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As filed with the Securities and Exchange Commission on MARCH 28, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-9667
BULL & BEAR GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-1897916
(State of incorporation) (I.R.S. Employer Identification No.)
11 HANOVER SQUARE, NEW YORK, NEW YORK 10005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 785-0900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
No voting stock was held by non-affiliates of the registrant as of March
15, 1997.
The number of shares outstanding of each of the registrant's classes of
common stock, as of March 15, 1997:
Class A Non-Voting Common Stock, par value $.01 per share - 1,350,017 shares
Class B Voting Common Stock, par value $.01 per share - 20,000 shares
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Business .............................................................. 2
2. Properties ............................................................ 6
3. Legal Proceedings ..................................................... 6
4. Submission of Matters to a Vote of Security Holder .................... 7
PART II
5. Market for Company's Common Equity and Related Stockholder Matters ......7
6. Selected Financial Data .................................................7
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................9
8. Financial Statements and Supplementary Data ............................12
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..............................28
PART III
10. Directors and Executive Officers ......................................29
11. Executive Compensation ...............................................31
12. Security Ownership of Certain Beneficial Owners and Management ........38
13. Certain Relationships and Related Transactions ........................39
PART IV
14. Exhibits, Consolidated Financial Statements and Schedules,
and Reports on Form 8-K ............................................40
PART I
ITEM 1. BUSINESS
Bull & Bear Group, Inc., a Delaware corporation (the "Company"), is a
holding company with seven principal subsidiaries: Bull & Bear Advisers, Inc.
("BBAI"), Bull & Bear Securities, Inc. ("BBSI"), Investor Service Center, Inc.
("ISC"), Midas Management Corporation ("MMC"), Rockwood Advisers, Inc. ("RAI"),
Bull & Bear NJ Properties, Inc. ("NJ Properties") and Hanover Direct Advertising
Company, Inc. ("Hanover Direct").
BBAI, MMC and RAI act as investment managers to open-end and closed-end
management investment companies (the "Funds") registered under the Investment
Company Act of 1940 (the "Act"). The open-end Funds are: Bull & Bear Special
Equities Fund, Inc.; Bull & Bear Gold Investors Ltd.; Bull & Bear U.S. and
Overseas Fund, a series of shares issued by Bull & Bear Funds I, Inc.; Bull &
Bear Dollar Reserves, a series of shares of Bull & Bear Funds II, Inc.; Midas
Fund, Inc.; and Rockwood Fund, Inc. The closed-end funds are: Bull & Bear Global
Income Fund, Inc., Bull & Bear U.S. Government Securities Fund, Inc. and Bull &
Bear Municipal Income Fund, Inc.
BBSI was organized in 1984 to operate a discount brokerage service. BBSI
has access to every major U.S. stock, option and bond exchange as well as the
over-the-counter market. Investors may use the discount brokerage services
provided by BBSI to trade stocks, bonds and options at substantial commission
discounts from full cost rates, access their investment in any of the Funds to
pay for securities purchased, or invest proceeds of sales of securities in the
Funds. BBSI is registered with the Securities and Exchange Commission ("SEC") as
a broker/dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investor Protection Corporation ("SIPC").
ISC was organized in 1985 and is registered with the SEC as a
broker/dealer and is a member of the NASD. ISC acts as the principal distributor
and shareholder administrator for the open-end Funds.
NJ Properties was organized in 1994 to invest in real estate. Bull & Bear
Properties, Inc. ("Properties") was sold in 1996 in a stock sale.
Hanover Directwas organized in 1988 and acts as an advertising agency,which
places advertising for ISC on behalf of the Funds and for BBSI. Currently, the
commission revenue generated by Hanover Direct from ISC and BBSI represents a
recapture of sums paid for advertising and, rather than additional income,
represents a reduction in advertising expense of ISC and BBSI. Hanover Direct
has not performed any work for unaffiliated clients.
The Company owns and has granted seven of the Funds and its subsidiaries a
non-exclusive license to use the service marks "Bull & Bear," "Bull & Bear
Performance Driven," and "Performance Driven" under certain terms and conditions
on a royalty free basis. Such license may be withdrawn from a Fund in the event
the investment manager of the Fund is not a subsidiary of the Company or in
other cases, at the discretion of the Company.
-2-
INVESTMENT MANAGEMENT BUSINESS
The Company is engaged, through its subsidiaries, in the business of
managing investment companies registered under the Act. The Funds and their
respective net assets as of December 31, 1996 were as follows:
Bull & Bear Dollar Reserves $ 64,214,000
Bull & Bear Global Income Fund, Inc. 30,373,000
Bull & Bear Gold Investors Ltd. 22,685,000
Bull & Bear Municipal Income Fund, Inc. 11,491,000
Bull & Bear Special Equities Fund, Inc. 49,840,000
Bull & Bear U.S. and Overseas Fund 9,836,000
Bull & Bear U.S. Government Securities Fund, Inc. 10,751,000
Midas Fund, Inc. 200,457,000
Rockwood Fund, Inc. 1,273,000
-------------
TOTAL NET ASSETS $400,920,000
The fund management industry along with the entire financial services
sector of the economy has been rapidly changing to meet the increasing needs of
investors. Competition for management of financial resources has increased as
banks, insurance companies and broker/dealers have introduced products and
services traditionally offered by independent fund management companies. There
are also many fund management groups with substantially more resources than the
Company. While Congress, governmental agencies and special interest groups have
been struggling with regulatory problems created by consolidation of the
financial services industry, the Company continues to develop products to meet
the specialized requirements of investors. While the Company's business is not
seasonal, it is affected by the financial markets, which in turn, are dependent
upon current and future economic conditions.
Drastic material declines in the securities markets can have a significant
effect on the Company's business. Volatile stock markets may affect management
and distribution fees earned by the Company's subsidiaries. If the market value
of securities owned by the Funds declines, assets under management will decline
and shareholder redemptions may occur, either by transfer out of the equity
Funds and into the money market Fund, Bull & Bear Dollar Reserves, which has
lower management and distribution fee rates than the equity Funds, or by
redemptions out of the Funds entirely. Lower asset levels in the Funds may also
cause or increase reimbursements to the Funds pursuant to the expense
limitations described below.
In general, investment management services are rendered to the Funds
pursuant to written contractual agreements. Such agreements relate to the
general management of the affairs of each Fund, in addition to supervising the
acquisition and sale of each Fund's portfolio investments. As provided in the
agreements, BBAI, MMC and RAI may receive management fees ranging from 0.4% to
1.0% per annum of the Funds' average daily net assets. The Act requires that
such contractual agreements be initially approved by the Funds' Board of
Directors, including a majority of all of the directors who are not "interested
persons" (as defined in the Act), and by the vote of a majority of the
outstanding shares of the Fund (as defined in the Act). Agreements, if approved,
may be for a term of up to two years, and thereafter their continuance must be
approved at least annually by a majority of the directors of the Fund, including
a majority of those directors of the Fund who are not "interested persons", or
by such a vote of "disinterested" directors and the vote of a majority of the
outstanding shares of the Fund. In addition, all such agreements are subject to
termination on 60 days' notice by majority vote of the Board of Directors or the
shareholders and are subject to automatic termination in the event of
assignment. Depending on the assets of the Fund involved and other factors, the
termination of any of the agreements for investment management services between
any of the Funds, BBAI, MMC and RAI may have a serious adverse impact upon the
Company.
-3-
Pursuant to contracts with these Funds, BBAI, MMC and RAI are entitled to
management fees, which are received monthly and are based on annual percentages
of the average daily net assets of the Funds. Under the contracts, BBAI, MMC and
RAI are required to reimburse the Funds for certain expenses to the extent that
such expenses exceed limitations prescribed by any state in which shares of the
Funds are qualified for sale, although currently the Funds are not subject to
any such limits. In addition, in the case of Midas Fund, Inc., MMC has agreed to
be subject to the following expense limitation for a period of two years from
the date of the investment management agreement, August 25, 1995, which
limitation is calculated as an amount not in excess of the fee payable by the
Fund if and to the extent that the aggregate operating expenses of the Fund
(excluding interest expense, Rule 12b-1 Plan of Distribution fees, taxes,
brokerage fees and commissions) are in excess of 2.0% of the first $10 million
of average net assets of the Fund, plus 1.5% of the next $20 million of average
net assets, plus 1.25% of average net assets above $30 million. In addition,
from time to time BBAI, MMC and RAI may waive or reimburse management fees to
increase a Fund's performance. BBAI, MMC and RAI have a subadvisory agreement
with respect to Bull & Bear Gold Investors Ltd., Midas Fund, Inc. and Rockwood
Fund, Inc., respectively. BBAI, MMC and RAI, not the respective Funds, pay the
Subadvisers, Lion Resource Management Limited and Aspen Securities and Advisory,
Inc., based upon the net fees, performance and net assets of the Funds.
