<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------------------
For Quarter Ended: Commission File Number: 000-19619
March 31, 1998
HOENIG GROUP INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3625520
- ------------------------------------ ------------------------
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
4 International Drive
Rye Brook, NY 10573
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(Address of principal executive offices) (zip code)
(914) 935-9000
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former fiscal
year is changed since last report)
Indicated 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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
As of May 14, 1998, there were 9,073,540 shares of common stock, par value $.01
per share, outstanding.
<PAGE>
HOENIG GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 3
Notes to Unaudited Consolidated Financial Statements 4-5
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6-9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1998 & DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 11,393,803 $20,468,926
U.S. Government obligations, at market value 12,510,685 17,754,737
Receivables from correspondent brokers and dealers 7,692,967 6,837,648
Receivables from customers 7,431,487 4,031,489
Equipment, furniture and leasehold improvements
- net of accumulated depreciation and amortization 2,137,527 2,207,121
Securities owned, at market value 7,223,364 2,065,399
Exchange memberships - at cost 1,321,235 1,321,235
Investment management fees receivable 1,591,962 1,297,684
Deferred research/services expense 1,874,983 1,070,079
Investment in limited partnerships, at equity 5,724,459 633,858
Other assets 3,504,788 3,333,167
--------- ---------
Total Assets $62,407,260 $61,021,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued research/services payable $ 8,910,167 $ 8,341,475
Accrued compensation 2,603,486 5,701,392
Payable to brokers and dealers 7,177,126 4,579,680
Payable to customers 1,139,028 902,914
Accrued expenses 1,004,277 728,726
Short term bank loan payable 390,813 -
Other liabilities 1,584,754 1,241,435
--------- ---------
Total Liabilities 22,809,651 21,495,622
---------- ----------
STOCKHOLDERS' EQUITY
Common stock $.01 par value per share
Voting-authorized 40,000,000 shares, issued
- 10,809,750 in both 1998 and 1997 108,098 108,098
Additional paid in capital 26,555,715 26,628,159
Accumulated comprehensive income (900,475) (930,035)
Retained earnings 21,180,699 20,190,841
---------- ----------
46,944,037 45,997,063
Less treasury stock at cost - 1,746,211
shares in 1998 and 1,618,378 shares in 1997 (7,346,428) (6,471,342)
----------- -----------
Total Stockholders' Equity 39,597,609 39,525,721
---------- ----------
Total Liabilities and Stockholders' Equity $62,407,260 $61,021,343
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1
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HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------
REVENUES 1998 1997
---- ----
<S> <C> <C>
Gross commissions $17,562,219 $16,223,796
Investment management fees 1,965,734 1,518,786
Other 52,810 167,151
------------ -----------
Total operating revenues 19,580,763 17,909,733
EXPENSES
Clearing, floor brokerage and
exchange charges 2,479,424 2,695,012
Employee compensation 5,273,725 4,598,481
Independent research and services 8,117,197 7,303,348
Other 2,501,349 2,242,838
--------- ---------
Total expenses 18,371,695 16,839,679
---------- ----------
OPERATING INCOME 1,209,068 1,070,054
INVESTMENT INCOME AND OTHER
Interest, dividends 474,832 443,788
Gain/(loss) on investments, other 76,058 (55,234)
-------- --------
Net investment income and other 550,890 388,554
Income before income taxes 1,759,958 1,458,608
Provision for income taxes 770,101 584,853
---------- ----------
Net income $ 989,857 $ 873,755
========= ==========
Net income per share
Basic $ .11 $ .09
============== ==============
Diluted $ .10 $ .09
============== ==============
Weighted average shares outstanding
Basic 9,139,022 9,545,644
========= =========
Diluted 9,572,842 9,874,324
========= =========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
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HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1998 & MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
---- ----
<S> <C> <C>
Net income $989,857 $873,755
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 321,244 280,305
Foreign currency translation adjustment 29,560 (104,196)
Issuance of stock options 42,083 47,191
Changes in assets and liabilities:
Securities owned, net 945,394 (62,031)
Receivables from correspondent brokers and dealers (3,399,998) (2,698,413)
Receivables from customers (855,319) (1,389,235)
Investment management fees receivables (294,278) 295,183
Payable to customers 236,114 3,855,247
Deferred research/services expense (804,904) (595,552)
Other assets (266,950) (348,879)
Payable to brokers and dealers 2,597,446 1,394,449
Accrued research/services payable 568,692 (173,190)
Accrued compensation (3,097,906) (2,431,263)
Accrued expenses 275,551 (5,260)
Other liabilities 159,045 92,433
----------- -----------
Net cash used in operations (2,554,369) (969,456)
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government obligations 5,244,052 953,814
Investment in limited partnerships, at equity (5,090,601) (600)
Investment in securities (5,919,085) 157,668
Purchases of equipment, furniture and leasehold -
improvements (156,323) (294,233)
---------- -----------
Net cash provided by (used in) investing activities: (5,921,957) 816,649
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchased (1,021,153) -
Issuance of treasury stock 31,543 76,417
Short term bank loan payable 390,813 -
---------- -----------
Net cash provided by (used in) financing activities: (598,797) 76,417
Net decrease in cash and equivalents (9,075,123) (76,390)
Cash and equivalents beginning of period 20,468,926 18,307,886
---------- -----------
Cash and equivalents end of period $11,393,803 $18,231,496
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid: $ 23,754 $ 78,969
=========== ===========
Taxes paid: $ 317,220 $ 297,900
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
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HOENIG GROUP INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (which include only
normal recurring accruals) necessary to present fairly the financial position
of Hoenig Group Inc. (the "Company") as of March 31, 1998 and December 31,
1997, the results of its operations and changes in cash flows for the three
months ended March 31, 1998 and 1997. The consolidated financial statements
included herein have been prepared by the Company without independent audit.
Certain information normally included in the financial statements and related
notes prepared in accordance with generally accepted accounting principles have
been condensed or omitted. These consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 1997 Annual
Report on Form 10-K. The results of operations for the period ended March 31,
1998 are not necessarily indicative of operating results for the full year.
NOTE 2 - NET CAPITAL AND RESERVE REQUIREMENTS.
Hoenig & Co., Inc. ("Hoenig"), the Company's principal operating
subsidiary, is subject to the Uniform Net Capital Rule (Rule 15c3-1) which
requires that Hoenig maintain net capital of the greater of $100,000 or
one-fifteenth of aggregate indebtedness. At March 31, 1998, Hoenig's minimum
required net capital was $566,000, its net capital ratio was .76 to 1, and its
net capital was approximately $11,118,000, which was $10,552,000 in excess of
regulatory requirements. Hoenig's Tokyo office (a branch of Hoenig & Co., Inc.)
capital requirement was (Y)67,000,000 ($503,000). Hoenig & Company Limited
("Limited") is required to maintain financial resources of at least 110% of its
capital requirement (as defined). Limited's financial resources requirement at
March 31, 1998 was approximately (pounds)556,000 ($929,000); it had excess
financial resources at such date of approximately (pounds)595,000 ($995,000).
Hoenig (Far East) Limited ("Far East") is required to maintain liquid capital
of the greater of HK$3,000,000 ($387,000) or 5% of the average quarterly total
liabilities. Far East's required liquid capital was approximately HK$16,938,000
($2,187,000) at March 31, 1998, and it had excess liquid capital of
approximately HK$20,215,000 ($2,610,000).
