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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, 1997
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 common stock held by non-affiliates
of the Registrant as of March 27, 1998: common stock par value $.01 per share,
$33,579,081.
As of March 27, 1998 there were 9,063,539 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Proxy Statement for the 1998 Annual Meeting
of Stockholders are incorporated by reference in Part III as set forth herein.
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PART I
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Item 1. Business
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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 other services to institutional investors. Through its asset management
subsidiary, Axe-Houghton Associates, Inc. ("Axe-Houghton"), the Company
provides professional investment management services to public and corporate
employee benefit plans, investment partnerships and other institutional
clients. The term "Company" refers to Hoenig Group Inc. and its operating
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 brokerage clients with execution services for equity and fixed
income securities transactions. Approximately 80% 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 11
to the Financial Statements for specific information regarding operating
revenues and operating profits by location and operating revenues by
geographic region.
GLOBAL SECURITIES BROKERAGE
The principal activity of the Company is providing quality global trade
execution services to institutional customers. The Company also provides its
customers with proprietary and independent third-party research and other
services.
INDEPENDENT RESEARCH
The Company actively markets and distributes independent third-party
research products and services to professional investment managers with the
expectation that these managers will use the Company to execute 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 400 independent sources and regularly
communicates the availability and suitability of these products and services
to its customers.
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 database systems, fixed income research services, software
for securities analysis, portfolio management and performance measurement
services. Many of these services are available directly from the research
analyst or service provider, as well as from other brokerage firms, including
specialty firms offering only independent research and firms that provide
proprietary research.
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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 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.
An important facet of the relationship between the Company and
independent research providers is the active cooperation the Company provides
in introducing products to new customers and identifying new research
requirements. Almost all of the Company's research relationships are
non-exclusive arrangements.
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 pays certain expenses of the customer, such as custodian fees, or
refunds 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" also has been used to refer to Directed
Brokerage Arrangements.
The Company generally expects a certain amount of 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 ratios
applied by the Company have been, and continue to be, under competitive
pressure in the United States, as well as in the United Kingdom, Europe and
Asia.
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 expectation and the commissions generated during the period.
Although these are extremely competitive businesses, management
believes that its global execution capabilities and its knowledge of, and
relationships with, numerous third-party service providers enable it to
compete effectively for Independent Research and Directed Brokerage business.
The Company also has committed resources to enhancing its information systems
to meet customer reporting and other business needs and expects to continue to
make such investments.
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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.
Dr. Barbera and Mr. Rasco produce a weekly report, which discusses
global economic events and market developments, as well as provides economic
forecasts. They also produce interim reports which address important economic
and market developments as they occur, and they 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 generally 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.
EXECUTION-ONLY SERVICES
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
liquidations 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 the particular portfolio
needs of customers. This is a growing part of the Company's Execution-Only
Brokerage business.
The Company derived approximately 20% of its commission revenues in
1997 and 16% in 1996 from Execution-Only Brokerage and Proprietary Research.
Execution-Only Brokerage represented 13% of total commission revenues in 1995.
SALES AND MARKETING
As of December 31, 1997, the sales and marketing staff for the
Company's global brokerage business comprised seventeen (17) full-time
professionals: eleven (11) in the United States, three (3) in London, two (2)
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.
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 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
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custodians selected by the 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.
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 maintains settlement accounts with
various banks and brokerage firms throughout the world with respect to
transactions in Asian securities other than those listed on The Stock Exchange
of Hong Kong. The Company pays a fee to its clearing and settlement agents
based on a fixed amount per transaction. Commissions, net of clearing
expenses, are remitted 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. 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
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 31, 1997, Axe-Houghton's assets under management were
$3.82 billion, as compared with $4.27 billion at the end of 1996. Assets under
management decreased in 1997 due to the end of a temporary assignment from one
client to manage approximately $1.1 billion. This decrease was offset in part
by increases in assets managed by Axe-Houghton in other investment
disciplines, with the greatest growth in assets managed in small
capitalization growth equities. Approximately $474 million of assets under
management at December 31, 1997 represent a temporary assignment which is
intended to be of limited duration, as compared to temporary assignments of
$1.46 billion at December 31, 1996 and $1.27 billion as of December 31, 1995.
Assets under management as of February 28, 1998 were $4.21 billion, of which
$708 million represents assets managed in small capitalization growth equities
and $479 million was the temporary assignment.
Growth in assets under management is dependent on numerous factors,
including Axe-Houghton's ability to attract new clients, its investment
performance, the number and variety of investment disciplines offered, the
capacity limitations of a particular investment discipline, such as small
capitalization growth equities, the market performance of various investment
disciplines, as well as the performance of the securities markets in general.
Axe-Houghton does not expect to accept any new clients for small
capitalization growth equities management after the first quarter 1998 because
of capacity limitations, which could limit the growth in assets under
management and management fee revenues.
Axe-Houghton's marketing department consists of three (3) full-time
professionals. These individuals work directly with potential clients, as well
as various investment management consulting firms, to introduce
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Axe-Houghton's various investment disciplines and performance records to
institutional clients. They also provide client service to managed accounts.
The Company intends to continue to seek and evaluate, through
acquisition or otherwise, opportunities in asset management and other
financial service businesses which complement the Company's existing
businesses.
EMPLOYEES
At December 31, 1997, the Company employed one hundred seventeen (117)
persons on a full-time basis, of whom eight (8) were in executive positions,
thirty-three (33) in floor positions or positions as brokers, twenty (20) in
sales and marketing positions, fifteen (15) in accounting, legal and
compliance positions, nine (9) in investment positions and thirty-two (32) in
clerical or other positions. Of the one hundred seventeen (117) employees,
sixty-seven (67) are employed by Hoenig, including seven (7) in Tokyo, five
(5) by Hoenig Group Inc., fifteen (15) by Axe-Houghton, seventeen (17) by Far
East, and the remaining thirteen (13) are employed by 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 April 8, 1998, employment contracts between Axe-Houghton and
certain of its employees expire. These contracts were entered into at the time
the Company acquired Axe-Houghton with each of the seven employee-shareholders
who sold their interests in Axe-Houghton to the Company. Of these seven
employees, two who are responsible for small capitalization growth equities
management have executed new employment arrangements, one has indicated that
he will retire after April 8, 1998, and Axe-Houghton currently is negotiating
new employment arrangements with the remaining four. While the Company
anticipates that these negotiations will result in mutually satisfactory
employment arrangements with these individuals, no assurances can be given as
to when or how the negotiations will conclude. The financial results of
Axe-Houghton could be adversely affected if such negotiations are not
successfully resolved.
CUSTOMER RELATIONSHIPS
The Company has existing brokerage relationships with over 500
institutional customers worldwide. The Company's 10 and 20 largest customers
accounted for 27.7% and 39.5%, respectively, of total revenues for the year
ended December 31, 1997 and 29.2% and 40.8%, respectively, of the total
revenues for the year ended December 31, 1996. 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, 1997, 1996 and 1995.
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 many of 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), their relatives and friends of the
Company. The Company does not compete for retail business.
As of December 31, 1997, the Company had thirty-six (36) advisory
clients which maintained fifty-two (52) investment advisory accounts. Four of
these accounts are maintained by affiliates. One account, representing $474
million in assets under management as of December 31, 1997, is a temporary
assignment from one client.
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COMPETITION
The institutional brokerage and asset management businesses are very
competitive. Such competition not only affects the Company's ability to
compete for new clients, but also its ability to attract and retain highly
skilled employees. 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 the Independent Research provided by the Company, as
well as other types of research and brokerage services not offered by the
Company. 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 existing
operations.
The quality and cost of execution are the primary considerations 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 or is able to
execute transactions at a lower cost.
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.
The Company's asset management business competes with registered
investment advisers, full-service brokerage firms, mutual funds, banks, trust
companies, 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 charged 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 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.
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. 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.
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Hoenig's Tokyo office is subject to regulation by the Japanese Ministry of
Finance (the "MOF") 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 asset management operations. Additional legislation,
changes in rules promulgated by the SEC, the SFA, the SFC, the MOF 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
certain 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 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 third-party research, as well as
proprietary research.
Section 28(e) permits money managers and other investment fiduciaries
to obtain research and brokerage services 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
paid 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. Section 28(e)
does not relate to Directed Brokerage Arrangements, which generally are
governed by contractual agreements and state or federal laws, including the
Employee Retirement Income Security Act of 1974 ("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. 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 purposes of the examinations were 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 has concluded its
examinations and that it is in the process of preparing a report detailing the
results of the examinations. The SEC staff has not issued its report, but
reportedly has stated that it will be issued sometime during the second
quarter 1998. The SEC staff has not stated whether the report will be made
public. The SEC has not proposed specific rule changes or issued new
interpretations relating to soft dollar practices.
In addition, in 1997, the Advisory Council on Employee Welfare and
Benefit Plans created a working group (the "Advisory Council Group") to study
the need for regulatory changes and/or additional disclosure by U.S. pension
plan sponsors and fiduciaries on soft dollar and directed brokerage practices.
The Advisory Council Group held five public hearings during which it heard
testimony from industry and government representatives and also considered
written materials and public comment on soft dollars and directed brokerage.
The Advisory Council Group published a report in November 1997, which included
recommendations to the Department of Labor and the SEC regarding regulatory or
statutory changes and recommendations to plan sponsors and other fiduciaries
regarding how soft dollar and directed brokerage arrangements should be
handled. The regulatory and statutory recommendations advocate that the
Department of Labor and the SEC require additional disclosure of soft dollar
and directed brokerage activities and tighten the definition of research under
Section 28(e). The report also contains a recommendation from a minority of
the Advisory Council Group that the Section 28(e) safe harbor be repealed with
respect to fiduciaries of
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employee benefit plans only. Neither the Department of Labor nor the SEC has
acted or commented on the Advisory Council Group report and recommendations.
In addition, various industry associations, including the Securities
Industry Association ("SIA"), the Investment Company Institute ("ICI") and the
Association for Investment Management and Research ("AIMR"), have convened
panels to review soft dollar and directed brokerage practices. In November
1997, the SIA issued Soft Dollar Best Practices for brokers engaged in soft
dollar and other commission arrangements. AIMR has issued for comment proposed
Soft Dollar Standards which provide guidance for investment managers who
receive proprietary and independent research from brokers and/or are involved
in Directed Brokerage Arrangements. To date, the ICI soft dollar panel has not
published any report or guidelines.
It is difficult to assess the effect, if any, that the SEC special
examinations, the Advisory Council Group report and these industry association
panels will have on the Company's brokerage business. Any changes that limit
or narrow 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.
In June 1997, the Japanese Securities and Exchange Council issued a
report recommending comprehensive reform of the Japanese securities markets.
These reforms will be phased in beginning in April 1998 through 2000 and are
intended to promote a more liberalized market driven by competition and market
forces, rather than government regulation. One of the most significant of
these reforms is the deregulation of commissions, which will begin in April
1998 and is expected to be completed by the end of 1999. If these reforms are
instituted, there is likely to be increased opportunities for the Company in
Japan as well as increased competition.
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, 1997, Hoenig's net capital ratio was .89 to 1. The capital
requirement of Hoenig's Tokyo branch office at December 31, 1997 was
Yen70,000,000 ($537,000). Limited is required to maintain financial resources
of at least 110% of its capital requirement (as defined). 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 minimum
capital requirements for each brokerage subsidiary:
<TABLE>
<CAPTION>
Minimum Actual
Required Capital Capital Excess of Requirement
----------------------------- -------------------------- -----------------------------
<S> <C> <C> <C>
Hoenig & Co., Inc. $ 613,000 $10,338,000 $ 9,725,000
Hoenig & Company Limited (pounds369,000) $ 610,000 (pounds1,217,000) $ 2,010,000 (pounds848,000) $ 1,401,000
Hoenig (Far East) Limited (HK$ 18,075,000) $ 2,333,000 (HK$37,866,000) $ 4,889,000 (HK$19,791,000) $ 2,555,000
</TABLE>
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Item 2. Properties
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The Company's headquarters occupies office space of approximately
28,000 square feet at Royal Executive Park, 4 International Drive, Rye Brook,
New York 10573, including 15,000 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 addition, the Company leases office space in New Rochelle, NY, New
York, Boston, London, Hong Kong, and Tokyo totaling approximately 10,000
square feet. These leases expire or are terminable at various times in 1998
through 2002.
