<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
September 30, 1998
HOENIG GROUP INC.
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(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,
if 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 November 14, 1998, there were 8,530,309 shares of common stock, par
value $.01 per share, outstanding.
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HOENIG GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Income - Three and
Nine Months Ended September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 3
Notes to Unaudited Consolidated Financial Statements 4-6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and equivalents $16,771,346 $20,468,926
U.S. Government obligations, at market value 9,916,377 17,754,737
Receivables from correspondent brokers and dealers 10,266,853 6,837,648
Receivables from customers 1,162,160 4,031,489
Equipment, furniture and leasehold improvements
- net of accumulated depreciation and amortization 1,836,579 2,207,121
Securities owned, at market value 9,461,514 2,065,399
Exchange memberships - at cost 1,321,235 1,321,235
Investment management fees receivable 1,260,629 1,297,684
Deferred research/services expense 2,053,160 1,070,079
Investment in limited partnerships, at equity 5,156,687 633,858
Other assets 3,554,481 3,333,167
------------ -----------
Total Assets $62,761,021 $61,021,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued research/services payable $11,404,102 $ 8,341,475
Accrued compensation 5,813,721 5,701,392
Payable to brokers and dealers 1,562,661 4,579,680
Payable to customers 3,006,379 902,914
Accrued expenses 1,156,121 728,726
Securities sold, but not yet purchased, at market value 662,850 85,125
Short-term bank loan payable 29,097 -
Other liabilities 1,056,001 1,156,310
--------- ----------
Total Liabilities 24,690,932 21,495,622
---------- ----------
STOCKHOLDERS' EQUITY
Common stock $.01 par value per share
Voting-authorized 40,000,000 shares, issued
10,838,850 in 1998 and 10,809,750 in 1997 108,389 108,098
Additional paid in capital 26,900,933 26,628,159
Accumulated comprehensive income (888,232) (930,035)
Retained earnings 23,485,117 20,190,841
---------- ----------
49,606,207 45,997,063
Less treasury stock at cost - 2,313,541
shares in 1998 and 1,618,378 shares in 1997 (11,536,118) (6,471,342)
------------ -----------
Total Stockholders' Equity 38,070,089 39,525,721
---------- ----------
Total Liabilities and Stockholders' Equity $62,761,021 $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 Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------------
Revenues 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross commissions $19,803,593 $16,398,169 $55,480,358 $50,671,115
Investment management fees 1,789,006 1,750,076 5,727,181 4,771,783
Other 27,720 68,556 122,975 328,830
----------- ----------- -------------- ------------
Total operating revenues 21,620,319 18,216,801 61,330,514 55,771,728
Expenses
Clearing, floor brokerage and
exchange charges 2,524,795 2,485,943 7,115,892 7,887,781
Employee compensation 5,633,220 5,058,752 16,127,820 14,670,416
Independent research and services 8,003,410 7,478,163 24,636,086 23,179,016
Other 2,922,558 2,696,110 7,986,312 7,515,660
----------- --------- ------------ ----------
Total expenses 19,083,983 17,718,968 55,866,110 53,252,873
Operating Income 2,536,336 497,833 5,464,404 2,518,855
Investment Income and Other
Interest, dividends 424,643 500,533 1,353,422 1,419,780
Gain (loss) on investments, other (907,758) 63,407 (767,869) 189,991
----------- --------- --------- ---------
Net investment income (loss) and other (483,115) 563,940 585,553 1,609,771
Income before income taxes 2,053,221 1,061,773 6,049,957 4,128,626
Provision for income taxes 978,470 417,005 2,755,681 1,586,056
----------- ---------- ----------- ----------
Net income $1,074,751 $ 644,768 $3,294,276 $2,542,570
=========== ========== ========== ==========
Net income per share
Basic $ .13 $ .07 $ .37 $ .27
=========== ========== ========== ==========
Diluted $ .12 $ .07 % .35 $ .26
=========== ========== ========== ==========
Weighted average shares outstanding
Basic 8,572,743 9,342,978 8,897,316 9,457,567
=========== ========= ========= =========
Diluted 9,165,260 9,749,853 9,448,538 9,810,778
=========== ========= ========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
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HOENIG GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
---- ----
<S> <C> <C>
Net income $3,294,276 $2,542,570
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 978,366 858,406
Loss on write-off of fixed assets 193,210 -
Foreign currency translation adjustment 41,800 (93,871)
Issuance of stock options 139,407 138,323
Changes in assets and liabilities:
Securities owned, net 843,208 12,766
Receivables from correspondent brokers and dealers (3,429,205) (6,942,579)
Receivables from customers 2,869,329 (874,717)
Investment management fees receivables 37,055 (283,079)
Payable to customers 2,103,465 7,796,862
Deferred research/services expense (983,081) (434,133)
Other assets (528,018) (374,101)
Payable to brokers and dealers (3,017,019) 814,165
Accrued research/services payable 3,062,627 843,012
Accrued compensation 112,329 225,594
Accrued expenses 427,395 (99,733)
Other liabilities (100,309) 554,550
------------ ------------
Net cash provided by operations 6,044,835 4,684,035
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government obligations 7,838,360 (483,246)
Investment in limited partnerships, at equity (4,522,829) (130,610)
Investment in securities (7,661,598) 148,239
Purchases of equipment, furniture and leasehold
improvements (494,330) (842,530)
------------ ------------
Net cash (used in) investing activities: (4,840,397) (1,308,147)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 212,779 153,978
Treasury stock purchased (5,346,416) (1,593,533)
Issuance of treasury stock 202,522 -
Short term bank loan payable 29,097 -
------------ ------------
Net cash (used in) financing activities: (4,902,018) (1,439,555)
Net increase (decrease) in cash and equivalents (3,697,580) 1,936,333
Cash and equivalents beginning of period 20,468,926 18,307,886
------------ ----------
Cash and equivalents end of period $16,771,346 $20,244,219
============ ===========
Supplemental disclosure of cash flow information:
Interest paid: $ 90,190 $ 146,873
============ ============
Taxes paid: $ 2,532,796 $ 1,357,275
============ ============
</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"), the results of its operations and changes
in cash flows for the periods presented. The interim 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 has 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
Annual Report on Form 10-K for the fiscal year ended December 31, 1997. The
results of operations for the periods ended September 30, 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 September 30, 1998, Hoenig's
minimum required net capital was $688,000, its net capital ratio was .77 to 1,
and its net capital was approximately $13,311,000, which was $12,623,000 in
excess of regulatory requirements. Hoenig's Tokyo office (a branch of Hoenig)
capital requirement was (Y)55,000,000 ($402,000). Hoenig & Company Limited
("Limited"), the Company's United Kingdom brokerage subsidiary, is required to
maintain financial resources of at least 110% of its capital requirement (as
defined). Limited's financial resources requirement at September 30, 1998 was
approximately (pound)509,000 ($865,000); it had excess financial resources at
such date of approximately (pound)568,000 ($965,000). Hoenig (Far East) Limited
("Far East"), the Company's Hong Kong brokerage subsidiary, 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$16,149,000 ($2,085,000) at September 30, 1998, and it had
excess liquid capital of approximately HK$20,263,000 ($2,616,000).
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS.
Axe-Houghton Associates, Inc. ("Axe-Houghton"), the Company's 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% ($31,916) and 18.56% ($541,675) at September 30, 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.
4
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NOTE 4 - FINANCIAL INSTRUMENTS.
As part of its modified cash management program, 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.
Each of these investments uses or includes 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 the termination 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 as part of
its business operations.
NOTE 5 - STOCKHOLDERS' EQUITY.