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS.
Axe Houghton Associates, Inc., the Company's wholly-owned asset
management subsidiary, is the general partner of two limited partnerships and
maintains investments in each of the partnerships. Axe Houghton's partnership
investments were 0.34% ($46,526) and 17.1% ($643,813) at March 31, 1998. Axe
Houghton does not maintain control of the partnerships for consolidation
purposes.
During the first quarter 1998, the company modified its cash
management program for the purpose of increasing its rate of return on
investments. As part of that program the Company invested in two multi-manager,
market neutral limited partnerships. These multi-manager limited partnerships,
which are managed by professional money managers, make investments in other
unaffiliated limited partnerships and funds which employ a variety of
alternative investment strategies. These strategies include relative-value,
event-driven, hedged-directional, convertible arbitrage, convertible hedging
and basis spread trading.
All of the Company's investments in limited partnerships are accounted for
under the equity method.
NOTE 4 - FINANCIAL INSTRUMENTS.
As part of its cash management program, during the first quarter 1998
the Company invested in a diversified portfolio of investment grade preferred
stock and U.S. Treasury futures used to hedge the preferred stock positions and
a bank-sponsored, flexible, market-linked deposit which maintains investments
in U.S. and foreign equity indices, floating rate deposits, baskets of European
equity securities and a U.S. Treasury zero coupon bond.
Each of these investments is managed by professional money managers. The
flexible, market-linked deposit is not federally insured; however, the
sponsoring bank has agreed to protect 100% of the Company's principal
investment, less management fees due to the bank, if the Company maintains the
deposit for one year.
4
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Each of these investments use or include derivative financial
instruments for the purpose of reducing exposure to certain investment risks,
including interest rate fluctuations. These investments are accounted for at
fair market value based upon available market information and valuations
received from the managers. Changes in the market value, as well as gains or
losses resulting from terminations or maturity of these instruments, are
recognized as gains or losses on investments in the period in which they occur.
The Company does not hold financial instruments for trading purposes.
NOTE 5 - STOCKHOLDERS' EQUITY.
During the fourth quarter 1992, the Company's Board of Directors
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.
From January 1, 1998 through March 31, 1998, the Company repurchased
165,000 shares of Common Stock at an aggregate cost of $1.0 million. As of
March 31, 1998, the Company has repurchased a total of 1,640,712 shares under
these repurchase programs. The Company purchased an additional 650,000 shares
in December 1995, pursuant to a contract with the Estate of Ronald H. Hoenig.
The total cost of the purchases under the repurchase programs and the purchase
from the Estate (net of 544,501 shares issued out of Treasury Stock) is
$7,346,428.
NOTE 6 - COMPREHENSIVE INCOME
The Financial Accounting Standards Board has issued Statement of
Financial Standards No. 130, "Reporting Comprehensive Income", which is
effective for fiscal Years begining after December 15, 1997. This Statement
establishes standards of reporting of comprehensive income and its components.
Comprehensive income includes gains or losses resulting from the translation
of the Company's foreign currency financial statements included in
stockholders' equity in the Statement of Financial Condition.
Comprehensive income for the periods ended March 31, 1998 and 1997 is
as follows:
1998 1997
---- ----
Net income $ 989,857 $873,755
Other comprehensive income:
Foreign currency translation adjustment 29,560 (104,196)
Tax expense (benefit) 12,933 (41,678)
-------- ---------
16,627 (62,518)
Comprehensive income $1,006,484 $811,237
========== =========
NOTE 7 - SUBSEQUENT EVENTS.
In March 1998, Lawrence W. Gallo, a former employee of Hoenig,
instituted an arbitration before the NASD Regulation against Hoenig and Fredric
P. Sapirstein, Hoenig's Chairman and Chief Executive Officer. Mr. Gallo
principally alleges defendants wrongfully terminated Mr. Gallo's employment in
breach of his employment agreement and falsely stated the reason for his
termination in a securities regulatory filing on Form U-5. Mr. Gallo is seeking
approximately $2.2 million in compensatory damages against each of the
defendants, plus punitive damages, liquidated damages, interest, reasonable
attorneys' fees and modification of the Form U-5. The Company believes that
Hoenig and Mr. Sapirstein have meritorious defenses to the arbitration and
intend to vigorously oppose Mr. Gallo's claims.
5
<PAGE>
ITEM 2. 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, 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 and in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
GENERAL
Hoenig Group Inc. (the "Company") provides global securities brokerage
to institutional clients through its wholly-owned brokerage subsidiaries in the
United States, United Kingdom, Hong Kong and Japan. The Company's wholly-owned
subsidiary, Axe-Houghton Associates, Inc. ("Axe-Houghton"), 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 Arrangement"), commissions received in connection
with providing the Company's proprietary research ("Proprietary Research"); and
commissions received for execution-only services ("Execution - Only
Brokerage"). The Company's profit margin on Execution-Only Brokerage and
Proprietary Research is higher than that on Independent Research Arrangements
and Directed Brokerage Arrangements because the Company does not incur direct
expenses for research and other services in connection with such activities.
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 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
6
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by the Company. At March 31, 1998, Axe-Houghton had $4.3 billion in assets
under management, of which approximately $481.7 million represented a temporary
assignment.
On April 8, 1998, employment contracts between Axe-Houghton and
certain of its employees expired. 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 agreements, two others have agreed to
new employment arrangements, one has retired. Axe-Houghton currently is
negotiating new employment arrangements with the remaining two. 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 securities 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.
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997.
The Company's operating income before income taxes for the three
months ended March 31, 1998 increased 13.0% to $1,209,068, versus $1,070,054 in
1997. The increase in operating income is primarily attributable to an increase
in operating income from U.S. operations, offset in part by operating losses
from international brokerage operations. The Company's net income for the
three-months ended March 31, 1998 increased 13.3% to $989,857 versus $873,755
in 1997.
Operating revenues increased 9.3% to $19.6 million for three months
ended March 31, 1998 from $17.9 million for the three months ended March 31,
1997. Commission revenues increased 8.2% to $17.6 million for the three months
ended March 31, 1998 from $16.2 million for the same period in 1997. This
increase resulted primarily from an increase in commission revenues in U.S.
equity markets, offset by a decrease in commission revenues earned by the
Company's operations in Hong Kong and Japan (" Asian Brokerage"). Commission
revenues derived from international locations represented 24.2% of the
Company's total commissions during the first quarter 1998 as compared to 34.7%
for the same period in 1997.
The financial markets in Japan and Southeast Asia continued to
experience difficulty during the quarter ended March 31, 1998, which resulted
in volatility and overall declines, as well as reduced trading volumes in those
markets. Reduced trading activity has resulted in a decline in commission
revenues from the Company's Asian Brokerage operations and operating losses in
those operations. Continued declines in commission revenues in Japan and
Southeast Asia would result in additional losses by the Company's Asian
Brokerage operations. The Company continues to explore cost reduction and
other means to address operating losses in its Asian Brokerage operations.
Investment management fee revenues increased 29.4% to $2.0 million for
the three months ended March 31, 1998, from $1.5 million in 1997. This increase
in investment management fees reflects an increase in small capitalization
growth equities assets, which are managed for a higher average fee. Assets
managed in small capitalization growth equities increased 65.2% to $714.0
million as of March 31, 1998 from $432.1 million as of March 31, 1997. Total
assets under management increased to $4.3 billion as of March 31, 1998, as
compared with $3.3 billion as of March 31, 1997.