Each of the open-end Funds has adopted a plan of distribution pursuant to
Rule 12b-1 under the Act (the "Plan"). Pursuant to the Plans, ISC may receive as
compensation amounts ranging from one-quarter of one percent to one percent per
annum of the Funds' average daily net assets for distribution and service
activities. The service fee portion is intended to cover services provided to
shareholders in the Funds and the maintenance of shareholder accounts. The
distribution fee portion is to cover all other activities and expenses primarily
intended to result in the sale of the Funds' shares.
In 1996, Bull & Bear Municipal Income Fund and Bull & Bear U.S. Government
Securities Fund converted from open-end investment companies to closed-end
investment companies pursuant to the vote of each Fund's shareowners. In
February 1997, Bull & Bear Global Income Fund converted from an open-end
investment company to a closed-end investment company pursuant to the vote of
the Fund's shareowners. Upon conversion, the Distribution, 12b-1 Plan, and
Shareholder Administration Agreements between the respective Fund and ISC were
terminated and substantially similar Investment Management Agreements between
BBAI and each Fund were approved.
The Act requires that a plan of distribution be initially approved by the
Fund's Board of Directors, including a majority of the directors who are not
"interested persons" and who have no financial interest in the Plan, and by the
vote of a majority of the outstanding shares of the Fund. If approved, a plan of
distribution may be for a term of one year, and thereafter it must be approved
at least annually by the entire Board of Directors and by a majority of the
"disinterested" directors. In addition, all plans of distribution are subject to
termination at any time by majority vote of the disinterested directors or
shareholders.
BBAI, MMC and RAI are registered with the SEC as investment advisers under
the Investment Advisers Act of 1940. ISC is registered with the SEC as a
broker/dealer under the Securities Exchange Act of 1934 and is a member of the
NASD. The Funds are registered with the SEC under the Act. The activities of
BBAI, MMC and RAI and of the Funds are subject to regulation under Federal and
state securities laws. The provisions of these laws, including those relating to
the contractual arrangements between the Funds and their investment manager, are
primarily designed to protect the shareholders of the Funds and not the
shareholders of the Company.
-4-
DISCOUNT BROKERAGE BUSINESS
BBSI, with access to every major U.S. stock, option and bond exchange as
well as the over-the-counter market, provides discount brokerage services to
investors throughout the United States and various foreign countries.
Substantial commission savings off full service rates as well as prompt,
courteous service and professional order execution are available to all accounts
regardless of how often trades are made. All accounts are carried by U.S.
Clearing Corp., a New York Stock Exchange member firm. The SIPC, of which BBSI
and U.S. Clearing Corp. are members, protects each account against broker/dealer
insolvency (not market losses) for up to $500,000, of which $100,000 may be in
cash. In addition, Aetna Casualty and Surety Company protects each account for
an additional $49,500,000 in securities value.
BBSI offers investors commission savings of up to 84% over full cost
brokers (as of March 29, 1997) and guarantees commissions 20% less than Charles
Schwab & Co. on every stock, bond and option trade. BBSI customers may save an
additional 10% in commissions with every trade entered via personal computer
through Bull & Bear OnLine Investment Center(sm) and by touch tone telephone
using Bull & Bear TeleQuote/TeleTrade(sm). BBSI customers earn American Airlines
AAdvantage miles with every trade -- 500 AAdvantage miles for each of the
customer's first five trades and then 100 miles per trade thereafter (limited to
35,000 miles in any 12 month period).
BBSI provides its customers free investment information such as:
* Standard & Poor's Market Month: Timely investment information with customer
statements each month.
* Standard & Poor's Stock Guide: Information, ranking and rating changes on
6,800 stocks each month.
* Standards & Poor's Stock Reports: Up-to-date information on over 4,600
companies by mail or by fax.
* Standard & Poor's Stock Screens: Thousands of stocks screened by objective
and investment results.
BBSI also offers its customers a no-fee cash management service featuring
unlimited free check writing with no check writing minimum (Bull & Bear
Performance Plus Account(R)), the Bull & Bear No-Fee IRA(R), and Bull & Bear
Mutual Funds Network (including a no transaction fee, no-load mutual funds
service).
Volatile stock markets could have a significant effect on the brokerage
commissions earned by BBSI by affecting the number of transactions processed.
BBSI is responsible for potential losses resulting from trade errors of BBSI
personnel and customers' bad debts, including under- margined accounts. As a
discount broker, BBSI does not give investment advice and therefore management
believes it is less likely to be involved in significant litigation with
customers, as may be typical in the ordinary course of business of a broker that
does give investment advice to its customers.
-5-
ITEM 2. PROPERTIES
The principal office of the Company is located at 11 Hanover Square, New
York, New York 10005. The approximate area of the office is 11,400 square feet.
The rent is approximately $144,000 per annum plus $32,550 per annum for
electricity. The lease expires on December 31, 1998 and is cancelable at the
option of the Company on three months' notice. BBSI has a branch office at 395
East Palmetto Boulevard, Boca Raton, Florida consisting of approximately 1,000
square feet. The rent is approximately $22,200 per annum and is cancelable at
the option of the Company on six months' notice.
NJ Properties purchased land and a two story office building located in
Red Bank, New Jersey in 1994. The building consists of approximately 13,000
square feet. The building was purchased for cash, has no mortgage and was
purchased as an investment. The building is currently being renovated for
possible rental.
ITEM 3. LEGAL PROCEEDINGS
The Company and its directors are defendants in a lawsuit brought on April
24, 1995 by Maxus Investment Group, Maxus Capital Partners, Maxus Asset
Management, Inc., and Maxus Securities Corp. (collectively "Maxus"), which now
claim to collectively own or control 144,000 shares, or approximately 10.7% of
the Class A common stock of the Company. The action, seeking declaratory and
injunctive relief, was filed in the federal district court for the Southern
District of New York and purports to be brought on the plaintiffs' own behalf
and derivatively on behalf of the Company. On April 11, 1996, the district court
dismissed as a matter of law all claims brought by the plaintiffs except those
relating to the voiding of 1993 exercises, the exercise of certain 1990 stock
options and plaintiffs' request for attorneys' fees from the Company. Defendants
thereafter filed answers denying liability. The Company believes that the
lawsuit is without merit and intends to continue defending the remaining claims
vigorously.
From time to time, the Company and/or its subsidiaries are threatened or
named as defendants in litigation arising in the normal course of business. As
of December 31, 1996, neither the Company nor any of its subsidiaries was
involved in any other litigation that, in the opinion of management, would have
a material adverse impact on the consolidated financial statements.
-6-
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING
FOURTH QUARTER OF THE YEAR ENDED DECEMBER 31, 1996
NONE
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock trades on the Nasdaq SmallCap Market tier
of the Nasdaq Stock Market under the symbol BNBGA. The Company's Class B Common
Stock has no public trading market. There are in excess of 300 holders of record
of Class A Common Stock and 1 holder of Class B Common Stock as of December 31,
1996. In addition, there are an indeterminate number of beneficial owners of
Class A Common Stock that are held in "street name". No dividends have been paid
on either class of Common Stock in the past five years and the Company does not
expect to pay any such dividends in the foreseeable future. The high and low
sales prices of the Class A Common Stock during each quarterly period over the
last two years were as follows:
1996 1995
--------------------- ----------------
HIGH LOW HIGH LOW
First Quarter $6-3/4 $1-5/8 $1-3/4 $1-1/4
Second Quarter $5-3/8 $3-1/4 $2-5/8 $1-1/4
Third Quarter $4 $2-1/2 $1-15/16 $1-37/64
Fourth Quarter $3-1/4 $2-7/8 $2-1/8 $1-3/4
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1996 is
presented on the following pages.
