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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BAKER, FENTRESS & COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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Baker, Fentress & Company
Established 1891
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 18, 2000
To Our Shareholders:
The annual meeting of shareholders of Baker, Fentress & Company will be
held at the Grand Hyatt - New York Hotel, 109 East 42nd Street (Park and
Lexington), New York, New York, on Tuesday, April 18, 2000, at 9:00 a.m., local
time, for the following purposes:
1. To elect five directors;
2. To amend the Company's Amended and Restated Certificate of
Incorporation to change the Company's name from "Baker, Fentress &
Company" to "BKF Capital Group, Inc."
3. To amend and restate the Baker, Fentress & Company 1998 Incentive
Compensation Plan;
3. To ratify or reject the selection of Ernst & Young LLP as independent
auditors for the Company; and
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February 28, 2000, are
entitled to vote at the meeting.
By Order of the Board of Directors
Norris Nissim
Secretary
Chicago, Illinois
March 8, 2000
Please indicate your voting instructions on the enclosed proxy card, date
and sign, and return it in the enclosed envelope. Please mail the proxy card
promptly to help save the cost of additional solicitations.
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PROXY STATEMENT
================================================================================
The board of directors of the Company is soliciting proxies from
shareholders for use at the annual meeting that will be held on April 18, 2000
and at any adjournment or adjournments of that meeting. The Company began
mailing these proxy materials to shareholders on or about March 8, 2000.
The 2000 annual meeting of the Company marks the first time that the
Company is asking shareholders to vote on issues since completion of the Plan
for Distribution of Assets of Baker Fentress, & Company (the "Plan for
Distribution of Assets"). On August 19, 1999, shareholders approved the sale of
all the Company's publicly-traded securities and all or most of the Company's
private placement securities, as well as the distribution of the proceeds of
those sales (less expenses) to the Company's shareholders. Shareholders also
approved the distribution of the shares held by the Company of Consolidated-
Tomoka Land Co., formerly a majority-owned subsidiary of the Company, to the
Company's shareholders. In accordance with the Plan for Distribution of Assets,
the Company also took steps to maintain its special tax status as a regulated
investment company through December 31, 1999. Beginning January 1, 2000, the
Company will be treated for tax purposes as an ordinary corporation. On January
7, 2000, the Company made the final distribution under the Plan for Distribution
of Assets to shareholders and simultaneously effected a one-for-six reverse
stock split of the Company's shares. After completion of those distributions on
January 7, 2000, the Company began its current operations as an operating
company, through its wholly owned subsidiary, John A. Levin & Co. Inc., a
registered investment adviser, and its related companies. The Company has
applied for, but has not yet received, an order of the Securities and Exchange
Commission declaring that it has ceased to be an investment company. The
Company cannot predict when that order might be entered.
This proxy statement describes each of the matters on which the board of
directors is asking shareholders to vote. The board recommends that you vote in
favor of each of these proposals.
ITEM 1. ELECTION OF DIRECTORS
================================================================================
The board of directors is asking you to elect five directors at the
meeting. The board has nominated the following persons to serve as directors
for terms expiring at the annual meeting of shareholders in 2003: David D.
Grumhaus, Jeffrey A. Kigner and James S. Tisch. Mr. Grumhaus and Mr. Kigner
currently are directors. Mr. Tisch has not served as a director of the Company.
The board also has nominated Anson M. Beard and Peter J. Solomon for
election to terms expiring at the annual meeting of shareholders in 2001. Mr.
Beard was named by the directors to fill a vacancy on the board in February 2000
and has not previously been elected by shareholders. Mr. Solomon has not served
as a director of the Company. If any nominee should be unable to serve, the
persons named as proxies shall vote for such other person as shall be determined
by such persons in accordance with their judgment.
Shareholders are entitled to one vote per share in the election of
directors (called straight voting), with no right of cumulation. A plurality
vote of the shares present at the meeting, in person or by proxy, is required to
elect directors, assuming a quorum is present. This means that shareholders with
a greater ownership percentage are more likely to elect the directors.
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Additional information concerning the nominees and the directors who are
continuing in office appears below.
Directors Nominated for Election
<TABLE>
<CAPTION>
Expiration of Expiration of
Name, Age, and Principal Occupation Director Current Term if
During the Last Five Years Since Class Term Elected Other Business Affiliation(s)
- ----------------------------------------------------------- ----- ---- ------- ----------------------------
<S> <C> <C> <C> <C> <C>
Anson M. Beard, Jr. --age 63 (2) 2000 II 2001 2001 Director of Levin Management Co.,
Retired; former investment banker. Inc. and John A. Levin & Co.,
Inc. from July 1997 through
February 2000.
David D. Grumhaus--age 64 (1)(3) 1988 I 2000 2003 Director of Niche Software
President of Casey Travel Corporation (travel Systems, Inc. (computer software
agency) company)
Jeffrey A. Kigner--age 39 1996 I 2000 2003
Co-Chairman of Levin Management Co., Inc. and
John A. Levin & Co., Inc. since June 1997 and
Chief Investment Officer of John A. Levin &
Co., Inc. since September 1997; prior thereto,
Executive Vice President of John A. Levin &
Co., Inc. from June 1996 to June 1997; prior
thereto, Securities Analyst/Portfolio Manager
of the predecessor to John A. Levin & Co., Inc.
Peter J. Solomon--age 61 -- II -- 2001 Director of General Cigar
Chairman of Peter J. Solomon Company Limited Holdings, Inc. (cigar
and Peter J. Solomon Securities Co., LTD manufacturer), Monro Muffler
(investment banking) Brake, Inc. (automotive repair
services), Office Depot, Inc.
(supplier of office products) and
Phillips-Van Heusen Corporation
(apparel and footwear
marketer/manufacturer)
James S. Tisch--age 47 -- I -- 2003 Director of CNA Financial Corp.
President since October 1994 and Chief (holding company whose
Executive Officer since January 1999 of Loews subsidiaries consist of insurance
Corporation (holding company whose companies) and Vail Resorts, Inc.
subsidiaries are engaged in insurance, (resort operator)
cigarette manufacturing, hotel operations,
offshore oil and gas operations and
distribution of watches and clocks) and Chief
Executive Officer of Diamond Offshore
Drilling, Inc. (offshore oil and gas company)
since March 1998; prior thereto, Chief
Operating Officer of Loews Corporation
</TABLE>
Directors Continuing in Office
<TABLE>
<CAPTION>
Name, Age, and Principal Occupation Director Expiration of
During the Last Five Years Since Class Current Term Other Business Affiliation(s)
- ------------------------------------------------ -------- ----- ------------- -----------------------------------------
<S> <C> <C> <C> <C>
J. Barton Goodwin--age 53 (1)(4) 1987 III 2002 Director of Factual Data Corp.
Managing director of BCI Partners, Inc. (private (mortgage servicing company)
capital investment group), general partner of Bridge
Associates II and Teaneck Associates and member of
Glenpointe Associates, LLC, Glenpointe V, LLC and
BCI Investors, LLC
John A. Levin--age 61* (1) 1996 III 2002 Director of Morgan Stanley Dean Witter
Chairman since February 2000, Chief Executive Officer group of investment funds (13 funds)
and President of the Company and Chairman and Chief
Executive Officer of Levin Management Co., Inc and
John A. Levin & Co., Inc. since June 1996; prior
thereto, President and Securities Analyst/ Portfolio
Manager of the predecessor to John A. Levin & Co.,
Inc.
</TABLE>
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<TABLE>
<CAPTION>
Name, Age, and Principal Occupation Director Expiration of
During the Last Five Years Since Class Current Term Other Business Affiliation(s)
- ------------------------------------------------ -------- ----- ------------- ---------------------------------------
<S> <C> <C> <C> <C>
Burton G. Malkiel--age 67 (2)(3) 1982 III 2002 Director of Prudential Insurance Co. of
Professor of Economics, Princeton University America, Banco Bilbao Vizcaya Gestinova
(Spanish bank) and Vanguard group of
investment funds (12 funds)
Dean J. Takahashi--age 42 (2) 1997 II 2001
Senior director of investments, Yale University
</TABLE>
________________________
Notes to Tables
(1) Member of the executive committee, which has the authority during intervals
between meetings of the board of directors to exercise the power of the
board, with certain exceptions. James P. Gorter, a director of the Company
who will not be continuing in office after the annual meeting, was a member
of the executive committee during 1999.
(2) Member of the compensation committee, which had eight meetings during 1999.
During 1999, William H. Springer and Frederick S. Addy, each a director of
the Company who will not be continuing in office after the annual meeting,
were members of the compensation committee. David D. Peterson, a former
director of the Company, was also a member of the compensation committee
throughout 1999. The committee makes recommendations to the board of
directors concerning the Company's compensation policies. The committee
also administers the Baker, Fentress & Company 1998 Incentive Compensation
Plan and the Levin Management Co., Inc. and Subsidiaries Key Employee
Incentive Bonus Plan, which was terminated after adoption of the 1998
Incentive Compensation Plan. Messrs. Beard, Malkiel and Takahashi became
members of the compensation committee in February 2000.
(3) Member of the audit committee, which had two meetings during 1999. The
committee makes recommendations regarding the selection of independent
auditors and meets with representatives of the Company's independent
auditors to determine the scope, and review the results, of each audit.
Each of the members of the audit committee is independent as defined by The
New York Stock Exchange's listing standards.
(4) Member of the nominating committee, which had two meetings during 1999.
The committee makes recommendations to the board of directors regarding the
selection of candidates to be nominated for election to the board. The
committee does not consider nominees recommended by shareholders.
During 1999, the board of directors conducted six meetings, including
regularly scheduled and special meetings. Each director attended at least 75%
of the meetings of the board of directors and committees on which he or she
served during 1999.
ITEM 2. CHANGE OF NAME
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As discussed above, the Company's shareholders approved the Plan For
Distribution of Assets pursuant to which the Company distributed or liquidated
substantially all of its assets, with the exception of Levin Management Co.,
Inc. (Levin Management) and its subsidiaries (collectively, "Levco") and changed
the nature of the Company's business so that it ceased to operate as an
investment company. The Board believes that changing the Company's name to BKF
Capital Group, Inc. will reflect the change in the nature of the Company's
business, while maintaining continuity with the Company's past.
The board of directors of the Company has unanimously adopted and approved,
and recommends that the Company's shareholders adopt and approve, the following
amendment to Article FIRST of the Company's Restated Certificate of
Incorporation, as amended, which would change the name of the Company from
"Baker, Fentress & Company" to "BKF Capital Group, Inc.":
The Restated Certificate of Incorporation of the Company is hereby
amended by changing Article FIRST
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of the Certificate of Incorporation of the Company shall read in its
entirety as follows:
"FIRST: The name of the corporation is BKF Capital Group, Inc."
The proposed Certificate of Amendment to the Restated Certificate of
Incorporation of Baker, Fentress & Company is attached hereto as Exhibit A.
The affirmative vote of the holders of a majority of the outstanding shares
of common stock is necessary to approve the proposed Amendment. Unless
otherwise instructed, properly executed proxies which are returned in a timely
manner will be voted in favor of adoption of the proposed Amendment.
The board recommends a vote FOR approval of the proposed Amendment.
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ITEM 3. AMENDMENT OF 1998 INCENTIVE COMPENSATION PLAN
================================================================================
In December 1998, the Company's shareholders approved the Baker, Fentress &
Company 1998 Incentive Compensation Plan (the "Incentive Compensation Plan").
The Incentive Compensation Plan allows the Company and Levco to:
. pay their officers and employees in common stock of the Company or
Levin Management, including through stock options, restricted stock
grants and stock appreciation rights;
. repurchase their securities from participants in the Incentive
Compensation Plan;
. pay their officers and employees based on their individual
performance, or on the performance of a group of people, or on some
part or all of the performance of the Company or Levco as a whole;
. lend money to participants; and
. require the partial payment of compensation to the Company's outside
directors with stock options.