On June 17, 1998, the Company's Board of Directors authorized the
management of the Company to repurchase up to an additional one million shares
of the Company's Common Stock from time to time in open-market and privately
negotiated transactions. As of June 30, 1998, the Company completed the one
million-share repurchase program announced in November 1994. The 1994
repurchase program was in addition to the one million shares repurchased in a
previous program announced in the fourth quarter 1992. As of September 30,
1998, the Company has repurchased a total of 2,248,212 shares under these three
repurchase programs.
From January 1, 1998 through September 30, 1998, the Company
repurchased 772,500 shares of Common Stock at an aggregate cost of $5.3
million. The total cost of the purchases under the repurchase programs and the
purchase of shares from the Estate of Ronald H. Hoenig in December 1995 (net of
584,671 shares issued out of Treasury Stock) is $11,536,118.
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 beginning 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 Statements of Financial Condition.
Comprehensive Income for the periods ended September 30, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income $3,294,276 $2,542,570
Other Comprehensive Income:
Foreign currency translation adjustment 41,803 (93,871)
Tax expense (benefit) 19,037 (36,056)
---------- ----------
22,766 (57,815)
Comprehensive Income $3,317,042 $2,484,755
========== ==========
</TABLE>
5
<PAGE>
NOTE 7. EARNINGS PER SHARE.
The Financial Accounting Standards Board has 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 for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income available to common stockholders $3,294,276 $2,542,570 $1,074,751 $ 644,768
Weighted average shares outstanding 8,897,316 9,457,567 8,572,743 9,342,978
Effect of dilutive instruments
Employee stock options 551,222 353,211 592,517 406,875
------- --------- ---------- ----------
Total weighted average diluted shares 9,448,538 9,810,778 9,165,260 9,749,853
========== ========== ========== ==========
Basic earnings per share $ .37 $ .27 $ .13 $ .07
========== ========== ========== ==========
Diluted earnings per share $ .35 $ .26 $ .12 $ .07
========== ========== ========== ==========
</TABLE>
NOTE 8- CONTINGENCIES.
In March 1998, Lawrence W. Gallo, a former employee of Hoenig,
instituted an arbitration before 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. Hoenig has filed an answer,
denying Mr. Gallo's allegations, and a counter-claim against Mr. Gallo, seeking
damages of not less than $220,000, based on Mr. Gallo's breach of his
employment agreement with Hoenig. The Company believes that Hoenig and Mr.
Sapirstein have meritorious defenses to the arbitration, and Hoenig intends to
vigorously oppose Mr. Gallo's claims and pursue its counter-claim against
Mr. Gallo.
NOTE 9 - SUBSEQUENT EVENTS.
On October 8, 1998, the Company entered into new employment
arrangements with two employees of Hoenig, which are effective January 1, 1999.
Minimum aggregate annual compensation to be paid under these arrangements is
$825,000. These arrangements provide for increased variable, performance-based
compensation, which, assuming current levels of activity, will result in
increased compensation expense as compared to prior periods.
6
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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, measures
taken to address operating losses in certain international operations,
acquisition and expansion plans, plans to address the institution of the Euro
in 1999, 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, declines in 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 Arrangements"); 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 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 September 30, 1998, Axe-Houghton had $3.9
billion in assets under management, of which approximately $507.3 million
represented 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, as well as the
7
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performance of the securities markets generally. Declines in the performance
of small capitalization growth equities may adversely affect the Company's
assets under management and related revenues and income.
Axe-Houghton is negotiating new employment arrangements with two
employees whose employment contracts expired on April 8, 1998. 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.
The Company has entered into new employment arrangements with an
executive officer and another employee of Hoenig which take effect in 1999.
These new arrangements provide for increased variable, performance-based
compensation which, assuming current levels of activity, will result in
increased compensation expense as compared to prior periods.
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, strategic alliances and the hiring of additional
personnel.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1997.
The Company's operating income before income taxes for the three
months ended September 30, 1998 increased 409.5% to $2.5 million, versus $0.5
million in 1997. The increase in operating income is primarily attributable to
an increase in operating income from the U.S. brokerage operations, offset in
part by continued operating losses from international brokerage operations
(United Kingdom, Hong Kong and Japan). The Company's net income for the
three-months ended September 30, 1998 increased 66.7% to $1.1 million, versus
$0.6 million in 1997. Net income increased at a lower rate than pre-tax and
operating income due to net investment losses, as well as a higher tax rate in
1998. The higher tax rate results from an increase in operating and pre-tax
income from the U.S. operations, which are taxed at a higher rate, as well as a
decrease in income derived from the Company's brokerage operation in Hong Kong,
which is taxed at a lower rate than the U.S. tax rates.
Operating revenues increased 18.7% to $21.6 million for three months
ended September 30, 1998 from $18.2 million for the three months ended
September 30, 1997. Commission revenues increased 20.8% to $19.8 million from
$16.4 million for the same period in 1997. During the third quarter 1998,
commission revenues earned in U.S. equity markets increased, which was offset
by a decrease in commission revenues earned by the Company's international
operations, particularly the Company's operations in Hong Kong and Japan
("Asian Brokerage"). As a result, commission revenues derived from
international brokerage operations represented 18.0% of the Company's total
commissions during the third quarter 1998 as compared to 34.5% for the same
period in 1997.
Operating revenues derived from the Company's U.S. brokerage
operations for the third quarter ended September 30, 1998 increased 50.4% as
compared to the same period in 1997, resulting in a 316.1% increase in
operating income derived from U.S. brokerage operations as compared to the
third quarter ended September 30, 1997. This increase in operating income also
reflects a decrease in execution and settlement costs and in expenses
associated with independent research and other services, each as a percentage
of commission revenues.
Operating revenues derived from international brokerage operations
continued to decline during the third quarter ended September 30, 1998 as
compared to the same period in 1997. Operating revenues derived from the
Company's Asian Brokerage operations decreased 49.6% during the three months
ended September 30, 1998 as compared to the same period in 1997, resulting from
continued market volatility and reduced trading volumes in Japan and Southeast
Asia. Despite the reduction in operating revenues, international brokerage
operating losses remained at
8
<PAGE>
$0.2 million in both 1998 and 1997 as a result of cost reduction measures taken
with respect to Asian Brokerage operations within the last year. These losses
resulted from a 63.8% decrease in operating income earned by the Company's Hong
Kong operation in the third quarter 1998 as compared to the third quarter 1997
and continued operating losses in Japan. Continued declines in commission
revenues in Japan and Southeast Asia would result in additional operating losses
by the Company's Asian Brokerage operations. The Company continues to explore
various means of addressing operating losses in Japan.
Investment management fee revenues remained at $1.8 million for the
three months ended September 30, 1998 as compared to the same period in 1997.
Assets managed in small capitalization growth equities decreased 19.8% to
$516.0 million as of September 30, 1998 from $643.0 million as of September 30,
1997 as a result of market declines in small capitalization growth equities.
Total assets under management decreased to $3.9 billion as of September 30,
1998 as compared to $ 4.0 billion as of September 30, 1997. The decrease in
assets under management for the quarter ended September 30, 1998 was
attributable to significant declines in the global financial markets during the
third quarter which resulted in a decline in investment performance for the
three-month period ended September 30, 1998. During the third quarter, total
assets under management decreased 11.2% from June 30, 1998. Assets managed in
small capitalization growth equities decreased 27.9% from the prior quarter.
The effect on revenues of these declines, particularly with respect to small
capitalization growth equities, will be seen in future periods, as the majority
of Axe-Houghton's clients are billed in advance based on assets under
management as of the end of the prior quarter.
Expenses related to independent research and other services provided
to the Company's brokerage clients during the third quarter 1998, including
commission refunds, increased 7.0% to $8.0 million from $7.5 million for the
same period in 1997. These expenses were 40.4% of commission revenues for the
quarter ended September 30, 1998 as compared to 45.6% for the corresponding
period in 1997. These expenses increased at a lower rate than commission
revenues primarily due to an increase in execution-only brokerage, as well as
the timing of commission revenues earned relative to independent research and
services expenses incurred for the three months ended September 30, 1998.
