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As filed with the Securities and Exchange Commission on MARCH 31, 1998
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, 1997
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. [ X ]
No voting stock was held by non-affiliates of the registrant as of March
15, 1998.
The number of shares outstanding of each of the registrant's classes of
common stock, as of March 15, 1998:
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
PART I
ITEM PAGE
1. Business 2
2. Properties 6
3. Legal Proceedings 7
PART II
4. Submission of Matters to a Vote of Security Holder 8
5. Market for Company's Common Equity and Related
Stockholder Matters 8
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
8. Financial Statements and Supplementary Data 12
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
10. Directors and Executive Officers 30
11. Executive Compensation 32
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"),
Performance Properties, Inc. ("Performance 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.
Performance Properties was organized in 1994 to invest in real estate.
Hanover Direct was 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 has granted the Funds and its subsidiaries a non-exclusive
license to use service marks owned by the Company, including "Bull & Bear,"
"Bull & Bear Performance Driven," "Midas," 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, 1997 were as follows:
Bull & Bear Dollar Reserves $ 61,590,000
Bull & Bear Global Income Fund, Inc. 24,148,000
Bull & Bear Gold Investors Ltd. 9,363,000
Bull & Bear Municipal Income Fund, Inc. 12,139,000
Bull & Bear Special Equities Fund, Inc. 44,773,000
Bull & Bear U.S. and Overseas Fund 8,877,000
Bull & Bear U.S. Government Securities Fund, Inc. 10,985,000
Midas Fund, Inc. 100,821,000
Rockwood Fund, Inc. 1,365,000
---------------
TOTAL NET ASSETS $274,061,000
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, from time to time BBAI, MMC and RAI may waive or
reimburse management fees to increase a Fund's performance. MMC has entered into
a subadvisory agreement with respect to Midas Fund, Inc. MMC not the respective
Fund, pays the Subadviser, Lion Resource Management Limited, based upon the net
fees, performance and net assets of the Fund.
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.
Bull & Bear U.S. Government Securities Fund, Bull & Bear Municipal Income
Fund, and Bull & Bear Global Income Fund converted from an open-end investment
company to a closed-end investment company in October 1996, November 1996, and
February 1997, respectively, pursuant to the vote of the Fund's shareowners and
their shares commenced trading on the American Stock Exchange under the symbols
BBG, BBM and BBZ, respectively. 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.
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 division of Fleet Securities, Inc., 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.
4
BBSI offers investors commission savings of up to 84% over full cost
brokers 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 touch-tone telephone (Market Touch) or
through proprietary PC software (Market Touch Plus).
Investors may also buy and sell listed and NASDAQ stocks for a flat $19.95
for up to 1,000 shares, $.02 per share thereafter through the internet at Bull &
Bear Securities' web page, ebullbear.com. In addition to efficiency and low
commissions, ebullbear.com customers receive free investment information on over
6,000 companies, plus quotes, charts, market averages, and free live market and
business news through Reuters, one's of the world's leading news and financial
information companies. BBSI customers are provided with free investment
information from Standard & Poor's, including the year-end Stock Guide, Market
Month, Stock Reports, Stock Screens, Industry Reports, The Outlook, and Emerging
& Special Situations.
In May of 1997, BBSI became an AAdvantage Participant with American
Airlines whereby BBSI customers may earn AAdvantage miles for their investing
activities: 1,000 miles for opening an account, 200 miles for every trade, up to
2,000 miles for each full account transfer, up to 5,000 miles per year for
maintaining account equity at certain levels, 500 miles for the first electronic
trade and 500 miles per customer referral.
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 Account7), the Bull & Bear No-Fee IRA7, and Bull & Bear Mutual
Funds Network (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.
