstanding at December 31, 1994 523,600 3.875-6.325 5.18 443,600
=======
Granted . . . . . 178,667 2.813-4.000 3.87
Expired. . . . . . (104,900) 5.04
--------- ----
Outstanding at December 31, 1995 597,367 2.813-6.325 4.70 353,700
=======
Granted . . . . . . 253,334 3.625-4.750 3.91
Expired . . . . . . (208,200) 5.46
---------- ----
Outstanding at December 31, 1996 642,501 2.813-5.750 $4.24 311,389
======= =========== ===== =======
F-13
<PAGE>
Transactions related to Non-Qualified Stock Options granted pursuant to the
1994, 1991 and the 1996 Plans were as follows:
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED NUMBER
NUMBER OF OPTION PRICE AVERAGE OF SHARES
SHARES PER SHARE PER SHARE EXERCISABLE
--------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 90,500 .10-4.688 .10 39,500
======
Granted . . . . . . . 11,000 3.625-4.688 4.11
Exercised . . . . . . . (14,500) .10 .10
------- ---
Outstanding at December 31, 1994 87,000 .10 - 4.688 .87 53,000
======
Granted . . . . . . . 19,333 .10-4.125 1.35
Exercised . . . . . . (15,500) .10 .10
Expired . . . . . . . (23,000) 2.09
------ -----
Outstanding at December 31, 1995 67,833 .10-4.688 .77 42,500
======
Granted . . . . . . 941,666 .10-5.00 4.33
Exercised . . . . . (42,500) .10 .10
Expired . . . . . . (2,000) 3.625
------- -----
Outstanding at December 31, 1996 964,999 .10-5.00 $4.27 151,945
======== ====== =======
Under the Company's 1991 and 1994 Plans incentive stock options and U.K.
stock options to purchase 642,501 shares were outstanding, but due to vesting
requirements, 331,112 shares were not exercisable at December 31, 1996.
Non-qualified stock options to purchase 964,999 shares were outstanding, but
due to certain vesting requirements, 813,054 shares were not exercisable at
December 31, 1996.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
fair value of stock options granted under the 1991, 1994 and 1996 Plans. Had
compensation cost for stock options granted under the Plans been determined
based on the fair value at the grant date for awards consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net Income - as reported $2,886,787 $4,919,345
========== ==========
Net Income - pro forma $2,541,407 $4,768,850
========== ==========
Earnings per share - as reported $ .31 $ .50
========== ==========
Earnings per share - pro forma $ .27 $ .49
=========== ===========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in 1995-1996: dividend yield of 2.0%, expected volatility is
calculated at the time of grant, risk-free interest rate of 6.0%-6.5% and
expected lives of 5 years.
13. STOCK PURCHASE PLAN. The Company adopted the 1996 Employee Stock Purchase
Plan on May 15, 1996. The plan allows those eligible United States employees to
purchase shares of the Company's common stock at
F-14
<PAGE>
85% of the fair market value at specified dates. At December 31, 1996, 56
employees were eligible to participate in the Employee Stock Purchase Plan. A
total of 53,500 shares of stock were purchased at a price of $3.45 per share.
The maximum number of shares to be issued under this plan is 500,000. As of
December 31, 1996, 446,500 shares remain available for issuance under this
plan.
14. EARNINGS PER SHARE. Earnings per share was based on the weighted average
number of common shares outstanding using the treasury stock method. The
average number of shares and equivalent shares outstanding for the year ended
December 31, 1996, was 9,391,116. The average number of shares for the years
ended December 31, 1995 and December 31, 1994 were 9,808,078 and 10,263,014,
respectively.
15. 1995 INSURANCE PROCEEDS. The Company received net life insurance proceeds
of $4,446,334 following the death of Ronald H. Hoenig, the Company's former
Chairman and Chief Executive Officer. Pursuant to an Employment Agreement
between Ronald H. Hoenig and the Company dated November 7, 1991, the estate of
Ronald H. Hoenig (the "Estate") was entitled to certain payments by reason of
Mr. Hoenig's death. In addition, the Company was obligated to pay to the Estate
a death benefit equal to the average of the last three years' annual
compensation, including base salary and bonus. The remaining amount due at
December 31, 1996, is approximately $571,000, which is payable in installments
over two years.
The receipt of insurance proceeds net of expenses of $4,446,334 had a
$.45 effect on the Company's earnings per share for 1995.
16. SUBSEQUENT EVENTS. On January 14, 1997, the Company adopted a Stockholders
Rights Plan in which rights will be distributed as a dividend at the rate of
one right for each share of common stock, par value $0.01 per share, of the
Company held by stockholders of record as of the close of business on January
31, 1997. The Rights Plan was not adopted in response to any effort to acquire
control of the Company. However, it is designed to deter coercive takeover
tactics, including the accumulation of shares in the open market or through
private transactions, and to prevent an acquiror from gaining control of the
Company without offering a fair and adequate price to all of the Company's
stockholders. The rights expire on January 14, 2007. Each right initially will
entitle stockholders to buy one unit of a share of preferred stock for $18. The
rights generally will be exercisable only if a person or group acquires
beneficial ownership of 20% or more of the Company's common stock or commences
a tender or exchange offer upon consummation of which such person or group
would beneficially own 20% or more of the Company's common stock. The Company
will generally be entitled to redeem the rights at $0.01 per right at any time
until 10 days following a public announcement that a 20% position in the
Company's common stock has been acquired.
On February 20, 1997, the Company's Board of Directors voted to
discontinue the payment of regular quarterly dividends of $0.025 per share.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Hoenig Group Inc.
By: /s/ Fredric P. Sapirstein
--------------------------
Fredric Sapirstein
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Fredric P. Sapirstein Chairman, Chief Executive March 31, 1997
- -------------------------------- Officer and Director
Fredric P. Sapirstein
/s/ Alan B. Herzog Chief Operating Officer, March 31, 1997
- -------------------------------- Principal Financial/Accounting
Alan B. Herzog Officer and Director
/s/ Max H. Levine Executive Vice President March 31, 1997
- -------------------------------- and Director
Max H. Levine
/s/ Kathryn L. Hoenig Secretary, March 31, 1997
- -------------------------------- General Counsel and Director
Kathryn L. Hoenig
/s/ Joseph A. D'Andrea Director March 31, 1997
- --------------------------------
Joseph A. D'Andrea
/s/ Robert L. Cooney Director March 31, 1997
- --------------------------------
Robert L. Cooney
/s/ Nicholas E.E. DeStefano Director March 31, 1997
- --------------------------------
Nicholas E.E. DeStefano
/s/ Robert F. Donahue Director March 31, 1997
- --------------------------------
Robert F. Donahue
/s/ Martin F.C. Emmett Director March 31, 1997
- --------------------------------
Martin F.C. Emmett
/s/ Robert Spiegel Director March 31, 1997
- --------------------------------
Robert Spiegel
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation
10.9 Employment Agreement between the Registrant and Max H. Levine dated
November 25, 1996.
10.10 Separation Agreement between the Registrant and J. Richard Walton, dated
October 31, 1996.
10.11 Section 162(m) Cash Bonus Plan.
10.12 Hoenig Group Inc. Long-Term Stock Incentive Plan.
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consents of Experts and Counsel
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HOENIG GROUP INC.
FIRST
The name of the corporation is Hoenig Group Inc.
(hereinafter called the "Corporation").
SECOND
The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle; and its registered agent at such address is The
Corporation Trust Company.
THIRD
The business and purposes of the Corporation are to engage
in, carry on and conduct any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware (the
"GCL").
FOURTH
Section 1. The total number of shares which the Corporation
shall have authority to issue is forty million (40,000,000) shares of Common
Stock, par value $.01 per share (the "Common Stock") and one million
(1,000,000) shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). The Common Stock shall be entitled to one vote per
<PAGE>
share, and each share shall be identical in all respects. The holders of
capital stock of the Corporation shall not have any preemptive rights.
Section 2. The Board of Directors of the Corporation (the
"Board of Directors") is expressly vested with authority to issue the Preferred
Stock from time to time in one or more series of such rank and with such
distinctive serial designations as may be stated or expressed in the resolution
or resolutions providing for the issue of such stock, and in such resolution or
resolutions providing for the issue of shares of each particular series. The
Board of Directors is also expressly vested with authority to fix the number of
shares constituting such series and to fix:
(a) the rate and times at which, and the conditions under
which, dividends shall be payable on shares of such series, and the status of
such dividends as cumulative or noncumulative and as participating or
nonparticipating;
(b) the price or prices, times and terms and conditions, if
any, upon which or at which shares of such series shall be subject to
redemption;
(c) the rights, if any, of holders of shares of such series
to convert such shares into, or to exchange such shares for, shares of other
classes of stock, or series thereof, of the Corporation and the terms and
conditions of such conversion or exchange;
(d) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of such series;
2
<PAGE>
(e) the rights of the holders of shares of such series upon
the liquidation, dissolution or winding up of the affairs of, or upon
distribution of the assets of, the Corporation;
(f) the limitations, if any, applicable while such series is
outstanding, on the payment of dividends or making of distributions on, or the
acquisition of, or the use of moneys for, the purchase of the Common Stock;
(g) the full or limited voting rights, if any, to be provided
for shares of such series; and
(h) any other preferences and relative, participating,
optional or other such special rights, and the qualifications, limitations or
restrictions thereof, of shares of such series; so far as not inconsistent with
the provisions of the Certificate of Incorporation, as amended to the date of
such resolution or resolutions, and to the full extent now or hereafter
permitted by the laws of the State of Delaware.
The Board of Directors is also expressly vested with
authority to amend any of the provisions of any resolution or resolutions
providing for the issue of any series of Preferred Stock, subject to any class
voting rights of the holders of any series of Preferred Stock contained in the
resolution or resolutions providing for the issue of such series and subject to
the requirements of the laws of the State of Delaware.
FIFTH
The name and mailing address of the incorporator is:
3
<PAGE>
Donna M. Dellechiaie
100 Maiden Lane
New York, New York 10038
SIXTH
The names and addresses of the persons who are to initially
serve as directors in accordance with the Article NINTH hereof are:
Ronald H. Hoenig
770 Lexington Avenue
New York, New York 10021
Max H. Levine
770 Lexington Avenue
New York, New York 10021
Alan B. Herzog
770 Lexington Avenue
New York, New York 10021
Robert F. Donahue
770 Lexington Avenue
New York, New York 10021
Robert Spiegel
770 Lexington Avenue
New York, New York 10021
Nigel Johnson-Hill
770 Lexington Avenue
New York, New York 10021
SEVENTH
The Board of Directors is authorized to make, alter or repeal
the by-laws of the Corporation (the "By-Laws").
4
<PAGE>
EIGHTH
Section 1. Indemnification by Corporation. The Corporation
shall indemnify and advance expenses to any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted by the GCL.
Section 2. Insurance. By action of the Board of Directors,
notwithstanding an interest of the directors in the action, the Corporation may
purchase and maintain insurance, in such amounts as the Board of Directors
deems appropriate, on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation shall have
the power to indemnify him against such liability under the provisions of this
Article.
Section 3. Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that this
limitation shall not eliminate or limit the liability of the directors (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional
5
<PAGE>
misconduct or a knowing violation of law, (iii) under Section 174 of the GCL,
or (iv) for any transaction from which the director derived an improper
personal benefit.
NINTH
Section 1. The business of the Corporation shall be managed
under the direction of the Board of Directors in accordance with the following.
The Board of Directors shall consist of the number of directors determined from
time to time by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors. The initial number of directors comprising the Board
of Directors shall be six.
Section 2. The directors shall be divided into three classes,
designated Class I, Class II and Class III. All classes shall be as nearly
equal in number as possible. The initial Class I directors shall be Alan B.
Herzog and Robert Spiegel; the initial Class II directors shall be Max H.
Levine and Robert F. Donahue; and the initial Class III directors shall be
Nigel Johnson-Hill and Ronald H. Hoenig. The terms of office of the directors
initially classified shall be as follows: at the 1992 annual meeting of
stockholders, Class I directors shall be elected for a three year term; at the
1993 annual meeting of stockholders, Class II directors shall be elected for a
three year term; and at the 1994 annual meeting of stockholders, Class III
directors shall be elected for a three year term. At each annual meeting of
stockholders after such initial classification, directors to replace those
whose terms expire at such annual meeting shall be elected to hold office until
the third succeeding annual meeting. Each
6
<PAGE>
director shall hold office until the expiration of his term and until his
successor is elected and qualified or until his earlier death, resignation or
removal.
Section 3. A director elected to fill a vacancy shall be
elected to hold office until the next election of the Class for which such
director shall have been chosen, and until his successor shall be elected and
qualified.
Section 4. Newly created directorships resulting from an
increase in the number of directors and vacancies occurring in the Board of
Directors for any reason may be filled only by vote of the Board of Directors.
