10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to              ,      .

Commission file no. 1-10024

BKF Capital Group, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	36-0767530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Rockefeller Plaza

New York, New York 10020

(Address of principal executive offices)

Telephone Number: (212) 332-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

     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 o         No þ

     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 amendments to this Form 10-K.    þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes þ         No o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o         No þ

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004 was $177,639,472 (based on the closing sale price of $29.05 on June 30, 2004 as reported by the New York Stock Exchange-Composite Transactions). For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.

     At March 1, 2005, 7,442,759 shares of BKF Capital Group, Inc. common stock, par value $1.00 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

     None.

EXPLANATORY NOTE

      This Amendment No. 2 on Form 10-K/ A (“Form 10-K/ A”) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, initially filed with the Securities and Exchange Commission on March 17, 2005, and amended as of May 11, 2005 (together, the “Original Filing”) reflects a restatement (the “Restatement”) of the consolidated financial statements of BKF Capital Group, Inc. (“BKF”). The determination to restate these financial statements results from the misclassification of certain restricted stock units (“RSU”) on the Consolidated Statements of Financial Condition. Management has determined that the RSU grants should have been classified as additional paid-in capital on the date of grant with a corresponding increase to unearned compensation, with the expense over the vesting period reducing the unearned compensation balance. Management had previously accounted for the RSU as an increase to accrued incentive compensation and incentive compensation expense over the vesting period. See Note 13 to the accompanying consolidated financial statements. There has been no adjustment to the Consolidated Statements of Operations.

      This Form 10-K/ A amends and restates the Consolidated Statements of Financial Condition, Consolidated Statements of Cash Flows and Consolidated Statements of Changes in Stockholders’ Equity of the Original Filing and amends and restates the notes to accompanying consolidated financial statements by amending Note 1 to include additional disclosure relating to the firm methodology for depreciating fixed assets and Note 13 to reflect the treatment of RSUs and adding Note 18 describing subsequent events. Although this Form 10-K/ A contains all of the items required to be included in an Annual Report on Form 10-K, no other information in the Original Filing is hereby amended. Except to the extent modified or updated by Note 18, the foregoing items have not been amended to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. Other events occurring after the filing of the Original Filing or other disclosures necessary to reflect subsequent events have been addressed in BKF’s reports filed with the Securities and Exchange Commission subsequent to the filing of the Original Filing. In addition, Item 15 of Part IV of the Original Filing has been amended to contain the updated consents of the Company’s current independent registered public accounting firm and its predecessor and current certifications from BKF’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act. (See Exhibits 23, 31.1, 31.2, 32.1. and 32.2.)

PART I

Item 1. Business

Introduction

      BKF Capital Group, Inc. (“BKF”) operates entirely through John A. Levin & Co., Inc. (“John A. Levin & Co.”), an SEC-registered investment adviser, and its related entities. John A. Levin & Co. owns 100% of LEVCO Securities, Inc. (“LEVCO Securities”), a registered broker-dealer, and Levco GP, Inc. (“Levco GP”), which is the general partner of several investment partnerships managed by Levco, which are referred to as the “Levco Partnerships.” Levin Management Co., Inc. (“Levin Management”), which is 100% owned by BKF and in turn owns 100% of John A. Levin & Co., provides administrative and management services to John A. Levin & Co. and its related companies. Levin Management and all its subsidiaries are referred to collectively herein as “Levco.”

      BKF was incorporated in Delaware in 1954. Its executive offices are located at One Rockefeller Plaza, New York, New York 10020. Its telephone number is (212) 332-8400, and its website address is www.bkfcapital.com. BKF makes available its annual report on Form 10-K/ A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, free of charge, on its website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

Flow Chart

Services

      Levco is an investment adviser registered under the Investment Advisers Act of 1940, as amended, that specializes in managing equity portfolios for institutional and individual investors primarily in the United States. Levco offers long-only equity strategies and a range of alternative investment products and other more specialized investment programs. As of December 31, 2004, assets under management were approximately $13.6 billion.

      Through Levco GP, Levco acts as the managing general partner of several private investment partnerships, and through John A. Levin & Co. serves directly as an adviser to private investment vehicles organized outside the United States. For managing these vehicles, John A. Levin & Co. and Levco GP are entitled to receive both a fixed management fee based on a percentage of the assets managed and a share of the net profits of the investment vehicles.

      LEVCO Securities clears through Bear Stearns Securities Corp. (“Bear Stearns”) on a fully disclosed basis. Generally, LEVCO Securities’ clients are advisory clients of John A. Levin & Co., and the trades executed through it are generally placed by John A. Levin & Co. in its capacity as investment adviser.

      Levco Europe, LLP is a UK entity formed in 2004 that will provide investment management services from London in connection with the event driven strategies. This entity is currently in the process of registering with the United Kingdom Financial Services Authority. Levco Europe Holdings, Ltd., a wholly-owned subsidiary of Levin Management Co., Inc., manages Levco Europe, LLP.

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      The following chart summarizes the assets under management of Levco as of December 31, 2004.

(PIE CHART)

      Institutional and Individual Separate Accounts. As of December 31, 2004, directly managed institutional accounts represented approximately 22% of Levco’s total assets under management, with a total market value of approximately $3.0 billion. As of such date, Levco served as investment adviser to in excess of 95 separate institutional accounts. The average institutional account value at December 31, 2004 was approximately $30 million.

      Levco also directly manages accounts for individuals, which comprised approximately 13% of Levco’s total assets under management as of December 31, 2004, with a total market value of approximately $1.7 billion. As of December 31, 2004, Levco’s individual client base represented approximately 390 accounts, the average value of which was approximately $4 million.

      Sub-Advisory Relationships. Levco has established a number of relationships in which it acts as a sub-adviser to a financial intermediary. These financial intermediaries include defined contribution plan platform providers, sponsors of registered investment fund complexes and sponsors of other commingled vehicles. As of December 31, 2004, assets managed pursuant to such sub-advisory relationships totaled approximately $2.6 billion, representing approximately 19% of Levco’s total assets under management. The single largest sub-advisory relationship totaled approximately $1.2 billion, representing approximately 9% of Levco’s total assets under management. Registered investment funds to which Levco acted as an adviser or sub-adviser as of December 31, 2004 accounted for approximately $1.2 billion, or approximately 9%, of assets under management. Also included in this category of sub-advisory relationships is Levco Series Trust, a proprietary mutual fund available to insurance company separate accounts and qualified benefit plans that was formed in 1997 and that as of December 31, 2004 had approximately $33 million in assets under management.

      Wrap Fee Accounts. Levco participates in a number of wrap fee programs sponsored by financial institutions. In such programs, clients pay the sponsoring broker an asset-based fee that covers brokerage commissions, advisory services, custodial fees and other reporting and administrative services. Investors are able to select Levco from among a limited number of managers participating in the program, and Levco receives a portion of the wrap fee paid by the clients who select Levco to manage their accounts through the program. With approximately $2.3 billion of managed assets as of December 31, 2004, wrap fee accounts represented approximately 17% of Levco’s total assets under management. Of this total, approximately $1.9 billion, or approximately 14% of Levco’s total assets under management, were with a single sponsor. As of December 31, 2004, Levco had approximately 9,400 wrap fee accounts, the average value of which was approximately $230,000.

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      Event-Driven Accounts. As of December 31, 2004, event-driven accounts, with a total market value of approximately $2.6 billion, represented approximately 19% of Levco’s total assets under management. These accounts invest in event-driven situations, including (i) merger arbitrage and event arbitrage transactions, (ii) corporate restructuring and other event-driven situations, (iii) convertible securities on an outright and hedged basis, (iv) subordinated debt, debt claims, bank debt and other loans that are potentially volatile, including securities in undervalued, vulnerable, distressed and bankrupt entities, and (v) other securities or instruments in which the strategy may realize value based on fundamental factors.

      Long-Short Equity Accounts. In May 2002, Levco launched a fundamental, trading-oriented long-short equity strategy which, as of December 31, 2004, had approximately $792 million in assets under management. These accounts, which include proprietary private investment vehicles and separately managed accounts, represent approximately 6% of Levco’s total assets under management.

      Short-Biased Accounts. As of December 31, 2004, short-biased accounts, with a total market value of approximately $422 million, represented approximately 3% of Levco’s total assets under management. These accounts comprise a number of proprietary unregistered investment funds and other accounts that employ a short-biased alternative investment strategy.

      Other Private Investment Funds. As of December 31, 2004, proprietary unregistered investment funds following a variety of alternative investment strategies, with a total market value of approximately $185 million (excluding the event driven, short-biased and certain long-short vehicles), represented approximately 1% of Levco’s total assets under management.

      The table below shows the assets under management of Levco at the dates indicated:

ASSETS UNDER MANAGEMENT

	At December 31,
	2004		2003		2002		2001		2000
	(In millions)
Long-Only Accounts:
Institutional Accounts	$	2,964	$	2,953	$	2,562	$	3,772	$	3,262
Sub-advisory Accounts		2,641		2,306		1,861		2,169		1,802
Non-institutional Accounts		1,713		1,640		1,489		2,000		2,196
Wrap Fee Accounts		2,319		2,502		2,982		4,448		2,975
Total Long-Only		9,637		9,401		8,894		12,389		10,235
Alternative Strategies:
Event Driven Accounts		2,568		2,418		1,849		1,533		1,071
Long-Short Accounts		792		434		18		—		—
Short-Biased Accounts		422		340		452		310		179
Other Private Investment Funds		185		67		72		34		23
Total Alternative Strategies		3,967		3,259		2,391		1,877		1,273
Total	$	13,604	$	12,660	$	11,285	$	14,266	$	11,508

      The growth in assets under management between 2000 and 2001 was generated by maintaining a relatively stable client base, attracting new clients, entering the wrap fee business, and developing the event-driven product, as well as through market appreciation of assets under management. The decline experienced in 2002 resulted from a decline in the market value of the long-only portfolios as well as net outflows with regard to such portfolios. The growth experienced in 2003 and 2004 reflected market appreciation of assets under management and net inflows into alternative investment strategies, which was partially offset by net outflows from the long-only strategies.

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Distribution

      As of December 31, 2004, Levco employed 26 marketing and client service professionals. This group includes field forces focused on attracting assets through wrap fee programs and institutional accounts, internal marketing personnel, a client servicing team, a portfolio specialist, a private client group and additional marketing support and information resource staff. These groups are responsible for communications with clients, consultants and financial intermediaries, as well as for the production of marketing materials. Senior investment professionals assist in the marketing effort by taking part in client presentations or meetings.

      Levco also has solicitation arrangements with third parties whereby such third parties, in accordance with applicable laws and regulations, solicit clients for Levco investment products (primarily alternative investment strategies) and are compensated by Levco for such services.

      With respect to the long-only strategies, distribution efforts are focused mainly in the United States. With respect to the event-driven strategies and alternative investment strategies generally, extensive marketing efforts are directed towards U.S. and non-U.S. clients.

Portfolio Performance Information

      Success in the investment management industry depends in large part on performance. Shown below is historical information relating to the performance of accounts managed by Levco in its large cap value style as compared to the S&P 500 Index and the Russell 1000 Value Index. The S&P 500 Index is a broad-based, unmanaged market-weighted index of 500 U.S. companies. The Russell 1000 Value Index measures the performance of those companies in the Russell 1000 Index (which include the 1,000 largest U.S. companies based on market capitalization) with lower price/book ratios and lower forecasted growth rates.

COMPARISON OF ANNUAL RETURNS

(as of December 31, 2004)*

												Inception
	1-Yr		3-Yr		5-Yr			7-Yr		10-Yr		(Since 1986)
Levco Composite (net)		14.50		2.62		3.80			7.49		12.70		13.57
S&P 500 Index		10.88		3.59		(2.30	)		4.77		12.07		12.32
Russell 1000 Value Index		16.49		8.57		5.27			6.99		13.82		13.03

*  Periods greater than 1 Yr are annualized

Past performance is not a guarantee of future performance.

Notes to Comparison of Annual Returns

      Composite: All accounts managed pursuant to a Large Cap Value strategy on a fully discretionary basis, including taxable and tax-exempt accounts, are included in the composite after the account has been managed for one full calendar quarter, with the following exceptions:

•  Immediate family and related accounts.

•  Accounts with assets under $1,000,000.

•  One account for which only the equity portion of the portfolio is managed.

•  Certain investment funds and managed accounts with different investment strategies.

•  Accounts managed under a broker-sponsored wrap-fee program.

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(A complete list and description of the firm’s composites is available upon request.)

      Calculation of Performance: The Company computes its Rate of Return on a “time weighted” basis for each eligible account. The composite performance is time weighted and is equal to the change in the value of the portfolio, including capital appreciation, depreciation and income, as a percentage of the beginning market value of the portfolio adjusted for contributions and withdrawals. Beginning in 1999, the rates of return are compiled monthly and linked to obtain a quarterly return. Prior to 1999, the rates of return were compiled quarterly. Gross of fees investment results are net of broker commissions and expenses related to trading, and net results are further reduced by the investment management fees. For the periods from 1986 through 1990, the net results reflect the deduction of a 1% investment management fee payable quarterly at the rate of .25% of ending market value. This is the maximum investment management fee charged by the firm. These results do not reflect actual fees charged. For the period from January 1, 1991 through December 31, 2004, the net results shown reflect the deduction of the dollar-weighted fee rate paid by all accounts in the composite. The dollar-weighted fee rate has been calculated by dividing the quarterly investment management fees paid by the accounts in the composite by the total composite asset value. This dollar-weighted fee rate also includes the performance fees paid by certain accounts. Inclusion of the performance-based fees does not materially affect the dollar-weighted fee rate. For accounts up to $100 million, the firm’s asset-based fee schedule is: 1% of asset value of accounts of less than $5 million; ..75% of asset value for accounts $5 million to $15 million; for accounts greater than $15 million, the fee is .75% on the first $15 million and .50% on the balance up to $100 million. For accounts in excess of $100 million, the firm’s asset-based fee schedule is: ..425% on the first $100 million, .25% on the next $200 million, and .20% thereafter. The minimum blended fee rate is .25%. The firm does offer performance-based fees. The investment management fees are described in Part II of the Company’s Form ADV.

Contractual Arrangements

      Levco enters into investment advisory and management agreements with, or for the benefit of, each of its clients. Levco bases its management fees, other than incentive allocations from the Levco Partnerships, performance-based fees and certain fixed dollar amount arrangements (generally with family members of employees), on a percentage of assets under management and scales these fees according to the size of each account. Generally, either party may terminate these agreements at any time upon written notice. In cases in which Levco serves as an adviser or sub-adviser for a mutual fund client, the mutual fund client or the investment adviser generally may terminate the relevant advisory or sub-advisory agreement on relatively short notice.

      In connection with Levco’s activities as a broker-dealer, Levco maintains a contractual relationship with Bear Stearns for clearance services. The agreement is a standard clearing agreement that either party may terminate upon 30 days’ prior written notice (or immediately for cause). The agreement assigns account supervisory responsibility to Levco and grants Bear Stearns the authority to execute and report securities transactions for Levco’s clients.

Employees

      As of December 31, 2004, BKF and its subsidiaries employed 151 people, including 51 investment professionals, of whom 21 were primarily portfolio managers, 23 were primarily securities analysts and 7 were traders.

Business Strategy

      The achievement of strong performance returns is the foundation on which Levco’s business strategy is based. Levco seeks to capitalize on the strength of its long-term performance record and its experienced investment and professional staff to increase its assets under management. Its business strategy contains the following key elements:

      Attracting and Retaining Experienced Professionals. As an investment management firm focused on active portfolio management, fundamental research and superior client service, Levco’s goal is to attract and

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retain the talent necessary to implement its investment strategies and service its clients. Each of the other elements of its business strategy is highly dependent on the attraction and retention of qualified personnel. Management believes that allowing employees to develop important economic stakes in the success of the particular products to which they contribute and of BKF as a whole will be a key factor in the achievement of its business objectives.

      Development of Complementary Long-Only Strategies. In addition to its large cap value strategy, Levco has developed equity income, all cap and concentrated strategies. In 2004, Levco began developing a small cap product. Management believes the continued development of long-only strategies, including through the addition of skilled investment personnel through recruitment and lift-outs of portfolio management teams, will make Levco more attractive to existing and potential clients by enabling it to offer a wider range of products.

      Development of Alternative Investment Strategies. The development of alternative investment strategies has added depth and breadth to Levco’s research efforts and allowed for a broader range of investment offerings. The event driven strategies have significantly increased their assets under management over the past five years and, since it receives incentive fees, BKF has seen its revenues from these strategies increase dramatically. A fundamental, trading-oriented long-short strategy has also grown rapidly since its inception in May 2002. During the bear market in 2001 and 2002, Levco’s short-biased alternative investment strategy also enjoyed significant growth in assets and revenues. Alternative investment strategies, however, do face capacity constraints. Levco is seeking to increase its ability to manage assets in alternative investment strategies through the addition of skilled investment personnel, increased marketing of existing alternative investment strategies that have significant unused capacity, and the development of new alternative investment products. In 2001, Levco hired personnel to manage portfolios focused on distressed debt, and in July 2001 two private investment vehicles were launched to pursue this strategy (whose assets are included within our event-driven product). In 2002, Levco hired personnel to manage a long-short trading oriented alternative investment strategy, and two private investment vehicles were launched to pursue this strategy. In 2003, Levco hired a portfolio manager who is managing a vehicle that is pursuing a fundamentally based, long-short strategy focused on the small/mid cap equity sector. In 2004, Levco launched a long-short equity strategy under the management of an investment professional who had formerly been affiliated with the short-biased investment team.

      Strengthen Presence in Target Markets. Levco intends to devote sufficient resources to maintain its existing relationships with target client segments, including institutions, sub-advisers, financial intermediaries, funds of funds and private clients. The required efforts include maintaining a field force and strong client servicing efforts with respect to each of these target segments.

      Development of Operational Infrastructure. Levco has developed an operational infrastructure featuring dedicated portfolio administration, technology and legal/compliance teams. Management believes that the maintenance of a strong infrastructure that creates operational efficiencies is an essential aspect of its plan to grow and develop multiple long-only and alternative investment strategies.

Competition

      Levco competes with investment management firms, mutual fund complexes, insurance companies, banks, brokerage firms and other financial institutions that offer products that are similar to, or are alternatives to, those offered by Levco. Many of the investment management firms with which Levco competes are subsidiaries of larger financial institutions or are significantly larger in terms of assets under management or revenues. Levco has historically competed on the basis of its long-term investment record and the quality of its personnel, investment process and level of client service. In order to stay competitive, Levco will need to increase its assets under management and revenues so that it can attract and retain quality personnel and devote the required resources to its distribution efforts.

Regulation

      Virtually all aspects of Levco’s business are subject to various federal and state laws and regulations. Levco is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940,

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as amended. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, recordkeeping, operational and disclosure obligations. Levco is also registered with the Commodity Futures Trading Commission as a commodity trading advisor and a commodity pool operator, and Levco GP is registered with that agency as a commodity pool operator. Levco and Levco GP are members of the National Futures Association. LEVCO Securities is registered as a broker-dealer under the Securities Exchange Act of 1934, is a member of the National Association of Securities Dealers, Inc. and is a member of the Municipal Securities Rulemaking Board. In addition, Levco is subject to the Employee Retirement Income Security Act of 1974 and its regulations insofar as it is a “fiduciary” with respect to certain clients. As a public company, BKF is subject to provisions of the Securities Exchange Act of 1934, as amended, and the rules applicable to companies listed on the New York Stock Exchange.

      The regulations to which Levco is subject are primarily designed to protect investment advisory clients, and the rules to which BKF is subject are primarily designed to protect stockholders, and the agencies implementing such regulations have broad administrative powers, including the power to limit, restrict or even prohibit entities from carrying on their business in the event of a failure to comply. Possible sanctions for significant failures include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser, broker-dealer or other registrations, suspension or revocation of listing privileges, censures and fines.

Risk Factors

      In addition to the risks referred to elsewhere in this Annual Report on Form 10-K/ A, the following risks, among others, sometimes have affected, and in the future could affect, BKF’s business, financial condition or results of operations. The risks described below are not the only ones facing BKF. Additional risks not presently known to BKF or that BKF currently deems insignificant may also impact its business.

Levco is dependent on key personnel

      Levco is largely dependent on the efforts of its senior investment professionals managing the long-only strategies and the event-driven, short-biased and long-short equity strategies. Levco is also dependent on the efforts of Mr. John A. Levin, the chairman and chief executive officer of BKF. The loss of the services of key investment personnel, including Mr. Levin, could have a material adverse effect on Levco because it could jeopardize its relationships with clients and result in the loss of those accounts. In the case of alternative investment strategies, the loss of the senior investment professionals managing the strategy could result in the discontinuance of the strategy by Levco.

      In 2004, the event-driven strategies, which have been led for an extended period of time by two Senior Portfolio Managers, represented approximately 37% of the asset-based investment advisory fees, approximately 70% of the incentive fees and approximately 48% of BKF’s total fees (see Item 6 — Selected Financial Data). As is noted in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Mr. Frank Rango, one of the two Senior Portfolio Managers of the event-driven group, has announced his intention to relinquish such position as of the conclusion of 2005. Mr. Henry Levin will continue as the sole Senior Portfolio Manager for the group.

      As a result of this dependence on key personnel, and the ability of investment personnel or groups of investment personnel to start their own independent businesses, management may be constrained in its ability to negotiate compensation with senior personnel. Levco’s key investment personnel, including Mr. Levin, are not subject to employment contracts.

      Levco’s future success depends on its ability to retain and attract qualified personnel to conduct its investment management business. To the extent that Levco further diversifies its products and strategies, BKF anticipates that it will be necessary for Levco to add portfolio managers and investment analysts. The implementation of BKF’s business strategy requires the addition of a senior executive officer. No assurance can be given that Levco will succeed in its efforts to recruit and retain the required personnel. Because of its relatively smaller size, Levco may have relatively fewer resources with which to recruit and retain personnel.

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The loss of key personnel or the inability to recruit and retain qualified portfolio managers, business and marketing personnel could have a material adverse effect on Levco’s business.

      In December 1998, BKF adopted an incentive compensation plan (most recently amended in 2001) to give Levco the ability to attract and retain talented professionals with equity-based and cash compensation. Determinations with regard to the implementation of this plan are made by the Compensation Committee of the board of directors of BKF on a regular basis. Because BKF is a relatively small public company, the value of the equity awards that may be offered to professionals may be limited relative to what competitors may offer. If the price of BKF stock decreases, no assurance can be given that the equity-based compensation will serve its purpose to attract and retain talented professionals.

Levco is dependent on a limited number of investment strategies

      Levco currently derives most of its revenues from three investment offerings — a large cap value strategy, an event-driven alternative investment strategy, and an actively traded long-short US equity strategy. While these strategies may often perform differently in a given investment environment, adverse developments with regard to any of these strategies could have a material adverse effect on Levco’s business.

A decline in the performance of the securities markets could have an adverse effect on Levco’s revenues

      Levco’s operations are affected by many economic factors, including the performance of the securities markets. Declines in the securities markets, in general, and the equity markets, in particular, would likely reduce Levco’s assets under management and consequently reduce its revenues. In addition, any continuing decline in the equity markets, failure of these markets to sustain their prior rates of growth, or continued volatility in these markets could result in investors’ withdrawing from the equity markets or decreasing their rate of investment, either of which would likely adversely affect Levco. Levco’s rates of growth in assets under management and revenues have varied from year to year, and there can be no assurance that the growth rates sustained in the past will continue. Levco is generally a “value” manager, and a general decline in the performance of “value” securities could have an adverse effect on Levco’s revenues.

Poor investment performance could adversely affect Levco’s financial condition

      Success in the investment management industry depends largely on investment performance. Good performance generally stimulates sales of services and investment products and tends to keep withdrawals and redemptions low. This generates higher management fees, which are based on the amount of assets under management and sometimes on investment performance. If Levco experiences poor performance, this will likely result in decreased sales, decreased assets under management and the loss of accounts, with corresponding decreases in revenue.

      Levco also offers event-driven and other alternative investment strategies. The failure to implement these strategies effectively could likewise impact Levco’s revenues.

Adverse developments with regard to significant customers or relationships could adversely affect Levco’s revenues

      As of December 31, 2004, Levco had approximately 240 customers (counting as single customers each wrap fee program and related family and institutional accounts and excluding proprietary pooled investment vehicles and other accounts following alternative investment strategies), of which the ten largest customers generated approximately $19.4 million of revenues for Levco in 2004 (including incentive fees), or approximately 16.3% of BKF’s total fees (see Item 6 — Selected Financial Data).

      The five largest customers for long-only equity products accounted for approximately 38.9% of all asset-based investment advisory fees earned in 2004 with respect to such products. The loss of any of these customers could have an adverse effect on BKF’s revenues.

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      In the institutional marketplace, consultants play a key role in selecting investment managers for their clients. In the event that a consultant advising current clients of Levco takes a negative view of Levco, Levco could lose a number of accounts related to that consultant.

A decrease in Levco’s management fees, the cancellation of investment management agreements or poor investment performance by the Levco private investment funds could adversely affect Levco’s results

      Management Fees. Some segments of the investment management industry have experienced a trend toward lower management fees. Levco must maintain a level of investment returns and service that is acceptable to clients given the fees they pay. No assurance can be given that Levco will be able to maintain its current fee structure or client base. Reduction of the fees for new or existing clients could have an adverse impact on Levco’s profits.

      Cancellation of Investment Management Agreements. It is expected that Levco will derive almost all of its revenue from investment management agreements. For registered investment companies, a majority of the disinterested members of each fund’s board must approve these agreements at least annually and the agreements are terminable without penalty on 60 days’ notice. The agreements with Levco’s separately-managed account clients generally are terminable by the client without penalty and with little or no notice. Any failure to renew, or termination of, a significant number of these agreements could have an adverse effect on Levco.

      Poor Investment Performance of the Private Investment Funds. BKF derives revenue from incentive fees and general partner incentive allocations earned with respect to its proprietary unregistered investment funds. Stronger positive performance by these funds generates higher incentive fees and incentive allocations because those fees and allocations are based on the performance of the assets under management. On the other hand, relatively poor performance will result in lower or no incentive fees or allocations, and will tend to lead to decreased assets under management and the loss of accounts, with corresponding decreases in revenue. In addition, the private investment funds generally operate under “high water mark” provisions, which reduce the incentive fees and general partner incentive allocations earned in periods of positive performance to the extent that prior losses experienced by the fund have not yet been recouped.

Levco is a relatively small public company in a highly competitive business

      Levco competes with a large number of domestic and foreign investment management firms, commercial banks, insurance companies, broker-dealers and other firms offering comparable investment services. Many of the financial services companies with which Levco competes have greater resources and assets under management than Levco does and offer a broader array of investment products and services. Management believes that the most important factors affecting Levco’s ability to attract and retain clients are the abilities, performance records and reputations of its portfolio managers, the ability to hire and retain key investment personnel, the attractiveness of investment strategies to potential investors and competitive fees and investor service. Levco’s ability to increase and retain client assets could be adversely affected if client accounts underperform client expectations or if key investment personnel leave Levco. Levco’s ability to compete with other investment management firms also depends, in part, on the relative attractiveness of its investment philosophies and methods under prevailing market conditions. The absence of significant barriers to entry by new investment management firms in the institutional managed accounts business increases competitive pressure. Since Levco is a relatively smaller asset management company, changes in customers, personnel and products and other business developments may have a greater impact on Levco than they would have on larger, more diversified asset management companies.

Levco is dependent on information systems and administrative, back-office and trade execution functions

      Levco is highly dependent on information systems and technology and depends, to a great extent, on third parties who are responsible for managing, maintaining and updating these systems. No assurance can be given that Levco’s current systems will continue to be able to accommodate its growth or that the costs of its

9

outsourcing arrangements will not increase. The failure to accommodate growth or an increase in costs could have an adverse effect on Levco.

      Success in the investment management industry also depends on the ability of an investment manager, and third parties with whom the investment manager contracts, to successfully perform administrative, back-office and trade execution functions. A failure by Levco or a third party contracted by Levco to perform such functions could adversely impact Levco’s revenues.

Conflicts of interest may arise and adversely affect Levco

      From time to time, Levco’s officers, directors and employees may own securities which one or more of its clients also own. Although Levco maintains internal policies regarding individual investments by its officers, directors and employees which require them to report securities transactions and restrict certain transactions so as to minimize possible conflicts of interest, possible conflicts of interest may arise that could have adverse effects on Levco. Similarly, conflicting investment positions may develop among various investment strategies managed by Levco. Although Levco has internal policies in place to address such situations, such conflicts could have adverse effects on Levco.

Government regulations may adversely affect Levco and BKF

      Virtually all aspects of Levco’s business are subject to various federal and state laws and regulations. Levco is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, recordkeeping, operational and disclosure obligations. John A. Levin & Co. is also registered with the Commodity Futures Trading Commission as a commodity trading advisor and a commodity pool operator, and Levco GP is registered with that agency as a commodity pool operator. John A. Levin & Co. and Levco GP are members of the National Futures Association. LEVCO Securities is registered as a broker-dealer under the Securities Exchange Act of 1934, is a member of the National Association of Securities Dealers, Inc. and is a member of the Municipal Securities Rulemaking Board. In addition, Levco is subject to the Employee Retirement Income Security Act of 1974 and its regulations insofar as it is a “fiduciary” with respect to certain clients. Furthermore, BKF, as a publicly traded company listed on the New York Stock Exchange, is subject to the federal securities laws, including the Securities Exchange Act of 1934, as amended, and the requirements of the exchange.

      These laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict Levco or BKF from conducting its business if it fails to comply with these laws and regulations. If Levco or BKF fails to comply with these laws and regulations, these agencies may impose sanctions, including the suspension of individual employees, limitations on business activities for specified periods of time, revocation of registration, and other censures and fines. Even if in compliance with all laws and regulations, changes in these laws or regulations could adversely affect BKF’s profitability and operations and its ability to conduct certain businesses in which it is currently engaged.

Terrorist attacks could adversely affect BKF

      Terrorist attacks, including biological or chemical weapons attacks, and the response to such terrorist attacks, could have a significant impact on New York City, the local economy, the United States economy, the global economy, and global financial markets. It is possible that the above factors could have a material adverse effect on our business, especially given the fact that all operations are conducted from a single location in New York City and BKF has incurred lease obligations with regard to this location through September 2011.

Special Note Regarding Forward-Looking Statements

      Some of the statements made in this Annual Report on Form 10-K/ A, including statements under “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are not historical facts, including, most importantly, those statements preceded by,

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followed by, or that include the words “may,” “believes,” “expects,” “anticipates,” or the negation thereof, or similar expressions constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. For those statements, BKF claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are based on BKF’s current expectations and are susceptible to a number of risks, uncertainties and other factors, and BKF’s actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the following: retention and ability of qualified personnel; the performance of the securities markets and of value stocks in particular; the investment performance of client accounts; the retention of significant client and/or distribution relationships; competition; the existence or absence of adverse publicity; changes in business strategy; quality of management; availability, terms and deployment of capital; business abilities and judgment of personnel; labor and employee benefit costs; changes in, or failure to comply with, government regulations; the costs and other effects of legal and administrative proceedings; and other risks and uncertainties referred to in this document and in BKF’s other current and periodic filings with the Securities and Exchange Commission, all of which are difficult or impossible to predict accurately and many of which are beyond BKF’s control. BKF will not undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. In addition, it is BKF’s policy generally not to make any specific projections as to future earnings, and BKF does not endorse any projections regarding future performance that may be made by third parties.

Item 2. Properties

      BKF’s executive offices are located at One Rockefeller Plaza, New York, New York. BKF’s offices currently encompass approximately 56,000 square feet and are governed by a lease which expires September 30, 2011 (except for approximately 7,000 square feet for which the lease will expire on November 30, 2008). The majority of BKF’s operations are conducted at this location. BKF believes that these facilities are adequate for its current and anticipated levels of operation. BKF also maintains a business continuity facility located at Five River Bend, Stamford, Connecticut. This facility encompasses approximately 5,000 square feet and is governed by a lease which expires September 30, 2011.

      In February 2005, Levco Europe, LLP entered into a lease for approximately 1,600 square feet at 29-30 St. James Street, London, United Kingdom. This lease will expire in December 2012 and may be terminated by Levco Europe, LLP on 6 months written notice as of December 25, 2007. Levco Europe, LLP will operate from this location and provide investment services to clients following event-driven strategies.

Item 3. Legal Proceedings

      Neither BKF, Levco nor their affiliates are currently involved in any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year ended December 31, 2004.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities

      BKF’s common stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “BKF”. At the close of business on March 1, 2005, there were 721 holders of record of BKF’s common stock.

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      The following table sets forth for the periods indicated (i) the high and low reported sale prices per share for the common stock as reported on the NYSE and (ii) cash dividends per share of common stock declared during the period:

	Stock Price Ranges
					Dividend
2004	High		Low		Declared
First quarter	$	27.00	$	24.72	$	0.10
Second quarter	$	29.90	$	26.40
Third quarter	$	29.40	$	26.01	$	0.225	(a)
Fourth quarter	$	38.00	$	29.80
2003
First quarter	$	18.45	$	16.24
Second quarter	$	22.28	$	15.65
Third quarter	$	24.50	$	20.15
Fourth quarter	$	25.15	$	21.75

(a) reflects dividends of $0.10 declared on July 9, 2004 and $0.125 declared on September 23, 2004.