The Company adopted the Incentive Compensation Plan in compliance with the
terms of an order from the SEC exempting the Company from certain provisions of
the Investment Company Act of 1940 (the "1940 Act") that would otherwise have
prohibited the Incentive Compensation Plan. As a result, the Company designed
certain provisions of the Incentive Compensation Plan to take into account the
requirements of the 1940 Act and the exemptive order granted by the SEC to
permit adoption of the Incentive Compensation Plan.
In light of the changes to the Company as a result of the Plan for
Distribution of Assets, the Company has filed an application to de-register as
an investment company. The Board believes that it would be desirable, after the
Company is no longer registered as an investment company, to restate the
Incentive Compensation Plan to eliminate those provisions that were required by
the Company's status as an investment company and that are more restrictive than
plan provisions customarily applicable to operating companies. None of the
requested changes would be effective until the Company ceases to be registered
as an investment company. The Company cannot guarantee when the SEC will enter
an order declaring that the Company has ceased to be an investment company. The
proposed amended and restated plan was adopted by the Board in February 2000.
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The principal changes proposed to be made to the Incentive Compensation
Plan are as follows:
. remove all references to the 1940 Act;
. remove the Company's ability to pay employees of the Company or its
subsidiaries in Levin Management stock and all references to such
payments of Levin Management stock;
that were subject to awards but were not earned or were forfeited
. increase the number of shares available for issuance under the
Incentive Compensation Plan to 1,300,000 (about 20% of the Company's
outstanding shares), plus 10% of the number of shares of common stock
issued or delivered by the Company during the term of the Incentive
Compensation Plan (excluding any shares issued in connection with
awards under the Incentive Compensation Plan);
. remove the limitation that no more than 35% of the shares of the
Company's common stock available for delivery could be granted, in the
aggregate, to any one eligible person;
. remove the requirements that (i) participants must secure repayment of
all loans made under the Incentive Compensation Plan with the Company
stock to be acquired or other acceptable collateral and (ii) no loan
may have a maturity of more than five years or bear interest at a rate
below the "applicable federal rate" as defined in the Internal
Revenue Code (the "Code");
. eliminate the grant of options granted to non-interested (non-
employee) directors of the Company upon their initial election to the
Board and on the date of each annual meeting of the Company's
shareholders;
. add a change of control provision, under which certain restrictions
applicable to awards granted under the Incentive Compensation Plan
would be waived and such awards would be fully payable as of the time
of the change in control; and
. remove the requirement that the Board review the plan at least
annually; and
. remove the requirement that the Company receive exemptive relief from
the SEC to permit the continued operation of the Incentive
Compensation Plan after its initial 5-year term.
The Board believes that the proposed amendments to the Incentive
Compensation Plan will make the Incentive Compensation Plan comparable to
incentive compensation plans that the Company's competitors have adopted and
would support the Company's efforts to attract and retain highly qualified
employees.
The full text of the Incentive Compensation Plan, as proposed to be amended
and restated (the "Amended Plan"), is attached as Exhibit B to this proxy
statement. The principal terms of the Amended Plan are summarized below, but
are qualified in their entirety by reference to Exhibit B. Please read the full
text of the Amended Plan before you decide how to vote.
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Description of the Amended Plan
Purpose and Eligibility The Company believes the Amended Plan will help it
and its subsidiaries attract, retain, motivate and
reward executives, employees and other persons who
provide services to the Company and its
subsidiaries by providing them with the
opportunity to earn incentive compensation
directly linked to the long-term value of the
Company's common stock. If the market value of the
Company's stock increases, these executives,
employees and others will receive value, as will
the Company's shareholders. As of February 16,
2000, the closing market price of common stock of
the Company as quoted on The New York Stock
Exchange was $10.375.
Currently, 82 executives, employees and other
persons are eligible to participate in the
Incentive Compensation Plan and would continue to
be eligible to participate in the Amended Plan.
During 1999, 15 persons were eligible to
participate in the Incentive Compensation Plan.
Administration The Compensation Committee of the Board will
administer the Amended Plan. In general, the
Committee has full discretion to select
participants, determine the type, terms and
conditions of awards, and adopt rules, regulations
and guidelines for the proper administration of
the Amended Plan. The committee may delegate
certain of its duties, power and authority to the
Company's officers.
Types of Awards: The Amended Plan permits the Committee to grant
the following types of performance-based
compensation:
. non-qualified and incentive stock
options;
. stock appreciation rights (including
freestanding and tandem stock
appreciation rights);
. restricted stock;
. deferred stock;
. bonus stock;
. dividend equivalents;
. annual incentive awards; and
. long-term performance awards.
Each grant of performance-based compensation under
the Amended Plan is referred to individually as an
"award" and, collectively, as "awards". The awards
are described more fully below.
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Shares Available:
Overall Limit The Board has authorized reserving for
issuance a total of 1,300,000 shares of
common stock (about 20% of the Company's
currently outstanding common stock) plus
10% of the number of shares of common
stock issued or delivered by the Company
during the term of the Amended Plan
(excluding any issuance in connection
with awards under the Amended Plan).
The Committee may also adjust the number
and kind of shares available for use in
awards when certain corporate
transactions occur.
Shares covered by awards granted under
the Amended Plan that wholly or in part
are not earned, or that expire or are
forfeited, terminated, cancelled, settled
in cash, payable solely in cash or
exchanged for other awards, do not count
toward the overall limit.
The Committee also has the authority to
give participants cash or other property
in lieu of a stock-based award.
Special Limits Limit on Incentive Stock Options. Under
the Amended Plan, the Company may not
grant incentive stock options for more
than 1,000,000 shares. If an incentive
stock option is not exercised, the
unissued shares will be available for
other incentive stock options. The
Company can only grant incentive stock
options to individuals who at the time of
grant are employees of the Company or a
subsidiary. "Incentive stock options" are
options described in Section 422 of the
Internal Revenue Code which provide
certain tax advantages for participants
who receive such options.
Cash Award Limit. The Amended Plan also
limits the maximum dollar amount of cash
that a participant may earn in a single
year to $20 million.
Stock Award Limit. In each fiscal year,
no individual may receive stock options,
restricted stock, deferred stock, or any
other type of award relating to, in each
case, more than 1,000,000 shares of
common stock, subject to adjustment.
Awards:
General The Amended Plan permits the grant of
stock options, stock appreciation rights
(SARs), restricted stock, deferred stock,
stock bonuses, and other awards valued in
whole or in part by reference to, or
otherwise based on, Company common stock.
Awards may be granted alone or in
addition to, in tandem with, or in
substitution or exchange for any other
award.
Unless the Committee provides otherwise,
all options, SARs, restricted stock and
deferred stock will become vested or
exercisable in three equal installments
after each of the first three
anniversaries of the date of grant based
on the participant's continued employment
with the Company or its subsidiaries. All
options or SARs, unless the Committee
provides otherwise, will have a maximum
term of ten years after the date of grant
and will expire 30 days after the
participant's termination of employment
with the Company and its subsidiaries,
except in the case of death, retirement
or disability.
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With the Committee's consent, the Company
and/or its subsidiaries may lend money to
a participant (or arrange or guarantee a
loan to a participant) to give the
participant the cash needed to exercise
any stock option, purchase Company stock,
or make any other payment in connection
with any award, including the payment of
taxes due in connection with any award.
The Committee shall have discretion to
determine the amount, terms and
provisions of any such loan or loans,
including the interest rate to be
charged, the terms on which the loan is
to be repaid and the conditions, if any,
under which the loan may be forgiven.
Stock Options A stock option is the right to purchase
one share of stock at a time in the
future at a predetermined price (the
"exercise price"). Stock options may be
incentive stock options or non-qualified
stock options. The exercise price of any
stock option shall be determined by the
Committee, provided that such exercise
price shall not be less than the fair
market value of a share of stock on the
date of grant of the option. The
Committee may adjust the price to reflect
certain corporate actions or, if the
option is granted in lieu of cash
compensation, discount the exercise price
by the amount of cash compensation the
Participant gives up in order to receive
the option.
Stock options issued under the Amended
Plan will expire ten years from the date
of the grant. Although the Committee has
the discretion to determine otherwise,
the Committee expects that most stock
options will vest over a period of three
years after the grant date and will
become fully vested upon a change in
control of the Company. Unless the
Committee provides otherwise, options
will expire 30 days after a participant's
termination of employment. If a
participant's employment is terminated
because of death, retirement or
disability, the holder of the option must
exercise the option within one year, or
before its expiration ten years after the
date of grant, whichever is earlier.
Restricted Stock The Amended Plan permits the Committee to
make grants of restricted shares of
Company stock. Restricted Stock is stock
given to a participant, usually without
the participant having to make any
payment in return, that is subject to
restrictions on transferability, risk of
forfeiture and other restrictions. A
participant who receives Restricted Stock
will have all the rights of a
stockholder, including the right to vote
the Restricted Stock and the right to
receive dividends, unless the participant
is limited by the terms of the Amended
Plan or any award agreement relating to
the Restricted Stock.
During the period of restriction, the
participant may not sell, transfer,
pledge, hypothecate, margin or otherwise
encumber the Restricted Stock. Except as
the Committee otherwise determines, if a
participant's employment is terminated
during the restriction period, the
participant will forfeit the Restricted
Stock which the Company will reacquire.
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SARs Stock appreciation rights (SARs) entitle
an employee to receive the excess, if
any, of the fair market value on the date
of exercise over the exercise price of
the stock appreciation right or, in the
case of a tandem stock appreciation right
granted in tandem with an option, the
option exercise price of the related
stock option.
The Committee will determine whether or
not an SAR is granted as a tandem award
(which is an award that is combined with
another award, usually to provide an
alternative form of compensation of
comparable economic value), and any other
terms and conditions of any SAR.
SARs issued under the Amended Plan,
unless the Committee provides otherwise,
will expire 30 days after a participant's
termination of employment. However, if a
participant's employment terminates
because the participant dies, retires or
becomes disabled, the award must be
exercised within one year.
Deferred Stock A grant of "Deferred Stock" is the right
to receive the Company's common stock,
cash, or a combination of stock or cash
at the end of a time period specified by
the Committee. At the end of the deferral
period or, if permitted by the Committee,
at the time elected by the participant,
the Company will deliver the Company's
common stock (or cash having an equal
value, or a combination of cash and
stock) to the participant. Except as the
Committee otherwise determines, if a
participant's employment is terminated
during the applicable deferral period,
the participant will forfeit all Deferred
Stock that is at that time subject to
deferral (other than a deferral at the
election of a participant).
Bonus Stock The Amended Plan authorizes the Committee
to grant Company stock as a bonus, or to
grant such stock or other awards in lieu
of obligations to pay cash or deliver
other property under the Amended Plan or
other plans or compensatory arrangements.
Dividend Equivalents Under the Amended Plan, the Committee may
grant "Dividend Equivalents" to a
participant. Dividend Equivalents entitle
a participant to receive cash, Company
stock or other awards equal in value to
dividends paid for a specified number of
shares of Company stock or in periodic
payments.
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Qualified Performance- The Amended Plan will permit the
Based Criteria Committee to make annual incentive awards
and performance awards. The Company may
pay these awards in cash, other awards,
or Company stock. The grant, exercise
and/or settlement of such award will be
contingent upon the achievement of pre-
established performance goals, unless the
Committee determines that a performance
award or annual incentive award is not
intended to qualify as "performance-based
compensation" for purposes of Code
Section 162(m). (Code Section 162(m)
provides that compensation in excess of
$1 million to certain officers of a
public company is not deductible for
income tax purposes unless it qualifies
as "performance-based compensation.")