If the number of directors then in office is less than a quorum, such newly
created directorships and vacancies may be filled by a majority of the
directors then in office. The Board of Directors shall designate the Class for
each newly created director.
Section 5. Any director may be removed for cause by action of
a majority of the Board of Directors and may be removed without cause by action
of two-thirds of the Board of Directors. Any director may also be removed for
cause (but not without cause) by the affirmative vote of the holders of at
least 80% of the outstanding shares entitled to vote thereon. Except as may be
otherwise provided by law, cause for removal shall be construed to exist only
if the director whose removal shall be proposed shall have been convicted of a
felony by a court of competent jurisdiction, or shall have been adjudged by a
court of competent jurisdiction to be liable for negligence or misconduct in
the performance of his duty to the Corporation in a matter of substantial
importance to the Corporation.
7
<PAGE>
Section 6. During the period when the holders of any one or
more series of Preferred Stock, if any, voting as a class, shall be entitled to
elect a specified number of directors by reason of dividend arrearages or other
contingencies giving them the right to do so, then and during such time as such
right shall continue to be effective: (1) the then otherwise authorized number
of directors constituting the entire Board of Directors shall be increased by
such specified number of directors and the holders of such Preferred Stock
shall be entitled to elect the additional directors so provided for, pursuant
to the provisions of such Preferred Stock; (2) each such additional director
shall not be a member of one of the three classes of directors provided for in
Section 2 of this Article NINTH, but shall serve only until the next annual
stockholders' meeting or until his successor shall have been elected and
qualified, or until his right to hold such office shall terminate pursuant to
the provisions of such Preferred Stock, whichever shall be earlier; and (3)
whenever the holders of such Preferred Stock shall be divested of such right to
elect a specified number of directors pursuant to the provisions of such
Preferred Stock, the terms of office of all directors elected by the holders of
such Preferred Stock pursuant to such provisions, or elected to fill any
vacancies resulting from the death, resignation or removal of directors so
elected by the holders of such Preferred Stock, shall forthwith terminate and
the authorized number of directors constituting the entire Board of Directors
shall be reduced accordingly.
8
<PAGE>
TENTH
No action required or permitted to be taken at any annual or
special meeting of the stockholders of the Corporation may be taken without a
meeting, and the power of the stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
ELEVENTH
Nominations for the election of directors may be made only as
provided in the By-Laws. Advance notice of nomination for the election of
directors as well as for other stockholder proposals to be considered at an
annual or special meeting of stockholders, other than by the Board of Directors
or a committee thereof, shall be given within the time and in the manner
provided in the Corporation's By-Laws.
TWELFTH
After the Corporation has received payment for any of its
capital stock, the provisions of Articles FOURTH, SEVENTH, EIGHTH, NINTH,
TENTH, ELEVENTH and TWELFTH of this Certificate of Incorporation, and the
provisions of Article II, Section 6 of the By-Laws, may be amended, altered,
changed or repealed and any provision inconsistent therewith may be adopted,
only by the affirmative vote of the holders of at least two-thirds of all
outstanding shares of stock of the Corporation entitled to vote thereon.
I, THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of
9
<PAGE>
Delaware, do make this certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 22 day of August, 1991.
/s/ Donna M. Dellechiaie
----------------------------
Donna M. Dellechiaie
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
OF
HOENIG GROUP INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Fredric P. Sapirstein, Chairman of the Board, and Kathryn
L. Hoenig, Secretary, of Hoenig Group Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the said
Board of Directors on January 14, 1997, adopted the following resolution
creating a series of 150,000 shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 150,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and superior to
the shares of
<PAGE>
Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the fifteenth day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $0.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after January 14, 1997 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series A
2
<PAGE>
Junior Participating Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to one hundred (100) votes on all matters submitted
to a vote of the stockholders of the Corporation. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to which
holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and
3
<PAGE>
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any
Series A Junior Participating Preferred Stock shall be in
arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods
and for the current quarterly dividend period on all shares
of Series A Junior Participating Preferred Stock then
outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in
an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the
right to elect two (2) Directors.
(ii) During any default period, such voting
right of the holders of Series A Junior Participating
Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of stockholders, and thereafter
at annual meetings of stockholders, provided that such voting
right shall not be exercised unless the holders of ten
percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such
voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies,
if any, in the Board of Directors as may then exist up to two
(2)
4
<PAGE>
Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may
be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall
have the right to make such increase in the number of
Directors as shall be necessary to permit the election by
them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect
Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased
or decreased except by vote of the holders of Preferred Stock
as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock
shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of special
meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President
or the Secretary of the Corporation. Notice of such meeting
and of any annual meeting at which holders of Preferred Stock
are entitled to vote pursuant to this Paragraph (C)(iii)
shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as
the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number
of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual
meeting of the stockholders.
(iv) In any default period, the holders of
Common Stock, and other classes of stock of the Corporation
if applicable, shall continue to be entitled to elect the
whole number of Directors
5
<PAGE>
until the holders of Preferred Stock shall have exercised
their right to elect two (2) Directors voting as a class,
after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such
holders or until the expiration of the default period, and
(y) any vacancy in the Board of Directors may (except as
provided in Paragraph (C)(ii) of this Section 3) be filled by
vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected
the Director whose office shall have become vacant.
References in this Paragraph (C) to Directors elected by the
holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a
default period, (x) the right of the holders of Preferred
Stock as a class to elect Directors shall cease, (y) the term
of any Directors elected by the holders of Preferred Stock as
a class shall terminate, and (z) the number of Directors
shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any
increase made pursuant to the provisions of Paragraph (C)(ii)
of this Section 3 (such number being subject, however, to
change thereafter in any manner provided by law or in the
certificate of incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses
(y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions,
6
<PAGE>
whether or not declared, on shares of Series A Junior Participating Preferred
Stock outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make
any other distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably
on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Junior Participating
Preferred Stock, or any shares of stock ranking on a parity
with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
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(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preferred"). Following the payment of
the full amount of the Series A Liquidation Preferred, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preferred by (ii) 100 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preferred and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
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(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preferred and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Junior Participating Preferred Stock shall at
the same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
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Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the Corporation's
Preferred Stock as to the payment of dividends and the distribution of assets,
unless the terms of such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred
Stock.
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IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 17th day of January, 1997.
/s/ Fredric P. Sapirstein
-------------------------
Chairman of the Board
Attest:
/s/ Kathryn L. Hoenig
- ----------------------
Secretary
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated November 26, 1996 (this
"Agreement"), by and between Hoenig Group Inc., a Delaware corporation (the
"Company"), and Max H. Levine (the "Executive").
WHEREAS, the Company desires to employ the Executive as
Executive Vice President of the Company and President of Hoenig & Co., Inc.
("Hoenig"), a wholly-owned subsidiary of the Company, and the Executive
desires to be retained in such capacities, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements made herein, the Company and the Executive agree as follows:
1. Employment; Duties.
(a) The Company shall employ the Executive as
Executive Vice President of the Company and President of Hoenig for the
"Employment Period" as defined in Section 2. The Executive, in his capacity as
Executive Vice President of the Company and President of Hoenig, shall have
such duties, responsibilities and authority normally incident to such offices,
subject to the provisions of the bylaws of the Company and Hoenig,
respectively. The precise duties, responsibilities and authority of the
Executive as Executive Vice President of the Company may be expanded, limited
or modified, from time to time, at the discretion of the Board of Directors of
the Company (the "Board") or the Chief Executive Officer of the Company,
consistent with the ordinary duties, responsibilities and authority of such an
Executive Vice President. The precise duties, responsibilities and authority
of the Executive as President of Hoenig may be expanded, limited, or modified
from time to time, at the discretion of the Board of Directors of Hoenig (the
"Hoenig Board") or the Chief Executive Officer of Hoenig, consistent with the
duties, responsibilities and authority of a President.
(b) During the Employment Period, the Executive
shall render his services solely in the performance of his duties hereunder.
The Executive agrees that during the Employment Period, he shall devote his
full working time, attention, knowledge and experience and give his best
effort, skill and abilities, exclusively to promote the business and interests
of the Company and its subsidiaries. The Executive may not serve as an officer
or director of, make investments in, or otherwise participate in, any other
entity without the prior written approval of the Board; provided, that the
foregoing shall not be deemed to prohibit the Executive from acquiring,
directly or indirectly, solely as an investment, not more than two percent
(2%) of any class of securities of any entity that are registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") or investments in non-public entities pursuant to policies and
procedures generally applicable to executives of the Company and its direct or
indirect subsidiaries; and provided further, that so long as it does not
interfere with the
<PAGE>
Executive's employment, the Executive may serve as an officer, director or
otherwise participate in purely educational, welfare, social, religious and
civic organizations.
2. Employment Period. This Agreement shall have a term
commencing January 1, 1997 and ending on December 31, 1998 unless sooner
terminated in accordance with the provisions of Section 4 (the "Employment
Period").
3. Compensation and Benefits. The Executive shall be
entitled to the following compensation and benefits, in each case subject to
applicable statutory withholdings:
(a) Base Compensation. The Executive shall be paid
an aggregate base salary (the "Base Salary") of $400,000 per annum. The Base
Salary shall be payable in a manner consistent with the normal payroll
practices of the Company in effect from time to time. The Board, in its sole
discretion, or at the recommendation of the Compensation and Stock Option
Committee of Hoenig Group Inc. (the "Compensation Committee"), may increase
(but not decrease) the Base Salary, at any time.
(b) Annual Bonus. In addition to the Base Salary,
the Executive shall be entitled to receive an annual bonus for each fiscal
year of the Company that ends during the Employment Period equal to 15% of the
amount of Net Pre-Tax Profits (as defined in Section 3(b)(1) herein) for such
fiscal year (the "Bonus Formula"). In addition, Executive shall be entitled to
a minimum bonus award for each fiscal year of the Employment Period of
$150,000 (the "Minimum Bonus Award"). The Minimum Bonus Award and the Bonus
Formula are collectively referred to herein as the "Bonus Award". To the
extent necessary to avoid the limitation on the federal tax deductibility of
the Bonus Award for any year under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), payment thereof may, at the sole discretion
of the Company, be deferred to the first taxable year of the Company in which
the payment would be fully deductible. Except as provided in the preceding
sentence, the Bonus Award for a fiscal year shall be payable as soon as
practicable after the release of the Company's audited financial statements
for such fiscal year. In the case of a deferral as described above, amounts
deferred shall be credited with such interest and on such other terms as the
Company and the Executive shall mutually agree.
(1) "Net Pre-Tax Profits" shall mean the amount, if
any, determined in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from year to year, by which the total gross
commission revenues generated by client brokerage accounts for which Executive
is responsible for servicing ("Client Accounts") exceed all expenses incurred
in generating such commissions, servicing those Client Accounts and in the
operation and conduct of the Executive's business. Such expenses include, but
are not limited to: the Base Salary paid to Executive, including related
payroll taxes; the Minimum Bonus Award payable to Executive; insurance and
other benefits relating to Executive, including any profit sharing
contributions made on behalf of Executive; telephones; tickers and quotes;
electronic and other office equipment; business travel and entertainment;
clearance and settlement costs on transactions executed for Client Accounts,
determined in accordance with the Company's practices; and exchange and
association membership dues and subscriptions.
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(c) Benefits. Executive also shall be entitled to
participate in the employee and fringe benefit and group insurance programs
provided by the Company for its officers and employees generally and in
accordance with the terms of the applicable plan documents as they may be
revised from time to time. Executive shall be entitled to receive such other
benefits as are generally provided to executives of the Company and its
subsidiaries. The Executive shall also be entitled to reimbursement for
reasonable out-of-pocket expenses incurred in connection with the business of
the Company in accordance with the Company's policies and procedures. The
Company shall continue to pay lease payments on the automobile provided to the
Executive as of the date hereof for the remainder of the lease term. The
Executive shall maintain adequate contemporaneous records concerning the use
of the automobile, including a specific record detailing the number of miles
traveled for personal purposes. The Executive acknowledges that the Company
has elected, pursuant to Section 3402(s) of the Code, not to withhold income
taxes with respect to the personal use of the vehicle, but the Company will
report the value of such use on a Form W-2 to the extent it determines that it
is required to do so. In addition, upon the request of Executive, the Company
shall pay the premiums on certain life insurance policies identified by the
Executive up to an annual maximum of $200,000. The cost of such premiums shall
be deducted from any Bonus Award due to Executive pursuant to Section 3(b).
4. Termination.
(a) The Company may, with or without prior notice,
terminate this Agreement with or without Cause, or upon Executive's
Disability. Executive may terminate this Agreement for Good Reason. This
Agreement shall automatically terminate upon the Executive's death. This
Agreement shall also terminate upon expiration of the Employment Period.