      BKF declared and paid $2,799,000 in cash dividends in 2004. BKF did not declare or pay any dividends in 2003. A dividend of $0.125 was declared on January 18, 2005. The declaration and payment of dividends by BKF is in the discretion of the board of directors. BKF is a holding company, and its ability to pay dividends is subject to the ability of its subsidiaries to provide cash to BKF. BKF expects to continue its policy of paying regular cash dividends, though there can be no assurance as to future dividends because they are dependent on the results of operations, financial condition, capital requirements and other circumstances.

      The following table provides information about purchases by BKF during the periods indicated of equity securities that are registered by BKF pursuant to Section 12 of the Exchange Act.

      The purchases described below relate to the withholding of shares from employees in order to satisfy statutory withholding requirements in connection with the delivery of common stock underlying Restricted Stock Units.

ISSUER PURCHASES OF EQUITY SECURITIES

	(a)		(b)		(c)		(d)
					Total Number of		Maximum Number (or
					Shares (or Units)		Approximate Dollar Value)
					Purchased as Part		of Shares (or Units) That
	Total Number of				of Publicly		May Yet Be Purchased
	Shares (or Units)		Average Price		Announced Plans		Under the Plans or
Period	Purchased		Paid Per Share		or Programs		Program
10/1/04 – 10/31/04		50,721	$	31.80		Not Applicable		Not Applicable
11/1/04 – 11/30/04		39,439	$	35.12		Not Applicable		Not Applicable
12/1/04 – 12/31/04		73,107	$	37.82		Not Applicable		Not Applicable

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Item 6. Selected Financial Data

      The selected financial data has been derived in part from BKF’s audited 2004, 2003, 2002, 2001 and 2000 unaudited consolidated pro forma statements of operations and should be read in conjunction with such statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K/ A. All amounts are in millions, excluding share and per share data.

			Year Ended December 31,
															Pro Forma
			2004			2003			2002			2001			2000(a)
			(audited)			(audited)			(audited)			(unaudited)			(unaudited)
Revenues:
Investments Management Fees (IMF):
Advisory			$	25.4		$	24.8		$	29.0		$	33.0		$	29.5
Wrap Accounts				9.3			10.2			16.4			16.6			10.3
Event-Driven				28.9			18.7			12.7			8.6			4.5
Long-Short				9.3			2.4			—			—			—
Short-Biased				4.6			4.0			3.4			2.0			1.2
Other Alternative Investments				0.8			0.2			0.3			0.3			0.1
		Total IMF Fees		78.3			60.3			61.8			60.5			45.6
Incentive Fees and Allocations:
Event-Driven				28.6			32.2			17.4			22.2			24.4
Long-Short				8.8			5.2			0.1			—			—
Short-Biased				—			(2.3	)		6.8			2.1			1.5
Other				2.2			0.6			0.1			3.3			2.7
Other Alternative Investments				1.3			0.6			0.2			0.8			0.7
		Total Incentive Fees		40.9			36.3			24.6			28.4			29.3
	Total Fees			119.2			96.6			86.4			88.9			74.9
Commission Income and Other				1.5			2.0			2.9			2.5			1.7
	Total Revenues			120.7			98.6			89.3			91.4			76.6
Expenses:
Employee Compensation and Benefits				93.8			77.8			61.8			60.1			57.4
Non-Compensation Expenses				19.7			25.7			20.6			15.4			11.7
	Total Expenses			113.5			103.5			82.4			75.5			69.1
Income (loss) before interest, taxes and amortization				7.2			(4.9	)		6.9			15.9			7.5
Net investment income				1.6			1.5			1.0			2.9			1.5
Net investment income — consolidated affiliated partnerships (“CAP”)				1.2			2.6			(2.9	)		—			—
Minority interest from CAP				(0.7	)		(1.7	)		3.3			—			—
Amortization of intangibles				(7.0	)		(7.0	)		(7.0	)		(9.5	)		(7.6	)
Income (loss) before taxes				2.3			(9.5	)		1.3			9.3			1.4
Income tax expense (benefit)				4.1			(1.1	)		3.7			7.8			(0.7	)
Income (loss) before cumulative effect of accounting change				(1.8	)		(8.4	)		(2.4	)		1.5			2.1
Cumulative effect of accounting change				—			—			—			—			(53.4	)
Net income (loss)			$	(1.8	)	$	(8.4	)	$	(2.4	)	$	1.5		$	(51.3	)

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	Year Ended December 31,
												Pro Forma
	2004			2003			2002			2001		2000(a)
	(audited)			(audited)			(audited)			(unaudited)		(unaudited)
Per share data:
Basic:
Income (loss) before cumulative effect of accounting change	$	(0.25	)	$	(1.26	)	$	(0.37	)	$	0.23	$	0.32
Cumulative effect of accounting change		—			—			—			—		(8.21	)
Net income (loss)	$	(0.25	)	$	(1.26	)	$	(0.37	)	$	0.23	$	(7.89	)
Diluted:
Income (loss) before cumulative effect of accounting change	$	(0.25	)	$	(1.26	)	$	(0.37	)	$	0.20	$	0.32
Cumulative effect of accounting change		—			—			—			—		(8.15	)
Net income (loss)	$	(0.25	)	$	(1.26	)	$	(0.37	)	$	0.20	$	(7.83	)
Basic weighted average shares outstanding(1)		6,949,031			6,673,371			6,624,313			6,546,077		6,504,890
Diluted weighted average shares outstanding(1)		6,949,031			6,673,371			6,624,313			7,364,333		6,549,889

(1)- Gives effect for reverse stock split of 1 for 6 effectuated January 7, 2000. Assumes same amount of shares were outstanding throughout period.

(a)     The amounts reflect Pro forma income of the Company assuming that the Company had de-registered as an investment company and distributed all of it’s assets as of December 31, 1995 and recasts the acquisition of Levco using purchase accounting with the cumulative effect of accounting change recorded in 2000.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

      BKF operates entirely through Levco, an investment adviser registered with the Securities and Exchange Commission. Levco specializes in managing equity portfolios for institutional and individual investors. Levco offers long-only equity strategies and a range of alternative investment products and other more specialized investment programs. Most clients are based in the United States, though a significant portion of investors in the alternative investment products are located outside the United States.

      Levco acts as the managing general partner of a number of investment partnerships and also acts as an adviser to private investment vehicles organized outside the United States.

      With respect to accounts managed pursuant to its long-only equity strategies, Levco generally receives advisory fees based on a percentage of the market value of assets under management, including market appreciation or depreciation and client contributions and withdrawals. In some cases, Levco receives performance-based fees from accounts pursuing long-only equity strategies. With respect to private investment vehicles and separate accounts managed pursuant to similar strategies, Levco is generally entitled to receive both a fixed management fee based on a percentage of the assets under management and a share of net profits.

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      At December 31, 2004, assets under management at Levco were $13.6 billion, compared to $12.7 billion a year earlier. Following is a comparison of Levco’s assets under management as defined by product and client type:

	At December 31,
	2004		2003		2002
	(In millions)
Long-Only Accounts:
Institutional Accounts	$	2,964	$	2,953	$	2,562
Sub-advisory Accounts		2,641		2,306		1,861
Non-institutional Accounts		1,713		1,640		1,489
Wrap Fee Accounts		2,319		2,502		2,982
Total Long-Only		9,637		9,401		8,894
Alternative Strategies:
Event Driven Accounts		2,568		2,418		1,849
Long-short Accounts		792		434		18
Short-Biased Accounts		422		340		452
Other Private Investment Funds		185		67		72
Total Alternative Strategies		3,967		3,259		2,391
Total	$	13,604	$	12,660	$	11,285

      Levco also has a wholly-owned broker-dealer subsidiary that clears through Bear Stearns on a fully disclosed basis. Generally, the customers of the broker-dealer subsidiary are advisory clients of Levco, and the trades executed through the broker-dealer are generally placed by Levco in its capacity as investment adviser.

      The following discussion and analysis of the results of operations is based on the Consolidated Statements of Financial Condition at December 31, 2004 and 2003, and the Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 of BKF Capital Group, Inc. and Subsidiaries (which are included elsewhere herein) and should be read in conjunction with such financial statements. It should be noted that certain affiliated investment partnerships in which BKF may be deemed to have a controlling interest have been consolidated. The number and identity of the partnerships being consolidated may change over time as the percentage interest held by BKF and its affiliates in affiliated investment partnerships changes. These partnerships and the related minority interests have been reflected in the consolidated financial statements for the annual periods ended December 31, 2004, 2003 and 2002. The consolidation of the partnerships does not impact BKF’s equity or net income.

      Certain statements under this caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward Looking Statements.”

Results of Operations

Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003.

Revenues

      Total revenues for 2004 were $123.49 million, reflecting an increase of 20.2% from $102.74 million in revenues in 2003. This increase was primarily attributable to (i) a 29.8% increase in asset-based management fees from $60.32 million in 2003 to $78.32 million in 2004 and (ii) a 12.8% increase in incentive fees and allocations from $36.29 million to $40.93 million. The increase in asset-based management fees was generated by the growth in average assets under management of the event-driven and long-short equity strategies. These strategies experienced both positive performance and net inflows in 2003 and 2004. In 2004, incentive fees and allocations generated by the largest long-short alternative strategy and certain long-only accounts increased,

15

while incentive fees and allocations from accounts following event-driven strategies decreased. In addition, the increase from 2003 to 2004 was partly driven by the reversal in 2003 of an accrual made with respect to an investment vehicle following a short-biased investment strategy that had a June 30, 2003 fiscal year end.

      Frank Rango, one of the two Senior Portfolio Managers for the event-driven strategies, has announced his intention to step down from such position at the conclusion of 2005. Henry Levin will continue as the sole Senior Portfolio Manager for the group. Henry Levin will continue to be supported by four other Portfolio Managers for the event-driven strategies and two Portfolio Managers focused on investments in distressed debt. The change in responsibilities for Mr. Rango may impact the ability of Levco to retain and attract clients with respect to its event-driven strategies and may impact the revenues generated by the event-driven accounts. The event-driven accounts generated 48% of the Company’s total fees in 2004.

      Net commission income generated by the broker-dealer business fell 28.8% to $1.44 million in 2004 from $2.02 million in 2003, primarily as the result of a decrease in trading volume and an increase in the charges payable to the clearing broker following the retention of Bear Stearns for such services in May 2004. The retention of Bear Stearns was precipitated by the sale by UBS of its affiliated clearing subsidiary, Correspondent Services Corporation.

      Net realized and unrealized gain on investments and interest and dividend income from consolidated affiliated partnerships decreased 55.2% to $1.18 million in 2004 from $2.63 million in 2003. The gains/losses on investments and dividend and interest income from consolidated investment partnerships include minority interests, i.e., the portion of the gains or losses generated by the partnerships allocable to all partners other than Levco GP, Inc., which are separately identified on the consolidated statements of operations.

Expenses

      Total expenses for 2004 were $120.43 million, reflecting an increase of 9.0% from $110.48 million in 2003. Excluding amortization of finite life intangibles and the 2003 loss on the lease amendment, total expenses were $113.42 million, reflecting an increase of 15.3% from $98.35 million in 2003. The largest component of this increase was a 22.2% increase in employee compensation and benefits (excluding grants of equity awards) to $85.09 million in 2004 from $69.63 million in 2003. This increase in compensation expense is primarily attributable to an increase in fee revenues. Compensation with regard to alternative investment products is determined on a different basis than compensation with regard to long-only products. In December 2004, the Compensation Committee of the Board of Directors, taking into consideration business conditions relating to the long-only products and the competition for investment personnel, determined to allow bonus payments (primarily in the form of equity awards to be granted in 2005) in excess of those that would have been permitted pursuant to the compensation guidelines established in 2001 with regard to long-only products. The number of awards to be granted was determined based on the value of BKF stock at the time of the Compensation Committee meeting held in December 2004, but the awards were made in March 2005 and had a value of $3.2 million as of the March 10, 2005 grant date, reflecting a significant increase in the stock price during the intervening period. The expense associated with such awards will be amortized over the period from the grant date through December 31, 2007. Investments made with respect to strategies that have not yet reached critical mass and that are reflected in compensation expense increased to $2.5 million in 2004, as compared to $1.9 million in 2003. The primary new investment in 2004 was in a small cap value strategy, while the fund of funds offering was no longer included in this category in 2004, as compensation by members of this group with respect to marketing activities offset losses from the strategy.

      Expenses associated with employee equity grants increased 6.6% to $8.66 million in 2004 from $8.13 million in 2003 as the result of the vesting of the grants. BKF has not issued any options since December 2001, and all options granted have vested; all expenses relating to equity awards relate to grants of restricted stock units and restricted stock.

      Occupancy and equipment rental decreased 5.3% to $5.99 million in 2004 from $6.32 million in 2003. This decrease resulted primarily from the relinquishment of space at BKF’s headquarters in 2003, which was partly offset by an increase in depreciation and amortization expense resulting from fixed asset additions made in 2003 and 2004 relating to leasehold improvements and computer network upgrades.

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      Other operating expenses of BKF for 2004 were $13.53 million, reflecting a decrease of 4.0% from $14.09 million in 2003. This decrease primarily reflected (i) a decrease in portfolio management and trading system costs (which bear a correlation to the number of accounts managed in wrap fee programs) and (ii) a decrease in consulting fees paid in connection with the establishment of Levco Europe, LLP (as the consultant established an employee relationship so that compensation for 2004 was reflected in employee compensation and benefits), which decreases were partly offset by increases in expenses relating to (i) the implementation of the requirements of the Sarbanes-Oxley Act and (ii) increased premiums for directors and officers/errors and omissions insurance coverage. It should also be noted that a significant portion of management’s time was spent on the implementation of the requirements of the Sarbanes-Oxley Act.

      Other operating expenses from consolidated affiliated partnerships decreased to $26,000 from $177,000 primarily as the result of the decrease in the number and size of the affiliated partnerships being consolidated.

      The $118,000 interest expense reflects imputed interest relating to payments being made in connection with the relinquishment of space pursuant to the lease amendment entered into during the fourth quarter of 2003.

Operating Income (Loss)

      BKF had operating income of $3.06 million in 2004, as compared to an operating loss of $7.75 million in 2003. Excluding amortization of finite life intangibles, the loss on the lease amendment, and gains and losses and interest and dividend income relating to the consolidated affiliated partnerships, operating income was $8.90 million in 2004, as compared to $1.77 million in 2003.

Income Taxes

      BKF recorded an income tax expense of $4.08 million in 2004, as compared to an income tax benefit of $1.08 million in 2003. The deferred tax asset/income tax benefit recorded in 2003 was primarily attributable to future tax benefits relating to (i) future compensation deductions in connection with the delivery of stock underlying restricted stock unit awards and (ii) the loss on the lease amendment. The tax expense recorded in 2004 is primarily due to the increase in pre-tax book income in 2004 as compared to a pre-tax book loss in 2003.

      Excluding the non-deductible amortization expense, BKF had an effective tax rate of 43.74% in 2004, as compared to an effective tax rate of 43.96% in 2003. The difference in effective tax rates in 2004 and 2003 is primarily attributable to state and local taxes due to changes in the allocated income among various taxing jurisdictions.

Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002.

Revenues

      Total revenues for 2003 were $102.74 million, reflecting an increase of 17.5% from $87.41 million in revenues in 2002. This increase was primarily attributable to (i) a 47.6% increase in incentive fees and allocations from $24.59 million to $36.29 million and (ii) a net realized and unrealized gain on investments from consolidated investment partnerships of $2.32 million in 2003 as compared to a loss of $3.54 million in 2002. The gains/losses on investments from consolidated investment partnerships include minority interests, i.e., the portion of the gains or losses generated by the partnerships allocable to all partners other than Levco GP, Inc., which are separately identified on the consolidated statements of operations. These gains were partly offset by a 2.4% decrease in investment advisory fees (excluding incentive fees and allocations) to $60.32 million in 2003 from $61.83 million in 2002.

      The increase in incentive fees primarily resulted from an increase in assets under management in the event-driven and long-short equity products. Incentive fees and general partner allocations are accrued on a quarterly basis but are primarily determined and billed or allocated, as the case may be, at the end of the applicable contract year or upon investor withdrawal. Such accruals may be reversed prior to being earned or allocated as the result of investment performance. In 2003, incentive fees were reduced by the reversal of

17

accruals made in 2002 with respect to an account following a short-biased strategy that had a June 30 fiscal year end. The decrease in investment advisory fees was attributable to (1) a decrease in the average assets under management pursuant to the long-only strategies and (2) a decrease in the average fees paid with respect to accounts managed pursuant to such strategies, which decrease was partially offset by the increase in investment advisory fees attributable to event-driven and long-short equity strategies.

      The percentage of total fees attributable to event-driven strategies increased to approximately 53% in 2003 from 35% in 2002.

      Net commission income generated by the broker-dealer business fell 31.3% to $2.02 million in 2003 from $2.94 million in 2002, primarily as the result of a decrease in the number of accounts at the broker-dealer and a decrease in commission rates.

      In 2003, BKF had realized and unrealized gains on investments (excluding consolidated affiliated partnerships) of $1.02 million, comprised primarily of (1) the receipt of approximately $189,000 from the settlement of class action suits relating to investments made by BKF during the time it was a registered investment company and (2) net gains of $785,000 in its investments in a range of alternative investment strategies (excluding $8.93 million in incentive allocations from affiliated partnerships). As of year end, approximately $8.10 million (excluding incentive allocations) was invested in such strategies. In 2002, BKF had realized and unrealized gains on investments (excluding consolidated affiliated partnerships) of $31,000, reflecting (1) the receipt of approximately $185,000 from the settlement of class action suits relating to investments made by BKF during the time it was a registered investment company and (2) the net losses in its investments in a range of long only and alternative investment strategies (excluding $7.50 million in incentive allocations from affiliated partnerships). As of year end 2002, approximately $1.83 million (excluding incentive allocations) was invested in such strategies. Realized and unrealized gains and losses on investments in affiliated, non-consolidated investment partnerships are recorded by BKF under the equity method of accounting based on BKF’s proportionate share of the income or loss earned or incurred by the partnerships.

      Interest income in 2003 (excluding consolidated affiliated partnerships) was $453,000, reflecting a 30.8% decrease from $655,000 in 2002. This decrease is primarily attributable to a decrease in interest rates.

      Interest and dividend income from consolidated affiliated partnerships in 2003 was $309,000, reflecting a 65.8% decrease from $904,000 in 2002. This decrease is primarily attributable to the decrease in the number, and the corresponding decrease in the assets under management, of the affiliated partnerships being consolidated.

Expenses

      Total expenses for 2003 were $110.48 million, reflecting an increase of 23.5% from $89.46 million in 2002. Excluding amortization of finite life intangibles and the loss on the lease amendment, total expenses were $98.35 million, reflecting an increase of 19.3% from $82.45 million in 2002. The largest component of this increase was a 16.1% increase in employee compensation and benefits (excluding grants of equity awards) to $69.63 million in 2003 from $59.97 million in 2002. This increase in compensation expense is primarily attributable to an increase in the percentage of revenues paid as compensation with respect to certain alternative investment products and an increase in the percentage of total revenues attributable to alternative investment strategies. Compensation with regard to alternative investment products is determined on a different basis than compensation with regard to long-only products. In December 2003, the Compensation Committee of the Board of Directors, taking into consideration market and business conditions relating to the long-only strategies, determined to allow bonus payments (partly in the form of equity awards to be granted in 2004) in excess of those that would have been permitted pursuant to the compensation guidelines established in 2001 with regard to long-only products.

      Expenses associated with the grant of employee equity awards increased 339.1% to $8.13 million in 2003 from $1.85 million in 2002, primarily as the result of equity awards granted in both 2002 and 2003 (including restricted stock units granted in exchange for options).

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      Occupancy and equipment rental increased 7.7% to $6.32 million in 2003 from $5.87 million in 2002. This increase resulted primarily from depreciation expense relating to capital expenditures made in connection with the development of the technological infrastructure and the construction of the office facility.

      In 2003, BKF recorded a $5.13 million loss related to a lease amendment that was entered into in October 2003. Under the amendment, BKF relinquished space and reduced its rent expense by approximately $4.4 million over the remaining term of the lease.

      The expense accrual was calculated based on the net present value of the payments representing the difference between the amounts that BKF was obligated for on the space it relinquished and the amounts the landlord will receive from the tenant succeeding BKF in the relinquished space.

      Other operating expenses of BKF for 2003 were $14.09 million, reflecting a decrease of 2.1% from $14.39 million in 2002. This decrease primarily reflected (i) a decrease in portfolio management and trading system costs (which bear a correlation to the number of accounts managed in wrap fee programs) and (ii) the reversal of an accrual made with respect to payments to third party marketers (as the result of the reversal of accrued incentive fees with regard to short-biased products), which were partly offset by increased insurance premiums for directors and officers/errors and omissions coverage.

      Other operating expenses from consolidated affiliated partnerships decreased by 51.2% to $177,000 from $363,000 primarily as the result of the decrease in the number of the affiliated partnerships being consolidated.

Operating Loss

      BKF had an operating loss of $7.75 million in 2003, as compared to an operating loss of $2.05 million in 2002. Excluding amortization of finite life intangibles, the loss on the lease amendment, and gains and losses and interest and dividend income relating to the consolidated affiliated partnerships, operating income was $1.77 million in 2003, as compared to $7.60 million in 2002. As discussed above, the largest factor in this decrease was the increase in employee compensation and benefits (including expenses relating to equity awards), which exceeded the increase in incentive fees and allocations.

Income Taxes

      BKF recorded an income tax benefit of $1.08 million in 2003, as compared to an income tax expense of $3.69 million (net of a deferred tax benefit of $793,000) in 2002. The deferred tax asset is primarily attributable to future tax benefits relating to (i) future compensation deductions in connection with the delivery of stock underlying restricted stock unit awards and (ii) the loss on the lease amendment.

      Excluding the non-deductible amortization expense, BKF had an effective tax rate of 43.96% in 2003, as compared to an effective tax rate of 44.7% in 2002. The difference in effective tax rates in 2003 and 2002 is primarily attributable to state and local taxes due to changes in the allocated income among various taxing jurisdictions.

Liquidity and Capital Resources

      BKF’s current assets as of December 31, 2004 consist primarily of cash, U.S. Treasury bills, advisory fees receivable and marketable equity securities. While BKF’s daily business operations are not generally capital intensive, BKF utilizes capital to develop and seed new investment products. The development of new products is an important element in BKF’s business plan, and such seed capital investments may require substantial financial resources. Due to its relatively small size, BKF may consider a number of options to obtain such seed capital. BKF has historically met its cash and liquidity needs through cash generated by operating activities. At December 31, 2004, BKF had cash, cash equivalents and U.S. Treasury bills of $44.05 million, as compared to $37.44 million at December 31, 2003. This increase primarily reflects the collection of fees and receivables during 2004 and the annual withdrawal of general partner incentive allocations from affiliated investment partnerships, which was partly offset by the payment of dividends, the purchases of fixed assets and the investment of capital in affiliated investment partnerships. The increase in investment advisory and incentive fees receivable from $37.84 million at December 31, 2003 to $40.01 million

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at December 31, 2004 primarily reflects the accrual of incentive fees (which are primarily earned as of the conclusion of the calendar year) , which was partly offset by the receipt in 2004 of incentive fees earned in 2003.

      The increase in investments in securities to $5.79 million at December 31, 2004 from $4.38 million at December 31, 2003, primarily reflects an additional investment in an affiliated non-US private investment vehicle. The increase in prepaid expenses and other assets to $7.05 million at December 31, 2004 from $3.89 million at December 31, 2003 primarily reflects a tax receivable and the subscription in advance for interests in an unaffiliated investment fund.

      The decrease in deferred tax assets to $8.39 million in 2004 from $8.67 million in 2003 is primarily attributable to the delivery of shares of stock underlying restricted stock unit awards and the exercise of stock options for which deferred tax assets were set up in the year the awards and options vested.

      The increase in investments in securities from consolidated affiliated partnerships to $6.52 million at December 31, 2004 from $3.93 million at December 31, 2003, and the decrease in due from broker from consolidated affiliated partnerships from $4.25 million at December 31, 2003 to $952,000 at December 31, 2004 reflects the numbers and size of the funds consolidated.

      Accrued expenses were $4.08 million at December 31, 2004, as compared to $3.35 million at December 31, 2003. The largest component of such expenses is the accrual for third party marketing fees. Expenses accrued during 2004 were offset primarily by the payment of accrued third party marketing fees.

      Accrued bonuses were $42.69 million at December 31, 2004, as compared to $39.73 million at December 31, 2003, reflecting the payment of 2003 bonuses and the accrual for 2004 bonuses.

      The decrease in accrued lease amendment expenses to $3.84 million at December 31, 2004 from $4.54 million at December 31, 2003 reflects payments made pursuant to the lease amendment under which space was surrendered.

      Based upon BKF’s current level of operations and anticipated growth, BKF expects that cash flows from operating activities will be sufficient to finance its working capital needs for the foreseeable future. BKF’s business is not seasonal. Except for the lease commitments and related expenditures described below, BKF has no material commitments for capital expenditures. The Company has office space obligations that require monthly payments plus escalations through September 2011.

Off Balance Sheet Risk

      Levco GP serves as the managing general partner for several affiliated investment partnerships which trade primarily in equity securities or, in the case of one partnership, in distressed corporate debt. As of December 31, 2004, total partners’ capital in these partnerships was approximately $614.13 million. As of December 31, 2004, the sum total of Levco GP’s capital accounts in the affiliated investment partnerships was approximately $17.36 million. The financial condition and results of operations of certain of these affiliated investment partnerships are not included in BKF’s consolidated statements of financial condition (except to the extent of Levco GP’s equity ownership). Levco GP has not guaranteed any of the affiliated investment partnerships’ obligations, nor does it have any contractual commitments associated with them.

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Contractual Obligations

      As of December 31, 2004, the Company’s contractual obligations, including payments due by period, are as follows ($ in thousands):

	Payments Due by Period
	Total		2005		2006-2007		2008-2009		Thereafter
Operating leases	$	22,937	$	3,002	$	6,104	$	7,378	$	6,453
Accrued lease loss amendment		3,843		415		1,048		1,074		1,306
Total Contractual Obligations		26,780		3,417		7,152		8,452		7,759
Operating lease — UK (executed February 2005)		997		82		262		262		391
Total Contractual Obligations, subsequent to December 31, 2004	$	27,777	$	3,499	$	7,414	$	8,714	$	8,150

Critical Accounting Policies

Revenue Recognition and Related Expenses

      With respect to incentive fees and allocations, BKF has elected to accrue income on a quarterly basis, though such fees and allocations are determined and billed or allocated at the end of the applicable measurement period. Such accruals, as well as related compensation and third party referral fees, may be reversed as the result of subsequent investment performance prior to the conclusion of the applicable contract year or investor withdrawal. Alternatively, BKF could have adopted a policy of not recognizing such fees or allocations until the respective payments are fixed at the end of the performance measurement period. Since most incentives fees or allocations are determined as of the end of the calendar year, the adoption of a revenue recognition policy that defers recognition of incentive fees or allocations and associated expenses could result in much lower levels of income, and associated compensation expenses, for periods prior to the fourth quarter. BKF’s annual financial results would not be materially affected, as most of the performance measurement periods conclude on December 31.

Purchase Price Allocation

      In order to account for the acquisition of Levco by BKF in 1996 utilizing the purchase method of accounting, Levco’s cost in excess of net assets was reflected in the following intangible items: goodwill, employment contracts for key personnel and investment advisory contracts. The total value of these intangibles at the time of the acquisition was $116.8 million. BKF determined that 20% of that amount was attributable to goodwill, 20% to the employment contracts and 60% to the investment contracts. BKF amortizes the value of the investment contracts over a ten year period, and amortized the employment contracts, which have all expired, over their respective terms. Pursuant to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” commencing in 2002, the net carrying value of the goodwill of $14.8 million at December 31, 2001, ceased to be amortized. Goodwill is subject to an annual impairment test.

Investments in Affiliated Investment Partnerships

      Levco GP serves as the managing general partner for several affiliated investment partnerships which are not consolidated with BKF. These general partnerships are periodically assessed to determine whether the underlying assets and liabilities should be consolidated. See “Item 7 — Off Balance Sheet Risk.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Since BKF’s revenues are largely driven by the market value of Levco’s assets under management, these revenues are exposed to fluctuations in the equity markets. Management fees for most accounts are determined based on the market value of the account on the last day of the quarter with respect to which the

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investment advisory fee is charged, so any significant increases or decreases in market value occurring on or shortly before the last day of a quarter may materially impact revenues for the quarter. Furthermore, since Levco manages most of its assets in a large cap value style, a general decline in the performance of value stocks could have an adverse impact on Levco’s revenues. Similarly, a lack of opportunity to implement, or a failure to successfully implement, Levco’s event-driven strategies, could reduce performance based incentive fees and allocations and thereby negatively impact BKF’s revenues. In addition, as of December 31, 2004 and 2003, BKF had invested (1) $1.34 million and $1.05 million, respectively, in seed capital for long-only equity products, which investments could be similarly impacted by a decline in the performance of value stocks, and (2) $18.95 million and $13.36 million (excluding accrued incentive allocations), respectively, in proprietary alternative investment strategies, which are also exposed to market fluctuations.

      The following table (dollars in thousands) summarizes our investments as of December 31, 2004 and December 31, 2003 in long-only equity products and alternative investment strategies (excluding incentive allocations) and provides a sensitivity analysis assuming a 10% increase or decrease in the value of these investments.

			Fair Value Assuming		Fair Value Assuming
			10% Decrease in		10% Increase in
	Fair Value		Equity Price		Equity Price
At December 31, 2004
Equity price sensitive investments, at fair value	$	20,295	$	18,266	$	22,325
At December 31, 2003
Equity price sensitive investments, at fair value	$	14,413	$	12,972	$	15,854

Item 8. Financial Statements and Supplemental Data

      The independent auditor’s reports and financial statements listed in the accompanying index are included in Item 15 of this Annual Report on Form 10-K/ A. See Index to Financial Statements on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      There have been no disagreements on accounting or financial disclosure matters.

Item 9A. Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

      BKF’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, BKF conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”). Based on our evaluation under the COSO Framework, management concluded that BKF’s internal control over financial reporting was effective as of December 31, 2004.

Changes in Internal Control over Financial Reporting

      There have been no changes in BKF’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during BKF’s most recent quarter that has materially affected, or is reasonably likely to materially affect, BKF’s internal control over financial reporting.

      It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of

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these and other inherent limitations of control systems, there is only reasonable assurance that BKF’s controls will succeed in achieving their stated goals under all potential future conditions.

      BKF’s Chief Executive Officer and Chief Financial Officer have furnished in this Annual Report on Form 10-K/ A the certifications required under Sections 306 and 902. In addition, BKF’s Chief Executive Officer has certified to the New York Stock Exchange that he is not aware of any violations by BKF of the corporate governance listing standards of the NYSE.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

     BKF Capital Group, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A., that BKF Capital Group, Inc. (a Delaware corporation) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). BKF Capital Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that BKF Capital Group, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Also in our opinion, BKF Capital Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of BKF Capital Group, Inc. and Subsidiaries of December 31, 2004, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended and our report dated March 10, 2005 expressed an unqualified opinion on those financial statements.

/s/ Grant Thornton LLP

New York, New York

March 10, 2005

PART III

Item 10. Directors and Executive Officers.

      The following table sets forth certain information about the current directors of the Company that are nominated for election in the Company’s annual meeting of stockholders in 2005.

DIRECTORS NOMINATED FOR ELECTION

					Expiration of
Name, Age, and Principal			Director		Current		Expiration of		Other Business
Occupation During the Last Five Years	Since		Class		Term		Term if Elected		Affiliation(s)
J. Barton Goodwin — age 58 Managing Director of BCI Partners, Inc. (private capital investment group); General Partner of Bridge Associates II . (private capital investment group) and Teaneck Associates . (private capital investment group) and member of Glenpointe Associates, LLC . (private capital investment group), Glenpointe V, LLC . (private capital investment group) and BCI Investors, LLC . (private capital investment group) since 1986		1987		III		2005		2008
John A. Levin — age 66 Chairman since February 2000; Chief Executive Officer and President of the Company and Chairman and Chief Executive Officer of Levin Management Co., Inc. and John A. Levin & Co., Inc. since June 1996; prior thereto, President and Securities Analyst/ Portfolio Manager of the predecessor to John A. Levin & Co., Inc.		1996		III		2005		2008
Burton G. Malkiel — age 72 Professor of Economics, Princeton University since 1964		1982		III		2005		2008	Director of Vanguard Group of Investment Funds (106 funds)

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      The following table sets forth certain information about the current directors of the Company that will continue in office.