FORWARD-LOOKING INFORMATION
Information or statements provided by or on behalf of the Company from
time to time, including those within this Form 10-K Annual Report, may contain
certain "forward-looking information", including information relating to
anticipated growth in revenues or earnings per share, anticipated changes in the
amount and composition of assets under management and discount brokerage
customers' equity and trading, anticipated expense levels, and expectations
regarding financial market conditions. The Company cautions readers that any
forward-looking information provided by or on behalf of the Company is not a
guarantee of future performance and that actual results may differ materially
from those in forward-looking information as a result of various factors,
including but not limited to those discussed below. Further, such
forward-looking statements speak only as of the date on which such statements
are made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
5
The Company's future revenues may fluctuate due to factors such as: the
total value and composition of assets under management and discount brokerage
customers' equity and trading, and related cash inflows or outflows in mutual
funds and discount brokerage firms; fluctuations in the financial markets
resulting in appreciation or depreciation of assets under management and
discount brokerage customers' equity and trading; the relative investment
performance of the Company's sponsored investment products as compared to
competing products and market indices; the expense ratios and fees of the
Company's sponsored products and services; investor sentiment and investor
confidence in mutual funds and discount brokerage firms; the ability of the
Company to maintain investment management fees and brokerage commissions at
current levels; competitive conditions in the mutual funds and discount
brokerage industries; the introduction of new mutual funds and investment
products and new discount brokerage services; the ability of the Company to
contract with the Funds for payment for administrative services offered to the
Funds and Fund shareholders; the continuation of trends in the retirement plan
marketplace favoring defined contribution plans and participant-directed
investments; and the amount and timing of income from the Company's investment
portfolio.
The Company's future operating results are also dependent upon the level
of operating expenses, which are subject to fluctuation for the following or
other reasons: changes in the level of advertising expenses in response to
market conditions or other factors; variations in the level of compensation
expense incurred by the Company, including performance-based compensation based
on the Company's financial results, as well as changes in response to the size
of the total employee population, competitive factors, or other reasons;
expenses and capital costs, including depreciation, amortization and other
non-cash charges, incurred by the Company to maintain its administrative and
service infrastructure; and unanticipated costs that may be incurred by the
Company from time to time to protect investor accounts and client goodwill.
The Company's revenues are substantially dependent on revenues from the
Funds, which could be adversely affected if the independent directors of one or
more of the Funds determined to terminate or renegotiate the terms of one or
more investment management agreements.
The Company's business is also subject to substantial governmental
regulation, and changes in legal, regulatory, accounting, tax, and compliance
requirements may have a substantial effect on the Company's business and results
of operations, including but not limited to effects on the level of costs
incurred by the Company and effects on investor interest in mutual funds in
general or in particular classes of mutual funds.
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 2,000
square feet. A portion of the rent is approximately $55,000 per annum and the
lease expires on August 30, 1999.
Performance 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. A portion of the second floor of the building is
currently being rented under a five-year lease to a tenant. The current rent is
approximately $33,000 per annum and increases each year over the life of the
lease.
6
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.
Although a group called Karpus Investment Management ("KIM") previously
failed to elect its slate of nominees in opposition to management at the 1997
annual meeting of stockholders of Bull & Bear U.S. Government Securities Fund,
Inc. ("BBG"), a closed-end fund managed by BBAI, another BBG annual meeting is
scheduled for 1998. In addition, on February 19, 1998, BBG filed a lawsuit
against KIM in the United States District Court for the Southern District of New
York, 98 Civ. 1190, and KIM filed a lawsuit against BBG in the Circuit Court for
Baltimore City, Maryland, Case No. 9805005. The outcome of these matters and
their effect on the Company or BBAI's management agreement with BBG cannot be
predicted with certainty.
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, 1997, 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.
7
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH
QUARTER OF THE YEAR ENDED DECEMBER 31, 1997
- -------
By unanimous written consent of the Class B shareholder on October 29,
1997, the actions of the Board of Directors of the Company in adopting the Bull
& Bear Group, Inc. 1995 Long-Term Incentive Plan, As Amended, were ratified and
approved.
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 approximately 300 holders
of record of Class A Common Stock and 1 holder of Class B Common Stock as of
December 31, 1997. 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:
1997 1996
-------------- --------------
HIGH LOW HIGH LOW
First Quarter $4-3/8 $2-3/4 $6-3/4 $1-5/8
Second Quarter $4-3/8 $2-7/8 $5-3/8 $3-1/4
Third Quarter $3-1/8 $2-5/8 $4 $2-1/2
Fourth Quarter $3-5/16 $2-1/4 $3-1/4 $2-7/8
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1997 is
presented on the following pages.