Item 3. Legal Proceedings
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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, and certain current and former
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 all but
one of the individual defendants but denied the motions of Hoenig Group and
Hoenig to dismiss the complaint. 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.
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 and
Hoenig. Mr. Hellman filed a motion to reargue this decision, which was denied
on December 13, 1996. He also filed an appeal of the summary judgment decision
in favor of Hoenig Group and Hoenig, which was denied on November 24, 1997. On
February 10, 1998, Mr. Hellman filed a motion in New York Supreme Court,
Appellate Division, Second Department, requesting leave to appeal to the New
York Court of Appeals, which motion 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, 1996 and was
referenced in the Company's Form 10-Q for the second quarter ended June 30,
1997.
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 1997.
10
<PAGE>
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 National Market
("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,
1997:
DIVIDENDS
PERIOD ENDED COMMON STOCK PER SHARE
- ------------ ---------------- ----------
HIGH LOW
---- ----
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
March 31, 1997 5.875 4.625 -
June 30, 1997 6.125 4.0625 -
September 30, 1997 6.0 5.0 -
December 31, 1997 6.625 5.25 -
Based on information supplied by Continental Stock Transfer & Trust
Company, the Company's transfer agent, the Company believes that there were
approximately 563 holders of record and beneficial owners of Common Stock on
March 27, 1998. The closing price of the Common Stock was $6.6875 on March 27,
1998.
On February 20, 1997, the Company's Board of Directors voted to
discontinue the payment of its regular quarterly dividend of $0.025 per share.
Item 6. Selected Financial Data
- --------------------------------
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenues $ 76,315 $ 70,030 $ 53,527 $ 59,046 $ 58,371
Operating income (loss) 3,900 3,230 (1,862) 4,594 7,231
Net investment income (loss) & other 2,097 1,737 7,252 (121) 1,945
Income before income taxes 5,997 4,967 5,389 4,473 9,176
Net income 3,580 2,887 4,919 2,596 5,347
Net income per share basic(2) .38 .31 .50 .25 .52
Net income per share diluted(2) .37 .31 .50 .25 .49
Dividends per share - .10 .10 .125 .10
Weighted average shares and
equivalents outstanding(2) 9,771 9,391 9,881 10,263 10,863
</TABLE>
11
<PAGE>
Year ended December 31,
------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
BALANCE SHEET DATA
Total assets 61,021 51,528 45,135 40,573 45,474
Stockholders' equity 39,526 37,851 34,458 33,034 33,992
- ------------------------
1. Certain reclassifications have been made to the Income Statement for 1993
to conform to the 1994 Income Statement presentation.
2. See footnote 15 to the Financial Statements for information regarding
changes to the earnings per share computation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Certain statements in this report that relate to future plans, events
or performance are forward-looking statements. Such statements may include,
but are not limited to, those relating to the effects of future growth, cost
reduction measures taken in certain international operations, acquisition and
expansion plans, plans to address the Year 2000 issue and other technology
issues, the Company's investment activities and its current equity capital
levels. Actual results might differ materially due to a variety of important
factors that cannot be predicted with certainty. These factors involve risks
and uncertainties relating to, among other things, general economic
conditions, market fluctuations, competitive conditions within the brokerage
and asset management businesses, stock market prices and trading volumes,
changes in demand for asset management and securities brokerage services, the
Company's ability to recruit and retain key employees, changes in U.S. and
foreign securities laws and regulations, particularly regarding Independent
Research and Directed Brokerage Arrangements, trading and investment
activities, litigation and other factors discussed throughout this report.
See "Business - Competition," " - Regulation."
INTRODUCTION
The Company provides global securities brokerage to institutional
clients through its wholly-owned brokerage subsidiaries in the United States,
United Kingdom, Hong Kong and Tokyo. The Company's wholly-owned subsidiary,
Axe-Houghton Associates, Inc., provides professional asset 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
primarily as agent for its customers, 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 types of brokerage services: commissions
received in connection with 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 connection with
providing proprietary research ("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's profit margin on Execution-Only Brokerage and Proprietary
Research 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 such activities. The percentage of the
Company's total commission revenues attributed to Proprietary Research and
Execution-Only Brokerage increased to 20% in 1997 as compared with 16% in
1996. The Company did not offer Proprietary Research in 1995. Execution-Only
Brokerage in 1995 represented 13% of total commission revenues.
12
<PAGE>
The Company generally expects a certain amount of commissions for every
$1 in research, other services and commission refunds provided under
Independent Research Arrangements and Directed Brokerage Arrangements. This
ratio is negotiated on an individual customer basis. Ratios continue to be
under downward competitive pressure in most of the markets in which the
Company conducts brokerage activities. The Company's earnings in any period
are affected by its ability to earn commissions under Independent Research and
Directed Brokerage Arrangements on a timely basis, since revenues are recorded
only when earned. The timing of the receipt of these commissions could cause
variations in earnings from year to year and quarter to quarter.
The Japanese markets generally were weak during 1997, as Japan's rate
of economic growth and its financial markets remained sluggish throughout the
year. The financial markets in Southeast Asia also experienced difficulty in
the fourth quarter of 1997, resulting in significant volatility and overall
declines in Southeast Asian markets, as well as reduced trading volumes. These
dramatic market declines and reduced trading activity recently have resulted
in a decline in commission revenues earned by the Company in Japan and
Southeast Asian markets. Continued declines in commission revenues in Japan
and Southeast Asia could have a material adverse effect on the Company's Asian
brokerage operations (as defined below).
The Company's second largest source of revenues is investment
management fees earned by Axe-Houghton, 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, 1997, Axe-Houghton had $3.82 billion in assets under management,
of which approximately $474 million represents a temporary assignment.
Growth in assets under management is affected by numerous factors,
including the ability to attract new clients, investment performance results,
the number and variety of investment disciplines offered and capacity
limitations of such disciplines, such as small capitalization growth equities,
the market performance of particular investment disciplines, as well as the
performance of the securities markets generally. As of February 28, 1998,
Axe-Houghton had total assets under management of $4.21 billion of which
approximately $708 million represents assets managed in small capitalization
growth equities. Axe-Houghton charges its highest fees for small
capitalization growth equities management. Axe-Houghton does not expect to
accept any new clients in this investment discipline after the first quarter
1998 because of capacity limitations, which could limit its growth in assets
under management and management fee revenues.
On April 8, 1998, employment contracts between Axe-Houghton and
certain of its employees expire. These contracts were entered into at the time
the Company acquired Axe-Houghton with each of the seven employee-shareholders
who sold their interests in Axe-Houghton to the Company. Of these seven
employees, two who are responsible for small capitalization growth equities
management have executed new employment arrangements, one has indicated that
he will retire after April 8, 1998 and Axe-Houghton currently is negotiating
new employment arrangements with the remaining four. While the Company
anticipates that these negotiations will result in mutually satisfactory
employment arrangements with these individuals, no assurances can be given as
to when or how the negotiations will conclude. The financial results of
Axe-Houghton could be adversely affected if such negotiations are not
successfully resolved.
With respect to its asset management and brokerage businesses, the
Company continues 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, 1997 VERSUS DECEMBER 31, 1996
The Company's operating income before income taxes for 1997 increased
20.7% to $3.9 million versus $3.2 million in 1996. The increase in operating
income is primarily attributed to a 8.1% increase in commission revenues, a
19.1% increase in investment management fee revenues, as well as an increase
in the Company's overall operating margins. This increase in operating margins
is primarily attributable to increased
13
<PAGE>
revenues generated by Axe-Houghton, as well as a reduction in the Company's
execution and settlement costs related to trades executed on The Stock
Exchange of Hong Kong. The Company's net income for the twelve months ended
December 31, 1997 was $3.6 million versus $2.9 million in the same period in
1996.
Operating revenues increased 9.0% to $76.3 million for the year ended
December 31, 1997 from $70.0 million for the year ended December 31, 1996.
Commission revenues, the principal source of the Company's revenues, increased
8.1% to $69.2 million for the year ended December 31, 1997 from $64.0 million
for the year ended December 31, 1996. The increase in commission revenues
resulted primarily from higher trading volume in the U.S. and Hong Kong equity
markets. Commission revenues from international locations represented 32.7% of
the Company's total commissions, as compared to 34.6% for the same period in
1996. See Note 11 to the Financial Statements for information regarding
operating revenues and operating profits by location and operating revenues by
geographic region.
The Company's United States brokerage operating revenues increased
11.2%, primarily due to increased commission revenues generated in the U.S.
equity and Fixed income markets. Operating profits for United States brokerage
decreased 1.0% due to an increase in infrastructure costs. These costs
included compensation and office-related expenses associated with the addition
of sales, client service and trading personnel who were hired in 1997 as part
of an effort to expand the Company's brokerage network and account base.
The financial results of the Company's United Kingdom's brokerage
operations in 1997 basically were unchanged as compared to 1996. Operating
revenues were $8.85 million in 1997 as compared to $8.69 million in 1996.
United Kingdom brokerage experienced an operating loss of $241,000 in 1997 as
compared to a loss of $228,000 in 1996.
In 1997, operating revenues of the Company's Hong Kong and Tokyo
brokerage operations ("Asian Brokerage") increased 2.5% as compared to 1996,
resulting from increased operating revenues in Hong Kong offset by decreased
operating revenues in Tokyo. Operating profits for Asian Brokerage decreased
84.8% in 1997 as a result of increased operating losses in Tokyo which more
than offset increased operating income in Hong Kong. In late 1997, the Company
began a process of restructuring its Tokyo brokerage operations in an effort
to reduce operating costs. The Company expects to continue that process in
1998, but no assurances can be made that such cost reduction efforts will be
successful in reducing operating losses in Tokyo in 1998.
Investment management fee revenues increased 19.1% to $6.7 million in
1997 from $5.6 million in 1996, notwithstanding an overall decrease in assets
under management. Assets under management as of December 31, 1997 decreased to
$3.82 billion as compared to $4.27 billion in 1996 primarily due to the
withdrawal of $1.1 billion of assets which were part of a temporary assignment
from one client. Approximately $474 million of assets under management at
December 31, 1997 represent a temporary assignment. The increase in investment
management fee revenues reflects an increase in small capitalization growth
equities assets which are managed for a higher fee, as well as appreciation on
existing assets. Assets managed in small capitalization growth equities
increased 32.7% to $591 million as of December 31, 1997 from $446 million as
of December 31, 1996. As of December 31, 1997, Axe-Houghton had 36 advisory
clients which maintained fifty two (52) investment advisory accounts, as
compared to 38 advisory clients that maintained fifty (50) investment advisory
accounts as of December 31, 1996.
Expenses related to research and other services provided to the
Company's brokerage clients, including commission refunds, increased 7.3% to
$31.2 million in 1997 from $29.1 million in 1996. These expenses were 45.1% of
commissions in 1997 as compared with 45.4% in 1996. These expenses increased
at a lower rate than commission revenues for the year ended December 31, 1997
primarily due to an increase in revenues resulting from Proprietary Research
and Execution-Only Brokerage.
Clearing, execution, exchange charges and related expenses decreased
8.1% to $10.5 million in 1997 from $11.4 million in 1996. These expenses
represented 15.2% of commissions in 1997 and 17.8% of commissions in 1996. The
decrease in these expenses as a percentage of commissions is primarily due to
a
14
<PAGE>
reduction in execution costs related to trades executed in the Hong Kong
market. The Company has reduced the costs of executing transactions on The
Stock Exchange of Hong Kong as a result of Hoenig (Far East) Limited becoming
a self-clearing member of The Stock Exchange of Hong Kong in the fourth
quarter 1996.