DIRECTORS CONTINUING IN OFFICE

					Expiration of
Name, Age, and Principal			Director		Current
Occupation During the Last Five Years	Since		Class		Term			Other Business Affiliation(s)
Barton M. Biggs — age 72 Managing Partner, Traxis Partners since June 2003; prior thereto, Managing Director, Morgan Stanley since 1973; Chairman, Morgan Stanley Asset Management since 1975; Chairman, Morgan Stanley Institutional Funds (1996-2003)		2003		I		2006
David D. Grumhaus — age 69 Travel 100 Group (travel company) and Casey Travel Corporation (travel agency) since 1991		1988		I		2006	(1)	Director of Niche Software Systems, Inc. (computer software company)
James S. Tisch — age 52 President since October 1994 and Chief Executive Officer since January 1999 of Loews Corporation (holding company whose subsidiaries are engaged in the following lines of business: insurance; production and sale of cigarettes; operation of hotels; natural gas transmission; operation of offshore oil and gas drilling rigs; and distribution and sale of watches and clocks) and Chief Executive Officer of Diamond Offshore Drilling, Inc. (offshore oil and gas company) since March 1998; prior thereto, Chief Operating Officer of Loews Corporation		2000		I		2006		Director of CNA Financial Corp. (holding company whose subsidiaries consist of insurance companies) and Vail Resorts, Inc. (resort operator)
Anson M. Beard, Jr. — age 69 Retired, former investment banker		2000		II		2007
Peter J. Solomon — age 66 Chairman of Peter J. Solomon Company, L.P. and Peter J. Solomon Securities Co., Ltd. (investment banking) since 1989		2000		II		2007		Director of Monro Muffler Brake, Inc. (automotive repair services) and Phillips-Van Heusen Corporation (apparel and footwear marketer/ manufacturer)
Dean J. Takahashi — age 47 Senior Director of Investments, Yale University, since 1996		1997		II		2007

(1)  Mr. Grumhaus currently expects to retire in May 2005.

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      The following table sets forth certain information of the executive officers of the Company.

Name, Age, and Principal		Year First Elected or Became an
Occupation During the Last Five Years(1)	Office	Executive Officer
John A. Levin — age 66 Chairman since February 2000, Chief Executive Officer and President of the Company and Chairman and Chief Executive Officer of Levin Management Co., Inc. and John A. Levin & Co., Inc. since June 1996; prior thereto, President and Securities Analyst/ Portfolio Manager of the predecessor to John A. Levin & Co., Inc.	Chairman, Chief Executive Officer and President	2000 (as Chairman) 1996 (as CEO and President)
Glenn A. Aigen — age 42 Senior Vice President, Chief Financial Officer and Treasurer of the Company, Levin Management Co., Inc. and John A. Levin & Co., Inc. since February 2000; Vice President, Chief Financial Officer and Director of Operations of Levin Management Co., Inc. and John A. Levin & Co., Inc. from June 1996 to February 2000; prior thereto, Director of Operations of the predecessor to John A. Levin & Co., Inc. since 1993	Senior Vice President, Chief Financial Officer and Treasurer	2000
Norris Nissim — age 38 Vice President, General Counsel and Secretary of the Company and Vice President and General Counsel of Levin Management Co., Inc. and John A. Levin & Co., Inc. since February 2000; Director of Legal Affairs of Levin Management Co., Inc. and John A. Levin & Co., Inc. from August 1996 to February 2000	Vice President, General Counsel and Secretary	2000
Henry L. Levin — age 42(2) Senior Portfolio Manager of John A. Levin & Co., Inc. and of Levin Management Co., Inc. for the previous five years. Mr. Levin joined the John A. Levin & Co., Inc. and Levin Management Co., Inc. in 1991	Senior Portfolio Manager	2005
Frank F. Rango — age 49(2) Senior Portfolio Manager of John A. Levin & Co., Inc. and of Levin Management Co, Inc. for the previous five years. Mr. Rango joined John A. Levin & Co., Inc. and Levin Management Co., Inc. in 1987	Senior Portfolio Manager	2005

(1)	Each executive officer of the Company generally holds office until the first meeting of the Board of Directors after the Annual Meeting of stockholders and until his or her successor is elected and qualified. Gregory T. Rogers resigned as the Company’s Executive Vice President and Chief Operating Officer effective September 30, 2004.
(2)	Messrs. Levin and Rango became executive officers of the Company for purposes of the SEC regulations on April 19, 2005 and therefore were not executive officers of the Company during fiscal 2004. See the section entitled “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” for a description of their respective employment agreements.

Audit Committee and Audit Committee Financial Expert

      The primary purpose of the audit committee (the “Audit Committee”) is (i) to oversee the accounting and financial reporting processes of the Company, the Company’s compliance with legal and regulatory

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requirements, and the work of the independent registered public accounting firm of the Company, and (ii) to select, and determine the compensation of, such independent registered public accounting firm. The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The Audit Committee had five meetings during 2004.

      The Audit Committee is composed of David D. Grumhaus, J. Barton Goodwin and Burton G. Malkiel. Each member is independent and financially literate, as defined by The New York Stock Exchange’s listing standards that apply to the Company, and at least one member has accounting or financial management expertise, as required by these listing standards. The Board of Directors has determined that while no current member of the Audit Committee possesses all of the attributes of an “audit committee financial expert” (as defined by the Securities and Exchange Commission (the “SEC”)), the committee members have the appropriate experience and ability to perform their duties as Audit Committee members.

Code of Ethics

      The Board of Directors has adopted a Code of Ethics for the Chief Executive Officer, Chief Financial Officer and certain other personnel. These documents may be obtained, without charge, by writing to the Company at One Rockefeller Plaza, 19th Floor, New York , New York 10020 or by calling (800) Bkf-1891, and are posted on the Company’s website at www.bkfcapital.com.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Each director and executive officer of the Company and each beneficial owner of 10% or more of the Company’s common stock is required to report his or her transactions in shares of Company common stock to the SEC within a specified period following a transaction. Based on our review of filings with the SEC and written representations furnished to us during 2004, the directors, executive officers and 10% beneficial owners filed all such reports within the specified time period except that Messrs. Beard, Biggs, Goodwin, Grumhaus, Malkiel, Solomon, Takahashi and Tisch failed to timely file one report of a transaction related to the grant of restricted common stock under the Company’s 1998 Incentive Compensation Plan due to an administrative oversight. In each case, a report was filed promptly following discovery of the oversight.

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Item 11. Executive Compensation.

Executive Officer Compensation

      The following table sets forth compensation for the years ended December 31, 2004, December 31, 2003 and December 31, 2002 received by the Company’s Chief Executive Officer, and the Company’s two other executive officers serving at the end of fiscal year 2004. These three officers are referred to as the “Named Executive Officers.” The table also sets forth compensation for Gregory Rogers, who served as Executive Vice President and Chief Operating Officer through September 30, 2004.

SUMMARY COMPENSATION TABLE

				Annual Compensation						Long Term Compensation
										Restricted			Securities
Name and								Other Annual		Stock			Underlying		All Other
Principal Position		Year		Salary($)		Bonus($)		Compensation(1)		Award(S)(2)			Options(#)		Compensation(3)
John A. Levin			2004		914,862		1,074,946		—		1,123,439	(4)				7,000
	Chairman, Chief		2003		894,293		501,269		—		514,934	(5)		—		7,000
	Executive Officer		2002		886,819		218,737		—		2,644,204	(6)		—		12,000
	and President
Glenn A. Aigen			2004		247,665		746,465		—		59,430	(7)				6,500
	Senior Vice President		2003		242,097		673,347		—		35,071	(8)		—		6,000
	and Chief Financial		2002		240,074		942,210		—		426,899	(9)		—		11,000
	Officer
Norris Nissim			2004		237,573		255,941		—		124,506	(10)				6,500
	Vice President and		2003		232,232		167,768		—		—			—		—
	General Counsel		2002		230,290		169,000		—		79,575	(11)		—		11,000
Gregory T. Rogers(12)			2004		315,779		97,677		—		—			—		(12	)
	Former Executive Vice		2003		421,038		598,766		—		—			—		6,000
	President and Chief		2002		417,519		910,094		—		679,719	(13)		—		11,000
	Operating Officer

(1)	With respect to each of the Named Executive Officers and Mr. Rogers, perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus.
(2)	Holders of restricted stock have the same right to receive dividends as holders of other common stock of the Company.
(3)	Represents amounts contributed by the Company to the Company’s 401(k) plan. The Company did not grant any options in 2004 to any Named Executive Officers and Mr. Rogers.
(4)	Represents the fair market value, as of the grant date, of 24,465 shares of restricted stock granted on March 10, 2005 with respect to 2004 bonus compensation. One third of these shares will vest on December 31, 2005, December 31, 2006 and December 31, 2007, respectively.
(5)	Represents the fair market value, as of the grant date, of 20,321 shares of restricted stock granted on March 10, 2004 with respect to 2003 bonus compensation. The shares of restricted stock vest on March 9, 2007.
(6)	Represents the fair market value, as of the grant date, of 161,725 Restricted Stock Units (“RSU”) granted on March 12, 2003 with respect to 2002 bonus compensation. With respect to 71,320 of these RSUs, one third vested on each of December 31, 2003 and December 31, 2004 and one third will vest on December 31, 2005, but the delivery of the shares of common stock underlying the RSUs will not occur until December 31, 2005, and delivery may be deferred by the Named Executive Officer. With respect to the other 90,405 RSUs, such RSUs will vest on December 31, 2005, but the delivery of shares of common stock underlying the RSUs may be deferred by the Named Executive Officer.

       As of December 31, 2004, Mr. Levin held an additional 71,413 RSUs with an aggregate value of $2,706,553.

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(7)	Represents the fair market value, as of the grant date, of 1,400 shares of restricted stock granted on March 10, 2005. One third of these shares will vest on each of December 31, 2005, December 31, 2006 and December 31, 2007, respectively.
(8)	Represents the fair market value, as of the grant date, of 1,384 shares of restricted stock granted on March 10, 2004 with respect to 2003 bonus compensation. The shares of restricted stock vest on March 9, 2007.
(9)	Represents the fair market value, as of the grant date, of 26,110 RSUs granted on March 12, 2003 with respect to 2002 bonus compensation. With respect to 6,110 of these RSUs, one third vested on each of December 31, 2003 and December 31, 2004 and one third will vest on December 31, 2005, but the delivery of the shares of common stock underlying the RSUs will not occur until December 31, 2005, and delivery may be deferred by the Named Executive Officer. With respect to the other 20,000 RSUs, such RSUs will vest on December 3, 2005, but the delivery of shares of common stock underlying the RSUs may be deferred by the Named Executive Officer.

       As of December 31, 2004, Mr. Aigen held an additional 66,430 RSUs with an aggregate value of $2,517,697.

(10)	Represents the fair market value, as of the grant date, of 2,933 shares of restricted stock granted on March 10, 2005. One third of these shares will vest on each of December 31, 2005, December 31, 2006 and December 31, 2007, respectively.
(11)	Represents the fair market value, as of the grant date, of 4,867 RSUs granted on March 12, 2003 with respect to 2002 bonus compensation. The RSUs will vest on December 3, 2005, but the delivery of shares of common stock underlying the RSUs may be deferred by the Named Executive Officer.
(12)	Mr. Rogers resigned from the Company effective September 30, 2004. On September 30, 2004, Mr. Rogers entered into a Separation Agreement and General Release, dated as of September 29, 2004 with Levin Management Co., Inc., a subsidiary of the Company (“Levin Management”). Under such agreement, Mr. Rogers received or will receive the following payments: (i) a lump sum separation amount of $97,677 to be paid on or about September 30, 2004, (ii) a payment of $12,500 on each of January 1, 2005, February 1, 2005, March 1, 2005, April 1, 2005, May 1, 2005 and June 1, 2005 for consulting services to be rendered to Levin Management for the period January 1, 2005 through June 30, 2005 and (iii) a payment of $37,500 on each of July 1, 2005 and September 1, 2005 for consulting services to Levin Management provided that Mr. Rogers has established a bona fide consulting business. Levin Management will also pay for Mr. Rogers’ medical benefits until the earlier of September 30, 2005 or until Mr. Rogers becomes employed and covered by another group insurance plan. Such agreement also provided for the delivery to Mr. Rogers, within 30 days of September 30, 2004, of an aggregate of 76,128 shares of the Company’s common stock issuable under deferred stock agreements between the Company and Mr. Rogers. Mr. Rogers is entitled to receive the cash value of 3,334 shares (valued as of September 30, 2004), in lieu of the receipt of such shares, by giving written notice, which Mr. Rogers has provided. In addition, pursuant to the terms of an option award agreement, Mr. Rogers had 30 days from September 30, 2004 to purchase up to 65,049 shares of the Company’s common stock underlying stock options granted to him at an exercise price of $13.03125 per share (the exercise price of the options). For all shares of the Company’s common stock to be delivered to Mr. Rogers under the separation agreement, Mr. Rogers is required to grant to persons designated by the Company his proxy to vote in accordance with the recommendation of management with respect to any matters to be voted on by stockholders of the Company. The separation agreement also includes a mutual release of claims between Mr. Rogers and Levin Management.
(13)	Represents the fair market value, as of the grant date, of 41,573 RSUs granted on March 12, 2003 with respect to 2002 bonus compensation. Under the original terms of such grant, (i) with respect to 13,240 of these RSUs, one third vested on each of December 31, 2003 and December 31, 2004 and one third will vest on December 31, 2005, but the delivery of the shares of common stock underlying the RSUs will not occur until December 31, 2005, and delivery may be deferred by Mr. Rogers.; (ii) with respect to the other 28,333 RSUs, such RSUs will vest on December 3, 2005, but the delivery of shares of

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common stock underlying the RSUs may be deferred by Mr. Rogers. See footnote (12) above for settlement of such RSUs.

Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values

      The following table sets forth certain information concerning the exercise of options to purchase the Company’s common stock during 2004 by the Named Executive Officers and the value of unexercised in-the-money options to purchase shares of the Company’s common stock granted to the Named Executive Officers outstanding as of December 31, 2004.

					Number of Securities Underlying		Value of Unexercised In-The-
	Shares				Unexercised Options at Fiscal		Money Options at Fiscal
	Acquired		Value		Year-End 2004 (#)		Year-End 2004 ($)(1)
Name	on Exercise		Realized ($)		Exercisable/Unexercisable		Exercisable/Unexercisable
John A. Levin		34,570		787,116		0/0		0/0
Gregory T. Rogers(2)		65,049		1,279,433		0/0		0/0
Glenn A. Aigen		0		0		19,555/0		440,063/0
Norris Nissim		0		0		0/0		0/0

(1)	On December 31, 2004, the closing price of the Company’s common stock on The New York Stock Exchange was 27.90 per share.
(2)	Gregory T. Rogers resigned effective as of September 30, 2004.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

      Except as described below, none of the Named Executive Officers is subject to an employment contract or change-in-control arrangement.

      Gregory T. Rogers resigned from the Company effective September 30, 2004. On September 30, 2004, Mr. Rogers entered into a Separation Agreement and General Release, dated as of September 29, 2004 with Levin Management. For a detailed description of this agreement, see Footnote 12 to the Summary Compensation Table.

      On April 19, 2005 the Company and Levin Management (the Company, together with Levin Management, the “Employers”) entered into a letter agreement relating to certain a payment arrangements with each of Henry L. Levin and Frank F. Rango (each, a “Manager”).

      The term of each Manager’s employment under the Letter Agreement is January 1, 2005 through March 31, 2006 (the “Term”). The Letter Agreement provides that (A) if a Manager is employed by the Employers as of December 31, 2005 (even if notice of his resignation has been given), or if a Manager is terminated by the Employers without Cause (as defined in the Letter Agreement) prior to such date, such Manager shall receive as his total compensation for 2005 50% of the Incentive Pool for 2005 (as defined in and payable in accordance with the Letter Agreement); (B) each Manager shall, during his employment, receive a non-refundable base draw (the “Base Draw”) at an annual rate of $800,000, payable no less frequently than monthly; (C) any Manager whose employment is terminated prior to December 31, 2005 by the Employers for Cause shall receive his Base Draw accrued through the date of such termination, but shall not otherwise be allocated any portion of the Incentive Pool for calendar year 2005; (D) if a Manager’s employment is terminated without Cause, such Manager shall (in addition to his entitlement to 50% of the Incentive Pool for calendar year 2005 under clause (A) above), be entitled to a lump-sum payment equal to (i) $4 million if terminated on or prior to July 1, 2005, (ii) $3 million if terminated after July 1, 2005 and on or prior to October 1, 2005, and (iii) $2 million if terminated after October 1, 2005 and on or prior to the conclusion of the Term. This payment shall not reduce the amount of the Incentive Pool payments payable to the other Manager; (E) during the Term, a Manager shall remain entitled to any additional benefits due under the applicable terms of any applicable plan, program, corporate governance document, agreement, or arrangement of either Employer or any of their affiliates; (F) each Manager shall be entitled to the indemnification and director and officer insurance protections set forth in the Letter Agreement; and

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(G) neither Manager shall be subject to any contractual, or similar, post-employment restrictions on his activities following termination of his employment with the Employers for any reason.

      The Letter Agreement also provides that (A) compensation of all employees who were members of the event-driven group during any portion of 2005 except Messrs. Rango and Levin (“Team Members”) and product-related expenditures for the event-driven group shall be determined by the Managers consistent with past practice; provided, however, that compensation of Team Members may not exceed 67% of (i) the revenues generated by the event-driven group less (ii) all internal and external marketing commissions; and (B) if both Managers remain employed prior to full payment of compensation to the Team Members for 2005 but they do not agree on the amounts of such payments to be made to the Team Members, then the Compensation Committee of the Company shall determine the compensation to be paid to the Team Members. If the employment of one Manager (but not both Managers) terminates for any reason prior to full payment of compensation to the Team Members for 2005, then the other Manager (if still employed) shall have full authority to act under clauses (A) and (B) of this paragraph. In the event that neither Manager is employed at the time full payment of compensation to the Team for 2005 is due, then the compensation of Team Members (other than the Managers) shall be set at 50% of the revenues generated by the event-driven group in respect of the 2005 year.

Compensation Committee Interlocks And Insider Participation

      Anson M. Beard, Jr., David D. Grumhaus and Burton G. Malkiel served as members of the Compensation Committee during 2004. None of these persons was ever an officer or employee of the Company or any of its subsidiaries. During 2004, none of the Company’s executive officers served on the Board of Directors or the Compensation Committee of any entity which had an executive officer who served on the Company’s Board of Directors or Compensation Committee.

Directors’ Compensation

      Company employees who serve as directors of the Company receive no compensation for such services. Non-employee directors currently receive approximately $34,000 per year in the form of restricted stock awards (as valued at the date of grant) which vest over the course of the year. In 2004, an annual grant of 1,200 shares of restricted common stock was made. In addition to the restricted stock awards, non-employee directors receive $500 for each meeting of a committee of the board that they attend in person or by telephone and $5,000 per year for serving as the chairman of any committee of the Board. The Company also reimburses directors for their out-of-pocket expenses incurred in connection with such meetings.

Item 12. Security Ownership Of Certain Beneficial Owners And Management.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

      The table below sets forth the beneficial ownership as of April 25, 2005 of (1) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company’s common stock, (2) each director and nominee for director of the Company, (3) each executive officer of the Company whose name appears on the summary compensation table below (the “Named Executive Officers”) and

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(4) all directors and executive officers of the Company as a group. Each person had sole or shared voting or dispositive powers with respect to such shares.

				Percent
Name of Beneficial Owner	Number of Shares			of Class
John A. Levin		695,860	(1)		9.2	%
c/o BKF Capital Group, Inc. One Rockefeller Plaza New York, NY 10020
Steel Partners II, L.P.		669,600	(2)		8.9	%
590 Madison Avenue New York, NY 10022
Owl Creek Asset Management, L.P.		463,600	(3)		6.2	%
410 Park Avenue, Suite #420 New York, NY 10022
Mario J. Gabelli		510,100	(4)		6.8	%
One Corporate Center Rye, NY 10580
Cannell Capital LLC		360,200	(5)		4.8	%
150 Capital Street, Fifth Floor San Francisco, CA 94111
Anson M. Beard, Jr.		2,400(6	)(7)		*
Barton M. Biggs		2,400(6	)(7)		*
J. Barton Goodwin		55,776(6	)(7)(8)		*
David Grumhaus		11,835(7	)(9)		*
Burton G. Malkiel		5,900	(6)		*
Peter J. Solomon		3,400(6	)(7)		*
Dean J. Takahashi		2,582(6	)(7)		*
James S. Tisch		4,400(6	)(7)		*
Glenn A. Aigen		22,339	(10)		*
Norris Nissim		7,817	(11)		*
Directors and executive officers as a group (13 persons)		814,709			10.8	%

* Less than 1%

(1)	Includes 18,907 shares of common stock held by family members or trusts, 20,321 shares of restricted stock granted on March 10, 2004 which will vest on March 10, 2007, 26,465 shares of restricted stock granted on March 10, 2005 of which one third will vest on December 31, 2005, December 31, 2006 and December 31, 2007, respectively.
(2)	The information set forth is based solely on Amendment No. 4 to Schedule 13D filed with the SEC on March 24, 2005.
(3)	The information set forth is based solely upon the Amendment No. 1 to Form 13F filed with the SEC on May 3, 2005 by Owl Creek Asset Management, L.P.
(4)	The information set forth is based solely on Amendment No. 10 to Schedule 13D filed with the SEC on April 28, 2005 and includes 193,500 shares held by Gabelli Funds, LLC, 278,700 shares held by GAMCO Investors Inc., 3,900 shares held by Gabelli Foundation, Inc., 8,000 shares held by Gabelli & Company, Inc. Profit Sharing Plan, 11,500 shares held by Gabelli Advisors, Inc. and 14,500 shares held by MJG Associates, Inc.
(5)	The information set forth is based solely upon the Schedule 13G filed with the SEC on February 11, 2005 and includes 64,300 shares held by The Anegada Master Fund, 101,100 shares held by The Cuttyhunk Fund Limited, 114,900 shares held by Tonga Partners, L.P., 54,900 shares held by GS Cannell Portfolio, LLC and 25,000 shares held by Pleiades Investment Partners, L.P. Based upon the

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	Schedule 13G filing on February 11, 2005, the reporting person beneficially owned 5.1% of the total outstanding amount of shares of common stock of the Company.
(6)	Includes 1,200 shares of restricted stock granted on May 13, 2004 which vested on January 2, 2005 and 1,200 shares of restricted common stock granted on March 23, 2005 of which one half will vest on April 1, 2005 and one quarter will vest on each of July 1, 2005 and October 1, 2005.
(7)	The number of shares does not include any shares underlying the restricted stock units granted to Messrs. Beard, Biggs, Goodwin, Grumhaus, Solomon, Takahashi and Tisch. Each of these directors, with the exception of Mr. Biggs has received 3,500 restricted stock units (Mr. Biggs has received 1,125), but the shares underlying these restricted stock units are not deliverable, either by the terms of the awards regarding vesting and delivery or because of a deferral election by the directors, within 60 days of March 31, 2005.
	The number of shares listed also does not include any shares underlying 161,725 restricted stock units granted to Mr. Levin. The shares underlying these restricted stock units are not deliverable, either by the terms of the awards regarding vesting and delivery or because of a deferral election by Mr. Levin, within 60 days of March 31, 2005. See “Compensation — Executive Officer Compensation” for a description of these grants.
(8)	Includes 53,376 shares of common stock owned by immediate family members or trusts.
(9)	Includes 9,303 shares of common stock held by family members or trusts and 1,200 shares of restricted stock granted on May 13, 2004 which vested on January 2, 2005.

(10)	Includes 19,555 shares of common stock relating to options which have vested or will vest within 60 days of March 31, 2004 and 1,384 shares of restricted stock granted on March 10, 2004 which will vest on March 9, 2007 and 1,400 shares of restricted stock granted on March 10, 2005, of which one third will vest on December 31, 2005, December 31, 2006 and December 31, 2007, respectively.
(11)	Includes 2,933 shares of restricted stock granted on March 10, 2005 of which one third will vest on December 31, 2005, December 31, 2006 and December 31, 2007, respectively.

EQUITY COMPENSATION PLAN INFORMATION

      The following table gives information about the Company’s 1998 Incentive Compensation Plan as of December 31, 2004.

Equity Compensation Plan Information

	(A)		(B)		(C)
	Number of Securities To		Weighted Average		Number of Securities Available For Future
	Be Issued Upon Exercise of		Exercise Price of		Issuance Under Equity Compensation
	Outstanding Options		Outstanding Options,		Plans (Excluding Securities Reflected in
Plan Category	Warrants and Rights		Warrants and Rights		Column (A))
Equity compensation plans approved by security holders		23,396	$	15.01		549,212
Equity compensation plans not approved by security holders		0		—		0
Total		23,396	$	15.01		549,212

Item 13. Certain Relationships And Related Transactions.

      John A. Levin, the Chairman and Chief Executive Officer of the Company, received tax preparation, personal finance administration and personal transportation services from the Company. In 2004, he was billed $62,500 in connection with his receipt of such services. In addition, Mr. Levin received $280,443 as managing member of Island Drive Management, LLC which serves as a general partner of Island Drive Long-Biased,

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L.P. and participates in the performance-based incentive allocation made by the limited partners to the general partners. Levco GP, Inc., a wholly owned subsidiary of the Company, serves as the managing general partner of this partnership.

      Henry L. Levin, a son of John Levin, received $800,000 as salary and $5,963,944 as bonus compensation as one of two Senior Portfolio Managers for the event driven investment team. In addition, Henry Levin is a managing member of Purchase Management, LLC, which serves as a general partner of Purchase Associates, L.P. and Purchase Associates II, L.P., and of Debt Management, LLC, which serves as a general partner of Debt Opportunity Partners, L.P. These general partners participate in the performance-based incentive allocations made by the limited partners to the general partners. Levco GP, Inc., a wholly owned subsidiary of the Company, serves as the managing general partner of each of the partnerships. Purchase Management, LLC received incentive allocations totaling $3,759,536, of which $1,879,536 was allocated to Henry Levin, and Debt Opportunity Management received an incentive allocation of $162,836, of which $40,709 was allocated to Henry Levin. Such allocations to Henry Levin are included as compensation in the financial statements of the Company. In 2004, investment vehicles and other accounts managed by the event driven investment team generated $57.6 million in revenues, and the event driven team had approximately $2.6 billion in assets under management as of December 31, 2004.

      Jennifer Levin Carter, a daughter of John Levin, received $174,600 (and reimbursed expenses of $7,697) from the company for consulting services rendered to various alternative investment strategies of the Company.

      Frank F. Rango is a managing member of Purchase Management, LLC, which serves as a general partner of Purchase Associates, L.P. and Purchase Associates II, L.P., and of Debt Management, LLC, which serves as a general partner of Debt Opportunity Partners, L.P. These general partners participate in the performance-based incentive allocations made by the limited partners to the general partners. Levco GP, Inc., a wholly owned subsidiary of the Company, serves as the managing general partner of each of the partnerships. Purchase Management, LLC received incentive allocations totaling $3,759,536, of which $1,879,536 was allocated to Mr. Rango, and Debt Opportunity Management received an incentive allocation of $162,836, of which $40,709 was allocated to Mr. Rango. In addition, Mr. Rango received incentive allocations totaling $23,298 in connection with his services as a portfolio manager of LRK Savings, L.P. which is managed by Levco GP, Inc. Such allocations to Mr. Rango are included as compensation in the financial statements of the Company.

Item 14. Principal Accountant Fees and Services.

Audit Fees

      Grant Thornton LLP received $592,259 for the year ended December 31, 2004 and Ernst & Young LLP received $458,250 for the year ended December 31, 2003 for professional services rendered in connection with the audit of the Company’s annual financial statements, reviews of the financial statements included in quarterly reports on Form 10-Q filed by the Company, and audits of consolidated subsidiaries.

Audit-Related Fees

      No audit-related services were rendered with respect to the fiscal years ended December 31, 2004 by Grant Thornton LLP and December 31, 2003 by Ernst & Young LLP.

Tax Services

      Grant Thornton LLP received from the Company a total of $12,875 for the year ended December 31, 2004 and Ernst & Young LLP received from the Company a total of $15,000 for the year ended December 31, 2003 in connection with the review of Company tax returns. The Audit Committee of the Board of Directors believes these additional services were compatible with maintaining the independence of Grant Thornton LLP and Ernst & Young LLP, respectively.

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All Other Fees

      No other fees were paid to Grant Thornton LLP in 2004. In 2003, Ernst & Young LLP received $19,000 for consultations and research on federal, state and local tax issues rendered in connection with a mutual fund for which the Company acts as an adviser.

Pre-Approval Procedures

      The Audit Committee has adopted the following guidelines regarding the engagement of the Company’s independent registered public accounting firm to perform services for the Company. Prior to the commencement of the audit services (including audits of the Company’s employee benefit plan), the Audit Committee shall approve the terms of the engagement letter that outlines the scope of the audit services proposed to be performed by the Company’s independent registered public accounting firm during the fiscal year. Non-audit services will also require pre-approval from the Audit Committee. Tax preparation and review work has been approved based on the terms included in the engagement letter that also outlines the scope of the audit services. No other non-audit work has been approved by the Audit Committee. Any such approval would require approval of the specific engagement, including the projected fees, at a regularly scheduled or special Audit Committee meeting or through a written consent.

PART IV

Item 15. Exhibits and Financial Statement Schedules

      (a) The following documents are filed as part of this Form 10-K/ A:

      (1) Financial Statements

      The following financial statements of BKF Capital Group, Inc. and Subsidiaries are filed as part of this report under Item 8-Financial Statements and Supplementary Data:

	Page
	Number
Report of Independent Registered Public Accounting Firm — Grant Thornton LLP		F-2
Report of Independent Registered Public Accounting Firm — Ernst & Young LLP		F-3
Reports of Independent Registered Public Accounting Firm — Eisner LLP		F-4
Consolidated Statements of Financial Condition at December 31, 2004 and 2003		F-12
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002		F-13
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002		F-14
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002		F-15
Notes to Consolidated Financial Statements		F-16
EX-10.4: LEASE
EX-10.9: FORM OF RISTRICTED STOCK AWARD AGREEMENT
EX-23.1: CONSENT OF GRANT THORNTON LLP
EX-23.2: CONSENT OF ERNST & YOUNG LLP
EX-23.3: CONSENT OF EISNER LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

      (2) Financial Data Schedules

      All schedules are omitted, as the required information is inapplicable or is included in the financial statements or related notes.

      (3) Exhibits

Exhibit
Number				Description
	3	.1	—	Restated Certificate of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3(i) to Registrant’s Quarterly Reports on Form 10-Q for the periods ended June 30, 2000 and June 30, 2001).
	3	.2	—	Bylaws of Registrant (incorporated by reference to Exhibit 3(ii) to Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2001).

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Exhibit
Number				Description
	4	.1	—	Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2000).
	4	.2	—	Rights Agreement dated as of June 8, 2001 between BKF and Mellon Investor Services LLC (as Rights Agent) (incorporated by reference to Exhibit 4.1 to BKF’s Current Report on Form 8-K dated June 11, 2001).
	10	.1	—	Amendment to Lease dated October 10, 2003 between Rockefeller Center Properties and John A. Levin, Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2003).
	10	.2	—	Lease dated December 20, 1993 between Rockefeller Center Properties and John A. Levin & Co., Inc., as amended (incorporated by reference to Exhibit 10.1 of Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2000, Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2001, and Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2001).
	10	.3	—	Lease dated September 25, 2002 between River Bend Executive Center, Inc. and Levin Management Co., Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2002).
	10	.4	—	Lease dated February 14, 2005 between Benchmark Group Limited and Levco Europe, LLP.*
	10	.5	—	Registrant’s 1998 Incentive Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
	10	.6	—	Registrant’s Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2000).
	10	.7	—	Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2001).
	10	.8	—	Form of Deferred Stock Award Agreement (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-8 filed with the Commission on November 17, 2000).
	10	.9	—	Form of Restricted Stock Award Agreement*
	10	.10	—	Agreement between BKF and Gregory T. Rogers dated September 29, 2004 (incorporated by reference to Exhibit 10.1 of Registrant’s Report on Form 8-K dated October 6, 2004)
	14	.1	—	Registrant’s Code of Ethics (incorporated by Reference to Exhibit 14.1 of Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2003).
	21	.1	—	Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K/A for the period ended December 31, 2000).
	23	.1	—	Consent of Grant Thornton LLP.*
	23	.2	—	Consent of Ernst & Young LLP.*
	23	.3	—	Consent of Eisner LLP.*
	24	.1	—	Powers of Attorney (included on the Signature Pages hereto).*
	31	.1	—	Section 302 Certification of Chief Executive Officer*
	31	.2	—	Section 302 Certification of Chief Financial Officer*
	32	.1	—	Section 906 Certification of Chief Executive Officer*
	32	.2	—	Section 906 Certification of Chief Financial Officer*

*  Filed herewith

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BKF Capital Group, Inc.

By:  /s/ Glenn A. Aigen

Glenn A. Aigen

Senior Vice President

and Chief Financial Officer

Date: November 3, 2005

      Each person whose signature appears below hereby constitutes and appoints John C. Siciliano, Glenn A. Aigen and Norris Nissim and each of them, his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K/ A, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorney-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Signature	Title	Date
/s/ JOHN C. SICILIANO John C. Siciliano	Director, Chief Executive Officer and President (Principal Executive Officer)	November 3, 2005
/s/ GLENN A. AIGEN Glenn A. Aigen	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	November 3, 2005
/s/ ANSON M. BEARD, JR. Anson M. Beard, Jr.	Chairman of the Board and Director	November 3, 2005
/s/ RONALD LABOW Ronald LaBow	Director	November 3, 2005
/s/ WARREN G. LICHTENSTEIN Warren G. Lichetenstein	Director	November 3, 2005
/s/ KURT N. SCHACHT Kurt N. Schacht	Director	November 3, 2005
/s/ PETER J. SOLOMON Peter J. Solomon	Director	November 3, 2005
/s/ DEAN J. TAKAHASHI Dean J. Takahashi	Director	November 3, 2005
/s/ JAMES S. TISCH James S. Tisch	Director	November 3, 2005

37

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
	Number
Report of Independent Registered Public Accounting Firm — Grant Thornton LLP		F-2
Report of Independent Registered Public Accounting Firm — Ernst & Young LLP		F-3
Reports of Independent Registered Public Accounting Firm — Eisner LLP		F-4
Consolidated Statements of Financial Condition at December 31, 2004 and 2003		F-12
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002		F-13
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002		F-14
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002		F-15
Notes to Consolidated Financial Statements		F-16

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

     BKF Capital Group, Inc.