8
BULL & BEAR GROUP, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
REVENUES:
Management, distribution and administration fees $4,313,947 $4,922,945 $3,322,348 $3,786,066 $4,092,229
Brokerage commissions 2,452,272 2,351,983 1,821,513 1,768,527 2,047,999
Dividends, interest and other 221,198 142,084 147,169 (7,378) 227,422
------------ ------------ ------------ ------------- -----------
6,987,417 7,417,012 5,291,030 5,547,215 6,367,650
----------- ----------- ----------- ----------- -----------
EXPENSES:
General and administrative 3,903,524 4,040,219 3,195,115 3,225,891 3,519,704
Marketing 1,081,050 1,821,297 779,026 1,361,155 1,389,204
Clearing and brokerage charges 621,412 708,535 576,096 532,832 619,673
Subadvisory fees 387,593 705,248 22,496 37,728 34,629
Professional fees 201,417 296,874 431,934 170,284 170,687
Amortization and depreciation 131,992 138,116 97,399 98,094 125,399
------------ ------------ ------------- ------------ -----------
6,326,988 7,710,289 5,102,066 5,425,984 5,859,296
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for income taxes 660,429 (293,277) 188,964 121,231 508,354
INCOME TAXES 34,704 27,248 32,588 37,771 39,149
------------ ------------- ------------- ------------ -----------
NET INCOME (LOSS) $ 625,725 $ (320,525) $ 156,376 $ 83,460 $ 469,205
=========== =========== =========== ============ ===========
NET INCOME (LOSS) PER SHARE OF WEIGHTED
AVERAGE COMMON STOCK OUTSTANDING:
Basic $.46 $(.23) $.10 $.05 $.37
==== ===== ==== ==== ====
Diluted $.43 $(.23) $.10 $.05 $.32
==== ===== ==== ==== ====
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic 1,370,017 1,369,555 1,499,516 1,523,152 1,257,844
=========== =========== =========== =========== ===========
Diluted 1,468,252 1,369,555 1,549,815 1,610,658 1,480,654
=========== =========== =========== =========== ===========
TOTAL ASSETS $4,827,074 $4,273,110 $4,963,792 $4,240,241 $4,711,438
========== ========== ========== ========== ==========
LONG-TERM OBLIGATIONS $ 7,460 $ 22,093 $ - $ - $ -
========== ========== =========== ========== =========
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1997 Compared to 1996
Total revenues for the year decreased $429,595 or 5.8%. Management and
distribution fees decreased $215,407 or 6.9% and $429,986 or 27.4%,
respectively, and shareholder administration fees increased $36,395 or 14.6%.
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 increase as the costs for providing these services increase.
Net assets under management were approximately $401 million to December 31,
1996, $359 million at March 31, 1997, $328 million at June 30, 1997, $353
million at September 30, 1997 and $274 million at December 31, 1997. Brokerage
commissions increased $100,289 or 4.3% while brokerage customers' equity
increased to $244 million or 30%. The increase in brokerage commissions was due
to an increase in customer transaction activity. Dividends, interest and other
income increased $79,114 or 55.7% primarily due to gains on sales of
investments.
Total expenses, including income taxes decreased $1,375,845 or 17.8% for
the year. General and administrative expenses decreased $136,695 or 3.4%.
Marketing expenses decreased $740,247 or 40.6% due to lower marketing costs for
the Midas Fund. Clearing and brokerage charges decreased $87,123 or 12.3% due to
the savings from a new clearing agreement beginning July 1996. Subadvisory fees
decreased $317,655 or 45.0% because of lower net assets in the Midas Fund.
Professional fees decreased $95,457 or 32.2% due to lower litigation costs
relating to the Maxus lawsuit. Amortization and depreciation decreased $6,124 or
4.4% for the year.