Except as provided in Sections 4(b), 4(c) and 4(d) in the event this Agreement
is terminated, the Executive's rights and the obligations of the Company
hereunder shall cease as of the effective date of the termination, provided,
however, that the Executive shall be entitled to receive any accrued but
unpaid Base Salary, any earned but unpaid Bonus Awards and any amount accrued
under Company benefit plans as provided pursuant to the terms of such plans
(the "Accrued Obligations").
(b) In the event that this Agreement is terminated
by reason of the Executive's Disability, the Executive shall be entitled to
receive, in addition to the Accrued Obligations:
(1) a payment equal to the product of (i) the sum
of Executive's Base Salary and the Minimum Bonus Award and (ii) the number of
years and/or fraction thereof remaining in the then existing Employment
Period, which amount shall be paid in equal monthly installments over such
remaining Employment Period, provided that such installments shall cease upon
any employment by the Executive on a full-time basis; and
(2) Executive shall participate, and the Company
shall continue contributions on the Executive's behalf, in all Company
sponsored health and welfare plans on
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terms no less favorable than as in effect on the date of termination by reason
of Disability, which shall continue until the earlier of:
(A) one year from the date of termination;
(B) the entitlement to coverage of the
Executive under plans provided by a new
employer; or
(C) the death of the Executive; or
(D) the remaining term of the Employment
Period.
The cash amounts and benefits set forth in subsections 4(b)(1) and 4(b)(2) are
collectively referred to herein as "Disability Benefits."
(c) In the event this Agreement terminates by
reason of Executive's death, in addition to the Accrued Obligations, the
Company shall pay to the Executive's estate or designated beneficiaries within
ninety (90) days of such termination, a lump sum equal to (i) the Minimum
Bonus Award, plus (ii) the amount of any bonus paid to Executive, including
any Bonus Formula (without taking into account any Minimum Bonus Award and
without regard to any deferral necessary to comply with Section 162(m) of the
Code), for the fiscal year ending immediately prior to such termination, such
sum multiplied by a fraction, the numerator of which shall be the number of
days elapsed in the fiscal year to the date of such termination and the
denominator of which shall be 365 ("Death Benefit"); provided that there shall
be deducted from any such Death Benefit the amount of any bonus previously
paid to the Executive with respect to such period and the cost of any life
insurance premiums paid during such period pursuant to Section 3(c) hereof.
(d) In the event the Company terminates this
Agreement other than for Cause, or if the Executive terminates this Agreement
for Good Reason, the Executive shall be entitled to receive, in addition to
the Accrued Obligations, the following payments ("Termination Payments"):
(1) a payment equal to the product of (i) the sum
of Executive's Base Salary and any amount paid as bonus, including any Bonus
Awards (without regard to any deferral necessary to comply with Section 162(m)
of the Code), for the three fiscal years ending prior to such termination,
divided by three, and (ii) the number of years and/or fraction thereof
remaining in the then existing Employment Period, which shall be paid in equal
monthly installments over such remaining Employment Period; and
(2) a payment equal to (i) the Minimum Bonus Award,
plus (ii) the amount of any bonus paid to the Executive, including any Bonus
Formula (without taking into account any Minimum Bonus Award and without
regard to any deferral necessary to comply with Section 162(m) of the Code)
for the immediately preceding fiscal year, such sum multiplied by a fraction,
the numerator of which shall be the number of days elapsed in the fiscal year
to the
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<PAGE>
date of such termination and the denominator of which shall be 365; provided
there shall be deducted from any such Bonus Award the amount of any Bonus
Award previously paid to the Executive with respect to such period and the
cost of any life insurance premiums paid during such period pursuant to
Section 3(c) hereof.
(3) In the event of the Executive's death after
this Agreement is terminated other than for Cause or for Good Reason, the
Company shall make any Termination Payments which would otherwise have been
payable to the Executive if he had lived under this Section 4(d) to
Executive's estate or designated beneficiary.
(e) All amounts payable pursuant to this Section 4
shall be subject to applicable statutory withholdings and deductions.
(f) A termination of the Executive's employment (i)
upon expiration of this Agreement, or (ii) by reason of the Executive's Death
or Disability, shall not constitute a termination without Cause, a termination
for Cause or a termination for Good Reason under this Agreement.
(g) As a condition to his entitlement to receive
Death or Disability Benefits or Termination Payments, the Executive (or his
estate or designated beneficiary) shall (i) have executed and delivered to the
Company a waiver and release reasonably satisfactory to the Company waiving
and releasing all rights and claims against the Company (other than the right
to receive Death or Disability Benefits or Termination Payments) and its
direct or indirect subsidiaries and their respective officers, agents,
directors and employees, and such waiver and release shall have become
irrevocable, and (ii) comply with Sections 5 through 9.
(h) In the event this Agreement is terminated for
any reason (except by death), the Executive agrees that if at that time he is
a director or officer of the Company or any of its direct or indirect
subsidiaries, he will immediately deliver his written resignation as such
director or officer, such resignation to become effective immediately.
(i) Notwithstanding anything contained herein to
the contrary, the Company may reduce the Termination Payments to the extent
such Termination Payments, when added to other payments made to the Executive
(including the vesting of stock options), constitute a "parachute payment" as
defined in Section 280G of the Code.
(j) For purposes of this Agreement:
(1) "Cause" shall mean an event where the
Executive: (i) commits any act of fraud, willful misconduct or dishonesty in
connection with his employment or which materially injures the Company or its
direct or indirect subsidiaries; (ii) breaches Section 8 or 9, or any other
material provision of this Agreement or any material representation, warranty,
covenant or condition in this Agreement or any material fiduciary duty to the
Company or its direct or indirect subsidiaries; (iii) fails, refuses or
neglects to timely perform any material duty or obligation under this
Agreement and such failure, refusal or neglect is not cured by the
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Executive within fifteen (15) days from the date the Company notifies the
Executive thereof or, if such default is curable but cannot reasonably be
cured within fifteen (15) days, Executive fails to commence curing such
default within such fifteen (15) days and fails to diligently pursue such
cure, but in no event shall the total cure period under this subsection
4(f)(1)(iii) exceed thirty (30) days from the date of notification;(iv)
commits a material violation of any material law, rule, regulation or by-law
of any governmental authority (state, federal or foreign), any securities
exchange or association or other regulatory or self-regulatory body or agency
applicable to the Company or its direct or indirect subsidiaries or any
general policy or directive of the Company or its direct or indirect
subsidiaries communicated in writing to the Executive; (v) is charged with a
crime involving moral turpitude, dishonesty, fraud or unethical business
conduct, or a felony; (vi) is subject to the occurrence of an event or
condition which makes it unlawful for the Executive to perform his duties
hereunder, including the issuance of any order, decree, decision or judgment,
which remains in effect for eight weeks or more; (vii) gives or accepts
undisclosed commissions or other payments in cash or in kind in connection
with the affairs of the Company or any of its direct or indirect subsidiaries
or their respective clients; (viii) is expelled or suspended in excess of
eight weeks, or is subject to an order temporarily (for a period in excess of
eight weeks) or permanently enjoining the Executive from the securities,
investment management or investment banking business or from acting in the
capacity contemplated by this Agreement by the SEC, the NASD, any national
securities exchange or any self-regulatory agency or governmental authority,
state, foreign or federal; or (ix) fails to obtain or maintain any
registration, license or other authorization or approval that the Company or
its direct or indirect subsidiaries in their discretion reasonably believe is
required for the Executive to perform his duties hereunder. Any termination
for Cause under this Agreement shall be made by delivering written notice
thereof to Executive, which notice shall include the specific reason(s) that
has given rise to a termination for Cause.
(2) "Disability" shall mean the Executive's
inability to perform his duties by reason of mental or physical disability for
at least one hundred and twenty (120) consecutive days or any one hundred and
twenty (120) days (whether or not consecutive) in any one-hundred eighty (180)
consecutive day period. In the event of a dispute as to whether the Executive
is disabled within the meaning hereof, either party may from time to time
request a medical examination of the Executive by a doctor appointed by the
Chief of Staff of a hospital selected by mutual agreement of the parties, or
as the parties may otherwise agree, or, failing agreement, a hospital selected
in good faith by the Board of Directors of the Company. The written medical
opinion of such doctor shall be conclusive and binding upon the parties as to
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examination shall be borne by the Company.
(3) "Good Reason" shall mean (i) the Company
changes the Executive's status, title or position as Executive Vice President
of the Company and President of Hoenig and such change represents a material
reduction in such status, title or position conferred hereunder; and (ii) the
Company materially breaches this Agreement, and such change or breach is not
cured by the Company within thirty (30) days from the date the Executive
delivers a Notice of Termination for Good Reason. Such "Notice of Termination
for Good Reason" shall include
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the specific section of this Agreement which is relied upon and the reason
that the Company's act or failure to act has given rise to a Termination for
Good Reason.
5. Trade Secrets. The Executive recognizes that it
is in the legitimate business interest of the Company to restrict his
disclosure or use of Trade Secrets and Confidential Information relating to
the Company and its direct or indirect subsidiaries for any purpose other than
in connection with his performance of his duties to the Company, and to limit
any potential appropriation of such Trade Secrets and Confidential Information
by the Executive. The Executive therefore agrees that all Trade Secrets and
Confidential Information relating to the Company and its direct or indirect
subsidiaries heretofore or in the future obtained by the Executive shall be
considered confidential and the proprietary information of the Company and its
direct or indirect subsidiaries. During the Employment Period the Executive
shall not use or disclose, or authorize any other person or entity to use or
disclose, any Trade Secrets or other Confidential Information, other than as
necessary to further the business objectives of the Company in accordance with
the terms of his employment hereunder. The term "Trade Secrets or other
Confidential Information" includes, by way of example and without limitation,
matters of a technical nature, "know-how", formulas, secret processes, works
of authorship, computer programs (including documentation of such programs),
services, materials, patent applications, new product plans, other plans,
technical information, technical improvements, test data, progress reports and
research projects, and matters of a business nature, such as business plans,
prospects, financial information, marketing plans and strategies, proprietary
information about costs, profits, markets and sales, lists of customers and
suppliers of the Company and its direct or indirect subsidiaries, procurement
and promotional information, credit and financial data concerning customers or
suppliers of the Company and its direct or indirect subsidiaries, information
relating to the management, operation and planning of the Company and its
direct and indirect subsidiaries, plans for future development, and other
information of a similar nature to the extent not available to the public.
After termination of the Executive's employment with the Company for any
reason, the Executive shall not use or disclose Trade Secrets or other
Confidential Information.
6. Return of Documents and Property. Upon the
termination of the Executive's employment with the Company, or at any time
upon the request of the Company, the Executive (or his heirs or personal
representatives) shall deliver to the Company (a) all documents and materials
(including, without limitation, computer files) containing Trade Secrets or
other Confidential Information relating to the business and affairs of the
Company and its direct and indirect subsidiaries, and (b) all documents,
materials and other property (including, without limitation, computer files)
belonging to the Company or its direct or indirect subsidiaries, which in
either case are in the possession or under the control of the Executive (or
his heirs or personal representatives).
7. Discoveries and Work. All Discoveries and Works
made or conceived by the Executive during his employment by the Company,
whether during the Employment Period or prior thereto, jointly or with others,
that relate to the present or anticipated activities of the Company or its
direct or indirect subsidiaries, or are used or usable by the Company or its
direct or indirect subsidiaries shall be owned by the Company or its direct or
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indirect subsidiaries. The term "Discoveries and Works" includes, by way of
example but without limitation, Trade Secrets and other Confidential
Information, patents and patent applications, trademarks and trademark
registrations and applications, service marks and service mark registrations
and applications, trade names, copyrights and copyright registrations and
applications. The Executive shall (a) promptly notify, make full disclosure
to, and execute and deliver any documents requested by, the Company, as the
case may be, to evidence or better assure title to Discoveries and Works in
the Company or its direct or indirect subsidiaries, as so requested, (b)
renounce any and all claims, including but not limited to claims of ownership
and royalty, with respect to all Discoveries and Works and all other property
owned or licensed by the Company or its direct or indirect subsidiaries, (c)
assist the Company or its direct or indirect subsidiaries in obtaining or
maintaining for itself at its own expense United States and foreign patents,
copyrights, trade secret protection or other protection of any and all
Discoveries and Works, and (d) promptly execute, whether during his employment
with the Company or thereafter at the Company's expense, all applications or
other endorsements necessary or appropriate to maintain patents and other
rights for the Company or its direct or indirect subsidiaries and to protect
the title of the Company or its direct or indirect subsidiaries thereto,
including but not limited to assignments of such patents and other rights. Any
Discoveries and Works which, within six months after the termination of the
Executive's employment with the Company, are made, disclosed, reduced to a
tangible or written form or description, or are reduced to practice by the
Executive and which pertain to the business carried on or products or services
being sold or developed by the Company or its direct or indirect subsidiaries
at the time of such termination shall, as between the Executive and, the
Company, be rebuttably presumed to have been made during the Executive's
employment by the Company. The Executive acknowledges that all Discoveries and
Works shall be deemed "works made for hire" under the Copyright Act of 1976,
as amended, 17 U.S.C. ss.101.