Employee compensation increased 17.8% to $20.2 million in 1997 from
$17.2 million in 1996. This resulted primarily from: (1) a $1.8 million
increase due to the addition of new personnel as well as increases in base
compensation of existing employees and (2) a $1.2 million increase in
discretionary, performance-based and other compensation.
All other expenses increased 15.1% to $10.5 million in 1997 as compared
to $9.2 million in 1996. This resulted primarily from an increase in
depreciation, amortization ($0.2 million), communications ($0.3 million) and
office and marketing related expenses ($0.6 million) during the year ended
December 31, 1997.
Gain on investment and interest and dividends income increased 20.7%
to $2.1 million in 1997 from $1.7 million in 1996. This increase primarily
reflects interest earned on corporate cash invested in U.S. Government,
corporate obligations and money market funds during 1997.
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 trading volume in all of the major markets in which the
Company operates, with the greatest increases in Asian 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
15
<PAGE>
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 Asian 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continued to remain strong during
1997. At December 31, 1997, the Company had cash, U.S. Government obligations,
net accounts receivable and other securities of $47.6 million compared with
$43.6 million at December 31, 1996. Cash and equivalents increased to $20.5
million in 1997 from $18.3 million in 1996. The principal source of cash was
net income of $3.6 million. In addition, the Company increased its payable to
brokers and dealers and accrued research/services payable by $3.9 million and
$1.8 million, respectively (increasing liquidity). These increases were offset
by increases in receivables from customers and net securities owned of $3.6
million and $0.7 million, respectively (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 and purchases of equipment,
furniture and leasehold improvements of $1.0 million (decreasing liquidity).
The decrease in cash from financing activities was primarily attributable to
purchases of the Company's stock of $3.1 million, offset by the issuance of
treasury stock of $0.8 million and discontinuance of the payment of quarterly
dividends during 1997.
The Company has a line of credit aggregating $2,500,000 which is
secured by certain U.S. Government obligations. 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) pounds750,000
($1,239,000) which bears a variable rate of interest based upon market rates
in the U.K. and Europe; (2) HK$ 50,000,000 ($6,455,000), which bears a variable
rate of interest based upon market rates in Hong Kong; and (3) HK$100,000,000
($12,910,000) in an intra-day overdraft facility for the settlement of trades,
which bears a variable rate of interest. In addition, the Company maintains a
$5,000,000 foreign exchange line for its trading operations in Hong Kong.
In 1998 the Company plans to modify its cash management program to
increase its rate of return on corporate cash. The Company intends to invest a
portion of funds previously held as cash and equivalents, U.S. government
obligations and corporate bonds in investments which will be less liquid and
generally are not transferable. These investments are not expected to have a
material effect on the Company's liquidity and results of operations.
Management believes that its existing cash resources plus funds generated by
operations will be sufficient to meet the Company's current and future
operating needs.
16
<PAGE>
At December 31, 1996, the Company had cash, U.S. Government
obligations, net accounts receivable and other securities of $43.6 million
compared with $37.8 million at December 31, 1995. During 1996, 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)
in 1996. These increases were offset by decreases in accrued expenses of $1.6
million (decreasing liquidity). The decrease in cash from investing activities
in 1996 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 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.
YEAR 2000 AND EUROPEAN MONETARY UNIT ("EMU")
The Year 2000 issue is the result of computer systems and applications
that currently use two digits rather than four to recognize a particular year.
The Company is conducting an assessment of its computer systems to identify
those areas that could be affected by the Year 2000 issue and is developing an
implementation plan to address the issue. The Company presently believes that,
with modifications to existing software and conversions to new software, the
Year 2000 issue will not pose significant problems to the Company's internal
computer systems. However, the Company is heavily reliant upon third parties
in performing its day-to-day operations and may be adversely affected in the
event that these third parties do not adequately address the Year 2000 issue.
The Company is in the process of gathering information from such third parties
regarding their Year 2000 readiness. The Company expects to complete
modifications to internal computer systems and its assessment of third
parties' Year 2000 readiness by the end of 1998 and to test such modifications
and address third-party issues during 1999.
Based upon current information, the Company believes that the estimated
cost to upgrade its internal computer systems to become Year 2000 compliant
will be approximately $250,000. Project costs will be expensed as incurred.
The Company does not expect these costs to be material to its results of
operations in any given year. The Company does not have sufficient information
at this time to assess the impact, or quantify the costs to the Company, that
may arise as a result of the failure of third parties to become Year 2000
compliant.
The costs of the Year 2000 modifications are based on management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
The Company's computer systems and programs are also being reviewed to
determine what modifications will be necessary to accommodate the upcoming
EMU. The EMU is scheduled to begin on January 1, 1999 and will ultimately
result in the replacement of certain European currencies with the "Euro".
Costs associated with the modifications necessary to prepare for the EMU are
not anticipated to be material to the Company's results of operations and will
be expensed as incurred.
IMPACT OF INFLATION
17
<PAGE>
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 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Not applicable.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
See Index to Financial Statements on Page F-1 in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
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
1998 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 1998
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" in the Proxy Statement for the
1998 Annual Meeting of Stockholders to be filed with the SEC and is
incorporated herein by reference. Information concerning compensation of
directors is contained under the caption, "Proposal I - Compensation of
Directors" in the Proxy Statement for the 1998 Annual Meeting of Stockholders
to be filed with the SEC and is incorporated herein by reference.
18
<PAGE>
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 1998 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, "Interest of Management in Certain
Transactions" and "Shareholder's Agreements and Certain Transactions
Relating to Insurance" in the Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed with the SEC and is incorporated herein by reference.
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.
(2) Schedules - None
(3) Exhibits to Form 10-K
3.1 Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
3.2 Amended and Restated By-laws of the Registrant.
*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.)
- -----------------------
* Each asterisk idenitifies a management contract or compensatory plan or
arrangement
19
<PAGE>
*10.7 1996 Employee Stock Purchase Plan. (Incorporated herein by
reference to Exhibit 10.7 to the Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-8
filed December 30, 1997.)
*10.8 Employment Agreement between the Registrant and Fredric P.
Sapirstein. (Incorporated herein by reference to Exhibit
10.8 to the 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. (Incorporated by reference
to Exhibit 10.9 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
*10.10 Separation Agreement between the Registrant and J. Richard
Walton, dated October 31, 1996 (Incorporated by reference to
Exhibit 10.10 to the Registrant's Annual report on Form 10-K
for the fiscal year ended December 31, 1996.)
*10.11 Section 162(m) Cash Bonus Plan. (Incorporated by reference
to Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
*10.12 1996 Long-Term Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.)
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.)
*10.14 1997 Foreign Employee Stock Purchase Plan. (Incorporated
herein by reference to Exhibit 10.8 to the Post-Effective
Amendment No. 1 to the Registrant's Registration Statement
on Form S-8 filed December 30, 1997.)
*10.15 Amendment No. 1 to the 1996 Long-Term Stock Incentive Plan.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consents of Experts.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
The Registrant did not file any reports on Form 8-K during
the last quarter of the period covered by this report.
- -----------------
* Each asterisk identifies a management contract or compensatory plan or
arrangement.
20
<PAGE>
HOENIG GROUP INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS:
Independent Auditors' Report F-2
Consolidated Financial Statements:
Statements of Financial Condition
December 31, 1997 and 1996 F-3
Statements of Income
Years Ended December 31, 1997, 1996 and 1995 F-4
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995 F-5
Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7 - F-17
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Hoenig Group Inc.
Rye Brook, New York
We have audited the accompanying consolidated statements of financial
condition of Hoenig Group Inc. and subsidiaries ("Hoenig") as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
Hoenig's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hoenig Group Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
March 16, 1998
F - 2
<PAGE>
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and equivalents $20,468,926 $18,307,886
U.S. Government obligations, at market value 17,754,737 16,782,412
Receivables from correspondent brokers and dealers 6,837,648 6,164,129
Receivables from customers 4,031,489 436,326
Equipment, furniture and leasehold improvements
- net of accumulated depreciation and amortization 2,207,121 2,090,649
Securities owned, at market value 2,065,399 1,458,761
Exchange memberships - at cost 1,321,235 1,321,235
Investment management fees receivable 1,297,684 799,371
Deferred research/services expense 1,070,079 632,914
Investment in limited partnerships, at equity 633,858 503,588
Other assets 3,333,167 3,030,624
----------- ------------
Total Assets $61,021,343 $51,527,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued research/services payable $8,341,475 $6,553,125
Accrued compensation 5,701,392 4,449,089
Payable to brokers and dealers 4,579,680 640,705
Payable to customers 902,914 229,367
Accrued expenses 728,726 963,745
Other liabilities 1,241,435 840,574
----------- -----------
Total Liabilities 21,495,622 13,676,605
----------- ----------
STOCKHOLDERS' EQUITY
Common stock $.01 par value per share;
Voting-authorized 40,000,000 shares, issued
- 10,809,750 shares in 1997 and 10,763,350 shares in 1996 108,098 107,634
Additional paid in capital 26,628,159 26,111,404
Foreign currency translation adjustment (930,035) (826,848)
Retained earnings 20,190,841 16,611,177
------------ ----------
45,997,063 42,003,367
Less treasury stock at cost - 1,618,378
shares in 1997 and 1,239,540 shares in 1996 (6,471,342) (4,152,077)
----------- -----------
Total Stockholders' Equity 39,525,721 37,851,290
---------- ----------
Total Liabilities and Stockholders' Equity $61,021,343 $51,527,895
=========== ===========
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</TABLE>
F - 3
<PAGE>
`
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
OPERATING REVENUES 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross commissions................................ $ 69,218,634 $ 64,015,412 $ 50,162,073
Investment management fees....................... 6,688,773 5,616,415 3,033,857
Other............................................ 407,927 398,413 331,465
------------ ------------ ------------
Total operating revenues....................... 76,315,334 70,030,240 53,527,395
------------ ------------ ------------
EXPENSES
Clearing, floor brokerage and exchange charges... 10,490,055 11,415,464 7,771,721
Employee compensation............................ 20,198,409 17,150,265 14,001,004
Independent research and services................ 31,194,531 29,083,205 25,831,594
Other 10,532,372 9,151,384 7,785,188
------------ ------------ ------------
Total expenses................................ 72,415,367 66,800,318 55,389,507
------------ ------------ ------------
OPERATING INCOME (LOSS)........................... 3,899,967 3,229,922 (1,862,112)
INVESTMENT INCOME AND OTHER
Interest, dividends.............................. 1,956,162 1,577,749 1,329,100
Gain on investments, other....................... 140,925 159,140 1,476,164
Insurance proceeds, net of expenses.............. - - 4,446,334
------------ ------------ ------------
Net investment income and other.................. 2,097,087 1,736,889 7,251,598
------------ ------------ ------------
Income before income taxes....................... 5,997,054 4,966,811 5,389,486
Provision for income taxes....................... 2,417,390 2,080,024 470,141
------------ ------------ ------------
Net income....................................... $ 3,579,664 $ 2,886,787 $ 4,919,345
============ ============ ============
Net income per share basic....................... $ .38 $ .31 $ .50
============ ============ ============
Net income per share diluted..................... $ .37 $ .31 $ .50
============ ============ ============
</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, 1997, 1996 AND 1995
<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, 1995 $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
Net income 3,579,664 3,579,664
Employee stock options and
purchase plans 464 515,870 516,334
Purchase of treasury stock (3,110,060) (3,110,060)
Issuance of treasury stock 885 790,795 791,680
Foreign currency translation adjustment (103,187) (103,187)
---------- ----------- ----------- ------------ ---------- ----------
Balance, December 31, 1997 $108,098 $26,628,159 $20,190,841 $ (6,471,342) $ (930,035) $ 39,525,721
========== =========== =========== ============ ========== ==========
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,579,664 $ 2,886,787 $ 4,919,345
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,185,518 855,016 735,948
Foreign currency translation adjustment (103,187) (12,466) (593,516)
Issuance of stock options 516,334 303,465 95,372
Changes in assets and liabilities:
Securities owned, net (709,444) (47,438) 135,587
Receivable from correspondent brokers and dealers (673,519) (1,414,426) 655,958
Receivable from customers (3,595,163) (436,326) -
Investment management fees receivable (498,313) (311,967) (267,899)
Payable to customers 673,547 229,367 -
Deferred research/services expense (437,165) 237,009 (320,879)
Other assets (597,443) 265,065 265,574
Payable to brokers and dealers 3,938,975 478,277 (48,156)
Accrued research/services payable 1,788,350 1,706,186 208,613
Accrued compensation 1,252,303 2,012,684 989,419
Accrued expenses (235,019) (1,601,539) 2,087,903
Other liabilities 359,610 198,224 (150,478)
------------ ------------ ------------
Net cash provided by operations 6,445,048 5,347,918 8,712,791
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government obligations (972,325) (5,126,818) 1,044,166
Investment in limited partnerships, at equity (130,270) 495,158 250,264
Investment in securities 144,057 796,720 1,542,672
Acquisition of exchange seat - (511,272) -
Purchase of equipment, furniture and leasehold
improvements (1,007,090) (1,024,440) (817,106)
------------ ------------ ------------
Net cash (used in) provided by investing activities (1,965,628) (5,370,652) 2,019,996
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends - (932,018) (975,200)
Treasury stock purchased (3,110,060) - (2,023,710)
Issuance of treasury stock 791,680 910,499 1,550
Issuance of common stock - 236,778 -
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,318,380) 215,259 (2,997,360)
------------ ------------ ------------
Net increase in cash and equivalents 2,161,040 192,525 7,735,427
Cash and equivalents beginning of period 18,307,886 18,115,361 10,379,934
------------ ------------ ------------
Cash and equivalents end of period $ 20,468,926 $ 18,307,886 $ 18,115,361
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid: $ 187,067 $ 40,767 $ 116,957
Taxes paid: $ 1,958,250 $ 1,419,169 $ 753,704
</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
YEAR ENDED DECEMBER 31, 1997
1. The accompanying financial statements include the accounts of Hoenig Group
Inc. and its wholly-owned operating 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. U.S. Government obligations consist of U.S.