Net income for 1997 was $625,725 or $.46 per share as compared to net loss
of $320,525 or $.23 per share in 1996.
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 Airlines7 AAdvantage Miles7 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.
10
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,
1997 1996 1995
---- ---- ----
Working Capital $2,662,917 $2,293,200 $2,792,059
Total Assets $4,827,074 $4,273,110 $4,963,792
Long-Term Debt $ 7,460 $ 22,093 $ -
Shareholders' Equity $4,455,111 $3,917,886 $4,170,095
For the year ended 1997, working capital, total assets and shareholders'
equity increased $369,717, $553,964 and $537,225, respectively. Long-term debt
decreased $14,633.
Working capital increased primarily as a result of the net income and the
non-cash items of depreciation and amortization for 1997 offset by improvements
to real estate held for investment, purchases of equipment and the decrease in
unrealized capital gains on marketable securities. The increase in shareholders'
equity was primarily the result of the net income for 1997 of $625,725 offset by
the decrease in unrealized capital gains on marketable securities of $88,500.
Total assets increased primarily as a result of the net income for 1997 offset
by the decrease in unrealized capital gains on marketable securities of $88,500.
Long-term debt decreased due to payments on the capitalized lease obligations.
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.
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, 1997, the amount
subject to these restrictions was $275,000 or 5.7% 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, 1997 and 1996 14
Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995 15
Consolidated Statements of Changes in Shareholders' Equity,
Years ended December 31, 1997, 1996 and 1995 16
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 19, 1998
13
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1997 1996
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 312,633 $ 747,444
Marketable securities (Note 3) 1,846,028 1,176,547
Management, distribution and shareholder administration
fees receivable 268,984 207,944
Interest, dividends and other receivables 187,954 204,684
Prepaid expenses and other current assets 411,821 289,712
------------- -------------
TOTAL CURRENT ASSETS 3,027,420 2,626,331
------------- -------------
REAL ESTATE HELD FOR INVESTMENT, NET 632,682 438,187
EQUIPMENT, FURNITURE AND FIXTURES, NET 196,416 237,851
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES, NET (Note 2) 727,373 765,665
OTHER ASSETS 243,183 205,076
------------- -------------
1,799,654 1,646,779
------------- -------------
TOTAL ASSETS $ 4,827,074 $ 4,273,110
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 160,849 $ 134,544
Accrued professional fees 93,335 81,285
Accrued payroll and other related costs 41,042 53,012
Accrued other expenses 45,225 40,388
Current portion of capitalized lease obligation (Note 4) 13,644 12,282
Other current liabilities 10,408 11,620
------------- -------------
TOTAL CURRENT LIABILITIES 364,503 333,131
------------- -------------
CAPITALIZED LEASE OBLIGATION (Note 4) 7,460 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 shares issued and outstanding 13,501 13,501
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,236,077 6,236,077
Retained earnings (deficit) (1,836,753) (2,462,478)
Unrealized gains on marketable securities 42,086 130,586
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 4,455,111 3,917,886
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,827,074 $ 4,273,110
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
REVENUES:
Management, distribution and shareholder
administration fees $ 4,313,947 $ 4,922,945 $ 3,322,348
Brokerage commissions and fees 2,452,272 2,351,983 1,821,513
Realized gains from investments 83,608 22,092 -
Dividends, interest and other 137,590 119,992 147,169
------------- ------------ ------------
6,987,417 7,417,012 5,291,030
------------- ------------ ------------
EXPENSES:
General and administrative 3,287,781 3,504,317 2,924,882
Marketing 1,081,050 1,821,297 779,026
Clearing and brokerage charges 621,412 708,535 576,096
Expense reimbursements to the Funds (Note 10) 615,743 535,902 270,233
Subadvisory fees 387,593 705,248 22,496
Professional fees 201,417 296,874 431,934
Amortization and depreciation 131,992 138,116 97,399
------------- ------------ ------------
6,326,988 7,710,289 5,102,066
------------- ------------ ------------
Income (loss) before income taxes 660,429 (293,277) 188,964