Expenses related to independent research and other services provided
to the Company's brokerage clients during the first quarter 1998, including
commission refunds, increased 11.1% to $8.1 million from $7.3 million for the
same
7
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period in 1997. These expenses were 46.2% of commission revenues for the
quarter ended March 31, 1998 as compared with 45.0% for the corresponding
period in 1997. These expenses increased at a higher rate than commission
revenues, primarily due to the timing of research expenses incurred relative to
the receipt of commissions.
Clearing, floor brokerage and exchange charges decreased 8.0% to
$2.5 million during the first quarter 1998 from $2.7 million in 1997. These
expenses represented 14.1% of commissions in 1998 and 16.6% of commissions in
1997. The decrease in these expenses as a percentage of commissions is
primarily due to an increase in the percentage of commissions generated in the
U.S. equity market, where such expenses are charged at lower rates than
comparable trades in certain Asian markets. Commissions generated in certain
Asian markets represented a smaller percentage of total commissions during the
quarter ended March 31, 1998 as compared to the same period in 1997.
Employee compensation increased 14.7% to $5.3 million in 1998 from
$4.6 million in 1997. This resulted primarily from an increase in reserves for
discretionary and performance-based compensation, as well as an increase in the
base compensation of existing employees during the three months ended March 31,
1998.
All other expenses increased 11.5% to $2.5 million in the first
quarter 1998, compared to $2.2 million in 1997. This resulted primarily from an
increase in expenses related to market data, communications, depreciation and
amortization during the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash, U.S. Government obligations,
net accounts receivable and other investments of $45.3 million. All receivables
from correspondent brokers and dealers are fully collectible, and no provision
for uncollectibles is required.
The Company modified its cash management program during the quarter
ended March 31, 1998 to increase its rate of return on investments. The Company
invested a portion of funds previously held as cash and equivalents, U.S.
government obligations and corporate bonds in investments which include limited
partnership interests in two multi-manager, market neutral limited
partnerships; a diversified portfolio of investment grade preferred stock and
U.S. Treasury futures used to hedge the preferred stock positions; and a
bank-sponsored, flexible, market-linked deposit account which maintains
investments in U.S. and foreign equity indices, floating rate deposits, baskets
of European equity securities and a U.S. Treasury zero coupon bond. Each of
these investments is managed by professional money managers. The flexible
market-linked deposit is not federally insured; however, the bank has agreed to
protect 100% of the Company's principal investment, less its management fee, if
the deposit is maintained for one year. These investments generally are not
transferable and are less liquid than investments in U.S. government
obligations and corporate bonds. These investments have not had a material
effect on the Company's liquidity and results of operations.
During the quarter ended March 31, 1998, the Company repurchased
165,000 shares of common stock, totaling $1.0 million, under previously
announced stock repurchase programs. These repurchases have not had a material
effect on the Company's liquidity and results of operations.
The Company believes that its current cash resources and liquidity,
plus additional funds generated by operations, will be sufficient to meet
current and future operating 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.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, Lawrence W. Gallo, a former employee of Hoenig & Co.,
Inc. ("Hoenig"), instituted an arbitration before the NASD Regulation
against Hoenig and Fredric P. Sapirstein, Hoenig's Chairman and Chief
Executive Officer. Mr. Gallo principally alleges defendants wrongfully
terminated Mr. Gallo's employment in breach of his employment
agreement, and falsely stated the reason for his termination in a
securities regulatory filing on Form U-5. Mr. Gallo is seeking
approximately $2.2 million in compensatory damages against each of the
defendants, plus punitive damages, liquidated damages, interest,
reasonable attorneys' fees and modification of the Form U-5. The
Company believes that Hoenig and Mr. Sapirstein have meritorious
defenses to the arbitration and intend to vigorously oppose the claim.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.16 Employment Agreement between Axe-Houghton Associates, Inc.
and Seth M. Lynn, Jr., dated April 8, 1993.
10.17 Amendment No. 1 to the Employment Agreement between
Axe-Houghton Associates, Inc. and Seth M. Lynn, Jr., dated
August 18, 1994.
10.18 Client Agreement and Trading Authorization between Spectrum
Asset Management, Inc. and Hoenig Group Inc., dated March 18,
1998.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1998.
9
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SIGNATURES
Pursuant to the requirements 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.
Date: May 14, 1998
By:/s/ Fredric P. Sapirstein
Fredric P. Sapirstein,
Chairman and Chief
Executive Officer
Date: May 14, 1998 By:/s/ Alan B. Herzog
Alan B. Herzog,
Chief Operating Officer and
Chief Financial Officer
10
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EXHIBIT INDEX
Exhibit No. Description
- ---------- ------------
10.16 Employment Agreement between Axe-Houghton Associates, Inc. and
Seth M. Lynn, Jr., dated April 8, 1993.
10.17 Amendment No. 1 to the Employment Agreement between Axe-
Houghton Associates, Inc. and Seth M. Lynn, Jr., dated
August 18, 1994
10.18 Client Agreement and Trading Authorization between Spectrum
Asset management, Inc. and Hoenig Group Inc., dated
March 18, 1998.
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made and entered into this 8th day of April 1993,
between Axe-Houghton Associates, Inc. a Delaware corporation (the "Company")
and wholly-owned subsidiary of Hoenig Group Inc. ("Hoenig"), and Seth M.
Lynn, Jr. (the "Employee").
WITNESSETH:
-----------
WHEREAS, the Employee together with others have on the date hereof
sold all of the outstanding stock of the Company to Hoenig pursuant to a
purchase agreement dated February 18, 1993 (the "Purchase Agreement");
WHEREAS, the business of the Company, which became a wholly-owned
subsidiary of Hoenig effective upon the closing of the sale of the outstanding
stock of the Company (the "Closing"), shall be carried on after the Closing
substantially as conducted prior to the Closing;
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement; and
WHEREAS, Employee will become an executive officer of the Company and
Employee's experience in the business to be carried on by the Company renders
Employee's services of a special, unique, unusual and extraordinary character
which gives such services peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the Company and the Employee hereby agree as
follows:
1. Definitions. All accounting terms used in this Agreement and
not separately defined shall have the meanings ordinarily given them under
generally accepted accounting principles ("GAAP"). For purposes of the
Agreement, the following terms shall have the meanings ascribed below.
(a) Base Salary. "Base Salary" shall mean those amounts paid
by the Company to the Employee on a regular basis as salary pursuant to this
Agreement and the payroll policies of the Company as in effect from time to
time.
(b) Benchmark. "Benchmark" shall mean $120,000 plus the total
of any Shortfalls (as defined in Section 1(1) hereof) from previous Fiscal
Years (as defined in Section 1(g) hereof). The applicable Benchmark for any
Fiscal Year consisting of less than twelve months shall equal the sum of (i)
$120,000 multiplied by a fraction the numerator of which shall be the number of
months or fractions thereof within such Fiscal Year and the denominator of
which shall be twelve, and (ii) the total of any Shortfalls from previous
Fiscal Years.
<PAGE>
(c) Bonus. "Bonus" shall mean those amounts paid by the
Company to the Employee in addition to Base Salary as set forth in Section 6(b)
hereof.