Clearing, floor brokerage and exchange charges remained at $2.5
million during the third quarter 1998 as compared to the same period in 1997.
These expenses represented 12.8% of commissions in the third quarter 1998 and
15.2% of commissions in the third quarter 1997. The decrease in these expenses
as a percentage of commissions is primarily due to: (1) an increase in the
percentage of commissions earned in U.S. equity markets, where such expenses
are charged at lower rates than comparable trades in certain Asian markets; (2)
a reduction in the costs of execution and settlement of U.S. equity
transactions; and (3) a decrease in the percentage of commissions earned on
transactions executed in Southeast Asian markets where execution and settlement
costs are higher, coupled with an increase in the percentage of Asian Brokerage
commissions earned on transactions executed in the Hong Kong market, which cost
less to execute and settle than comparable trades in other Asian markets.
Employee compensation increased 11.4% to $5.6 million in the third
quarter 1998 from $5.1 million during the same period in 1997. This resulted
primarily from an increase in reserves for discretionary and performance-based
bonus compensation.
All other expenses increased 8.4% to $2.9 million in the third quarter
1998 as compared to $2.7 million in the same period in 1997. This resulted
primarily from an increase in expenses related to market data and the write-off
of certain fixed assets.
Net investment loss for the three months ended September 30, 1998 was
$0.5 million as compared to net investment income of $0.6 million in 1997. This
decrease was primarily attributed to realized and unrealized losses of $0.9
million incurred on the Company's investments in limited partnerships and a
managed portfolio of preferred stock and U.S. Treasury Futures used to hedged
the preferred stock. This loss was attributed to significant declines in the
global financial markets during the three months ended September 30, 1998. The
Company monitors these investments on an ongoing basis and may make adjustments
in the cash management program as warranted.
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NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1997.
The Company's operating income before income taxes for the nine months
ended September 30, 1998 increased 116.9% to $5.4 million, versus $2.5 million
in 1997. The increase in operating income is primarily attributable to an
increase in operating income from U.S. brokerage and investment management
operations, offset in part by continued operating losses from international
brokerage operations. The Company's net income for the nine months ended
September 30, 1998 increased 29.6% to $3.3 million, versus $2.5 million in
1997. Net income increased at a lower rate than pre-tax and operating income
due to a loss on investments, as well as a higher tax rate in 1998. The higher
tax rate resulted from an increase in operating and pre-tax income from
U.S. operations, which are taxed at a higher rate, as well as a decrease in
income derived from the Company's brokerage operation in Hong Kong, which is
taxed at a lower rate than U.S. tax rates.
Operating revenues increased 10.0% to $61.3 million for the nine
months ended September 30, 1998 from $55.8 million for the nine months ended
September 30, 1997. Commission revenues increased 9.5% to $55.5 million for the
nine months ended September 30, 1998 from $50.7 million for the same period in
1997. This increase resulted primarily from an increase in commission revenues
earned by the Company's U.S. brokerage operations, offset in part by a decrease
in commission revenues earned by the Company's international brokerage
operations, particularly Asian Brokerage operations. Commission revenues
derived from international brokerage operations represented 20.4% of the
Company's total commissions during the nine months ended September 30, 1998 as
compared to 34.8% for the same period in 1997.
Operating revenues derived from the Company's U.S. brokerage
operations for the nine months ended September 30, 1998 increased 32.6% as
compared to the same period in 1997. Operating income derived from the
Company's U.S. brokerage operations during the nine months ended September 30,
1998 increased 119.1% as compared to the same period in 1997 primarily due to
an increase in commission revenues and a decrease in execution and settlement
costs as a percentage of commission revenues.
Operating revenues and operating income from international brokerage
operations declined during the nine months ended September 30, 1998, resulting
in operating losses. Operating revenues of the Company's Asian Brokerage
operations decreased 49.8% during the nine months ended September 30, 1998 as
compared to the same period in 1997 as a result of continued volatility and
reduced trading volumes in Japan and Southeast Asia. International brokerage
operations incurred operating losses of $0.8 million for the nine months ended
September 30, 1998 as compared to operating income of $0.1 million for the same
period in 1997. These losses resulted from a 65.7% decrease in operating income
in Hong Kong and operating losses in Japan and the United Kingdom.
Investment management fees increased 20.0% to $5.7 million for the
nine months ended September 30, 1998, from $4.8 million in 1997. Total assets
under management decreased 1.8% to $3.9 billion as of September 30, 1998, as
compared with $4.0 billion as of September 30,1997. Assets managed in small
capitalization growth equities decreased 19.8% to $516.0 million as of
September 30, 1998 from $643.0 million as of September 30, 1997. The decrease
in assets under management for the period ended September 30, 1998 was
attributed to significant declines in global financial markets during the third
quarter which resulted in a decline in investment performance for the nine
months ended September 30, 1998.
Expenses related to independent research and other services provided
to the Company's brokerage clients during the nine months ended September 30,
1998 increased 6.3% to $24.6 million from $23.2 million for the same period in
1997. These expenses were 44.4% of commission revenues for the nine months
ended September 30, 1998 as compared to 45.7% for the corresponding period in
1997.
Clearing, floor brokerage and exchange charges decreased 9.8% to $7.1
million during the nine months ended September 30, 1998 from $7.9 million in
1997. These expenses represented 12.8% of commissions earned during the
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nine months ended September 30, 1998 and 15.6% of commissions earned during
the same period in 1997. The decrease in these expenses as a percentage of
commissions is primarily due to: (1) an increase in the percentage of
commissions earned in U.S. equity markets, where such expenses are charged at
lower rates than comparable trades executed in certain Asian markets; (2) a
reduction in the costs of execution and settlement of U.S. equity transactions;
and (3) a decrease in the percentage of commissions earned on transactions
executed in Southeast Asian markets where execution and settlement costs are
higher, coupled with an increase in the percentage of Asian Brokerage commission
revenues earned on transactions executed in the Hong Kong market, which cost
less to execute and settle than comparable trades in other Asian markets.
Employee compensation increased 9.9% to $16.1 million for the
nine-month period ended September 30, 1998 from $14.7 million in 1997. This
resulted primarily from an increase in reserves for discretionary and
performance-based bonus compensation.
All other expenses increased 6.3% to $8.0 million in the nine months
ended September 30, 1998 as compared to $7.5 million in 1997. This resulted
primarily from an increase in expenses related to market data, communications,
and depreciation and amortization during the nine months ended September 30,
1998 and the write-off of certain fixed assets during the third quarter 1998.
Net investment income for the nine months ended September 30, 1998
decreased to $0.6 million as compared to $1.6 million in 1997. This decrease
was primarily attributable to realized and unrealized losses of $0.9 million
incurred during the third quarter 1998 on the Company's investments in limited
partnerships and a managed portfolio of preferred stock and U.S. Treasury
Futures used to hedged the preferred stock. These losses resulted from
significant declines in the global financial markets during the three months
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash, U.S. Government
obligations, net accounts receivable and other investments of $48.8 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 first
quarter 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 sponsoring bank
has agreed to protect 100% of the Company's principal investment, less the
bank's management fees, 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. Investment losses incurred
during the third quarter 1998 have not had a material effect on the Company's
liquidity or capital resources.
During the nine months ended September 30, 1998, the Company
repurchased 772,500 shares of its common stock under previously announced stock
repurchase programs at a total cost of $5.3 million. These repurchases have not
had a material effect on the Company's liquidity or capital resources.