Treasury bills and U.S. Treasury notes with varying maturities. Securities
owned, which consist primarily of corporate bonds and equity securities, are
valued at market. 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 research and brokerage services to be provided under independent
research arrangements.
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.
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.
F-7
<PAGE>
Axe-Houghton is the general partner of two limited partnerships and
maintains investments in each of the partnerships. Axe-Houghton's partnership
investments were 0.41% ($41,506) and 17.1% ($592,352) at December 31, 1997
and 2.4% ($36,710) and 16.8% ($466,878) at December 31, 1996. Axe-Houghton
does not maintain control of the partnerships for consolidation purposes.
These investments are accounted for under the equity method.
The Company uses the asset and liability method in providing for
income taxes on all transactions that have been recognized in the consolidated
financial statements. The asset and liability method requires that deferred
taxes be adjusted to reflect the taxes at which future taxable amounts will be
settled or realized. The effects of tax rate changes on future deferred tax
liabilities and deferred tax assets, as well as other changes in income tax
laws are recognized in net earnings in the period such changes are enacted.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
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. Payables to brokers
and dealers represent amounts due for execution and settlement of customer
transactions. Receivables from and payables to customers represent amounts due
on cash securities transactions.
Investment management fees receivable represents amounts due for
professional investment management services provided to public and corporate
employee benefit plans and other institutional clients. Management fees are
based upon assets under management and are billed on a quarterly basis. The
Company expects to fully collect all outstanding management fee receivables;
therefore, no provision for uncollectibles is required.
The Company has classified goodwill as the cost in excess of fair
value of the net assets acquired in a purchase transaction. Goodwill is
amortized on a straight-line method over the life of the asset. The carrying
value of costs in excess of net assets acquired is reviewed for impairment
periodically by the Company. As of December 31, 1997 and 1996, goodwill net of
accumulated amortization was $992,056 and $664,155, respectively, and is
included in other assets in the Statement of Financial Condition.
Certain reclassifications have been made to periods prior to 1997 to
conform to the 1997 presentation.
3. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements are summarized as follows:
December 31,
---------------------------
1997 1996
---- ----
Equipment $ 2,863,405 $ 2,051,843
Furniture 925,612 833,040
Leasehold Improvements 1,171,148 1,096,613
----------- -----------
Total 4,960,165 3,981,496
Less: Accumulated depreciation and amortization (2,753,044) (1,890,847)
----------- -----------
$ 2,207,121 $ 2,090,649
4. COMMITMENTS. The Company has leases covering office space and automobiles
which expire or are terminable on various dates beginning in February 1998 and
ending in 2002. Future minimum annual rental payments under these leases
approximate $981,000 in 1998, $596,000 in 1999, $402,000 in 2000, $398,000 in
2001, $223,000 in 2002. Various leases contain provisions for escalation based
on increases in
F-8
<PAGE>
certain costs incurred by the landlord. The composition of
total rental expense for the years ended December 1997, 1996 and 1995 was as
follows:
1997 1996 1995
---- ---- ----
Minimum rentals $ 924,000 $ 925,000 $ 676,000
Contingent rentals 193,000 155,000 223,000
------- ------- -------
Total rental expense $1,117,000 $1,080,000 $899,000
========== ========== ========
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 on December 31, 1998, Hoenig is obligated to pay one
employee aggregate minimum compensation of $175,000. In addition, Hoenig has
employment arrangements with six employees, which provide for severance
payments in the event of termination of employment without cause. The total
amount due under these agreements which expire at various times through
January 31, 2000, is approximately $1,076,000. Axe-Houghton is obligated to
pay five individuals aggregate minimum annual compensation of $784,000,
pursuant to employment agreements expiring on April 8, 1998, and two
individuals aggregate minimum annual compensation of $1,200,000, pursuant to
employment agreements expiring on December 31, 2000.
Pursuant to the purchase agreement relating to the acquisition of
Axe-Houghton Associates, Inc. in April 1993, the Company may be required to
make additional payments based upon the operating results of Axe-Houghton. For
the years ended December 31, 1996 and 1997, the Company was required to make
additional payments of $631,000 and $517,000, respectively, which have been
capitalized as cost in excess of net assets acquired. The last payment due
under this agreement, if any, is dependent upon Axe-Houghton's results during
the period January 1, 1998 through 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 those 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 any
insurance proceeds received by the Company or $1,000,000. The Company
maintains life insurance on the lives of shareholders owning more than 350,000
shares of Common Stock subject to a shareholder's agreement to cover its
liability under those shareholder agreements. The cash surrender value of
these insurance policies was $517,815 and $662,649 at December 31, 1997 and
1996, respectively.
5. 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 Hoenig maintain net capital of the greater of $100,000 or
one fifteenth of aggregate indebtedness, as defined. At December 31, 1997
Hoenig's minimum required net capital was $613,000, its net capital ratio was
.89 to 1, and its actual net capital was approximately $10,338,000, which was
approximately $9,725,000 in excess of regulatory requirements. Hoenig's Tokyo
office (a branch of Hoenig & Co., Inc.) capital requirement at December 31,
1997 was Yen70,000,000 ($537,000). Limited is required to maintain financial
resources of at least 110% of its capital requirement (as defined). Limited's
financial resources requirement at December 31, 1997, was pounds369,000
($610,000). It had excess financial resources at such date of pounds848,000
($1,401,000). Far East is required to maintain liquid capital of the greater
of HK$ 3,000,000 ($388,000) or 5% of the average quarterly liabilities. Far
East's required liquid capital was approximately HK$18,075,000 ($2,333,000) at
December 31, 1997, and it had excess liquid capital of approximately
HK$19,791,000 ($2,555,000).
6. PENSION PLAN. The Company has defined contribution plans covering
substantially all of its regular employees. Company contributions under these
plans are made annually at the discretion of management. Contributions were
approximately $475,000 for 1997, $423,000 for 1996, and $237,000 for 1995.
F-9
<PAGE>
7. 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. Each of Hoenig
and Limited has an agreement with its clearing agent that provides that it is
obligated to assume any exposure related to the nonperformance of its
customers. Hoenig and Limited each monitor customer brokerage activity by
reviewing information received from their clearing agents on a daily basis.
8. 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.
9. INCOME TAXES. The Company, excluding its foreign affiliates, files
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.
Income from operations before provision for taxes on income consists
of:
1997 1996 1995
----------- ----------- -----------
Domestic $ 4,759,747 $ 4,434,054 $ 5,702,415
Foreign 1,237,307 532,757 (312,929)
----------- ----------- -----------
$ 5,997,054 $ 4,966,811 $ 5,389,486
=========== =========== ===========
The provision for taxes on income from operations consists of:
1997 1996 1995
----------- ----------- ------------
Current tax expense (benefit)
Federal $ 1,490,837 $ 1,418,766 $ (70,208)
State and local 673,118 489,704 70,037
Foreign 83,722 15,021 (21,646)
----------- ----------- -------------
Total current provision (benefit) 2,247,677 1,923,491 (21,817)
----------- ----------- -------------
Deferred tax expense
Federal 127,222 75,225 469,731
State and local 42,491 81,308 22,227
----------- ---------- -----------
Total Deferred 169,713 156,533 491,958
----------- ---------- -----------
Total Provision $ 2,417,390 $2,080,024 $ 470,141
=========== ========== ===========
F - 10
<PAGE>
`
<TABLE>
<CAPTION>
Deferred taxes consist of the following:
1997 1996 1995
ASSETS ASSETS ASSETS
(LIABILITIES) (LIABILITIES) (LIABILITIES)
-------------- -------------- --------------
<S> <C> <C> <C>
Current assets and liabilities
Fixed assets $ 147,016 $ 157,688 $ 159,994
Accrued compensation 195,492 301,451 526,042
Other 9,107 34,344 85,885
--------- --------- ---------
Gross deferred assets 351,615 493,483 771,921
Deferred tax liabilities - Investments (426,505) (393,059) (497,358)
--------- --------- ---------
Net deferred taxes receivable (payable) $ (74,890) $ 100,424 $ 274,563
========== ========= ==========
</TABLE>
The provision for taxes on income for the years ended December 31,
1997, 1996 and 1995 differed from the amount computed by applying the
statutory federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed tax provision $2,038,998 $1,688,716 $1,832,425
Insurance proceeds - - (1,878,531)
State and local taxes, net of
federal benefit 472,302 277,821 53,063
Differential on foreign tax rates (336,962) (166,116) 84,749
Other 243,052 279,603 378,435
----------- ----------- -------
Totals $2,417,390 $2,080,024 $470,141
========== ========== ========
Effective tax rate 40.3% 41.9% 8.7%
=========== ============ ===========
</TABLE>
As of December 31, 1997, the Company had approximately $2.1 million
of earnings attributable to foreign subsidiaries. The Company has not recorded
a tax provision for income tax that could occur upon repatriation. It is the
Company's intent to keep such earnings permanently invested abroad until they
can be repatriated in a tax efficient manner. It is not practicable to
determine the amount of income taxes payable in the event all such earnings
are repatriated.
10. SHORT-TERM BORROWINGS. The Company has a line of credit of approximately
$2,500,000 which is secured by certain U.S. Government obligations. No amounts
were due under the line of credit at December 31, 1997 or December 31, 1996.
Interest is charged at a variable rate of the Federal Funds rate plus 1%.
In addition, the Company maintains overseas overdraft facilities as
follows: (1) pounds750,000 (approximately $1,239,000) which bears a variable
rate of interest based upon prevailing market rates in the United Kingdom and
Europe; (2) HK$50,000,000 (approximately $6,455,000) which bears a variable
rate of interest based upon current market rates in Hong Kong; and (3)
HK$100,000,000 (approximately $12,910,000) in an intra-day overdraft facility
to facilitate the settlement of trades, which bears a variable rate of
interest. In addition, the Company maintains a $5,000,000 foreign exchange
line for trading operations in Hong Kong. No amounts were due under these
facilities as of December 31, 1997. The balance outstanding as of December 31,
1996 was $29,570.