(d) Company. "Company" shall mean Axe-Houghton Associates,
Inc. or any subsidiary or division formed or used by the Company for the
purpose of continuing the business now or hereafter operated by the Company.
(e) Date of Termination. "Date of Termination" shall mean (i)
in the case of termination for which a Notice of Termination is required, the
date of receipt of such Notice of Termination or, if later, the date specified
therein, as the case may be, and (ii) in all other cases, the actual date on
which the Employee's employment terminates.
(f) Disciplinary Termination. " Disciplinary Termination"
shall mean termination of the Employee's employment by the Company as a result
of the Employee's becoming the subject or target of any investigation or
disciplinary action by the Securities and Exchange Commission ("SEC"), the
National Association of Securities dealers ("NASD"), any securities exchange,
any self-regulatory organization or any governmental authority, state, federal
or foreign.
(g) Fiscal Year. "Fiscal Year" shall mean the year beginning
on each January 1st and ending on each December 31st of the same year;
provided, however, that for purposes of this Agreement, the first Fiscal Year
shall commence on the date hereof and end on December 31, 1993 and, in the
event this Agreement is not renewed as provided in Section 2 hereof, the last
Fiscal Year shall commence on January 1, 1998 and end on the fifth anniversary
of the date hereof.
(h) Initial Employment Term. "Initial Employment Term" shall
mean a term commencing on the date hereof and continuing for five (5) years
until April 8, 1998.
(i) Net Pre-Tax Profit. "Net Pre-Tax Profit" means the
amount, if any, determined in accordance with GAAP consistently applied from
year to year, by which the Company's total revenues exceed expenses incurred in
the operation and conduct of the Company's business, which expenses include but
are not limited to rent (at Hoenig's cost per square foot), telephones,
salaries, any amounts paid to Company employees upon termination of employment,
consulting, solicitation or other fees paid to third parties, business travel
and entertainment expenses, legal and professional fees incurred in connection
with Company business, and any other direct expenses incurred by the Company;
provided, however, that the following expenses shall not be deducted from the
Company's revenues when calculating the Earnout: (i) general corporate
allocations or charges by Hoenig; (ii) interest paid on the Company Note
referred to in Section 1.6 of the Purchase Agreement; (iii) any expenses
reasonably incurred in the relocation of the Company's offices to Royal
Executive Park, 4 International Drive, Rye Brook, New York up to a maximum
$100,000, including but not limited to any expenses incurred in the subletting
of the Company's present premises located at 580 White Plains Road, Tarrytown,
New York, and charges on service contracts incurred solely as a result of the
relocation; (iv) the cost of any stock options granted to Company employees;
(v) for each of the first two
2
<PAGE>
years following the Closing, marketing expenses of up to $500,000 provided such
expenses are approved for reimbursement by Hoenig as provided in Section 1.5 of
the Purchase Agreement; (vi) the incurrence of any indebtedness or contractual
obligation which is outside the ordinary course of business and is in excess of
$50,000; (vii) the compromise, settlement or other forgiveness of indebtedness
owed to the Company which involves an amount in excess of $50,000; (viii) the
guarantee or assumption of liability, contingent or otherwise, with respect to
obligations of third parties which involves an amount in excess of $50,000; and
(ix) interest paid on the Marketing Note referred to in Section 1.5(c)(i) of
the Purchase Agreement.
(j) Notice of Termination. "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth the basis for termination of the
Employee's employment under the provision so indicated, and (iii) if the Date
of Termination is other than the date of receipt of such notice, specifies such
Date of Termination.
(k) Permanent Disability. "Permanent Disability" shall have
the meaning given to the term "Disability" in the Long-term Disability Plan of
Hoenig & Co., Inc.
(l) Shortfall. "Shortfall" shall mean for each Fiscal Year
the amount by which the Net Pre-tax Profit for such Fiscal year is less than
$120,000; provided, however, that for Fiscal years consisting of less than
twelve months, the Shortfall, if any, shall equal the amount by which the Net
Pre-tax profit for such Fiscal Year is less than an amount equal to $120,000
multiplied by a fraction, the numerator of which shall be the number of months
or fraction thereof within such Fiscal Year and the denominator of which shall
be twelve. The maximum Shortfall for any given Fiscal Year shall be $20,000;
provided, however, that the Shortfall for any Fiscal year consisting of less
than twelve months shall equal $20,000 multiplied by a fraction, the numerator
of which shall be the number of months or fraction thereof within such Fiscal
Year and the denominator of which shall be twelve.
(m) Special Consideration. "Special Consideration" shall mean
that amount paid to Employee by Hoenig at the Closing and upon execution of
this Agreement in consideration for Employee's covenant not to compete as set
forth in Section 7 hereof.
(n) Termination for Cause. "Termination for Cause" shall mean
termination of the Employee's employment by the Company as a result of any of
the following: (i) willful and repeated failure of the Employee to adequately
perform Employee's duties pursuant to this Agreement; or (ii) any material
failure of Employee to comply with the terms of this Agreement or any breach of
this Agreement by Employee which would have a material adverse effect on the
business, properties, assets, liabilities, operations, results of operations,
prospects or condition, financial or otherwise, of the Company; or (iii)
Employee's conviction of a crime involving moral turpitude, dishonesty, theft,
unethical business conduct, or conduct which significantly impairs the
reputation of the Company, any of its affiliates or Hoenig; or (iv) the
expulsion or suspension of
3
<PAGE>
Employee, or issuance of an order temporarily or permanently enjoining
Employee, from the securities, money management or investment advisory business
or from acting in the capacity contemplated by this Agreement by the SEC, the
NASD, any securities exchange, any self-regulatory organization or governmental
authority, state, federal or foreign.
(o) Year of Service. "Year of Service" shall mean each period
of 52 weeks of continuous employment of the Employee with the Company, the
first Year of Service commencing on the date hereof.
2. Employment Term. The Company hereby employs Employee, and
Employee hereby accepts such employment, under and subject to all of the terms,
conditions and provisions hereof, for the Initial Employment term. At the end
of the Initial Employment Term, this Agreement automatically will be renewed
for successive one (1) year terms unless either party elects not to renew by
providing written notice delivered to the other party not less than 60 days and
not more than 90 days prior to the end of the Initial Employment Term or any
subsequent renewal term.
3. Duties. During the term of this Agreement, the Company hereby
employs the Employee and the Employee hereby accepts employment as the
President of the Company responsible for the day-to-day business and operation
of the Company, and agrees to continue the types of services previously
rendered by the Employee to the Company. Subject to the direction of the Board
of Directors of the Company, Employee shall have the authority and discretion
to take those actions necessary to operate, manage and develop the business of
the Company; provided, however, that Employee shall have full and complete
authority and discretion, without the prior approval of the Board of Directors,
to fire any employee except those with employment agreements and to hire any
employee whose total annual compensation (including but not limited to the
value of any bonus, perquisites and any securities, options or other rights to
acquire securities) does not exceed $100,000. During the term of this
Agreement, including any successive renewal terms, the Company shall and use
its best efforts to cause Employee to be nominated and elected as President of
the Company.
4. Conditions of Employment.
-------------------------
(a) The Employee shall devote his full time and all
professional activities to the performance of his duties and the business of
the Company and its subsidiaries.
(b) The Company shall furnish Employee with offices at the
principal office of the Company.