The Company has determined that certain fixed assets, which include
computer software and other information technology assets, will be written off
during the third and fourth quarter 1998. The total amount of the write-off
is not expected to exceed $375,000. Approximately $165,000 was written off in
the third quarter 1998.
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The Company believes that its current capital 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.
YEAR 2000 AND EURO
The Year 2000 issue ("Y2K Issue") is the result of computer systems
and applications that currently use two digits rather than four to recognize a
particular year. The Y2K Issue affects the Company's information technology
("IT") systems (i.e., computer systems, network elements and software
applications), as well as other business systems that have time-sensitive
programs or microprocessors that may not properly reflect or recognize the year
2000 ("non-IT systems"). The failure to reflect or recognize dates after 1999
could cause the Company's IT and non-IT systems to fail or cause errors which
would lead to disruptions in operations or increased costs. Such failure could,
for example, limit the Company's ability to execute trades, cause settlement of
trades to fail, lead to incomplete or inaccurate accounting, recording or
processing of securities trades, result in generation of erroneous results or
give rise to uncertainty about the Company's exposure to certain risks. If not
remedied, potential risks include business interruption or shutdown, financial
loss, regulatory actions, reputational harm and legal liability.
Like many financial services companies, the Company is heavily reliant
upon third parties for many of the IT and non-IT systems that are essential to
the Company's ability to perform its day-to-day operations. These third parties
include trading counter parties, financial intermediaries, securities
exchanges, depositories, clearing agencies, clearing houses, commercial banks
and various vendors, including providers of market data and pricing services,
telecommunication services and other utilities. As a result, the Company's
operations and financial results may be adversely affected in the event that
such third parties do not adequately address the Y2K Issue and the Company is
not able to make contingency plans. As is true for other companies, the Company
is vulnerable to Y2K failures beyond its control, particularly with respect to
utility and transportation service providers.
The Company has developed a five-phase program for addressing the Y2K
Issue, which consists of the following:
o Phase I is defining the Y2K Issue and what constitutes Y2K
compliance and educating Company personnel about the Y2K Issue.
o Phase II is identifying those systems which may be affected by
the Y2K Issue.
o Phase III is developing action plans to address the Y2K Issue for
identified systems.
o Phase IV is the testing of the action plans intended to resolve
the Y2K Issue.
o Phase V is the implementation of the action plans.
The Company has completed Phase I of its program and has completed
Phase II with respect to internal IT systems and non-IT systems that may be
affected by the Y2K Issue. The Company has identified a number of internal IT
and non-IT systems as being Y2K compliant. With respect to all systems
identified as not Y2K compliant, the Company has begun Phase III of the program
and is in the process of developing action plans to remediate any Y2K problems
through upgrades, corrections or replacements. Phases III and IV also involve
developing contingency plans to address non-compliant systems and testing of
those plans. The Company has not yet developed comprehensive contingency plans
in the event that the Company is unable to timely resolve any Y2K problems. The
Company will address the need for contingency plans once it completes its
assessment of systems likely to be affected by the Y2K Issue. The failure to
develop and implement, if necessary, appropriate contingency plans could have a
material adverse impact on the Company's operations and financial results.
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With respect to external systems(both IT and non-IT), the Company has
solicited information and assurances from third-party service providers,
customers and suppliers and is in the process of collecting and evaluating
responses. Most of the Company's external service providers and suppliers have
indicated that they will issue upgrades or replacement products that will be
Y2K compliant during the fourth quarter 1998.
The Company anticipates that it will complete Phases II and III of its
program with respect to all IT and non-IT systems by the end of 1998 and will
complete Phases IV and V by June 1999. The Company has hired a consulting firm
to assist Company personnel in effecting the Company's Y2K program.
Based on current information, the Company believes that during 1998
and 1999, it will spend approximately $400,000 to complete the five-phase Y2K
program and address the Y2K Issue, which includes the costs of software
replacements and corrections, additional hardware and hardware upgrades and
consulting fees. The Company does not expect these costs to be material to its
financial position, results of operations or cash flows in a given period. The
Company will expense Y2K costs as they are incurred. The total amount of Y2K
expenses incurred through September 30, 1998 was $95,635.
The costs of addressing the Y2K Issue and anticipating dates for the
Y2K Issue 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, the availability of cost-effective
alternatives or replacements for third-party products and services which are
not expected to be Y2K compliant and similar uncertainties.
The Company's systems are also being reviewed to determine what
modifications will be necessary to accommodate the upcoming introduction of the
"Euro", which is scheduled to begin on January 1, 1999. As of January 1, 1999,
the Euro will be adopted as the common legal currency of eleven participating
member countries of the Economic and Monetary Union. The Euro and participating
member currencies will co-exist through July 1, 2002, with the Euro gradually
replacing national currencies.
The Company expects to be prepared for the introduction of the Euro by
January 1, 1999. The Company is in the process of implementing modifications
to its IT systems and programs in order to prepare for transition to the Euro.
The Company is engaged in testing those systems and processes which may be
affected by the institution of the Euro.
The Company also is communicating with third parties with which it
regularly transacts business regarding the implications of the Euro and the
effect it will have on their business dealings with the Company. These third
parties include financial intermediaries, trading counter parties, securities
exchanges, depositions, clearing agencies, clearing houses, commercial banks
and various vendors, including information and pricing service providers. The
Company is dependent on the successful implementation of its Euro conversion
procedures by such third parties. If these thrid parties do not appropriately
address the introduction of the Euro, the Company's trade execution, clearance,
settlement and other operations could be adversely affected.
Costs associated with the modifications necessary to prepare for the
Euro are not anticipated to be material to the Company's financial position,
results of operations or cash flows in a given period and will be expensed as
incurred.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The description of legal proceedings required by this Item is hereby
incorporated by reference to Note 8 of Notes to Unaudited Consolidated
Financial Statements included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.16 Employment Agreement, dated October 8, 1998, between
Max H. Levine and Hoenig Group Inc.
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 quarter
ended September 30, 1998.
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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: November 13, 1998 By:/s/Fredric P. Sapirstein
---------------------
Fredric P. Sapirstein,
Chairman and Chief
Executive Officer
Date: November 13, 1998 By:/s/Alan B. Herzog
--------------
Alan B. Herzog,
Chief Operating Officer and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.16 Employment Agreement, dated October 8, 1998 between
Max H. Levine and Hoenig Group Inc.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated October 8, 1998 (this "Agreement"), by
and between Hoenig Group Inc., a Delaware corporation (the "Company"), and Max
H. Levine (the "Executive").
WHEREAS, the Company desires to continue to employ the Executive as
Executive Vice President of the Company and President of Hoenig & Co., Inc.
("Hoenig"), a wholly-owned subsidiary of the Company, and the Executive desires
to continue to be retained in such capacities, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, the Company and the Executive agree as follows:
1. Employment; Duties.
(a) The Company shall employ the Executive as Executive Vice
President of the Company and President of Hoenig for the "Employment Period" as
defined in Section 2. The Executive, in his capacity as Executive Vice
President of the Company and President of Hoenig, shall have such duties,
responsibilities and authority normally incident to such offices, subject to
the provisions of the bylaws of the Company and Hoenig, respectively. The
precise duties, responsibilities and authority of the Executive as Executive
Vice President of the Company may be expanded, limited or modified, from time
to time, at the discretion of the Board of Directors of the Company (the
"Board") or the Chief Executive Officer of the Company, consistent with the
ordinary duties, responsibilities and authority of such an Executive Vice
President. The precise duties, responsibilities and authority of the Executive
as President of Hoenig may be expanded, limited, or modified from time to time,
at the discretion of the Board of Directors of Hoenig (the "Hoenig Board") or
the Chief Executive Officer of Hoenig, consistent with the duties,
responsibilities and authority of a President.