11. GEOGRAPHIC AREA DATA/MAJOR CUSTOMERS. The Company's brokerage subsidiaries
provide independent third-party and proprietary research, global securities
brokerage and other services primarily to institutional clients from its
United States, United Kingdom, Hong Kong and Tokyo offices. The Company's
F-11
<PAGE>
wholly-owned asset management subsidiary provides professional investment
management to U.S. public and corporate employee benefit plans, investment
partnerships and other institutional clients from its U.S. office. 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 include commissions earned
from customers based in the respective location indicated and other operating
revenues earned by the location. Operating revenues by geographic region
represent commissions and other operating revenues earned on transactions
executed in markets within the geographic region. Operating revenues for asset
management include investment management fees earned by the Company's asset
management subsidiary in the United States. Operating profits are 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. "Asian brokerage"
includes the results of the Company's Hong Kong and Tokyo offices.
OPERATING REVENUES BY LOCATION:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States brokerage $46,963,302 $42,250,929 $37,033,664
United Kingdom brokerage 8,848,294 8,685,138 8,637,830
Asian brokerage 13,814,965 13,477,758 4,822,045
---------- ---------- -----------
Total Brokerage 69,626,561 64,413,825 50,493,539
Asset management 6,688,773 5,616,415 3,033,856
----------- ----------- -----------
Total $76,315,334 $70,030,240 $53,527,395
=========== =========== ===========
OPERATING REVENUES BY GEOGRAPHIC REGION:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States brokerage $47,638,502 $43,607,954 $37,912,263
United Kingdom brokerage 3,709,718 3,809,105 4,110,242
Asian brokerage 18,278,341 16,996,766 8,471,034
---------- ---------- -----------
Total Brokerage 69,626,561 64,413,825 50,493,539
Asset management 6,688,773 5,616,415 3,033,856
----------- ------------ -----------
Total $76,315,334 $70,030,240 $53,527,395
=========== =========== ===========
OPERATING PROFITS BY LOCATION:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States brokerage $5,253,979 $5,284,621 $2,483,750
United Kingdom brokerage (241,445) (227,683) (96,522)
Asian brokerage 39,235 258,004 (1,409,934)
----------- ------- -----------
Total Brokerage 5,051,769 5,314,942 977,294
Asset management 1,861,913 744,368 (613,685)
Interest expense (153,082) (74,766) (116,957)
General corporate expenses (2,860,633) (2,754,622) (2,108,764)
---------- ---------- -----------
Total $3,899,967 $3,229,922 $(1,862,112)
========== ========== ===========
F - 12
<PAGE>
<CAPTION>
ASSETS:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States brokerage $37,276,757 $34,257,830 $30,992,930
United Kingdom brokerage 3,482,895 3,995,605 3,565,816
Asian brokerage 14,687,880 9,241,618 7,196,570
---------- ----------- -----------
Total Brokerage 55,447,532 47,495,053 41,755,316
Asset management 3,902,730 2,390,227 1,792,313
General corporate 1,671,081 1,642,615 1,587,846
----------- ------------ ------------
Total $61,021,343 $51,527,895 $45,135,475
=========== =========== ===========
</TABLE>
No one single customer accounted for greater than 10% of total revenues
for the years ended December 31, 1997, 1996 and 1995.
12. 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 (the "Board") has the power,
without further action by the stockholders, 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, 1997, no preferred stock
had been issued.
During the fourth quarter 1992, the Board approved a stock repurchase
program which enables 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 an additional one million
shares of Common Stock from time to time in open market and private
transactions.
During 1997, the Company repurchased 578,172 shares of common stock.
As of December 31, 1997, the Company had repurchased a total of 1,475,712
shares under these repurchase programs. The Company purchased an additional
650,000 shares in December 1995, pursuant to a shareholder's agreement with
the Estate of Ronald H. Hoenig (the "Estate"). The total cost of purchases
under the repurchase programs and the purchase from the Estate (net of a total
of 507,334 shares issued out of Treasury Stock) is $6,471,342.
On January 14, 1997, the Company adopted a Stockholders' Rights Plan,
under which rights were distributed as a dividend at the rate of one right for
each share of common stock of the Company held by stockholders of record as of
the close of business on January 31, 1997 and thereafter will be attached to
each share of common stock until the rights become exercisable or expire. Each
right initially entitles stockholders to purchase one one-hundredth of a share
of preferred stock for $18. Upon exercise of the right the holder will receive
common stock having a value equal to twice the value of the $18 price of the
fractional preferred share. The rights generally will be exercisable only if a
person or group acquires beneficial ownership of 20% or more of the 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 prior to
their expiration 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. The rights expire on January 14, 2007.
13.STOCK OPTIONS. The Company has three compensation plans which provide for
stock-based awards, the 1996 Long-Term Stock Incentive Plan (the "1996 Plan"),
the 1994 Stock Option Plan (the "1994 Plan") and the 1991 Stock Option Plan
(the "1991 Plan"). The 1996 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
F-13
<PAGE>
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 of the Company's Board. The 1996 Plan
was adopted by the Board on November 14, 1996, and approved at the 1997 Annual
Meeting of Stockholders. Upon approval of the 1996 Plan, the 1994 and 1991
Plans were merged into the 1996 Plan, and no new shares will be issued under
the 1991 and 1994 Plans. The total amount of shares issuable under the 1996
Plan when approved was 2,988,000 shares, 1,000,000 shares issuable under the
1996 Plan plus 1,988,000 of shares of stock that would have been issuable
under the Company's 1994 Plan and 1991 Plan. The 1996 Plan provides for the
issuance of 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 stock options) and U.K. stock options. The 1996 Plan has been
submitted for approval to the United Kingdom Board of Inland Revenue under the
Income and Corporation Taxes Act of 1988.
The 1991 Plan and 1994 Plan each initially provided for the issuance of
a total of up to 1,000,000 shares of Common Stock in connection with the grant
of 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 stock options) and U.K. stock options. The U.K. component of the
1991 UK Plan has been approved by the United Kingdom Board of Inland Revenue
under the Income and Corporation Taxes Act of 1988.
Stock options granted under these plans generally vest over a one to
three-year period and expire 5-10 years from the date of grant.
Transactions related to U.S. incentive stock options and U.K. stock
options granted under the 1996, 1994 and the 1991 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>
Outstanding at December 31, 1994 523,600 $ 3.875 - 6.325 $5.18 443,600
========
Granted ...................... 178,667 2.813 - 4.000 3.87
Canceled or 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
Canceled or expired........... (208,200) 5.46
-------- -----
Outstanding at December 31, 1996 642,501 2.813 - 5.750 4.24 311,389
========
Granted........................ 199,000 4.75 - 6.50 5.77
Canceled or expired............ (70,333) 4.63
Exercised...................... (97,667) 2.813 - 5.088 4.39
-------- -------------- ----
Outstanding at December 31, 1997 673,501 $ 3.625 - 5.00 $4.63 319,224
======== ============= ==== ========
</TABLE>
Transactions related to U.S. non-qualified stock options granted pursuant to
the 1996, 1994 and 1991 Plans were as follows:
F - 14
<PAGE>
<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, 1994 87,000 $ .10 - 4.688 $ .87 53,000
=======
Granted . . . . . . . 19,333 .10 - 4.125 1.35
Exercised . . . . . . (15,500) .10 .10
Canceled or 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
Canceled or expired . . . . . (2,000) 3.625
---------- ------
Outstanding at December 31, 1996 964,999 .10 - 5.00 4.27 151,945
=======
Granted . . . . . . 72,500 4.75 - 6.00 5.62
Exercised . . . . . (101,667) .10 - 3.625 3.57
Canceled or expired . . . . . (25,333) 3.55
--------- -----
Outstanding at December 31, 1997 910,499 $.10-6.00 $ 4.48 132,444
========= ======== ===== =======
U.S. non-qualified stock options outstanding at December 31, 1997 were as
follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE EXERCISABLE
SHARES PRICE OPTIONS
--------- --------- -------------
<S> <C> <C> <C>
Price Range $0.1
(Weighted average contractual life 2.9 yrs) 19,999 $ 0.1 9,444
Price Range $3.625 - 4.75
(Weighted average contractual life 8.3 yrs) 328,000 3.70 123,000
Price Range $5.00 - 6.00
(Weighted average contractual life 8.5 yrs) 562,500 5.08 -
------- -------- -------
Total 910,499 $ 4.48 132,444
======= ======== =======
</TABLE>
At December 31, 1997, U.S. incentive stock options and U.K. stock options
to purchase 673,501 shares were outstanding under the Company's 1996, 1994 and
1991 Plans, but due to vesting requirements, options to purchase 354,277
shares were not exercisable at December 31, 1997. At December 31, 1997,
non-qualified stock options to purchase 910,499 shares were outstanding, but
due to vesting requirements, 778,055 shares were not exercisable at December
31, 1997.
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for the fair value of stock-based awards granted under the 1996,
1994 and 1991 Plans. Had compensation cost for stock-based awards granted
under these 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:
F - 15
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income - as reported $ 3,579,664 $ 2,886,787 $ 4,919,345
=============== ============ ============
Net Income - pro forma $ 3,098,167 $ 2,541,407 $ 4,768,850
=============== ============ ============
Earnings per share basic - as reported $ .38 $ .31 $ .50
=============== =========== ============
Earnings per share diluted - as reported $ .37 $ .31 $ .50
=============== =========== ============
Earnings per share basic - pro forma $ .33 $ .27 $ .49
=============== ============ ============
Earnings per share diluted - pro forma $ .32 $ .27 $ .48
=============== ============ ============
The fair value of each award is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants during the period:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.7% 6.0%-6.5% 6.0%-6.5%
Dividend Yield - 2.0% 2.0%
Expected life of option 5 years 5 years 5 years
Expected volatility as calculated at
the time of each grant 30.4% - 135.6% 48.2%-72.0% 50.1%-83.3%
</TABLE>
DEFERRED STOCK. During 1997, the Company granted 107,000 shares of
deferred stock to certain employees of the Company. The deferred stock granted
under the 1996 Plan vests equally over a three-year period. The Company
records compensation expense over the vesting period based upon the fair
market value of the stock at the time of the grant.
Transactions related to deferred stock were as follows:
VALUE AT THE
NUMBER OF DATE OF
SHARES GRANT
-------- ------------
Outstanding at December 31, 1996
Granted..................... 107,000 $ 5.25-6.5
Canceled.................... (12,000) 5.25
-------- -----------
Outstanding at December 31, 1997 95,000 $5.25-6.25
======== ===========
14. STOCK PURCHASE PLAN. The Company adopted the 1996 Employee Stock Purchase
Plan on May 15, 1996. The plan allows those eligible employees of the Company
and its U.S. subsidiaries to purchase shares of the Company's common stock at
85% of the fair market value at specified dates. At December 31, 1997, 75
employees were eligible to participate in the 1996 Employee Stock Purchase
Plan. During 1997, a total of 46,400 shares of stock were purchased at an
average price of $4.65 per share. During 1996, a total of 53,500 shares were
purchased at a price of $3.45 per share. In November 1997, the Company adopted
the 1997
F-16
<PAGE>
Foreign Employee Stock Purchase Plan, which is a corollary to the Company's
1996 Employee Stock Purchase Plan. At December 31, 1997, 30 employees were
eligible to participate in the 1997 Foreign Employee Stock Purchase Plan. The
first offering period under this plan commences January 1, 1998 and ends on
June 29, 1998. The maximum number of shares issuable under these two stock
purchase plans is 500,000. As of December 31, 1997, 400,100 shares remain
available for issuance under these two plans.