The Committee will establish a targeted
level or levels of performance measured
by one or more of the following general
business criteria:
. earnings per share;
. revenues;
. cash flow;
. return;
. economic value added;
. operating margin;
. net income; pretax earnings;
pretax operating earnings;
operating earnings;
. total shareholder return;
. performance of managed funds;
. market share;
. assets under management;
. reduction in costs;
. increase in the fair market
value of Company stock; and
. stated goals as compared to
the performance of a published
or special index deemed
applicable by the Committee,
including, but not limited to,
the Russell 1000 Value Index,
the S&P 500 Stock Index, the
S&P Financial Index, the SNL
Investment Adviser Index or a
group of comparable companies.
These performance goals are objective and
seek to meet the requirements of Code
Section 162(m). The Committee will
measure whether a participant has
achieved a performance goal over a
performance period of one year for an
annual incentive award, or up to ten
years for a performance award. The
Committee may reduce the amount paid to a
participant in connection with an annual
incentive award or performance award, but
may not increase the amount unless the
Committee determines at the time of grant
that the Award was not intended to
qualify as "performance based
compensation" for purposes of Code
Section 162(m).
Amendment The Board may amend, alter, suspend,
discontinue or terminate the Amended Plan
or the Committee's authority to grant
Awards under the Plan without shareholder
approval, except that any amendment or
alteration to the Amended Plan shall be
subject to shareholder approval at the
annual meeting next following such Board
action if shareholder approval is
required by state or federal law or
regulation or the rules of any stock
exchange upon which the Company's stock
is listed or quoted.
The Committee may waive any conditions or
rights under or amend, alter, suspend,
discontinue or terminate any award
granted. However, no Board or Committee
action may materially and adversely
affect the rights of participants under
any previously granted and outstanding
award without the consent of the affected
participant.
10
<PAGE>
Effectiveness and Term The Amended Plan shall take effect only
upon the later to occur of (i)
shareholder approval at the annual
meeting and (ii) the Company's receipt of
an order from the SEC declaring that the
Company has ceased to be an investment
company.
Section 162(m) of the Internal Revenue
Code requires shareholder approval of
"qualified performance-based criteria"
every five years. Therefore, the Company
expects to submit the Amended Plan to
shareholders for reapproval at the 2005
annual meeting. Subject to such
shareholder reapproval, the Amended Plan
will remain in effect until the tenth
anniversary of the date on which it is
originally approved.
As of the date of this proxy statement, the compensation committee has not made
any decision about awards that will be made under the Amended Plan in 2000, or
as a part of compensation for 2000. The following table shows the grants of
options and restricted stock units that were made in January 2000, generally as
part of each recipient's compensation for 1999. The Company has adjusted the
numbers below to reflect the Company's 1 for 6 reverse stock split.
<TABLE>
<CAPTION>
Benefits Under the Incentive Compensation Plan Restricted Stock Securities
Award Underlying
Position Dollar Value ($) Options
-------- ---------------- -------
<S> <C> <C> <C>
John A. Levin Chairman, Chief Executive Officer and President of $189,005 34,570(a)
the Company and Chairman and Chief Executive Officer
of Levin Management Co., Inc and John A. Levin &
Co., Inc.
James P. Gorter Former Chairman of the Board of Directors 0 0
James P. Koeneman Assistant Secretary and former Executive Vice 0 0
President and Secretary
Scott E. Smith Former Executive Vice President 0 0
Gregory T. Rogers Executive Vice President and Chief Operating Officer 0 65,049(b)
Daniel M. Theriault Senior Portfolio Manager 0 65,049(c)
Henry L. Levin Senior Portfolio Manager 360,001 65,846(a)
John W. Murphy Senior Portfolio Manager 166,513 30,454(a)
Frank F. Rango Senior Portfolio Manager 120,005 21,949(a)
Joseph A. Austin Senior Portfolio Manager 59,996 10,975(a)
Current executive officers as a 207,014 102,912(d)
group
Current directors who are not 0 0
executive officers as a group
Nominees for director as a group 0 0
Associates of any directors, 0 0
executive officers or nominees
as a group
All employees as a group 794,502(e) 183,178(e)
</TABLE>
________________________________
(a) The exercise price of the options shown is $13.03125/share. The
options vest in two installments of 50% each, at December 31, 2000 and
December 31, 2001.
(b) Options granted in connection with the commencement of Mr. Roger's
employment. The exercise price of the options shown is
$13.03125/share. The options vest in three equal installments of
21,683 at December 31, 2000, December 31, 2001 and December 31, 2002,
respectively.
(c) Options granted in satisfaction of an obligation in connection with
the commencement of Mr. Theriault's employment. The exercise price of
the options shown is $13.03125/share. The options vest at December 31,
2000.
(d) The exercise price of all options shown is $13.03125/share.
(e) The amount reported excludes the amount granted to the current
executive officers of the Company because such amounts are shown
elsewhere on the table.
11
<PAGE>
Federal Income Tax Consequences
The following discussion is only a summary of general federal income tax
consequences to the company and participating employees, and does not cover all
possible federal, state or local income tax consequences of participation in the
Amended Plan.
Grant of Awards The grant of a stock option, stock
appreciation right or restricted stock award
has no immediate federal income tax
consequences. The participant will not
recognize any taxable income and the Company
will not be entitled to any tax deduction.
However, in the case of a restricted stock
award, the participant may elect to recognize
income at the time the award is granted as
described under "Awards Payable in Restricted
Stock" below.
Exercise of Non-Qualified Stock The optionee will generally recognize
Options ordinary income in an amount equal to the
excess of the fair market value of the shares
on the exercise date over the option exercise
price.
Exercise of Stock Appreciation The participant will generally recognize
Rights ordinary income on the exercise date in an
amount equal to any cash and the fair market
value of any unrestricted shares received.
Awards Payable in Restricted In the case of an exercise of a stock option
Stock or stock appreciation right payable in
restricted stock, or in the case of an award
of restricted stock, the immediate federal
income tax effect for the recipient will
depend on the nature of the restrictions.
Generally, the fair market value of the stock
will not be taxable to the recipient as
ordinary income until the year in which his
or her interest in the stock is freely
transferable or is no longer subject to a
substantial risk of forfeiture. However, the
recipient may elect to recognize income when
the stock is received, rather than when his
or her interest in the stock is freely
transferable or is no longer subject to a
substantial risk of forfeiture. If the
recipient makes this election, the amount
taxed to the recipient as ordinary income is
determined as of the date of receipt of the
restricted stock.
Exercise of Incentive There is generally no income tax liability at
Stock Options the time of exercise of an incentive stock
option, unless the participant exercises the
option more than three months (one year if
the participant is disabled) after
terminating employment. However, the excess
of the fair market value of the stock on the
exercise date over the option exercise price
is included in the optionee's income for
purposes of the alternative minimum tax. The
optionee will realize a long-term capital
gain or loss upon a sale of the stock, equal
to the difference between the option price
and the sale price, if he or she does not
sell the stock before one year from the date
of the exercise or two years from the date of
the stock option grant, whichever is later.
If the optionee has not held the stock for
the required period, ordinary income tax
treatment will apply to the excess of the
fair market value of the stock on the date of
exercise over the option exercise price (or,
if less, the amount of gain realized on the
disposition of the stock), and the balance of
any gain or any loss will be treated as
capital gain or loss (long-term or short-
term, depending on whether the optionee has
held the shares for more than one year).
12
<PAGE>
Cash Awards Cash awards will be included in income at the
time of receipt and will be subject to tax at
ordinary income tax rates. Any awards that
are properly deferred under an applicable
deferred compensation plan of the Company
will be taxable when actually or
constructively received under such plan's
terms.
Tax Deductions by the Upon the exercise of a non-qualified stock
Company option, the exercise of a stock appreciation
right, the award of unrestricted stock, the
recognition of income on restricted stock, or
the disqualifying sale of shares (within one
year after acquisition or two years after the
option grant) acquired on exercise of an
incentive stock option, the Company generally
will be allowed an income tax deduction equal
to the ordinary income recognized by a
participant. The Company will not receive an
income tax deduction as a result of the
exercise of an incentive stock option. When a
cash payment is made pursuant to an award,
the recipient will recognize the amount of
the cash payment as ordinary income, and the
Company will generally be entitled to a
deduction in the same amount, subject to the
restrictions described below.
The Company may be unable to deduct amounts
that would otherwise be deductible under the
rules described above (a) if it is determined
that the amount paid does not constitute
reasonable compensation; (b) if the amount
paid constitutes part of the acquisition
price of another business or is otherwise
required to be capitalized; (c) if the
Company fails to comply with requirements
relating to the proper reporting of
compensation and tax withholding; (d) if the
services with respect to which the
compensation is paid are rendered to an
affiliate of the Company that does not file a
consolidated federal income tax return with
the Company; or (e) if Section 162(m) of the
Code applies. Section 162(m) provides in
general that a publicly traded company may
not deduct more than $1 million in
compensation paid in any one calendar year to
its chief executive officer or to any other
executive officer whose compensation is
required to be disclosed in its proxy
statement. Certain types of compensation,
including qualified performance-based
compensation, are exempt from this
limitation.
The affirmative vote of the holders of a majority of the shares of common
stock present in person or by proxy and entitled to vote at the meeting is
necessary to approve the proposed Amended Plan. Unless otherwise instructed,
properly executed proxies which are returned in a timely manner will be voted in
favor of adoption of the proposed Amended Plan.
The board recommends a vote FOR approval of the proposed Amended Plan.
---
ITEM 4. SELECTION OF INDEPENDENT AUDITORS
================================================================================
The Company's board of directors, including a majority of the directors who
are not interested persons of the Company, has selected Ernst & Young LLP,
independent auditors, to audit the financial statements of the Company for the
year ending December 31, 2000. Ernst & Young LLP has served the Company in this
capacity since 1987 and has no direct or indirect financial interest in the
Company except as independent auditors. The Company is asking shareholders to
ratify the selection of Ernst & Young LLP as independent auditors of the
Company. A representative of Ernst & Young LLP is expected to attend the
meeting and will be available to respond to questions raised at the meeting.
The representative from Ernst & Young LLP also will have the opportunity to make
a statement if he or she desires to do so.
The affirmative vote of the holders of a majority of the shares of common
stock present in person or by proxy and entitled to vote at the meeting is
necessary to ratify the appointment
13
<PAGE>
of Ernst & Young LLP as independent auditors of the Company. Unless otherwise
instructed, properly executed proxies which are returned in a timely manner will
be voted in favor of adoption of the proposed Amendment.
The board recommends a vote FOR the ratification of the appointment of
---
Ernst & Young LLP as independent auditors of the Company.
OTHER MATTERS
================================================================================
As of the date of this proxy statement, we do not intend to bring any other
matters before the meeting, and we are not aware of any proposals to be
presented to the meeting by others. If any other matter comes before the
meeting, however, the persons named in the proxy solicited by the board of
directors will vote thereon in accordance with their judgment.
INTERESTS IN STOCK
================================================================================
The table below contains information as of December 31, 1999 on the number
of shares of common stock of the Company as to which each named officer of the
Company and all directors, nominees and officers of the Company as a group, had
outright ownership, or, alone or with others, any power to vote or dispose of
the shares, or to direct the voting or disposition of the shares by others, and
the percentage of the aggregate of such shares to all of the outstanding shares
of the respective companies.
<TABLE>
<CAPTION>
Shares of Baker, Fentress & Company(a)
-------------------------------------------------------------
Power Over Voting or
Outright Disposition of
Ownership Other Shares (b) Aggregate
-------------------- ---------------------
of Shares Alone Shared Shares Percent (c)
--------- --------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Anson M. Beard, Jr. ...................... 0 0 0 0 0.00
J. Barton Goodwin ........................ 0 0 [125,069] [125,069] [1.92]
James P. Gorter........................... 21,555 0 22,976 44,531 0.68
David D. Grumhaus......................... 1,332 0 885 2,217 0.03
Jeffrey A. Kigner......................... 0 0 0 0 0.00
John A. Levin............................. 587,517(d) 0 47,715 635,232 9.77
Burton G. Malkiel......................... 0 0 0 0 0.00
Peter J. Solomon.......................... 0 0 0 0 0.00
Dean J. Takahashi......................... 182 0 0 182 0.00
James S. Tisch............................ 0 0 0 0 0.00
James P. Koeneman......................... 170 0 75 245 0.00
Scott E. Smith............................ 401 0 885 1,286 0.02
Directors and officers
as a group (12 persons)................... 611,157(d) 0 197,605 808,762 12.43
</TABLE>
__________________________________________
Notes to Tables:
(a) The Company has adjusted the number of shares reported by each director and
officer to reflect the Company's 1 for 6 reverse stock split in January
2000.