8. Non-Competition. From and after the date hereof,
the Executive will not, except pursuant to the terms hereof, directly or
indirectly, own, manage, operate, join, finance control or participate in the
ownership, management, operation or control of, or be employed or be otherwise
connected in any manner with, any business under a name similar to the name of
the Company or any direct or indirect subsidiary thereof. During the Non-
competition Period, the Executive will not (except as an officer, director,
employee, agent or consultant of the Company) directly or indirectly, own,
manage, operate, join, or have a financial interest in, control or participate
in the ownership, management, operation or control of, or be employed as an
employee, agent or consultant, or in any other individual or representative
capacity whatsoever, or use or permit his name to be used in connection with,
or be otherwise connected in any manner with (i) any business or enterprise
engaged (wherever located) in the design, development, manufacture,
distribution or sale of any products, or the provision of any services, which
the Company or its direct or indirect subsidiaries were designing, developing,
manufacturing, distributing, selling or providing at any time during the one
year immediately preceding the termination of this Agreement or (ii) any
business which is similar to or competitive with the business carried on or
planned by the Company or its direct or indirect subsidiaries at any time
during the one year immediately preceding the termination of this Agreement,
unless the Executive shall have obtained the prior written consent of the
Board, provided that the foregoing restriction shall not be construed to
prohibit the ownership by the
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<PAGE>
Executive of not more than two percent (2%) of any class of securities of any
corporation which is engaged in any of the foregoing businesses, having a
class of securities registered pursuant to Sections 12(b) or 12(g) of the 1934
Act, which securities are publicly owned and regularly traded on any national
exchange or in the over-the-counter market, provided further, that such
ownership represents a passive investment and that neither the Executive nor
any group of persons including the Executive in any way, either directly or
indirectly, manages or exercises control of any such corporation, guarantees
any of its financial obligations, otherwise takes part in its business other
than exercising his rights as a stockholder, or seeks to do any of the
foregoing. For purposes of this Agreement, the Noncompetition Period shall
mean the period during which the Executive is employed by the Company or any
of its direct or indirect subsidiaries, and (i) the lesser of one year
following termination of this Agreement or the remaining term of the
Employment period if this Agreement is terminated by the Company for Cause or
by the Executive for other than Good Reason; and (ii) the period during which
the Executive is receiving Termination Payments. Notwithstanding the
foregoing, in the event that the Company terminates this Agreement other than
for Cause, or if the Executive terminates this Agreement for Good Reason, the
Executive may elect at any time after such termination, by ten days advance
written notice to the Company, to be relieved of the provisions of this
Section 8 and Section 9. On and after such election, the Company shall have no
further obligation to make any payments to the Executive pursuant to Section
4(d) hereof, except for such amounts as shall have been accrued prior to the
date of such election. Such election shall not effect any of the rights of the
Company with respect to any violation of this Section 8 or Section 9 occurring
prior to such election. Notwithstanding anything hereinabove contained to the
contrary, Executive shall be relieved of the provisions of this Section 8 and
Section 9 upon expiration of this Agreement (other than by reason of
termination without Cause, termination with Cause or termination for Good
Reason) without further renewal or extension.
9. Non-Solicitation. During the Noncompetition
Period, the Executive agrees, directly or indirectly, whether for his own
account or for the account of any other individual or entity, not to solicit
or canvas the trade, business or patronage of, or sell any products or
services which are the same as or similar to those designed, developed,
manufactured, distributed or sold by the Company or its direct or indirect
subsidiaries to, any individuals or entities that were either customers of the
Company or any of its direct or indirect subsidiaries during the twelve months
immediately preceding the termination of this Agreement, or prospective
customers with respect to whom a sales effort, presentation or proposal was
made by the Company or any of its direct or indirect subsidiaries during the
twelve months immediately preceding the date of termination or expiration, as
the case may be. The Executive further agrees that during the Noncompetition
Period, he shall not, directly or indirectly, (i) solicit, induce, enter into
any agreement with, or attempt to influence any individual who was an employee
or consultant of the Company or any of its direct or indirect subsidiaries at
any time during the time the Executive was employed by the Company, to
terminate his or her employment relationship with the Company or any of its
direct or indirect subsidiaries or to become employed by the Executive or any
individual or entity by which Executive is employed or (ii) interfere in any
other way with the employment, or other relationship, of any employee or
consultant of the Company or any of its direct or indirect subsidiaries.
9
<PAGE>
10. Enforcement. (a) The Executive agrees that the
remedies at law for any breach or threat of breach by him of any of the
provisions of Sections 5 through 9 will be inadequate, and that, in addition
to any other remedy to which the Company may be entitled at law or in equity,
the Company shall be entitled to a temporary or permanent injunction or
injunctions or temporary restraining order or orders to prevent breaches of
the provisions of Sections 5 through 9 and to enforce specifically the terms
and provisions thereof, in each case without the need to post any security or
bond. Nothing herein contained shall be construed as prohibiting the Company
from pursuing, in addition, any other remedies available to the Company for
such breach or threatened breach. A waiver by the Company of any breach of any
provision hereof shall not operate or be construed as a waiver of a breach of
any other provision of this Agreement or of any subsequent breach by the
Executive.
(b) It is expressly understood and agreed that
although the Company and the Executive consider the restrictions contained in
Sections 5 through 9 to be reasonable for the purpose of preserving the
goodwill, proprietary rights and going concern value of the Company, if a
final judicial determination is made by a court having jurisdiction that the
time or territory or any other restriction contained in such Sections 5
through 9 is an unenforceable restriction on the Executive's activities, the
provisions of such Sections 5 through 9 shall not be rendered void but shall
be deemed amended to apply as to such maximum time and territory and to such
other extent as such court may judicially determine or indicate to be
reasonable. Alternatively, if the court referred to above finds that any
restriction contained in Sections 5 through 9 or any remedy provided herein is
unenforceable, and such restriction or remedy cannot be amended so as to make
it enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained therein or the availability of any other remedy.
The provisions of Sections 5 through 9 shall in no respect limit or otherwise
affect the Executive's obligations under other agreements with the Company.
11. Executive's Representations. The Executive
represents and warrants to the Company that (i) he is able to perform fully
his duties and responsibilities contemplated by this Agreement and (ii) there
are no restrictions, covenants, agreements or limitations of any kind on his
right or ability to enter into and fully perform the terms of this Agreement.
12. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on the Executive's
life and/or health in such amounts and in such form as the Company may in its
sole discretion decide. The Executive shall not have any interest in such
insurance, but shall, if the Company requests, submit to such medical
examinations, supply such information and execute such documents as may be
required in connection with, or so as to enable the Company to effect, such
insurance.
13. Assignment. The rights and obligations of the
parties under this Agreement shall not be assignable by either the Company or
the Executive, provided that this Agreement is assignable by the Company to
any affiliate of the Company, to any successor in interest to the business of
any of the Company, or to a purchaser of all or substantially all of the
assets of the Company.
10
<PAGE>
14. Notices. Any notice required or permitted under
this Agreement shall be deemed to have been effectively made or given if in
writing and personally delivered, mailed properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, or delivered by a
reputable overnight delivery service. Unless otherwise changed by notice,
notice shall be properly addressed to the Executive if addressed to:
Max H. Levine
32 Locust Avenue
Larchmont, NY 10538
and properly addressed to the Company if addressed to:
Hoenig Group Inc.
Royal Executive Park
4 International Drive
Rye Brook, NY 10573
Attention: General Counsel
15. Severability. Wherever there is any conflict
between any provision of this Agreement and any statute, law, regulation or
judicial precedent, the latter shall prevail, but in such event the provisions
of this Agreement thus affected shall be curtailed and limited only to the
extent necessary to bring them within the requirements of the law. In the
event that any provision of this Agreement shall be held by a court of proper
jurisdiction to be indefinite, invalid, void or voidable or otherwise
unenforceable, the balance of the Agreement shall continue in full force and
effect unless such construction would clearly be contrary to the intentions of
the parties or would result in an unconscionable injustice.
16. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
17. Effect of Termination. Notwithstanding anything
to the contrary contained herein, if this Agreement or the Executive's
employment is validly terminated pursuant to Section 4 or expires by its
terms, the provisions of Sections 5 through 10 and 18 shall continue in full
force and effect.
18. Governing Law and Consent to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York without giving effect to principles of conflicts of law.
Each of the parties hereto expressly submits to and consents to the
jurisdiction and venue of the courts of the State of New York within the
counties of New York and Westchester and the United State District Court for
the Southern District of New York in connection with any claim or controversy
arising out of or relating to this Agreement, on the condition that, with
respect to any federal litigation, the amount in controversy meets the
statutory requirements in force of the date of this Agreement. Each of the
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<PAGE>
parties hereto agrees that service of process may be effected by personal
delivery, overnight courier or registered mail, postage prepaid, to the
respective addresses listed in Section 14 hereof.
19. Complete Agreement. This Agreement constitutes
the entire agreement, and supersedes all prior agreements, of the parties
hereto relating to the subject matter hereof, and there are no written or oral
terms or representations made by either party other than those contained
herein.
IN WITNESS WHEREOF, the parties have executed this
Employment Agreement as of the day and year first above written.
HOENIG GROUP INC.
By:_____________________________
Title:__________________________
- ------------------------------
Max H. Levine
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<PAGE>
SEPARATION AGREEMENT
This Separation Agreement, dated October 31, 1996, between Hoenig Group
Inc. ("Hoenig"), Axe-Houghton Associates, Inc. ("Axe-Houghton"),
4 International Drive, Rye Brook, New York 10573, and J. Richard Walton, 262
River Road, Scarborough, New York 10510 ("Walton").
WHEREAS, Walton is the Chief Investment Officer and Chairman of the Board
of Directors of Axe-Houghton; and
WHEREAS, Walton is a member of the Board of Directors of Hoenig and the
Board of Directors of Axe-Houghton; and
WHEREAS, Walton has advised Hoenig and Axe-Houghton that he wishes to
resign his positions and directorships in order to be free to pursue other
ventures including, possibly, an association with Matrix Asset Advisors, Inc.;
and
WHEREAS, Axe-Houghton and Hoenig have agreed to accept Walton's
resignations as Chief Investment Officer and Chairman of the Board of
Directors of Axe- Houghton and as a member of the Boards of Directors of
Hoenig and Axe-Houghton effective October 31, 1996; and
WHEREAS, the parties wish to memorialize the technical terms of the
separation.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Separation Agreement and other good and valuable consideration, the
parties agree as follows:
1. Axe-Houghton and Hoenig accept Walton's resignation from his positions
as Chief Investment Officer and Director of Axe-Houghton and his resignation
as a director of Hoenig, all effective on October 31, 1996. Such resignation
is not a result of a disagreement with Hoenig or Axe-Houghton on any matter
relating to its operations, policies or practices.
2. In return for Walton's general release, which is set forth below, Axe-
Houghton agrees to pay to Walton on January 8, 1997, the amount of $415,000,
less lawful deductions, which sum Walton acknowledges is in addition to
anything to which he is now, or otherwise may be, entitled, and which is not
subject to any right of set-off.
The foregoing voluntary payment is given in return for Walton's
agreement, which is hereby given, to discharge and release Axe-Houghton,
Hoenig, any of their affiliated entities and any of their officers, directors,
employees, or agents, or their heirs, executors, administrators, employees,
agents, representatives, successors, and assigns from all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
<PAGE>
demands whatsoever, in law, admiralty, or equity, which against them, Walton
and his heirs, executors, administrators, successors, and assigns ever had,
now have or hereafter can, shall or may, have for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the day
of the date of this release. The claims being released include, but are not
limited to, claims under the New York State Human Rights Law, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
the Civil Rights Act of 1991, the Federal Fair Labor Standards Act, the New
York State Labor Law, the Americans With Disabilities Act, the Employee
Retirement Income Security Act of 1974, and all other federal, state, and
local discrimination, labor or wage laws, claims for breach of contract,
wrongful discharge, and for negligence or any intentional torts, and claims
under any other contract, statute, regulation, agreement, duty, or otherwise.
This Release shall not operate to release any party from its obligations under
this Separation Agreement and any rights or obligations Walton may have under
any pension or profit-sharing plan.