We have audited the consolidated statement of financial condition of BKF Capital Group, Inc. and Subsidiaries (a Delaware corporation) as of December 31, 2004, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of one consolidated affiliated partnership (the “2004 CAP”), which statements reflect total assets constituting 5 percent as of December 31, 2004, and total revenues of 0.5 percent for the year then ended. Those statements were audited by another auditor whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the 2004 CAP, is based solely on the report of the other auditor.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit and the report of the other auditor provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BKF Capital Group, Inc. and Subsidiaries as of December 31, 2004, and the consolidated results of their operations, changes in stockholders’ equity and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in the second paragraph of the fixed assets section of Note 1, the December 31, 2004 consolidated financial statements have been restated to expand fixed asset accounting policy disclosure. As discussed in the last two paragraphs of Note 13, the December 31, 2004 consolidated financial statements have been restated to reflect restricted stock units granted as equity instruments.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of BKF Capital Group, Inc.’s and Subsidiaries’ internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 10, 2005 expressed an unqualified opinion on management’s assessment.

/s/ Grant Thornton LLP

New York, New York

March 10, 2005, except for the second paragraph of the fixed assets section of Note 1 and the last two paragraphs of Note 13, the date of which is November 2, 2005

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

BKF Capital Group, Inc.

We have audited the accompanying consolidated statement of financial condition of BKF Capital Group, Inc. as of December 31, 2003, and the consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of two consolidated affiliated partnerships (collectively the “2003 CAP”), majority-owned investments, which statements reflect total assets constituting 5 percent of the related consolidated totals as of December 31, 2003 and which statements reflect total revenues constituting 2 percent of the related consolidated totals for the year ended December 31, 2003. We did not audit the financial statements of six consolidated affiliated partnerships (collectively the “2002 CAP”), majority-owned investments, which statements reflect total revenues constituting 3 percent of the related consolidated totals for the year ended December 31, 2002. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the 2003 CAP and 2002 CAP, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BKF Capital Group, Inc. at December 31, 2003, and the consolidated results of its operations and its cash flows for each of the years in the two year period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 4 to the financial statements, in the context of making determinations pursuant to Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” the Company also decided to consolidate certain affiliated investment partnerships in which it may be deemed to have a controlling interest.

As discussed in the last two paragraphs of Note 13, the accompanying consolidated statement of financial condition as of December 31, 2003 and the consolidated statements of changes in stockholders’ equity for each of the years in the two year period then ended have been restated.

/s/ Ernst & Young LLP

New York, New York

March 3, 2004 (except for the last two paragraphs of Note 13, as to which the date is November 2, 2005)

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Alvarado Capital Partners, L.P.

We have audited the accompanying statement of assets, liabilities and partnership capital of Alvarado Capital Partners, L.P. (the “Partnership”) (a limited partnership), including the condensed schedule of portfolio investments, as of December 31, 2004, and the related statements of operations, changes in partnership capital and the financial highlights for the period from October 1, 2004 (commencement of operations) to December 31, 2004 (not shown separately herein). These financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audit in accordance with standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights (not shown separately herein) referred to above present fairly, in all material respects, the financial position of Alvarado Capital Partners, L.P. as of December 31, 2004, and the results of its operations, changes in its partnership capital and financial highlights for the period from October 1, 2004 (commencement of operations) to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

January 24, 2005

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

RCL Capital, L.P.

We have audited the statement of assets, liabilities and partnership capital of RCL Capital, L.P. (a limited partnership) as of December 31, 2003, and the related statements of operations, changes in its partnership capital and the financial highlights for the period from July 14, 2003 (commencement of operations) to December 31, 2003. These financial statements and the financial highlights (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights enumerated above present fairly, in all material respects, the financial position of RCL Capital, L.P. as of December 31, 2003, and the results of its operations, changes in its partnership capital and financial highlights for the period from July 14, 2003 (commencement of operations) to December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

January 12, 2004

F-5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Levco Debt Opportunity Partners, L.P.

We have audited the statement of assets, liabilities and partnership capital of Levco Debt Opportunity Partners, L.P. as of December 31, 2003, and the related statements of operations, changes in partnership capital and the financial highlights for the years ended December 31, 2003 and 2002. These financial statements and the financial highlights (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights 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 and financial highlights enumerated above present fairly, in all material respects, the financial position of Levco Debt Opportunity Partners, L.P. as of December 31, 2003, the results of its operations, changes in its partnership capital and financial highlights for the years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

February 6, 2004

F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

AltVantage Absolute Return Fund, L.P.

We have audited the statements of operations, changes in its partnership capital and cash flows for AltVantage Absolute Return Fund, L.P. (a limited partnership) for the year ended December 31, 2002. These financial statements (not shown separately herein) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of AltVantage Absolute Return Fund, L.P. enumerated above present fairly, in all material respects, the results of its operations, changes in its net assets and cash flows for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

April 11, 2003

F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

SR Capital Partners, L.P.

We have audited the statements of operations and changes in partnership capital of SR Capital Partners (a limited partnership) for the period from May 1, 2002 (commencement of operations) to December 31, 2002. These financial statements (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of SR Capital Partners, L.P. enumerated above present fairly, in all material respects, the results of its operations and the changes in its partnership capital for the period from May 1, 2002 (commencement of operations) to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

January 13, 2003

F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Greenspring Partners, L.P.

We have audited the statements of operations and changes in its partnership capital for Greenspring Partners, L.P. (a limited partnership) for the year ended December 31, 2002. These financial statements (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of Greenspring Partners, L.P. enumerated above present fairly, in all material respects, the results of its operations and the changes in its partnership capital for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

January 13, 2003

F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

PWF Capital Partners, L.P.

We have audited the statements of operations and changes in partnership capital of PWF Capital Partners, L.P. (a limited partnership) for the period from May 1, 2002 (commencement of operations) to December 31, 2002. These financial statements (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of PWF Capital Partners, L.P. enumerated above present fairly, in all material respects, the results of its operations and the changes in its partnership capital for the period from May 1, 2002 (commencement of operations) to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

January 13, 2003

F-10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Meadow Lane Associates, L.P.

We have audited the statements of operations and changes in partnership capital for Meadow Lane Associates, L.P. (in liquidation) for the nine months ended September 30, 2002. These financial statements (not shown separately herein) are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of Meadow Lane Associates, L.P. (in liquidation) enumerated above present fairly, in all material respects, the results of its operations and the changes in its partnership capital for the nine months ended September 30, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ Eisner LLP

New York, New York

October 17, 2002

F-11

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollar amounts in thousands)

			December 31,			December 31,
			2004			2003
			as restated,			as restated,
			see Note 13			see Note 13
Assets
Cash and cash equivalents			$	3,582		$	4,947
U.S. Treasury bills				40,466			32,495
Investment advisory and incentive fees receivable				40,009			37,844
Investments in securities, at value (cost $5,426 and $4,317, respectively)				5,788			4,379
Investments in affiliated partnerships				17,362			17,042
Prepaid expenses and other assets				7,048			3,890
Fixed assets (net of accumulated depreciation of $6,756 and $4,881, respectively)				6,812			6,741
Deferred tax asset				8,391			8,666
Goodwill (net of accumulated amortization of $8,566)				14,796			14,796
Investment advisory contracts (net of accumulated amortization of $59,576 and $52,567, respectively)				10,513			17,522
Consolidated affiliated partnerships:
	Due from broker			952			4,248
	Investments in securities, at value (cost $5,877 and $3,692, respectively)			6,517			3,927
	Investments in unaffiliated partnerships			—			3,778
		Total assets	$	162,236		$	160,275
Liabilities, minority interest and stockholders’ equity
Accrued expenses			$	4,084		$	3,352
Accrued bonuses				42,686			39,728
Accrued lease amendment expense				3,843			4,535
Consolidated affiliated partnerships:
	Securities sold short, at value (proceeds of $1,065 and $1,106, respectively)			1,299			1,117
		Total liabilities		51,912			48,732
Minority interest in consolidated affiliated partnerships				2,478			8,935
Stockholders’ equity
Common stock, $1 par value, authorized — 15,000,000 shares, issued and outstanding — 7,274,779 and 6,826,247 shares, respectively				7,275			6,826
Additional paid-in capital				88,458			87,937
Retained earnings				17,508			22,054
Unearned compensation — restricted stock and restricted stock units				(5,395	)		(14,209	)
		Total stockholders’ equity		107,846			102,608
Total liabilities, minority interest and stockholders’ equity			$	162,236		$	160,275

See accompanying notes

F-12

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share data)

			Year Ended December 31,
			2004			2003			2002
Revenues:
Investment advisory fees			$	78,324		$	60,324		$	61,833
Incentive fees and allocations				40,925			36,293			24,591
Commission income (net) and other				1,438			2,021			2,940
Net realized and unrealized gain on investments				1,020			1,022			31
Interest income				604			453			655
From consolidated affiliated partnerships:
	Net realized and unrealized gain (loss) on investments			1,129			2,316			(3,543	)
	Interest and dividend income			47			309			904
		Total revenues		123,487			102,738			87,411
Expenses:
Employee compensation and benefits				85,092			69,634			59,970
Employee compensation relating to equity grants				8,661			8,128			1,851
Occupancy and equipment rental				5,990			6,322			5,872
Loss on lease amendment				—			5,127			—
Other operating expenses				13,529			14,087			14,392
Other operating expenses from consolidated affiliated partnerships				26			177			363
Amortization of intangibles				7,009			7,009			7,009
Interest expense				118			—			—
		Total expenses		120,425			110,484			89,457
Operating income (loss)				3,062			(7,746	)		(2,046	)
Minority interest in consolidated affiliated partnerships				(749	)		(1,710	)		3,291
Income (loss) before taxes				2,313			(9,456	)		1,245
Income tax expense (benefit)				4,078			(1,076	)		3,692
Net (loss)			$	(1,765	)	$	(8,380	)	$	(2,447	)
(Loss) per share:
Basic and Diluted			$	(0.25	)	$	(1.26	)	$	(0.37	)
Weighted average shares outstanding
Basic and Diluted				6,949,031			6,673,371			6,624,313

See accompanying notes

F-13

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

			Year Ended December 31,
			2004			2003			2002
			as restated, see Note 1
Cash flows from operating activities
Net (loss)			$	(1,765	)	$	(8,380	)	$	(2,447	)
Adjustments to reconcile net (loss) to net cash provided by operations:
	Depreciation and amortization			9,169			8,559			8,103
	Expense for vesting of restricted stock and stock units			8,919			8,186			2,020
	Loss on disposal of fixed assets			—			127			—
	Tax benefit related to employee compensation plans			4,432			633			317
	Change in deferred tax asset			275			(2,984	)		(793	)
	Unrealized (gain) loss on investments in securities			(300	)		(319	)		617
	Changes in operating assets and liabilities:
		(Increase) decrease in U.S. Treasury bills		(7,971	)		(19,056	)		12,144
		(Increase) decrease in investment advisory and incentive fees receivable		(2,165	)		(13,698	)		3,680
		(Increase) decrease in prepaid expenses and other assets		(3,192	)		(1,794	)		267
		Decrease in investments in affiliated investment partnerships		1,604			106			8,148
		(Increase) decrease in investments in securities		(1,109	)		(3,013	)		1,120
		Increase (decrease) in accrued expenses		702			(1,783	)		823
		Increase (decrease) in accrued bonuses		2,958			8,219			(6,102	)
		Increase (decrease) in accrued lease amendment expense		(692	)		4,535			—
		Increase in income taxes payable		—			(532	)		(50	)
	Changes in operating assets and liabilities from consolidated affiliated partnerships:
		Minority interest in income (loss)		208			1,710			(3,291	)
		(Increase) decrease in due from broker		(952	)		10,870			(31,746	)
		(Increase) in securities		(6,517	)		(1,080	)		(17,810	)
		(Increase) decrease in investments in unaffiliated partnerships		—			497			(4,275	)
		Increase (decrease) in securities sold short		1,299			(1,959	)		9,395
		Minority interest in previously unconsolidated affiliated partnerships		—			1,111			40,961
Net cash provided by (used in) operating activities				4,903			(10,045	)		21,081
Cash flows from investing activities
Fixed asset additions				(2,234	)		(4,729	)		(1,606	)
Net cash (used in) investing activities				(2,234	)		(4,729	)		(1,606	)
Cash flows from financing activities
Payment of loan principal				—			—			(221	)
Issuance of common stock				(3,505	)		(1,881	)		204
Dividends paid to shareholders				(2,799	)		—			—
Consolidated affiliated partnerships:
	Increase (decrease) in partner contributions received in advance			—			(1,150	)		1,150
	Partner subscriptions			2,270			10,065			24,609
	Partner redemptions			—			(13,024	)		(35,750	)
Net cash (used in) financing activities				(4,034	)		(5,990	)		(10,008	)
Net increase (decrease) in cash and cash equivalents				(1,365	)		(20,764	)		9,467
Cash and cash equivalents at the beginning of the year				4,947			25,711			16,244
Cash and cash equivalents at the end of the year			$	3,582		$	4,947		$	25,711
Supplemental disclosure of cash flow information
Cash paid for interest			$	118		$	1		$	8
Cash paid for taxes			$	961		$	4,251		$	4,286

See accompanying notes

F-14

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollar amounts in thousands)

	Common		Additional			Retained			Unearned
	Stock		Paid-in Capital			Earnings			Compensation			Total
Balance at December 31, 2001 as reported	$	6,601	$	64,002		$	32,881			—		$	103,484
Restated to reflect grants of restricted stock units		—		641			—			—			641
Balance at December 31, 2001 as restated		6,601		64,643			32,881			—			104,125
Restated to reflect grants of restricted stock units		—		13,687			—			(12,016	)		1,671
Issuance of common stock		41		343			—			—			384
Tax benefit related to employee compensation plans		—		317			—			—			317
Net (loss)		—		—			(2,447	)		—			(2,447	)
Balance at December 31, 2002, as restated		6,642		78,990			30,434			(12,016	)		104,050
Restated to reflect grants of restricted stock units		—		10,380			—			(2,193	)		8,187
Issuance of common stock		184		(2,066	)		—			—			(1,882	)
Tax benefit related to employee compensation plans		—		633			—			—			633
Net (loss)		—		—			(8,380	)		—			(8,380	)
Balance at December 31, 2003, as restated		6,826		87,937			22,054			(14,209	)		102,608
Restated to reflect grants of restricted stock units		—		(4,364	)		—			9,845			5,481
Grants of restricted stock		65		1,620			—			(1,031	)		654
Issuance of common stock		384		(1,167	)		—			—			(783	)
Tax benefit related to employee compensation plans		—		4,432			—			—			4,432
Dividend, net of compensation expense(1)		—		—			(2,781	)		—			(2,781	)
Net (loss)		—		—			(1,765	)		—			(1,765	)
Balance at December 31, 2004, as restated	$	7,275	$	88,458		$	17,508		$	(5,395	)	$	107,846

(1)  compensation expense incurred relating to dividend of $18.

See accompanying notes

F-15

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

Organization

      BKF Capital Group, Inc. (the “Company”) operates through a wholly-owned subsidiary, Levin Management Co., Inc. and its subsidiaries, all of which are referred to as “Levco.” The Company trades on the New York Stock Exchange, Inc. (“NYSE”) under the symbol (“BKF”).

      The Consolidated Financial Statements of Levco include its wholly-owned subsidiaries LEVCO Europe Holdings, Ltd. (“LEVCO Holdings”) and its wholly-owned subsidiary, LEVCO Europe, LLP (“LEVCO Europe”), John A. Levin & Co., Inc., (“JALCO”), JALCO’s two wholly-owned subsidiaries, Levco GP Inc. (“Levco GP”) and LEVCO Securities, Inc. (“LEVCO Securities”) and certain affiliated investment partnerships for which the Company is deemed to have a controlling interest in the applicable partnership. One investment partnership was consolidated at December 31, 2004 and two were consolidated at December 31, 2003. In addition, the operations of two investment partnerships (one de-consolidated on July 1, 2004 due to a decrease in ownership interest and one launched on October 1, 2004) were included in the statements of operation and cash flows for the applicable periods during the year ended December 31, 2004. The operations of three investment partnerships (two terminated in March, 2003 and one de-consolidated October 1, 2003 due to a decrease in ownership interest) were included in the statements of operations and cash flows for the applicable periods during the year ended December 31, 2003. All intercompany transactions have been eliminated in consolidation.

      JALCO is an investment advisor registered under the Investment Advisers Act of 1940, as amended, which provides investment advisory services to its clients which include U.S. and foreign corporations, mutual funds, limited partnerships, universities, pension and profit sharing plans, individuals, trusts, not-for-profit organizations and foundations. JALCO also participates in broker consulting programs (Wrap Accounts) with several nationally recognized financial institutions. LEVCO Securities is registered with the SEC as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. Levco GP acts as the managing general partner of several affiliated investment partnerships and is registered with the Commodities Futures Trading Commission as a commodity pool operator.

Consolidation Accounting Policies

      Operating Companies. Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities -an interpretation of Accounting Research Bulletin No. 51 (“ARB 51”), “Consolidated Financial Statements,” to variable interest entities (“VIE”) , (“FIN 46”), which was issued in January 2003 and revised in December 2003 (“FIN 46R”), defines the criteria necessary to be considered an operating company (i.e., voting interest entity) for which the consolidation accounting guidance of Statement of Financial Accounting Standards (“SFAS”) No. 94, “Consolidation of All Majority-Owned Subsidiaries, (“SFAS 94”) should be applied. As required by SFAS 94, the Company consolidates operating companies in which BKF has a controlling financial interest. The usual condition for a controlling financial interest is ownership of a majority of the voting interest. FIN 46R defines operating companies as businesses that have a sufficient legal equity to absorb the entities’ expected losses and, in each case, for which the equity holders have substantive voting rights and participate substantively in the gains and losses of such entities. Operating companies in which the Company is able to exercise significant influence but do not control are accounted for under the equity method. Significant influence generally is deemed to exist when the Company owns 20% to 50% of the voting equity of an operating entity. The Company has determined that it does not have any VIE. Entities consolidated are based on equity ownership of the entity by the Company and its affiliates.

F-16

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates

      The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition

      Generally, investment advisory fees are billed quarterly, in arrears, and are based upon a percentage of the market value of each account at the end of the quarter. Wrap account fees are billed quarterly based upon a percentage of the market value of each account as of the previous quarter end. Incentive fees, general partner incentive allocations earned from affiliated investment partnerships, and incentive fees from other accounts are accrued on a quarterly basis and are billed quarterly or at the end of their respective contract year, as applicable. Such accruals may be reversed as a result of subsequent investment performance prior to the conclusion of the applicable contract year.

      Commissions earned on securities transactions executed by LEVCO Securities and related expenses are recorded on a trade-date basis net of any sales credits.

      Commissions earned on distribution of an unaffiliated investment advisor’s funds are recorded once a written commitment is obtained from the investor.

Revenue Recognition Policies for Consolidated Affiliated Partnerships (“CAP”)

      Marketable securities owned and securities sold short, are valued at independent market prices with the resultant unrealized gains and losses included in operations.

      Security transactions are recorded on a trade date basis.

      Interest income and expense are accrued as earned or incurred.

      Dividend income and expense are recorded on the ex-dividend date.

Cash, Cash Equivalents and United States Treasury Bills

      The Company treats all United States Treasury Bills with maturities at acquisition of three months or less as cash equivalents. The U.S. Treasury bills are valued at cost plus accrued interest, which approximates market value. Investments in money market funds are valued at net asset value. The Company maintained substantially all of its cash, cash equivalents and U.S. Treasury bills invested in interest bearing instruments at two nationally recognized financial institutions, which at times may exceed federally insured limits. As a result the Company is exposed to market and credit risk.

Investments in Affiliated Investment Partnerships

      Levco GP serves as the managing general partner for several affiliated investment partnerships (“AIP”), which primarily engage in the trading of publicly traded equity securities, and in the case of one partnership, distressed corporate debt. The assets and liabilities and results of operations of the AIP are not included in the Company’s consolidated statements of financial condition with the exception of Levco GP’s equity ownership and certain AIP whereby Levco GP is deemed to have a controlling interest in the partnership (see Note 4). The limited partners of the AIP have the right to redeem their partnership interests at least quarterly. Additionally, the unaffiliated limited partners of the AIP may terminate Levco GP as the general partner of the AIP at any time. Levco GP does not maintain control over the unconsolidated AIP, has not guaranteed

F-17

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

any of the AIP obligations, nor does it have any contractual commitments associated with them. Investments in the unconsolidated AIP held through Levco GP, are recorded based upon the equity method of accounting. Levco GP’s investment amount in the unconsolidated AIP equals the sum total of its capital accounts, including incentive allocations, in the AIP. Each AIP values its underlying investments in accordance with policies as described in its audited financial statements and underlying offering memoranda. It is the Company’s general practice to withdraw the incentive allocations earned from the AIP within three months after the fiscal year end. Levco GP has general partner liability with respect to its interest in each of the AIP and has no investments in the AIP other than its interest in these partnerships. See Note 8 — Related Party Transactions.

Investments in Securities

      Investments in securities consist primarily of equity securities and shares in unconsolidated affiliated onshore and offshore investment companies, which invest in equity securities. Investments in securities are accounted for as “trading securities.” Equity securities are stated at quoted market values and shares in the unconsolidated affiliated onshore and offshore investment companies are stated at net asset value as provided by the investment companies’ independent administrator. The resulting unrealized gains and losses are included in net realized and unrealized gain (loss) from investments. Realized gains and losses are recorded on the identified cost basis.

Income Taxes

      The Company accounts for income taxes under the liability method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. Future tax benefits are recognized only to the extent that realization of such benefits is more likely than not to occur.

      The Company files consolidated Federal and combined state and local income tax returns.

Long-Lived Assets

      Long-lived assets are accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires impairment losses to be recognized on long-lived assets used in operations when an indication of an impairment exists. If the expected future undiscounted cash flows are less than the carrying amount of the assets, an impairment loss would be recognized to the extent the carrying value of such asset exceeded its fair value.

Fixed Assets

      Furniture, fixtures, office and computer equipment and leasehold improvements are carried at cost, net of accumulated depreciation and amortization in “Fixed Assets” in the consolidated statement of financial condition. Depreciation of furniture, fixtures, office and computer equipment is provided over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the economic life or the term of the lease. Internal use software that qualifies for capitalization under AICPA Statement of Position 98-1, “Accounting for the Cost of Computer Software Developed or Obtained for Internal Use,” is capitalized and subsequently amortized over the estimated useful life of the software, generally three years.

      Effective January 1, 2004, for new additions only the firm changed to the straight-line method of depreciation for furniture, fixtures, and office/computer equipment.

F-18

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The firm’s depreciation and amortization is computed using the methods set forth below:

		Leasehold Improvements
	Furniture, Fixtures and	Term of Lease Greater	Term of Lease Less	Certain Internal Use
	Equipment	Than Useful Life	Than Useful Life	Software Costs
Placed in service prior to January 1, 2004	Accelerated cost recovery over the useful life of the asset.	Straight-line over the useful life of the asset	Straight-line over the term of the lease	Accelerated cost recovery over the useful life of the asset.
Placed in service on or after January 1, 2004	Straight-line over the useful life of the asset	Straight-line over the useful life of the asset	Straight-line over the term of the lease	Straight-line over the useful life of the asset

      For the year ended December 31, 2004, the effect of the change from the accelerated cost recovery method of depreciation used prior to January 1, 2004 to the straight-line method of depreciation, effective for additions placed in service on or after January 1, 2004, was an increase in the expense of approximately $98,000 and $.01 per share.

Intangible Assets

      The cost in excess of net assets of Levco acquired by BKF in June 1996 is reflected as goodwill, investment advisory contracts, and employment contracts in the Consolidated Statements of Financial Condition. Through December 31, 2001, goodwill was amortized straight line over 15 years. Effective January 1, 2002 the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill is no longer amortized but is subject to an impairment test at least annually or when indicators of potential impairment exist. Other intangible assets with finite lives are amortized over their useful lives. See Note 6 — Intangible Assets. Investment contracts are amortized straight line over 10 years. These contracts will be fully amortized by June 30, 2006.

Earnings Per Share

      The Company accounts for Earnings Per Share under SFAS No. 128, “Earnings Per Share”. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the total of the weighted average number of shares of common stock outstanding and common stock equivalents. Diluted earnings (loss) per share is computed using the treasury stock method.

      The following table sets forth the computation of basic and diluted (loss) per share (dollar amounts in thousands, except per share data):

	Year Ended December 31,
	2004			2003			2002
Net (loss)	$	(1,765	)	$	(8,380	)	$	(2,447	)
Basic weighted-average shares outstanding		6,949,031			6,673,371			6,624,313
Dilutive potential shares from stock options (See Note 13)		—			—			—
Diluted weighted-average shares outstanding		6,949,031			6,673,371			6,624,313
Basic and diluted (loss) per share:
Net (loss)	$	(0.25	)	$	(1.26	)	$	(0.37	)

F-19

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In calculating diluted (loss) per share for the years ended December 31, 2004, 2003 and 2002, 1,280,861, 1,937,636 and 1,936,543 common stock equivalents were excluded due to their anti-dilutive effect on the calculation.

Comprehensive Income

      The Company has not presented consolidated statements of comprehensive income in accordance with SFAS No. 130 “Reporting Comprehensive Income,” because it does not have any items of “other comprehensive income”.

Fair Values of Financial Instruments

      The fair values of the Company’s assets and liabilities except for fixed assets, goodwill and investment advisory contracts, which qualify as financial instruments under Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” approximate the carrying amounts presented in the Consolidated Statements of Financial Condition.

Business Segments

      The Company has not presented business segment data, in accordance with SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information,” because it operates predominantly in one business segment, the investment advisory and asset management business.

Stock-Based Compensation

      SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) established financial accounting and reporting standards for equity-based and non-employee compensation. SFAS 123 permits companies to account for equity-based employee compensation using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” or using the fair-value method under SFAS 123. The company has adopted APB 25 and its related interpretations to account for equity-based employee compensation. Accordingly, no compensation expense was recognized for stock option awards because the exercise price equaled or exceeded the market value on the Company’s common stock on the grant date. Compensation expense for restricted stock units (“RSU”) or restricted stock with future service requirements is recognized over the relevant service periods. In December 2002, the FASB Issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based compensation. The Company has elected to apply the disclosure provisions of SFAS No. 123. See Recent Accounting Developments below for a discussion of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which the FASB issued in December 2004.

F-20

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table illustrates the effect on net (loss) and (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (dollar amounts in thousands, except per share amounts):

		2004			2003			2002
Net (loss), as reported		$	(1,765	)	$	(8,380	)	$	(2,447	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects			4,873			4,611			1,036
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(4,873	)		(4,674	)		(1,886	)
Pro forma net (loss)		$	(1,765	)	$	(8,443	)	$	(3,297	)
(Loss) per share:
	Basic and diluted — as reported	$	(0.25	)	$	(1.26	)	$	(0.37	)
	Basic and diluted — pro forma	$	(0.25	)	$	(1.27	)	$	(0.50	)

      The fair value of each option grant is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for the year ended December 31, 2001:

	2001
Expected dividend yield		0.00	%
Expected volatility		26.64	%
Risk-free interest		4.64	%
Expected term		7 years
Fair value	$	11.30

Reclassifications

      Certain prior period amounts reflect reclassifications to conform with the current year’s presentation.

Significant Accounting Policies of Consolidated Affiliated Partnerships (“CAP”)

      Securities sold short represent obligations to deliver the underlying securities sold at prevailing market prices and option contracts written represent obligations to purchase or deliver the specified security at the contract price. The future satisfaction of these obligations may be at amounts that are greater or less than that recorded on the consolidated statements of financial condition. The CAP monitors their positions continuously to reduce the risk of potential loss due to changes in market value or failure of counterparties to perform.

Investments in Unaffiliated Investment Partnerships

      The Company’s investments in unaffiliated investment partnerships result from the consolidation of an affiliated investment partnership that invests in unaffiliated investment partnerships. Investments in unaffiliated investment partnerships are recorded at fair value, which generally is equal to the CAP pro rata interest in the net assets of each unaffiliated investment partnership (based upon the net asset values reported by the unaffiliated investment partnerships).

F-21

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minority Interest

      Minority interests in the accompanying consolidated statements of financial condition represent the minority owners’ share of the equity of consolidated investment partnerships. Minority interest in the accompanying consolidated statements of operations represents the minority owners’ share of the income or loss of consolidated investment partnerships.

Partner Contributions and Withdrawals

      Typically, contributions are accepted monthly and withdrawals are made quarterly upon the required notification period having been met. The notification period ranges from thirty to sixty days.

Recent Accounting Developments

      In December 2004, the FASB issued SFAS 123R. SFAS 123R must be adopted as of the beginning of the first interim reporting period that begins after June 15, 2005. SFAS 123R requires public companies to recognize expense in the income statement for the grant-date fair value of equity awards to employees. Expense is to be recognized over the period during which employees are required to provide service. All of the Company’s remaining stock options are fully vested as of December 31, 2004. Therefore, the Company does not expect the adoption of SFAS 123R to a material effect on the Company’s financial statements.

      In December 2004, the FASB issued SFAS No. 153, “Exchange of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions”. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB No. 29. “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted by the Company for the year ended December 31, 2006. The adoption of SFAS No. 153 is not expected to have a significant impact on the Company’s financial statements.

2. Off-Balance Sheet Risk

      LEVCO Securities acts as an introducing broker and all transactions for its customers are cleared through and carried by a major U.S. securities firm on a fully disclosed basis. LEVCO Securities has agreed to indemnify its clearing broker for losses that the clearing broker may sustain from the customer accounts introduced by LEVCO Securities. In the ordinary course of its business, however, LEVCO Securities does not accept orders with respect to client accounts if the funds required for the client to meet its obligations are not on deposit in the client account at the time the order is placed.

      In the normal course of business, the CAP enter into transactions in various financial instruments, including derivatives, for trading purposes, in order to reduce their exposure to market risk. These transactions include option contracts and securities sold short.

      Substantially all of the CAP cash and securities positions are deposited with one clearing broker for safekeeping purposes. The broker is a member of major securities exchanges.

3. Investment Advisory Fees Receivable

      Included in investment advisory fees receivable are approximately $768,000 and $680,000 of accrued incentive fees as of December 31, 2004 and 2003, respectively, for which the full contract measurement period has not been reached. The Company has provided for the applicable expenses relating to this revenue. If the

F-22

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accrued incentive fees are not ultimately realized, a substantial portion of the related accrued expenses will be reversed.

4. Consolidation of CAP

      In January 2003, the FASB issued FIN 46, which addresses the application of ARB 51. The interpretation provides a framework for determining whether an entity should be evaluated for consolidation based on voting interests or significant financial support provided to the entity (“variable interests”). FIN 46 generally would require that the assets, liabilities and results of operations of a VIE be consolidated into the financial statements of the enterprise that is the primary beneficiary.

      An entity is classified as a VIE if (a) total equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support or (b) its equity investors lack (i) the direct or indirect ability to make decisions about an entity’s activities through voting rights or absorb the expected losses of the entity if they occur or (ii) the right to receive the expected residual returns of the entity if they occur. Once an entity is determined to be a VIE, its assets, liabilities and results of operations should be consolidated with those of its primary beneficiary. The primary beneficiary of a VIE is the entity which either will absorb a majority of the VIE’s expected losses or has the right to receive a majority of the VIE’s expected residual returns. The expected losses and residual returns of a VIE include expected variability in its net income or loss and may include fees to decision makers and fees to guarantors of substantially all VIE assets or liabilities.

      In December 2003, FIN 46R was issued which defines the criteria necessary to be considered an operating company (i.e., voting interest entity) for which the consolidation accounting guidance of SFAS 94 should be applied. As required by SFAS 94, the Company consolidates AIP in which the Company has a controlling financial interest. The consolidation of these partnerships does not impact the Company’s equity or net income. Levco GP has general partner liability with respect to its interest in each of the CAP.