(b) Each person disclaims beneficial ownership of such shares.
(c) Number has been rounded.
(d) Includes 14,504 restricted stock units.
The following table contains information with respect to the "beneficial
ownership" (as defined by the Securities and Exchange Commission) of shares of
the Company's common stock, as of December 31, 1999, by each person (other than
Mr. Levin whose share ownership information is shown above) who is known by
management of the Company to be the beneficial
14
<PAGE>
owner of more than five percent of such stock. Except as otherwise indicated by
footnote, the persons below have sole voting and investment power over their
shares.
<TABLE>
<CAPTION>
Shares Beneficially
Name and Address Owned (a) Percent
---------------- --------- -------
<S> <C> <C>
Warren E. Buffett 340,333 5.23%
1440 Kiewit Plaza
Omaha, Nebraska 68131
Yale University, Investments Office 363,615(b) 5.59%
230 Prospect Street
New Haven, Connecticut 06511-2107
CSS, LLC 341,312 5.25%
401 South LaSalle Street, #1500
Chicago, Illinois 60605
</TABLE>
(a) The Company has adjusted the number of shares reported by each 5% holder to
reflect the Company's 1 for 6 reverse stock split in January 2000.
(b) Does not include 182 shares owned by Mr. Takahashi, a Yale University
employee who is a member of the Company's board of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
================================================================================
Each director and officer of the Company is required to report his or her
transactions in shares of Company common stock to the Securities and Exchange
Commission within a specified period following a transaction. Based on our
review of filings with the Securities and Exchange Commission and written
representations furnished to us, during 1999 the directors and officers filed
all such reports within the specified time period except Mr. Grumhaus, who filed
two reports covering five transactions for two accounts late.
EXECUTIVE OFFICERS
================================================================================
The current executive officers of the Company are:
<TABLE>
<CAPTION>
Name, Age, and Principal Occupation
Since January 1, 1995 Office(a) Year First Elected
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John A. Levin--age 61 Chairman, Chief Executive Officer 2000 (as Chairman)
Chairman since February 2000, Chief Executive Officer and President 1996 (as CEO and
and President of the Company and Chairman and Chief President)
Executive Officer of Levin Management Co., Inc. and
John A. Levin & Co., Inc. since June 1996; prior
thereto, President and Securities Analyst/Portfolio
Manager of the predecessor to John A. Levin & Co., Inc.
Gregory T. Rogers - age 34 Executive Vice President and 2000
Executive Vice President and Chief Operating Officer Chief Operating Officer
of the Company, Levin Management Co., Inc. and John A.
Levin & Co., Inc. since February 2000; prior thereto,
Managing Director of BARRA Strategic Consulting.
Glenn A. Aigen - age 37 Senior Vice President, Chief 2000
Senior Vice President, Chief Financial Officer and Financial Officer and Treasurer
Treasurer of the Company, Levin Management Co., Inc.
and John A. Levin & Co., Inc. since February 2000;
Vice President, Chief Financial Officer and Director
of Operations of Levin Management Co., Inc. and
John A. Levin & Co., Inc. from June 1996 to February
2000; prior thereto, Vice President and Director of
Operations of the predecessor to John A. Levin &
Co., Inc.
Norris Nissim - age 33 Vice President, General Counsel 2000
Vice President, General Counsel and Secretary of and Secretary
the Company and Vice President and General Counsel
of Levin Management Co., Inc. and John A. Levin &
Co., Inc. since February 2000; Director of Legal
Affairs of Levin Management Co., Inc. and John A.
Levin & Co., Inc. from August 1996 to February
2000; prior thereto, Associate at Schulte Rotn &
Zabel LLP.
</TABLE>
_____________
(a) Each officer of the Company generally holds office until the first meeting
of the board after the annual meeting of shareholders and until his or her
successor is elected and qualified.
15
<PAGE>
COMPENSATION
================================================================================
DIRECTORS' COMPENSATION
Company employees who serve as directors of the Company receive no
compensation for such services. The Company pays non-employee directors,
including Levco employees or officers, an annual retainer of $20,000 (the
Chairman receives $32,000), payable in quarterly installments. Non-employee
directors receive $1,500 for each board meeting and $500 for each meeting of a
committee of the board that they attend in person or by telephone and $5,000 per
year for serving as the chairman of any committee of the Board. The Company
also reimburses directors for their out-of-pocket expenses incurred in
connection with such meetings.
Under the Incentive Compensation Plan, on December 30, 1998, the Company
granted each non-employee director an option to purchase 1,000 shares of the
Company's common stock. On April 22, 1999, the Company granted another option
to each non-employee director to purchase 250 shares of the Company. In light
of the adoption of the Plan for Distribution of Assets of the Company, each
director of the Company voluntarily terminated his or her rights to such shares
of Company stock in June 1999.
Under the terms of the current Incentive Compensation Plan, the Company
will automatically grant each non-employee director an initial stock option (the
"Initial Option") on the effective date of any non-interested director's initial
election to the board. The Company will automatically grant another option to
each non-employee director at the close of business on the date of this annual
shareholder meeting (the "Annual Option"), unless that non-employee director
received his Initial Option within the preceding 90 days. The Initial Option
consists of a one-time option to purchase 1,000 shares of the Company's common
stock. The Annual Option consists of an annual grant of 250 shares of the
Company's common stock. These options become exercisable in three equal
installments after each of the first, second and third anniversaries of the date
of the grant.
As described in an earlier section of this proxy statement, the Company has
proposed to amend and restate the Incentive Compensation Plan. If the Amended
Plan is approved by shareholders and becomes effective, the automatic grant of
options to the Company's non-interested directors would be eliminated. Instead,
the non-interested directors would be eligible to receive grants of options from
time to time, in the discretion of the Committee.
Executive Compensation
The following table sets forth compensation for the years ended December
31, 1999, December 31, 1998 and December 31, 1997 received by the Company's
Chief Executive
16
<PAGE>
Officer and the Company's three other most highly compensated executive officers
serving at the end of fiscal year 1999 (each of whom was paid in excess of
$100,000 in aggregate compensation by the Company and Levco).
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------
Awards
-------------------------------------------
Name and Restricted Stock Securities Underlying All Other
Principal Position Year Salary Bonus Award(s) ($) Options (#) Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John A. Levin 1999 $867,165(a) $ _______(b) $189,005(c) 34,570(d) $30,000(e)
------------------------------------------------------------------------------------------------
Chairman, Chief Executive 1998 990,748(a) 1,614,706(b) 0 0 30,000(e)
------------------------------------------------------------------------------------------------
Officer and President 1997 783,912(a) 1,711,658(b) 0 0 30,000(e)
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Gorter 1999 0 0 0 0 54,500(f)(g)
------------------------------------------------------------------------------------------------
Former Chairman of the 1998 0 0 0 0 64,000(f)
------------------------------------------------------------------------------------------------
Board 1997 0 0 0 0 55,450(f)
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Koeneman 1999 168,000 100,500 0 0 36,204(g)(h)
------------------------------------------------------------------------------------------------
Assistant Secretary 1998 160,000 85,000 0 0 36,126(h)
------------------------------------------------------------------------------------------------
1997 155,000 72,000 0 0 36,126(h)
- ------------------------------------------------------------------------------------------------------------------------------------
Scott E. Smith 1999 162,750 237,250 0 0 35,126(i)
------------------------------------------------------------------------------------------------
Executive Vice President 1998 155,000 300,000 0 0 35,168(i)
------------------------------------------------------------------------------------------------
1997 150,000 125,000 0 0 35,168(i)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In each of the years shown, Mr. Levin received $50,000 from the Company for
serving as an officer of the Company. The balance of Mr. Levin's salary
($817,165 in 1999, $940,748 in 1998, and $733,912 in 1997) was paid by
Levco for serving as an officer and director of that company.
(b) Amounts reported as bonuses for Mr. Levin are bonuses Levco paid to Mr.
Levin for serving as an officer and director of that company and its
subsidiaries.
(c) In lieu of a portion of his cash bonus for 1999, Mr. Levin received an
award of 14,504 Restricted Stock units, having a fair market value on the
date of grant as shown in the table. The Restricted Stock is subject to
restrictions on transfer and is subject to risk of forfeiture that expires
one-half on December 31, 2000 and the balance on December 31, 2001.
(d) In lieu of a portion of his cash bonus for 1999, Mr. Levin received a grant
of non-qualified stock options as shown in the table. One-half of the
options vest on December 31, 2000 and the balance vests on December 31,
2001. All of the options have an exercise price of $13.03125 per share.
(e) Amounts reported reflect contributions John A. Levin & Co., Inc., paid to
the Levco retirement plan, a money purchase pension plan funded by employer
contributions in which Mr. Levin participates. The amount of the
contribution made for each employee is determined by a formula that takes
into account, among other things, the age of the employee for whom the
contribution is made. The benefit received under the Levco plan upon
retirement depends on the aggregate contributions to the plan for the
participant and the investment performance of those assets.
(f) The amount reported reflects the compensation Mr. Gorter received from the
Company for serving as a director of the Company ($49,000 in 1999, $46,000
in 1998 and $39,450 in 1997) and compensation received for serving as a
director of Consolidated-Tomoka Land Co. ($5,500 in 1999 and $18,000 in
each of 1998 and 1997), which until September 24, 1999, was a majority-
owned subsidiary of the Company.
(g) In connection with the closing of the Chicago office, all employees based
in Chicago will lose their jobs. The Company's Board has approved severance
arrangements for these employees. The severance arrangements include full
vesting of the Baker Fentress Money Purchase Pension Plan, a termination
bonus for 2000 and a severance payment determined by base compensation and
length of service. The Company will also continue to provide health
insurance benefits for a period of time based on length of service.
17
<PAGE>
(h) The amount reported reflects the sum Mr. Koeneman received from Company
contributions to the Company's money purchase pension plan ($30,000 in each
year), Company contributions to the Company's defined benefit pension plan
($4,478 in 1999, $4,478 in 1998 and $4,478 in 1997) and Company
contributions to the life and disability plans ($1,726 in 1999, $1,648 in
1998 and $1,648 in 1997).
(i) The amount reported reflects the sum Mr. Smith received from Company
contributions to the Company's money purchase pension plan ($30,000 in each
year), Company contributions to the Company's defined benefit pension plan
($3,664 in 1999, $3,664 in 1998 and $3,664 in 1997) and Company
contributions to its life and disability plans ($1,462 in 1999, $1,504 in
1998 and $1,504 in 1997).
Option Grants in 1999
The Company granted no options in 1999. However, as described above in the
Summary Compensation Table, the Company granted the following options in 2000 as
part of the executive officer's 1999 incentive compensation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Number of Shares Percent of Total
Underlying Options Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present
Name Granted(1) Fiscal Year ($/Share) Date Value(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John A. Levin 34,570 18.9% $13.03125 12/31/09 $189,005
- --------------------------------------------------------------------------------------------------------------------------------
James P. Gorter -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
James P. Koeneman -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Scott E. Smith -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The exercise price of each option is the fair market value of the Common
Stock on the date of grant. Options vest in two equal annual installments
beginning on December 31, 2000.
(2) The grant date present value is based on a modified Black-Scholes option
pricing model, assuming an expected exercise period of seven years, a risk
free rate of 6.35%, volatility of 22.39%, zero dividend yield and no
discount for risk at forfeiture.