15. EARNINGS PER SHARE. The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 simplifies the standards for computing and presenting
earnings per share ("EPS") previously found in APB Opinion No. 15, Earnings
per Share. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. Basic earnings per share is calculated by
dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share is similar to basic, but adjusts for
the effect of potential common shares.
The following table presents the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income available to common stockholders $ 3,579,664 $ 2,886,787 $ 4,919,345
Weighted average shares outstanding 9,397,742 9,253,557 9,745,372
Effect of dilutive instruments
Employee stock options 373,515 137,559 62,706
Convertible debentures - - 72,690
------------- -------------- ------------
Dilutive potential common shares 373,515 137,559 135,396
Total weighted average dilutive shares 9,771,257 9,391,116 9,880,768
Basic earnings per share $ .38 $ .31 $ .50
============ ============= ============
Diluted earnings per share $ .37 $ .31 $ .50
============ ============= ============
</TABLE>
Stock options on the following number of shares were anti-dilutive and were
not included in the calculation above 1997 - 696,500 shares, 1996 - 1,000,667
shares and 1995 - 589,367 shares.
16. 1995 INSURANCE PROCEEDS. The Company received net life insurance proceeds
of $4,446,334 following the October 1995 death of Ronald H. Hoenig, the
Company's former Chairman and Chief Executive Officer. 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. 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 Mr. Hoenig's last three years'
annual compensation, including base salary and bonus. The remaining death
benefit amount due at December 31, 1997, is approximately $286,000, which is
payable in October 1998.
F - 17
<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>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Fredric P. Sapirstein Chairman, Chief Executive March 30, 1998
- --------------------------------- Officer and Director
Fredric P. Sapirstein
/s/ Alan B. Herzog Chief Operating Officer, March 30, 1998
- --------------------------------- Principal Financial/Accounting
Alan B. Herzog Officer and Director
/s/ Max H. Levine Executive Vice President March 30, 1998
- --------------------------------- and Director
Max H. Levine
/s/ Kathryn L. Hoenig Secretary, March 30, 1998
- --------------------------------- General Counsel and Director
Kathryn L. Hoenig
/s/ Robert L. Cooney Director March 30, 1998
- ---------------------------------
Robert L. Cooney
/s/ Martin F.C. Emmett Director March 30, 1998
- ---------------------------------
Martin F.C. Emmett
/s/ Robert Spiegel Director March 30, 1998
- ---------------------------------
Robert Spiegel
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.2 Amended and Restated By-laws.
*10.15 Amendment No. 1 to the Hoenig Group Inc.
1996 Long-Term Stock Incentive Plan.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consents of Experts.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
- --------------------
*Each asterisk identifies a management contract or compensatory plan or
arrangement.
</TABLE>
<PAGE>
Exhibit 3.2
Hoenig Group Inc.
Amended and Restated By-Laws
<PAGE>
HOENIG GROUP INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE 1
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be located at the principal place of business
in such state of the corporation or individual acting as the Corporation's
registered agent in Delaware.
SECTION 2. OTHER OFFICES. In addition to its registered office in the
State of Delaware, the Corporation may have an office or offices in such other
places as shall be determined from time to time by the Board of Directors or
as the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
-----------------------
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders
of the Corporation shall be held at such time and place (within or without the
State of Delaware) as may be designated by the Board of Directors, on the
third Thursday in May of each year (or if said day be a legal holiday, then on
the next succeeding day which is not a legal holiday), for the purpose of
electing directors and transacting such other business as properly may be
brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
held only upon call of the Board of Directors, of the Executive Committee, of
the Chairman of the Board, of the Chief Executive Officer or of the President,
at such time and at such place, within or without the State of Delaware, as
may be fixed by the Board of Directors, the Executive Committee, the Chairman
of the Board, the Chief Executive Officer or the President, as the case may
be, and as may be stated in the notice of the meeting.
SECTION 3. NOTICE OF MEETINGS. Notice of the time and place of every
meeting of the stockholders, and of the purposes of every special meeting of
the stockholders, shall be given not less than ten (10) days nor more than
sixty (60) days before the date of the meeting, to each stockholder of record
then entitled to vote at such meeting, in the manner prescribed by Section 2
of Article VII of these By-laws, except that where the matter to be acted upon
is a merger or consolidation of the Corporation, or a sale, lease or exchange
of all or substantially all of its assets, such notice shall be given not less
than twenty (20) nor more than sixty (60) days prior to such meeting. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders then entitled to vote are present or
represented thereat, or if notice is waived by those not present or
represented.
-2-
<PAGE>
SECTION 4. QUORUM AND ADJOURNMENT OF MEETINGS. (a) The holders of record
of a majority of the shares of the capital stock issued and outstanding, and
then entitled to vote, present in person, or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by the law, by the Certificate of
Incorporation or by these By-laws. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person, or represented by proxy, shall
have power to adjourn the meeting, from time to time, by majority vote of
those present, without notice other than announcement at the meeting, until
the requisite number of shares of stock then entitled to vote shall be present
or represented by proxy. At such adjourned meeting at which such requisite
number of shares of stock shall be represented, any business may be transacted
which might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of adjourned meeting
shall be given to each stockholder of record entitled to vote thereat.
(b) The number of shares required to constitute a quorum, as
set forth above, may not be reduced to less than a majority of the shares
issued and outstanding without approval of the stockholders.
SECTION 5. VOTING. At each meeting of the stockholders every stockholder
then having the right to vote at such meeting shall be entitled to vote in
person, or by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to such
meeting, unless said instrument provides for a longer period. No shares of
stock of the Corporation may be voted by proxy at any stockholder meeting by
any person unless, prior to or at the time of the commencing of the meeting or
reconvening of any adjournment thereof, such proxy shall have been filed with
the Secretary of the Corporation. To determine the stockholders entitled to
notice of or to vote at any meeting of the stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date which shall
be not more than sixty (60) days nor less than ten (10) days before the date
of such meeting. Except as otherwise provided by the Certificate of
Incorporation or by statute, each stockholder of record shall be entitled to
one vote for each outstanding share of capital stock standing in his or her
name on the books of the Corporation as of the record date. The vote for
directors, and, upon the demand of any stockholder, the vote upon any question
before the meeting, shall be by ballot, except as otherwise provided in the
Certificate of Incorporation or as may be required by law. Directors shall be
elected by a plurality of votes, and all other matters shall be decided by a
majority of votes cast by the stockholders present in person or represented by
proxy and entitled to vote, unless the matter is one for which, by express
provisions of statute, of the Certificate of Incorporation or of these
By-laws, a different vote is required, in which case such express provision
shall govern and control the determination of such matter. There shall be no
cumulative voting. Stockholder written consents shall not be permitted.
SECTION 6. ELECTION OF DIRECTORS. Nominations for the election of
directors may be made by the Board or a committee appointed by the Board or by
any stockholder entitled to vote in the election of directors generally;
provided, however, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
at a meeting only if written notice of such stockholder's intent to make such
nomination is given
-3-
<PAGE>
to the Secretary of the Corporation not later than (i) with respect to an
election to be held at an annual meeting of stockholders, sixty (60) days in
advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of common stock of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such stockholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, had the nominee been nominated,
or intended to be nominated, by the Board; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
SECTION 7. STOCKHOLDERS LIST. It shall be the duty of the officer who
shall have charge of the stock ledger to prepare or make, at least ten (10)
days before every election, a complete list of stockholders entitled to vote,
arranged in alphabetical order. Such list shall be open to the examination of
any stockholder for any purpose germane to the meeting during ordinary
business hours for said ten (10) days, at the locations specified by the
Delaware General Corporation Law. The list shall also be produced and kept at
the time and place of election during the whole time thereof, and subject to
the inspection of any stockholder who may be present.
SECTION 8. INSPECTION OF ELECTION. The Chairman of the Board, prior to
each meeting of stockholders, may appoint two judges or inspectors of election
to assist the Secretary of the Corporation in the conduct of elections at such
meeting. If any judge or inspector of election shall for any reason fail to
attend and to act at such meeting, a judge or inspector of election, as the
case may be, may be appointed by the chairman of the meeting. In the event
action to be taken at any such meeting involves the amendment of the
Certificate of Incorporation of the Corporation or the dissolution of the
Corporation, the judges or inspectors of election shall be appointed by the
Board of Directors or by the meeting.
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ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 1. BOARD OF DIRECTORS. The business and affairs of the
Corporation shall be managed by a Board of Directors. The Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts
and things on its behalf as are not by statute or by the Certificate of
Incorporation or these By-laws directed or required to be exercised or done by
stockholders.
SECTION 2. NUMBER; ELECTION; TENURE AND CLASSIFICATION. The number of
directors of the Corporation shall be fixed from time to time by resolution of
the Board of Directors. Directors need not be stockholders. They shall be
elected at the annual meeting of the stockholders, and shall serve until their
respective successors shall be elected and qualified. The Board of Directors
shall be classified, providing for a staggered three year term for directors
in each class.
SECTION 3. MEETINGS. Meetings of the Board of Directors shall be held at
such place, within or without the State of Delaware, as may from time to time
be fixed by resolution of the Board or may be specified in the call of any
meeting. Regular meetings of the Board shall be held at such times and at such
places as may from time to time be fixed by resolution of the Board, and no
notice of such regular meetings need be given. Special meetings may be held at
any time upon the call of the Executive Committee, the Chairman of the Board,
the Chief Executive Officer, the President or of three directors, on two (2)
days' notice to each director by mail or on one day's notice personally, by
overnight courier service or by telecopy, telephone, telegraph or electronic
mail. A meeting of the Board may be held, without notice, immediately after
the annual meeting of the stockholders, at the same place at which such
meeting was held. Meetings may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting in
writing, either before or after the meeting.
SECTION 4. QUORUM. A quorum for the transaction of business at all
meetings of the Board of Directors shall consist of a majority of the
directors then in office, which in no case shall be less than one third of the
whole Board. If, however, such quorum shall not be present, the directors
present shall have power to adjourn the meeting, from time to time, by
majority vote, without notice other than announcement at the meeting, until
the requisite number of directors shall be present. The act of the majority of
the directors present at any meeting at which there is a quorum shall be the
act of the Board.
SECTION 5. VACANCIES. Vacancies in the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled only by a majority of the directors then in office,
although less than a quorum, and the directors so chosen shall hold office
until their successors are duly elected and qualified or until their earlier
death, resignation or removal.
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SECTION 6. RESIGNATION AND REMOVAL. A director may resign at any time by
giving written notice to the Board of Directors or to the Chief Executive
Officer of the Corporation. Such resignation shall take effect upon receipt
thereof by the Board of Directors or by the Chief Executive Officer, unless
otherwise specified therein. Any director may be removed with or without cause
by directors or stockholders as provided in the Certificate of Incorporation,
to the extent consistent with the Delaware General Corporation Law.
SECTION 7. COMPENSATION. Each director shall receive for services
rendered as a director of the Corporation such compensation as may be fixed by
the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 8. CONSENTS. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent to such action in writing, and such
writing or writings are filed with the minutes of the proceedings of the Board
of Directors.
SECTION 9. TELEPHONIC MEETINGS OF DIRECTORS. The Board of Directors
may participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation by such means shall constitute
presence in person at such meeting.
ARTICLE IV
COMMITTEES
----------
SECTION 1. EXECUTIVE COMMITTEE. (a) There may be an Executive Committee
of three or more directors designated by resolution passed by a majority of
the whole Board, who shall hold office during their terms as directors,
provided the Board shall have the power at any time to remove any of the
members thereof and to appoint other persons in lieu of the persons so
removed. The Board of Directors shall also designate the chairman of the
Executive Committee. During the intervals between the meetings of the Board of
Directors, the Executive Committee shall possess and may exercise all the
powers of the Board of Directors, to the extent permitted by the Delaware
General Corporation Law, including the power to authorize the seal of the
Corporation to be affixed to all papers which may require it, provided,
however, that the Executive Committee shall not have power to amend these
By-laws, or to fill vacancies in the Board of Directors, or to fill vacancies
in or to change the membership of the Executive Committee. The Executive
Committee shall also have, and may exercise, all the powers of the Board of
Directors, except as aforesaid, whenever a quorum or the Board shall fail to
be present at any meeting of the Board.