F-23

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following tables present the consolidation of the CAP with BKF as of December 31, 2004 and December 31, 2003. The consolidating statements of financial condition have been included to assist investors in understanding the components of financial condition and operations of BKF and the CAP. A significant portion of the results of operations have been separately identified in the consolidated statements of operations (dollar amounts in thousands):

			December 31, 2004, as restated, see Note 13
			BKF			CAP		Eliminations			Consolidated
Assets
Cash and cash equivalents			$	3,582		$	—	$	—		$	3,582
U.S. Treasury bills				40,466			—		—			40,466
Investment advisory and incentive fees receivable				40,009			—		—			40,009
Investments in securities, at value (cost $5,426)				5,788			—		—			5,788
Investments in affiliated partnerships				21,052			—		(3,690	)		17,362
Prepaid expenses and other assets				7,044			4		—			7,048
Fixed assets (net of accumulated depreciation of $6,756)				6,812			—		—			6,812
Deferred tax asset				8,391			—		—			8,391
Goodwill (net of accumulated amortization of $8,566)				14,796			—		—			14,796
Investment advisory contracts (net of accumulated amortization of $59,576)				10,513			—		—			10,513
Consolidated affiliated partnerships:
	Due from broker			—			952		—			952
	Investments in securities, at value (cost $5,877)			—			6,517		—			6,517
		Total assets	$	158,453		$	7,473	$	(3,690	)	$	162,236
Liabilities, minority interest and stockholders’ equity
Accrued expenses			$	4,078		$	6	$	—		$	4,084
Accrued bonuses				42,686			—		—			42,686
Accrued lease amendment expense				3,843			—		—			3,843
Consolidated affiliated partnerships:
	Securities sold short, at value (proceeds of $1,065)			—			1,299		—			1,299
		Total liabilities		50,607			1,305		—			51,912
Minority interest in CAP				—			—		2,478			2,478
Stockholders’ equity
Common stock, $1 par value, authorized — 15,000,000 shares, issued and outstanding — 7,274,779				7,275			—		—			7,275
Additional paid-in capital				88,458			—		—			88,458
Retained earnings				17,508			—		—			17,508
Unearned compensation — restricted stock and restricted stock units				(5,395	)		—		—			(5,395	)
Capital from consolidated affiliated partnerships				—			6,168		(6,168	)		—
		Total stockholders’ equity		107,846			6,168		(6,168	)		107,846
Total liabilities, minority interest and stockholders’ equity			$	158,453		$	7,473	$	(3,690	)	$	162,236

F-24

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			December 31, 2003, as restated, see Note 13
			BKF			CAP		Eliminations			Consolidated
Assets
Cash and cash equivalents			$	4,930		$	17	$	—		$	4,947
U.S. Treasury bills				32,495			—		—			32,495
Investment advisory and incentive fees receivable				37,856			—		(12	)		37,844
Investments in securities, at value (cost $4,317)				4,379			—		—			4,379
Investments in affiliated partnerships				18,965			—		(1,923	)		17,042
Prepaid expenses and other assets				3,856			34		—			3,890
Fixed assets (net of accumulated depreciation of $4,881)				6,741			—		—			6,741
Deferred tax asset				8,666			—		—			8,666
Goodwill (net of accumulated amortization of $8,566)				14,796			—		—			14,796
Investment advisory contracts (net of accumulated amortization of $52,567)				17,522			—		—			17,522
Consolidated affiliated partnerships:
	Due from broker			—			4,248		—			4,248
	Investments in securities, at value (cost $3,692)			—			3,927		—			3,927
	Investments in unaffiliated partnerships			—			3,778		—			3,778
		Total assets	$	150,206		$	12,004	$	(1,935	)	$	160,275
Liabilities, minority interest and stockholders’ equity
Accrued expenses			$	3,335		$	29	$	(12	)	$	3,352
Accrued bonuses				39,728			—		—			39,728
Accrued lease amendment expense				4,535			—		—			4,535
Consolidated affiliated partnerships:
	Securities sold short, at value (proceeds of $1,106)			—			1,117		—			1,117
		Total liabilities		47,598			1,146		(12	)		48,732
Minority interest in CAP				—			—		8,935			8,935
Stockholders’ equity
Common stock, $1 par value, authorized — 15,000,000 shares, issued and outstanding — 6,826,247				6,826			—		—			6,826
Additional paid-in capital				87,937			—		—			87,937
Retained earnings				22,054			—		—			22,054
Unearned compensation — restricted stock and restricted stock units				(14,209	)		—		—			(14,209	)
Capital from consolidated affiliated partnerships				—			10,858		(10,858	)		—
		Total stockholders’ equity		102,608			10,858		(10,858	)		102,608
Total liabilities, minority interest and stockholders’ equity			$	150,206		$	12,004	$	(1,935	)	$	160,275

F-25

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Fixed Assets

      Fixed assets consist of the following (dollar amounts in thousands):

	Estimated		December 31,
	Useful
	Life — in Years		2004		2003
Furniture and fixtures		5-7	$	2,333	$	2,025
Computer hardware, software and other		3-5		6,595		5,745
Leasehold improvements		Life of lease		4,640		3,852
				13,568		11,622
Less accumulated depreciation and amortization				6,756		4,881
Fixed assets, net			$	6,812	$	6,741

      Depreciation and amortization expense was approximately $2.2 million, $1.6 million and $1.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.

6. Intangible Assets

      Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” The future expected amortization expense of intangible assets (investment contracts) is as follows:

2005	$	7,009
2006		3,504

7. Significant Customers

      The Company recorded revenue from one of its broker consults programs of approximately $7.5 million, $8.2 million and $13.6 million, or 6%, 8% and 16% of total revenues for the years ended December 31, 2004, 2003 and 2002, respectively. In addition, the Company recorded revenue from two affiliated investment vehicles, one utilizing the event driven strategy of $39.4 million, $31.5 million, and $19.1 million, or 32%, 31% and 22% and one operating under a long-short strategy of $12.1 million, $5.2 million and $8,000 or 10%, 5% and 0% of total revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

8. Related Party Transactions

Investment Advisory Fees From Related Parties

      The Company earned investment advisory fees from accounts for which four current members of the Company’s Board of Directors (of which one is an officer of the Company) have controlling discretion. The amounts earned from these accounts were $2.2 million, $1.8 million and $2.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. At December 31, 2004 and 2003 approximately $557,000 and $522,000, respectively, were included in investment advisory and incentive fee receivable relating to these accounts.

F-26

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investments in Affiliated Investment Partnerships and Related Revenue

      Summary financial information, including the Company’s carrying value and income from the unconsolidated AIP is as follows (dollar amounts in thousands):

	December 31,
	2004			2003
Total AIP assets	$	837,800		$	1,023,156
Total AIP liabilities		(223,674	)		(322,931	)
Total AIP capital balance		614,126			700,225
AIP net earnings		19,831			23,832
Company’s carrying value (including incentive allocations)		17,362			17,042
Company’s income on invested capital (excluding accrued incentive allocations)		624			1,198

      Included in the carrying value of investments in AIP at December 31, 2004 and 2003 are incentive allocations approximating $6.5 million and $8.9 million, respectively.

      Included in the Company’s incentive fees and general partner incentive allocations are approximately $5.2 million and $6.4 million payable directly to employee owned and controlled entities (“Employee Entities”) for the years ended December 31, 2004 and 2003, respectively. These amounts are included in the Company’s carrying value of the AIP at the end of the applicable period. These Employee Entities, which serve as non-managing general partners of several AIP, also bear the liability for all compensation expense relating to the allocated revenue, amounting to approximately $5.2 million and $6.4 million for the years ended December 31, 2004 and 2003, respectively. These amounts are included in the Consolidated Statement of Operations.

      The Company earned investment advisory fees and incentive allocations/fees from unconsolidated affiliated domestic investment partnerships and affiliated offshore investment vehicles of approximately $75.3 million, $56.6 million and $38.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.

      Included in investment advisory and incentive fees receivable at December 31, 2004 and 2003 are $4.0 million and $4.3 million, respectively, of advisory fees from AIP and sponsored investment offshore vehicles. Also included in investment advisory and incentive fees receivable are $26.7 million and $25.2 million of incentive fees from sponsored offshore investment vehicles at December 31, 2004 and 2003, respectively.

Commission Revenues

      Commission revenues earned on securities transactions reflected on the Consolidated Statements of Operations have been generated by transactions introduced to a clearing broker by LEVCO Securities, which acts as a broker for certain investment advisory accounts of the Company. Commission revenues have been presented net of the related clearing expenses.

9. Stockholders’ Equity

      The Company adopted a Share Purchase Rights Plan on May 29, 2001 (the “Rights Plan”). The Rights Plan was implemented by declaring a dividend, distributable to stockholders of record on June 18, 2001. With certain exceptions, the rights become exercisable if a person or group acquires 10% or more of the Company’s outstanding common stock. Such an acquisition causes each right to be adjusted to permit the holder (other than such person or any member of such group) to buy a number of additional shares of common stock of the Company having a market value of twice the exercise price of the rights. In addition, if the Company is

F-27

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

involved in a merger or other business combination at any time after a person or group has acquired 10% or more of the Company’s shares, the Rights will entitle the holder to buy a number of shares of common stock of the acquiring company having a market value of twice the exercise price of each right. Rights held by the acquiring person or group become void. The Company may also redeem the rights for $.01 per right or may exchange each right for one share of common stock, subject to restrictions set forth in the Rights Plan. The rights expire on June 17, 2011.

10. Commitment and Contractual Obligations

Commitment

      The Company has office space obligations that require monthly payments plus escalations through September 2011. At December 31, 2004, the minimum annual rental commitments under the operating lease are as follows (dollar amounts in thousands):

2005	$	3,002
2006		3,019
2007		3,085
2008		3,688
2009		3,690
Thereafter		6,453
Total minimum payments required	$	22,937

      Rent expense net of subrental income was $3.2 million, $4.1 million, and $4.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. Subrental income was $92,000 (of which $21,000 was received from an entity controlled by an independent Director of the Company), $162,000 (of which $136,000 was received from an entity controlled by an independent Director of the Company) and $49,000 for the years ended December 31, 2004, 2003, and 2002 respectively.

      In addition, the Company incurred a $5.0 million loss from a lease amendment as of September 2003, related to the surrender of approximately 21,000 square feet in October 2003. The expense related to the loss will be paid out over the remaining life of the Company’s primary office lease, which expires on September 30, 2011. The expense was calculated by taking the total estimated future obligations and discounting it by an imputed interest rate of 6%. The Company no longer has any obligation on the surrendered space other than the accrued lease loss. The estimated monthly payments are approximately $65,000.

      See Note 16, Subsequent Events for additional lease commitments.

Contractual Obligations

      In the ordinary course of business, the Company enters into contracts with third parties pursuant to which BKF or the third party provides services to the other. In many of the contracts, the Company agrees to indemnify the third party under certain circumstances. The terms of the indemnity vary from contract to contract and the amount of the indemnification liability, if any, cannot be determined.

11. Net Capital Requirement

      LEVCO Securities is subject to the SEC’s Uniform Net Capital Rule 15c3-1 (“Rule”), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 2004 and 2003, LEVCO Securities was in compliance with this Rule.

F-28

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Employee Benefit Plans

      Levco has adopted a Section 401(k) plan. All employees with three months or more of service are eligible to participate in the plan. Eligible participants may contribute up to 15% of their earnings, subject to statutory limitations. Levco may match contributions by employees who have a minimum of six months service, up to 100%, subject to statutory limitations. Included in employee compensation and benefits was $563,000, $471,000 and $808,000 of the employee match contributions for the years ended December 31, 2004, 2003 and 2002, respectively.

13. Stock-Based Compensation Plans

      In December 1998, the shareholders of BKF approved an Incentive Compensation Plan (“Compensation Plan”), which was amended in May 2001 that allows the Company to pay officers and employees part of their compensation in RSU, restricted stock and other forms of equity-based compensation, including stock options. At December 31, 2004, the awards authorized and available for future grants under the Compensation Plan were 2,600,000 and 549,212, respectively. All awards are issued at the discretion of BKF’s Compensation Committee.

A.  Restricted Stock Units

      RSU activity for the years ended December 31, 2002, 2003 and 2004 is summarized below:

		RSU
Outstanding at:
December 31, 2001			710,714
	Granted		651,980
	Delivered		(13,813	)
	Forfeited		(2,334	)
December 31, 2002			1,346,547
	Granted		527,190
	Granted — option tender		111,105
	Delivered		(262,652	)
	Forfeited		(2,833	)
December 31, 2003			1,719,357
	Delivered		(367,398	)
	Forfeited		(94,494	)
December 31, 2004			1,257,465

      On December 11, 2002 the Company commenced a tender offer to exchange 333,308 outstanding options for RSU, on a three for one exchange basis. As of January 10, 2003 the tender offer was complete, with a total of 111,105 RSU (of which 333 were forfeited in 2003) being granted in exchange for the options tendered. The RSU vested in two annual installments with fifty percent (50%) vesting on December 31, 2003 and fifty percent (50%) vesting on December 31, 2004. The Company recognized $2.0 million of compensation expense related to the RSU over the two-year vesting period.

      Employee compensation expense related to the RSU for the years ended December 31, 2004, 2003 and 2002 was approximately $8.3 million, $8.1 million and $1.9 million, respectively. See Note 14 — Non-Cash Transactions.

F-29

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The expected future compensation expense related to RSU is as follows (dollar amounts in thousands):

2005	$	4,204
2006		140
Total	$	4,344

B. Restricted Stock

      Restricted stock activity for the year ended December 31, 2004 is as follows:

		Restricted
		Stock
Outstanding at:
December 31, 2003			—
	Granted — Employees		56,105
	Granted — Directors		9,600
	Forfeited		(437	)
December 31, 2004			65,268

      The restriction on the remaining shares (55,668, net of forfeitures) will be lifted in March 2007 and are subject to forfeiture through such date. Employee compensation expense related to restricted stock for the year ended December 31, 2004 was approximately $380,000.

      The restriction on 9,600 shares of restricted stock was lifted in January 2005. In connection therewith, the Company recorded approximately $274,000 of directors’ fees expense for the year ended December 31, 2004.

      The expected future compensation expense related to restricted stock is as follows (dollar amounts in thousands):

2005	$	470
2006		470
2007		91
Total	$	1,031

F-30

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

C. Non-Qualified Stock Options

      Stock option activity for the years ended December 31, 2002, 2003 and 2004 is summarized below:

		Shares
		Under			Weighted-Avg.
		Option			Exercise Price
Outstanding at:
December 31, 2001			632,971		$	21.40
	Exercised		(40,975	)		13.03
	Forfeited		(2,000	)		28.27
December 31, 2002			589,996		$	21.95
	Exercised		(38,409	)		13.03
	Forfeited — tender offer		(333,308	)		28.27
December 31, 2003			218,279		$	13.88
	Exercised		(194,883	)		13.74
December 31, 2004			23,396		$	15.01

      Stock options outstanding and exercisable at December 31, 2004 are as follows:

				Weighted-Avg.
Shares				Remaining
Under		Weighted-Avg.		Contractual
Option		Exercise Price		Life
	7,134	$	13.03		5.06
	16,262		15.88		5.50
	23,396	$	15.01		5.19

D.  Deferred Compensation Plan

      On April 18, 2000, the Company adopted a Long Term Deferred Compensation Plan to provide a competitive long-term incentive for key officers, employees and non-employee directors. RSU vesting in a given year are eligible to be deferred into this plan. All incentive compensation relating to these RSU has already been recorded. As of December 31, 2004, 326,952 of vested RSU were deferred pursuant to the plan until:

January 2005	71,413
November 2005	65,048
December 2005	43,952
January 2006	131,139
December 2010	15,400
Total	326,952

      These amounts are included in the total RSU in Note 13A above.

      During a review of the Company’s equity compensation plan, it was determined that certain RSU grants under the plan should have been accounted for as equity instruments. Previously, the Company accounted for these RSU as a liability on the Consolidated Statements of Financial Condition. RSU awards where employees can compel the Company to settle the award by transferring cash or other assets to employees

F-31

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rather than by issuing equity instruments would result in the Company’s incurring a liability. In contrast, if the Company is not compelled to settle the RSU award by transferring assets other then its own stock and has the intent to settle the RSU award with its own stock then the RSU award should be accounted for as an equity instrument. The Company settles these RSU in equity.

      The Company has determined that the RSU awards should have been classified as additional paid-in capital on the date of grant with a corresponding increase to unearned compensation, with compensation expense charged over the vesting period reducing the unearned compensation balance. Previously the RSU awards were accounted for as an increase to accrued incentive compensation and incentive compensation expense over the vesting period. The effect of this change will be to increase stockholders’ equity by $16.0 million and $10.5 million as of December 31, 2004 and 2003, respectively, and reduce liabilities by the same amounts. This change did not result in any adjustment to the Consolidated Statements of Operations.

14. Non-Cash Transactions

      In 2002, the Company withheld 5,298 shares of common stock in connection with the delivery of 13,813 RSU for required withholding taxes.

      During 2002, the Company used $170,000 of the 2001 RSU grant to non-employee directors to reduce payments for Board of Directors and Committee meetings. In addition, 651,980 RSU (of which 58,167 were forfeited as of December 31, 2004) were granted to employees.

      In 2003, the Company withheld 109,435 shares of common stock for required withholding taxes in connection with the delivery of 262,652 RSU.

      During 2003, the Company granted 11,625 RSU to non-employee directors of the Company with a value of $210,000 to reduce cash payments for Board of Directors and Committee meetings. In addition, 626,670 RSU (of which 38,160 were forfeited as of December 31, 2004) were granted to employees.

      In 2004, the Company withheld 140,626 shares of common stock for required withholding taxes in connection with the delivery of 367,398 RSU.

      During 2004, the Company granted 9,600 shares of restricted stock to non-employee directors of the Company with a value of $274,000 to reduce cash payments for Board of Directors. In addition, 56,105 shares of restricted stock (of which 437 were forfeited as of December 31, 2004) were granted to several employees and certain executive officers of the Company, who are subject to performance based criteria with regard to their 2003 compensation.

F-32

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. Income Taxes

      The provision (benefit) for income taxes consists of the following (dollar amounts in thousands):

		Year Ended December 31,
		2004		2003			2002
Current:
	Federal	$	1,433	$	1,680		$	3,081
	State and local		328		217			1,404
Total current			1,761		1,897			4,485
Deferred:
	Federal		1,276		(2,207	)		(446	)
	State and local		1,041		(766	)		(347	)
Total deferred			2,317		(2,973	)		(793	)
Total provision (benefit)		$	4,078	$	(1,076	)	$	3,692

      Deferred tax assets arise from the future tax benefit on deferred and non-cash compensation, lease amendment loss, unrealized losses on investment, and depreciation. Deferred tax liabilities arise from deferred revenues, unrealized gains on investments, and state and local taxes.

      The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities, shown net in the deferred tax asset on the Consolidated Statements of Financial Condition, consisted of the following (dollar amounts in thousands):

		Year Ended
		December 31,
		2004			2003
Deferred tax assets:
	Compensation	$	8,352		$	8,031
	Depreciation		353			128
	Lease reserve		1,732			2,164
	Revenue		83			—
Gross deferred tax asset			10,520			10,323
Deferred tax liabilities:
	Deferred state income taxes		(2,035	)		(1,375	)
	Deferred revenues		—			(237	)
	Unrealized gains on investments		(94	)		(45	)
Gross deferred tax liability			(2,129	)		(1,657	)
Net deferred tax asset		$	8,391		$	8,666

      The Company’s provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate principally due to state and local taxes and non-deductible amortization. The Company has determined that the amortization expense on intangible assets is non-deductible since the purchase method of accounting has been applied retroactive to June 1996.

F-33

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A reconciliation of income tax expense (benefit) with expected federal income tax expense (benefit) computed at the applicable federal tax rate of 35% is as follows (dollar amounts in thousands):

		Year Ended December 31,
		2004			2003			2002
Expected income tax expense (benefit)		$	810		$	(3,310	)	$	436
Increase in income resulting from:
	State and local taxes, net		890			—			687
	Non-deductible amortization		2,453			2,453			2,453
	Officer’s life insurance		105			129			128
	Other		21			9			—
Decrease in income tax resulting from:
	State and local taxes, net		—			(357	)		—
	Dividend on employee equity awards		(201	)		—			—
	Other		—			—			(12	)
Income tax expense (benefit)		$	4,078		$	(1,076	)	$	3,692

      An income tax benefit of approximately $4.4 million and $633,000 relating to the Compensation Plan was allocated to additional paid-in capital in 2004 and 2003, respectively.

16. Subsequent Events

a.	In January 2005, the Board of Directors approved a dividend of $0.125 per share payable to shareholders on February 15, 2005 totaling $1.05 million.
b.	In March 2005, certain executive officers of the Company, who are subject to performance based criteria with regard to their 2004 compensation, and several employees were granted 75,344 shares of restricted stock with a value of approximately $3.2 million.
c.	In February 2005, the Company signed a lease for office space in London, England. The Company has obligations that require monthly payments plus escalations through December 2012 (with the option to terminate the lease by December 2007). The minimum annual rental commitments under the operating lease are as follows (dollar amounts in thousands):

2005 (starting in May)	$	82
2006		131
2007		131
2008		131
2009		131
Thereafter		391
Total minimum payments required	$	997

F-34

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. Selected Quarterly Financial Data (unaudited)

      The following table sets forth the selected quarterly financial data (dollar amounts in thousands, except per share data):

2004		Q1			Q2			Q3			Q4		Total
Revenues		$	29,847		$	24,619		$	27,844		$	41,177	$	123,487
Operating income (loss)		$	(214	)	$	(1,456	)	$	415		$	4,317	$	3,062
Net income (loss)		$	(1,058	)	$	(1,699	)	$	(737	)	$	1,729	$	(1,765	)
Earnings (loss) per share:
	Basic	$	(0.15	)	$	(0.25	)	$	(0.11	)	$	0.24	$	(0.25	)
	Diluted	$	(0.15	)	$	(0.25	)	$	(0.11	)	$	0.23	$	(0.25	)
Weighted average shares outstanding basic			6,854,289			6,908,415			6,922,763			7,109,185		6,949,031
Weighted average shares outstanding diluted			6,854,289			6,908,415			6,922,763			7,459,346		6,949,031
Common stock price per share:
	High	$	27.00		$	29.90		$	29.40		$	38.00
	Low	$	24.72		$	26.40		$	26.01		$	29.80
	Close	$	25.80		$	29.05		$	29.30		$	37.90

2003		Q1			Q2			Q3			Q4			Total
Revenues		$	21,206		$	25,107		$	26,924		$	29,501		$	102,738
Operating income (loss)		$	(1,195	)	$	108		$	(5,999	)	$	(660	)	$	(7,746	)
Net (loss)		$	(1,289	)	$	(1,074	)	$	(4,283	)	$	(1,734	)	$	(8,380	)
(Loss) per share:
	Basic and diluted	$	(0.19	)	$	(0.16	)	$	(0.64	)	$	(0.26	)	$	(1.26	)
Weighted average shares outstanding basic and diluted			6,643,918			6,646,055			6,655,734			6,673,371			6,673,371
Common stock price per share:
	High	$	18.45		$	22.28		$	24.50		$	25.15
	Low	$	16.24		$	15.65		$	20.15		$	21.75
	Close	$	16.25		$	21.83		$	24.15		$	24.68

18. Subsequent Events (unaudited)

      On September 28, 2005, Mr. John Levin resigned as the Chief Executive Officer of BKF. Following his departure date, which is expected to be December 31, 2005, Mr. Levin will act as a consultant to the firm, as Chairman Emeritus (a non-voting advisor to the Board of Directors) and will lead his own asset management firm. Under the terms of the arrangement between Mr. Levin and BKF, Mr. Levin will be able to solicit certain clients of the firm and a limited number of firm employees, and BKF will have an economic stake equal to 15% of the revenues generated for Mr. Levin’s firm by the clients who move their accounts from BKF. Mr. Levin will be subject to non-hire and non-solicit arrangements with respect to all other employees and clients of the firm for periods of 15 or 36 months.

      Mr. Levin’s departure will result in the termination of the short-biased alternative investment strategy.

F-35

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On September 28, 2005, John C. Siciliano became the Chief Executive Officer and President of BKF and John A. Levin & Co., Inc.

      On October 18, 2005, the Company announced that it was not able to reach an agreement with the portfolio management team managing its event-driven strategies. As a consequence, the investment vehicles being managed pursuant to this strategy are being liquidated and the proceeds returned to investors.