Employment Contracts
Messrs. Levin and Rogers have employment contracts with the Company and
Levin Management and Mr. Kigner has an employment contract with Levin
Management. Messrs. Levin and Kigner entered into their employment contracts at
the time the Company acquired Levco. Mr. Rogers entered into his contract upon
his employment with the Company and Levin Management on December 31, 1999. His
contract ends on December 31, 2002 and automatically renews for one year periods
thereafter unless either party provides written notice of its intent not to
extend the term of the contract. Mr. Levin's and Mr. Kigner's contracts began on
June 27, 1996 and continue for a term of five years. Each employment contract
contains confidentiality and noncompetition provisions (the non-competition
provision in Mr. Kigner's contract runs for four years, through June 28, 2000).
Each contract also contains provisions that require the Company or Levin
Management to pay each individual if the Company or Levin Management terminates
his employment without cause (as defined in the contract). The Company, Levin
Management and Messrs. Levin, Rogers and Kigner must seek arbitration for any
disputes brought under the contracts.
Pension Plan
The Company's officers and employees participate in the Company's
retirement plan, contributions to which are included in the cash compensation
table. The Company's retirement plan is a trusteed money purchase pension plan
funded by Company contributions equal to 25% of the compensation paid or accrued
to participating employees, subject to a $30,000 annual contribution limitation
per participant. The benefit received under the retirement plan upon retirement
depends on the aggregate contributions to the plan for the participant and the
investment performance of those assets.
18
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Pension or Retirement Benefits Accrued
Name of Person as Part of the Company's Expenses
---------------------------------------------------------------------------
<S> <C>
James P. Gorter none
---------------------------------------------------------------------------
John A. Levin none (a)
---------------------------------------------------------------------------
James P. Koeneman $30,000
---------------------------------------------------------------------------
Scott E. Smith 30,000
---------------------------------------------------------------------------
</TABLE>
(a) Does not include Mr. Levin's participation in the Levin Management
Co., Inc. Retirement Plan. See Note (e) under Officers' Compensation
- Summary Table.
Compensation Committee Interlocks and Insider Participation
In 1999, the members of the Compensation Committee were William H.
Springer, Frederick S. Addy and David D. Peterson. Messrs. Springer, Addy and
Peterson served as directors of the Company and as members of the Compensation
Committee until February 10, 2000. During 1999, Mr. Peterson was the only
member of the Compensation Committee who was a current or past executive officer
or employee and none of the Company's executive officers served on the board or
the compensation committee of any entity whose directors or officers served on
the Company's compensation committee. Mr. Peterson was president of the Company
before he retired in June 1996.
As of February 10, 2000, the members of the Compensation Committee are
Anson M. Beard, Burton G. Malkiel and Dean J. Takahashi. None of the Company's
current or past executive officers or employees serves on the Compensation
Committee. None of the Company's executive officers serves on the board or the
compensation committee of any entity whose directors or officers serve on the
Company's Compensation Committee.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the board makes decisions on compensation of
the Company's executives. Each member of the Compensation Committee is a non-
employee director. The Committee establishes the compensation of John A. Levin,
Chief Executive Officer, based on its evaluation of Mr. Levin's performance. It
establishes the compensation of the other officers of the Company in
consultation with Mr. Levin. The full board reviews all decisions by the
Compensation Committee relating to the compensation of all the Company's
officers.
The Company's executive compensation program reflects the philosophy that
compensation should reward executives for outstanding individual performance
and, at the same time, align the interests of executives closely with those of
shareholders. To implement that philosophy, the Company offers each of its
executives a combination of base salary and annual cash bonuses. Each executive
officer, with the exception of Mr. Levin, also participates in the Company's
Money Purchase Pension Plan. Through this compensation structure, the Company
aims to reward above-average corporate performance and recognize individual
initiative and achievements.
The Compensation Committee administers the Baker, Fentress & Company 1998
Incentive Compensation Plan, pursuant to which the Company and Levco may pay
their employees, based on performance, in cash or in Company stock (including
stock options and restricted stock units).
19
<PAGE>
Base Salary
Base salaries reflect individual positions, responsibilities, experience,
and potential contribution to the success of the Company. Actual salaries vary
according to the Compensation Committee's subjective assessment of a number of
factors in its review of base salaries of Company executives. The Company
conducts annual reviews to ensure that base salaries are competitive, that they
reflect the specific responsibilities of individual executives and that they
appropriately reward individual executives for their contributions to the
Company's performance.
Bonuses
At the Committee's sole discretion, the Company may pay each executive
officer a cash bonus based on the Compensation Committee's assessment of the
executive officer's individual performance and the performance of the Company or
business unit. In its evaluation of the performance of the officer and the
determination of incentive bonuses, the Committee does not assign quantitative
relative weights to different factors or follow mathematical formulas. Rather,
the Committee makes its determination in each case after considering the factors
it deems relevant at the time.
For officers of the Company other than Mr. Levin, the amounts of 1999
bonuses were determined as part of the severance arrangements made by the
Company for these employees, all of whom have lost, or will lose, their jobs in
connection with the Company's Plan for Distribution of Assets.
Compensation of Chief Executive Officer
The compensation committee establishes the annual base salary of the Chief
Executive Officer. For 1999, the Company paid Mr. Levin $50,000 to serve as the
Company's Chief Executive Officer. This amount does not include the salary Mr.
Levin receives from Levco for serving as an officer and director of Levco.
Unlike the other executive officers, Mr. Levin does not receive a cash bonus
from the Company based on his individual or the Company's performance.
Limits on Deductibility of Compensation
For corporate income tax purposes, the Company may not deduct executive
compensation in excess of $1 million, unless it is performance-based
compensation and is paid pursuant to a plan meeting certain requirements of the
Code. The Committee currently anticipates that, to the extent practicable and
in the Company's best interest, the Company will pay executive compensation in a
manner that satisfies the requirements of the Code to permit the Company to
deduct the compensation.
Compensation Committee Members
William H. Springer (Chairman)
Frederick S. Addy
David D. Peterson
AUDIT COMMITTEE REPORT
================================================================================
The board has adopted a charter for the Audit Committee, a copy of which is
attached to this proxy statement as Exhibit C. Pursuant to this charter, the
Audit Committee makes recommendations regarding the selection of independent
auditors and meets with representatives of the Company's independent auditors to
determine the scope, and review the results, of each audit. In 1999, the
Committee met with representatives of Ernst & Young LLP,
20
<PAGE>
the Company's independent auditors, to review the results of the 1998 audit and
to review the scope of the 1999 audit.
In February 2000, the Committee met with Ernst & Young to review the
results of the 1999 audit. The Committee will meet with Ernst & Young again in
2000 to review the scope of the 2000 audit. At the February 2000 meeting, the
Committee reviewed the results of the 1999 audit with members of the Ernst &
Young engagement team. The Committee also discussed the audited financial
statements and the results of the audit with the Company's management.
During the February 2000 meeting, the Committee discussed the matters
required to be discussed by Statements on Auditing Standards No. 61, with Ernst
& Young, including the restrictions on ownership of securities imposed as part
of the independence standards to which the Ernst & Young engagement team are
subject. Further, the Committee received at that meeting the written
disclosures and letter from Ernst & Young required by Independence Standards
Board Standard No. 1. Standard No. 1 requires auditors to communicate, in
writing, at least annually all relationships between the auditor and the Company
that, in the auditor's professional judgment, may reasonably be thought to
affect the auditor's independence. The Committee has received this written
disclosure and has discussed with Ernst & Young its independence.
Audit Committee Members
David D. Grumhaus
Burton G. Malkiel
David D. Peterson
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
================================================================================
The following chart shows the Company's annual total returns from 1994
through 1999. On August 19 1999, the Company's shareholders approved the Plan
for Distribution of Assets of the Company, pursuant to which the Company
distributed or liquidated substantially all of its assets, with the exception of
Levco and its subsidiaries, and changed the nature of the Company's business so
that it no longer operated as a registered investment company. Currently, the
Company's chief operating business is as an investment adviser. Because the
chart that follows contains the Company's returns from 1994 through 1999, the
chart includes information about the Company during that period in which the
Company was operating as a registered investment company and during the period
after the August 19, 1999 shareholder meeting in which the Company distributed
or liquidated substantially all of its assets except Levco. To reflect the
changing nature of the Company's business, the chart sets forth a comparison of
the Company's total return with the annual return of (i) all closed-end, equity
investment companies ("Closed-End Funds") reported by Morningstar, Inc.; (ii)
the SNL Investment Adviser Index; and (iii) the S&P 500 Index. The chart is
based on an investment of $100 on December 31, 1994, and assumes that all
dividends and capital gain distributions were reinvested. The chart is not an
indicator of the future performance of the Company. Thus, it should not be used
to predict the future performance of the Company's stock.
21
<PAGE>
Comparison of Cumulative Five Year Total Return
[CHART HERE]
<TABLE>
- -------------------------------------------------------------------------------------------------
12/30/94 12/29/95 12/29/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Baker, Fentress & Company $ 100 $ 133 $ 154 $ 193 $ 199 $ 267
- -------------------------------------------------------------------------------------------------
Closed-End Funds 100 119 133 152 158 175
- -------------------------------------------------------------------------------------------------
S&P Financial Index 100 161 209 319 418 534
- -------------------------------------------------------------------------------------------------
SNL Investment Adviser Index 100 139 202 363 411 652
- -------------------------------------------------------------------------------------------------
S&P 500 Index 100 138 169 226 290 351
- -------------------------------------------------------------------------------------------------
</TABLE>
Total returns assume that dividends and capital gain distributions are
reinvested.
PROXY SOLICITATION; VOTING; ADJOURNMENT
================================================================================
If you properly sign your proxy and return it on time, your shares will be
voted at the Annual Meeting in accordance with the directions you mark on your
proxy card. If you properly sign and return your proxy, but don't mark any
directions on it, your shares will be voted for the election of each of the
nominated directors, for approval of the charter amendment to change the
Company's name, for approval of the Amended Plan, and for the ratification of
the selection of Ernst & Young LLP as independent auditors of the Company.
You may revoke your proxy at any time before it is voted, either in person
at the meeting, by written notice to the Company, or by delivery of a later
dated proxy. No appraisal rights exist for any action proposed to be taken at
the Annual Meeting.
Shareholders of record at the close of business on February 28, 2000 are
entitled to participate in the meeting and to cast one vote for each share held.
The Company had [6,504,852] shares of common stock outstanding on the record
date. There is no other class of stock outstanding. Proxy material is first
being mailed to shareholders on or about March 8, 2000.
Proxies will be solicited by mail. Directors, officers, and a small number
of regular employees may solicit proxies, personally or by telephone, telegraph
or mail, but such persons will not be specially compensated for such services.
In addition, the Company may engage Corporate Investor Communications, Inc. to
render proxy solicitation services at a cost estimated at $6,000. The Company
will inquire of any shareholder of record known to be a broker, dealer, bank, or
other nominee as to whether other persons were the beneficial owners of shares
held of record by such persons. If so, the Company will supply additional
copies of solicitation materials for forwarding to beneficial owners and will
make reimbursement for
22
<PAGE>
reasonable out-of-pocket costs. The Company will bear all costs of solicitation
and related actions.
ChaseMellon Shareholder Services, LLC, the Company's transfer agent,
tabulates the proxies. Under Delaware law (under which the Company is
organized) and the Company's bylaws, a majority of the shares outstanding on the
record date, excluding shares held in the Company's treasury, must be present at
the meeting in person or by proxy to constitute a quorum for the transaction of
business. Shares abstaining from voting or present but not voting, including
broker non-votes, are counted as "present" for purposes of determining the
existence of a quorum. Broker non-votes are shares held by a broker or nominee
for which an executed proxy is received by the Company, but which are not voted
as to one or more proposals because instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does not
have discretionary voting power.