3. Axe-Houghton and Hoenig and all of their affiliated entities and all
of their successors and assigns discharge and release Walton from all actions,
causes of action, suits, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, extents, executions,
claims, and demands whatsoever, in law, admiralty, or equity, which against
Walton they or their successors and assigns ever had, now have or hereafter
can, shall or may, have for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the day of the date of this
release. The claims being released include, but are not limited to, claims
under the New York State Human Rights Law, the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Federal Fair Labor Standards Act, the New York State Labor
Law, the Americans With Disabilities Act, the Employee Retirement Income
Security Act of 1974, and all other federal, state, and local discrimination,
labor or wage laws, claims for breach of contract, wrongful discharge, and for
negligence or any intentional torts, and claims under any other contract,
statute, regulation, agreement, duty, or otherwise. This Release shall not
operate to release any party from their or his obligations under this
Separation Agreement, and any rights or obligations Walton may have under
pension or profit-sharing plans.
4. By entering into this Separation Agreement, Axe-Houghton and Hoenig
and Walton specifically deny that Axe-Houghton, Hoenig, and Walton or their
representatives, agents, affiliated entities or their respective officers,
directors, or employees violated the New York Human Rights Law, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
the Civil Rights Act of 1991, the Federal Fair Labor Standards Act, the New
York State Labor Law, the Americans With Disabilities Act, The Employee
Retirement Income Security Act of 1974, and any other federal, state, and
local discrimination or wage laws, or that they have any liability for breach
of contract, wrongful discharge, or for any claims of negligence or for
intentional torts or claims under any other contract, statute, regulation,
agreement or duty.
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<PAGE>
5. Hoenig hereby confirms its obligation under Article VIII, Section 7,
paragraph (g) of the Amended and Restated By-Laws (the "By-Laws") of Hoenig to
continue the indemnification and advancement of expenses provided by, or
granted pursuant to, such Section as it relates to Walton. For purposes of
Section 7 of Article VIII of the By-Laws, Hoenig acknowledges and agrees that
Walton was serving as a director and officer of Axe-Houghton at the request of
Hoenig.
6. The parties agree that the press release concerning this Separation
Agreement, as attached hereto, has been agreed upon by Axe-Houghton, Hoenig,
and Walton, and other than such press release, the terms of this Separation
Agreement shall be confidential. Notwithstanding the foregoing, the parties
acknowledge and agree that Hoenig and Axe-Houghton may be required to disclose
or describe this Separation Agreement and its terms, including filing a copy
hereof with the Securities and Exchange Commission, in either complying with
its reporting obligations under applicable laws or the rules of various
self-regulatory bodies, or in response to a regulatory inquiry, subpoena,
compulsory process, or mandate of a court or administrative tribunal. In the
event that any party to this Separation Agreement should be confronted with a
demand for disclosure of any of its terms pursuant to subpoena, compulsory
process, or mandate of a court or administrative tribunal, he or it will
immediately inform each other party of the demand so that any party may take
appropriate steps to protect his or its interests. Walton may disclose the
terms of this Separation Agreement to his legal and financial advisors and to
members of his immediate family.
7. This Separation Agreement supersedes all other agreements, term
sheets, and written or oral agreements, understandings of any type between the
parties except that (a) Walton's obligations under paragraphs 7, 8, 9, and
13(c) of the Employment Agreement dated August 31, 1994, between Axe-Houghton
and Walton (the "Employment Agreement") shall remain in full force and effect,
and (b) Walton's obligation under paragraph 6(c) of the Employment Agreement
shall remain in effect until October 31, 1997.
8. In the event that Walton may be requested or required to assist Hoenig
or Axe-Houghton pursuant to paragraph 13(c) of the Employment Agreement, he
will be paid an hourly fee of $250.00 and reimbursed for the reasonable costs
and expenses incurred in rendering any such assistance. Such payments will be
made monthly.
9. If any of the provisions of this Separation Agreement, including the
covenants contained in paragraph 7 hereof, or any part thereof, is hereafter
construed to be invalid or unenforceable, the same shall not affect the
remainder of the Separation Agreement, which shall be given full effect
without regard to the invalid portions, and the parties agree that the court
making such determination shall have the power and shall be requested to
reduce the duration and/or area covered by this Separation Agreement only to
the extent necessary to make this Separation Agreement enforceable and, in its
reduced form, such provision shall then be enforceable.
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<PAGE>
10. By executing this Separation Agreement, Walton acknowledges that he
has been provided an opportunity to consult with an attorney or other advisor
of his choice regarding the terms of this Separation Agreement, that he has
been given twenty-one (21) days in which to consider whether he wishes to
enter into this Separation Agreement, and that he has elected to enter into
this Separation Agreement knowingly and voluntarily. Walton may revoke his
assent to this Separation Agreement within seven (7) days of its execution by
him (the "Revocation Period"), in which event the Agreement shall be null and
void.
11. This Separation Agreement shall be governed and construed in
accordance with the laws of the State of New York without reference to the
conflict of laws provisions thereof.
This Separation Agreement sets forth the entire agreement between the
parties and it may not be changed, altered, or modified or amended except in a
writing signed by all of the parties hereto.
Dated: New York, New York
October 31, 1996
AXE-HOUGHTON ASSOCIATES, INC.
By:
--------------------------------
Seth M. Lynn
President
HOENIG GROUP INC.
By:
---------------------------------
Fredric P. Sapirstein
Chief Executive Officer
---------------------------------
J. Richard Walton
4
<PAGE>
HOENIG GROUP INC.
SECTION 162(m) CASH BONUS PLAN
1. Purpose. The purpose of this Section 162(m) Cash Bonus Plan (the "Plan") of
Hoenig Group, Inc. (the "Company") is (i) to retain and motivate key senior
executives of the Company who have been designated as Participants in the Plan
for a given Performance Period, by providing them with the opportunity to earn
bonus awards that are based on the extent to which specified performance goals
for such Performance Period have been achieved or exceeded; and (ii) to
structure such bonus opportunities in a way that will qualify the awards made
as "performance-based" for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (or any successor section) so that the Company will be
entitled to a tax deduction on the payment of such incentive awards to such
employees.
2. Definitions. As used in the Plan, the following terms shall the meanings set
forth below:
(a) "Annual Base Salary" shall mean the amount of base salary paid to
a Participant for a given year, adjusted to include the amount of any base
salary deferrals for such year, unless the Plan Committee otherwise specifies
at the time that the Participant's award opportunity for a given Performance
Period is established.
(b) "Applicable Period" shall mean, with respect to any Performance
Period, a period commencing on or before the first day of such Performance
Period and ending no later than the earlier of (i) the 90th day of such
Performance Period, or (ii) the date on which 25% of such performance Period
has been completed. Any action required under the Plan to be taken within the
period specified in the preceding sentence may be taken at a later date if, but
only if, the regulations under Section 162(m) of the Code are hereafter
amended, or interpreted by the Internal Revenue Service, to permit such later
date, in which case the term "Applicable Period" shall be deemed amended
accordingly.
(c) "Board" shall mean the Board of Directors of the Company as
constituted from time to time.
(d) "Cause" shall mean "cause" as defined in any employment agreement
then in effect between the Participant and the Company or if not defined
therein or, if there shall be no such agreement, where the Participant: (i)
commits any act of fraud, willful misconduct or dishonesty in connection with
his employment or which injures the Company or its direct or indirect
subsidiaries; (ii) breaches any other material provision of any agreement
between the Participant and the Company or a subsidiary of the
<PAGE>
Company relating to the Participant's employment or breaches any fiduciary duty
to the Company or its direct or indirect subsidiaries; (iii) fails, refuses or
neglects to timely perform any material duty or obligation relating to his
position; (iv) commits a material violation of any law, rule, regulation or
by-law of any governmental authority (state, federal or foreign), any
securities exchange or association or other regulatory or self-regulatory body
or agency applicable to the Company or its direct or indirect subsidiaries or
any general policy or directive of the Company or its direct or indirect
subsidiaries communicated in writing to the Participant; (v) is charged with a
crime involving moral turpitude, dishonesty, fraud or unethical business
conduct, or a felony; (vi) is subject to the occurrence of an event or
condition which makes it unlawful for the Participant to perform his duties,
including the issuance of any order, decree, decision or judgment, which
remains in effect for eight weeks or more; (viii) gives or accepts undisclosed
commissions or other payments in cash or in kind in connection with the affairs
of the Company or any of its direct or indirect subsidiaries or their
respective clients; (ix) is expelled or suspended in excess of eight weeks, or
is subject to an order temporarily (for a period in excess of eight weeks) or
permanently enjoining the Participant from the securities, investment
management or investment banking business or from acting in the capacity
consistent with his position by the SEC, the NASD, any national securities
exchange or any self-regulatory agency or governmental authority, state,
foreign or federal; or (x) fails to obtain or maintain any registration,
license or other authorization or approval that the Company or its direct or
indirect subsidiaries in their discretion reasonably believe is required for
the Participant to perform his duties.
(e) "Change of Control" shall have the same meaning as set forth in
the Hoenig Group, Inc. 1996 Long-Term Stock Incentive Plan, as amended from
time to time (the "1996 LTSIP").
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" or "Plan Committee" shall mean the committee for the
board consisting solely of two or more non-employee directors (each of whom is
intended to qualify as an "outside director" within the meaning of Section
162(m) of the Code) designated by the Board as the committee responsible for
administering and interpreting the Plan.
(h) "Company" shall mean Hoenig Group Inc., a corporation organized
under the laws of the State of Delaware, and any successor thereto.
(i) "Disability" shall mean "disability" as defined in any employment
agreement then in effect between the Participant and the Company or, if not
defined therein or if there shall be no such agreement, as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan or if not defined therein, the Participant's becoming
physically or mentally incapacitated and consequent
2
<PAGE>
inability for a period of 120 days in any twelve consecutive month period to
perform his duties to the Company.
(j) "Executive Officer" shall have the meaning set forth in Rule 3b-7
promulgated under the Securities Exchange Act of 1934, in each case as amended
from time to time.
(k) "Individual Award Opportunity" shall mean the performance-based
award opportunity for a given Participant for a given Performance Period as
specified by the Plan Committee within the Applicable Period, which may be
expressed in dollars or on a formula basis that is consistent with the
provisions of this Plan.
(l) "Negative Discretion" shall mean the discretion authorized by the
Plan to be applied by the Committee to eliminate, or reduce the size of, a
bonus award otherwise payable to a Participant for a given Performance Period,
provided that the exercise of such discretion would not cause the award to fail
to qualify as "performance-based compensation" under Section 162(m) of the
Code. By way of example and not by way of limitation, in no event shall any
discretionary authority granted to the Committee by the Plan including, but not
limited to, Negative Discretion, be used (i) to provide for an award under the
Plan in excess of the amount payable based on actual performance versus the
applicable performance goals for the Performance Period in question, or in
excess of the maximum individual award limit specified in Section 6(b) below,
or (ii) to increase the amount otherwise payable to any other Participant.
(m) "Participant" shall mean, for any given Performance Period with
respect to which the Plan is in effect, each key employee of the Company
(including any subsidiary, operating unit or division) who is an Executive
Officer of the Company and who is designated as a Participant in the Plan for
such Performance Period by the Committee pursuant to Section 4 below.
(n) "Performance Period" shall mean any period commencing on or after
January 1, 1997 for which performance goals are set under Section 5 and during
which performance shall be measured to determine whether such goals have been
met for purposes of determining whether a Participant is entitled to payment of
a bonus under the Plan. A Performance Period may be coincident with one or more
fiscal years of the Company, or a portion thereof.
(o) "Plan" or "Section 162(m) Plan" shall mean the Hoenig Group Inc.
Section 162(m) Cash Bonus Plan as set forth in this document, and as amended
from time to time.
(p) "Retirement" shall mean any termination of employment with the
Company and its subsidiaries (other than a termination by the Company (or any
of its subsidiaries) for Cause) that (i) qualifies as a "retirement" event
under the terms of the Hoenig & Co., Inc. 401(K) and Profit Sharing Plan (or
any successor pension plan in
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<PAGE>
which the Company participates), and (ii) is approved in writing as a
"Retirement" event for purposes of this Plan by (or pursuant to procedures
established by) the Plan Committee.
3. Administration.
(a) General. The Plan shall be administered by the Committee. Subject
to the terms of the Plan and applicable law (including, but not limited to,
Section 162(m) of the Code), and in addition to any other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
the full power and authority, after taking into account, in its sole and
absolute discretion, the recommendations of the Company's Chief Executive
Officer:
(i) to designate (within the Applicable Period) the Participants
in the Plan and the individual award opportunities and/or, if
applicable, bonus pool award opportunities for such
Performance Period;
(ii) to designate (within the Applicable Period) and thereafter
administer the performance goals and other award terms and
conditions that are to apply under the Plan for such
Performance Period;
(iii) to determine and certify the bonus amounts earned for any
given Performance Period, based on actual performance versus
the performance goals for such Performance Period, after
making any permitted Negative Discretion adjustments;
(iv) to decide (within the Applicable Period) any issues relating
to the impact on the bonus awards for such Performance Period
of (A) a termination of employment (due to death, Disability,
Retirement, voluntary termination (other than Retirement),
termination by the Company other than for Cause, or
termination by the Company for Cause), provided, in each
case, that no payment shall be made for any given Performance
Period prior to the time that the Plan Committee certifies,
pursuant to Section 6(c)(i) below, that the applicable
performance goals for such Performance Period have been met
or (B) a Change of Control, that are not resolved under the
express terms of the Plan;
(v) to decide whether, under what circumstances and subject to
what terms bonus payouts are to be paid on a deferred basis,
including automatic deferrals at the Committee's election as
well as elective deferrals at the election of Participants;
4
<PAGE>
(vi) to adopt, revise, suspend, waive or repeal, when and as
appropriate, in its sole and absolute discretion, such
administrative rules, guidelines and procedures for the Plan
as it deems necessary or advisable to implement the terms and
conditions of the Plan;
(vii) to interpret and administer the terms and provisions of the
Plan and any award issued under the Plan (including
reconciling any inconsistencies, correcting any defaults and
addressing any omissions in the Plan or any related
instrument or agreement); and
(viii) to otherwise supervise the administration of the Plan.