F-36 EX-10.4 2 y13327exv10w4.txt EX-10.4: LEASE Exhibit 10.4 UNDERLEASE relating to Suite 1.4, 30 St James's Street, London SW1 (1) Benchmark Group Limited (2) Levco Europe, LLP Dated 14th February 2005 OSBORNE CLARKE Barcelona Bristol Brussels Cologne Copenhagen Helsinki London Madrid Paris Rotterdam St Petersburg Silicon Valley Tallinn Thames Valley CONTENTS 1. Definitions and interpretation........................................2 2. Definitions...........................................................4 3. Demise................................................................8 4. Leesee's Covenants....................................................8 5. Lessor's Covenants....................................................8 6. Proviso...............................................................9 7. Lease Reference......................................................11 8. No Agreement for Lease...............................................11 9. Security of Tenure...................................................12 Schedule 1....................................................................13 (Rights included in this Lease)...............................................13 Schedule 2....................................................................15 (Exceptions and Reservations out of this Lease)...............................15 Schedule 3....................................................................17 (Covenants by the Lessee).....................................................17 Schedule 4....................................................................35 (Covenants by the Lessor).....................................................35 Schedule 5....................................................................40 (Above referred to rent review provisions)....................................40 Schedule 6....................................................................44 Part I ......................................................................45 Part II ........................................................................ LAND REGISTRATION ACTS 1925 - 1986 COUNTY AND LONDON BOROUGH: Greater London: City of Westminster TITLE NUMBER: NGL 423610 THIS LEASE is made the 14th day of February 2005 BETWEEN: (1) BENCHMARK GROUP LIMITED (Company number 00961142) having its registered office at 11 Grafton Street, London W1S 4EW ("THE LESSOR") (2) LEVCO EUROPE, LLP c/o Suite 1.4, 29-30 St James's Street London SW1 ("THE LESSEE"). IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION In this Lease, unless the context otherwise requires, the following words have the following meanings: "1954 ACT" the Landlord and Tenant Act 1954 (as amended) "2003 ORDER" the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 "COMMENCEMENT DATE" 14th February 2005; "DEMISED PREMISES" the Premises (referred to hereafter as "the demised premises") forming part of the Scheme more particularly defined in Clause 2(d) Clause 3.4 (a) of this Lease; "QUARTER DAYS" 1 January, 1 April, 1 July and 1 October in each year; "RENT" sixty-nine thousand nine hundred and sixty pounds (L69,960.00) per annum 2 "RENT COMMENCEMENT 3 months after completion of lease or, if DATE" earlier, occupation by the Lessee "SCHEME" the Lessor's office and shopping development known as Stanmore House, 29 and 30 St James's Street, 25, 26 and 27 Bury Street edged blue on Plan No.l annexed hereto; "SERVICE CHARGE CAP" (a) in respect of the current Accounting Period ending 31 December 2005 the sum of Eighteen Thousand Two Hundred and Eighty Five Pounds (L18,285) (b) in respect of each subsequent Accounting Period the said sum increased by a percentage equal to the percentage of any increase in the "all items" General Index of Retail Prices published by the General Statistics Office or any official successor body ("Index") between the Index current as at the date hereof and the Index current immediately prior to the beginning of the relevant Accounting Period provided that if the Index is rebased the figure for the Index shall be taken as that which would have been shown had the base current immediately prior to the rebasing been retained and Provided further that if for any reason it becomes impossible to calculate the said increase by reference to the Index (including by reason of the Index ceasing to be published) then the matter shall be determined by an independent surveyor of at least 10 years' experience in the valuation of properties comparable with the Demised Premises acting as an expert to be appointed either by agreement between the parties or in the absence of agreement by the 3 President for the time being at the Royal Institution of Chartered Surveyors and such independent surveyor so appointed shall have full power to determine the matter including the right to substitute for the Index an alternative method that most clearly accords with the Index "TERM" a term of years commencing on the Commencement Date and expiring on the 31 December 2012; "UNITS" each or any area of shopping or office accommodation within the Scheme let or available (or which may become available) or designed or intended for letting as a separate commercial unit the boundaries of any of the Units being determined in the same manner as the boundaries of the demised premises in this Lease. 2. DEFINITIONS In this Lease except as otherwise provided or where the context otherwise requires: 2.1 the "Lessor" includes the reversioner for the time being immediately expectant on the determination of the term hereby created; 2.2 the "Lessee" includes the successors in title of the Lessee; 2.3 the "Term" means the term hereby created; 2.4 the "Demised Premises" means: (a) the first floor unit of accommodation known as Unit 1.4 forming part of the Scheme and each and every part thereof which with the abuttals and boundaries thereof is shown edged red on Plan No. 2 annexed hereto together also with all additions, alterations and improvements thereto which may be carried out during the term and shall also include all Landlord's fixtures and fittings from time to time about the same (but excluding tenant's and trade fixtures and fittings); (b) there shall be included in the demised premises: 4 [LEVEL 1 FLOOR PLAN] [FLOOR PLAN] (i) the internal plastering or other internal surface or finish attached or applied to the roof slabs, ceilings, floors, walls, window frames and the frames; (ii) one half (severed vertically) of those non-structural walls or partitions (or parts thereof) which serve to divide the demised premises from other premises which are let or intended to be let; (iii) all additions (except tenants and trade, fixtures and fittings) at any time hereafter made to the demised premises; (iv) the internal plastering or surface or finish attached or applied to any structural columns and beams which are situated within (or partly within to the extent of such part) the demised premises; (v) the suspended ceiling and the raised floors and the airspace between the suspended ceiling and the bottom surface of the floor slabs immediately above it and between the raised floors and the top surface of the floor slabs immediately below them and the carpet(s) laid in the demised premises; (vi) all doors and door frames serving the demised premises and the glass in those doors. (vii) all windows and window frames entirely within the demised premises; (viii) all service conduits exclusively serving the Demised Premises (c) there shall be excluded from the demised premises: (i) the structural ceiling slab above the ceiling and the space above and floor slabs and everything below the floor slabs; (ii) the foundations of the Scheme; (iii) any structural columns, beams and joists and all other structural and/or exterior parts of the Scheme including (but without limitation) the roof of the Scheme; (iv) all service conduits and ducts which do not exclusively serve the the Demised Premises; (v) all Lessor's plant and equipment; 5 (vi) all tenant's and trade fixtures and fittings; 2.5 the "Planning Acts" means the Town and Country Planning Acts as from time to time in force; 2.6 (a) the "Insured Risks" means the following insurable risks included in the Policy of Insurance effected by the Lessor in the joint names of the Superior Lessor (as hereinafter defined) and the Lessor in respect of the Scheme and the Lessor's fixtures therein (except as provided for in paragraph 2 of Schedule 3 hereto) namely risks in respect of loss or damage by fire lightning, explosion, aircraft (other than hostile aircraft) and other aerial devices or articles emanating there from earthquake, riot and civil commotion and malicious damage, storm or tempest bursting or overflowing of water tanks, apparatus or pipes flood, impact by road vehicles, Terrorism (so far as it remains an insurable risk and capable of being insured at commercially acceptable rates) Architects', Surveyors' and other professional fees together with three (3) years (or such longer period not exceeding five (5) years as from time to time the Lessor may reasonably require having regard to the likely period required for reinstatement) loss of Service Charge (as hereinafter defined) and of rent in an amount which would take into account potential increases in rent in accordance with the rent review provisions hereinafter contained occupiers liability in respect of the Service Area and such other insurable risks or insurance as may from time to time be reasonably required by the Lessor for the benefit of the Scheme; (b) "Full Cost of Reinstatement" means the cost which would be likely to be incurred in reinstating the Scheme in the event of either partial or total destruction in accordance with the original plans, elevations and details thereof with such variations (if any) as may be agreed by the Superior Lessor and the Lessor or may be necessary having regard to the then existing statutory provisions, byelaws and regulations affecting the same and any necessary planning approval at the time when such reinstatement is likely to take place and having regard to any expected increase in building costs during any period of insurance and pending or during the period of reinstatement together with the fees of the Architects surveyors (including the surveyors of the Superior Lessor) engineers, clerk of works and consultants calculated on such cost at the current scale for the time being of any appropriate professional body and together with the cost of shoring, demolition and site clearance and any 6 value added tax that may be payable on or in respect of the above costs or fees; 2.7 "Fair Proportion" means such proportion as the lessor's surveyor may reasonably decide as being reasonably and properly attributable to the demised premises as opposed to the other Units provided always that in no event shall the Lessee's proportion of the Service Charge be increased or altered by reason that at any relevant time any Unit may be vacant or occupied by the Lessor or any person or company associated with the Lessor or that any tenant or other occupier of a Unit may default in payment of its due proportion of the Service Charge or that at any relevant time any Unit may be damaged or destroyed; 2.8 "the Scheme" means the Scheme so described in clause 1; 2.9 "Schedule of Condition" means the schedule of condition relating to the demised premises annexed hereto; 2.10 "the Service Area" means the common areas in or forming part of the Scheme not intended to be demised for exclusive occupation and available for common use and includes all services common to the demised premises and to the remainder of the Scheme or any part or parts thereof and for the avoidance of doubt the Service Area includes the entrance way and foyer lift, stairs and internal passageways providing access to and egress from the demised premises; 2.11 "the Superior Lease" means the Lease dated the fifth day of March one thousand nine hundred and eighty two and made between The Queen's Most Excellent Majesty of the first part, The Crown Estate Commissioners of the second part, Savant Investments Limited of the third part and Thornfield Securities Limited of the fourth part and the Superior Lessor means the person in whom the reversion immediately expectant upon the determination of the "Superior Lease" is from time to time vested; 2.12 "Terrorism" means any act of any person acting on behalf of or in connection with any organisation whose objectives are or include the overthrowing of any government de jure and de facto or the furtherance of any political or social or religious cause by force or violence or any other act of force or violence by any such person or group of persons 2.13 "the Units" means the units so described in clause 1 forming part of the Scheme and "Unit" has a corresponding meaning; 2.14 "the Lease" means this Underlease; 2.15 words importing the singular number only include the plural number and vice versa and where there are two (2) or more persons included in the expression "the Lessor" or "the Lessee" or "the Surety" covenants 7 expressed to be made by the Lessor, the Lessee or the Surety as the case may require shall be deemed to be made jointly and severally; 2.16 subject to any specific contrary reference in this Lease any reference to an Act or Acts of Parliament includes any statutory amendment or re-enactment thereof and any Statutory Instrument Order or Direction made or issued pursuant thereto; 3. DEMISE In consideration of the rents and the Lessee's covenants herein reserved and contained the Lessor HEREBY DEMISES unto the Lessee for the Lessee and those the Lessee authorises (subject to the provisions of this Lease) ALL THAT the demised premises TOGETHER with the rights specified in Schedule 1 hereto but EXCEPT AND RESERVING unto the Lessor and the Superior Lessor and all others respectively properly authorised by them the rights specified in Schedule 2 hereto TO HOLD the same unto the Lessee as from and including the Commencement Date specified in clause 1 hereof for the term specified in clause 1 hereof YIELDING AND PAYING therefor during the term FIRST (with effect from the Rent Commencement Date) the Rent specified in clause 1 hereof subject to the provisions of clause 6.2 hereof the said Rent to be paid without any deduction (other than a deduction authorised by Act of Parliament) by equal quarterly payments in advance on the Quarter Days specified in clause 1 hereof in every year the first of such payments being a proportionate payment from the Rent Commencement Date specified in the Particulars to the day preceding the next quarter day to be paid on the Rent Commencement Date SECONDLY the moneys referred to in paragraph 32 of Schedule 3 hereto THIRDLY within twenty one (21) days of a written demand without any deduction (other than as aforesaid) the Interim Charge and the Service Charge as defined in Part I of Schedule 6 hereto at the times and in the manner therein provided. But Provided that the payments required to be made by the Tenant by way of Interim Charge and Service Charge in respect of each Accounting Period up to 31 December 2007 shall in no circumstances exceed the relevant Service Charge Cap (or a pro rated proportion thereof as appropriate) 4. LEESEE'S COVENANTS The Lessee hereby covenants with the Lessor to observe and perform throughout the term the covenants set out in the Schedule 3 hereto. 5. LESSOR'S COVENANTS The Lessor hereby covenants with the Lessee to observe and perform throughout the term the covenants set out in the Schedule 4 hereto. 8 6. PROVISO PROVIDED always and it is hereby further agreed as follows: 6.1 FORFEITURE If and whenever the rent hereby reserved or any part thereof shall be unpaid for twenty one (21) days after the same shall become due whether in the case of the rent FIRST hereby reserved the same shall have been formally demanded or not or if any other payment due hereunder shall be unpaid within twenty one (21) days after the same shall become due or if and whenever there shall be a non-observance, non-performance or breach of the covenants on the part of the Lessee herein contained or of any of the restrictions, stipulations, regulations and conditions on the part of the Lessee to be observed and performed or if the Lessee being a company shall enter into Liquidation whether compulsory or voluntary (not being merely a voluntary liquidation for the purposes of amalgamation or reconstruction) or suffer a Receiver to be appointed or if the Lessee not being a corporation shall have a receiving order made against or in relation to him or become bankrupt or make any arrangement with his creditors then and in any of the said events it shall be lawful for the Lessor at any time thereafter to enter upon the demised premises or any part thereof in the name of the whole and to have again repossess and enjoy the same in their former state and thereupon the term shall absolutely determine but without prejudice to any right of action of the Lessor or the Lessee in respect of any antecedent breach of the other's covenants or other stipulations herein contained. 6.2 RENT REVIEW The rent payable hereunder shall be reviewed in accordance with the provisions of Schedule 5 hereto. 6.3 RESTRICTION ON LETTING UNITS Save as expressly herein provided nothing herein contained shall impose or be deemed to impose any restriction on the use of any other part or parts of the Scheme not comprised in this Lease or give the Lessee the benefit of or the right to enforce or have enforced or to permit the release or modification of any covenant, agreement or condition entered into by any purchaser from or by any lessee or occupier of the Lessor in respect of any part or parts of the Scheme not comprised in this Lease. 6.4 RESTRICTION ON LIABILITY (a) The Lessor shall not be responsible to the Lessee for the loss or inconvenience arising from any defects in the Scheme or from the defective working, stoppages or breakage of any pipes, 9 wires or machinery in or apparatus of the Scheme or any part thereof subject to the Lessor taking all reasonable steps to prevent and minimise such loss or inconvenience. (b) Notwithstanding any provision of the Lease to the contrary the Lessee shall not be required to keep or deliver up the Demised Premises in any better state of repair and condition than they are at the Commencement Date as evidenced by the Schedule of Condition 6.5 SERVICE OF NOTICES Section 196 of the Law of Property Act 1925 shall apply to any notices to be served hereunder as if such notice were authorised by that Act other than any notice to be served pursuant to Sections 8, 10 or 17 of the Landlord and Tenant (Covenants) Act 1995 which shall be served in accordance with that Act and consequently Section 23 of the Landlord and Tenant Act 1927 shall apply to such notices. 6.6 ARBITRATION Any arbitration under this Lease shall be conducted by some competent person to be agreed in writing by the Lessor and the Lessee and in the event of failure so to agree within twenty one (21) days of any dispute or difference having arisen by a person to be nominated by or on behalf of the President for the time being of the Royal Institute of Chartered Surveyors on the application of either the Lessor or the Lessee and this shall be deemed to be a submission to arbitration within the meaning of the Arbitration Acts 1950 to 1979. Unless otherwise awarded by the Arbitrator each party shall pay its own costs in connection with each arbitration and the costs of the Arbitrator shall be borne equally by the parties. 6.7 WAIVER No demand for or acceptance of rent by the Lessor or its agent after a breach of any of the covenants on the part of the Lessee contained in this Lease shall constitute a waiver whether in whole or in part of any such breach unless the Lessee shall show that the Lessor itself had knowledge of such breach prior to any such demand or acceptance as aforesaid and nothing contained in this sub-clause shall have any application to any continuing breach. 6.8 COPY OF SUPERIOR LEASE For the better performance and observance of the Lessee's covenants herein contained the Lessee shall be entitled to a copy of the Superior Lease. 10 6.9 MARGINAL NOTES The headings to the clauses of this Lease and any Schedule hereto are inserted for convenience of reference only and shall not be deemed to form part of this Lease nor shall they affect the construction hereof. 6.10 PERPETUITY PERIOD Where in this Lease a perpetuity period is referred to or required the same shall be the period of eighty (80) years from the date thereof. 6.11 LESSEE'S OPTION TO DETERMINE (a) The Lessee may determine this Lease by giving not less than six months' prior notice in writing expiring on 25 December 2007 ("Break Notice") and in such event if the Tenant shall as at the said expiry date be up to date in relation to payment of the first reserved rent hereby reserved and also at such expiry date have paid all other sums due under this Lease which are properly due and have been properly demanded the term shall immediately cease and determine but without prejudice to the respective rights of either party in respect of any antecedent claim or breach of covenant. (b) If the Lessee does not give the Break Notice then no Rent shall be payable by the Lessee during the period of three months commencing on the expiry of the third year of the Term. 7. LEASE REFERENCE Reference in this Lease to any consent or approval required from the Lessor shall be construed as also including the consent or approval from the Superior Lessor where the Superior Lessor's consent would be required under the terms of the Superior Lease except that nothing herein shall be construed as imposing on the Superior Lessor any obligation (or indicating that such an obligation is imposed on the Superior Lessor) not unreasonably to refuse any such consent or approval. 8. NO AGREEMENT FOR LEASE It is hereby certified that there is no Agreement for Underlease to which this Underlease gives effect. 11 9. SECURITY OF TENURE 9.1 A notice in the form set out in Schedule 1 to the 2003 Order which applies to this Lease having been served by the Lessor on the Lessee on 7th February 2005; and 9.2 a statutory declaration having been made by the Lessee or a person duly authorised by him to do so on 10th February 2005 in the form set out in Paragraph 8 of Schedule 2 to the 2003 Order the Lessor and the Lessee agree to exclude the provisions of Sections 24 to 28 (inclusive) of the 1954 Act in relation to the tenancy created by this Lease. IN WITNESS whereof the parties hereto have caused their respective common seals or their hands and seals (as the case may require) to the hereunto affixed the day and year first above written. 12 SCHEDULE 1 (Rights included in this Lease) 1. RIGHTS OF WAY The right for the Lessee and its servants, agents, invitees and licensees for all proper purposes in connection with the use and enjoyment of the demised premises in common with the Lessor and the lessees of all the other Units and all others having the like right to pass and re-pass on foot over the Service Area for the purpose of access to and egress from and the carriage of goods to and from the demised premises. 2. SERVICES The right of free passage and running and supply of electricity, telephone, water, gas (where a supply is provided to the demised premises) soil, air conditioning and other services from and to the demised premises through the pipes, wires, ducts, cables, conduits, drains, systems and mains as may before the expiration of the perpetuity period be in under or above the Scheme. 3. SUPPORT AND SHELTER The right for the demised premises to be supported and/or protected and sheltered by other parts of the Scheme and the soil thereof. 4. RIGHTS OUT OF OTHER LEASES All easements and similar rights excepted and reserved out of leases of other Units in the Scheme for the benefit of inter alia the demised premises. 5. TOILET The right to use in common with the Lessor and other persons authorised by the Lessor the toilets situate on the first floor of the Scheme immediately adjacent to the Demised Premises. 6. SIGNS The right to affix and display the Tenant's (or other permitted occupiers') trade name on the occupier's display board in the entrance foyer of the Scheme and also to display such name in the Service Area of the first floor of the Scheme in a location and of a type and size approved by the Landlord such approval not to be unreasonably withheld or delayed. 13 7. ACCESS TO THE OTHER PARTS OF THE SCHEME Subject to the prior written consent of the Landlord (not to be unreasonably withheld or delayed) and if reasonably required to comply with the Lessee's covenants in this Lease rights of access to other parts of the Scheme with and without workmen and machinery which is reasonably necessary to comply with such covenants. 14 SCHEDULE 2 (Exceptions and Reservations out of this Lease) 1. REPAIRS The right for the Lessor and the Superior Lessor, their servants, agents and licensees on 48 hours' prior written notice at all reasonable times after prior consultation with the Lessee or in the case of emergency without such notice to enter upon the demised premises with all necessary tools, appliances and materials for the purposes of carrying out repairs, cleansing, maintenance, rebuilding and renewal for which the Lessor is responsible under the terms of this Lease and for the repair, maintenance and renewal of all wires, pipes, cables, conduits and systems laid through under or upon or attached to the demised premises at the date hereof the Lessor and the Superior Lessor causing to the demised premises and the Lessee's fixtures, furnishings, fittings and equipment as little damage and to the Lessee as little inconvenience as possible and making good forthwith all damage or injury thereby occasioned to the demised premises and the Lessee's fixtures, furnishings, fittings and equipment to the reasonable satisfaction of the Lessee but without being liable to pay compensation therefore except in the event of negligence or willful default on the part of the person exercising such right. 2. REBUILDING The right for the Lessor after prior consultation with the Lessee to rebuild or alter or to consent to any person rebuilding or altering any part of the Scheme (other than the demised premises) or rebuilding or altering any of the adjoining or neighbouring buildings PROVIDED THAT in any such matters there shall not be any material interference with the proper use and enjoyment of the demised premises by the Lessee and the rights hereby granted PROVIDED ALWAYS that the Lessor shall cause (or ensure that there is caused) as little damage to the demised premises and as little inconvenience to the Lessee as possible and shall forthwith make good any damage caused to the demised premises and the Lessee's fittings and equipment as a result of any matters set out in this paragraph 2 to the reasonable satisfaction of the Lessee. 3. RENEWAL OF SERVICES The right for any appropriate competent Authority at all reasonable times and upon reasonable notice (except in the case of emergency) to maintain, repair or renew any existing or to install any new services either within or over the demised premises and for that purpose subject to it causing as little damage and inconvenience as possible to have 15 access to and into the demised premises with all necessary tools, appliances and materials. 4. SUPPORT The right for the other parts of the Scheme to support and/or protection and shelter from the demised premises. 5. SERVICES The right of the Lessor and other the lessees or occupiers of the other Units within the Scheme of passage and running of electricity, telephone, water, gas and soil and other services from and to any other parts of the Scheme through the pipes, wires, ducts, cables, conduits, drains, systems and mains which now are or may before the expiration of the perpetuity period be in, on or under the demised premises. 6. MAINTENANCE OF SCHEME The right of the Lessor and the Superior Lessor, their respective servants, agents or licensees at all reasonable times upon reasonable written notice or in the case of emergency without such notice to enter upon the demised premises for the purposes of cleaning or executing, repairs and alterations (where beyond economic repair) to any other part of the Scheme and for the repair, maintenance and renewal of all pipes, wires, ducts, cables, conduits, drains, systems and mains now or as may from time to time be laid through under or upon or attached to the demised premises and used solely in connection with the supply of services to such other Units the person so entering the demised premises dong so only where the works cannot reasonably be carried out without such entry and causing as little damage or inconvenience as possible and the Lessor making good all damage or injury thereby occasioned and complying with all reasonable directions of the Lessee. 7. SUPERIOR LEASE All other of the exceptions and reservations contained in the Superior Lease. 16 SCHEDULE 3 (Covenants by the Lessee) 1. TO PAY RENT To pay the rent hereby reserved (including any increased rent following a review under the provisions contained in Schedule 5 hereto) at the times and in the manner herein mentioned. 2. TO PAY EXCESS INSURANCE To pay to the Lessor on demand any excess payments made by the Lessor following any claim on the Lessor's and the Superior Lessor's insurance policy or policies against the Insured Risks arising out of any act or omission of the Lessee, his servants, agents, invitees or licensees in relation to the demised premises or any other part of the Scheme. 3. TO YIELD UP At the expiration or sooner determination of the term peaceably and quietly to deliver up to the Lessor the demised premises in such repair and condition as shall be in accordance with the covenants in that behalf herein contained (damage by any Insured Risks excepted save to the extent that the insurance moneys are irrecoverable through the act, neglect or default of the Lessee, its servants, agents, invitees or licensees and damage by Terrorism also excepted where not an Insured Risk) and to remove every molding, sign, writing or painting of the name or business of the Lessee or other occupiers from the demised premises and to make good all damage caused to the demised premises by the removal of the Lessee's fixtures, fittings, furniture and effects Provided that nothing in this Schedule shall require the Lessee to keep nor yield up the Demised Premises in any better state of repair and condition than they are at the Commencement Date as evidenced by the Schedule of Condition. 4. TO REPAIR ON NOTICE Within two (2) months or sooner if requisite after the Lessor or the Superior Lessor shall have given written notice requiring the Lessee so to do to commence and diligently to proceed to make good such defects and wants of reparation or decoration as shall be specified in such notice and for which the Lessee is liable hereunder PROVIDED that if the Lessee defaults in complying with any such notice the Lessor or the Superior Lessor may (but without prejudice to the right of reentry hereinbefore contained) enter the demised premises and execute such work causing as little damage and inconvenience as possible. 17 5. TO REPAY COST OF REPAIR To repay to the Lessor or the Superior Lessor on written demand the reasonable and proper cost of any such work carried out by the Lessor or the Superior Lessor pursuant to the proviso to the last foregoing covenant together with all reasonable and proper solicitor's and surveyor's charges and other expenses which may reasonably be incurred by the Lessor or the Superior Lessor in connection therewith. 6. TO PERMIT LESSOR TO ENTER TO TAKE INVENTORIES To permit the Lessor and the Superior Lessor and all persons respectively properly authorized by them to enter the demised premises accompanied by a representative of the Lessee (if the Lessee shall so require) at all reasonable times (on 48 hours' prior written notice except in the event of emergency) when such notice as can be given will be given: 6.1 to take inventories of the Lessor's fixtures and fittings and of any dilapidations therein; 6.2 to review the condition of the demised premises; or 6.3 to exercise the rights referred to in Schedule 2 hereto; PROVIDED THAT the person exercising such right shall (i) cause as little inconvenience and damage as possible and in the case of paragraphs 6.1 and 6.2 of this Schedule the Lessor shall forthwith make good any damage done (ii) comply with all reasonable requirements of the Lessee and (iii) cause as little inconvenience to the business carried on thereat as practicable and provided further that (save in an emergency) where the purpose of entry is to carry out works not less than seven day's notice will be given. 7. TO CLEAN WINDOWS, ETC. To keep the interiors of all windows and all glass (if any) in the entrance door thereto of the demised premises reasonably clean. 8. NOTICES, SIGNS, ETC. Not without the written consent of the Lessor (such consent not to be unreasonably withheld or delayed) to exhibit or permit to be exhibited on or from the demised premises any sign, signboard, fascia, advertisement, placard or sky sign. 9. AUCTION, SALES Not to have or permit or suffer to be held any sale by auction in or upon the demised premises or any part thereof without the previous written consent of the Lessor. 18 10. FLOOR LOADING ETC. Not to overload the floors of the demised premises beyond the margin of safety prescribed by the Lessor's surveyor or if no margin is prescribed beyond a proper margin of safety. 11. NOT TO BLOCK UP LAVATORIES ETC. Not to use or permit the use of lavatories, water closets or drains in the demised premises or in the Scheme for disposal of refuse or for any purpose which may cause a stoppage or injury thereto and in the event of any such stoppage or injury forthwith to make good all such damage to the entire reasonable satisfaction of the Lessor's surveyors. 12. NOT TO CAUSE NUISANCE ETC. Not to do or permit to be done upon the demised premises or any part thereof or in any other part of the Scheme anything which may be or tend to be a nuisance or the cause of unreasonable annoyance or damage or unreasonable disturbance to the Lessor, the Superior Lessor or any of the occupants of the adjoining or neighbouring Units or property or to the general public provided that the carrying on of the Lessee's ordinary business in a proper and efficient manner shall not constitute a breach of this provision. 13. MUSICAL INSTRUMENTS ETC. Not to play any sound producing or reproducing instruments or equipment unduly loudly. 14. DANGEROUS THINGS ETC. Without prejudice to the next following clauses not without the Lessor's consent to store or place or suffer to be stored or placed in or about the demised premises or any part thereof or any other part of the Scheme any articles of a radioactive, explosive, specially combustible, specially inflammable or dangerous nature. 15. NOT TO VITIATE LESSOR'S INSURANCE ETC. 15.1 Not knowingly to do or permit to be done anything whereby the policy or policies of insurance relating to the demised premises or any other part of the Scheme against damage by the Insured Risks may become void or voidable or in consequence of which the Lessor would or might be prevented from insuring the demised premises or any other part of the Scheme at the ordinary rate of premium and not without the written consent of the Lessor to do or allow to be done anything whereby the rate of premium thereon may be increased or the renewal thereof may be refused and to repay to the Lessor all sums paid by it by way of increase in premiums and all expenses properly and reasonably 19 incurred by it in or about any renewal of such policy or policies rendered necessary by any breach or non-observance of the terms of this paragraph 15.1. 15.2 In the event of the demised premises of the Scheme or any part thereof being damaged or destroyed by any one or more of the Insured Risks at any time during the term and the insurance money under any policy of insurance effected thereon by the Lessor being wholly or partially irrecoverable by reason solely or in part of any act or default of the Lessee (but in the event of the risk of damage increasing the Lessor immediately having become aware of the same shall give notice to the insurers and pay any premiums if required) the Lessee will forthwith on written demand (in addition to the said rents) pay to the Lessor the amount so withheld or a reasonable proportion thereof reasonably attributable to the Lessee's act or default such proportion in default of agreement to be determined by arbitration together with from the date of payment by the Lessor of the cost of repairs to the date of repayment by the Lessee interest thereon at the rate of three per cent (3%) per annum above the base rate for lending of Barclays Bank Pic from time to time in force or (if no such rate exists) such other rate as nearly equivalent thereto as possible as may in default of agreement be determined by arbitration and compounded on the quarter days. 16. USE OF SERVICES To comply at all times with the lawful regulations of every company or authority which shall for the time being supply gas water or electricity to the demised premises and to keep all water pipes forming part of the demised premises reasonably protected against frost and not to waste or permit to be wasted any water or allow anything of a harmful nature to pass into the drains of the demised premises or any other part of the Scheme nor wilfully or negligently allow any water to overflow to the floor from any sink lavatory basin or water closet and in case any damage shall be caused to the demised premises or the Service Area or any part thereof or to any other part of the Scheme through the breach of the provisions of this paragraph 16 by the Lessee its servants licensees or invitees the Lessee shall forthwith make good the same at its own expense in all respects (except as covered by the Insured Risks). 17. TO COMPLY WITH INSURANCE REGULATIONS AND REQUIREMENTS To comply with all lawful regulations or requirements applicable to the demised premises (other than any requiring structural works or any others falling within the ambit of the Lessor's covenants herein contained or outside the areas comprised in the demised premises) which may be notified to the Lessee in writing and made by the Fire Authority to ensure certification or by the Lessor's insurers to secure insurance of the demised premises or the Service Area or any other part of the Scheme against the Insured Risks. 20 18. PLANNING ACTS Not to do or permit to be done or omitted any act matter or thing in on or respecting the demised premises required to be done or omitted (as the case may be) by the Planning Acts or which shall contravene the provisions of the said Acts and at all times hereafter to indemnify the Lessor and the Superior Lessor and keep them indemnified against all actions, proceedings, reasonable costs, expenses, claims and demands in respect of any such matter or thing contravening the said provisions or any of them insofar as the same are applicable to the Demised Premises. 19. PLANNING ACTS Not without the previous written consent of the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor (which the Lessor and the Superior Lessor may if they think fit and for any reason withhold) to make any application for planning permission under the Planning Acts or take any other steps which may entitle an appropriate authority compulsorily to acquire the demised premises or which could lead to adverse financial or taxation consequences upon the Lessor or the Superior Lessor. 20. ALTERATIONS 20.1 Not without the consent of the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor to cut, remove, divide, alter, maim or injure any structure or supporting walls or frames or structural floors or roofs of the demised premises or make any openings in the walls or ceilings thereof or merge the demised premises with any adjoining premises. 20.2 Not to overload the electrical installations within the demised premises or the Scheme. 20.3 Not to do or permit to be done anything in the demised premises which may adversely affect or interfere with the water system or any fire sprinkler system (if any) or any alarm system installed by the Lessor in the Scheme. 21. ALTERATIONS Without prejudice to the generality of the foregoing covenant not to make any alterations or additions to the demised premises or any part thereof (other than any partitioning or non-structural internal alterations for which no consent shall be required but in respect of which the Lessee will supply a layout plan to the Lessor) whether of a temporary or movable nature except with the previous written consent of the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor and in accordance with drawings and specifications 21 previously submitted to and approved in writing by the Lessor's and (where required by the terms of the Superior Lease) the Superior Lessor's surveyors (which consent and approval of the Lessor shall not be unreasonably withheld or delayed) and such consent if granted to be without prejudice nevertheless to the provisions of proviso (a) hereto provided always that: (a) the Lessor may as a condition of giving such consent require the Lessee to enter into such covenants with the Lessor as the Lessor may reasonably require in regard to the execution of any works and the reinstatement of the demised premises at the end or sooner determination of the term (howsoever the same may be determined or otherwise) provided further that in the event that the Lessee fails to observe the provisions of this clause 21 it shall be lawful for the Lessor with or without agents and materials to enter upon the demised premises and remove any alterations or additions and execute such works as are necessary to restore the demised premises to their former state and the reasonable expense thereof (including surveyors and other professional fees) shall be paid by the Lessee to the Lessor on demand; (b) the Lessee shall as soon as reasonably practicable notify the Lessor of the reinstatement value of any works alterations or additions carried out by the Lessee with the written consent of the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor under this paragraph 21 or paragraph 20 of this Schedule so as to enable the Lessor where appropriate to notify its insurers thereof. 22. MATERIAL CHANGES If the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor shall grant any consent under the provisions of paragraphs 20 and 21 of this Schedule to apply to the appropriate Planning Authority for any necessary permission in relation to the matters in respect of which the Lessor and the Superior Lessor shall have given such consent and not to implement any planning permission until the same has been submitted to and approved in writing by the Lessor (such consent not to be unreasonably withheld or delayed) and (where required by the terms of the Superior Lease) the Superior Lessor and at all times to indemnify and keep the Lessor and Superior Lessor against all proceedings, costs, expenses, claims, charges and demands whatsoever in respect of or arising out of any such application and unless the Lessor and (where required by the terms of the Superior Lease) the Superior Lessor shall otherwise direct to carry out before the determination of the term (howsoever the same may be determined) any work stipulated to be carried out to the demised premises by a date subsequent to such expiration or sooner determination as a condition of 22 any planning permission which may have been granted to and implemented by the Lessee. 23. TO GIVE PARTICULARS OF NOTICES ETC. UNDER PLANNING ACTS As soon as reasonably practicable and in any event within ten (10) days after the service thereof upon the Lessee to give full particulars to the Lessor of any notice, order or proposal therefore relating to the demised premises given made or issued under or by virtue of the Planning Acts which relate to the Demised Premises and without unreasonable delay and at the Lessee's expense to comply with or appeal against the same in so far as the demised premises are affected and except to the extent that it is due to an act, neglect or omission of the Lessor or lessee of another Unit provided that if the Lessor reasonably so requires in writing the Lessee will at the cost of the Lessor unless such notice order or proposal is due to the act or default of the Lessee join with the Lessor in objecting to or contesting the same. 24. OFFICIAL NOTICES As soon as reasonably practicable and in any event within ten (10) days after the service thereof on the Lessee or of the same coming to the actual notice of the Lessee to give full particulars to the Lessor of any notice order or proposal relating to the demised premises given made or served or proposed to be given made or served by any Local or other competent authority and without delay and at the Lessee's expense to comply with or appeal against the same in so far as the demised premises are affected and except to the extent that it is due to an act default or omission by the Lessor or lessee of another Unit provided that if the Lessor reasonably so requires in writing the Lessee will at the cost of the Lessor unless such notice order or proposal is due to the act or default of the Lessee join with the Lessor in objecting to or contesting the same. 25. WORKS ETC. REQUIRE BY STATUTE To do or execute or cause to be done or executed all such works as under or by virtue of any enactment or statutory instrument or any notice thereunder or direction given or made pursuant thereto for the time being in force are or shall be directed or necessary to be done or executed upon or in respect of the demised premises or any part thereof whether by the owner or occupier in consequent of the user of the demised premises for the purpose authorised by this Lease or otherwise save those works and things for which the Lessor is liable hereunder and at all times to keep the Lessor and the Superior Lessor indemnified against all proceedings costs, expenses, claims, charges, demands and liability in respect thereof provide always that notwithstanding any other provision contained in this Lease to the contrary any works 23 required to be carried out pursuant to this clause 25 may be carried out without the Lessor's consent or approval. 26. USER Not to use the demised premises except as offices. 27. RESTRICTIONS Not to use the demised premises or any part thereof at any time during the term for or in connection with any illegal or immoral purpose nor for the manufacture distribution sale or supply of intoxicating liquor nor for any purpose in connection with the organisation or practice of gambling in any of its forms nor as a public dance hall nor to do or permit or suffer to be done in or upon the demised premises or any part thereof or any part of the service area or of the Scheme anything which may tend to harm or injure the status of the demised premises or any part of the Scheme or the occupancy of any adjoining property. 28. ALIENATION 28.1 Not to assign underlet agree to underlet share or part with possession or occupation of part only of the demised premises. 28.2 Not to assign or transfer the whole of the demised premises without the previous consent in writing of the Lessor (such consent not to be unreasonably withheld and which shall if the Lessor requires take the form of a formal licence executed as a deed) provided that the Lessor shall be entitled: (a) to withhold its consent in any of the circumstance set out in paragraph 28.3 of this Schedule; (b) to impose all or any of the matters set out in paragraph 28.4 of this Schedule. 28.3 This circumstance referred to in paragraph 28.2(a) of this Schedule are as follows: (a) where the assignee is an associated company of the Lessee unless that associated company is of no lesser financial strength than the Lessee at the date of the application for consent to assign; (b) where the proposed assignee enjoys diplomatic or state immunity; and (c) where the assets of the proposed assignee upon which any reasonable assessment of financial strength is based are not in the United Kingdom or some other jurisdiction with which 24 there is subsisting with the United Kingdom a system of reciprocal enforcement of judgements. 28.4 For the purposes of Sub-Section 19(1)(A) Landlord and Tenant Act 1927 (as amended) and in addition to any other condition or requirement which the Lessor may reasonably impose the Lessor may grant its consent to an assignment or transfer of the demised premises subject to the following conditions: (a) the Lessee and/or any former tenant (as defined by Section 16(6) of the Landlord and Tenant (Covenants) Act 1995) enters into and delivers to the Lessor prior to or contemporaneously with the assignment in question an authorised guarantee agreements (as defined by Section 16 of the Landlord and Tenant (Covenants) Act 1995) prepared by the Lessor's solicitors (but at the cost of the Lessee in accordance with paragraph 31 of this Schedule) with the Lessor should the Lessor so require under which the Lessee: (i) guarantees the performance by the intended assignee (but not any further or subsequent assignees) of all the covenants on the part of the Lessee contained in this Lease; (ii) is liable to the Lessor as principal debtor and is not released even if the Lessor gives the intended assignee extra time to comply with any obligations; (iii) agrees that in the event that this Lease is disclaimed by a liquidator or trustee in bankruptcy of the assignee or other person with power to disclaim and on being so required by the Lessor the Lessee will accept the grant of a new tenancy of the demised premises: (A) on the same terms and conditions as this Lease at the date of the disclaimer; and (B) for a term expiring on the term date of this Lease; (b) the Lessee procures that any intended assignee shall in a deed prepared by the Lessor's solicitors but at the cost of the Lessee in accordance with paragraph 31 of this Schedule covenant direct with both the Lessor that the said assignee will pay the rent reserved by and will observe and perform the covenants and conditions contained in this Lease; (c) the Lessee if requested procures that such persons as the Lessor may reasonably require where it is reasonable in the circumstances so to do shall act as guarantors for the intended 25 assignee and shall (inter alia) jointly and severally (where relevant) covenant in a deed prepared by the Lessor's solicitors but at the cost of the Lessee in accordance with paragraph 31 of this Schedule with the Lessor that the said assignee will pay the rent reserved by and will observe and perform the covenants on the part of the Lessee and the conditions contained in this Lease and such covenant shall also provide that: (i) any neglect or forbearance of the Lessor in endeavouring to obtain payment of the rent or delay to take any steps to enforce performance by the assignee of the said covenants and conditions or any other act omission matter or thing whatever including any variation in this Lease whereby (but for this provision) the guarantors would be exonerated either wholly or in part from the guarantee other than a release under seal given by the Lessor shall not release or in any way lessen or affect the liability of the guarantor; (ii) should the said assignee being a company go into liquidation and the liquidator disclaim this Lease or if the said company should be wound up or cease to exist then the guarantors will, should the Lessor so require, accept a new lease of the demised premises such new lease to commence as from the date of such disclaimer or (as the case may be) such winding-up or ceasing to exist and to be for the residue then unexpired of the Term and to be at the rent payable (such rent to commence as from the date of such disclaimer or winding-up or cesser of existence and to be subject to the same provisos and conditions as those in force immediately before such disclaimer) and to be granted at the cost in all respects of the guarantors in exchange for a counterpart duly executed by the guarantors. Subject as aforesaid for the purposes of Sub-Section 19(1)(A) Landlord and Tenant Act 1927 (as amended) and in addition to any other condition or requirement which the Lessor may reasonably impose the Lessor may lawfully withhold its consent to a proposed assignment for as long as there are outstanding unpaid rents under this Lease; 26 28.5 Not to underlet or unconditionally agree to underlet the demised premises or permit any person to occupy the demised premises at a fine or premium nor at a rent which is less than the open market rental value of the demised premises nor to permit the reduction of rent paid or payable by any under lessee. 28.6 Not to underlet agree to underlet nor share nor part with the possession or occupation of the whole of the demised premises without procuring: (a) that any intended underlease shall only be of the whole of the demised premises; (b) that any intended under lessee shall covenant with the Lessor as from the date of the underlease to observe and perform the covenants and conditions herein contained (excluding the covenant to pay the rents hereinbefore reserved) and not to underlet or agree to underlet or share or part with possession or occupation of the whole or any part of the underlet premises save on terms consistent with the provisions of the Lease and the intended under lessee (if a company) may share occupation of the whole or part of the underlet premises with a company that is a member of the same group of companies as the under lessee (within the meaning of Section 42 of the Landlord and Tenant Act 1954) provided that no tenancy is created and provided further that within 21 days of such sharing the Lessor receives notice of the company sharing occupation and the address of its registered office; (c) that in any underlease the rent shall be payable no more than two quarters in advance; (d) that Sections 24-28 (inclusive) of the 1954 Act are lawfully excluded from the underlease. 28.7 Subject as aforesaid and provided that the Lessor shall have approved the principal terms of any underlease and the form of underlease finally agreed with the proposed underlessee (such approval not to be unreasonably withheld or delayed) the Lessee shall be permitted to underlet the demised premises as a whole with the prior written consent of the Lessor which shall not be unreasonably withheld or delayed provided that the Lessor may lawfully withhold its consent to a proposed underletting for as long as there are outstanding unpaid rents under this Lease. 27 28.8 The Lessor may waive in whole or part any of the circumstances or conditions set out in this paragraph 28 of this Schedule. 28.9 (a) Notwithstanding the above 11(a) the Lessee may with the consent of the Lessor (such consent not to be unreasonably withheld or delayed) share occupation of the whole or part of the demised premises with any partners or associated companies provided that no relationship of landlord and tenant is thereby created and such sharing ceases upon such association or partnership termination. (b) The Lessee (if a company) may without the consent of the Lessor share occupation with a company that is a member of the same group of companies as the Lessee (within the meaning of Section 42 of the 1954 Act) 29. REGISTRATION OF DISPOSITIONS Within twenty eight (28) days of every assignment underlease or any other devolution or Statutory Assignment of the interest of the Lessee to give notice thereof in writing to the Solicitors for the time being of the Lessor and to produce and leave for registration with them a certified copy of such assignment or in the case of devolution the probate of the will or the Letters of administration or other the deed or document under which such devolution or Statutory Assignment arises and pay a reasonable registration fee (being not less than five (5) pounds per document) in respect of each such registration. 