Income taxes (Note 9) 34,704 27,248 32,588
------------- ------------ ------------
NET INCOME (LOSS) $ 625,725 $ (320,525) $ 156,376
============= ============ ============
PER SHARE DATA:
Basic $.46 $(.23) $.10
==== ===== ====
Diluted $.43 $(.23) $.10
==== ===== ====
AVERAGE SHARES OUTSTANDING:
Basic 1,370,017 1,369,555 1,499,516
========= ========= =========
Diluted 1,468,252 1,369,555 1,549,815
========= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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, 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
Net income - - - - - - 625,725 - 625,725
Unrealized losses on
marketable securities - - - - - - - (88,500) (88,500)
----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 1,350,017 20,000 $13,501 $200 $6,236,077$ - $(1,836,753) $ 42,086 $4,455,111
========= ====== ======= ==== ===================================== ========= ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 625,725 $ (320,525) $ 156,376
------------ ------------ --------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 131,992 138,116 97,399
Increase in cash value of life insurance (32,333) (30,000) (30,000)
Realized/unrealized (gain) loss on investments (83,608) (32,725) (26,048)
(Increase) decrease in:
Management, distribution and shareholder
administration fees receivable (61,040) (28,735) (18,642)
Interest, dividends and other receivables 16,730 43,557 (32,387)
Prepaid expenses and other current assets (122,109) 143,858 (199,301)
Other assets (5,774) (48,401) 12,802
Increase (decrease) in:
Accounts payable 26,305 (475,698) 412,719
Accrued expenses 4,917 4,610 51,156
Other current liabilities (1,212) (1,760) (720)
------------ ------------ --------------
TOTAL ADJUSTMENTS (126,132) (287,178) 266,978
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 499,593 (607,703) 423,354
------------ ------------ -------------
17
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvement to real estate held for investment $ (218,956) $ (204,642) $ (2,105)
Capital expenditures (27,804) (100,799) (58,744)
Proceeds from sale of Bull & Bear Properties, Inc. - 43,763 -
Proceeds from sales of investments 556,831 963,318 414,790
Purchases of investments (1,231,204) (785,512) (1,396,250)
Acquisition of intangible assets - (66,780) (267,411)
-------------- ------------ --------------
NET CASH USED IN INVESTING ACTIVITIES (921,133) (150,652) (1,309,720)
-------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of note receivable - - 5,000
Increase in capitalized lease obligation - 46,416 -
Repayments of capitalized lease obligation (13,271) (12,041) -
Proceeds from issuance of Class A Common Stock - 3,750 33,000
-------------- ----------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (13,271) 38,125 38,000
-------------- ----------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (434,811) (720,230) (848,366)
CASH AND CASH EQUIVALENTS:
Beginning of year 747,444 1,467,674 2,316,040
-------------- ----------- -------------
END OF YEAR $ 312,633 $ 747,444 $ 1,467,674
============== =========== =============
SUPPLEMENTAL DISCLOSURE:
The Company did not pay any Federal income taxes in 1997, 1996 or 1995.
The Company paid $916 and $1,309 in interest in 1997 and 1996 and no interest
in 1995.
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, 1997, 1996 AND 1995
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 the
Company 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, 1997 and 1996, the Company and
subsidiaries had invested approximately $260,300 and $657,500,
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, 1997, 1996 AND 1995
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, 1997 and 1996, accumulated depreciation amounted to approximately
$51,600 and $27,400, 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, 1997
and 1996, accumulated depreciation amounted to approximately $818,900
and $749,300, 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, 1997 and 1996, accumulated amortization
amounted to approximately $623,400 and $585,100, 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
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" in 1997. The earnings per share for 1996 and 1995
have been restated to conform to the provisions of this statement.
Basic earnings per share is computed using the weighted average number
of shares outstanding. Diluted
earnings per share is computed using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding options to purchase common stock.