-7-
BULL & BEAR GROUP, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
REVENUES:
Management, distribution and administration fees $4,922,945 $3,322,348 $3,786,066 $4,092,229 $3,386,153
Brokerage commissions 2,351,983 1,821,513 1,768,527 2,047,999 1,488,856
Dividends, interest and other 142,084 147,169 (7,378) 227,422 602,206
------------ ------------ -------------- ------------ ------------
7,417,012 5,291,030 5,547,215 6,367,650 5,477,215
----------- ----------- ----------- ----------- -----------
EXPENSES:
General and administrative 4,040,219 3,195,115 3,225,891 3,519,704 3,072,364
Marketing 1,821,297 779,026 1,361,155 1,389,204 1,356,060
Clearing and brokerage charges 708,535 576,096 532,832 619,673 512,968
Subadvisory fees 705,248 22,496 37,728 34,629 16,655
Professional fees 296,874 431,934 170,284 170,687 212,320
Amortization and depreciation 138,116 97,399 98,094 125,399 193,156
------------ ------------- ------------- ------------ ------------
7,710,289 5,102,066 5,425,984 5,859,296 5,363,523
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (293,277) 188,964 121,231 508,354 113,692
INCOME TAXES 27,248 32,588 37,771 39,149 38,198
------------ ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (320,525) $ 156,376 $ 83,460 $ 469,205 $ 75,494
=========== =========== ============ =========== ============
NET INCOME (LOSS) PER SHARE OF WEIGHTED AVERAGE
COMMON STOCK OUTSTANDING:
Primary and fully diluted
Net income (loss) $(.22) $.10 $.05 $.32 $.05
===== ==== ==== ==== ====
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Primary 1,463,279 1,549,815 1,610,443 1,480,654 1,434,922
=========== =========== =========== =========== ===========
Fully diluted 1,469,354 1,551,564 1,610,658 1,483,272 1,446,922
=========== =========== =========== =========== ===========
TOTAL ASSETS $4,273,110 $4,963,792 $4,240,241 $4,711,438 $3,817,556
========== ========== ========== ========== ==========
LONG-TERM OBLIGATIONS $ 22,093 $ - $ - $ - $ -
============ =============== =============== ============== ============
-8-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Total revenues for the year increased $2,125,982 or 40.2%. Management and
distribution fees increased $1,429,766 or 85.5% and $284,319 or 22.1%,
respectively, and shareholder administration fees decreased $113,488 or 31.2%.
The increase in management and distribution fees was due to an overall increase
in the net asset levels of the Funds from which these revenues are generated.
Shareholder administration fees represent reimbursement for actual expenses
incurred. Such fees decreased as the costs for providing these services
decreased. Net assets under management were approximately $237.4 million at
December 31, 1995, $317.6 million at March 31, 1996, $393.2 million at June 30,
1996, $432.1 million at September 30, 1996, and $400.9 million at December 31,
1996. Brokerage commissions increased $530,470 or 29.1% while brokerage
customers' equity increased to $187 million or 28%. The increase in brokerage
commissions was due to an increase in customer transaction activity and the
continued growth in the number of discount brokerage accounts and customers'
equity. Dividends, interest and other amounted to $142,084 in 1996 compared to
$147,169 in 1995. Dividends and interest decreased $5,085 or 3.5% due to lower
earnings on the Company's short term investments.
Total expenses increased $2,608,223 or 51.1% for the year. General and
administrative expenses increased $845,104 or 26.4% because of higher
compensation, higher bonuses paid to employees of the Company relating to the
growth in the Company's businesses and higher expense reimbursements for the
Funds. Marketing expenses increased $1,042,271 or 133.8% primarily related to
the launching of the Midas Fund during the first six months of 1996. In
addition, the Company incurred increased marketing expenses relating to the
introduction of Bull & Bear Online Investment Center and the promotion of the
American Airlines(R) AAdvantage Miles(R) program through Bull & Bear Securities,
Inc. Clearing and brokerage charges increased $132,439 or 23.0% because of an
increased level of discount brokerage customer transactions processed.
Professional fees decreased $135,060 or 31.3% due to lower litigation costs
relating to the Maxus lawsuit. Subadvisory fees increased $682,752 because of
the growth in assets of the Midas Fund. Amortization and depreciation increased
$40,717 or 41.8% for the year.
Net loss for 1996 was $320,525 or $.22 per share as compared to net income
of $156,376 or $.10 per share in 1995.
1995 COMPARED TO 1994
Total revenues for the year decreased $256,185 or 4.6%. Management,
distribution and shareholder administration fees decreased $192,611 or 10.3% and
$167,532 or 11.5%, and $103,575 or 22.2%, respectively. The decrease in
management and distribution fees was due to an overall decrease in the net asset
levels of the Funds from which these revenues are generated. Shareholder
administration fees represent reimbursement for actual expenses incurred. Such
fees decreased as the costs for providing these services decreased. Net assets
under management were approximately $236.1 million at December 31, 1994, $235.0
million at March 31, 1995, $236.9 million at June 30, 1995, $245.9 million at
September 30, 1995 and $237.4 million at December 31, 1995. Brokerage
commissions increased $52,986 or 3.0% while brokerage customers' equity increase
to $145.9 million or 32.2%. The increase in brokerage commissions was due to a
increase in customer transaction activity, the continued growth in the number of
discount brokerage accounts and customers' equity. Dividends, interest and other
amounted to $147,169 in 1995 compared to ($7,378) in 1994. Dividends and
interest increased $56,773 or 62.8% due to higher earnings on the Company's
short term investments.
-9-
Total expenses decreased $323,918 or 6.0% for the year. General and
administrative expenses decreased $30,776 or 1.0%. Marketing expenses decreased
$582,129 or 42.8%. Clearing and brokerage charges increased $43,264 or 8.1% as a
result of the previously noted increase in brokerage commissions. Professional
fees increased $223,922 or 107.6% due to the increase in legal fees primarily
associated with the lawsuit brought by Maxus. Subadvisory fees increased $22,496
due to the new subadvisory agreements with Lion Resource Management Limited
effective August 25, 1995 for Midas Fund and Bull & Bear Gold Investors Ltd.
Amortization and depreciation decreased $695 or 0.7% for the year.
Net income for 1995 was $156,376 or $.10 per share as compared to $83,460
or $.05 per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects the Company's consolidated working capital,
total assets, long-term debt and shareholders' equity as of the dates indicated.
DECEMBER 31,
1996 1995 1994
---- ---- ----
Working Capital $2,293,200 $2,792,059 $2,779,722
Total Assets $4,273,110 $4,963,792 $4,240,241
Long-Term Debt $ 22,093 $ - $ -
Shareholders' Equity $3,917,886 $4,170,095 $3,909,699
For the year ended 1996, working capital, total assets and shareholders'
equity decreased $498,859, $690,682 and $252,209, respectively. Long-term debt
increased $22,093.
Working capital decreased as a result of the net loss for 1996 and the
acquisition of intangible assets and fixed assets offset by the non-cash items
of depreciation and amortization. The decrease in shareholders' equity was
primarily the result of the net loss for 1996 of $320,525 offset by the issuance
of common stock on exercise of stock options of $3,750 and the increase in
unrealized capital gains on marketable securities of $64,566. Total assets
decreased as a result of the net loss and the decrease in current liabilities
offset by the increase in unrealized gains on marketable securities. Long-term
debt increased due to the capitalized lease obligations for equipment.
For the year 1995, working capital, total assets and shareholders' equity
increased $12,337, $723,551 and $260,396, respectively.
Working capital increased as a result of the net income for 1995, the
non-cash expense items of depreciation and amortization offset by the
acquisition of intangible assets and fixed assets. The increase in shareholders'
equity was primarily the result of the net income for 1995 of $156,376, the
issuance of common stock on exercise of stock options of $33,000 and the
unrealized capital gains on marketable securities of $66,020. Total assets
increased as a result of net income, the unrealized gains on marketable
securities and the increase in current liabilities.
For the year 1994, shareholders' equity increased $109,710 and working
capital and total assets decreased $520,846 and $471,197, respectively.