(b) During the Employment Period, the Executive shall render his
services solely in the performance of his duties and responsibilities
hereunder. The Executive agrees that during the Employment Period, he shall
devote his full working time, attention, knowledge and experience and give his
best effort, skill and abilities, exclusively to promote the business and
interests of the Company and its direct or indirect subsidiaries. The Executive
may not serve as an officer or director of, make investments in, or otherwise
participate in, any other entity without the prior written approval of the
Board; provided, that the foregoing shall not be deemed to prohibit the
Executive from acquiring, directly or indirectly, solely as an investment, not
more than two percent (2%) of any class of securities of any entity that are
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended (the "1934 Act") or investments in non-public entities pursuant to
Section 8 of this Agreement and the policies and procedures generally
applicable to executives of the Company and its direct or indirect
subsidiaries; and provided further, that so long as it does not interfere with
the Executive's
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employment, the Executive may serve as an officer, director or otherwise
participate in purely educational, welfare, social, religious and civic
organizations.
(c) Subject to the conditions set forth in this Section 1(c)(1),
during the Employment Period, Executive shall be assigned as the trader
responsible for servicing certain accounts in the business areas specified as
shall be agreed upon from time to time in writing by the Executive and the
Company("Assigned Accounts").
(1) The Company retains the right to reassign any of the
Assigned Accounts to someone other than the Executive under any one of the
following circumstances:
(i) Executive fails to obtain or maintain in good standing any
registration, license or other authorization or approval with
all appropriate regulatory authorities, including maintaining
or taking and passing all necessary federal or state
registration examinations, compliance with applicable
continuing education requirements, and compliance in all
material respects with the rules of applicable
self-regulatory organizations (including without limitation
the New York Stock Exchange and the National Association of
Securities Dealers Regulation, Inc. (the "NASDR")) and the
Securities and Exchange Commission ("SEC");
(ii) an Assigned Account requests that the Assigned Account be
reassigned to someone other than Executive or requests that
Executive be removed from covering the Assigned Account; or
(iii) the level of commission revenues of an Assigned Account is
not commensurate with the prior level of commission revenues
generated by such Assigned Account given prevailing market
conditions.
(2) In the event that an Assigned Account is reassigned to
someone other than Executive pursuant to Section 1(c)(1), such Assigned Account
shall not constitute a Client Account for purposes of determining the Bonus
Formula payable to Executive under Section 3(b) or any payment due Executive
under Section 4(d)(2).
2. Employment Term. The Executive's employment under this Agreement
shall have a term commencing January 1, 1999 and ending on December 31, 2001
(the "Employment Term"), unless sooner terminated in accordance with the
provisions of Section 4 (the "Employment Period").
3. Compensation and Benefits. The Executive shall be entitled to the
following compensation and benefits, in each case subject to applicable
statutory withholdings and applicable deductions:
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(a) Base Compensation. The Executive shall be paid an aggregate
base salary (the "Base Salary") at the rate of $400,000 per annum. The Base
Salary shall be payable in a manner consistent with the normal payroll
practices of the Company in effect from time to time. The Board, in its sole
discretion, or at the recommendation of the Compensation and Stock Option
Committee of Hoenig Group Inc. (the "Compensation Committee"), may increase
(but not decrease) the Base Salary, at any time.
(b) Annual Bonus. In addition to the Base Salary, the Executive
shall be entitled to receive an annual bonus for each fiscal year of the
Company that ends during the Employment Period equal to 30% of the amount of
Net Pre-Tax Profits (as defined in Section 3(b)(1) herein) for such fiscal year
(the "Bonus Formula"). In addition, Executive shall be entitled to a minimum
bonus award for each fiscal year of the Employment Period of $150,000 (the
"Minimum Bonus Award"). The Minimum Bonus Award and the Bonus Formula are
collectively referred to herein as the "Bonus Award". To the extent necessary
to avoid the limitation on the federal tax deductibility of the Bonus Award for
any year under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), payment thereof may, at the sole discretion of the Company, be
deferred to the first taxable year of the Company in which the payment would be
fully deductible. Except as provided in the preceding sentence, the Bonus Award
for a fiscal year shall be payable as soon as practicable after the release of
the Company's audited financial statements for such fiscal year, but in no
event later than 90 days after the end of the fiscal year. In the case of a
deferral as described above, amounts deferred shall be credited with such
interest and on such other terms as the Company and the Executive shall
mutually agree.
(1) "Net Pre-Tax Profits" shall mean the amount, if any,
determined in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from year to year, by which the total gross equity
commission revenues and underwriting designation revenues generated by client
brokerage accounts which Executive is responsible for servicing, including the
Assigned Accounts (collectively, "Client Accounts"), exceed all expenses
incurred in generating such commissions, servicing those Client Accounts and in
the operation and conduct of the Executive's business. Such expenses include,
but are not limited to: the Base Salary paid to Executive, including related
payroll taxes; the Minimum Bonus Award payable to Executive; insurance and
other benefits relating to Executive, including any profit-sharing
contributions made on behalf of Executive and any benefits provided pursuant to
Section 3(c); the cost of research and other services provided to Client
Accounts; telephones; market data and quotation equipment and services;
electronic and other office equipment; business travel and entertainment;
clearance and settlement costs on transactions executed for Client Accounts,
determined in accordance with the Company's practices; registration fees and
expenses; and exchange and association membership dues and subscriptions.
(c) Benefits. Executive also shall be entitled to participate in
the employee and fringe benefit and group insurance programs provided by the
Company for its officers and employees generally and in accordance with the
terms of the applicable plan documents as they may be revised from time to
time. Executive shall be entitled to receive such other benefits as are
generally provided to executives of the Company and its direct or indirect
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subsidiaries. The Executive shall also be entitled to reimbursement for
reasonable out-of-pocket expenses incurred in connection with the business of
the Company in accordance with the Company's policies and procedures. In
addition, upon the request of Executive, the Company shall pay the premiums on
certain life insurance policies identified by the Executive up to an annual
maximum of $200,000. The cost of such premiums shall be deducted from any Bonus
Award due to Executive pursuant to Section 3(b).
(d) On January 4, 1999 (the "Grant Date"), the Compensation
Committee shall grant Executive a non-qualified option to purchase 50,000
shares of the Company's common stock, par value $0.01 per share ("Common
Stock"), under the Company's 1996 Long-Term Stock Incentive Plan (the "1996
Plan") at an exercise price per share equal to one hundred percent (100%) of
the Fair Market Value (as defined in the 1996 Plan) of a share of the Common
Stock on the Grant Date. Subject to Section 3(d)(1) herein, the Option shall
become vested and exercisable with respect to 16,667 shares of Common Stock on
each of the first two anniversaries of the Grant Date and with resepct to
16,666 shares of common stock on the third anniversary of the Grant Date. The
term of the Option shall be ten years.
(1) Upon termination of Executive's employment for any reason
(except termination for Cause) (i) any portion of the Option that is not vested
shall immediately terminate, and (ii) that portion of the Option which has
vested at the time of such termination of employment shall remain exercisable
thereafter for a period of three months, or if such termination is by reason of
Death or Disability, for a period of one year. If Executive's employment is
terminated for Cause, the Option (both the vested and unvested portions)
immediately shall terminate. In no event may the Option, or any portion
thereof, be exercised more than ten years after the Grant Date.
4. Termination.
(a) The Company may, with or without prior notice, terminate the
Employment Period with or without Cause, or upon Executive's Disability.
Executive may terminate the Employment Period only for Good Reason. This
Agreement shall automatically terminate upon the Executive's death. The
Employment Period shall also terminate upon expiration of the Employment Term.