It is intended that all amounts payable to Participants under the Plan
who are "covered employees" within the meaning of Treas. Reg. Sec.
1.162-27(c)(2) (as amended from time to time) shall constitute "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code and Treas. Reg. Sec. 1.162-27(e) (as amended from time to time), and, to
the maximum extent possible, the Plan and the terms of any awards under the
Plan shall be so interpreted and construed.
(b) Binding Nature of Committee Decisions. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions made under or with respect to the Plan or any award under the
Plan shall be within the sole and absolute discretion of the Committee, and
shall be final, conclusive and binding on all person, including the Company,
any Participant, and any award beneficiary or other person having, or claiming,
any rights under the Plan.
(c) Other. No member of the Committee shall be liable for any action
or determination (including, but limited to, any decision not to act) made in
good faith with respect to the Plan or any award under the Plan. If a Committee
member intended to qualify as an "outside director" under Section 162(m) of the
Code does not in fact so qualify, the mere fact of such non-qualification shall
not invalidate any award or other action made by the Committee under the Plan
which otherwise was validly made under the Plan.
4. Plan Participation.
(a) Annual Participant Designations By Plan Committee. For any given
Performance Period, the Plan Committee, in its sole and absolute discretion,
shall, within the Applicable Period, designate those key employees of the
Company (including its subsidiaries, operating units and divisions) who shall
be Participants in the Plan for such Performance Period. Such Participant
designations shall be made by the Plan Committee, in its sole and absolute
discretion, based primarily on its determination as to which key employees:
5
<PAGE>
(i) are likely to be Executive Officers of the Company as of the
last day of the fiscal year for which the Company would be
entitled to a Federal tax deduction for payment of the award
in respect of such Performance Period;
(ii) are reasonably expected by the Plan Committee to have
individual compensation for such fiscal year that may be in
excess of $1 million, excluding any compensation that is
grandfathered for Section 162(m) purposes or is otherwise
excluded for Section 162(m) purposes based on an existing or
other "performance-based" plan other than this Plan; and
(iii) are reasonably expected by the Plan Committee to be "covered
employees" for such fiscal year for Section 162(m) purposes,
and such other consideration as the Committee deems appropriate, in its sole
and absolute discretion.
(b) Impact Of Plan Participation. An individual who is a designated
Participant in the Section 162(m) Plan for any given Performance Period shall
not also participate in the Company's general bonus plans for such Performance
Period if such participation would cause any award hereunder to fail to qualify
as "performance-based" under Section 162(m).
5. Performance Goals.
(a) Setting Of Performance Goals. For a given Performance Period, the
Plan Committee shall, within the Applicable Period, set one or more objective
performance goals for each Participant and/or each group of Participants and/or
each bonus pool (if any). Such goals shall be based exclusively on one or more
of the following corporate-wide or subsidiary, division or operating unit
financial measures:
(1) pre-tax or after-tax net income,
(2) operating income,
(3) gross revenue,
(4) profit margin,
(5) stock price,
(6) cash flow(s),
6
<PAGE>
(7) strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market
penetration, geographic business expansion goals, cost
targets, and goals relating to acquisitions or divestitures,
or any combination thereof (in each case before or after such objective income
and expense allocations or adjustments as the Committee may specify within the
Applicable Period). Each such goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ comparisons based on current
internal targets, the past performance of the Company (including the performance
of one or more subsidiaries, divisions and/or operating units) and/or the past
or current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital (including, but
limited to, the cost of capital), shareholders' equity and/or shares
outstanding, or to assets or net assets. In all cases, the performance goals
shall be such that they satisfy any applicable requirements under Treas. Reg.
Sec. 1.162- 27(e)(2) (as amended from time to time) that the achievement of
such goals be "substantially uncertain" at the time that they are established,
and that the award opportunity be defined in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the
performance goal has been met, and, subject to the Plan Committee's right to
apply Negative Discretion, the amount of the award payable as a result of such
performance.
(b) Impact Of Extraordinary Items Or Changes In Accounting. The
measures used in setting performance goals set under the Plan for any given
Performance Period shall be determined in accordance with GAAP and a manner
consistent with the methods used in the Company's audited financial statements,
without regard to (i) extraordinary items as determined by the Company's
independent public accountants in accordance with GAAP or (ii) changes in
accounting, unless, in each case, the Plan Committee decides otherwise within
the Applicable Period.
6. Bonus Pools, Award Opportunities And Awards.
(a) Setting Of Individual Award Opportunities. At the time that annual
performance goals are set for Participants for a given Performance Period
(within the Applicable Period), the Plan Committee shall also establish each
Individual Award Opportunity for such Performance Period, which shall be based
on the achievement of stated target performance goals, and may be stated in
dollars or on a formula basis (based, for example, on a designated share of a
bonus pool or on a multiple of Annual Base Salary), provided:
(i) that the designated shares of any bonus pool shall not exceed
100% of such pool; and
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<PAGE>
(ii) that the Plan Committee, in all cases, shall have the sole
and absolute discretion, based on such factors as it deems
appropriate, to apply Negative Discretion to reduce (but not
increase) the actual bonus awards that would otherwise
actually be payable to any Participant on the basis of the
achievement of the applicable performance goals.
(b) Maximum Individual Bonus Award. Notwithstanding any other
provision of this Plan, the maximum bonus payable under the Plan to any one
individual in any one calendar year shall be $5.0 million.
(c) Bonus Payments. Subject to the following, bonus awards determined
under the Plan for given Performance Period shall be paid to Participants in
cash, or, if permitted under the Company's 1996 LTSIP, in shares of Company
stock, as soon as practicable following the end of the Performance Period to
which they apply, provided:
(i) that no such payment shall be made unless and until the Plan
Committee, based on the Company's audited financial results
for such Performance Period (as prepared and reviewed by the
Company's independent public accountants), has certified (in
the manner prescribed under applicable regulations) the
extent to which the applicable performance goals for such
Performance Period have been satisfied, and has made its
decisions regarding the extent of any Negative Discretion
adjustment of awards (to the extent permitted under the
Plan);
(ii) that the Plan Committee may specify that a portion of the
actual bonus award for any given Performance Period shall be
paid on a deferred basis, based on such award payment rules
as the Plan Committee may establish and announce for such
Performance Period;
(iii) that the Plan Committee may require (if established and
announced within the Applicable Period), as a condition of
bonus eligibility (and subject to such exceptions as the
Committee may specify within the Applicable Period) that
Participants for such Performance Period must still be
employed as of end of such Performance Period and/or as of
the later date that the actual bonus awards for such
Performance Period are announced, in order to be eligible for
an award for such Performance Period; and
(iv) that, within the Applicable Period and subject to Section
6(c)(i) above, the Committee may adopt such forfeiture,
pro-ration or other rules as it deems appropriate, in its
sole and absolute discretion, regarding the impact on bonus
award rights of a
8
<PAGE>
Participant's death, Disability, Retirement, voluntary
termination (other than Retirement), termination by the
Company other than for Cause, or termination by the Company
for Cause.
7. General Provisions.
(a) Plan Amendment Or Termination. The Board may at any time amend or
terminate the Plan, provided (i) that, without the Participant's written
consent, no such amendment or termination shall adversely affect the bonus
rights (if any) of any already designated Participant for a given Performance
Period once the Participant designations and performance goals for such
Performance Period have been announced, and (ii) that the Board shall be
authorized to make any amendments necessary to comply with applicable
regulatory requirements (including, without limitation, Section 162(m) of the
Code).
(b) Applicable Law. All issues arising under the Plan shall be
governed by, and construed in accordance with, the laws of the State of New
York, applied without regard to conflict of law principles.
(c) Tax Withholding. The Company (and its subsidiaries) shall have
right to make such provisions and take such action as it may deem necessary or
appropriate for the withholding of any and all Federal, state and local taxes
that the Company (or any of its subsidiaries) may be required to withhold.
(d) No Employment Right Conferred. Participation in the Plan shall not
confer on any Participant the right to remain employed by the Company or any of
its subsidiaries, and the Company and its subsidiaries specifically reserve the
right to terminate any Participant's employment at any time with or without
cause or notice.
(e) Impact of Plan Awards on Other Plans. Plan awards shall not be
treated as compensation for purposes of any other compensation or benefit plan,
program or arrangement of the Company or any subsidiary, unless and except to
the extent that the Board or its Compensation Committee so determines in
writing. Neither the adoption of the Plan nor the submission of the Plan to the
Company's stockholders for their approval shall be construed as limiting the
power of the Board or the Plan Committee to adopt such other incentive
arrangements as it may otherwise deem appropriate.
(f) Beneficiary Designations. Each Participant shall designate in a
written form filed with the Committee the beneficiary (or beneficiaries) to
receive the amounts (if any) payable under the Plan in the event of the
Participant's death prior to the bonus payment date for a given Performance
Period. Any such beneficiary designation may be changed by the Participant at
any time without the consent of the beneficiary (unless otherwise required by
law) by filing a new written beneficiary designation with the Committee. A
beneficiary designation shall be effective only if the Company is in receipt
9
<PAGE>
of the designation prior to the Participant's death. If no effective
beneficiary designation is made, the beneficiary of any amounts die shall be
the Participant's estate.
(g) Costs & Expenses. All award and administrative costs and expenses
of the Plan shall be borne by the Company.
(h) Non-Transferability of Rights. Except as and to the extent
required by law, a Participant's rights under the Plan may not be assigned or
transferred in whole or in part either directly or by operation of law or
otherwise (except, pursuant to Section 7(f) above, in the event of the
Participant's death), including, but not limited to, by way of execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right of the Participant shall be subject to any obligation or liability of the
Participant other than any obligation or liability owed by the Participant to
the Company (or any of its subsidiaries).
8. Effective Date.
The Plan was adopted by the Board on November 14, 1996,
effective for the Performance Period commencing on or after January 1, 1997,
subject to stockholder approval of the Plan at the 1997 annual shareholders'
meeting. No payments shall be made under the Plan prior to the time such
stockholder approval is obtained in accordance with applicable law. If
approved, the Plan will remain effective until the end of the fiscal year
ending December 31, 2002, unless the Board terminates the Plan earlier.
10
<PAGE>
HOENIG GROUP INC.
1996 LONG-TERM STOCK INCENTIVE PLAN
l. Purpose. The purpose of this 1996 Long-Term Stock Incentive Plan (the
"Plan") of Hoenig Group Inc., a Delaware corporation, is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain, and reward directors, officers and other key employees and consultants
of the Company and its subsidiaries (including consultants providing services
of substantial value) and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including U.S. Stock
Options, U.K. Stock Options, SARs (including Limited SARs), Restricted Stock,
De ferred Stock, Stock granted as a bonus or in lieu of other awards, Dividend
Equivalents, and Other Stock-Based Awards, are set forth in Section 6 of the
Plan. Such awards, together with any other right or interest granted to a
Participant under the Plan, are termed "Awards." For purposes of the Plan, the
following additional terms shall be defined as set forth below:
"Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
"Beneficiary" shall mean the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under
this Plan upon such Participant's death or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
"Board" means the Board of Directors of the Company.
A "Change in Control" shall be deemed to have occurred if:
(i) on the date of the acquisition by any "person" (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company or
any of its subsidiaries, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of 50% or more of either the then outstanding
shares of Stock, or the then outstanding voting securities entitled to vote
generally in the election of directors;
<PAGE>
(ii) on the date the individuals who constitute the Board of Directors as
of the effective date of this Plan ("Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Company,
provided that any person becoming a director subsequent to the effective date
of this Plan whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be, for purposes of this Plan,
considered as though such person were a member of the Incumbent Board; or
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse
stock split of outstanding voting securities, the issuance of shares of stock
of the Company in connection with the acquisition of the stock or assets of
another entity, or consummation of any of the foregoing transactions if
stockholder approval is not sought or obtained, provided, however, that a
Change in Control shall not occur under this clause (iii) if consummation of
the transaction would result in at least 75% of the total voting power
represented by the voting securities of the Company (or if the Company does
not survive, the surviving entity) outstanding immediately after such
transaction being beneficially owned (within the meaning of Rule 13d-3
promulgated pursuant to the Exchange Act) by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
other such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or a substantial portion of the Company's assets (i.e., 85% or
more of the total assets of the Company).