(c) The Employee shall be entitled to such vacation or
vacations as he may deem desirable in accordance with Company policy, which
shall not be more than 4 weeks in any year.
4
<PAGE>
(d) The Employee shall be entitled to all benefits generally
provided to employees of Hoenig and its affiliates, as of the date hereof, and
will be eligible to participate in the Hoenig stock option plan on the same
basis as employees of Hoenig and its affiliates.
5. Covenant to Serve the Company. Employee further agrees to well
and faithfully serve the Company and its subsidiaries and affiliates in the
capacities above mentioned and to devote his full time to perform such
services.
6. Compensation.
-------------
(a) During the Initial Employment term and any renewal term,
the Company agrees to pay Employee, as compensation for his services hereunder,
Base Salary at the rate of $210,000 per annum. The Company shall pay such
compensation in equal payments no less regularly than monthly, subject to any
deductions or withholdings that applicable law might require.
(b) In addition, for each of the Fiscal Years during the
Initial Employment Term and any renewal term, the Employee shall be eligible to
participate in a bonus pool equal to 20% of the amount, if any, by which the
Net Pre-tax profit (as defined in Section 1(i) hereof) of the Company for the
Fiscal Year exceeds the benchmark (as defined in Section 1(b) hereof).
Employee's portion of the bonus pool, if any, (the "Bonus") shall be determined
by the President of the Company in the reasonable exercise of his discretion.
7. Non-Competition.
----------------
In consideration of $117,900 paid by Hoenig to Employee at
the Closing (the "Special Consideration"), Employee hereby covenants and agrees
that:
(a) During the term of this Agreement and any subsequent
renewal terms, Employee will not directly or indirectly (whether as a
proprietor, partner, stockholder, creditor, officer, director, agent, employee,
consultant, trustee, affiliate or otherwise) (i) own, manage, operate, control,
promote or participate in the ownership, management, operation or control of,
or be connected with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any business which is competitive with the
business conducted by the Company or any of its subsidiaries (provided that
ownership of one percent (1%) or less of the voting stock of any publicly held
corporation shall not constitute a violation hereof); (ii) solicit any present
or future client or prospect of the Company or its subsidiaries or affiliates
in connection with any such activity or other business competitive with the
business of the Company or its subsidiaries or affiliates; or (iii) employ,
solicit for employment, induce or persuade, or advise or recommend to any other
persons that they employ or solicit for employment, any employee of the
Company.
(b) For a period of time equal to one year from the Date of
termination, Employee agrees that he will not directly or indirectly (either as
a proprietor, partner,
5
<PAGE>
stockholder, creditor, officer, director, agent, employee, consultant, trustee,
affiliate or otherwise) (i) own, manage, operate, control, promote or
participate in the ownership, management, operation or control of, or be
connected with, or have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is competitive with the business
conducted by the Company or any of its subsidiaries (provided that ownership of
one percent (1%) or less of the voting stock of any publicly held corporation
shall not constitute a violation hereof); (ii) solicit any present or future
client or prospect of the Company or its subsidiaries or affiliates in
connection with any such activity; or (iii) employ, solicit for employment,
induce or persuade, or advise or recommend to any other persons that they
employ or solicit for employment, any employee of the Company. However,
Employee shall not be bound by the terms of this subsection 7(b) if the Company
terminates Employee's employment other than for cause pursuant to Section 10(b)
or upon Employee's death or permanent disability pursuant to Section 10(a), or
if Employee terminates his employment pursuant to Section 10(d). If the Company
terminates Employee's employment pursuant to Section 10(e), Employee shall not
be bound by the terms of subsections (ii) and (iii) of this Section 7(b) for a
period of time equal to one year from the date of termination.
8. Company Property.
-----------------
(a) Employee agrees not to disclose or use, except in pursuit
of the business of the Company or any of its subsidiaries or affiliates, any
proprietary information of the Company or its subsidiaries or affiliates. For
purposes of this Agreement, the phrase "proprietary information of the Company
or its subsidiaries or affiliates" means all information which is known or
intended to be known only to employees of the Company, its subsidiaries or
affiliates or others in a confidential relationship with the Company or its
subsidiaries or affiliates, and relates to business matters such as the
identity of present and future clients and prospects of the Company or of its
subsidiaries or affiliates.
(b) Any patents, inventions, discoveries, applications,
computer programs, mathematical algorithms, formulas, strategies or processes
devised, planned, applied, created, discovered, invented or employed by
Employee, alone or jointly with others, in the course of Employee's employment
under this Agreement and which pertain to any aspect of the Company's business
shall be the sole and absolute property of the Company, and Employee shall make
prompt report thereof to the Company and promptly execute any and all documents
reasonably requested to assure the Company the full and complete ownership
thereof.
(c) All records, files, drawings, documents, reports,
computer programs, software, discs or magnetic tape, equipment and similar
items relating to the business of the Company or its subsidiaries or affiliates
which Employee shall prepare or receive from the Company shall remain the sole
and exclusive property of the Company and its subsidiaries or affiliates. Upon
termination of Employee's employment under this Agreement, Employee shall
promptly return to the Company and its subsidiaries or affiliates all property
of the Company or its subsidiaries or affiliates in Employee's possession at
the Date of Termination, including but not limited to all correspondence,
drawings, blueprints, manuals,
6
<PAGE>
letters, notes, notebooks, reports, flowcharts, computer programs, proposals,
any documents concerning the Company's clients or products, licensed software
or processes, including any copies thereof, used by the Company.
9. Standard of Conduct. Employee agrees at all times during the
term of this Agreement to conduct himself in such manner as to not injure or
reflect negatively on the standing, credit reputation or business of the
Company or its subsidiaries of affiliates.
10. Termination.
------------
(a) Death or Permanent Disability. The Employee's employment
with the Company shall automatically terminate upon the Employee's death and
may be terminated by the Company upon the Permanent Disability of the Employee.
(b) Termination by the Company Other Than a Termination For
Cause, Permanent Disability or Death. The Company may, by action of the Board
of Directors or any Committee thereof, upon not less than 90 calendar days
written or oral notice to the Employee, terminate the employment of the
Employee for any reason at any time; provided, however, that any Termination
for Cause or Permanent Disability shall not be treated as a termination under
this Section 10(b).
(c) Termination for Cause. At any time during the term of
this Agreement, the Company may notify the Employee of a Termination for Cause
in the manner provided in Section 10(f) hereof and the employment of the
Employee shall terminate as set forth in the Notice of termination.
(d) Termination by Employee. Employee may, upon 30 days
written notice to the Company, terminate this Agreement upon any material
failure by the Company to comply with the terms of this Agreement (other than
any failure remedied within a reasonable time after receipt of written notice
from Employee).
(e) Disciplinary Termination. At any time during the Term of
this Agreement, the Company may notify the Employee of a Disciplinary
Termination in the manner provided in Section 10(f) hereof and the employment
of Employee shall terminate as set forth in the Notice of Termination.
(f) Notice of Termination. Any Termination for cause or
Disciplinary Termination shall be communicated by a Notice of termination
delivered to the Employee in accordance with Section 1 hereof. If the Agreement
is terminated by the Company pursuant to Section 10(b) hereof such termination
must be communicated in writing, giving 90 days written notice. If this
Agreement is terminated by the Employee pursuant to Section 10(d) hereof, such
termination must be communicated in writing, giving 30 days written notice.