Except as provided in Sections 4(b), 4(c) and 4(d), in the event that the
Employment Period is terminated, the Executive's rights and the obligations of
the Company hereunder shall cease as of the effective date of such termination;
provided, however, that the Executive shall be entitled to receive any accrued
but unpaid Base Salary, any earned or deferred but unpaid Bonus Awards and any
amount accrued under Company benefit plans as provided pursuant to the terms of
such plans (the "Accrued Obligations").
(b) In the event that the Employment Period is terminated by reason
of the Executive's Disability, the Executive shall be entitled to receive, in
addition to the Accrued Obligations:
(1) a payment equal to the product of (i) the sum of
Executive's current Base Salary and the Minimum Bonus Award and (ii) the number
of years
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and/or fraction thereof then remaining in the Employment Term, which
amount shall be paid in equal monthly installments over such remaining
Employment Term, provided that such installments shall cease upon any
employment by the Executive on a full-time basis; and
(2) Executive shall participate, and the Company shall continue
contributions on the Executive's behalf, in all Company-sponsored health and
welfare plans on terms no less favorable than as in effect on the date of
termination by reason of Disability, which shall continue until the earlier of:
(A) one year from the date of termination;
(B) the entitlement to coverage of the Executive under
plans provided by a new employer; or
(C) the death of the Executive; or
(D) expiration of the Employment Term.
The cash amounts and benefits set forth in subsections 4(b)(1) and 4(b)(2) are
collectively referred to herein as "Disability Benefits."
(c) In the event that the Employment Period terminates by reason of
Executive's death, in addition to the Accrued Obligations, the Company shall
pay to the Executive's estate or designated beneficiaries within ninety (90)
days of such termination, a lump sum equal to (i) the Minimum Bonus Award, plus
(ii) the amount of any Bonus Formula (without regard to any deferral), for the
fiscal year ending immediately prior to such termination, such sum multiplied
by a fraction, the numerator of which shall be the number of days elapsed in
the fiscal year to the date of such termination and the denominator of which
shall be 365 ("Death Benefit"); provided that there shall be deducted from any
such Death Benefit the amount of any Bonus Award previously paid to the
Executive with respect to such period and the cost of any life insurance
premiums paid during such period pursuant to Section 3(c) hereof.
(d) In the event that the Company terminates the Employment Period
other than for Cause, or if the Executive terminates the Employment Period for
Good Reason, the Executive shall be entitled to receive, in addition to the
Accrued Obligations, the following payments ("Termination Payments"):
(1) a payment equal to the greater of (i) five hundred thousand
dollars ($500,000), or (ii) five hundred thousand dollars ($500,000) multiplied
by the number of years and/or fraction thereof then remaining in the Employment
Term; and
(2) a payment equal to (i) thirty percent (30%) of the Net
Pre-Tax Profits for the period beginning January 1 of the year in which such
termination occurs and ending on the date of such termination, plus (ii) the
Minimum Bonus Award multiplied by a
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fraction, the numerator of which shall be the number of days elapsed in the
fiscal year to the date of such termination and the denominator of which shall
be 365.
(3) The Company shall pay Executive the Termination Payments in
a lump sum within thirty (30) days of termination of the Employment Period
other than for Cause or for Good Reason; provided, however, that there shall be
deducted from such Termination Payments the amount of any bonus previously paid
to the Executive with respect to the period and the cost of any life insurance
premiums paid during such period pursuant to Section 3(c) herein.
(4) In the event of the Executive's death after the Employment
Period is terminated other than for Cause or for Good Reason, the Company shall
make any Termination Payments which would otherwise have been payable to the
Executive if he had lived under this Section 4(d) to Executive's estate or
designated beneficiary.
(e) All amounts payable pursuant to this Section 4 shall be subject
to applicable statutory withholdings and applicable deductions.
(f) A termination of the Executive's employment (i) upon expiration
of the Employment Term, or (ii) by reason of the Executive's Death or
Disability, shall not constitute a termination without Cause, a termination for
Cause or a termination for Good Reason under this Agreement.
(g) As a condition to his entitlement to receive Death or
Disability Benefits or Termination Payments, the Executive (or his estate or
designated beneficiary) shall (i) have executed and delivered to the Company a
waiver and release reasonably satisfactory to the Company waiving and releasing
all rights and claims against the Company (other than the right to receive
Death or Disability Benefits or Termination Payments) and its direct or
indirect subsidiaries and their respective officers, agents, directors and
employees, and such waiver and release shall have become irrevocable, and (ii)
comply with Sections 5 through 9.
(h) In the event that the Employment Period is terminated for any
reason (except by death), the Executive agrees that if at that time he is a
director or officer of the Company or any of its direct or indirect
subsidiaries, he will immediately deliver his written resignation as such
director or officer, such resignation to become effective immediately.
(i) Notwithstanding anything contained herein to the contrary, the
Company may reduce the Termination Payments to the extent such Termination
Payments, when added to other payments made to the Executive (including the
vesting of stock options), constitute an "excess parachute payment" as defined
in Section 280G of the Code.
7
<PAGE>
(j) For purposes of this Agreement:
(1) "Cause" shall mean an event where the Executive: (i)
commits any act of fraud, willful misconduct or dishonesty in connection with
his employment or which materially injures the Company or its direct or
indirect subsidiaries; (ii) breaches Section 8 or 9, or any other material
provision of this Agreement or any material representation, warranty, covenant
or condition in this Agreement or any material fiduciary duty to the Company or
any of its direct or indirect subsidiaries; (iii) fails, refuses or neglects to
timely perform any material duty or obligation under this Agreement and such
failure, refusal or neglect is not cured by the Executive within thirty (30)
days from the date the Company notifies the Executive thereof or, if such
default is curable but cannot reasonably be cured within thirty (30) days,
Executive fails to commence curing such default within such thirty (30) days
and fails to diligently pursue such cure, but in no event shall the total cure
period under this subsection 4(j)(1)(iii) exceed forty-five (45) days from the
date of notification; (iv) commits a material violation of any material law,
rule, regulation or by-law of any governmental authority (state, federal or
foreign), any securities exchange or association or other regulatory or
self-regulatory body or agency applicable to the Company or its direct or
indirect subsidiaries or any general policy or directive of the Company or its
direct or indirect subsidiaries communicated in writing to the Executive; (v)
is charged with a crime involving dishonesty, fraud or unethical business
conduct, or a felony; (vi) knowingly gives or accepts undisclosed commissions
or other payments in cash or in kind in connection with the affairs of the
Company or any of its direct or indirect subsidiaries or their respective
clients; (vii) is expelled or suspended in excess of eight weeks, or is subject
to an order temporarily (for a period in excess of eight weeks) or permanently
enjoining the Executive from the securities, investment management or
investment banking business or from acting in the capacity contemplated by this
Agreement by the SEC, the NASDR, any national securities exchange or any
self-regulatory agency or governmental authority, state, foreign or federal; or
(viii) fails to obtain or maintain any registration, license or other
authorization or approval that the Company or its direct or indirect
subsidiaries in their discretion reasonably believe is required for the
Executive to perform his duties and responsibilities hereunder after having
received notice form the Company of the need to obtain such registration,
license or other authorization or approval and such failure is not cured by
Executive within thirty (30) days from the date the Company notifies Executive
thereof. Any termination for Cause under this Agreement shall be made by
delivering written notice thereof to Executive, which notice shall include the
specific reason(s) that has given rise to a termination for Cause.
(2) "Disability" shall mean the Executive's inability to
perform his duties and responsibilities by reason of mental or physical
disability for at least one hundred and twenty (120) consecutive days or any
one hundred and twenty (120) days (whether or not consecutive) in any
one-hundred eighty (180) consecutive day period. In the event of a dispute as
to whether the Executive is Disabled within the meaning hereof, either party
may from time to time request a medical examination of the Executive by a
doctor appointed by the Chief of Staff of a hospital selected by mutual
agreement of the parties, or as the parties may otherwise agree, or, failing
agreement, a hospital selected in good faith by the Board of Directors of the
Company. The written medical opinion of such doctor shall be conclusive and
binding upon the parties as to
8
<PAGE>
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examination shall be borne by the Company.