Notwithstanding the foregoing, for the purposes of subsection (i) only,
the definition of "person" shall not include any beneficial holder of more
than 5% of Common Stock as of September 30, 1996, or any person, trust, or
entity which is a successor by will or by the laws of descent and distribution
to any such holder or any combination of such holders or group of such holders
(including, without limitation, any such person or persons acting as a
partnership, limited partnership, syndicate or other group whether formally
organized or not).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
"Committee" means the Compensation and Stock Option Committee of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan. In appointing members of the Committee, the Board will
consider whether each member will qualify as a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) and as an "outside director" within the
meaning of Treasury Regulation 1.162-27(e)(3) under
<PAGE>
Code Section 162(m), but such members are not required to so qualify at the
time of appointment or during their term of service on the Committee.
"Common Stock" means the shares of common stock, $.01 par value per
share, of the Company.
"Company" means Hoenig Group Inc., , a corporation organized under the
laws of the State of Delaware, and any successor thereto; provided that unless
otherwise provided in this Plan, all references in this Plan to employment by
the Company shall include employment by any subsidiary of the Company.
"Covered Employee" means a person defined as a "covered employee" in
Section 162(m)(3) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time. References to any provision of the Exchange Act shall be deemed
to include rules thereunder and successor provisions and rules thereto.
"Fair Market Value" means, with respect to Stock, Awards, or other
property, (i) in the case of U.S. Stock Options and the Stock underlying such
U.S. Stock Options, (a) if the Stock is listed on a securities exchange or is
traded over the NASDAQ National Market System, the closing sales price of the
Stock on such exchange or over such system on such date or, in the absence of
reported sales on such date, the closing sales price on the immediately
preceding date on which sales were reported, or (b) if the Stock is not listed
on a securities exchange or traded over the NASDAQ National Market System, the
mean between the bid and offered prices of the shares as quoted by the
National Association of Securities Dealers through NASDAQ for such date,
provided, that if the Committee determines that the fair market value of the
Stock is not properly reflected by such NASDAQ quotations, the "Fair Market
Value" of the Stock will mean the fair market value as determined by such
other method as the Committee determines in good faith to be reasonable; and
(ii) in the case of U.K. Stock Options and the Share underlying such U.K.
Stock Options, "Fair Market Value" as determined in accordance with the
foregoing clause (i) of this definition, or as agreed from time to time with
the Inland Revenue, if different.
"Inland Revenue" means the Board of the Inland Revenue of the United
Kingdom of Great Britain and Northern Ireland.
"ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
"Non-Employee Director" shall mean a member of the Board who is not
otherwise an employee of the Company or any subsidiary.
<PAGE>
"Participant" means a person who, at a time when eligible under Section 5
hereof, has been granted an Award under the Plan.
"Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
"Stock" means the Common Stock and such other securities as may be
substituted for Stock or such other securities pursuant to Section 4.
"U.K. Stock Option" means a Stock Option granted to a Participant which
is subject to the provisions of Section 6(c) of this Plan.
"U.S. Stock Option" means a Stock Option other than a U.K. Stock Option.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions
of any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating
to transferability or forfeiture, exercisability, or settlement of an
Award, and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in
each case on such considerations as the Committee shall determine), and
all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Stock, other Awards, or other property, or an Award
may be canceled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the
election of the Committee, or at the election of the Participant;
<PAGE>
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary
or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan, including without limitation for the
purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is performing a
function of the Committee under the Plan, each reference to the Committee
herein shall be deemed to refer to the Board.
(b) Manner of Exercise of Committee Authority. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee,
and the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may delegate
to officers or managers of the Company or any subsidiary of the Company the
authority, subject to such terms as the Committee shall determine, to perform
administrative functions and to perform such other functions as the Committee
may determine.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional
retained by the Company to assist in the administration of the Plan. No member
of the Committee, nor any officer or employee of the Company acting on behalf
of the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the
<PAGE>
Committee and any officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action, determination, or interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total number of shares of Stock that
may be delivered pursuant to the exercise or settlement of an Award shall not
in the aggregate exceed (i) 1,000,000 shares plus (ii) the number of shares of
Stock that, on the date of approval of this Plan by the Company's
stockholders, would otherwise have been available under the Company's 1991
Stock Option Plan and 1994 Stock Option Plan (i.e., unused shares), or would
have otherwise become available after such date (i.e., by reason of the
termination, expiration or forfeiture of stock options outstanding under such
plans); provided, however, that shares subject to Awards shall not be deemed
delivered if such Awards are forfeited, expire or otherwise terminate without
delivery of shares to the Participant. If an Award valued by reference to
Stock may only be settled in cash, the number of shares to which such Award
relates shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Options and other Awards under the Plan that may be
settled by delivery of more than 750,000 shares of Stock, subject to
adjustment as provided in Section 4(c). In addition, with respect to Awards
that may be settled in cash (in whole or in part), no Participant may be paid
during any calendar year cash amounts relating to such Awards that exceed the
greater of the Fair Market Value of the number of shares of Stock set forth in
the preceding sentence at the date of grant or the date of settlement of
Award. This provision sets forth two separate limitations, so that awards that
may be settled solely by delivery of Stock will not operate to reduce the
amount of cash-only Awards, and vice versa; nevertheless, Awards that may be
settled in Stock or cash must not exceed either limitation.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan (such event, upon the Committee's
determination, a "Material Change"), then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of
shares of Stock reserved and available for Awards under Section 4(a), (ii) the
number and kind of shares of outstanding Restricted Stock or other outstanding
Award in connection with which shares have been issued, (iii) the number and
kind of shares that may be issued in respect of other outstanding Awards, (iv)
the exercise price, grant price, or purchase price
<PAGE>
relating to any Award (or, if deemed appropriate, the Committee may make
provision for a cash payment with respect to any outstanding Award), and (v)
the number of shares with respect to which Awards may be granted or measured in
any calendar year, as set forth in Section 4(b). In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including, without limitation, cancellation of outstanding
Awards after advance notice thereof or substitution of Awards using stock of a
successor or other entity) in recognition of unusual or non recurring events
(including, without limitation, events described in the preceding sentence and
events constituting a Change in Control) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
With respect to U.K. Stock Options, in the event that a Material Change occurs
and a surviving corporation does not assume all outstanding U.K. Stock Options,
all such outstanding U.K. Stock Options shall continue to be exercisable for a
period of 6 months after the date the Material Change occurs, as determined by
the Committee.
5. Eligibility. Executive officers and other key employees of the Company and
its subsidiaries, including any director or officer who is also such an
employee, and persons who provide consulting or other services to the Company
deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, a person who has
been offered employment by the Company or its subsidiaries is eligible to be
granted an Award under the Plan, provided that such Award shall be canceled if
such person fails to commence such employment, and no payment of value may be
made in connection with such Award until such person has commenced such
employment.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section
8(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Sections 6(f), 6(h), or
7(a), or to the extent required to comply with requirements of the Delaware
General Corporation Law that lawful consideration be paid for Stock, only
services may be required as consideration for the grant (but not the exercise)
of any Award.
(b) U.S. Stock Options. The Committee is authorized to grant Options to
Participants (including "reload" options automatically granted to offset
specified exercises of options) on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee.
<PAGE>
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part,
the methods by which such exercise price may be paid or deemed to be
paid, the form of such payment, including, without limitation, cash,
Stock, other Awards or awards granted under other Company plans, or other
property (including notes or other contractual obligations of
Participants to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by applicable
law), and the methods by which Stock will be delivered or deemed to be
delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted with an
exercise price less than 100% (110% for an individual described in
Section 422(b)(6) of the Code) of the Fair Market Value of a share of
Stock on the date of grant and granted no more than ten years after the
effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be
interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan
or any ISO under Section 422 of the Code, unless requested by the
affected Participant.
(iv) Termination of Employment. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the
Company and its subsidiaries, such Participant may exercise any Options
during the three-month period (or if such termination is by reason of
disability, as determined by the Committee, or death, the one-year
period) following such termination of employment; provided that such
period does not exceed the remaining term of the Option and only to the
extent such Option was exercisable immediately prior to such termination
of employment. Notwithstanding the foregoing, if the Committee determines
that such termination is for cause, all Options held by the Participant
shall immediately terminate.
(c) U.K. Stock Option. A U.K. Stock Option may only be granted to a
person who is a natural person employed by the Company or a subsidiary thereof
(including employees who are also directors and including persons expected to
become employees, in which case such Stock Option shall be effective as of the
date such person is first treated as an employee for payroll purposes) and who
at the time of grant of the Stock Option is resident and ordinarily resident
in the United Kingdom for the purposes of the tax laws of the United Kingdom
and, in the case of a person who is a director, is required to devote not less
than 25 hours per week to duties to the Company and its subsidiaries. No
person who is, or will be, precluded from being an eligible employee or
director with respect to the Company and its subsidiaries by paragraph 8 of
Schedule 9 Taxes Act 1988 shall be eligible to receive a U.S. Stock Option.
The U.K. Stock Option shall be granted on the following terms and conditions:
<PAGE>
(i) Award Agreement. Each U.K. Stock Option shall be clearly
designated as a U.K. Stock Option and shall be evidenced by an Award
Agreement in such form as the Committee may determine from time to time,
which agreement shall not require consideration, but shall be under seal.
(ii) Shares. Shares of Stock purchased pursuant to the exercise of
U.K. Stock Options shall not be redeemable, shall be fully paid upon
their issuance and shall not be subject to any restriction other than
those applicable to all other shares.
(iii) Exercise Price. The exercise price of U.K. Stock Options shall
be fixed by the Committee but no U.K. Stock Option shall be granted with
an exercise price which is less than 100% of the Fair Market Value of the
underlying Stock at the time such U.K. Stock Option is granted.
(iv) Exercise Period. No U.K. Stock Option shall be exercisable more
than 10 years after it is granted.
(v) Termination of Employment. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the
Company and its subsidiaries, such Participant may exercise any U.K.
Stock Options during the three-month period (or if such termination is by
reason of disability, as determined by the Committee, or death, the
one-year period) following such termination of employment; provided such
period does not exceed the remaining term of the U.K. Stock Option and
only to the extent such U.K. Stock Option was exercisable immediately
prior to such termination of employment. Notwithstanding the foregoing,
if the Committee determines that such termination is for cause, all U.K.
Stock Options held by the Participant shall immediately terminate.
(vi) Allotment. Within 30 days of the date of exercise of any U.K.
Stock Option, shares of Stock shall be allotted to the Participant or
shares of Stock shall be delivered to the Participant, as the case may
be. The allotment or delivery of the shares shall be evidenced by the
issuance of a stock certificate within 30 days of the date of exercise of
such U.K. Stock Option. If a Participant with respect to a U.K. Stock
Option exercises such Stock Option but does not elect to purchase Stock
equal to the full number of shares evidenced by the Stock Option, the
Company shall automatically issue to such Optionee, within 30 days of the
date of such exercise, a further U.K. Stock Option Agreement entitling
the Optionee to acquire shares of Stock on terms equivalent to the U.K.
Stock Option so exercised but subject to the limitation that the new U.K.
Stock Option so granted will only be for a number of shares of Stock
which, when aggregated with the shares purchased pursuant to such prior
exercises, does not exceed the number of shares of Stock covered by the
partially exercised U.K. Stock Option.
<PAGE>
(vii) Payments. For the avoidance of doubt, a payment with respect
to the exercise of a U.K. Stock Option in the form of a bank draft drawn
on a bank acceptable to the Committee for the full amounts due in the
lawful currency of the United States of America and including any charges
for the collection of the said bank draft shall be considered, at the
sole discretion of the Committee, to be cash.
(viii) Certain Acquisitions. If any person (which shall include
another company) obtains more than 50% of the issued share capital of the
Company as a result of making:
(x) a general offer to acquire the whole of the issued share
capital of the Company which is made on a condition such that if it
is satisfied the person making the offer will have more than 50% of
the issued share capital of the Company; or
(y) a general offer to acquire all of the shares in the
Company,
then any U.K. Stock Options granted will be subject to the terms of
Section 4(c) of this Plan.
(ix) Disqualifying Dispositions. If Stock acquired by exercise of a
U.K. Stock Option are sold or otherwise disposed of within two years
after the date of grant of the U.K. Stock Option or within one year after
the transfer of such Stock to the Optionee, the holder of the Stock
immediately prior to the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such
other information regarding the disposition as the Company may reasonable
require in order to secure any deduction then available against the
Company's or any other corporation's taxable income.