-10-
The decrease in working capital in 1994 was due to the liquidation and
dissolution on December 30, 1994 of Dover Regional Financial Shares ("Dover"), a
closed-end registered investment company, which resulted in the distribution of
its assets to the minority shareholders and the purchase of real estate held for
investment of $260,088. These decreases in working capital were offset by
working capital generated from net income from operations of $83,460 and by the
non-cash expense items of depreciation and amortization of $98,094. The increase
in shareholders' equity was due primarily to the net income for the year. As
discussed previously, significant changes in the securities market can have a
dramatic effect on the Company's results of operations. Based on current
information available, management believes that current resources are sufficient
to meet the Company's liquidity needs.
Management knows of no contingencies that are reasonably likely to result
in a material decrease in the Company's liquidity or that are likely to
adversely affect the Company's capital resources. This includes the restrictions
placed on the transfer of funds to the Company from BBSI and ISC as a result of
their regulatory net capital requirements. At December 31, 1996, the amount
subject to these restrictions was $275,000 or 6.4% of total assets.
EFFECTS OF INFLATION AND CHANGING PRICES
Since the Company derives revenue from investment management, distribution
and shareholder administration services from the Funds and from discount
brokerage services, it is not possible for it to discuss or predict with
accuracy the impact of inflation and changing prices on its revenues from
continuing operations.
-11-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements required by Regulation S-X and Supplementary
Financial Information required by Regulation S-K are presented herein.
FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants 13
Consolidated Balance Sheets,
December 31, 1996 and 1995 14
Consolidated Statements of Income,
Years ended December 31, 1996, 1995 and 1994 15
Consolidated Statements of Changes in Shareholders' Equity,
Years ended December 31, 1996, 1995 and 1994 16
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 17
Notes to Consolidated Financial Statements 19
-12-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BULL & BEAR GROUP, INC.:
We have audited the accompanying consolidated balance sheets of Bull & Bear
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Bull & Bear Group,
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 7, 1997
-13-
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1996 1995
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 747,444 $ 1,467,674
Marketable securities (Note 3) 1,176,547 1,257,062
Management, distribution and shareholder
administration fees receivable 207,944 179,209
Interest, dividends and other receivables 204,684 248,241
Prepaid expenses and other current assets 289,712 433,570
------------- -------------
TOTAL CURRENT ASSETS 2,626,331 3,585,756
------------ ------------
REAL ESTATE HELD FOR INVESTMENT, NET 438,187 308,799
EQUIPMENT, FURNITURE AND FIXTURES, NET 237,851 207,194
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES,
NET (Note 2) 765,665 735,368
OTHER ASSETS 205,076 126,675
------------- -------------
1,646,779 1,378,036
------------ ------------
TOTAL ASSETS $ 4,273,110 $ 4,963,792
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 134,544 $ 610,242
Accrued professional fees 81,285 111,486
Accrued payroll and other related costs 53,012 43,208
Accrued other expenses 40,388 15,381
Current portion of capitalized lease obligation (Note 4) 12,282 -
Other current liabilities 11,620 13,380
-------------- --------------
TOTAL CURRENT LIABILITIES 333,131 793,697
------------- -------------
CAPITALIZED LEASE OBLIGATION (Note 4) 22,093 -
-------------- -----------------
CONTINGENCIES (Note 11) - -
SHAREHOLDERS' EQUITY (Notes 3, 5, 6, and 7) Common Stock, $.01 par value Class
A, 10,000,000 shares authorized;
1,350,017 and 1,348,017 shares
issued and outstanding 13,501 13,481
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,236,077 6,232,347
Retained earnings (deficit) (2,462,478) (2,141,953)
Unrealized gains on marketable securities 130,586 66,020
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 3,917,886 4,170,095
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,273,110 $ 4,963,792
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-14-
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
REVENUES:
Management, distribution and
shareholder administration fees $4,922,945 $3,322,348 $3,786,066
Brokerage commissions and fees 2,351,983 1,821,513 1,768,527
Dividends, interest and other 142,084 147,169 (7,378)
------------ ------------ --------------
7,417,012 5,291,030 5,547,215
----------- ----------- -----------
EXPENSES:
General and administrative (Note 10) 4,040,219 3,195,115 3,225,891
Marketing 1,821,297 779,026 1,361,155
Clearing and brokerage charges 708,535 576,096 532,832
Subadvisory fees 705,248 22,496 37,728
Professional fees 296,874 431,934 170,284
Amortization and depreciation 138,116 97,399 98,094
------------ ------------- -------------
7,710,289 5,102,066 5,425,984
----------- ----------- -----------
Income (loss) before income taxes (293,277) 188,964 121,231
Income taxes (Note 9) 27,248 32,588 37,771
------------- ------------- -------------
NET INCOME (LOSS) $ (320,525) $ 156,376 $ 83,460
=========== =========== ============
PER SHARE DATA:
Primary and fully diluted
Net income $(.22) $.10 $.05
===== ==== ====
AVERAGE SHARES OUTSTANDING:
Primary 1,463,279 1,549,815 1,610,443
========= ========= =========
Fully diluted 1,469,354 1,551,564 1,610,658
========= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-15-
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NUMBER OF SHARES AMOUNT
NOTES
RECEIVABLE
FOR UNREALIZED
ADDITIONAL COMMON RETAINED GAINS ON TOTAL
CLASS A CLASS B CLASS A CLASS B PAID-IN STOCK EARNINGS MARKETABLE SHAREHOLDERS'
COMMON COMMON COMMON COMMON CAPITAL ISSUED (DEFICIT) SECURITIES EQUITY
------ ------ ------ ------ ----------- --------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1993 1,498,152 20,000 $14,982 $200 $6,491,596 $(325,000)$(2,381,789)$ - $3,799,989
Issuance of Class A common stock
on exercise of stock options 5,000 - 50 - 6,200 - - - 6,250
Collection of note receivable - - - - - 20,000 - - 20,000
Net income - - - - - - 83,460 - 83,460
---------- ----------------- --------------------- -------------- ---------- ----------------------
BALANCE, DECEMBER 31, 1994 1,503,152 20,000 15,032 200 6,497,796 (305,000) (2,298,329) - 3,909,699
Voiding of 1993 exercise of stock
options and cancellation of
notes receivable (Note 7) (280,000) - (2,800) - (297,200) 300,000 - - -
Issuance of Class A common stock
on exercise of stock options 274,020 - 2,740 - 291,280 - - - 294,020
Received in exchange for exercise
of stock options (149,155) - (1,491) - (259,529) - - - 261,020)
Collection of note receivable - - - - - 5,000 - - 5,000
Net income - - - - - - 156,376 - 156,376
Unrealized gains on marketable
securities - - - - - - - 66,020 66,020
---------- ----------------- --------------------- -------------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1995 1,348,017 20,000 13,481 200 6,232,347 - (2,141,953) 66,020 4,170,095
Issuance of Class A common stock
on exercise of stock options 2,000 - 20 - 3,730 - - - 3,750
Net loss - - - - - - (320,525) - (320,525)
Unrealized gains on marketable
securities - - - - - - - 64,566 64,566
---------- ----------------- --------------------- -------------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 1996 1,350,017 20,000 $13,501 $200 $6,236,077 $ - $(2,462,478) $130,586 $3,917,886
========= ====== ======= ==== ========== ======================== ======== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-16-
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (320,525) $ 156,376 $ 83,460
----------- ------------ -------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 138,116 97,399 98,094
Increase in cash value of life insurance (30,000) (30,000) (16,675)
Realized/unrealized (gain) loss on investments (32,725) (26,048) 97,774
(Increase) decrease in:
Management, distribution and shareholder
administration fees receivable (28,735) (18,642) 62,628
Interest, dividends and other receivables 43,557 (32,387) (12,556)
Prepaid expenses and other current assets 143,858 (199,301) (6,571)
Other assets (48,401) 12,802 4,668
Increase (decrease) in:
Accounts payable (475,698) 412,719 (151,530)
Accrued expenses 4,610 51,156 (64,095)
Other current liabilities (1,760) (720) (802)
-------------- ---------------- ----------------
TOTAL ADJUSTMENTS (287,178) 266,978 10,935
------------ ------------- --------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (607,703) 423,354 94,395
------------ ------------- --------------
-17-
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvement to real estate held for investment $ (204,642) $ (2,105) $ (235,087)
Capital expenditures (100,799) (58,744) (37,076)
Proceeds from sale of Properties 43,763 - -
Proceeds from sales of investments 963,318 414,790 2,671,623
Purchases of investments (785,512) (1,396,250) (1,281,644)
Acquisition of intangible assets (66,780) (267,411) -
------------- ------------- -----------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (150,652) (1,309,720) 1,117,816
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of note receivable - 5,000 20,000
Issuance of notes receivable - - (80,000)
Increase in capitalized lease obligation 46,416 - -
Repayments of capitalized lease obligation (12,041) - -
Proceeds from issuance of
Class A Common Stock 3,750 33,000 6,250
Redemption of Minority Interest - - (364,480)
------------------ ------------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 38,125 38,000 (418,230)
------------- -------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (720,230) (848,366) 793,981
CASH AND CASH EQUIVALENTS:
Beginning of year 1,467,674 2,316,040 1,522,059
----------- ------------ ------------
END OF YEAR $ 747,444 $ 1,467,674 $ 2,316,040
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
The Company did not pay any Federal income taxes in 1996, 1995 or 1994.