20
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
The following table sets forth the computation of basic and diluted
earnings per share:
1997 1996 1995
---- ---- ----
Numerator for basic and diluted
earnings per share:
Net income (loss) $ 625,725 $ (320,525) $ 156,376
=========== ============ ===========
Denominator:
Denominator for basic earnings
per share weighted-average shares 1,370,017 1,369,555 1,499,516
Effect of dilutive securities:
Employee Stock Options 98,235 - 50,299
------------ ------------ -----------
Denominator for diluted earnings
per share adjusted weighted
average shares and assumed
conversions 1,468,252 1,369,555 1,549,815
=========== =========== ===========
RECLASSIFICATIONS
Certain reclassifications of the 1996 and 1995 financial statements
have been made to conform to the 1997 presentation.
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.
21
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
3. MARKETABLE SECURITIES
At December 31, 1997, marketable securities consisted of:
Broker/dealer securities - at market
U.S. Treasury Notes, due 6/30/99 - 9/30/00 (cost $1,260,380) $1,265,943
----------
Other companies
Available-for-sale securities - at market
Unaffiliated mutual funds 36,324
Affiliated mutual funds 3,157
Equity securities 186,884
U.S. Treasury Notes, due 9/30/00 353,720
------------
Total available-for-sale securities (cost - $537,999) 580,085
------------
$1,846,028
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, 1997 and 1996, the Company had $42,086 and $130,586,
respectively, of unrealized gains on "available-for-sale securities" which
is reported as a separate component of consolidated shareholders' equity.
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 2,000 square feet. The rent is
approximately $55,000 per annum and expires on August 30, 1999.
22
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
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, 1997. Depreciation expense of $29,042 has been
recognized on this property as of December 31, 1997. 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,
1998 $14,188
1999 7,586
---------
Total minimum lease payments 21,774
Less amount representing interest and executory costs 670
----------
Present value of minimum lease payments $ 21,104
=========
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, 1997 and 1996, 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,
1997, these subsidiaries had net capital of approximately $553,700 and
$614,900; net capital requirements of $250,000 and $25,000; excess net
capital of approximately $303,700 and $589,900; and the ratios of
aggregate indebtedness to net capital were approximately .45 to 1 and .28
to 1, respectively.
23
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
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 and
October 29, 1997 increasing the maximum number of options to 450,000. With
respect to non-employee directors, only grants of non-qualified stock
options and awards of restricted shares are available. The current two
non-employee directors were granted 10,000 options each on December 6,
1995 and 5,000 options each on October 29, 1997. 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 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,
1997 1996
---- ----
Net income (loss): As Reported $625,725 $(320,525)
Proforma $246,394 $(463,738)
Earnings per share
Basic As Reported $.46 $(.23)
Proforma $.18 $(.34)
Diluted As Reported $.43 $(.23)
Proforma $.17 $(.34)
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 1997 and 1996, respectively:
expected volatility of 92.83% and 93.82%, risk-free interest rate of 5.85%
and 5.29% and expected life of three years and five years.
24
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
A summary of the status of the Company's stock option plans as of December
31, 1997 and 1996, 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, 1995 49,000 $1.76
Granted 229,000 $2.04
Exercised (2,000) $1.88
Canceled (27,000) $1.91
--------
OUTSTANDING AT DECEMBER 31, 1996 249,000 $2.00
Granted 167,000 $2.53
Canceled (34,000) $1.97
--------
OUTSTANDING AT DECEMBER 31, 1997 382,000 $2.23
=======
There were 146,000 options exercisable at December 31, 1997 with a
weighted-average exercise price of $2.37. There were no options
exercisable at December 31, 1996. The weighted-average fair value of
options granted
was $1.41 and $1.42 for the years ended December 31, 1997 and 1996,
respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ------------------- ------------------
$1.50 - $1.625 15,000 2.0 years $1.52
$1.875 - $2.475 334,000 3.8 years $2.20
$2.75 - $3.00 33,000 4.0 years $2.92
In addition, there were 30,000 non-qualified stock options with a range of
exercise prices of $1.75 - $2.25 outstanding and exercisable as of
December 31, 1997.
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, 1997, 1996
and 1995 was approximately $44,800, $39,900 and $31,100, respectively.