11. Obligations of the Company Upon Termination.
--------------------------------------------
7
<PAGE>
(a) Death or Permanent Disability. If the Employee's
employment is terminated by reason of the Employee's death or Permanent
Disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement other
than those obligations accrued at the date of termination, including, for this
purpose (I) the Employee's full Base Salary through the date of Termination,
including Employee's portion of any unpaid Bonus previously awarded pursuant to
Section 6(b) hereof, (ii) the Employee's portion, if any, of any Bonus awarded
pursuant to Section 6(b) hereof after the Date of Termination for the year
during which the termination occurred; (iii) any compensation previously
deferred by the Employee (together with any accrued earnings thereon) and not
yet paid by the Company and (iv) any other amounts or benefits owing to the
Employee under the then applicable employee benefit plans or policies of the
Company (such amounts specified in clauses (i), (iii) and (iv) above are
hereinafter referred to as "Accrued Obligations"). Unless otherwise directed by
the Employee (or, in the case of any employee benefit plan qualified (a
"Qualified Plan") under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), as may be required by such plan) all such Accrued
Obligations shall be paid to the Employee or the Employee's legal
representative in a lump sum in cash within 30 days of the Date of termination.
(b) Termination by the Company Other Than For Cause and
Termination By Employee. In the event of a Termination Other Than For Cause
pursuant to Section 10(b) hereof, or termination by Employee pursuant to
Section 10(d) hereof, the Company shall pay to the Employee within 30 days
after the Date of Termination the Employee's Accrued Obligations and within 90
days after the Date of termination, shall pay to Employee an additional amount
which shall be determined as follows:
(i) If the termination occurs during the first or
second year of Service, an amount equal to Employee's Base Salary for one Year
of Service ($210,000).
(ii) If the termination occurs during the third Year
of Service, an amount equal to
75% of Employee's Base Salary for one Year of Service ($157,000).
(iii) If the termination occurs during the fourth
Year of Service, an amount equal
to 50% of Employee's Base Salary for one Year of Service ($105,000).
(iv) If the termination occurs during the fifth Year
of Service, an amount equal to
25% of Employee's Base Salary for one Year of Service ($52,500) or the
remaining unpaid Base Salary for the Year of Service during which the Date of
Termination occurs, whichever is less.
(c) Termination for Cause and Disciplinary Termination. In
the event of a Termination for Cause pursuant to Section 10(c) hereof or a
Disciplinary termination pursuant to Section 10(e) hereof, the Company shall
pay the Employee the Employee's Accrued Obligations subject to set-offs by the
Company for any amounts reasonably believed by the Company to be owed by the
Employee to the Company or any of its subsidiaries or affiliates. Unless
otherwise directed by the Employee (or, in the case of any
8
<PAGE>
Qualified Plan, as may be required by such plan), the Employee shall be paid
all such benefits in a lump sum within 30 days of the Date of Termination, and
neither the Company nor any of its subsidiaries or affiliates shall have any
further obligations to the Employee under this Agreement. Notwithstanding the
foregoing, and only with respect to a Disciplinary termination, if after a
Disciplinary Termination Employee is ultimately found by the highest applicable
appellate court or tribunal not to have engaged in any disciplinary violations
or unethical business conduct or to have violated any applicable law, statute,
rule, regulation or requirement of the SEC, the NASD, any securities exchange,
any self-regulatory organization or any governmental authority, state, federal
or foreign, the Company shall, within 90 days of receipt of written notice
thereof from the Employee, pay to Employee those amounts which Employee would
have been entitled to receive on the Date of Termination (without interest
thereon and less any such amounts already paid) had his employment been
terminated other than for cause pursuant to Section 10(b) hereof.
12. Employee's Representations and Warranties. Employee
represents and warrants as follows:
(a) Employee represents and declares that in
entering into this Agreement he has relied solely upon his own judgment, belief
and knowledge, and the advice and recommendations of his own independent
counsel, concerning the nature, extent and duration of Termination, without
interest thereon, of his rights and duties hereunder.
(b) Employee will not, by entering into, executing,
delivering and performing this
Agreement, breach or cause to be breached any undertaking, contract, agreement,
statute, rule or regulation to which Employee is a party or by which Employee
is bound which would limit or materially affect the performance of Employee's
duties and obligations hereunder, including but not limited to any contract of
employment or covenants, promises or agreements not to compete.
(c) Employee has not during the course of his
previous employment engaged in or performed any acts in connection with this
Agreement or his employment by the Company which involve a breach of any
fiduciary or other duty owed to Employee's former employer or any of its
affiliates or subsidiaries.
(d) Employee has not during the course of his
previous employment disclosed to the Company any proprietary information of any
third party, including but not limited to Employee's former employer,
Axe-Houghton Management, inc. or USF&G Corporation, nor has Employee at any
time used any such proprietary information except in the proper pursuit of the
business of the entity or person to whom the proprietary information belongs.
13. Miscellaneous.
--------------
(a) In the event that Employee's services
hereunder are terminated under any of the provisions of this Agreement (except
by death), Employee agrees that if at that time he is a director or officer of
the Company, or any of its subsidiaries
9
<PAGE>
or affiliates, he immediately will deliver his written resignation as such
director or officer to the applicable Board of Directors, such resignation to
become effective immediately.
(b) Any controversy or claim arising out of or
relating to this Agreement (including, without limitation, whether termination,
if any, has been Termination for Cause, as that phrase is defined in Section 1
hereof) shall be settled by binding arbitration in the City of New York before
a panel of three arbitrators in accordance with the Rules of the New York Stock
Exchange if the Company or any subsidiary or affiliate is a member thereof, the
National Association of Securities Dealers Inc. if neither the Company nor any
subsidiary or affiliate is a member of the New York Stock Exchange, or the
American Arbitration Association if neither the New York Stock Exchange nor the
National Association of Securities Dealers Inc. has jurisdiction over the
parties in this matter, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The parties hereby
submit to jurisdiction and venue in New York Supreme Court in New York County
and the United States District Court for the Southern District of New York, and
waives any and all objections to jurisdiction and venue. Employee hereby
consents to service of process delivered personally, by overnight courier, by
registered mail return receipt requested or by facsimile addressed to Employee
at the address listed in subsection 13(c) hereof.
(c) Any notice required or permitted to be given
under this Agreement by one party hereto to the other shall be sufficient if
given or confirmed in writing delivered personally, by overnight courier or by
registered mail return receipt requested addressed as respectively indicated:
To Axe-Houghton Associates, Inc.:
Axe-Houghton Associates, Inc.
Royal Executive Park
4 International Drive
Rye brook, NY 10573
Attention: Seth M. Lynn, Jr.
with a copy to:
Hoenig Group Inc.
Royal Executive Park
4 International Drive
Rye Brook, NY 10573
Attention: Alan B. Herzog
To Employee:
Seth M. Lynn, Jr.
87 Clinton Road
Bedford Hills, NY 10507
10
<PAGE>
or to such other addresses as the respective parties may in writing to the
other designate.
(d) This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of new York
without reference to the conflicts of law provisions thereof.
(e) Employee's rights and interests under this
Agreement cannot be assigned, pledged or encumbered by him without the
Company's prior written consent. The Company's rights and obligations shall be
assignable to any parent, affiliate or subsidiary of the Company or any entity
which succeeds to a substantial part of the assets and business of the Company.