(3) "Good Reason" shall mean (i) the Company changes the
Executive's status, title or position as Executive Vice President of the
Company and/or President of Hoenig and such change represents a material change
or alteration in such status, title or position conferred hereunder; (ii) the
Company requires Executive to be based at an office located more than fifty
(50) miles from Rye Brook, New York; or (iii) the Company materially breaches
this Agreement, and such change or breach is not cured by the Company within
thirty (30) days from the date the Executive delivers a Notice of Termination
for Good Reason. Such "Notice of Termination for Good Reason" shall include the
specific section of this Agreement which is relied upon and the reasons that
the Company's act or failure to act has given rise to a termination for Good
Reason.
5. Trade Secrets. The Executive recognizes that it is in the
legitimate business interest of the Company and its direct and indirect
subsidiaries to restrict his disclosure or use of Trade Secrets and
Confidential Information relating to the Company and its direct or indirect
subsidiaries for any purpose other than in connection with his performance of
his duties and responsibilities to the Company and its direct or indirect
subsidiaries, and to limit any potential appropriation of such Trade Secrets
and Confidential Information by the Executive. The Executive therefore agrees
that all Trade Secrets and Confidential Information relating to the Company and
its direct or indirect subsidiaries heretofore or in the future obtained by the
Executive shall be considered confidential and the proprietary information of
the Company and its direct or indirect subsidiaries. During the Employment
Period, the Executive shall not use or disclose, or authorize any other person
or entity to use or disclose, any Trade Secrets and Confidential Information,
other than as necessary to further the business objectives of the Company and
its direct or indirect subsidiaries in accordance with the terms of his
employment hereunder. The term "Trade Secrets and Confidential Information"
includes, by way of example and without limitation, matters of a technical
nature, "know-how", formulas, secret processes, works of authorship, computer
programs (including without limitation documentation of such programs),
services, materials, patent applications, new product plans, other plans,
technical information, technical improvements, test data, progress reports and
research projects, and matters of a business nature, such as business plans,
prospects, financial information, marketing plans and strategies, proprietary
information about costs, profits, markets and sales, lists of customers and
suppliers of the Company and its direct or indirect subsidiaries, procurement
and promotional information, credit and financial data concerning customers or
suppliers of the Company and its direct or indirect subsidiaries, information
relating to the management, operation and planning of the Company and its
direct and indirect subsidiaries, plans for future development, and other
information of a similar nature to the extent not available to the public.
After termination of the Employment Period for any reason, the Executive shall
not knowingly use or disclose Trade Secrets and Confidential Information.
6. Return of Documents and Property. Upon the termination of the
Employment Period, or at any time upon the request of the Company, the
Executive (or his heirs or personal representatives) shall deliver to the
Company (a) all documents and materials
9
<PAGE>
(including, without limitation, computer files) containing Trade Secrets and
Confidential Information relating to the business and affairs of the Company or
its direct and indirect subsidiaries, and (b) all documents, materials and
other property (including, without limitation, computer files) belonging to the
Company or its direct or indirect subsidiaries, which in either case are in the
possession or under the control of the Executive (or his heirs or personal
representatives).
7. Discoveries and Work. All Discoveries and Works made or conceived
by the Executive during his employment by the Company, whether during the
Employment Period or prior thereto, jointly or with others, that relate to the
present or anticipated activities of the Company or its direct or indirect
subsidiaries, or are used or usable by the Company or its direct or indirect
subsidiaries, shall be owned by the Company or its direct or indirect
subsidiaries. The term "Discoveries and Works" includes, by way of example but
without limitation, Trade Secrets and Confidential Information, patents and
patent applications, trademarks and trademark registrations and applications,
service marks and service mark registrations and applications, trade names,
copyrights and copyright registrations and applications. The Executive shall
(a) promptly notify, make full disclosure to, and execute and deliver any
documents requested by, the Company, as the case may be, to evidence or better
assure title to Discoveries and Works in the Company or its direct or indirect
subsidiaries, (b) renounce any and all claims, including but not limited to
claims of ownership and royalty, with respect to all Discoveries and Works and
all other property owned or licensed by the Company or its direct or indirect
subsidiaries, (c) assist the Company or its direct or indirect subsidiaries in
obtaining or maintaining for itself at its own expense United States and
foreign patents, copyrights, trade secret protection or other protection of any
and all Discoveries and Works, and (d) promptly execute, whether during the
Employment Period or thereafter at the Company's expense, all applications or
other endorsements necessary or appropriate to maintain patents and other
rights for the Company or its direct or indirect subsidiaries and to protect
the title of the Company or its direct or indirect subsidiaries thereto,
including but not limited to assignments of such patents and other rights. Any
Discoveries and Works which, within six months after the termination of the
Employment Period, are made, disclosed, reduced to a tangible or written form
or description, or are reduced to practice by the Executive and which pertain
to the business carried on or products or services being sold or developed by
the Company or its direct or indirect subsidiaries at the time of such
termination shall, as between the Executive and, the Company, be rebuttably
presumed to have been made during the Executive's employment by the Company.
The Executive acknowledges that all Discoveries and Works shall be deemed
"works made for hire" under the Copyright Act of 1976, as amended, 17 U.S.C.
ss.101.
8. Non-Competition. From and after the date hereof, the Executive will
not, except pursuant to the terms hereof, directly or indirectly, own, manage,
operate, join, finance, control or participate in the ownership, management,
operation, financing or control of, or be employed or be otherwise connected in
any manner with, any business under a name similar to the name of the Company
or any direct or indirect subsidiary thereof. During the Non-competition
Period, the Executive will not (except as an officer, director, employee, agent
or consultant of the Company or its direct or indirect subsidiaries) directly
or indirectly, own, manage, operate, join, or have a financial interest in,
control or participate in the ownership,
10
<PAGE>
management, operation, financing or control of, or be employed as an employee,
agent or consultant, or in any other individual or representative capacity
whatsoever, or use or permit his name to be used in connection with, or be
otherwise connected in any manner with (i) any business or enterprise engaged
(wherever located) in the design, development, manufacture, distribution or
sale of any products, or the provision of any services, which the Company or
its direct or indirect subsidiaries were designing, developing, manufacturing,
distributing, selling or providing at any time during the one year immediately
preceding the termination of the Employment Period or (ii) any business which
is similar to or competitive with the business carried on or planned by the
Company or its direct or indirect subsidiaries at any time during the one year
immediately preceding the termination of the Employment Period, unless the
Executive shall have obtained the prior written consent of the Board, provided
that the foregoing restriction shall not be construed to prohibit the ownership
by the Executive of not more than two percent (2%) of any class of securities
of any corporation which is engaged in any of the foregoing businesses, having
a class of securities registered pursuant to Sections 12(b) or 12(g) of the
1934 Act, which securities are publicly owned and regularly traded on any
national exchange or in the over-the-counter market, provided further, that
such ownership represents a passive investment and that neither the Executive
nor any group of persons including the Executive in any way, either directly or
indirectly, manages or exercises control of any such corporation, guarantees
any of its financial obligations, otherwise takes part in its business other
than exercising his rights as a stockholder, or seeks to do any of the
foregoing. For purposes of this Agreement, the Noncompetition Period shall mean
(i) the Employment Period, and (ii) the lesser of one year following
termination of the Employment Period or the remaining term of the Employment
Term if Executive's employment is terminated by the Company for Cause or by the
Executive for other than Good Reason. Notwithstanding anything hereinabove
contained to the contrary, Executive shall be relieved of the provisions of
this Section 8 and Section 9 solely upon expiration of the Employment Term or
in the event of termination of the Employment Period by the Executive for Good
Reason.