The Company paid $1,309 in interest in 1996 and no interest in 1995 or 1994.
Common stock received and retired in exchange for exercise of stock options
was $261,020 in 1995.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-18-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bull & Bear Group, Inc. ("Company") is a holding company. Its
subsidiaries' business consists of providing investment management,
distribution and shareholder administration services for the Bull &
Bear Funds, Midas Fund and Rockwood Fund ("Funds") and discount
brokerage services.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bull &
Bear Group, Inc. and all of its subsidiaries. Substantially all
intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses and other liabilities
approximate fair value because of the short maturity of these items.
Marketable securities are recorded at market value which represents the
fair value of the securities.
CASH AND CASH EQUIVALENTS
Investments in money market funds are considered to be cash
equivalents. At December 31, 1996 and 1995, the Company and
subsidiaries had invested approximately $657,500 and $1,196,300,
respectively, in an affiliated money market fund.
MARKETABLE SECURITIES
The Company and its non-broker/dealer subsidiaries' marketable
securities are considered to be "available-for-sale" and recorded at
market value, with the unrealized gain or loss included in
stockholders' equity. Marketable securities for the broker/dealer
subsidiaries are valued at market with unrealized gains and losses
included in earnings.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company's customer activities
involve the execution and settlement of customer transactions. These
activities may expose the Company to risk of loss in the event the
customer is unable to fulfill its contracted obligations, in which case
the Company may have to purchase or sell financial instruments at
prevailing market prices. Any loss from such transactions is not
expected to have a material effect on the Company's financial
statements.
-19-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
BROKERAGE INCOME AND EXPENSES
Brokerage commission and fee income and clearing and brokerage expenses
are recorded on a settlement date basis. The difference between
recording such income and expenses on a settlement date basis as
opposed to trade date, as required by generally accepted accounting
principles, is not material to the consolidated financial statements.
INCOME TAXES
The Company and its wholly-owned subsidiaries file consolidated income
tax returns. The Company's method of accounting for income taxes
conforms to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." This method requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial reporting
basis and the tax basis of assets and liabilities.
REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT
Real estate held for investment is recorded at cost and is depreciated
on the straight-line basis over its estimated useful life. At December
31, 1996 and 1995, accumulated depreciation amounted to approximately
$27,400 and $123,100, respectively. Equipment, furniture and fixtures
are recorded at cost and are depreciated on the straight-line basis
over their estimated useful lives, 3 to 10 years. At December 31, 1996
and 1995, accumulated depreciation amounted to approximately $749,300
and $680,000, respectively.
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES
The excess of cost over net book value of subsidiaries is capitalized
and amortized over fifteen and forty years using the straight-line
method. At December 31, 1996 and 1995, accumulated amortization
amounted to approximately $585,100 and $548,700, respectively.
Periodically, the Company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amounts of
the assets are not recoverable.
EARNINGS PER SHARE
Primary and fully diluted earnings per share for the years ended
December 31, 1996, 1995 and 1994 are determined by dividing net income
by the weighted average number of common shares outstanding after
giving effect for common stock equivalents arising from stock options
assumed converted to common stock.
RECLASSIFICATIONS
Certain reclassifications of the 1995 and 1994 financial statements
have been made to conform to the 1996 presentation.
-20-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITION
During the year ended December 31, 1996, the Company acquired the
management of Rockwood Fund for approximately $31,300. This purchase was
capitalized as part of excess of cost over net book value and is being
amortized over 15 years using the straight-line method.
During the year ended December 31, 1995, the Company purchased the assets
relating to the management of Midas Fund, Inc. for $182,500, plus related
costs of approximately $84,900. In addition, the Company expended
approximately $35,500 in connection with this purchase in 1996. This
purchase was capitalized as part of excess of cost over net book value and
is being amortized over 15 years using the straight-line method.
3. MARKETABLE SECURITIES
At December 31, 1996, marketable securities consisted of:
Broker/dealer securities - at market
U.S. Treasury Notes, due 5/15/97 - 6/30/99 (cost $956,925) $ 961,000
-----------
Other companies
Available-for-sale securities - at market
Unaffiliated mutual funds 37,251
Affiliated mutual funds 7,662
Equity securities 170,634
------------
Total available-for-sale securities (cost - $84,961) 215,547
------------
$1,176,547
At December 31, 1995, marketable securities consisted of:
Broker/dealer securities - at market
U.S. Treasury Note, due 7/31/97 $ 200,876
Affiliated mutual funds 62,494
------------
Total broker/dealer securities (cost - $264,104) 263,370
------------
Other companies
Available-for-sale securities - at market
Unaffiliated mutual funds 29,024
Affiliated mutual funds 6,220
Equity securities 181,413
U.S. Treasury Notes, due 5/15/97 - 6/30/99 777,035
------------
Total available-for-sale securities (cost - $927,672) 993,692
------------
$1,257,062
At December 31, 1996 and 1995, the Company had $130,586 and $66,020,
respectively, of unrealized gains on "available-for-sale securities" which
is reported as a separate component of consolidated shareholders' equity.
-21-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
4. LEASE COMMITMENTS
The Company has a lease for approximately 11,400 square feet of office
space. The rent is approximately $144,000 per annum plus $32,550 per annum
for electricity. The lease expires December 31, 1998 and is cancelable at
the option of the Company on three months' notice. In addition, the
Company's discount broker/dealer has a branch office in Boca Raton,
Florida consisting of approximately 1,000 square feet. The rent is
approximately $22,200 per annum and is cancelable at the option of the
Company on six months' notice.
The Company leases office equipment under capital leases expiring in 1999.
The related property is included in furniture and equipment at a cost of
$45,457 at December 31, 1996. Depreciation expense of $13,889 has been
recognized on this property as of December 31, 1996. Future annual minimum
lease payments under the capital leases together with the present value of
the net minimum lease payments are as follows:
YEAR ENDING DECEMBER 31,
1997 $13,201
1998 15,173
1999 7,586
---------
Total minimum lease payments 35,960
Less amount representing interest and executory costs 1,585
---------
Present value of minimum lease payments $34,375
=======
5. SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects except
for voting rights, which are vested solely in the Class B Common Stock.
The Company also has 1,000,000 shares of Preferred Stock, $.01 par value,
authorized. As of December 31, 1996 and 1995, none of the Preferred Stock
was issued.
6. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiaries are member firms of the National
Association of Securities Dealers, Inc. and are registered with the
Securities and Exchange Commission as broker/dealers. Under the Uniform
Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934),
a broker/dealer must maintain minimum net capital, as defined, of not less
than (a) $250,000 or, when engaged solely in the sale of redeemable shares
of registered investment companies, $25,000, or (b) 6-2/3% of aggregate
indebtedness, whichever is greater; and a ratio of aggregate indebtedness
to net capital, as defined, of not more than 15 to 1. At December 31,
1996, these subsidiaries had net capital of approximately $566,900 and
$605,800; net capital requirements of $250,000 and $25,000; excess net
capital of approximately $316,900 and $580,800; and the ratios of
aggregate indebtedness to net capital were approximately .30 to 1 and .48
to 1, respectively.
-22-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1995, 1994 AND 1993
7. STOCK OPTIONS
On December 6, 1995, the Company adopted a Long-Term Incentive Plan which
provides for the granting of a maximum of 300,000 options to purchase
Class A Common Stock to directors, officers and key employees of the
Company or its subsidiaries. The plan was amended on February 5, 1996.