Any decision to adjourn the meeting would be made by vote of the shares
present at the meeting, in person or by proxy. Proxies would be voted in favor
of adjournment if there were not enough shares present at the meeting to
constitute a quorum. If sufficient shares were present to constitute a quorum,
but insufficient votes had been cast in favor of an item to approve it, proxies
would be voted in favor of adjournment only if the board determined that
adjournment and additional solicitation was reasonable and in the best interest
of shareholders, taking into account the nature of the proposal, the percentage
of votes actually cast, the percentage of negative votes, the nature of any
further solicitation that might be made and the information provided to
shareholders about the reasons for additional solicitation.
PROPOSALS OF SHAREHOLDERS
================================================================================
The Company must receive any shareholder proposal to be considered for
inclusion in proxy material for the Company's annual meeting of shareholders in
April 2001 at the principal executive office of the Company, One Rockefeller
Plaza, 19/th/ Floor, New York, New York 10020, no later than December 8, 2000.
Submission of a proposal does not guarantee inclusion of the proposal in the
proxy statement or its presentation at the meeting since certain rules under the
federal securities laws must be satisfied.
AVAILABLE INFORMATION
================================================================================
The Company is subject to the informational requirements of the Exchange
Act and files reports, proxy statements and other information with the
Commission. Those reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Chicago Regional Office, 500 West
Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
Shareholders of the Company may obtain, without charge, copies of the
Company's most recent annual report and semi-annual report by writing to the
Company at One Rockefeller Plaza, 19th Floor, New York, New York 10020 or by
calling (800) BKF-1891. Shareholders may also obtain copies of the annual,
semi-annual and quarterly reports on the Company's web site at
www.bakerfentress.com.
March 8, 2000
23
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
BAKER, FENTRESS & COMPANY
Baker, Fentress & Company, a corporation organized and existing under the
laws of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:
FIRST: That by unanimous vote of the Board of Directors of the
Company, resolutions were duly adopted setting forth a proposed amendment
to the Restated Certificate of Incorporation of the Company, declaring such
amendment to be advisable and calling for the consideration of the proposed
amendment by the stockholders of the Company at the next annual meeting.
The resolutions setting forth the proposed amendment are as follows:
RESOLVED, that the Board of Directors of the Company hereby
declares it advisable that the Restated Certificate of Incorporation
of the Company be amended by deletion of article FIRST and the
insertion of the following in lieu thereof:
"FIRST: The name of the corporation is BKF Capital Group, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of the Company was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the effective time and date of said amendment shall be
_____________, and the amendment provided for herein shall be effective as
of that time and date.
A-1
<PAGE>
EXHIBIT A
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by John A. Levin, its Chairman, Chief Executive Officer and President,
this ___ day of April 2000.
BAKER, FENTRESS & COMPANY
By: _____________________________________
John A. Levin
Chairman, Chief Executive Officer
and President
A-2
<PAGE>
EXHIBIT B
BAKER, FENTRESS & COMPANY
- --------------------------------------------------------------------------------
1998 Incentive Compensation Plan
(as amended and restated)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Purpose................................................................ 1
2. Definitions............................................................ 1
3. Administration......................................................... 3
(a) Authority of the Committee...................................... 3
(b) Manner of Exercise of Committee Authority....................... 4
(c) Limitation of Liability......................................... 4
4. Stock Subject to Plan.................................................. 4
(a) Overall Number of Shares of Stock Available for Delivery........ 4
(b) Application of Limitation to Grants of Awards................... 5
(c) Availability of Shares Not Delivered under Awards............... 5
5. Eligibility; Per-Person Award Limitations.............................. 5
6. Specific Terms of Awards............................................... 5
(a) General......................................................... 6
(b) Options......................................................... 6
(c) Stock Appreciation Rights....................................... 7
(d) Restricted Stock................................................ 7
(e) Deferred Stock.................................................. 8
(f) Bonus Stock and Awards in Lieu of Obligations................... 9
(g) Dividend Equivalents............................................ 9
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(h) Annual Incentive and Performance Awards......................... 10
7. Certain Provisions Applicable to Awards................................ 10
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.......... 10
(b) Term of Awards.................................................. 10
(c) Form and Timing of Payment under Awards; Deferrals.............. 10
(d) Exemptions from Section 16(b) Liability......................... 11
(e) Loan Provisions................................................. 11
(f) General Terms Relating to Awards................................ 11
8. Performance and Annual Incentive Awards................................ 12
(a) Performance Conditions.......................................... 12
(b) Performance Awards Granted to Designated Covered Employees...... 12
(c) Annual Incentive Awards Granted to Designated Covered Employees. 14
(d) Written Determinations.......................................... 15
(e) Status of Section 8(b) and Section 8(c) Awards under Code
Section 162(m).................................................. 15
9. Change in Control...................................................... 16
(a) Effect of "Change in Control" on Non-Performance Based Awards... 16
(b) Effect of "Change in Control" on Performance-Based Awards....... 17
(c) Definition of "Change in Control................................ 17
(d) Definition of "Change in Control Price.\........................ 18
10. General Provisions..................................................... 18
(a) Compliance with Legal and Other Requirements.................... 18
(b) Limits on Transferability; Beneficiaries........................ 18
(c) Adjustments..................................................... 19
(d) Taxes........................................................... 20
</TABLE>
B-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(e) Changes to the Plan and Awards.................................. 20
(f) Limitation on Rights Conferred under Plan....................... 21
(g) Unfunded Status of Awards; Creation of Trusts................... 21
(h) Nonexclusivity of the Plan...................................... 21
(i) Payments in the Event of Forfeitures; Fractional Shares......... 21
(j) Governing Law................................................... 22
(k) Plan Effective Date and Shareholder Approval.................... 22
</TABLE>
B-iii
<PAGE>
1. Purpose. The purpose of this 1998 Incentive Compensation Plan, as
amended and restated (the "Plan"), is to assist Baker, Fentress & Company
("BKF") and its subsidiaries in attracting, retaining, motivating, and rewarding
high-quality executives, employees, and other persons who provide services to
BKF and/or its subsidiaries, enabling such persons to acquire or increase a
proprietary interest in BKF in order to strengthen the mutuality of interests
between such persons and shareholders of BKF, and providing such persons with
annual and long-term performance incentives to expend their maximum efforts in
the creation of shareholder value. The Plan is also intended to qualify certain
compensation awarded under the Plan for tax deductibility under Code Section
162(m) to the extent deemed appropriate by the Committee (or any successor
committee) of the Board of Directors of BKF. Adoption of the Plan and the grant
of Awards in accordance with the terms of the Plan has been determined by the
Board of Directors of BKF to be in the best interests of BKF and its
shareholders.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means an Award granted to a Participant
which is conditioned upon satisfaction, during a period not in excess of
one year, of performance criteria established by the Committee.
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, Performance Award or Annual Incentive Award,
together with any other right or interest granted to a Participant under
the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the Participant's estate.
(d) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such Rule.
(e) "Board" means BKF's Board of Directors.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
(g) "Committee" means a committee of two or more directors designated
by the Board to administer the Plan, each of whom shall be (i) a
B-1
<PAGE>
"non-employee director" within the meaning of Rule 16b-3 under the Exchange
Act, and (ii) an "outside director" as defined under Code Section 162(m),
unless administration of the Plan by "outside directors" is not then
required in order to qualify for tax deductibility under Code Section
162(m).
(h) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e) of the Plan.
(i) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the
end of a specified deferral period.
(j) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g), to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(k) "Effective Date" means the date on which BKF shareholders approve
the adoption of the Plan.
(l) "Eligible Person" means each Executive Officer or director of BKF
and other officers and employees of BKF or any of its subsidiaries. An
employee on leave of absence may be considered as still in the employ of
BKF or a subsidiary for purposes of eligibility for participation in the
Plan. In addition, a person who has been offered employment by BKF or any
of its subsidiaries or agreed to become a director of BKF is eligible to be
granted an Award under the Plan; provided, however, that such Award shall
be canceled if such person fails to commence such employment or service as
a director, and no payment of value may be made in connection with such
Award until such person has commenced such employment or service.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(n) "Executive Officer" means an executive officer of BKF as defined
under the Exchange Act.
(o) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be equal to the closing price per
share reported on a consolidated basis on the principal stock exchange upon
which Stock is traded on the date on which the value is to be determined
(or the last immediately preceding date on which Stock was traded).
B-2
<PAGE>
(p) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of Code
Section 422 or any successor provision thereto.
(q) "Option" means a right, granted to a Participant under Section
6(b) hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(r) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(s) "Performance Award" means an Award granted to a Participant which
is conditioned upon satisfaction, during a period in excess of one year but
in no event more than ten years, of performance criteria established by the
Committee.
(t) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
and shall include a "group" as defined in Section 13(d) thereof.
(u) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof that is subject to certain restrictions and to a risk
of forfeiture.
(v) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(w) "Stock" means either BKF Common Stock, and such other securities
as may be substituted (or resubstituted) for BKF Common Stock pursuant to
Section 10(c) hereof.
(x) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. A majority of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum
is present, or acts approved in writing by all of the members, shall be the
acts of the Committee. The Committee shall have full and final authority,
in each case subject to and consistent with the provisions of the Plan, to
select Eligible Persons to become Participants, grant Awards, determine the
type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be
identical for each Participant) and rules
B-3
<PAGE>
and regulations for the administration of the Plan, construe and interpret
the Plan and Award agreements and correct defects, supply omissions or
reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan. Other provisions of the Plan notwithstanding,
the Board shall perform the functions of the Committee for purposes of
interpreting or otherwise administering grants to non-employee directors.
(b) Manner of Exercise of Committee Authority. Any action of the
Committee shall be final, conclusive and binding on all persons, including
BKF, its subsidiaries, Participants, Beneficiaries, transferees under
Section 11(b) hereof or other persons claiming rights from or through a
Participant, and shareholders. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of BKF or any subsidiary, or
committees thereof, the authority, subject to such terms as the Committee
shall determine, to perform such functions, including administrative
functions, as the Committee may determine, to the extent that such
delegation will not result in the loss of an exemption under Rule 16b-
3(d)(1) for Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of BKF and will not cause Awards intended to
qualify as "performance-based compensation" under Code Section 162(m) to
fail to so qualify. The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The Committee and each member thereof
shall be entitled, in good faith, to rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of BKF or a subsidiary, BKF's independent auditors, consultants
or any other agents assisting in the administration of the Plan. Members
of the Committee and any officer or employee of BKF or a subsidiary acting
at the direction or on behalf of the Committee shall not be personally
liable for any action or determination taken or made in good faith with
respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by BKF with respect to any such action or
determination; provided that nothing herein shall be construed to protect
any such person from any liability to BKF or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his or her duties, or by
reason of reckless disregard of his or her obligations and duties.
4. Stock Subject to Plan.
(a) Overall Number of Shares of Stock Available for Delivery. Subject
to adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with
Awards under the Plan shall be (i) 1,300,000, plus (ii) 10% of the number
of shares of Stock issued
B-4
<PAGE>
or delivered by BKF during the term of the Plan (excluding any issuance or
delivery in connection with Awards, or any other compensation or benefit
plan of BKF); provided, however, that the total number of shares of Stock
with respect to which ISOs may be granted shall not exceed one million. Any
shares of Stock delivered under the Plan shall consist of authorized and
unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be
granted if the number of shares of Stock to be delivered in connection with
such Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SARs), the number of shares to
which such Award relates, exceeds the number of shares of Stock remaining
available under the Plan minus the number of shares of Stock issuable in
settlement of or relating to then-outstanding Awards. The Committee may
adopt reasonable counting procedures to ensure appropriate counting, avoid
double counting (as, for example, in the case of tandem or substitute
awards) and make adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously counted in
connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares of
Stock subject to an Award under the Plan that is canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of
shares to the Participant, including (i) the number of shares withheld in
payment of any exercise or purchase price of an Award or taxes relating to
Awards, and (ii) the number of shares surrendered in payment of any
exercise or purchase price of an Award or taxes relating to any Award, will
again be available for Awards under the Plan, except that if any such
shares could not again be available for Awards to a particular Participant
under any applicable law or regulation, such shares shall be available
exclusively for Awards to Participants who are not subject to such
limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than one million shares of Stock, subject to adjustment as
provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f),
6(g) and 6(h). For purposes of applying the foregoing limitation to Sections
6(b) and 6(c), any Option or SAR that is canceled shall be treated as remaining
outstanding, and any amendment to an Option or SAR that reduces the exercise or
grant price (other than customary anti-dilution adjustments) shall be treated as
the cancellation of the original Option or SAR and the issuance of a new Option
or SAR. In addition, the maximum cash Award that may be earned under the Plan
pursuant to Section 6(h) in respect of any fiscal year shall be $20 million,
determined on an annualized basis in the case of a Performance Award.