30. TO PAY LESSOR'S COSTS To pay to the Lessor and the Superior Lessor all reasonable and proper costs charges and expenses including but without prejudice to the generality of the foregoing all reasonable and proper Solicitors' costs counsel's architects' surveyors' and other professional fees and commission payable to the bailiff necessarily and properly incurred by the Lessor: 30.1 in connection with the preparation and service of a notice under Section 146 of the Law of Property Act 1925 and/or in connection with proceedings under Section 146 or 147 of the said Act (whether or not any right of re-entry or forfeiture has been waived by the Lessor or notice served under the said Section 146 is subsequently complied with by the Lessee or the Lessee has been relieved under the provisions of the said Act and notwithstanding forfeiture is avoided otherwise than by relief granted by a Court); 30.2 in the preparation and service of a schedule of dilapidations at any time during or within three months after the expiration of the term 28 howsoever the same be determined (but relating in all cases only to dilapidations which accrued prior to the expiration or sooner determination of the term and for which the Lessee is liable hereunder); 30.3 in connection with or procuring the remedying of any breach of covenant on the part of the Lessee contained in this Lease including without prejudice to the generality of the foregoing the recovery of any arrears of rent the Interim Charge and the Service Charge provided that before being responsible for any costs expenses fees and disbursements hereinbefore referred to the Lessee shall first have been given a reasonable opportunity to remedy any breach of covenant (which breach shall be notified to it by the Lessor in writing) and the Lessee has failed to remedy such breach within a reasonable time. 31. COST OF LICENCE To pay all reasonable and proper legal costs architects' and surveyors' fees necessarily and properly incurred by the Lessor and the Superior Lessor in respect of any application by the Lessee for any licence or consent required by this Lease including reasonable and proper legal costs architects' and surveyors' fees which may have been incurred when any licence or consent is refused or any application therefore is withdrawn except in such cases where the Lessor unreasonably withholds or delays its consent or proffers it subject to unreasonable conditions. 32. INTEREST ON SUMS DUE TO LESSOR Where under the terms of this Lease any sum of money becomes due and payable by the Lessee to the Lessor or to the Superior Lessor and remains unpaid for a period of twenty one (21) days after the due date to pay to the Lessor as well before as after any judgement on demand in writing interest on such sum from the date on which the payment of such sum became due and payable until the date of actual payment at a rate of two per cent (2%) above the base rate for the time being of Barclays Bank Pic or (if no such rate exists) such other rate as nearly equivalent thereto as possible as may in default of agreement be determined by arbitration provided that any such written demand shall be served within three (3) months of the said sum having become due and payable. 33. TO PREVENT ENCROACHMENTS ETC. To give immediate notice to the Lessor of any threatened encroachment or attempt to acquire any new rights of light, passage, drainage or other easement over upon or under the demised premises as soon as the same shall come (or with reasonable diligence should have come) to the actual knowledge of the Lessee and at the request and cost of the Lessor to take all reasonably necessary steps to prevent any threatened 29 encroachment or attempt to acquire any such easement including joining with the Lessor in taking proceedings. 34. TO DISCLOSE INFORMATION Upon making any application for any written consent or approval which is required under this Lease the Lessee shall disclose to the Lessor and where required to the Superior Lessor such information as they may reasonably require provided always that the Lessee may in its absolute discretion withhold any such information which the Lessee considered to be of a confidential or sensitive nature without prejudice to the Lessee's application for consent or approval. 35. TO LET OR SALE BOARDS To permit the Lessor or its agents during the six (6) months immediately preceding the expiration or sooner determination of the term to affix and retain without interference on some reasonable and conspicuous part of the demised premises (but not so as to obscure the doors or windows or the Lessee's business name or advertising or to affect the access of light and air to the demised premises) not more than one (1) notice board advertising the sale or letting of the demised premises together with any other particulars which may be reasonably necessary and during the said period to permit all persons with written authority from the Lessor or its agents and on at least 24 hours' prior written notice and accompanied by a representative of the Lessee (if the Lessee shall so require) at all reasonable times of a normal working day to view the demised premises. 36. RATES AND OUTGOINGS To pay satisfy and discharge throughout the term all rates taxes, duties, impositions, charges, assessments and outgoings whatsoever of a recurring nature whether parliamentary, local or otherwise which are now or may at any time hereafter be assessed charged or imposed on the demised premises or the owner landlord tenant or occupier thereof except only such as the owner by law is bound to pay notwithstanding any contract to the contrary and such as are assessed on the Lessor in respect of the rents hereby reserved or the entitlement to the same or in respect of any dealing with any reversion mediately or immediately expectant on the determination of the term provided always that if any of the foregoing be assessed, charged or imposed upon the Scheme or any part thereof (being a part including the demised premises) without apportionment or assessed, charged or imposed on the Service Area then the Lessee shall pay a fair proportion thereof unless the same is included in the Service Charge hereinafter referred to. 30 37. REPAIR OF INTERIOR ETC. At all times during the term well and substantially to repair renew cleanse, maintain, uphold and keep the demised premises and every part thereof (damage by any of the Insured Risks excepted save to the extent that the insurance monies are irrecoverable through the act neglect or default of the Lessee its servants, agents, licensees or invitees and damage by Terrorism also excepted where not an Insured Risk) and it is hereby agreed and declared that there shall be included in this covenant as repairable by the Lessee any internal plastering and other finishes of walls and ceilings and the screed and finish of the floors and the finish of all structural parts of the Scheme within the demised premises including (but without limitation) all fixed floor coverings, ceilings, suspended ceilings and raised floors therein and all electrical installations within and exclusively serving the demised premises and the Lessor's fixtures and fittings (other than the Lessor's plant and equipment including the heating and air conditioning systems) together with the fascias windows window frames doors and door frames of the demised premises provided always and it is hereby agreed and declared that: (a) all non-structural walls which are currently common to the demised premises and any adjoining Unit are hereby declared to be party structures (except for plaster and decorative finishes) and the expense of maintaining them shall be borne in equal shares by the Lessee and the lessee or other the owner or occupier of the adjoining Unit; (b) all non-structural walls which are common to the demised premises and any other part of the Scheme not being an adjoining Unit shall (except for the plaster and decorative finish on that side of the all which faces onto the demised premises) be maintained by the Lessor; and (c) nothing in this Schedule shall require the Lessee to keep nor yield up the demised premises in any better state of repair and condition than they are at the Commencement Date as evidenced by the Schedule of Condition. 38. REPAIR SERVICES AND CONDUCTING MEDIA To keep in repair and replace when reasonably necessary and (solely in relation to any kitchen installed by the Lessee) all pipes, wires, ducts and other like media installed for the purpose of supplying water (cold or hot) electricity or gas and for the purpose of draining away water from the demised premises in so far as such pipes, wires, ducts or other like media are solely installed or used only for the purposes of the demised premises and are fixtures and fittings and for the purpose of such repair the Lessee and his workmen shall have access to such pipes, wires, ducts or other like media whereever they are in upon or 31 under the parts of the Scheme not included in this demise upon proper notice (except in the case of emergency) to the Lessor or the occupier thereof the Lessee nevertheless forthwith making good all damage to the parts of the Scheme occasioned by the carrying out of such repairs to the reasonable satisfaction of the Lessor. 39. SERVICE CHARGE 39.1 To pay to the Lessor the Interim Charge and the Service Charge as defined in Part I of Schedule 6 hereto at the times and in manner therein provided. 39.2 Where the Lessor employs a managing agent in respect of the Scheme as referred to in paragraph 6 of Part II of Schedule 6 to this Lease to pay to the Lessor with the Service Charge a reasonable and proper fee towards the Lessor's general administrative expenses necessarily incurred in the proper management of the Scheme (such fee not to exceed ten per cent of the Service Charge) 39.3 Where the Lessor does not employ a managing agent to pay to the Lessor with the Service Charge a reasonable fee (such fee not to exceed ten per cent of the Service Charge) to defray the Lessor's own costs necessarily incurred in the proper management of the Scheme. 40. OBSTRUCTION Not to obstruct or permit to be obstructed the Service Area or any part thereof. 41. REFUSE Not to store or stack crates bottles barrels or similar containers or any cardboard boxes or any other refuse anywhere within the Scheme other than: (a) within the demised premises; or (b) tidily in the refuse store or other area specifically provided for that purpose. 42. REFUSE RECEPTACLES Not to use any receptacles for refuse except dustbins or other receptacles of a pattern approved by the Lessor (such approval not to be unreasonably withheld or delayed) or prescribed by the Local authority and to maintain the same in good condition and not to place the same in the Service Area (other than the refuse store specifically provided for that purpose) except on the days for the collection of refuse by the local authority. 32 43. TO COMPLY WITH LESSOR'S DIRECTIONS To comply with such reasonable written directions as may from time to time be given by the Lessor or the Lessor's managing agents for the good and efficient regulation of the Service Area with a view to facilitating the use thereof by all persons entitled to use the same but not so as to prevent access thereto or to the demised premises at any time. 44. TO PAINT AND DECORATE THE INTERIOR To paint and decorate the interior of the Demised Premises with paint or paper and/or other material of good quality as often as reasonably necessary so as to maintain the decorative condition of the Demised Premises in no worse state of repair and condition than that evidenced by the attached Schedule of Condition. 45. TO PAY INSURANCE PREMIUM To repay to the Lessor within fourteen (14) days of receiving a written demand therefore the premium for insuring the demised premises against the Insured Risks or if no separate premium is allocated to the demised premises a fair proportion of the premium in respect of the Scheme (unless forming part of the Service Charge) provided that the Lessee shall not be required to pay any amount over the ordinary rate of premium if charged as a result of any act omission or neglect of the Lessor or tenants or occupiers of other Units. 46. VAT In addition to the rents and other payments of whatsoever nature which are or shall be reserved or which are or may become payable pursuant to the provisions of this Lease by or on behalf of the Lessee to the Lessor or to the Superior Lessor or any person or persons acting on their behalf then in addition to such payments the Lessee shall pay any Value Added Tax or similar impost or other tax replacing the same which is or may at any time hereafter become payable in respect of such payment subject (in the case of supplies to the Lessee) to the provision of a valid VAT invoice within 14 days of payment of the VAT by the Lessor. 47. COVENANTS IN SUPERIOR LEASE 47.1 By way of indemnity only to perform and observe and at all times during the term be bound by the Lessee's or tenant's covenants contained in clauses numbered 3 (8)(9)(10)(l1)(12)(13) and (14) in the Superior Lease so far as they affect the demised premises. 47.2 To permit the Lessor and any authorised person to enter the demised premises at any reasonable time upon reasonable prior notice (except in 33 the case of emergency when such notice as can be given will be given) in order to comply with any of the Superior Lease covenants which may be necessary to prevent a forfeiture of the Superior Lease and which arise from the actions or default of the Lessee or any of its underlessees servants or agents Provided that the Lessor shall not enter for the purpose of compliance with the covenants on its part contained in the Superior Lease to the extent that the obligation to comply with such covenants is imposed on the Lessee by this lease unless and until the Lessee shall first have been given a reasonable opportunity to remedy any breach by it of such covenants (which breach shall be notified to it by the Lessor in writing) and the Lessee has then failed to remedy such breach within a reasonable time. 48. NOTICE BY SUPERIOR LESSOR To give immediate notice to the Lessor of any notice given to the Lessee or left on the demised premises by the Superior Lessor requiring any repairs to be done to the demised premises and to furnish the Lessor with a copy of such notice. 49. OFFICES SHOPS ETC ACTS At all times to comply with all such requirements as may be imposed on the occupier by or under the Offices, Shops and Railway Premises Act 1963 or any statutory modification or re-enactment thereof in respect of the user of the demised premises and to indemnify the Lessor against liability in respect of any non-compliance 34 SCHEDULE 4 (Covenants by the Lessor) 1. QUIET ENJOYMENT So long as the Lessee shall pay the rent and make the other payments reserved and made payable in manner aforesaid and observe and perform the covenants and conditions on its part herein contained the Lessee shall and may peaceably and quietly hold and enjoy the demised premises and the rights hereby granted during the term without any claim or demand by the Lessor or any person rightfully claiming through under or in trust for it. 2. TO INSURE THE SCHEME To insure the Scheme (including the demised premises and the service area) in the joint names of the Superior Lessor and the Lessor against damage by the Insured Risks in a sum representing the full cost of reinstatement thereof from time to time during the term and: 2.1 within 14 days of a written request from the Lessee to produce to the Lessee a copy of the policy of insurance or sufficient evidence of the terms of the cover in force and the receipt of the current premium and to provide to the Lessee details of any material changes therein or the conditions thereof; 2.2 to use all reasonable endeavours to note the interest of the Lessee upon the policy of insurance so arranged and to obtain from the insurers a letter of waiver of subrogation rights (but without any warranty that the same will be procured); 2.3 to give to the Lessee written notice of material changes in the insurance policy (including without limitation any changes in the Insured Risks) and in the event of any damage or destruction of the Scheme or any part thereof by any of the Insured Risks (unless such insurance shall have been forfeited or vitiated by the act or default of the Lessee) subject nevertheless to any relevant provisions of the Superior Lease to take with all due speed and diligence such steps as may be proper and use all reasonable endeavours to obtain any necessary permits and consents under any regulations or enactment for the time being in force and will as soon as such permits and consents have been obtained apply all money received by virtue of such insurance (except the insurance relating to loss of rent) in making good the loss or damaged in respect of which the same shall have been received or in rebuilding or reinstating the Scheme or such part as shall have been destroyed or damages in a good and workmanlike manner with good quality and 35 sound materials as expeditiously as possible in accordance with the original plans, elevations and details of the Scheme with such variations (if any) as may be necessary having regard to the provisions of the Superior Lease the then existing statutory provisions, bye laws and regulations affecting the same and any necessary planning approval making up any difference in the amount actually received and the cost of rebuilding or reinstating out of the Lessor's own money and if the demised premises shall be rendered wholly or partially unfit for occupation and use or access through damage or destruction of the Scheme or any part thereof by any of the Insured Risks or Terrorism where not an Insured Risk then except to the extent that the insurance monies are irrecoverable or are reduced through the act or default of the Lessee its servants, agents, invitees or licensees to allow an abatement with effect from the date of the destruction or damage of the whole or a fair and reasonable proportion of the rent hereby reserved and of the Service Charge according to the nature and extent of the damage or destruction until the demised premises and the relevant parts of the Scheme (including plant and conducting media the ground floor entrance and reception and the staircase and lift(s) and the parts of the Service area at first floor level) are again rendered fully fit for occupation use and access such proportion to be determined in the event of dispute by an independent surveyor to be appoint in default of agreement on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors to act as an expert and not an arbitrator. 2.4 The following provisions apply in the event of an act of Terrorism which causes damage to or destruction of the Demised Premises at a time when Terrorism is not an Insured Risk:- (a) Within 9 months of any act of Terrorism the Lessor shall give written notice to the Lessee ("Election Notice") stating whether or not it proposes to rebuild or reinstate the demised premises. (b) If the Election Notice states that the Lessor proposes to rebuild or reinstate the demise premises then for the purposes of this Lease the act of Terrorism shall be deemed to have been damaged by Insured Risks and the provisions of paragraph 2.3 of this Schedule will apply. (c) If the Election Notice states that the Lessor does not propose to rebuild or reinstate the demised premises or if no Election Notice is served strictly within the period of 9 months referred to in paragraph (a) above then the Lessee may within one month of service of the Election Notice or the expiry of such 9 month period (as the case may be) give written notice to the Lessor to determine the Term. 36 3. TO PAY RATES FOR THE SCHEME To pay all existing and future rates, taxes, assessments, duties, impositions, charges and outgoings whatsoever of a recurring nature and which are now or shall hereafter be charged assessed or imposed upon or payable in respect of the Scheme whether parliamentary, parochial local or otherwise howsoever so far as they are not payable by the several lessees in respect of their Units. 4. TO REPAIR AND MAINTAIN THE SCHEME Except in so far as such matters are expressly the responsibility of the Lessee under the provisions of this lease: 4.1 To keep and maintain the Scheme or procure to be kept and maintained in good and substantial repair order and condition and clean and to rebuild renew or replace as and when necessary for such purposes the Scheme (and in particular but without prejudice to the generality of the foregoing) its exterior and its structure its roof and foundations including for such purposes the matters referred to in clause 2.4(c)(i) to (vi) inclusive of this Lease the Service Area and any toilets, passenger lifts, lift shafts, boilers, central heating and all apparatus, equipment, plant and machinery serving the same in good and substantial repair and condition and decoration and to renew or replace the same or any part or parts thereof whenever such renewal or replacement is necessary. 4.2 Without prejudice to paragraph 4.1 to keep and maintain in good working order and condition (including replacement where necessary or desirable for such purposes) all pipes, wires, ducts, passenger lifts, boilers, central heating and air conditioning or other like media and installations, apparatus and plant installed in the Scheme for the purpose of supplying water (cold and hot), air conditioning ventilation electricity or gas to and for the purpose of draining away water and soil for allowing the escape of steam or other deleterious matter from and in respect of any other service to or for the demised premises except in so far as such pipes, wires, ducts or other like media and installations apparatus and plant are solely installed (other than for the heating and air conditioning installations and machinery and conducts ancillary thereto) for the purposes of and exclusively servicing the demised premises. 5. TO EXECUTE WORKS To execute such works of a structural nature within the demised premises and the Scheme as may be required by the fire authority or the Lessor's insurers and to do all things and take such steps as are required from time to time to ensure that there is a fire certificate in force for the Scheme and that all lawful requirements relating to fire precautions are complied with. 37 6. TO PRODUCE RECEIPTS From time to time to allow the Lessee to inspect such receipts and vouchers and other relevant information in relation to the Service Charge as the Lessee may reasonably require under the provisions of paragraph 6 of Part I of Schedule 6 to this Lease and at the request and cost of the Lessee to supply copies of the same. 7. TO CLEAN AND HEAT SERVICE AREA To keep the Service Area reasonably cleaned heated and lit where reasonably necessary or appropriate and to ensure that the toilets in the Scheme are supplied with hot water soap towels and other usual requisites. 8. TO SUPPLY HEAT AIR CONDITIONING AND HOT AND COLD WATER TO THE DEMISED PREMISES To supply and maintain heating air conditioning and hot and cold water to the demised premises. 9. ENTRYPHONE To keep in good and substantial repair and renew when necessary the video entryphone system in the Scheme so as to serve the demised premises. 10. NOT TO ERECT SIGNS Not to erect any signs of any kind on the flank wall of the demised premises without the Lessee's consent such consent not to be unreasonably withheld. 11. SUPERIOR LEASE To pay the rent reserved by the Superior Lease and to perform and observe the covenants therein contained on the part of the Lessor (as Lessee thereunder) to be observed and performed and the conditions therein contained (save and so far as such covenants and conditions fall to be performed and observed by the Lessee hereunder) and if requested to do so by the Lessee (at the Lessee's cost) to enforce the Lessor's covenants and obligations contained in the Superior Lease. 12. SUPERIOR LESSOR'S CONSENT Where the Lessee requests the consent or approval of the Lessor and the consent or approval of the Superior Lessor is required pursuant to the Superior lease the Lessor shall at the request and at the cost of the Lessee use all reasonable endeavours (in consultation with and on the instructions of the Lessee where necessary) to obtain such consent or 38 approval in any case where the Lessor would be prepared or is lawfully required to give its consent or approval. 13. RELEVANT MATTERS Notwithstanding any other provisions contained in this Lease the Lessor shall provide such of the relevant matters (as defined in Part I of Schedule 6 hereto) as are reasonable and proper for the benefit of the Lessees and occupiers of the Scheme in accordance with the principles of good estate management and shall provide the same in a good efficient and economical manner. 14. DIRECTIONS AND REGULATIONS The Lessor shall ensure that any directions and/or regulations made relating to the Scheme or any part or parts thereof are communicated to the Lessee in writing and do not in any way adversely or materially interfere with or affect the use and enjoyment of the demised premises and in the event of any conflict between those directions and/or regulations and the provisions of this Lease the provisions of this Lease shall prevail. 15. PUBLIC AND THIRD PARTY LIABILITY At all times during the term maintain in force insurance policies in respect of property owner's public and third party liability in respect of the Scheme for an adequate sum with an insurance office of repute and apply all money received under or in respect of any such insurance in settlement of any third party claims. 16. SECURITY In exercising any rights of entry upon the demised premises granted hereunder to preserve the security of the demised premises. 39 SCHEDULE 5 (Above referred to Rent Review Provisions) 1. REVIEW DATES In this schedule "Review Date" means 25 September 2009 and "Review Period" means the period starting with the Review Date and expiring at the end of the Term. 2. RENT 2.1 Until the Review Date the rent payable hereunder shall be the Rent shown in clause 1. 2.2 During the Review Period the said rent shall be that payable immediately prior to the Review Date or such revised rent as may be ascertained as herein provided whichever shall be the greater. 2.3 In the event of a revised rent not being ascertained as herein provided the rent payable shall be the rent payable immediately prior to the Review Date. 3. ASCERTAINMENT OF RENT 3.1 Such revised rent for the Review Period may be agreed at any time between the Lessor and the Lessee or (in the absence of such agreement) determined not earlier than the relevant Review Date by an independent valuer (acting as expert and not as an arbitrator) such valuer to be nominated in the absence of agreement by or on behalf of the President for the time being of the Royal Institution of Chartered Surveyors on the application of either the Lessor or the Lessee made not earlier than three (3) months before the Review Date and so that the revised rent to be determined by the valuer shall be such as he shall decide should be the yearly rent at and from the Review Date for the demised premises. 3.2 Any valuer nominated in pursuance of the immediately preceding sub-clause shall be a chartered surveyor with experience of dealing with reviews of rent for the same type of premises and in the same locality as the demised premises. 4. BASIS OF REVIEWED RENT Whether such revised rent as aforesaid shall be determined by agreement between the parties or by a valuer as hereinbefore provided the same shall be fixed 4.1 On the following assumptions (if not facts) as at the Review Date: 40 (a) that the demised premises are ready to be fitted out for immediate occupation and use as offices and that no work has been carried out thereon (otherwise than in pursuance of an obligation to the Lessor) by the Lessee its sub-tenants (if any) and their respective predecessors in title during the term which has diminished the rental value of the demised premises and that in case the demised premises or any part thereof have been destroyed or damaged by any of the Insured Risks they have been fully restored and reinstated; (b) that the demised premises are available for letting by a willing landlord to a willing tenant as a whole without a premium but with vacant possession and subject to the provisions of this Lease (other than clause 6.11 and the provisions relating to Service Charge cap and other than the amount of the rent hereby reserved but including mutatis mutandis the provisions for rent review herein contained) for a term equal to the unexpired residue of the term at the Review Date; (c) that the covenants and agreements herein contained on the part of the Lessor and the Lessee have been fully performed and observed in all respects unless in the case of the Lessor the breach has been material and persistent; (d) that no reduction is to be made to take account of any rental concession which on a new letting with vacant possession might be granted to an incoming tenant for a period within which its fitting out works would take place; AND having regard to open market rental values current at the Review Date. 4.2 But disregarding the following matters (namely): (a) any effect on rent of the fact that the Lessee its sub-tenants (if any) or their respective predecessors in title have been in occupation of the demised premises; (b) any goodwill attached to the demised premises by reason of the carrying on thereat of the respective businesses of the Lessee, its sub-tenants (if any) or their respective predecessors in title, and (c) any increase in rental value of the demised premises attributable to the existence at the relevant Review Date of any improvement or other works to the demised premises or any part thereof carried out by the Lessee or its sub-tenants (if any) or their respective predecessors in title with consent (where required) otherwise than in pursuance of an obligation to the Lessor or its predecessors in title. 41 5. FURTHER PROVISIONS It is hereby further provided in relation to any such revised rent that: 5.1 in the case of determination by the valuer (a) the fees and expenses of the valuer including the cost of his appointment shall be borne equally by the Lessor and the Lessee who shall otherwise each bear their own costs; (b) the valuer shall afford to each of the parties an opportunity to make representations (whether written or oral) to him in respect of such rent to be revised; and (c) if the valuer shall die delay or become unwilling to act or if for any other reason (including the incapacity of the valuer) the President for the time being of the Royal Institution of Chartered Surveyors or the person acting on his behalf shall in his absolute discretion think fit he may in writing discharge the valuer and appoint another in his place. 5.2 When the amount of any rent to be ascertained as hereinbefore provided shall have been so ascertained memorandum thereof shall thereupon be signed by or on behalf of the Lessor and the Lessee and annexed to or endorsed upon this lease and the counterpart thereof and the parties shall each bear their own costs in respect thereof. 5.3 (a) If the revised rent payable on and from the Review Date shall not have been ascertained (whether by agreement or valuation) by the Review Date the rent FIRST hereby reserved shall continue to be payable at the rate previously payable and within fourteen days of such revised rent being ascertained as aforesaid the Lessee shall pay to the Lessor any shortfall between the new rent and the old rent up to the Quarter Day immediately following such ascertainment together with interest upon each part of such shortfall from the date upon which the same would have been payable (had the revised rent been ascertained on the Review Date) to the date of actual payment thereof at the base rate for the time being of Barclays Bank Plc or (if no such rate exists) such other rate as nearly equivalent thereto as possible as may in default of agreement be determined by arbitration. (b) For the purposes of this paragraph the revised rent shall be deemed to have been ascertained on the date when the same has been agreed between the parties in writing or (as the case may be) on the date of the determination by the valuer. 42 6. STATUTORY RESTRICTION If by virtue of any act, Statutory Instrument or Order there is at any Review Date a restriction upon the Lessor's rights to review the rent then upon the ending removal or modification of such restriction the Lessor may give to the Lessee not less than one (1) month's written notice requiring an additional rent review upon the Quarter Day following the service of that notice and for the purposes of this Schedule 5 the said quarter day shall be a Review Date. 43 SCHEDULE 6 (Above referred to) Part I The Service Charge and the Interim Charge 1. DEFINITIONS In this schedule: 1.1 "Relevant Matters" means the various items set forth in Part II of this Schedule 6; 1.2 "Accounting Period" means the period commencing on the first day of January and ending on the thirty first day of December in any year or such other annual period as the Lessor may in its discretion from time to time determine by notice in writing to the Lessee; 1.3 "Total Expenditure" shall be deemed to include not only those expenses, outgoings and other expenditure in respect of the Relevant Matters which have been actually disbursed, incurred or made by the Lessor (acting reasonably) during the Accounting Period but also such reasonable part of all such expenses outgoings and other expenditure as aforesaid which are of a periodically recurring nature (whether recurring at regular or irregular intervals) whenever to be disbursed, incurred or made including a sum or sums by way of reasonable provision for anticipated expenditure in respect of the Relevant Matters or any of them as the Lessor or its agents may reasonably allocate to the year in question as being fair and reasonable in all the circumstances 1.4 "Service Charge" means such Fair Proportion (as defined in clause 2.7 of this Lease) of the Total Expenditure excluding any costs and expenses incurred relating to the rebuilding reinstatement and renewal (but not repair) of the Scheme or any part thereof except for plant and equipment as shall from time to time be notified in writing to the Lessee by or on behalf of the Lessor and also excluding any costs and expenses incurred by the Lessor relating to making good any damage caused by an Insured Risk and/or Terrorism whether or not an Insured Risk unless the insurance moneys are not recoverable because of some act or default of the Lessee or any person deriving title through the Lessee in breach of paragraph 15.1 of Schedule 3. 1.5 "the Interim Charge" means such reasonable sum on account of the Service Charge in respect of each Accounting Period as the Lessor or its agent shall in writing specify to the Lessee and for the Accounting Period during which this lease is executed the Interim Charge shall be based on the anticipated Total Expenditure for the period from the date 44 of this Lease to the Thirty-first day of December next following (or other the last day of the Accounting period in force at the date of such execution) and thereafter shall be based on the anticipated Total Expenditure for the then current Accounting Period by reference to the Total Expenditure for the immediately preceding Accounting Period. 2. PAYMENT OF INTERIM CHARGE The first payment of the Interim Charge (on account of the Service Charge for the Accounting Period during which this Lease is executed) shall be made on the execution hereof and thereafter the Interim Charge shall be paid to the Lessor by equal quarterly payments in advance on the Quarter Days. 3. CARRY FORWARD OF SURPLUS If the Interim Charge paid by the Lessee in respect of any Accounting Period exceeds the Service Charge for that Accounting Period the surplus of the Interim Charge so paid over and above the Service Charge shall be carried forward by the Lessor and credited to the account of the Lessee in computing the service charge in the succeeding Accounting Period or (if the term shall have expired or determined) shall be paid by the Lessor to the Lessee. 4. PAYMENT OF SERVICE CHARGE If the Service Charge in respect of any Accounting Period exceeds the Interim Charge paid by the Lessee in respect of that Accounting Period together with any surplus from the previous year carried forward as aforesaid then the Lessee shall pay the excess to the Lessor within fourteen (14) days of service upon the Lessee of the certificate referred to in paragraph 5 of this Schedule. 5. CERTIFICATE OF SERVICE CHARGE As soon as possible after the expiration of each Accounting Period there shall be served upon the Lessee by the Lessor a certificate signed by the Lessor's surveyor or auditor or other professional agent containing the following information: 45 5.1 the amount of the Total Expenditure for that Accounting Period; 5.2 the amount of the Interim Charge paid by the Lessee in respect of that Accounting Period together with any surplus carried forward from the previous Accounting Period; and 5.3 the amount of the Service Charge in respect of that Accounting Period and of any excess payable by or sum credited to the Lessee in accordance with the foregoing provisions of this Schedule 6. 6. VOUCHERS The Lessee shall be entitled within two (2) months after service of such certificate to inspect the Lessor's receipts and vouchers and other relevant information relating to the Total Expenditure. 7. SINKING FUND The Lessor shall administer or procure to be administered any sinking fund established pursuant to paragraph 2 of Part II of this Schedule in an efficient manner and shall invest or procure to be invested in a separate trust account all moneys in any sinking fund so established in an efficient manner and for the benefit of the persons from time to time interested in the Scheme as lessees. Part II The Relevant Matters Items to be included in the Service Charge 1. PAYMENTS BY LESSOR IN RESPECT OF THE SCHEME All costs and expenses reasonably incurred by the Lessor in and about the Scheme in the discharge of the obligations on the part of the Lessor contained in paragraphs 2,3,4,5,7, 8 & 9 of Schedule 4 to this Lease. 2. SINKING FUND Reasonable contributions to any sinking fund from time to time established by the Lessor in respect of the several matters mentioned in any clause of this Part of this Schedule 6. 3. INSPECTION ETC The cost of periodically inspecting, examining, maintaining, and (where beyond economic repair) replacing any and every part of the Scheme and the appurtenances thereof including fire alarms, fire 46 fighting equipment, sprinklers and other security alarms and equipment in the Service Area. 4. ASSESSMENTS All charges, assessments, impositions and other outgoings payable by the Lessor in respect of all parts of the Scheme not exclusively occupied or designed for occupation by a lessee. 5. INSURANCE Without prejudice to paragraph 1 of this Part of this Schedule 6 the cost of insuring the Scheme and all the appurtenances thereof and in addition the cost of insurance against third party employers and public liability and any of the Insured Risks not specifically in this Lease mentioned. 6. MANAGEMENT The reasonable and proper fees of the Lessor's agents from time to time of and incidental to the collection of rents in respect of the Scheme and the general management of the Scheme (such fees not to exceed 10% of the Service Charge). 7. OTHER EXPENDITURE 7.1 All other reasonable expenditure properly incurred in accordance with good estate management principles and properly attributable to the maintenance and management of the Scheme (whether it is specifically mentioned in this Lease or not) including without prejudice to the generality of the foregoing the upkeep, care, servicing and reinstatement of any lifts, boilers, central heating systems and other installations forming part of the Scheme excluding nevertheless: (a) any costs of or incidental to the recovery of rent or service charge for any other tenant in the Scheme or any adjoining or neighbouring building of the Lessor or enforcing covenants against any such tenant or in relation to the negotiation or the settlement of any rent review or in relation to the remedying of any breach of any of the obligations of any other such tenant (b) the costs of interpreting this Lease and corresponding with or taking action against any other tenant or occupier of the Scheme or any contractor or sub-contractor; (c) any costs, damages, fees, awards or other sum payable in connection with and/or any unfair and/or wrongful dismissal or any breach of any employment contract of any person employed by the Lessor in connection with the provision or 47 carrying out of the Relevant Matters save where such person has been dismissed at the request of a majority of the tenants in the Scheme. 7.2 The cost of taking all steps reasonably deemed desirable or expedient by the Lessor for complying with making representations against or otherwise contesting the incidence of provisions of any legislation or orders or statutory requirements thereunder so far as (1) they respectively relate to the Scheme and (ii) neither the Lessee nor the Tenant of any Unit are directly responsible for. 8. VAT ETC Any Value Added Tax or similar impost properly payable by the Lessor in respect of any of the matters herein before mentioned so far as the same is not recoverable by the Lessor. EXECUTED as a DEED ) by BENCHMARK GROUP ) LIMITED acting by: ) Director: /s/ Illegible Secretary: /s/ Illegible EXECUTED as a DEED ) by LEVCO EUROPE, LLP) acting by: ) MEMBER Member 48 EX-10.9 3 y13327exv10w9.txt EX-10.9: FORM OF RISTRICTED STOCK AWARD AGREEMENT Exhibit 10.9 BKF CAPITAL GROUP, INC. RESTRICTED STOCK AWARD AGREEMENT THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is made and entered into as of March 10, 2005 (the "Grant Date"), between BKF Capital Group, Inc., a Delaware corporation ("BKF"), and _____ (the "Employee") pursuant to the terms and conditions of the BKF 1998 Incentive Compensation Plan, as amended and restated (the "Plan"). Capitalized terms not defined in this Agreement shall have the meanings set forth in the Plan. By execution below, Employee agrees to be bound by the terms and conditions described herein and the provisions of the Plan. 1. Grant of Restricted Stock. (a) As of the Grant Date, BKF's Compensation Committee (the "Committee") grants to Employee an aggregate of ____ shares of BKF common stock, $1.00 par value (the "Stock"), provided that during the Restriction Period (as defined below), such shares shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of (the "Restricted Stock"). (b) Shares of Restricted Stock issued to Employee shall be held in escrow during the Restriction Period (as defined below) by BKF or by an escrow agent appointed by the Committee. The Committee may require stock powers endorsed in blank to be executed by Employee with respect to such shares to facilitate the forfeiture and cancellation of such shares in the event vesting conditions are not satisfied. 2. Restriction Period. Except as expressly provided herein, the restrictions set forth in Section 1 hereof shall commence as of the Grant Date and shall lapse (and the Restricted Stock shall vest) on __________ (the entirety of such period referred to herein as the "Restriction Period"). Shares of Stock not previously forfeited or canceled shall be delivered to Employee by BKF or the escrow agent appointed by BKF, free of all restrictions, no later than 10 days after the expiration of the Restriction Period, provided that fractional shares may be settled in cash. 3. Shareholder Rights. During the Restriction Period, Employee shall be entitled to receive dividends on the Restricted Stock when, as, and if dividends are declared and paid on BKF's Stock, shall be entitled to vote Restricted Stock on any matter submitted to a vote of holders of BKF's Stock, and shall have all other rights of a shareholder of BKF except as otherwise expressly provided hereunder. 4. Termination of Employment. (a) Except to the extent otherwise provided herein or any employment agreement or severance agreement between Employee and BKF, the provisions of this Section 4 shall apply to the Restricted Stock upon Employee's termination of employment with BKF and all subsidiaries or affiliates of BKF ("Termination") for any reason. (b) In the event of Employee's Termination by reason of death or Disability (as defined below), or by BKF without Cause, all restrictions shall lapse (and the Restricted Stock shall vest) as to the aggregate number of shares of Restricted Stock then subject to restriction, and BKF shall promptly transfer shares of Stock, free of such restrictions, to Employee. (c) In the event of Employee's Termination for any reason other than as provided in Section 4(b), all unvested Restricted Stock held by Employee shall be immediately forfeited and canceled. 5. Change in Control. (a) Provided that the Restricted Stock granted hereunder has not otherwise been forfeited or cancelled, upon the occurrence of a Change in Control, all restrictions shall lapse (and the Restricted Stock shall vest) as to the aggregate number of shares of Restricted Stock then subject to restriction, and BKF shall promptly transfer shares of Stock, free of such restrictions, to Employee. (b) For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following: (i) any "person" as such term is currently used in Section 13(d) of the Exchange Act, other than John A. Levin or any entity directly or indirectly controlled by him, becomes a "beneficial owner", as such term is currently used in Rule 13d-3 promulgated under that Act, of 50% or more of BKF's Voting Stock (as defined); (ii) a majority of BKF's board of directors (the "Board") consists of individuals other than Incumbent Directors, which term means the members of the Board on the date of this Agreement; provided that any individual becoming a director subsequent to such date whose election or nomination for election was supported by a majority of the directors who then comprised the Incumbent Directors shall be considered an Incumbent Director; (iii) all or substantially all of the assets or business of BKF are disposed of pursuant to a merger, consolidation, or other transaction, unless (A) the shareholders of BKF immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned BKF's Voting Stock, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of BKF, or (B) a majority of the board of directors of the surviving corporation in such a transaction consists of Incumbent Directors or directors appointed by Levin Management Co., Inc. but excluding directors who were members of the other entity's board of directors; (iv) the Board adopts any plan of liquidation providing for the distribution of all or substantially all of BKF's assets; or -2- (v) BKF combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of BKF immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by affiliates of such other company in exchange for securities of such other company). 6. Additional Forfeiture Conditions. (a) Unless the Committee determines otherwise, Employee's rights in respect of any unvested Restricted Stock shall immediately terminate and no shares of Stock shall be delivered in respect of such Restricted Stock if prior to the scheduled vesting date (A) Employee engages in conduct specified in Section 6(b), or (B) Employee fails to provide the representations and certifications required under Section 6(c); provided, however, that in the event Employee is terminated by BKF and/or its subsidiaries or affiliates without Cause, Employee shall not be required to refrain from the conduct specified in Section 6(b) or provide the representations and certifications required under Section 6(c) to receive the number of shares of Stock corresponding to the number of shares of Restricted Stock that have vested prior to the date of such Employee's termination without Cause. (b) Employee will have engaged in conduct specified in this Section 6(b) if, as determined by the Committee, at any time prior to the scheduled vesting date, Employee: (i) competes, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, with BKF and/or its subsidiaries or affiliates in the United States in the money management business ("Competitive Endeavors") or undertakes any planning for any business that would constitute a Competitive Endeavor. For purposes of this Section 6(b)(i), the business of BKF and/or its subsidiaries or affiliates shall include all Products and Services (as defined below) offered by BKF or any of its subsidiaries or affiliates or under development, and the Employee's undertaking shall encompass all products and services that may be used in substitution for Products and Services; (ii) undertakes any outside activity without the prior written approval of the Committee, whether or not competitive with the business of BKF and/or its subsidiaries or affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with the Employee's duties and obligations to BKF and/or any of its subsidiaries or affiliates. Notwithstanding the foregoing, the Employee may (A) to the extent such activities are not competitive with the business of BKF and/or its subsidiaries or affiliates, engage in charitable, civic or other community activities without compensation to the Employee, and (B) render without compensation investment advisory and trust services to immediate members of the Employee's family, which shall include the Employee and any trust or account that is comprised primarily of assets held for the benefit of such Employee and/or immediate members of his family; -3- (iii) directly or indirectly, (A) hires or attempts to hire any person who is, or during the prior six-month period was, an employee of BKF and/or any of its subsidiaries or affiliates, (B) assists another in hiring or attempting to hire any such person, (C) encourages any such person to terminate his or her employment with BKF and/or any of its subsidiaries or affiliates (other than in the course of the Employee's proper performance of his duties hereunder), (D) solicits or accepts business from any person or entity which is, or during the prior six-month period was, a client of BKF and/or any of its subsidiaries or affiliates, (E) assists another in soliciting or accepting business from any such person or entity, or (F) encourages any such person or entity to terminate its business relationship with BKF and/or any of its subsidiaries or affiliates (other than in the conduct of the Employee's proper performance of his duties); or (iv) fails to (A) comply with the code of ethics of BKF, as in effect from time to time, and (B) notify the Committee of all directorships or memberships on a board of directors or board of trustees held by the Employee, regardless of whether (y) such office was held by the Employee prior to the date hereof or (z) such office would require prior written consent of the Committee. (c) Employee must certify to BKF, in accordance with procedures established by the Committee, that Employee has complied with all the terms and conditions of this Agreement as of the date such Restricted Stock vests. By accepting the delivery of shares of Stock under this Agreement, Employee shall be deemed to have represented and certified at such time that Employee has complied with all the terms and conditions of this Agreement. Unless the Committee determines otherwise, if the vesting date in respect of any outstanding Restricted Stock occurs, and shares of Stock with respect to such Restricted Stock would be deliverable under the terms and conditions of this Agreement except that Employee has not complied with the conditions or Employee's obligations under this Section 6 (except in the event of Employee's death or a Disability that impairs Employee's ability to so comply), all of Employee's rights with respect to such Restricted Stock shall terminate, and no shares of Stock shall be delivered. The parties intend that the foregoing provisions of this Section 6 be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America and each and every political subdivision of each and every country outside the United States of America where this provision is intended to be effective. 7. Repayment. If, following the delivery of Stock to Employee, the Committee determines that all terms and conditions of this Agreement in respect of such delivery were not satisfied, BKF shall be entitled to receive, and Employee shall be obligated to pay BKF immediately upon demand therefor, the Fair Market Value of the shares of Stock (determined as of the relevant vesting date) that were delivered to Employee without reduction for any shares of Stock applied to satisfy withholding tax or other obligations in respect of such shares. 8. Definitions. Unless otherwise defined in any employment agreement between Employee and BKF (in which case such definition shall apply with respect to such Employee), the following terms shall have the meanings ascribed to them: -4- (i) "Cause" means Employee's (A) conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (x) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (y) on a felony charge or (z) on an equivalent charge to those in clauses (x) and (y) in jurisdictions that do not use those designations; (B) engaging in any conduct that constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Securities and Exchange Act of 1934, as amended); (C) willful failure to perform Employee's duties to BKF and/or any of its subsidiaries or affiliates; (D) violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which BKF or any of its subsidiaries or affiliates is a member; (E) violation of any BKF policy concerning hedging or confidential or proprietary information, or Employee's material violation of any other BKF policy as in effect from time to time; (F) engaging in any act or making any statement that impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of BKF and/or any of its subsidiaries or affiliates; or (G) engaging in any conduct detrimental to BKF and/or any of its subsidiaries or affiliates. The determination as to whether "Cause" has occurred shall be made by the Committee in its sole discretion. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any Agreement of the existence or occurrence of any of the events, acts or omissions constituting "Cause". (ii) "Disability" means the Employee's inability, due to physical or mental incapacity, to substantially perform his duties and responsibilities of employment for a period of 180 days in any consecutive nine-month period. (iii) "Products and Services" means all products and services offered, planned, researched, developed, tested, sold, licensed, marketed or otherwise provided by BKF and/or any of its subsidiaries or affiliates during the Employee's employment. (iv) "Voting Stock" means the issued and outstanding capital stock or other securities of any class or classes having general voting power, under ordinary circumstances in the absence of contingencies, to elect the directors of a corporation. 9. No Assignment of Restricted Stock. During the Restriction Period, the Restricted Stock granted hereunder shall not be subject in any manner to sale, transfer, pledge, assignment, encumbrance, division or other disposition, whether by operation of law or otherwise and whether voluntarily or involuntarily, including any division of property incident to a divorce or other allocation of marital property. 10. Adjustment. During the Restriction Period, the aggregate number of shares of Restricted Stock granted hereunder shall be subject to adjustment due to any stock split, stock dividend or other form of recapitalization by BKF, such adjustment to be determined by the Committee acting in good faith. -5- 11. Employment Rights. Neither this Agreement nor the grant of Restricted Stock hereunder shall be deemed to confer on Employee any right to continue in the employ of BKF or to interfere, in any manner, with the right of BKF to terminate employment for any reason or no reason in its sole discretion, subject to the terms of any separate agreement between Employee and BKF. 12. Amendment and Modification. The terms and conditions set forth herein may be amended only in writing signed by both Employee and an authorized officer of BKF. 13. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Employee and BKF, including their respective heirs, executors, administrators, successors and assigns. 14. Plan and Available Information. The Restricted Stock granted hereunder shall be subject to such additional terms and conditions as may be imposed under the terms of the Plan, a copy of which has been furnished with this grant. If any conflict exists between this Agreement and the Plan, the Plan shall prevail. 15. Governing Law. The validity, construction, and effect of all rules and regulations applicable to this award shall be determined in accordance with the laws of the State of New York and applicable Federal law. 16. Withholding Tax. BKF may deduct from any payment to be made to Employee any amount that federal, state, local or foreign tax law requires to be withheld with respect to the grant of Restricted Stock or delivery of shares of Stock hereunder. At the Committee's election, BKF may withhold from the number of shares of Stock to be delivered upon expiration of the Restriction Period a number of whole shares up to but not exceeding that number which has a fair market value nearest but not exceeding the amount of taxes required to be withheld with respect to such expiration of restrictions. BKF CAPITAL GROUP, INC. By: ----------------------- EMPLOYEE ----------------------------------- , an individual -6- EX-23.1 4 y13327exv23w1.htm EX-23.1: CONSENT OF GRANT THORNTON LLP