With respect to non-employee directors, only automatic grants of stock
options of 10,000 are available on the date the non-employee director is
elected, except for the current two non-employee directors who were
granted 10,000 options each on December 6, 1995. The option price per
share may not be less than the fair value of such shares on the date the
option is granted, and the maximum term of an option may not exceed ten
years except as to non-employee directors for which the maximum term is
five years. If the recipient of any option owns 10% or more of the Class B
shares, the option price must be at least 110% of the fair market value
and the option must be exercised within five years of the date the option
is granted. The plan also provides for reload options in which
non-qualified options may be granted to officers and key employees when
payment of the option price of the original outstanding options is with
previously owned shares of the Company. These reload options have to be
equal to the number of shares surrendered in payment of the option price
of the original options, have an option price equal to the fair market
value of such shares on the date the reload option is granted, and have
the same expiration date as the original option.
The 1990 Incentive Stock Option Plan provided for the granting of a
maximum of 500,000 options to purchase Class A Common Stock to directors,
officers and key employees of the Company. The option price per share may
not be less than the greater of 100% of the fair market value or the par
value of such shares on the date the option is granted, and the maximum
term of an option may not exceed ten years. If the recipient of any option
owns 10% or more of the total combined voting power of all classes of
stock, the option price must be at least 110% of the fair market value and
the option must be exercised within five years of the date the option is
granted.
The Company applied APB Opinion 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Proforma compensation cost
for the Company's plans is required by Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation (SFAS 123)" and has been
determined based on the fair value at the grant dates for awards under
these plans consistent with the method of SFAS 123. For purposes of
proforma disclosure, the estimated fair value of the options is amortized
to expense over the options' vesting period. The Company's proforma
information follows:
YEARS ENDED DECEMBER 31,
1996 1995
---- ----
Net income (loss): As reported $(320,525) $156,376
Proforma $(463,738) $149,218
Earnings per share
Primary and fully diluted: As reported $(.22) $.10
Proforma $(.32) $.10
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995, respectively:
expected volatility of 93.82% and 95.90%, risk-free interest rate of 5.30%
and 5.90% and expected life of five years for all grants.
-23-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
A summary of the status of the Company's stock option plans as of December
31, 1996 and 1995, and changes during the years ending on those dates is
presented below:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
STOCK OPTIONS SHARES PRICE
OUTSTANDING AT DECEMBER 31, 1994 146,000 $1.12
Voided exercise of previously issued stock options
(see below) 280,000 $1.07
Granted 29,000 $1.91
Exercised (268,020) $1.07
Canceled (137,980) $1.05
--------
OUTSTANDING AT DECEMBER 31, 1995 49,000 $1.76
Granted 229,000 $1.95
Exercised (2,000) $1.88
Canceled (27,000) $1.91
---------
OUTSTANDING AT DECEMBER 31, 1996 249,000 $1.92
========
There were no options exercisable at December 31, 1996 and 1995. The
weighted-average fair value of options granted were $1.42 and $1.45 for
the years ended December 31, 1996 and 1995, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1996:
OPTIONS OUTSTANDING
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
$1.50 - $1.625 20,000 3.2 years $1.54
$1.875 - $2.75 229,000 4.1 years $1.95
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of December 31, 1996.
The Company's Board of Directors determined, at a meeting of the board
held on November 6, 1995, that the 1993 exercise of the 280,000 incentive
stock options by certain officers be voided and the 4.86% promissory notes
given in consideration ("1993 Notes") and Class A shares issued therefor
("1993 Shares") be canceled. As a result, the stock options were restored
to their previous outstanding status. Further, on November 6, 1995,
241,020 of these stock options were exercised. In December 1995, an
additional 7,000 of these stock options were exercised. The Company
received $7,000 in cash and 149,155 shares of Class A shares in payment
for the exercise of these options. The shares acquired by the Company were
canceled and retired. The cancellation of the 1993 Notes resulted in a
reduction of interest income of $29,768 in 1995.
-24-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
8. PENSION PLAN
The Company has a 401(k) retirement plan for substantially all of its
qualified employees. Contributions to this are based upon a percentage of
earnings of eligible employees and are accrued and funded on a current
basis. Total pension expense for the years ended December 31, 1996, 1995
and 1994 was approximately $39,900, $31,100 and $27,500, respectively.
9. INCOME TAXES
The provision for income taxes charged to operations was as follows:
1996 1995 1994
---- ---- ----
Current
State and local $27,248 $32,588 $37,771
Federal - - -
------------- ------------- -----------
$27,248 $32,588 $37,771
======= ======= =======
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1996 and 1995:
1996 1995
---- ----
Unrealized appreciation on investments $ (45,800) $ (29,400)
Net operating loss carryforwards 509,500 436,600
---------- ----------
Net deferred tax assets 463,700 407,200
Deferred tax asset valuation allowance (463,700) (407,200)
---------- ----------
Net deferred tax assets $ - $ -
================ ============
The full amount of the deferred tax asset was offset by a valuation
allowance due to uncertainties associated with the ultimate realization of
the net operating loss carryforwards. The change in the valuation
allowance for the year ended December 31, 1996 was the result of the net
operating loss for the year and the increase in the unrealized
appreciation on investments.
For the year ended December 31, 1996, the provision for income taxes
differs from the amount of income taxes determined by applying the
applicable U.S. statutory federal tax rates to pre-tax income as a result
of utilization of net operating loss carryforwards.
At December 31, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $1,498,600, of which
$1,033,100, $187,800, $62,700 and $215,000 expire in 2004, 2005, 2006 and
2011, respectively.
-25-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
10. RELATED PARTIES
MANAGEMENT, DISTRIBUTION AND SHAREHOLDER ADMINISTRATION FEES
All management and distribution fees are from providing services to the
Funds. All such services are provided pursuant to agreements that set
forth the fees to be charged for these services. These agreements are
subject to annual review and approval by each Fund's Board of Directors
and a majority of the Fund's non-interested directors. Shareholder
administration fees represent reimbursement of costs incurred by
subsidiaries of the Company on behalf of the open-end Funds. Such
reimbursement amounted to approximately $249,700, $363,200 and $466,800
for the years ended December 31, 1996, 1995 and 1994, respectively.
In connection with investment management services, the Company's
investment managers waived management fees from the Funds in the amount
of approximately $535,900, $270,200 and $256,900 for the years ended
December 31, 1996, 1995 and 1994, respectively, and are included in
general and administrative expenses in the Statement of Income.
Certain officers of the Company also serve as officers and/or directors of
the Funds.
Commencing August 1992, the Company has a key man life insurance policy
on the life of the Company's Chairman which provides for the payment of
$1,000,000 to the Company upon his death. As of December 31, 1996, the
policy had a cash surrender value of approximately $76,700 and is
included in other assets in the balance sheet.
The Company's discount broker/dealer received brokerage commissions of
approximately $179,500, $153,200 and $108,100 from the Funds for the
years ended December 31, 1996, 1995 and 1994, respectively.
11. CONTINGENCIES
The Company and its directors are defendants in a lawsuit brought on April
24, 1995 by Maxus Investment Group, Maxus Capital Partners, Maxus Asset
Management, Inc., and Maxus Securities Corp. (collectively "Maxus"), which
now claim to collectively own or control 144,000 shares, or approximately
10.7% of the Class A Common stock of the Company. The action, seeking
declaratory and injunctive relief, was filed in the federal district court
for the Southern District of New York and purports to be brought on the
plaintiffs' own behalf and derivatively on behalf of the Company. On April
11, 1996, the district court dismissed as a matter of law all claims
brought by the plaintiffs except those relating to the voiding of 1993
exercises, the exercise of certain 1990 stock options and plaintiffs'
request for attorneys' fees from the Company. Defendants thereafter filed
answers denying liability. The Company believes that the lawsuit is
without merit and intends to continue defending the remaining claims
vigorously.
-26-
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1996, 1995 AND 1994
From time to time, the Company and/or its subsidiaries are threatened or
named as defendants in litigation arising in the normal course of
business. As of December 31, 1996, neither the Company nor any of its
subsidiaries was involved in any other litigation that, in the opinion of
management, would have a material adverse impact on the consolidated
financial statements.