9. Non-Solicitation.
(a) During the Noncompetition Period, the Executive agrees that he
shall not, directly or indirectly, whether for his own account or for the
account of any other individual or entity, solicit or canvas the trade,
business or patronage of, or sell any products or services which are the same
as or similar to those designed, developed, manufactured, distributed or sold
by the Company or its direct or indirect subsidiaries to, any individuals or
entities that were either customers of the Company or any of its direct or
indirect subsidiaries during the twelve months immediately preceding the
termination of the Employment Period, or prospective customers with respect to
whom a sales effort, presentation or proposal was made by the Company or any of
its direct or indirect subsidiaries during the twelve months immediately
preceding such termination. Upon the written request of Executive following
termination of the Employment Period, the Company shall provide Executive with
a list of customers and prospective customers subject to this Section 9.
(b) The Executive further agrees that, during the Noncompetition
Period, he shall not, directly or indirectly, (i) solicit, induce, enter into
any
11
<PAGE>
agreement with, or attempt to influence any individual who was an employee or
consultant of the Company or any of its direct or indirect subsidiaries at any
time during the time the Executive was employed by the Company, to terminate
his or her employment relationship with the Company or any of its direct or
indirect subsidiaries or to become employed by the Executive or any individual
or entity by which Executive is employed or (ii) interfere in any other way
with the employment, or other relationship, of any employee or consultant of
the Company or any of its direct or indirect subsidiaries.
10. Enforcement. (a) The Executive agrees that the remedies at law for
any breach or threat of breach by him of any of the provisions of Sections 5
through 9 will be inadequate, and that, in addition to any other remedy to
which the Company may be entitled at law or in equity, the Company shall be
entitled to seek a temporary or permanent injunction or injunctions or
temporary restraining order or orders to prevent breaches of any of the
provisions of Sections 5 through 9 and to enforce specifically the terms and
provisions thereof, in each case without the need to post any security or bond.
Nothing herein contained shall be construed as prohibiting the Company from
pursuing, in addition, any other remedies available to the Company for such
breach or threatened breach. A waiver by the Company of any breach of any
provision hereof shall not operate or be construed as a waiver of a breach of
any other provision of this Agreement or of any subsequent breach by the
Executive.
(b) It is expressly understood and agreed that if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in such Sections 5 through 9 is an
unenforceable restriction on the Executive's activities, the provisions of such
Sections 5 through 9 shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent as such
court may judicially determine or indicate to be reasonable. Alternatively, if
the court referred to above finds that any restriction contained in such
Sections 5 through 9 herein is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained therein. The
provisions of Sections 5 through 9 shall in no respect limit or otherwise
affect the Executive's obligations under other agreements with the Company.
11. Executive's Representations. The Executive represents and warrants
to the Company that (a) he is able to perform fully his duties and
responsibilities contemplated by this Agreement and (b) there are no
restrictions, covenants, agreements or limitations of any kind on his right or
ability to enter into and fully perform the terms of this Agreement.
12. Key Man Life Insurance. During the Employment Period, the Company
may at any time apply for insurance on the Executive's life and/or health in
such amounts and in such form as the Company may in its sole discretion decide.
The Executive shall not have any interest in such insurance, but shall, if the
Company requests, submit to such medical examinations, supply such information
and execute such documents as may be required in connection with, or so as to
enable the Company to effect, such insurance. The Company's inability to obtain
insurance on the Executive's life and/or health shall not constitute a breach
of
12
<PAGE>
this Agreement; provided Executive has submitted to medical examinations,
supplied information, executed documents and otherwise cooperated with the
Company in its efforts to obtain such insurance.
13. Assignment. The rights and obligations of the parties under this
Agreement shall not be assignable by either the Company or the Executive,
provided that this Agreement is assignable by the Company to any affiliate of
the Company, to any successor in interest to the business of any of the Company
or Hoenig, or to a purchaser of all or substantially all of the assets of the
Company or Hoenig.
14. Notices. Any notice required or permitted under this Agreement
shall be in writing and shall be deemed to have been effectively made or given
upon receipt if personally delivered, on the third business day after having
been mailed properly addressed in a sealed envelope, postage prepaid by
certified or registered mail, or on the first business day after having been
delivered by a reputable overnight delivery service. Unless otherwise changed
by notice, notice shall be properly addressed to the Executive if addressed to:
Max H. Levine
32 Locust Avenue
Larchmont, NY 10538
and properly addressed to the Company if addressed to:
Hoenig Group Inc.
4 International Drive
Rye Brook, NY 10573
Attention: General Counsel
15. Severability. Wherever there is any conflict between any provision
of this Agreement and any statute, law, regulation or judicial precedent, the
latter shall prevail, but in such event the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring
them within the requirements of the law.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Effect of Termination. Any termination of the Employment Period
shall not terminate any provisions of this Agreement except as expressly
provided herein.
18. Governing Law and Consent to Jurisdiction. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York without giving effect to principles of conflicts of law.
Notwithstanding and superceding any prior agreement to which Executive and/or
the Company or Hoenig is a party that might otherwise require arbitration or
non-judicial litigation of the claims described in this Section 18,
13
<PAGE>
each of the parties hereto expressly submits to and consents to the
jurisdiction and venue of the courts of the State of New York within the
counties of New York and Westchester and the United States District Court for
the Southern District of New York in connection with any claim or controversy
between them arising out of or relating to this Agreement or Executive's
employment by the Company or Hoenig on the condition that, with respect to any
federal litigation, the jurisdictional requirements are met with respect to
such controversy for litigation in federal court. Each of the parties hereto
agrees that service of process may be effected by personal delivery, overnight
courier or registered mail, postage prepaid, to the respective addresses listed
in Section 14 hereof.
19. Complete Agreement. Other than the Employment Agreement between
the parties dated November 25, 1996 which expires on December 31, 1998, this
Agreement constitutes the entire agreement, and supersedes all prior
agreements, of the parties hereto relating to the subject matter hereof, and
there are no written or oral terms or representations made by either party
other than those contained herein.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on this day and year first above written.
HOENIG GROUP INC.
By: /s/ Fredric P. Sapirstein
-----------------------------
Title: Chief Executive Officer
--------------------------
/s/ Max H. Levine
- -----------------------------
Max H. Levine
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOENIG
GROUP INC. FORM 10-Q FOR THE PERIODS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,771,346
<RECEIVABLES> 12,689,642
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 24,534,578
<PP&E> 1,836,579
<TOTAL-ASSETS> 62,761,021
<SHORT-TERM> 29,097
<PAYABLES> 4,569,040
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 108,389
<OTHER-SE> 37,961,700
<TOTAL-LIABILITY-AND-EQUITY> 62,761,021
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,353,422
<COMMISSIONS> 55,480,358
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 5,727,181
<INTEREST-EXPENSE> 0
<COMPENSATION> 16,127,820
<INCOME-PRETAX> 6,049,957
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,294,276
<EPS-PRIMARY> .37
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE HOENIG GROUP INC. FORM 10-Q FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES
THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,244,219
<RECEIVABLES> 14,417,751
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 19,196,081
<PP&E> 2,302,602
<TOTAL-ASSETS> 62,808,282
<SHORT-TERM> 0
<PAYABLES> 9,481,099
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 108,007
<OTHER-SE> 38,890,751
<TOTAL-LIABILITY-AND-EQUITY> 62,808,282
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,419,780
<COMMISSIONS> 50,671,115
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 4,771,783
<INTEREST-EXPENSE> 0
<COMPENSATION> 14,670,416
<INCOME-PRETAX> 4,128,626
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,542,570
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
</TABLE>