25
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
9. INCOME TAXES
The provision for income taxes charged to operations was as follows:
1997 1996 1995
---- ---- ----
Current
State and local $34,704 $27,248 $32,588
Federal - - -
------------ ------------ ---------
$34,704 $27,248 $32,588
======= ======= =======
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1997 and 1996:
1997 1996
---- ----
Unrealized appreciation on investments $ (16,200) $ (45,800)
Net operating loss carryforwards 277,100 509,500
---------- ----------
Net deferred tax assets 260,900 463,700
Deferred tax asset valuation allowance (260,900) (463,700)
---------- -----------
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, 1997 was the result of the net
income for the year and the decrease in the unrealized appreciation on
investments.
For the year ended December 31, 1997, 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, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $815,000, of which $298,600,
$187,800, $62,700 and $265,900 expire in 2004, 2005, 2006 and 2011,
respectively.
26
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
10. RELATED PARTIES
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 $286,100, $249,700 and $363,200
for the years ended December 31, 1997, 1996 and 1995, respectively.
In connection with investment management services, the Company's
investment managers waived management fees from the Funds in the amount of
approximately $615,700, $535,900 and $270,200 for the years ended December
31, 1997, 1996 and 1995, respectively.
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, 1997, the
policy had a cash surrender value of approximately $109,000 and is
included in other assets in the balance sheet.
The Company's discount broker/dealer received brokerage commissions of
approximately $259,400, $179,500 and $153,200 from the Funds for the years
ended December 31, 1997, 1996 and 1995, respectively.
27
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1997, 1996 AND 1995
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.
Although a group called Karpus Investment Management ("KIM") previously
failed to elect its slate of nominees in opposition to management at the
1997 annual meeting of stockholders of Bull & Bear U.S. Government
Securities Fund, Inc. ("BBG"), a closed-end fund managed by BBAI, another
BBG annual meeting is scheduled for 1998. In addition, on February 19,
1998, BBG filed a lawsuit against KIM in the United States District Court
for the Southern District of New York, 98 Civ. 1190, and KIM filed a
lawsuit against BBG in the Circuit Court for Baltimore City, Maryland,
Case No. 9805005. The outcome of these matters and their effect on the
Company or BBAI's management agreement with BBG cannot be predicted with
certainty.
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, 1997, 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.
28
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997
REVENUES $1,911,891 $1,765,995 $1,684,132 $1,625,399
========== ========== ========== ==========
INCOME
Net Income $ 115,655 $ 163,587 $ 215,744 $ 130,739
=========== =========== =========== ===========
INCOME PER SHARE
Net Income $.08 $.12 $.16 $.10
==== ==== ==== ====
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)
==== ==== ==== =====
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, 1997.
29
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 21 21 68
Robert D. Anderson Vice Chairman of the Board 21 21 68
Mark C. Winmill Co-President, 9 11 40
Chief Financial Officer,
Director
Thomas B. Winmill, Esq. Co-President, 9 10 38
General Counsel, Director
Edward G. Webb, Jr. Director 12* - 58
Charles A. Carroll Director 6 - 67
Steven A. Landis Senior Vice President - 3 42
James R. Mitchell, II Senior Vice President - 4 36
Joseph Leung Treasurer, - 3 32
Chief Accounting Officer
Deborah Ann Sullivan Vice President,
Secretary - 1 28
* 1985 TO 1990 AND 1992 TO PRESENT.
30
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 certain 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 certain investment companies managed by Company
subsidiaries and of the subsidiaries of the Company.
MARK C. WINMILL - Co-President, Chief Financial Officer and Director. He
is also President of Bull & Bear Securities, Inc. and Co-President of the
investment companies managed by Company subsidiaries and of 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 of 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 investment companies 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.
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 investment companies 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.
DEBORAH ANN SULLIVAN - Vice President, Secretary. She is also Vice
President and Secretary of the investment companies managed by Company
subsidiaries. From 1993 to 1994 she was a Blue Sky Paralegal for Sun America
Asset Management Corporation and from 1992 through 1993 she was Compliance
Administrator and Blue Sky Administrator with Prudential Inc. and Prudential
Fund Management, Inc. She earned her Juris Doctor at Hofstra University, School
of Law.