6. Specific Terms of Awards.
B-5
<PAGE>
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter (subject
to Section 11(e)), such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine,
including terms requiring forfeiture of Awards in the event of termination
of employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan. Except in
cases in which the Committee is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration
must by paid to satisfy the requirements of the Delaware General
Corporation Law, no consideration other than services may be required for
the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option
except as provided under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the methods
by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock,
other Awards, or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis), and
the methods by or forms in which Stock will be delivered or deemed to
be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section 422.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs (including any SAR in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the
Plan or any ISO under Code Section 422, unless the Participant has
first requested the change that will result in such disqualification.
B-6
<PAGE>
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of Stock on the date
of exercise over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including
based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock
will be delivered or deemed to be delivered to Participants, whether
or not a SAR shall be in tandem or in combination with any other
Award, and any other terms and conditions of any SAR. SARs may be
either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or
otherwise, as the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of the
Plan and any Award agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
shareholder, including the right to vote the Restricted Stock and the
right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During
the restricted period applicable to the Restricted Stock, subject to
Section 11(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined or otherwise encumbered
by the Participant.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the issuing company;
provided that the Committee may provide, by rule or regulation or in
any Award agreement, or may determine in any individual case, that
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restrictions or forfeiture conditions relating to Restricted Stock
shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may require
that such certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted
Stock, that the issuing company retain physical possession of the
certificates, and that the Participant deliver a stock power to the
issuing company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends, Distributions and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee may require that
any cash dividends or distributions paid on a share of Restricted
Stock be automatically reinvested in additional shares of Restricted
Stock or applied to the purchase of additional Awards under the Plan.
Unless otherwise determined by the Committee, Stock distributed in
connection with a Stock split, Stock dividend or distribution, and
other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property
has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period, subject to
the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of Deferred
Stock shall occur upon expiration of the deferral period specified for
such Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred Stock
shall be subject to such restrictions (which may include a risk of
forfeiture) as the Committee may impose, if any, which restrictions
may lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance goals
and/or future service requirements), separately or in combination, in
installments or otherwise, as the Committee may determine. Deferred
Stock may be satisfied by delivery of Stock, cash equal to the Fair
Market Value of the specified number of shares of Stock covered by the
Deferred Stock, or a combination thereof, as determined by the
Committee at the date of grant or thereafter.
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(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to deferral
(other than a deferral at the election of the Participant) shall be
forfeited; provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Deferred Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Deferred
Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified
number of shares of Stock covered by an Award of Deferred Stock shall
be either (A) paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock having a Fair
Market Value equal to the amount of such dividends, or (B) deferred
with respect to such Deferred Stock and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee shall determine
or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements, provided that, in the case
of Participants subject to Section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the extent
necessary to ensure that acquisitions of Stock or other Awards are exempt
from liability under Section 16(b) of the Exchange Act. Stock or Awards
granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, or other Awards equal in value to dividends paid with respect
to a specified number of shares of Stock, or other periodic payments.
Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to
have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee may specify.
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(h) Annual Incentive and Performance Awards. The Committee is
authorized to make Annual Incentive Awards and Performance Awards payable
in cash, Stock, or other Awards, on terms and conditions established by the
Committee, subject to Section 8 in the event of Annual Incentive Awards or
Performance Awards intended to qualify as "performance-based compensation"
for purposes of Code Section 162(m).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of
BKF, any subsidiary, or any business entity to be acquired by BKF or any
subsidiary, or any other right of a Participant to receive payment from BKF
or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution
or exchange for another Award or award, the Committee shall require the
surrender of such other Award or award in consideration for the grant of
the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans
of BKF or any subsidiary, in which the value of Stock subject to the Award
is equivalent in value to the cash compensation (for example, Deferred
Stock or Restricted Stock), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be exercised
is equal to the Fair Market Value of the underlying Stock minus the value
of the cash compensation surrendered (for example, Options granted with an
exercise price "discounted" by the amount of the cash compensation
surrendered).
(b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or such shorter
term as may be required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be
made by BKF or any subsidiary upon the exercise of an Option or other Award
or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, or other Awards, and
may be made in a single payment or transfer, in installments, or on a
deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion
of the Committee or upon the occurrence of one or more specified events.
Installment or deferred payments may be required by the Committee to the
extent necessary to qualify payments for deductibility under Code Section
162(m), or permitted at the
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election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other amounts
in respect of installment or deferred payments denominated in Stock. Any
payments mandatorily deferred by the Committee to qualify such payments for
deductibility under Code Section 162(m) shall include a reasonable rate of
interest.
(d) Exemptions from Section 16(b) Liability. It is the intent of BKF
and its subsidiaries that the grant of any Awards to or other transaction
by a Participant who is subject to Section 16 of the Exchange Act shall be
exempt under Rule 16b-3 (except for transactions acknowledged in writing to
be non-exempt by such Participant). Accordingly, if any provision of this
Plan or any Award agreement does not comply with the requirements of Rule
16b-3 as then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under Section 16(b).
(e) Loan Provisions. With the consent of the Committee, and subject
at all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
provisions applicable to BKF and/or any subsidiary, BKF and/or any
subsidiary may make, guarantee or arrange for a loan or loans to a
Participant with respect to the exercise of any Option, purchase of Stock
or other payment in connection with any Award, including the payment by a
Participant of any or all federal, state or local income or other taxes due
in connection with any Award. Subject to such limitations, the Committee
shall have full authority to decide whether to make a loan or loans
hereunder and to determine the amount, terms and provisions of any such
loan or loans, including the interest rate to be charged in respect of any
such loan or loans, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
(f) General Terms Relating to Awards. Unless the Committee provides
otherwise at the time of grant or by amendment, an Option, SAR, grant of
Restricted Stock or Deferred Stock will become exercisable or settleable,
as the case may be, in three equal installments after each of the first,
second and third anniversaries of the date of grant based on the
Participant's continued employment with BKF or any of its subsidiaries.
Unless the Committee provides otherwise at the time of grant or by
amendment, an Option or SAR will have a maximum term of ten years after the
date of grant and will expire 30 days after the Participant's termination
of employment with BKF and its subsidiaries, except if such termination
occurs by reason of the Participant's death, retirement or disability, in
which case the Option or SAR will be immediately exercisable and may be
exercised by the Participant or his or her Beneficiary within one year
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following such termination (but in no event later than the maximum term of
the Option or SAR).
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions;
provided, however, that all Performance Awards and Annual Incentive Awards
shall comply with the requirements of Sections 8(b) and 8(c) hereof unless
the Committee specifically determines at the time of grant that such Award
is not intended to qualify as "performance-based compensation" under Code
Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees.
Unless the Committee determines that a Performance Award is not intended to
qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant, exercise and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance goals
and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and
a targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
8(b). Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance
goals being "substantially uncertain." The Committee may determine
that such Performance Awards shall be granted, exercised and/or
settled upon achievement of any one performance goal or that two or
more of the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for BKF, on a consolidated basis, and/or for specified
subsidiaries, business units, funds or partnerships of BKF or any of
its subsidiaries (except with respect to the total shareholder return
and earnings per share
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criteria), shall be used by the Committee in establishing performance
goals for such Performance Awards: (1) earnings per share; (2)
revenues; increase in revenues; the excess of all or a portion of
revenues over operating expenses (excluding expenses determined by the
Committee at the time performance goals are established); (3) cash
flow; (4) cash flow return on investment; (5) return on net assets,
return on assets, return on investment, return on capital, return on
equity; (6) economic value added; (7) operating margin; (8) net
income; pretax earnings; pretax earnings before interest,
depreciation, amortization and/or incentive compensation; pretax
operating earnings; operating earnings; (9) total shareholder return;
(10) performance of managed fund(s); (11) market share; (12) assets
under management; (13) reduction in costs; (14) increase in the Fair
Market Value of Stock; and (15) any of the above goals as compared to
the performance of a published or special index deemed applicable by
the Committee including, but not limited to, the Russell 1000 Value
Index, the Standard & Poor's 500 Stock Index, the Standard & Poor's
Financial Index, the SNL Investment Advisor Index or a group of
comparator companies. One or more of the foregoing business criteria
shall also be exclusively used in establishing performance goals for
Annual Incentive Awards granted to a Covered Employee under Section
8(c) hereof.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to ten years,
as specified by the Committee. Performance goals shall be established
not later than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes
of measuring performance of BKF, any subsidiary and/or any business
unit of BKF and/or any of its subsidiaries in connection with
Performance Awards. The amount of such Performance Award pool shall be
based upon the achievement of a performance goal or goals based on one
or more of the business criteria set forth in Section 8(b)(ii) hereof
during the given performance period, as specified by the Committee in
accordance with Section 8(b)(iii) hereof. The Committee may specify
the amount of the Performance Award pool as a percentage of any of
such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria, provided that the
amount of the Performance Award pool can be determined by an
independent third party in possession of all the relevant facts.
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<PAGE>
(v) Settlement of Performance Awards; Other Terms. Settlement of
such Performance Awards shall be in cash, Stock or other Awards, in
the discretion of the Committee. The Committee may, in its discretion,
reduce the amount of a settlement otherwise to be made in connection
with such Performance Awards, but may not exercise discretion to
increase any such amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 8(b). The Committee shall
specify the circumstances in which such Performance Awards shall be
paid or forfeited in the event of termination of employment by the
Participant prior to the end of a performance period or settlement of
Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees.
Unless the Committee determines that an Annual Incentive Award is not
intended to qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring performance of BKF, any subsidiary and/or any
business unit of BKF and/or any of its subsidiaries in connection with
Annual Incentive Awards. The amount of such Annual Incentive Award
pool shall be based upon the achievement of a performance goal or
goals based on one or more of the business criteria set forth in
Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii)
hereof. The Committee may specify the amount of the Annual Incentive
Award pool as a percentage of any of such business criteria a
percentage thereof in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to
such business criteria, provided that the amount of the Annual
Incentive Award pool can be determined by an independent third party
in possession of all the relevant facts.
(ii) Potential Annual Incentive Awards. Not later than the end of
the 90th day of each fiscal year, or at such other date as may be
required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 8(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual Annual
Incentive Awards intended to qualify under Code Section 162(m), the
amount potentially payable shall
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be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii)
hereof in the given performance year, as specified by the Committee;
in other cases, such amount shall be based on such criteria as shall
be established by the Committee.
(iii) Payout of Annual Incentive Awards. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A)
the Annual Incentive Award pool, and the maximum amount of potential
Annual Incentive Award payable to each Participant in the Annual
Incentive Award pool, or (B) the amount of potential Annual Incentive
Award otherwise payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any Participant as a
final Annual Incentive Award shall be increased or reduced from the
amount of his or her potential Annual Incentive Award, including a
determination to make no final Award whatsoever, but may not exercise
discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under Code Section 162(m). The
Committee shall specify the circumstances in which an Annual Incentive
Award shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a fiscal year or
settlement of such Annual Incentive Award. Settlement of Annual
Incentive Awards shall be in cash, Stock or other Awards, in the
discretion of the Committee.