(f) This Agreement constitutes the entire
agreement between the parties and supersedes all other agreements, written or
oral, between them relating to the Company's employment of Employee.
(g) All representations, warranties, covenants and
agreements contained in this Agreement by or on behalf of the parties hereto
shall survive termination of this Agreement, except as otherwise provided
herein, and, in the event of any assignment, shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto whether
so expressed or not.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
AXE-HOUGHTON ASSOCIATES, INC.
By: /s/ Lloyd Buchanan
--------------------------
Vice-President
Employee:
/s/ Seth M. Lynn, Jr.
-----------------------------
11
<PAGE>
AMENDMENT NO. 1
TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of August 18, 1994 (the "Amendment") to the
Employment Agreement referred to below between Axe-Houghton Associates, Inc.
(the "Company") and Seth M. Lynn, Jr. ("Employee").
W I T N E S S E T H
WHEREAS, the Company and Employee are parties to the Employment
Agreement, dated April 8, 1993 (the "Employment Agreement") (unless otherwise
defined herein, all capitalized terms used herein shall have the same meaning
as set forth in the Employment Agreement);
WHEREAS, the Company plans to hire certain additional employees from
time to time (through acquisitions or otherwise) and wishes to make certain
amendments to the Employment Agreement to exclude from the calculation of Bonus
revenues generated by such parties consistent with the Purchase Agreement dated
as of February 18, 1993 (the "Purchase Agreement") among Hoenig Group Inc.
("Hoenig"), the Company, and the Sellers (as defined below), as amended by
Amendment No. 1 to the Purchase Agreement, dated as of August 18, 1994 among
Hoenig, the Company and the Sellers (as defined below);
NOW THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENT
Section 1.01. Amendment of Employment Agreement. The Employment
Agreement is hereby amended as follows:
(a) Section 1(i) is hereby deleted and replaced in its entirety by the
following:
(i) "Net Pre-tax Profits" means the amount, if any,
determined in accordance with GAAP consistently applied from year to
year, by which the Company's total revenues generated by the Included
Accounts (but excluding revenues generated by the Excluded Accounts)
exceed expenses incurred in the operation and conduct of the Company's
business excluding all such expenses relating to the Excluded Accounts
and Excluded Employees as determined in good faith by the Board of
Directors of the Company, which expenses include but are not limited
to rent (at Hoenig's cost per square foot), telephones, salaries, any
amounts paid to Company employees upon termination of employment,
consulting, solicitation or other fees paid to third parties, business
travel and entertainment expenses, legal and professional fees
incurred in connection with Company business, and any other direct
expenses incurred by the Company; provided,
<PAGE>
however, that the following expenses shall not be deducted from the
Company's revenues when calculating the Earnout; (i) general corporate
allocations or charges by Hoenig; (ii) interest paid on the Company
Note referred to in Section 1.6 of the Purchase Agreement; (iii) any
expenses reasonably incurred in the relocation of the Company's
offices to Royal Executive Park, 4 International Drive, Rye Brook, New
York of up to a maximum $100,000, including but not limited to any
expenses incurred in the subletting of the Company's present premises
located at 580 White Plains Road, Tarrytown, New York, and charges on
service contracts incurred solely as a result of the relocation; (iv)
the cost of any stock options granted to Company employees; (v) for
each of the first two years following the Closing, marketing expenses
of up to $500,000 provided such expenses are approved for
reimbursement by Hoenig as provided in Section 1.5 of the Purchase
Agreement; (vi) the incurrence of any indebtedness or contractual
obligation which is outside the ordinary course of business and is in
excess of $50,000; (vii) the compromise, settlement or other
forgiveness of indebtedness owed to the Company which involves an
amount in excess of $50,000; (viii) the guarantee or assumption of
liability, contingent or otherwise, with respect to obligations of
third parties which involves an amount in excess of $50,000; and (ix)
interest paid on the Marketing Note referred to in Section 1.5(c)(i)
of the Purchase Agreement.
(b) Section 1 is hereby amended by adding the following after clause
(o):
(p) "Included Accounts" shall mean client accounts presently
or hereafter managed by the Included Employees, except those client
accounts managed using the Vortex Investment style.
(q) "Included Employees" shall mean the Sellers and such
present and future employees hired by the Sellers and working with the
Sellers on Included Accounts.
(r) "Excluded Accounts" shall mean client accounts presently
or hereafter managed by employees other than the Included Employees.
(s) "Excluded Employees" shall mean present and future
employees other than the Included Employees.
(t) "Sellers" shall mean Ellen W. Adnopoz, Lloyd Buchanan,
Richard Franks, Robin N. Kerr, Seth M. Lynn, Jr., Porter H. Sutro and
Robert A. Windsor, collectively.
2
<PAGE>
ARTICLE II
MISCELLANEOUS
(a) The parties hereby agree that upon the commencement of employment
of the Excluded Employees all responsibilities relating to client accounts
managed using the Vortex investment style shall become the responsibility of
the Excluded Employees.
(b) Except for the matters specifically amended herein, the Employment
Agreement shall remain and continue to be in full force and effect in
accordance with its terms, and the Employment Agreement is hereby ratified,
confirmed and acknowledged by each party thereto.
(c) This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, and all of which
taken together shall constitute one and the same instrument.
(d) This Amendment shall be governed by, and construed in accordance
with the laws of the State of New York, without regard to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first above written.
AXE-HOUGHTON ASSOCIATES, INC.
By: /s/ Richard Franks
-------------------------
Vice-President
Employee:
/s/ Seth M. Lynn, Jr.
-------------------------
Seth M. Lynn, Jr.
3
<PAGE>
EXHIBIT 10.18
SPECTRUM ASSET MANAGEMENT, INC.
CLIENT AGREEMENT AND TRADING AUTHORIZATION
This Agreement sets forth the terms and conditions upon which Spectrum Asset
Management, Inc. (hereinafter referred to as the "Advisor") shall act as agent
and investment manager with full discretionary authority to buy, sell and trade
in preferred stocks, bonds, commodity futures and/or contracts relating to the
same, on behalf of Hoenig Group Inc. (hereinafter referred to as the "Client").
1. The Client acknowledges its receipt and understanding of the Advisor's
Disclosure Document to prospective Clients which, except as otherwise
provided, is incorporated by reference herein and made a part hereof;
2. In consideration of the Advisor's rendering its services, the Client
shall pay the Advisor a quarterly fee, to be billed at the end of each
calendar quarter, based on the average daily equity value of assets
under management during such quarter according to the following
schedule:
Net Asset Value Annualized Fee Rate
------------------ ---------------------
$2-20 million 0.45%
over $20 million 0.40%
Upon termination of this Agreement, the quarterly fee shall be pro
rated.
3. In the absence of specific written instructions from Client to the
contrary, Advisor will maintain, either directly or through a clearing
broker designated by Advisor, custody of the cash, securities and
other investments (the "Assets") in the Client's account and will
receive and credit to the account all interest, dividends, and other
distributions received by the Advisor on the Assets in the account.
Advisor, either directly or through its clearing broker, shall provide
Client with monthly statements of Client's account and such other
information as Client shall request from time to time.
4. The Client shall establish and maintain a commodity futures account
and/or options account with FIMAT Futures USA, Inc.