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.
31
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 filed 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 except as follows: Bassett S.
Winmill with respect to transactions in April 1997 filed a Form 4 on May 5,
1997, and amendments thereto on May 16, 1997 and March 24, 1998, and an amended
Form 5 on March 24, 1998.
Based on information available to the Company, including a December 4,
1996 letter from Maxus' 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,
1997, the compensation paid to the chief executive officers and the other
executive officers whose total annual salary and bonus exceeded $100,000 in
1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ALL OTHER
NAME AND SALARY BONUS OTHER ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION* (A) (B)
- ------------------ ---- --------- --------- ------------ --- ---
Bassett S. Winmill 1997 $170,000 $17,708 - $5,166 $4,750
Chairman 1996 $170,000 $28,333 - $5,166 $4,750
1995 $160,000 $10,000 - $4,788 $4,620
Robert D. Anderson 1997 $ 90,000 $ 9,375 - $2,142 $2,925
Vice Chairman 1996 $ 90,000 $15,000 - $2,142 $3,211
1995 $ 89,000 $ 5,562 - $2,104 $3,310
Mark C. Winmill 1997 $122,500 $13,021 - $ 269 $3,941
Co-President 1996 $110,000 $18,115 - $ 152 $3,997
1995 $100,000 $ 6,250 - $ 132 $3,462
Thomas B. Winmill 1997 $122,500 $13,021 - $ 177 $4,272
Co-President 1996 $110,000 $18,115 - $ 152 $4,066
1995 $100,000 $ 6,250 - $ 132 $3,678
Steven A. Landis 1997 $120,667 $ 7,542 - $ 267 $2,564
Senior Vice President 1996 $112,000 $18,667 - $ 241 $1,750
1995 $ 86,167 $ 8,250 - $ 150 $ -
* 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.
32
OPTION GRANTS TABLE
The following table sets forth, for the year ended December 31, 1997,
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 40,000 24.0 $2.475 10/29/02 $15,880 $45,960
Mark C. Winmill 40,000 24.0 $2.475 10/29/02 $15,880 $45,960
Thomas B. Winmill 40,000 24.0 $2.475 10/29/02 $15,880 $45,960
Robert D. Anderson 5,000 3.0 $2.250 10/29/02 $ 3,110 $ 6,870
All of the above options are exercisable as of December 31, 1997.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth, for the year ended December 31, 1997,
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 12-31-97 (#) 12-31-97 ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
Bassett S. Winmill - - 40,000/50,000 $21,000/$46,875
Mark C. Winmill - - 40,000/50,000 $21,000/$46,875
Thomas B. Winmill - - 40,000/50,000 $21,000/$46,875
Robert D. Anderson - - 5,000/20,000 $3,750/$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, 1997.
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 1997.
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, 1997, Mr. Webb
and Mr. Carroll were each paid $10,000 for attending all four meetings. Mr.
Webb and Mr. Carroll each also received an option to purchase
5,000 shares of Class A Common Stock at an exercise price of $2.25 per share.
EMPLOYMENT CONTRACTS
The Company has no employment or termination contracts with any of its
employees except to the extent of the agreement described in Note 11 to the
financial statements.
33
REPRICING OF OPTIONS TABLE
During 1997, the Stock Option Committee amended the exercise price on the
Stock Options issued to Mark C. Winmill and Thomas B. Winmill in 1996. The
exercise price on the stock options was increased to $2.0625 from $1.875.
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. The Plan was amended by the Board and the Class B
voting common stockholder on February 5, 1996 and October 29, 1997. 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.
Four hundred fifty thousand (450,000) 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.
Plan Administration. The Plan is administered by the Board or Stock Option
Committee ("Committee") of the Board. The Committee is composed of at least two
directors of the Company, each of whom is a "Non-Employee Director" 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"). When the Committee
is administering the Plan, 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 shall receive such
Awards (other than Incentive Stock Options) as the Board in its discretion may
designate.
34
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 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 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 Val