In July 1994, the Company entered into a Death Benefit Agreement
("Agreement") with the Company's Chairman. Following his death, the
Agreement provides for annual payments equal to 80% of his average annual
salary for the three year period prior to his death subject to certain
adjustments to his wife until her death. The Company's obligations under
the Agreement are not secured and will terminate if he leaves the
Company's employ under certain conditions.
-27-
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996
REVENUES $1,526,469 $2,054,758 $1,904,869 $1,930,916
========== ========== ========== ==========
INCOME (LOSS)
Net Income (Loss) $ (418,274) $ (199,710) $ 134,673 $ 162,786
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE
Net Income (Loss) $(.30) $(.13) $.09 $.12
===== ===== ==== ====
1995
REVENUES $1,292,575 $1,323,620 $1,362,963 $1,311,872
========== ========== ========== ==========
INCOME (LOSS)
Net Income (Loss) $ 113,764 $ 115,490 $ 50,894 $ (123,772)
=========== =========== ============ ===========
INCOME (LOSS) PER SHARE
Net Income (Loss) $.07 $.07 $.03 $(.07)
==== ==== ==== =====
1994
REVENUES $1,579,794 $1,375,965 $1,412,499 $1,178,957
========== ========== ========== ==========
INCOME (LOSS)
Net Income (Loss) $ (163,608) $ (12,946) $ 93,642 $ 166,372
=========== ============ ============ ===========
INCOME (LOSS) PER SHARE
Net Income (Loss) $(.11) $(.01) $.06 $.11
===== ===== ==== ====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company's accountants
on accounting and financial disclosure matters during the two years ended
December 31, 1996.
-28-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following list contains the names, ages, positions and lengths of
service of all directors and executive officers of the Company.
NAME POSITION YEARS OF SERVICE AGE
DIRECTOR OFFICER
Bassett S. Winmill Chairman of the Board 20 20 67
Robert D. Anderson Vice Chairman of the Board, 20 20 67
Mark C. Winmill Co-President, 8 10 39
Chief Financial Officer,
Director
Thomas B. Winmill, Esq. Co-President, 8 9 37
General Counsel, Director
Edward G. Webb, Jr. Director 11* - 57
Charles A. Carroll Director 5 - 66
Steven A. Landis Senior Vice President - 2 41
William J. Maynard Secretary - 2 32
James R. Mitchell, II Senior Vice President - 3 35
Joseph Leung Treasurer, - 2 31
Chief Accounting Officer
* 1985 TO 1990 AND 1992 TO PRESENT.
-29-
Set forth below is a description of the business experience of the
directors and executive officers of the Company during the past five years.
BASSETT S. WINMILL - Chairman of the Board of Directors. He is also
Chairman of the investment companies managed by Company subsidiaries. He is a
member of the New York Society of Security Analysts, the Association for
Investment Management and Research, and the International Society of Financial
Analysts.
ROBERT D. ANDERSON - Vice Chairman of the Board of Directors. He is also
Vice Chairman of the investment companies managed by Company subsidiaries and of
the subsidiaries of the Company. He is a member of the Board of Governors of the
Mutual Fund Educational Alliance.
MARK C. WINMILL - Co-President, Chief Financial Officer and Director. He is
also President of Bull & Bear Securities, Inc. and Co-President and Chief
Financial Officer of the investment companies managed by Company subsidiaries
and certain other subsidiaries of the Company. He is a son of Bassett S. Winmill
and a brother of Thomas B. Winmill.
THOMAS B. WINMILL, ESQ. - Co-President, General Counsel and Director. He is
also President of Bull & Bear Advisers, Inc. and Co-President of the investment
companies managed by Company subsidiaries and certain other subsidiaries of the
Company. He is a member of the New York State Bar. He is a son of Bassett S.
Winmill and a brother of Mark C. Winmill.
EDWARD G. WEBB, JR. - Director. He has been President of Webb Associates,
Ltd since 1996. From 1990 to 1996, he was Investment Director for Home Insurance
Company. Prior to that, he served as a Senior Vice President and Director of the
Company.
CHARLES A. CARROLL - Director. From 1989 to the present, he has been
affiliated with Kalin Associates, Inc., a member firm of the New York Stock
Exchange. STEVEN A. LANDIS - Senior Vice President. He is also Senior Vice
President
of the mutual funds managed by Company subsidiaries. From 1993 to 1995 he was
Associate Director of Proprietary Trading at Barclays De Zoete Wedd Securities,
Inc., from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company,
and from 1989 to 1992 he was Vice President of Wilkinson Boyd Capital Markets.
WILLIAM J. MAYNARD - Secretary. He is also Vice President and Secretary of
the mutual funds managed by Company subsidiaries. He is a member of the New York
State Bar. From 1991 to 1994 he was associated with the law firm of Skadden,
Arps, Slate, Meagher & Flom.
JAMES R. MITCHELL, II - Senior Vice President. He is also Senior Vice
President of BBSI since 1994. From 1992 to 1994 he was Vice President of BBSI.
JOSEPH LEUNG, CPA - Treasurer and Chief Accounting Officer. He is also
Treasurer and Chief Accounting Officer of the mutual funds managed by Company
subsidiaries. From 1992 to 1995 he held various positions with Coopers & Lybrand
L.L.P., a public accounting firm. From 1991 to 1992 he was the accounting
supervisor at Retirement Systems Group, a mutual fund company.
Each director is elected by the vote or written consent of the holder of a
majority of the Class B Common Stock and holds office until the next meeting of
the Class B common stockholder and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
-30-
Based solely on the information from Forms 3, 4, and 5 furnished to it,
the Company believes that the directors, officers, and owners of more than 10
percent of the Class A Common Stock of the Company have not failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934 during the most recent fiscal year or prior fiscal years.
Based on information available to the Company, including a December 4,
1996 letter from its counsel, Maxus (See Note 11) owns 144,000 shares or 10.7%
of the outstanding Class A Common Stock of the Company. Such entities have not
furnished the Company with any form under Section 16 of the Securities Exchange
Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The following information and tables set forth the information required
under the Securities and Exchange Commission's executive compensation rules. Any
information not presented is omitted because the item is not applicable or not
required since the Company qualifies as a small business issuer.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the three years ended December 31,
1996, the compensation paid to the chief executive officers and the other
executive officers whose total annual salary and bonus exceeded $100,000 in
1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ALL OTHER
NAME AND SALARY BONUS OTHER ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION* (A) (B)
- ------------------ ---- -------- --------- ------------- --- ---
Bassett S. Winmill 1996 $170,000 $28,333 - $5,166 $4,750
Chairman 1995 $160,000 $10,000 - $4,788 $4,620
1994 $160,000 $ 6,667 - $3,790 $3,000
Robert D. Anderson 1996 $ 90,000 $15,000 - $2,142 $3,211
Vice Chairman 1995 $ 89,000 $ 5,562 - $2,104 $3,310
1994 $ 89,000 $ 3,708 - $2,104 $1,844
Mark C. Winmill 1996 $110,000 $18,115 - $ 152 $3,997
Co-President 1995 $100,000 $ 6,250 - $ 132 $3,462
1994 $100,000 $ 4,167 - $ 132 $2,083
Thomas B. Winmill 1996 $110,000 $18,115 - $ 152 $4,066
Co-President 1995 $100,000 $ 6,250 - $ 132 $3,678
1994 $100,000 $ 4,167 - $ 132 $2,083
Brett B. Sneed 1996 $112,000 $18,667 - $1,062 $4,220
Senior Vice President 1995 $110,000 $15,125 - $ 662 $4,091
1994 $110,000 $ - - $ 662 $2,420
Steven A. Landis 1996 $112,000 $18,667 - $ 241 $1,750
Senior Vice President 1995 $ 86,167 $ 8,250 - $ 150 $ -
1994$ - $ - - $ - $ -
-31-
* Information omitted as perquisites do not exceed the lesser of $50,000 or
10% of the total annual salary and bonus for the year for the named
executive officers.
(a) Represents term life insurance
(b) Represents Company's matching contributions to 401(k) Plan.
OPTION GRANTS TABLE
The following table sets forth, for the year ended December 31, 1996,
information regarding the options granted to each of the executive officers
named in the Summary Compensation Table.