Any U.K. Stock Option granted to eligible employees or eligible
directors shall be limited and take effect so that the aggregate Fair
Market Value of the Stock subject to such U.K. Stock Option, when
aggregated with the Fair Market Value of the Stock subject to Stock
Options previously granted (and which have not been exercised, cancelled
or lapsed) to that employee or director, shall not exceed (pound)30,000.:
(x) Fair Market Value. In the event that the Fair Market Value of
any Stock with respect to which a U.K. Stock Option is granted cannot be
determined pursuant to the definition of "Fair Market Value" as set forth
in this Plan, then the proviso in such definition shall not apply unless
such Fair Market Value is agreed to by the Inland Revenue of the United
Kingdom.
<PAGE>
(xi) Amendments. All amendments to this Plan with respect to U.K.
Stock Options which shall include, without limitation, any variations
made by the Company as provided for in Section 4(b) and 4(c) shall be
notified to the Board of the Inland Revenue within 30 days of the
amendments being made and no amendments shall have effect until approved
by the Inland Revenue.
(d) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise
(or, if the Committee shall so determine in the case of any such right
other than one related to an ISO, the Fair Market Value of one share at
any time during a specified period before or after the date of exercise),
over (B) the grant price of the SAR as determined by the Committee as of
the date of grant of the SAR, which, except as provided in Section 7(a),
shall be not less than the Fair Market Value of one share of Stock on the
date of grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of
exercise, method of settlement, form of consideration payable in
settlement, method by which Stock will be delivered or deemed to be
delivered to Participants, whether or not an SAR shall be in tandem with
any other Award, and any other terms and conditions of any SAR. Limited
SARs that may only be exercised upon the occurrence of a Change in
Control may be granted on such terms, not inconsistent with this Section
6(c), as the Committee may determine. Limited SARs may be either
freestanding or in tandem with other Awards.
(e) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as
the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Except to the
extent restricted under the terms of the Plan and any Award Agreement
relating to the Restricted Stock, a Participant granted Restricted Stock
shall have all of the rights of a stockholder including, without
limitation, the right to vote Restricted Stock or the right to receive
dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted
<PAGE>
Stock that is at that time subject to restrictions shall be forfeited and
reacquired by the Company; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in
part in the event of termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, the Company shall retain physical possession of the
certificate, and the Participant shall have delivered a stock power to
the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends,
or the payment of such dividends shall be deferred and/or the amount or
value thereof automatically reinvested in additional Restricted Stock,
other Awards, or other investment vehicles, as the Committee shall
determine or permit the Participant to elect. Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to
which such Stock or other property has been distributed.
(f) Deferred Stock. The Committee is authorized to grant Deferred Stock
to Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected by
the Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments, or otherwise, as
the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that
is at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided, however, that
the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
<PAGE>
or forfeiture conditions relating to Deferred Stock will be waived in
whole or in part in the event of termination resulting from specified
causes.
(g) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements (including the Company's Section 162(m) Cash Bonus Plan). Stock
or Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(h) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash,
Stock, other Awards, or other property equal in value to dividends paid with
respect to a specified number of shares of Stock. Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards, or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(i) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the book value of Stock or the
value of securities of or the performance of specified subsidiaries. The
Committee shall determine the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under
this Section 6(i) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation,
cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award
under the Plan, may be granted pursuant to this Section 6(i).
(j) Non-Employee Directors Options. Upon appointment to the Board and in
three year intervals thereafter, each person who is a Non-Employee Director
shall receive, without the exercise of the discretion of any person, a
non-qualified stock option under the Plan relating to the purchase of 10,000
shares of Stock. In the event that there are not sufficient shares available
under this Plan to allow for the grant to each Non-Employee Director of an
Option for the number of shares provided herein, each Non-Employee Director
shall receive an Option for his pro rata share of the total number of shares
of Stock available under the Plan. The exercise price of each share of Stock
subject to an Option granted to a Non-Employee Director shall equal the Fair
Market Value of a share of Stock on the date such Option is granted. Each such
Option shall have a term of five
<PAGE>
years from its grant and shall become exercisable as to 4,000 shares on the
first anniversary of the date the Option is granted, and as to 3,000 shares on
each of the second and third anniversaries thereof. Upon a Non-Employee
Director's cessation of service as a Non-Employee Director, no further Options
shall be granted, and each Option then outstanding, to the extent it was
exercisable upon such cessation, shall remain exercisable for a period of
three months, unless otherwise determined by the Board.
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan
of the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Awards granted in addition to or
in tandem with other Awards or awards may be granted either as of the same
time as or a different time from the grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of
ten years from the date of its grant (or such shorter period as may be
applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock,
other Awards, or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. Such payments may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred payments
denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities, including derivative securities, acquired
under the Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan must be held for
a period of six months following the date of such acquisition, provided
that this condition shall be satisfied with respect to a derivative
security if at least six months elapse from the date of acquisition of
the derivative security to the
<PAGE>
date of disposition of the derivative security (other than upon exercise
or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
is then subject to Section 16 of the Exchange Act in respect of the
Company, the Committee shall implement transac tions under the Plan and
administer the Plan in a manner that will ensure that each transaction by
such a Participant is exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Participant
regarding the non-exempt nature of such transaction. The Committee may
authorize the Company to repurchase any Award or shares of Stock
resulting from any Award in order to prevent a Participant who is subject
to Section 16 of the Exchange Act from incurring liability under Sec tion
16(b). Unless otherwise specified by the Participant, equity securities,
including derivative securities, acquired under the Plan which are
disposed of by a Participant shall be deemed to be disposed of in the
order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
provisions applicable to the Company, the Company may make, guarantee, or
arrange for a loan or loans to a Participant with respect to the exercise of
any Option or other payment in connection with any Award, including the
payment by a Participant of any or all federal, state, or local income or
other taxes due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or loans
hereunder and to determine the amount, terms, and provisions of any such loan
or loans, including the interest rate to be charged in respect of any such
loan or loans, whether the loan or loans are to be with or without recourse
against the borrower, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to
the achievement of performance conditions as a performance-based Award subject
to this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to
this Section 7(f) shall consist of one or more business criteria and a
targeted level or levels of performance with respect to such criteria, as
specified by the Committee but subject to this Section 7(f). Performance
objectives shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code and regulations thereunder. Business criteria
used by the Committee in establishing performance objectives for Awards
subject to this Section 7(f) shall be based on the criteria set forth in the
Company's Section 162(m) Cash Bonus
<PAGE>
Plan. Performance objectives may differ for such Awards to different
Participants. The Committee shall specify the weighting to be given to each
performance objective for purposes of determining the final amount payable
with respect to any such Award. The Committee may, in its discretion, reduce
the amount of a payout otherwise to be made in connection with an Award
subject to this Section 7(f), but may not exercise discretion to increase such
amount, and the Committee may consider other performance criteria in
exercising such discretion. All determinations by the Committee as to the
achievement of performance objectives shall be in writing. For purposes of
this Section 7(f), the Committee shall consist of the individuals who serve on
the "Plan Committee" under the Company's Section 162(m) Cash Bonus Plan.
(g) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, all conditions and/or restrictions relating
to the continued performance of services and/or the achievement of performance
objectives with respect to the exercisability or full enjoyment of an Award
shall immediately lapse upon a Change in Control, provided, however, that such
lapse shall not occur if (i) it is intended that the transaction constituting
such Change in Control be accounted for as a pooling of interests under
Accounting Principles Board Option No. 16 (or any successor thereto), and
operation of this Section 7(g) would otherwise violate Paragraph 47(c)
thereof, or (ii) the Committee, in its discretion, determines that such lapse
shall not occur, provided, further, that the Committee shall not have the
discretion granted in clause (ii) if it is intended that the transaction
constituting such Change in Control be accounted for as a pooling of interests
under Accounting Principles Board Option No. 16 (or any successor thereto),
and such discretion would otherwise violate Paragraph 47(c) thereof.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal
or state securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation
system, or any other law, regulation, or contractual obligation of the
Company, until the Company is satisfied that such laws, regulations, and other
obliga tions of the Company have been complied with in full. Certificates
representing shares of Stock issued under the Plan will be subject to such
stop-transfer orders and other restrictions as may be applicable under such
laws, regulations, and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered,
or otherwise subject to the claims of creditors, and, in the case of ISOs and
SARs in tandem therewith, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or
<PAGE>
legal representative; provided, however, that such Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or
more transferees during the lifetime of the Participant to the extent and on
such terms as then may be permitted by the Committee.
(c) No Right to Continued Employment. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee the right to be
retained in the employ of the Company or any of its subsidiaries, nor shall it
interfere in any way with the right of the Company or any of its subsidiaries
to terminate any employee's employment at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with
an Award, any other payment relating to an Award, or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations; in such case, the shares withheld shall be deemed to have been
delivered for purposes of Section 4(a).
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which
the record date is after such Board action if such stockholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed
or quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to stockholders for approval; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under any Award
theretofore granted to him. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or
employee shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Participants and
employees. No Award shall confer on any Participant any of the rights of a
stockholder of the Company unless and until Stock is duly issued or
transferred and delivered to the Participant in accordance with the terms of
the Award or, in the case of an Option, the Option is duly exercised.
<PAGE>
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obliga tions under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent
of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt
such other compensatory arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu
of such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options granted with an exercise price per share at least equal to the
Fair Market Value of the Stock on the date the Option is granted, SARs and
other Awards designated as Awards subject to Section 7(f) shall constitute
"qualified performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, if any provision of the Plan
or any Award Agreement relating to such an Award does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements, and no provision shall be deemed to
confer upon the Committee or any other person discretion to increase the
amount of compensation otherwise payable in connection with any such Award
upon attainment of the performance objectives.
(k) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement shall
be determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date; Plan Termination. The Plan shall become effective as
of the date of its adoption by the Board and shall continue in effect until
terminated by the
<PAGE>
Board, provided, however, that any Awards granted prior to the approval of such
adoption by the Company's stockholders shall be granted conditional upon such
approval.
<PAGE>
EXHIBIT 11.1
HOENIG GROUP INC.
COMPUTATION OF EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ----- ------
PRIMARY/ PRIMARY/
EARNINGS: PRIMARY FULLY DILUTED FULLY DILUTED FULLY DILUTED
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . $2,886,787 $2,886,787 $4,919,345 $2,596,435
========== ========== ========== ==========
NUMBER OF SHARES:
Weighted average shares outstanding . . . . 9,253,557 9,253,557 9,745,372 10,193,681
Shares issuable upon exercise of
options and warrants . . . . . . . . . . 137,559 353,531 62,706 69,333
---------- ---------- ---------- ----------
Weighted average shares and equivalents
outstanding . . . . . . . . . . . . . . 9,391,116 9,607,088 9,808,078 10,263,014
============== ============== =============== ===============
Earnings per share . . . . . . . . . . . . $ .31 $ .30 $ .50 $ .25
============== ============== =============== ===============
</TABLE>
(1) Earnings per share was calculated utilizing the Treasury Stock method.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Hoenig & Co., Inc.*
Royal Executive Park
4 International Drive
Rye Brook, New York 10573
Incorporated in Delaware, April 1970.
Hoenig (Far East) Limited*
3404 Lippo Tower - Lippo Centre
89, Queensway
Central, Hong Kong
Incorporated in Hong Kong under the Companies Ordinance, January 1990.
Hoenig & Company Limited*
5 London Wall Buildings
Finsbury Circus
London EC2M 5NT
United Kingdom Registered Company, September 1985.
Axe-Houghton Associates, Inc.*
Royal Executive Park
4 International Drive
Rye Brook, New York 10573
Incorporated in Delaware, March 1984.
* 100% owned subsidiary of Hoenig Group Inc.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
(Form S-8 No. 33-84630) pertaining to the Hoenig Group Inc. 1994 Stock Option
Plan and the Registration Statement (Form S-8 No. 333-17435) pertaining to
the Hoenig Group Inc. 1996 Employee Stock Purchase Plan, of our report dated
March 18, 1997, with respect to the consolidated financial statements of
Hoenig Group Inc. and its subsidiaries included in the Annual Report on Form
10-K for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York
March 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HOENIG GROUP INC. DECEMBER 31, 1996 FORM 10K AND IS QUALIFIED IN ITS ENTIRETY
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,307,886
<RECEIVABLES> 6,600,455
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 18,744,761
<PP&E> 2,090,649
<TOTAL-ASSETS> 51,527,895
<SHORT-TERM> 0
<PAYABLES> 870,072
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 107,634
<OTHER-SE> 37,743,656
<TOTAL-LIABILITY-AND-EQUITY> 51,527,895
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,577,749
<COMMISSIONS> 64,015,412
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 5,616,415
<INTEREST-EXPENSE> 0
<COMPENSATION> 17,150,265
<INCOME-PRETAX> 4,966,811
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,886,787
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