(d) Written Determinations. All determinations by the Committee as to
the establishment of performance goals, the amount of any Performance Award
pool or potential individual Performance Awards and as to the achievement
of performance goals relating to Performance Awards under Section 8(b), and
the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards
under Section 8(c), shall be made in writing in the case of any Award
intended to qualify under Code Section 162(m). No Performance Award or
Annual Incentive Award intended to qualify under Code Section 162(m) shall
be paid until the Committee has certified in writing that the applicable
performance goals have been achieved. The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive
Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code Section
162(m). It is the intent of BKF and its subsidiaries that Performance
Awards and Annual Incentive Awards under Sections 8(b) and 8(c) hereof
granted to persons who are likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto) shall, if so
designated by the Committee, constitute "performance-based compensation"
within the meaning of Code Section 162(m) and regulations thereunder.
Accordingly, the
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terms of Sections 8(b), (c), (d) and (e), including the definitions of
Covered Employee and other terms used therein, shall be interpreted in a
manner consistent with Code Section 162(m) and regulations thereunder. The
foregoing notwithstanding, because the Committee cannot determine with
certainty whether a given Participant will be a Covered Employee with
respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean any Eligible Person who receives a
Performance Award or an Annual Incentive Award unless the Committee
determines, at the time of grant, that such Award is not intended to
qualify as "performance-based compensation" for purposes of Code Section
162(m). If any provision of the Plan as in effect on the date of adoption
or any agreements relating to Performance Awards or Annual Incentive Awards
that are designated as intended to comply with Code Section 162(m) does not
comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements.
9. Change in Control.
(a) Effect of "Change in Control" on Non-Performance Based Awards. In
the event of a "Change in Control," the following provisions shall apply to
non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under
Section 9(b), unless otherwise provided by the Committee in the Award
document:
(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan shall lapse
and such Awards shall be fully payable as of the time of the Change in
Control without regard to deferral and vesting conditions, except to
the extent of any waiver by the Participant or other express election
to defer beyond a Change in Control and subject to applicable
restrictions set forth in Section 10(a);
(ii) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and
vested as of the time of the Change in Control and shall remain
exercisable and vested for the balance of the stated term of such
Award without regard to any termination of employment or service by
the Participant other than a termination for "cause" (as defined in
any employment or severance agreement between the Company or a
subsidiary or affiliate and the Participant then in effect or, if
none, as defined by the Committee and in effect at the time of the
Change in Control), subject only to applicable restrictions set forth
in Section 10(a); and
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<PAGE>
(iii) The Committee may, in its discretion, determine to extend
to any Participant who holds an Option the right to elect, during the
60-day period immediately following the Change in Control, in lieu of
acquiring the shares of Stock covered by such Option, to receive in
cash the excess of the Change in Control Price over the exercise price
of such Option, multiplied by the number of shares of Stock covered by
such Option, and to extend to any Participant who holds other types of
Awards denominated in shares the right to elect, during the 60-day
period immediately following the Change in Control, in lieu of
receiving the shares of Stock covered by such Award, to receive in
cash the Change in Control Price multiplied by the number of shares of
Stock covered by such Award.
(b) Effect of "Change in Control" on Performance-Based Awards. In the
event of a "Change in Control," with respect to an outstanding Award
subject to achievement of performance goals and conditions, such
performance goals and conditions will be deemed to be met if and to the
extent so provided by the Committee in the Award document governing such
Award or other agreement with the Participant.
(c) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall have
occurred any of the following:
(i) any "person" as such term is currently used in Section
13(d) of the Exchange Act, other than John A. Levin or any entity
directly or indirectly controlled by him, becomes a "beneficial
owner", as such term is currently used in Rule 13d-3 promulgated under
that Act, of 50% or more of BKF's Voting Stock, which term means the
issued and outstanding capital stock or other securities of any class
or classes having general voting power, under ordinary circumstances
in the absence of contingencies, to elect the directors of a
corporation;
(ii) a majority of the Board consists of individuals other than
Incumbent Directors, which term means the members of the Board on the
Effective Date; provided that any individual becoming a director
-------------
subsequent to such date whose election or nomination for election was
supported by a majority of the directors who then comprised the
Incumbent Directors shall be considered an Incumbent Director;
(iii) all or substantially all of the assets or business of BKF
are disposed of pursuant to a merger, consolidation, or other
transaction (other than the asset distribution transactions
contemplated in BKF's proxy statement dated July 22, 1999) unless (A)
the shareholders of BKF immediately prior to such merger,
consolidation or other transaction
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beneficially own, directly or indirectly, in substantially the same
proportion as they owned BKF's Voting Stock, all of the Voting Stock
or other ownership interests of the entity or entities, if any, that
succeed to the business of BKF, or (B) a majority of the board of
directors of the surviving corporation in such a transaction consists
of Incumbent Directors or directors appointed by Levin Management Co.,
Inc. but excluding directors who were members of the other entity's
board of directors;
(iv) the Board adopts any plan of liquidation providing for the
distribution of all or substantially all of BKF's assets; or
(v) BKF combines with another company and is the surviving
corporation but, immediately after the combination, the shareholders
of BKF immediately prior to the combination hold, directly or
indirectly, 50% or less of the Voting Stock of the combined company
(there being excluded from the number of shares held by such
shareholders, but not from the Voting Stock of the combined company,
any shares received by affiliates of such other company in exchange
for securities of such other company).
(d) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control or any liquidation of shares following a sale of
substantially all assets of the Company, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and 60-day
period following the Change in Control.
10. General Provisions.
(a) Compliance with Legal and Other Requirements. BKF may, to the
extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock is listed or quoted, or
compliance with any other obligation of BKF as the Committee may consider
appropriate, and may require any Participant to make such representations,
furnish such information and comply with or be subject to such other
conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations.
(b) Limits on Transferability; Beneficiaries. No Award or other right
or interest of a Participant under the Plan shall be pledged, hypothecated
or
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otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than BKF or a subsidiary), or assigned
or transferred by such Participant otherwise than by will or the laws of
descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Awards and other
rights (other than ISOs and SARs in tandem therewith) may be transferred to
one or more Beneficiaries or other transferees during the lifetime of the
Participant to facilitate estate planning, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to
the extent such transfers are permitted by the Committee pursuant to the
express terms of an Award agreement (subject to any terms and conditions
which the Committee may impose thereon). A Beneficiary, transferee, or
other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and
any Award agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and conditions
deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust
any or all of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the number and
kind of shares of Stock by which annual per-person Award limitations are
measured under Section 5 hereof, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv)
the exercise price, grant price or purchase price relating to any Award
and/or make provision for payment of cash or other property in respect of
any outstanding Award. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals, and Annual
Incentive Awards and any Annual Incentive Award pool or performance goals
relating thereto) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the preceding sentence,
as well as acquisitions and dispositions of businesses and assets)
affecting BKF, any subsidiary or any business unit, or the financial
statements of BKF or any subsidiary or business unit, or in response to
changes in applicable laws, regulations, accounting principles, tax rates
and regulations or business conditions or in view of the Committee's
assessment of the business strategy of BKF, any subsidiary or business unit
thereof, performance of comparable organizations, economic and business
conditions, personal performance of a
B-19
<PAGE>
Participant, and any other circumstances deemed relevant; provided that no
such adjustment shall be authorized or made if and to the extent that such
authority or the making of such adjustment would cause Options, SARs,
Performance Awards granted under Section 8(b) hereof or Annual Incentive
Awards granted under Section 8(c) hereof to Participants designated by the
Committee as Covered Employees and intended to qualify as "performance-
based compensation" under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder.
(d) Taxes. BKF and/or any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable BKF and/or
any subsidiary and Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in
the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of BKF's shareholders not later than the annual
meeting next following such Board action if such shareholder approval is
required by any federal or state law or regulation or the rules of any
stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine
to submit other such changes to the Plan to shareholders for approval;
provided that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such
Committee action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may
modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a
B-20
<PAGE>
Fair Market Value equal to the cash otherwise payable hereunder for the
right which caused the transaction to be ineligible for pooling of interest
accounting.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of BKF or a subsidiary, (ii)
interfering in any way with the right of BKF or a subsidiary to terminate
any Eligible Person's or Participant's employment or service at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of BKF unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of BKF; provided that the
Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet
BKF's obligations under the Plan. Such trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant. The
trustee of such trusts may be authorized to dispose of trust assets and
reinvest the proceeds in alternative investments, subject to such terms and
conditions as the Committee may specify and in accordance with applicable
law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of BKF for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable including incentive arrangements and awards which do not qualify
under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
B-21
<PAGE>
(j) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal
law.
(k) Plan Effective Date and Shareholder Approval. The Plan (as
amended and restated) has been adopted by the Board, subject to approval by
the shareholders of BKF at its 2000 annual meeting and receipt from the
Securities and Exchange Commission of an order exempting BKF from the
Investment Company Act of 1940. The Plan shall remain in effect for the
year in which it is approved by BKF shareholders and each of the next four
succeeding years unless sooner terminated by the Board in accordance with
Section 10(e). The Plan shall be submitted for re-approval by BKF
shareholders at the first meeting of shareholders held during such fifth
succeeding year, and all Awards made during such fifth succeeding year
shall be contingent upon such approval. If the Plan is so approved, it
shall continue in effect for such year and the next four succeeding years,
at which time it will again be subject to re-approval by BKF shareholders.
The Plan shall continue in effect in the same manner for successive cycles
of five years, subject to re-approval by BKF shareholders every five years
in accordance with Regulation 1.162-27, until amended or terminated by the
Board.
B-22
<PAGE>
PROXY PROXY
BAKER, FENTRESS & COMPANY
Proxy Solicited By The Board Of Directors
For The Annual Meeting of Shareholders - April 18, 2000
J. Barton Goodwin, John A. Levin and Burton G. Malkiel, or any of them, each
with the power of substitution and revocation, are hereby authorized to
represent the undersigned, with all powers which the undersigned would possess
if personally present, to vote the Common Stock of the undersigned at the annual
meeting of shareholders of BAKER, FENTRESS & COMPANY to be held at the Grand
Hyatt - New York Hotel, 109 E. 42/nd/ Street (Park & Lexington), New York, New
York, on Tuesday, April 18 at 9:00 a.m., local time, and at any postponements or
adjournments of that meeting, as set forth below, and in their discretion upon
any other business that may properly come before the meeting.
<TABLE>
<S> <C>
Please indicate change of address here and mark
the box on the other side.
___________________________________________________
All capitalized terms used in this proxy shall have the ___________________________________________________
same meanings assigned to them in the Proxy Statement. ___________________________________________________
</TABLE>
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED POSTMARKED ENVELOPE.
<PAGE>
Please mark your vote as indicated in this example. [X]
The Board of Directors recommends that you vote FOR the proposals below.
<TABLE>
<S> <C> <C>
1. To elect five directors: 2. To amend the Company's Amended and FOR AGAINST ABSTAIN
Restated Certificate of Incorporation to change
FOR all nominees WITHHOLD the Company's name from "Baker, Fentress & [ ] [ ] [ ]
listed below AUTHORITY Company" to "BKF Capital, Inc.";
(except as marked to vote for all nominees
to the contrary) listed below 3. To amend and restate the Baker, Fentress
[ ] [ ] & Company 1998 Incentive Compensation Plan; [ ] [ ] [ ]
Nominees: Anson M. Beard, Jr., David D. Grumhaus, 4. To ratify or reject the selection of Ernst & Young
Jeffrey A. Kigner, Peter J. Solomon and James S. Tisch LLP as independent auditors for the Company; and [ ] [ ] [ ]
(Instruction: To withhold authority to vote for any 5. To transact such other business as may properly
individual nominee, write that nominee's name on the come before the meeting.
space provided below.)
</TABLE>
______________________________
Check here if you plan to attend the meeting. [ ]
Check here for address change. [ ]
Dated ___________________________, 2000
-------------------------------------
Signature(s)
Please vote, sign, date and return
this proxy card promptly using the
enclosed envelope.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[MAP APPEARS HERE]