(b) All action of the Executive Committee shall be reported to the Board
of Directors at its meeting next succeeding such action, and shall be subject
to revision and alteration by the Board, provided that no rights of third
parties shall be affected by any such provision or alteration. Regular minutes
of the proceedings of the Executive Committee shall be
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kept in a book provided for that purpose. Vacancies in the Executive Committee
shall be filled by the Board of Directors.
(c) A majority of the Executive Committee shall be necessary to
constitute a quorum, and, in every case, an affirmative vote of a majority of
the members shall be necessary for the passage of any resolution. It shall fix
its own rules of procedure and shall meet as provided by such rules or by
resolution of the Board, and it shall also meet at the call of the chairman or
of any two members of the Committee. If the Executive Committee fails to fix
its own rules, the provisions in these By-laws, pertaining to the calling of
meetings and conduct of business by the Board of Directors, shall apply as
nearly as may be.
SECTION 2. DESIGNATION AND POWERS OF OTHER COMMITTEES. The Board of
Directors may, in its discretion, by the affirmative vote of a majority of the
whole Board, appoint such other committee of two or more directors which shall
have and may exercise such powers as shall be conferred or authorized by the
resolution appointing them, to the extent permitted by the Delaware General
Corporation Law. A majority of any such committee, if the committee be
composed of more than two members, may determine its action and fix the time
and place of its meetings unless the Board of Directors shall otherwise
provide. The Board shall have the power at any time to fill vacancies in, to
change the membership of, or to discharge any such committees.
ARTICLE V
OFFICERS
--------
SECTION 1. EXECUTIVE OFFICERS. The Board of Directors, at its first
meeting after incorporation, and at its first meeting after each annual
meeting of stockholders, may choose a Chairman of the Board and shall elect a
Chief Executive Officer, President, Chief Operating Officer, Secretary and
Treasurer and from time to time may elect one or more Executive or Senior Vice
Presidents, Assistant Secretaries or Assistant Treasurers and such other
officers as it shall deem necessary. Except for the Chairman of the Board, no
executive officer need be a member of the Board. Any number of offices may be
held by the same person, except that the office of Secretary may not be held
by the Chairman of the Board, the Chief Executive Officer or the President.
The Chief Executive Officer or the President may grant Executive Vice
President, Senior Vice President and other types of Vice President titles to
employees of the Corporation, but such persons shall not be officers of the
Corporation within the meaning of the Delaware General Corporation Law unless
such appointment is approved by the Board of Directors.
SECTION 2. OTHER OFFICERS; AGENTS. The Board of Directors may, by
resolution, at any time, appoint such other officers and agents as it shall
deem necessary, who shall hold their offices for such terms and shall exercise
such powers and perform such offices as shall be determined from time to time
by the Board.
SECTION 3. TENURE; RESIGNATION; REMOVAL; VACANCIES. Each officer of
the Corporation shall hold office until his or her successor is elected and
qualified or until his or her
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earlier resignation or removal; provided, that if the term of office of any
officer elected or appointed pursuant to Section 2 of this Article V shall
have been fixed by the Board of Directors, he or she shall cease to hold such
office not later than the date of expiration of such term regardless of
whether any other person shall have been elected or appointed to succeed him
or her. Any officer or agent elected or appointed by the Board of Directors
may be removed at any time, with or without cause, by the affirmative vote of
the majority of the whole Board of Directors; provided, that any such removal
shall be without prejudice to the rights, if any, of the officer so employed
under any employment contract or other agreement with the Corporation. An
officer may resign at any time upon written notice to the Board of Directors
or the Chief Executive Officer. If the office of any officer becomes vacant by
reason of death, resignation, retirement, disqualification, removal from
office or otherwise, the Board of Directors may choose a successor or
successors to hold office for such term as may be specified by the Board of
Directors.
SECTION 4. COMPENSATION. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors or in such manner as
shall be determined by the Board of Directors.
SECTION 5. AUTHORITY AND DUTIES. All officers as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws. In addition
to the powers and duties hereinafter specifically prescribed for the
respective officers, the Board of Directors may from time to time impose or
confer upon any of the officers such additional duties and powers as the Board
of Directors may see fit, and the Board of Directors may from time to time
impose or confer any or all of the duties and powers hereinafter specifically
prescribed for any officer upon any other officer or officers.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, who shall be a director, shall preside at all meetings of the
stockholders and of the Board of Directors at which he or she is present; and,
in his or her absence, the Chief Executive Officer shall preside at such
meetings. Except where by law the signature of the Chief Executive Officer or
the President is required, the Chairman shall possess the power to sign all
certificates, contracts, and other instruments of the Corporation. During the
absence or disability of the Chief Executive Officer, the Chairman shall
exercise all the powers and discharge all the duties of the Chief Executive
Officer. The Chairman shall have such other powers and perform such other
duties as from time to time may be conferred or imposed upon him or her by the
Board of Directors.
SECTION 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation shall have general control and management of the business
affairs of the Corporation, shall see that all resolutions and orders of the
Board of Directors are carried into effect, and in connection therewith, shall
be authorized to delegate to other officers of the Corporation such of his or
her powers and duties as Chief Executive Officer at such times and in such
manner as he or she may deem to be advisable. If there is no Chairman of the
Board or during the absence or disability of the Chairman of the Board, the
Chief Executive Officer shall exercise all of the powers and discharge all of
the duties of the Chairman of the Board. Except
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where by law the signature of the President is required, the Chief Executive
Officer shall possess the power to sign all certificates, contracts, and other
instruments of the Corporation. He or she shall, in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and of the
Board of Directors. The Chief Executive Officer shall from time to time report
to the Board of Directors all matters within his or her knowledge which the
interest of the Corporation may require to be brought to their notice. The
Chief Executive Officer shall have such other powers and perform such other
duties as from time to time may be conferred or imposed upon him or her by the
Board of Directors.
SECTION 8. PRESIDENT. The President of the Corporation shall have
general control and management of the business affairs of the Corporation,
shall see that all resolutions and orders of the Board of Directors are
carried into effect, and in connection therewith, shall be authorized to
delegate to other officers of the Corporation such of his or her powers and
duties as President at such times and in such manner as he or she may deem to
be advisable. If there is no Chairman of the Board and no Chief Executive
Officer, or during the absence or disability of the Chairman of the Board and
the Chief Executive Officer, the President shall exercise all of the powers
and discharge all of the duties of the Chairman of the Board and of the Chief
Executive Officer. He or she shall possess power to sign all certificates,
contracts, and other instruments of the Corporation. He or she shall, in the
absence of the Chairman of the Board and the Chief Executive Officer preside
at all meetings of the stockholders and of the Board of Directors. He or she
shall vote, in the name of the Corporation, stock or securities in other
Corporations or associations held by the Corporation, unless another officer
is designated by the Board of Directors for the purpose. The President shall
from time to time report to the Board of Directors all matters within his or
her knowledge which the interest of the Corporation may require to be brought
to their notice. The President shall perform all such other duties as are
incident to such office or are properly required of him or her by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer.
SECTION 9. CHIEF OPERATING OFFICER. The Chief Operating Officer of the
Corporation shall assist the President in the general control and management
of the business affairs of the Corporation and shall have such other authority
and responsibilities and perform such other duties as the President shall
delegate or as the President, the Board of Directors, the Chairman of the
Board or the Chief Executive Officer shall assign to him or her. If there is
no Chairman of the Board, no Chief Executive Officer and no President or
during the absence or disability of the Chairman of the Board, Chief Executive
Officer and President, the Chief Operating Officer shall exercise all of the
powers and discharge all of the duties of Chairman of the Board, Chief
Executive Officer and President. Except where by law the signature of the
Chief Executive Officer or the President is required, the Chief Operating
Officer shall possess power to sign all certificates, contracts, and other
instruments of the Corporation. The Chief Operating Officer shall, in the
absence of the Chairman of the Board, Chief Executive Officer and President,
preside at all meetings of the stockholders and of the Board of Directors. He
or she shall from time to time report to the Board of Directors all matters
within his or her knowledge which the interest of the Corporation may require
to be brought to their notice. The Chief Operating Officer shall perform all
such other duties as are incident to such office or are properly required of
him or her by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
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SECTION 10. EXECUTIVE AND SENIOR VICE PRESIDENTS. The Executive Vice
President and Senior Vice President, or if there be more than one Executive or
Senior Vice President, shall perform such duties as may be assigned to them
from time to time by the Board of Directors or as may be designated by the
Chairman of the Board, the Chief Executive Officer, the Chief Operating
Officer or the President. In the case of the absence or disability of the
Chief Operating Officer, the duties of the office shall, if the Board of
Directors has so authorized, be performed by such Executive Vice President or
Senior Vice President as the Board of Directors shall designate.
SECTION 11. SECRETARY. (a) The Secretary shall attend all meetings of
the Board of Directors, any committee of the Board of Directors and all
meetings of the stockholders and act as secretary thereof, and shall record
all votes and the minutes of all proceedings in a book for that purpose
belonging to the Corporation to be kept in his or her custody, and shall
perform like duties for all committees of the Board. He or she shall give or
cause to be given notice of all meetings of the stockholders and when
necessary, of the Board of Directors and any committee of the Board of
Directors. He or she shall keep in safe custody the seal of the Corporation
and shall in general perform all of the duties incident to the office of
Secretary, subject to the control of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, Executive
Committee, Chairman of the Board, Chief Executive Officer, President or Chief
Operating Officer.
(b) The Secretary shall act as transfer agent of the Corporation and/or
registrar of its capital stock, with the usual duties pertaining thereto;
provided that the Board may, by resolution, as to any class of its capital
stock appoint one or more persons or corporations as transfer agents and/or
registrars in the Secretary's stead.
(c) Each Assistant Secretary shall have the powers of the Secretary
subject to the direction of the Chairman of the Board, Chief Executive
Officer, President, Chief Operating Officer, Secretary, Board of Directors or
the Executive Committee.
SECTION 12. TREASURER. (a) The Treasurer shall have custody of all funds
and securities of the Corporation. He or she may endorse on behalf of the
Corporation, for collection, checks, notes and other obligations, and shall
deposit the same to the credit of the Corporation in such banks or
depositories as the Board of Directors may designate, or pursuant to the
authority of general or special resolutions of the Board. Whenever required by
the Chairman of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, the Board of Directors or the Executive Committee, he
or she shall render a statement of accounts. The Treasurer shall enter
regularly, in books of the Corporation to be kept for the purpose, full and
accurate accounts of all moneys received and paid on the account of the
Corporation, shall at any reasonable time exhibit such books and accounts to
any director of the Corporation during business hours, and shall perform all
acts incident to the position of Treasurer, subject to the control of the
Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors, the Executive Committee, the Chairman of the Board,
Chief Executive Officer, President or Chief Operating Officer. The Treasurer
shall give a bond for the faithful discharge of his or her duties in such sum
as the Board of Directors or the Executive Committee may require.
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(b) Each Assistant Treasurer shall have and perform such of the duties
of the Treasurer as may be prescribed by the Board of Directors, Executive
Committee, Chairman of the Board, Chief Executive Officer, President, Chief
Operating Officer or Treasurer.
ARTICLE VI
CERTIFICATES OF STOCK
---------------------
SECTION 1. FORM AND SIGNATURE. Every stockholder shall have a
certificate signed by the Chairman of the Board, the President or a
Vice-President and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, certifying the number of shares owned by
such stockholder in the Corporation. Such certificate shall be in such form as
the Board of Directors may from time to time prescribe, and shall be
countersigned and registered in such manner, if any, as the Board of
Directors, by resolution, may prescribe. If the Corporation has a transfer
agent or an assistant transfer agent or a transfer clerk acting on its behalf,
and a registrar, the signature of any such officer of the Corporation may be
facsimile. In case any officer or officers of the Corporation who shall have
signed, or whose facsimile signature or signatures shall have been used on,
any such certificate or certificates shall cease to be such officer or
officers of the Corporation before such certificate or certificates shall have
been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall have been used thereon had not
ceased to be such officer or officers of the Corporation.