5. In the absence of specific written instructions from Client to the
contrary, Advisor will provide brokerage and execution services to the
Client and shall have discretion to issue directly to other brokers or
dealers orders for the purchases and sales of securities, commodity
futures and contracts relating to the same on behalf of Client's
account. Advisor shall, either directly or through other brokers or
dealers, execute transactions for the purchase or sale of securities
and other investments in the Client's account provided it is able to
provide best execution.
<PAGE>
Advisor will send to the Client confirmations of all transactions it
executes for the Client's account and shall and prepare and supply to
the Client monthly account statements summarizing such transactions.
To the extent Advisor uses other brokers or dealers to execute
transactions on behalf of the Client's account, Advisor shall instruct
such other brokers and dealers to send to the Client confirmations for
all such transactions and monthly account statements summarizing such
transactions. The Client hereby ratifies and confirms that the Advisor
may effect transactions in which it acts as agent for the buyer and
the seller and consents to this arrangement heretofore and hereafter.
This consent may be revoked at any time by written notice to the
Advisor.
6. All transactions executed for the Client's accounts shall be at the
Client's risk and no express or implied assurance of profit nor
guarantee against loss has been made to the undersigned Client, and
accordingly, it is hereby confirmed that the Advisor has not warranted
in any way that the Advisor's program will attain successful
performance results.
7. The Client understands that the Advisor has not been retained for the
purpose of providing tax advice. The Advisor does not assume
responsibility for tax-related matters and the Client's accounting
that pertain to the transactions effectuated for the Client's
account(s).
8. This authorization is a continuing one and shall remain in full force
and effect until revoked by the Client by written notice to Spectrum
Asset Management, Inc., 4 High Ridge Park, Stamford, CT 06905,
attention Mark Lieb. The Client may terminate the Advisor's management
of its account(s) and direct the close-out of its account(s), and the
withdrawal of funds, at any time, upon five (5) days' written notice
to the Advisor. Subsequent to the date of receipt by Advisor of such
notice of termination, the Client acknowledges that Advisor shall have
no responsibility or liability, including losses resulting in the
maintaining of positions in existence after the effective date of the
termination. Similarly, the Advisor may terminate its management
services at any time upon reasonable (30 days) notice to the Client.
9. This authorization granted by the Client in this Agreement shall inure
to the benefit of the Advisor and its successors and/or assigns,
notwithstanding any change at any time in the personnel of the Client,
the Advisor or their respective successors and assigns.
10. The Advisor agrees to provide the Client with monthly performance
evaluation reports within five (5) business days of the end of the
month. These reports will include a detailed transaction log, dividend
schedule, portfolio position reports, performance evaluation and
summary.
11. In accordance with the provisions of the Investment Advisor's Act of
1940, as amended, this Agreement may not be assigned, transferred,
sold or in any manner
2
<PAGE>
hypothecated or pledged by the Advisor without the prior written
consent of the Client. The Advisor agrees to maintain strict
confidence regarding all aspects of the Client's account(s), its
financial condition and business affairs.
12. The Client hereby confirms it is fully empowered and authorized to
enter into this Agreement and shall be binding on the Client, its
successors, administrators and assigns and governed by the laws of the
state of New York. The Client agrees to retain the Advisor and to
establish and maintain managed hedged accounts for securities options
and commodity trading which it has independently determined to be in
accordance with its Certificate of Incorporation and By-Laws and to
appropriately meet its financial objectives. Submitted herewith for
execution by the Client, are certain forms required by FIMAT Futures
USA, Inc. and the Advisor, including but not limited to: (i) this
Client Agreement and Trading Authorization; (ii) Discretionary Account
Disclosure Statement; (iii) all forms in the Futures Account Agreement
for Institutional Customers;
13. Advisor represents and warrants that it is, and shall remain, duly
registered as an investment adviser under the Investment Advisers Act
of 1940, as amended, and as a broker-dealer under the Securities and
Exchange Act of 1934, as amended.
14. Adviser agrees to provide its best judgment and efforts in rendering
the services set forth in this Agreement, including without limitation
advisory and brokerage services, and the parties agree that the
standard of care imposed upon Adviser, its employees and agents, is to
act without negligence and in good faith with the care, skill,
prudence and diligence under the circumstances then prevailing that a
prudent investor, acting in a like capacity, would undertake and to
comply with all other duties of a fiduciary. Advisor shall manage and
invest the funds in Client's account in accordance with the investment
guidelines attached hereto as Exhibit A, as may be amended by Client
from time to time.
15. Advisor guarantees that all services provided under this Agreement
will be "Year 2000 compliant" by December 31, 1998, meaning that all
services are designed to operate without regard to the turning of the
century and that any process involved in these services which involves
dates will operate in a manner that takes into account dates occurring
before and after the turning of the century and that any process
involved in these services creates, processes and stores dates in a
format that accurately reflects whether the date is before or after
the year 2000.
16. The Client and its designated auditors have the right to examine,
audit and review all documents, reports, transaction confirmations and
other materials relating to the Advisor's management of the account at
any time on reasonable prior notice. The Client does not waive any
rights available under federal and State statutes.
17. The Client authorizes the Advisor to transfer money (but not
securities) at any time from the Client's Custody Account and to and
from FIMAT Futures USA,
3
<PAGE>
Inc. Customer's Segregated Funds Account from time to time to meet
variation margin calls that may arise from cross-hedging the preferred
portfolio.
18. Any disputes relating to or arising out of this Agreement or Client's
transactions with Advisor shall be subject to arbitration before the
National Association of Securities Dealers, Inc., at its New York
District Headquarters, presently located at 33 Whitehall Street, New
York, NY 10004.
Hoenig & Co. Inc.
Royal Executive Park
4 International Drive
Rye Brook, NY 10573
/s/ Fredric P. Sapirstein 3/16/98
- -------------------------------------------------------------------------------
Signature/Title Date
SPECTRUM ASSET MANAGEMENT, INC.
/s/ Mark Lieb 3/18/98
- --------------------------------------------------------------------------------
Signature/Title Date
4
<PAGE>
EXHIBIT 11.1
HOENIG GROUP INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
3/31/98 3/31/97
------- -------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
EARNINGS:
Net Income $989,857 $989,857 $ 873,755 $873,755
======== ======== ========== =======
NUMBER OF SHARES:
Weighted average of shares outstanding 9,139,022 9,139,022 9,545,644 9,545,644
Additional shares assuming conversion
of outstanding options and warrants N/A 433,820 N/A 328,680
---------- ------- ----------- -------
Average shares and equivalents outstanding 9,139,022 9,572,842 9,545,644 9,874,324
========= ========= ========= =========
Earnings per share $ .11 $ .10 $ .09 $ .09
============= ============ ============= ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOENIG
GROUP INC. MARCH 31, 1998 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,393,803
<RECEIVABLES> 16,716,416
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 25,458,508
<PP&E> 0
<TOTAL-ASSETS> 62,407,260
<SHORT-TERM> 390,813
<PAYABLES> 8,316,154
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 108,098
<OTHER-SE> 39,489,511
<TOTAL-LIABILITY-AND-EQUITY> 62,407,260
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 474,832
<COMMISSIONS> 17,562,219
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 1,965,734
<INTEREST-EXPENSE> 0
<COMPENSATION> 5,273,725
<INCOME-PRETAX> 1,759,958
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 989,857
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