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ---------------------------- ----------------------- -- ---
Bassett S. Winmill 50,000 21.8 $2.0625 2/5/01 $16,525 $47,875
Mark C. Winmill 50,000 21.8 $1.8750 2/5/01 $25,900 $57,250
Thomas B. Winmill 50,000 21.8 $1.8750 2/5/01 $25,900 $57,250
Robert D. Anderson 20,000 8.7 $1.8750 2/5/01 $10,360 $22,900
Brett B. Sneed 20,000 8.7 $1.8750 2/5/01 $10,360 $22,900
Steven A. Landis 20,000 8.7 $1.8750 2/5/01 $10,360 $22,900
Of the above options, 205,000 are exercisable on February 5, 1998, with
the remaining 5,000 options of Bassett S. Winmill exercisable on February 5,
1999.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth, for the year ended December 31, 1996,
information regarding the outstanding options for each of the executive officers
named in the Summary Compensation Table.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED DOLLAR 12-31-96 (#) 12-31-96 ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
Bassett S. Winmill - - 0/50,000 0/$46,875
Mark C. Winmill - - 0/50,000 0/$56,250
Thomas B. Winmill - - 0/50,000 0/$56,250
Brett B. Sneed - - 0/20,000 0/$22,500
Robert D. Anderson - - 0/20,000 0/$22,500
Steven A. Landis - - 0/20,000 0/$22,500
LONG-TERM INCENTIVE PLAN AWARDS TABLE
There were no long-term incentive plan awards made during the year ended
December 31, 1996.
-32-
COMPENSATION OF DIRECTORS
Edward G. Webb, Jr. and Charles A. Carroll were the only individuals who
received compensation for their service as directors of the Company in 1996.
They were each paid $500 per quarter as a retainer and $2,000 per quarterly
meeting attended plus expenses. For the year ended December 31, 1996, Mr. Webb
and Mr. Carroll were each paid $10,500 for attending all four meetings and a
special telephonic meeting. Mr. Webb and Mr. Carroll each also received an
option to purchase 10,000 shares of Class A Common Stock at an exercise price of
$1.75 per share.
EMPLOYMENT CONTRACTS
The Company has no employment or termination contracts with any of its
employees.
REPRICING OF OPTIONS TABLE
There was no repricing of options during the year ended December 31, 1996.
1995 LONG-TERM INCENTIVE PLAN
On December 6, 1995, the Board of Directors of the Company ("Board") and
the Class B voting common stockholder adopted the Bull & Bear Group, Inc. 1995
Long-Term Incentive Plan ("Plan"), under which options and stock-based awards
(collectively, "Awards") may be made to directors, officers and employees of the
Company or its subsidiaries. Under the Plan, only automatic Awards are made to
non-employee directors ("Non-Employee Directors"). The Plan was amended by the
Board and the Class B voting common stockholder on February 5, 1996. The amended
Plan is described below.
The purpose of the Plan is to assist the Company and its subsidiaries in
attracting and retaining highly competent officers and directors and otherwise
on behalf of the Company. The Plan also acts as an incentive in motivating
selected officers and key employees to achieve long-term objectives of the
Company, which will inure to the benefit of all stockholders of the Company. Any
proceeds raised by the Company under the Plan will be used for working capital
purposes.
GENERAL PROVISIONS
Duration of the Plan; Share Authorization. The Plan will terminate on
December 6, 2005, unless terminated earlier by the Board.
Three hundred thousand (300,000) shares of the Company's Class A Common
Stock ("Shares") are available for Awards under the Plan. The Shares to be
offered under the Plan are authorized and unissued Shares, or issued Shares that
have been reacquired by the Company and held in its treasury. Holders of Shares
do not have voting rights except as specifically provided by the Delaware
General Corporation Law.
Shares covered by any unexercised portions of terminated options, Shares
forfeited by Participants, and Shares subject to any Awards that are otherwise
surrendered by a Participant without receiving any payment or other benefit with
respect thereto may again be subject to new Awards under the Plan. In the event
the purchase price of an option or tax withholding relating to an Award is paid
in whole or in part through the delivery of Shares, the number of Shares
issuable in connection with the exercise of the option may not again be
available for the grant of Awards under the Plan.
-33-
Plan Administration. The Plan is administered by the Stock Option
Committee ("Committee") of the Board. The Committee is composed of at least two
directors of the Company, each of whom is a "disinterested person" as defined in
Rule 16b-3 promulgated by the SEC ("Rule 16b-3") under Section 16 of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). The Committee will
determine the officers and other key employees who will be eligible for and
granted Awards, determine the amount and type of Awards, establish and modify
administrative rules relating to the Plan, impose such conditions and
restrictions on Awards as it determines appropriate and take such other action
as may be necessary or advisable for the proper administration of the Plan. The
Committee may, with respect to Participants who are not subject to Section 16 of
the Exchange Act, delegate such of its powers and authority under the Plan as it
deems appropriate to certain officers or employees of the Company.
Plan Participants. Any employee of the Company or its subsidiaries,
whether or not a director of the Company, may be selected by the Committee to
receive an Award under the Plan. Non-Employee Directors only receive automatic
and non-discretionary stock options and are not eligible to receive any other
Awards under the Plan.
AWARDS AVAILABLE UNDER THE PLAN
Awards to employees under the Plan may take the form of stock options or
Restricted Share Awards. Awards under the Plan may be granted alone or in
combination with other Awards. The stock options awarded to Non-Employee
Directors are automatic and non-discretionary in operation. The consideration
for issuance of Awards under the Plan is the continued services of the employees
and non-employee directors to the Company and its subsidiaries.
Stock Options Granted to Employees. Stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, or any successor thereto ("Code"), and
stock options that do not meet such requirements ("Non- Qualified Stock
Options") are both available for grant to employees under the Plan.
The term of each option will be determined by the Committee, but no option
will be exercisable prior to six months from the date of grant or more than ten
years after the date of grant. If, however, an Incentive Stock Option is granted
to a Participant who, at the time of grant of the option, owns (or is deemed to
own under Section 424(d) of the Code) more than 10% (a "Ten Percent
Shareholder") of the Company's Class B common stock, par value $0.01 per share
("Company Voting Securities"), the option is not exercisable more than five
years after the date of grant. Options may also be subject to restrictions on
exercise, such as exercise in periodic installments, performance targets and
waiting periods, as determined by the Committee.
The exercise price of each option is determined by the Committee; however,
the per share exercise price of an option must be at least equal to 100% of the
Fair Market Value (as defined below) of a Share on the date of grant of such
option. If, however, an Incentive Stock Option is granted to a Ten Percent
Shareholder, the per share exercise price of the option must be at least equal
to 110% of the Fair Market Value of a Share on the date of grant of such option.
Fair Market Value of a Share means, as of any given date, the most recently
reported sale price of a Share on such date as of the time when Fair Market
Value is being determined on the principal national securities exchange on which
the Shares are then traded or, if the Shares are not then traded on a national
securities exchange, the most recently reported sale price of the Shares on such
date as of the time when Fair Market Value is being determined on Nasdaq;
provided, however, that, if there were no sales reported as of such date, Fair
Market Value is the last sale price previously reported. In the event the Shares
are not admitted to trade on a securities exchange or quoted on Nasdaq, the Fair
Market Value of a Share as of any given date is as determined in good faith by
the Committee. Notwithstanding the foregoing, the Fair Market Value of a Share
will never be less than par value per share.
-34-
Subject to whatever installment exercise and waiting period provisions the
Committee may impose, options may be exercised in whole or in part at any time
prior to expiration of the option by giving written notice of exercise to the
Company specifying the number of Shares to be purchased. Such notice must be
accompanied by payment in full of the purchase price in such form as the
Committee may accept (including payment in accordance with a cashless exercise
program under which, if so instructed by the Participant, Shares may be issued
directly to the Participant's broker or dealer upon receipt of the purchase
price in cash from the broker or dealer). If and to the extent determined by the
Committee in its sole discretion at or after grant, payment in full or in part
may also be made in the form of Shares duly owned by the Participant (and for
which the Participant has good title, free and clear of any liens and
encumbrances) or by reduction in the number of Shares issuable upon such
exercise based, in each case, on the Fair Market Value of the Shares on the date
the option is exercised. In the case of an Incentive Stock Option, however, the
right to make payment of the purchase p