SECTION 2. REGISTRATION OF TRANSFER. To the extent consistent with
applicable law and any stockholder agreement to which the Corporation is a
party, the shares of stock of the Corporation shall be transferable on the
books of the Corporation by the holder thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of a certificate or
certificates for the same number of shares, with an assignment and power of
transfer duly endorsed thereon or ascribed thereto, duly executed, with such
proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; provided, however, that if the Corporation has a
transfer agent such transfers of stock in accordance with this Section 2 of
Article VI shall be the responsibility of such transfer agent.
SECTION 3. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
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SECTION 4. ISSUANCE OF NEW SHARES OF STOCK. (a) In the event the
Corporation issues new shares of stock, the stockholders shall not be entitled
to preemptive rights.
(b) The Corporation shall be authorized to issue "Blank Check" preferred
stock.
ARTICLE VII
GENERAL PROVISIONS
------------------
SECTION 1. CONTRACTS, CHECKS, ETC. Contracts and other instruments in
writing may be made on behalf and in the name of the Corporation: (i) by the
officers authorized so to do under Article V of these By-laws, and if required
by law, under the corporate seal, attested by the Secretary or an Assistant
Secretary; and (ii) by such officers and such other persons as the Chairman of
the Board, the Chief Executive Officer or the President of the Corporation
may, in writing, authorize so to do with respect to specified types of
contracts and other instruments, such authorizations to also specify whether
the corporate seal and attestation by the Secretary or an Assistant Secretary
shall be required; and, if so executed, shall be binding upon the Corporation,
provided that the Board of Directors may, by resolution, authorize the
execution of contracts, deeds and other instruments in writing generally or in
specific instances in such manner and by such persons as may therein be
designated. No person shall have authority, on behalf of the Corporation, to
sign checks, drafts, or orders for the payment of money or notes or
acceptances unless specifically authorized by the Board of Directors or these
By-laws.
SECTION 2. NOTICES. (a) Notices to directors and stockholders shall be
in writing and may be delivered personally, by overnight courier service or by
mail. Notice by mail shall be deemed to be given at the time when deposited in
the United States mail, postage prepaid, and addressed to directors or
stockholders at their respective addresses appearing on the books of the
Corporation, unless any such director or stockholder shall have filed with the
Secretary of the Corporation a written request that notices intended for him
or her be mailed or delivered to some other address, in which case the notice
shall be mailed to or delivered at the address designated in such request.
Notice to directors may also be given by telecopy, telephone, telegraph or
electronic mail.
(b) Whenever notice is required to be given by statute, the Certificate
of Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance of a person at a meeting of stockholders, directors or any
committee of directors, as the case may be, shall constitute a waiver of
notice of such meeting, except where the person is attending for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of stockholders, directors or committee of directors need be specified
in any written waiver of notice.
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SECTION 3. FISCAL YEAR. The fiscal year shall begin the first day of
January in each year.
SECTION 4. DIRECTOR'S ANNUAL STATEMENT. The Board of Directors shall
present at each annual meeting, and when called for by vote of the
stockholders at any special meeting of the stockholders, a full and clear
statement of the business and condition of the Corporation.
SECTION 5. AMENDMENTS. The Board of Directors, at any regular meeting or
at any special meeting, may alter, amend or repeal these By-laws or any part
thereof, and, except as provided in the Certificate of Incorporation, these
By-laws may also be altered or amended by the affirmative vote of a majority
of the holders of the Corporation's stock issued and outstanding and entitled
to vote thereat at any regular or special meeting of the stockholders if the
notice for the meeting shall have set forth the substance of such proposed
alteration or amendment; provided, however, that no change of the time or
place for the annual election of directors shall be made within sixty (60)
days next before the day on which such election is to be held, and that in
case of any change of such time or place, notice thereof shall be given to
each stockholder in person, by overnight courier service or by letter mailed
to his last known post-office address, at least twenty (20) days before the
election is held. A waiver of notice for any such meeting of the stockholders
need not set forth the substance of the amendment but only that an amendment
is contemplated.
SECTION 6. APPLICATION OF BY-LAWS. In the event that any provision of
these By-laws is or may be in conflict with any law of the United States, of
the State of Delaware, or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these By-laws applies, or may apply, such provision of these
By-laws shall be inoperative to the extent only that the operation thereof
unavailably conflicts with such law, and shall in all other respects be in
full force and effect.
SECTION 7. INDEMNIFICATION BY CORPORATION. (a) ACTIONS, SUITS OR
PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. Any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as director, officer, employee or agent (including
trustee) of another corporation, partnership, joint venture, trust or other
enterprise (including employee benefit plans), shall be indemnified by the
Corporation (funds paid or required to be paid to any person as a result of
the provisions of this Section 7 shall be returned to the Corporation or
reduced, as the case may be, to the extent that such person receives funds
pursuant to an indemnification from any such other corporation, partnership,
joint venture, trust or enterprise) to the fullest extent permissible under
Delaware law, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her
conduct was unlawful. The
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termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person seeking indemnification did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that his
or her conduct was unlawful. Entry of a judgment by consent as part of a
settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of any duty, nor of any other
issue or matter.
(b) ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. Any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person 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 (including trustee) of another corporation, partnership,
joint venture, trust or other enterprise (including employee benefit plans),
shall be indemnified by the Corporation (funds paid or required to be paid to
any person as a result of the provisions of this Section 7 shall be returned
to the Corporation or reduced, as the case may be, to the extent that such
person receives funds pursuant to an indemnification from any such other
corporation, partnership, joint venture, trust or enterprise) to the fullest
extent permissible under Delaware law, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action, suit or proceeding, if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action, suit or proceeding was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. To the extent that
a director, officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in paragraph (a) or (b) of this Section 7, or in defense of any
claim, issue or matter therein, such person shall be indemnified by the
Corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification under
paragraph (a) or (b) of this Section 7 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in paragraphs (a) and (b) of this Section 7.
Such determination shall be made (1) by the Board of Directors by a majority
vote of the directors who were not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than
-14
<PAGE>
a quorum, or (3) if there are no such directors, or, if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon.
(e) ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Section 7. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
(f) OTHER RIGHTS. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this Section 7
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in an official capacity and as to action in another capacity
while holding such office.
(g) 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 (including trustee)
of another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans), against any liability asserted against
such person and incurred by such person in any such capacity, or arising out
of such person's status as such, whether or not the Corporation shall have the
power to indemnify such person against such liability under the provisions of
this Section 7.
(h) CONTINUATION OF RIGHTS TO INDEMNIFICATION. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Section 7
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(i) PROTECTION OF RIGHTS EXISTING AT TIME OF REPEAL OR MODIFICATION. Any
repeal or modification of this Section 7 shall not adversely affect any right
or protection of an indemnified person existing at the time of such repeal or
modification.
SECTION 8. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
-15-
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 1 TO
HOENIG GROUP INC.
1996 LONG-TERM STOCK INCENTIVE PLAN
<PAGE>
AMENDMENT NO. 1 TO
HOENIG GROUP INC.
1996 LONG-TERM STOCK INCENTIVE PLAN
This Amendment No. 1 dated March 25, 1998 to the 1996 Long-Term Stock
Incentive Plan (the "Plan") of Hoenig Group Inc. hereby revises Section 6(c)
and Section 8(b) of the Plan relating to U.K. Stock Options and Section
6(d)(ii) of the Plan relating to Stock Appreciation Rights. All capitalized
terms used and not otherwise defined in this Amendment No. 1 shall have the
meanings set forth in the Plan.
1. The penultimate sentence of the first paragraph of Section 6(c) of
the Plan is hereby deleted and replaced in its entirety by the following:
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 or
exercise a U.K. Stock Option.
2. Section 8(b) of the Plan is hereby deleted and replaced in its
entirety by the following:
(b) Limitations on Transferability.
-------------------------------
(i) Awards other than U.K. Stock Options. Awards and other rights
under the Plan (other than U.K. Stock Options governed by the provisions of
Section 8(b)(ii)) shall 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 legal
representative; provided, however, that such Awards and other rights (other
than ISOs and SARs in tandem therewith and U.K. Stock Options) 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.
(ii) U.K. Stock Options. U.K. Stock Options shall not be transferable
by a Participant except 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 SARs in
tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative. In the event
of the Participant's death, U.K. Stock Options shall be exercisable by the
legal representative of such deceased Participant during the twelve-month
period following the Participant's date of death.
3. The reference to "this Section 6(c)" contained in the penultimate
sentence of Section 6(d)(ii) is hereby deleted and replaced by "this Section
6(d)."
2
<PAGE>
4. Except for the matters specifically amended herein, the Plan shall
remain and continue to be in full force and effect in accordance with its
terms.
5. This Amendment No. 1 shall become effective as of the date of its
approval by the Board; provided, however, that Sections 1 and 2 of this
Amendment No. 1 regarding Section 6(c) and Section 8(b) of the Plan shall
become effective as of the date of the approval of this Amendment No. 1 by the
Inland Revenue, and any U.K. Stock Options granted prior to such Inland
Revenue approval shall be granted conditional upon such approval.
6. This Amendment No. 1 shall be governed by, and construed in
accordance with, the Delaware General Corporate Law, without giving effect to
principles of conflicts of laws, and applicable federal law.
3
<PAGE>
EXHIBIT 11.1
HOENIG GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----- ------- ----- ------- ----- -------
EARNINGS:
<S> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . $ 3,579,664 $3,579,664 $ 2,886,787 $2,886,787 $ 4,919,345 $4,919,345
============== ========== ============== ========== ============== ==========
NUMBER OF SHARES:
Weighted average shares outstanding . . 9,397,742 9,397,742 9,253,557 9,253,557 9,745,372 9,745,372
Shares issuable upon exercise of
options . . . . . . . . . . . . . . n/a 373,515 n/a 137,559 n/a 62,706
Convertible debentures . . . . . . . . . n/a -- n/a -- n/a 72,690
-------------- ---------- -------------- ---------- -------------- ----------
Weighted average shares and equivalents
outstanding . . . . . . . . . . . . . 9,397,742 9,771,257 9,253,557 9,391,116 9,745,372 9,880,768
============== ========== ============== ========== ============== ==========
Earnings per share $ .38 $ .37 $ .31 $ .31 $ .50 $ .50
============== ========== ============== ========== ============== ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGITRANT
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>
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statement
Form S-8 (No. 333-34745) pertaining to the Hoenig Group Inc. 1996 Long-Term
Stock Incentive Plan, the 1994 Stock Option Plan and the 1991 Stock Option
Plan, and the Registration Statement on Form S-8 (No. 333-17435) pertaining to
the Hoenig Group Inc. 1996 Employee Stock Purchase Plan and the 1997 Foreign
Employee Stock Purchase Plan, of our report dated March 16, 1998, appearing
in the Annual Report on Form 10-K for the year ended December 31, 1997.
/s/Deloitte & Touche LLP
New York, New York
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOENIG
GROUP INC. DECEMBER 31, 1997 FORM 10K AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,468,926
<RECEIVABLES> 12,166,821
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 20,453,994
<PP&E> 2,207,121
<TOTAL-ASSETS> 61,021,343
<SHORT-TERM> 0
<PAYABLES> 5,482,594
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 108,098
<OTHER-SE> 39,417,623
<TOTAL-LIABILITY-AND-EQUITY> 61,021,343
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,956,162
<COMMISSIONS> 69,218,634
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 6,688,773
<INTEREST-EXPENSE> 0
<COMPENSATION> 20,198,409
<INCOME-PRETAX> 5,997,054
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,579,664
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED 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>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,307,886
<RECEIVABLES> 7,399,826
<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> .31
<EPS-DILUTED> .31
</TABLE>