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 10, 2005, except for the second paragraph of the fixed asset section of Note 1 and the last two paragraphs of Note 13, the date of which is November 2, 2005, accompanying the consolidated financial statements and our report dated March 10, with respect to management’s assessment of the effectiveness of internal control over financial reporting of BKF Capital Group, Inc. and Subsidiaries (the “Company”) included in the Annual Report on Form 10-K/A for the year ended December 31, 2004. We hereby consent to the incorporation by reference of said reports in the Registration Statements of the Company on Form S-8 (File Nos. 333-50132 and
333-75014).

/s/ GRANT THORNTON LLP

New York, New York

November 2, 2005

EX-10.4

                                                                    Exhibit 10.4

                        UNDERLEASE

                        relating to Suite 1.4, 30 St James's Street, London SW1

                        (1)   Benchmark Group Limited

                        (2)   Levco Europe, LLP



                        Dated 14th February 2005


                        OSBORNE CLARKE

                                         Barcelona
                                         Bristol
                                         Brussels
                                         Cologne
                                         Copenhagen
                                         Helsinki
                                         London
                                         Madrid
                                         Paris
                                         Rotterdam
                                         St Petersburg
                                         Silicon Valley
                                         Tallinn
                                         Thames Valley





                                    CONTENTS

                                                                       
1.       Definitions and interpretation........................................2
2.       Definitions...........................................................4
3.       Demise................................................................8
4.       Leesee's Covenants....................................................8
5.       Lessor's Covenants....................................................8
6.       Proviso...............................................................9
7.       Lease Reference......................................................11
8.       No Agreement for Lease...............................................11
9.       Security of Tenure...................................................12
Schedule 1....................................................................13
(Rights included in this Lease)...............................................13
Schedule 2....................................................................15
(Exceptions and Reservations out of this Lease)...............................15
Schedule 3....................................................................17
(Covenants by the Lessee).....................................................17
Schedule 4....................................................................35
(Covenants by the Lessor).....................................................35
Schedule 5....................................................................40
(Above referred to rent review provisions)....................................40
Schedule 6....................................................................44
Part I  ......................................................................45
Part II ........................................................................






                       LAND REGISTRATION ACTS 1925 - 1986

COUNTY AND LONDON BOROUGH: Greater London: City of Westminster

TITLE NUMBER: NGL 423610

THIS LEASE is made the 14th day of February 2005

BETWEEN:

(1)   BENCHMARK GROUP LIMITED (Company number 00961142) having its registered
      office at 11 Grafton Street, London W1S 4EW ("THE LESSOR")

(2)   LEVCO EUROPE, LLP c/o Suite 1.4, 29-30 St James's Street London SW1 ("THE
      LESSEE").

IT IS AGREED as follows:

1.    DEFINITIONS AND INTERPRETATION

In this Lease, unless the context otherwise requires, the following words have
the following meanings:

      "1954 ACT"               the Landlord and Tenant Act 1954 (as amended)

      "2003 ORDER"             the Regulatory Reform (Business Tenancies)
                               (England and Wales) Order 2003

      "COMMENCEMENT DATE"      14th February 2005;

      "DEMISED PREMISES"       the Premises (referred to hereafter as "the
                               demised premises") forming part of the Scheme
                               more particularly defined in Clause 2(d) Clause
                               3.4 (a) of this Lease;

      "QUARTER DAYS"           1 January, 1 April, 1 July and 1 October in each
                               year;

      "RENT"                   sixty-nine thousand nine hundred and sixty pounds
                               (L69,960.00) per annum


                                       2



      "RENT COMMENCEMENT       3 months after completion of lease or, if
      DATE"                    earlier, occupation by the Lessee

      "SCHEME"                 the Lessor's office and shopping development
                               known as Stanmore House, 29 and 30 St James's
                               Street, 25, 26 and 27 Bury Street edged blue on
                               Plan No.l annexed hereto;

      "SERVICE CHARGE CAP"     (a) in respect of the current Accounting Period
                                   ending 31 December 2005 the sum of Eighteen
                                   Thousand Two Hundred and Eighty Five Pounds
                                   (L18,285)

                               (b) in respect of each subsequent Accounting
                                   Period the said sum increased by a percentage
                                   equal to the percentage of any increase in
                                   the "all items" General Index of Retail
                                   Prices published by the General Statistics
                                   Office or any official successor body
                                   ("Index") between the Index current as at the
                                   date hereof and the Index current immediately
                                   prior to the beginning of the relevant
                                   Accounting Period provided that if the Index
                                   is rebased the figure for the Index shall be
                                   taken as that which would have been shown had
                                   the base current immediately prior to the
                                   rebasing been retained and Provided further
                                   that if for any reason it becomes impossible
                                   to calculate the said increase by reference
                                   to the Index (including by reason of the
                                   Index ceasing to be published) then the
                                   matter shall be determined by an independent
                                   surveyor of at least 10 years' experience in
                                   the valuation of properties comparable with
                                   the Demised Premises acting as an expert to
                                   be appointed either by agreement between the
                                   parties or in the absence of agreement by the


                                       3



                                   President for the time being at the Royal
                                   Institution of Chartered Surveyors and such
                                   independent surveyor so appointed shall have
                                   full power to determine the matter including
                                   the right to substitute for the Index an
                                   alternative method that most clearly accords
                                   with the Index

      "TERM"                   a term of years commencing on the Commencement
                               Date and expiring on the 31 December 2012;

      "UNITS"                  each or any area of shopping or office
                               accommodation within the Scheme let or available
                               (or which may become available) or designed or
                               intended for letting as a separate commercial
                               unit the boundaries of any of the Units being
                               determined in the same manner as the boundaries
                               of the demised premises in this Lease.

2.    DEFINITIONS

      In this Lease except as otherwise provided or where the context otherwise
      requires:

2.1   the "Lessor" includes the reversioner for the time being immediately
      expectant on the determination of the term hereby created;

2.2   the "Lessee" includes the successors in title of the Lessee;

2.3   the "Term" means the term hereby created;

2.4   the "Demised Premises" means:

      (a)   the first floor unit of accommodation known as Unit 1.4 forming part
            of the Scheme and each and every part thereof which with the
            abuttals and boundaries thereof is shown edged red on Plan No. 2
            annexed hereto together also with all additions, alterations and
            improvements thereto which may be carried out during the term and
            shall also include all Landlord's fixtures and fittings from time to
            time about the same (but excluding tenant's and trade fixtures and
            fittings);

      (b)   there shall be included in the demised premises:


                                       4



                              [LEVEL 1 FLOOR PLAN]





                                  [FLOOR PLAN]





            (i)   the internal plastering or other internal surface or finish
                  attached or applied to the roof slabs, ceilings, floors,
                  walls, window frames and the frames;

            (ii)  one half (severed vertically) of those non-structural walls or
                  partitions (or parts thereof) which serve to divide the
                  demised premises from other premises which are let or intended
                  to be let;

            (iii) all additions (except tenants and trade, fixtures and
                  fittings) at any time hereafter made to the demised premises;

            (iv)  the internal plastering or surface or finish attached or
                  applied to any structural columns and beams which are situated
                  within (or partly within to the extent of such part) the
                  demised premises;

            (v)   the suspended ceiling and the raised floors and the airspace
                  between the suspended ceiling and the bottom surface of the
                  floor slabs immediately above it and between the raised floors
                  and the top surface of the floor slabs immediately below them
                  and the carpet(s) laid in the demised premises;

            (vi)  all doors and door frames serving the demised premises and the
                  glass in those doors.

            (vii) all windows and window frames entirely within the demised
                  premises;

            (viii) all service conduits exclusively serving the Demised Premises

      (c)   there shall be excluded from the demised premises:

            (i)   the structural ceiling slab above the ceiling and the space
                  above and floor slabs and everything below the floor slabs;

            (ii)  the foundations of the Scheme;

            (iii) any structural columns, beams and joists and all other
                  structural and/or exterior parts of the Scheme including (but
                  without limitation) the roof of the Scheme;

            (iv)  all service conduits and ducts which do not exclusively serve
                  the the Demised Premises;

            (v)   all Lessor's plant and equipment;


                                       5



            (vi)  all tenant's and trade fixtures and fittings;

2.5   the "Planning Acts" means the Town and Country Planning Acts as from time
      to time in force;

2.6

      (a)   the "Insured Risks" means the following insurable risks included in
            the Policy of Insurance effected by the Lessor in the joint names of
            the Superior Lessor (as hereinafter defined) and the Lessor in
            respect of the Scheme and the Lessor's fixtures therein (except as
            provided for in paragraph 2 of Schedule 3 hereto) namely risks in
            respect of loss or damage by fire lightning, explosion, aircraft
            (other than hostile aircraft) and other aerial devices or articles
            emanating there from earthquake, riot and civil commotion and
            malicious damage, storm or tempest bursting or overflowing of water
            tanks, apparatus or pipes flood, impact by road vehicles, Terrorism
            (so far as it remains an insurable risk and capable of being insured
            at commercially acceptable rates) Architects', Surveyors' and other
            professional fees together with three (3) years (or such longer
            period not exceeding five (5) years as from time to time the Lessor
            may reasonably require having regard to the likely period required
            for reinstatement) loss of Service Charge (as hereinafter defined)
            and of rent in an amount which would take into account potential
            increases in rent in accordance with the rent review provisions
            hereinafter contained occupiers liability in respect of the Service
            Area and such other insurable risks or insurance as may from time to
            time be reasonably required by the Lessor for the benefit of the
            Scheme;

      (b)   "Full Cost of Reinstatement" means the cost which would be likely to
            be incurred in reinstating the Scheme in the event of either partial
            or total destruction in accordance with the original plans,
            elevations and details thereof with such variations (if any) as may
            be agreed by the Superior Lessor and the Lessor or may be necessary
            having regard to the then existing statutory provisions, byelaws and
            regulations affecting the same and any necessary planning approval
            at the time when such reinstatement is likely to take place and
            having regard to any expected increase in building costs during any
            period of insurance and pending or during the period of
            reinstatement together with the fees of the Architects surveyors
            (including the surveyors of the Superior Lessor) engineers, clerk of
            works and consultants calculated on such cost at the current scale
            for the time being of any appropriate professional body and together
            with the cost of shoring, demolition and site clearance and any


                                       6



            value added tax that may be payable on or in respect of the above
            costs or fees;

2.7   "Fair Proportion" means such proportion as the lessor's surveyor may
      reasonably decide as being reasonably and properly attributable to the
      demised premises as opposed to the other Units provided always that in no
      event shall the Lessee's proportion of the Service Charge be increased or
      altered by reason that at any relevant time any Unit may be vacant or
      occupied by the Lessor or any person or company associated with the Lessor
      or that any tenant or other occupier of a Unit may default in payment of
      its due proportion of the Service Charge or that at any relevant time any
      Unit may be damaged or destroyed;

2.8   "the Scheme" means the Scheme so described in clause 1;

2.9   "Schedule of Condition" means the schedule of condition relating to the
      demised premises annexed hereto;

2.10  "the Service Area" means the common areas in or forming part of the Scheme
      not intended to be demised for exclusive occupation and available for
      common use and includes all services common to the demised premises and to
      the remainder of the Scheme or any part or parts thereof and for the
      avoidance of doubt the Service Area includes the entrance way and foyer
      lift, stairs and internal passageways providing access to and egress from
      the demised premises;

2.11  "the Superior Lease" means the Lease dated the fifth day of March one
      thousand nine hundred and eighty two and made between The Queen's Most
      Excellent Majesty of the first part, The Crown Estate Commissioners of the
      second part, Savant Investments Limited of the third part and Thornfield
      Securities Limited of the fourth part and the Superior Lessor means the
      person in whom the reversion immediately expectant upon the determination
      of the "Superior Lease" is from time to time vested;

2.12  "Terrorism" means any act of any person acting on behalf of or in
      connection with any organisation whose objectives are or include the
      overthrowing of any government de jure and de facto or the furtherance of
      any political or social or religious cause by force or violence or any
      other act of force or violence by any such person or group of persons

2.13  "the Units" means the units so described in clause 1 forming part of the
      Scheme and "Unit" has a corresponding meaning;

2.14  "the Lease" means this Underlease;

2.15  words importing the singular number only include the plural number and
      vice versa and where there are two (2) or more persons included in the
      expression "the Lessor" or "the Lessee" or "the Surety" covenants


                                       7



      expressed to be made by the Lessor, the Lessee or the Surety as the case
      may require shall be deemed to be made jointly and severally;

2.16  subject to any specific contrary reference in this Lease any reference to
      an Act or Acts of Parliament includes any statutory amendment or
      re-enactment thereof and any Statutory Instrument Order or Direction made
      or issued pursuant thereto;

3.    DEMISE

      In consideration of the rents and the Lessee's covenants herein reserved
      and contained the Lessor HEREBY DEMISES unto the Lessee for the Lessee and
      those the Lessee authorises (subject to the provisions of this Lease) ALL
      THAT the demised premises TOGETHER with the rights specified in Schedule 1
      hereto but EXCEPT AND RESERVING unto the Lessor and the Superior Lessor
      and all others respectively properly authorised by them the rights
      specified in Schedule 2 hereto TO HOLD the same unto the Lessee as from
      and including the Commencement Date specified in clause 1 hereof for the
      term specified in clause 1 hereof YIELDING AND PAYING therefor during the
      term FIRST (with effect from the Rent Commencement Date) the Rent
      specified in clause 1 hereof subject to the provisions of clause 6.2
      hereof the said Rent to be paid without any deduction (other than a
      deduction authorised by Act of Parliament) by equal quarterly payments in
      advance on the Quarter Days specified in clause 1 hereof in every year the
      first of such payments being a proportionate payment from the Rent
      Commencement Date specified in the Particulars to the day preceding the
      next quarter day to be paid on the Rent Commencement Date SECONDLY the
      moneys referred to in paragraph 32 of Schedule 3 hereto THIRDLY within
      twenty one (21) days of a written demand without any deduction (other than
      as aforesaid) the Interim Charge and the Service Charge as defined in Part
      I of Schedule 6 hereto at the times and in the manner therein provided.
      But Provided that the payments required to be made by the Tenant by way of
      Interim Charge and Service Charge in respect of each Accounting Period up
      to 31 December 2007 shall in no circumstances exceed the relevant Service
      Charge Cap (or a pro rated proportion thereof as appropriate)

4.    LEESEE'S COVENANTS

      The Lessee hereby covenants with the Lessor to observe and perform
      throughout the term the covenants set out in the Schedule 3 hereto.

5.    LESSOR'S COVENANTS

      The Lessor hereby covenants with the Lessee to observe and perform
      throughout the term the covenants set out in the Schedule 4 hereto.


                                       8



6.    PROVISO

      PROVIDED always and it is hereby further agreed as follows:

6.1   FORFEITURE

      If and whenever the rent hereby reserved or any part thereof shall be
      unpaid for twenty one (21) days after the same shall become due whether in
      the case of the rent FIRST hereby reserved the same shall have been
      formally demanded or not or if any other payment due hereunder shall be
      unpaid within twenty one (21) days after the same shall become due or if
      and whenever there shall be a non-observance, non-performance or breach of
      the covenants on the part of the Lessee herein contained or of any of the
      restrictions, stipulations, regulations and conditions on the part of the
      Lessee to be observed and performed or if the Lessee being a company shall
      enter into Liquidation whether compulsory or voluntary (not being merely a
      voluntary liquidation for the purposes of amalgamation or reconstruction)
      or suffer a Receiver to be appointed or if the Lessee not being a
      corporation shall have a receiving order made against or in relation to
      him or become bankrupt or make any arrangement with his creditors then and
      in any of the said events it shall be lawful for the Lessor at any time
      thereafter to enter upon the demised premises or any part thereof in the
      name of the whole and to have again repossess and enjoy the same in their
      former state and thereupon the term shall absolutely determine but without
      prejudice to any right of action of the Lessor or the Lessee in respect of
      any antecedent breach of the other's covenants or other stipulations
      herein contained.

6.2   RENT REVIEW

      The rent payable hereunder shall be reviewed in accordance with the
      provisions of Schedule 5 hereto.

6.3   RESTRICTION ON LETTING UNITS

      Save as expressly herein provided nothing herein contained shall impose or
      be deemed to impose any restriction on the use of any other part or parts
      of the Scheme not comprised in this Lease or give the Lessee the benefit
      of or the right to enforce or have enforced or to permit the release or
      modification of any covenant, agreement or condition entered into by any
      purchaser from or by any lessee or occupier of the Lessor in respect of
      any part or parts of the Scheme not comprised in this Lease.

6.4   RESTRICTION ON LIABILITY

      (a)   The Lessor shall not be responsible to the Lessee for the loss or
            inconvenience arising from any defects in the Scheme or from the
            defective working, stoppages or breakage of any pipes,


                                       9



            wires or machinery in or apparatus of the Scheme or any part thereof
            subject to the Lessor taking all reasonable steps to prevent and
            minimise such loss or inconvenience.

      (b)   Notwithstanding any provision of the Lease to the contrary the
            Lessee shall not be required to keep or deliver up the Demised
            Premises in any better state of repair and condition than they are
            at the Commencement Date as evidenced by the Schedule of Condition

6.5   SERVICE OF NOTICES

      Section 196 of the Law of Property Act 1925 shall apply to any notices to
      be served hereunder as if such notice were authorised by that Act other
      than any notice to be served pursuant to Sections 8, 10 or 17 of the
      Landlord and Tenant (Covenants) Act 1995 which shall be served in
      accordance with that Act and consequently Section 23 of the Landlord and
      Tenant Act 1927 shall apply to such notices.

6.6   ARBITRATION

      Any arbitration under this Lease shall be conducted by some competent
      person to be agreed in writing by the Lessor and the Lessee and in the
      event of failure so to agree within twenty one (21) days of any dispute or
      difference having arisen by a person to be nominated by or on behalf of
      the President for the time being of the Royal Institute of Chartered
      Surveyors on the application of either the Lessor or the Lessee and this
      shall be deemed to be a submission to arbitration within the meaning of
      the Arbitration Acts 1950 to 1979. Unless otherwise awarded by the
      Arbitrator each party shall pay its own costs in connection with each
      arbitration and the costs of the Arbitrator shall be borne equally by the
      parties.

6.7   WAIVER

      No demand for or acceptance of rent by the Lessor or its agent after a
      breach of any of the covenants on the part of the Lessee contained in this
      Lease shall constitute a waiver whether in whole or in part of any such
      breach unless the Lessee shall show that the Lessor itself had knowledge
      of such breach prior to any such demand or acceptance as aforesaid and
      nothing contained in this sub-clause shall have any application to any
      continuing breach.

6.8   COPY OF SUPERIOR LEASE

      For the better performance and observance of the Lessee's covenants herein
      contained the Lessee shall be entitled to a copy of the Superior Lease.


                                       10



6.9   MARGINAL NOTES

      The headings to the clauses of this Lease and any Schedule hereto are
      inserted for convenience of reference only and shall not be deemed to form
      part of this Lease nor shall they affect the construction hereof.

6.10  PERPETUITY PERIOD

      Where in this Lease a perpetuity period is referred to or required the
      same shall be the period of eighty (80) years from the date thereof.

6.11  LESSEE'S OPTION TO DETERMINE

      (a)   The Lessee may determine this Lease by giving not less than six
            months' prior notice in writing expiring on 25 December 2007 ("Break
            Notice") and in such event if the Tenant shall as at the said expiry
            date be up to date in relation to payment of the first reserved rent
            hereby reserved and also at such expiry date have paid all other
            sums due under this Lease which are properly due and have been
            properly demanded the term shall immediately cease and determine but
            without prejudice to the respective rights of either party in
            respect of any antecedent claim or breach of covenant.

      (b)   If the Lessee does not give the Break Notice then no Rent shall be
            payable by the Lessee during the period of three months commencing
            on the expiry of the third year of the Term.

7.    LEASE REFERENCE

      Reference in this Lease to any consent or approval required from the
      Lessor shall be construed as also including the consent or approval from
      the Superior Lessor where the Superior Lessor's consent would be required
      under the terms of the Superior Lease except that nothing herein shall be
      construed as imposing on the Superior Lessor any obligation (or indicating
      that such an obligation is imposed on the Superior Lessor) not
      unreasonably to refuse any such consent or approval.

8.    NO AGREEMENT FOR LEASE

      It is hereby certified that there is no Agreement for Underlease to which
      this Underlease gives effect.


                                       11



9.    SECURITY OF TENURE

9.1   A notice in the form set out in Schedule 1 to the 2003 Order which applies
      to this Lease having been served by the Lessor on the Lessee on 7th
      February 2005; and

9.2   a statutory declaration having been made by the Lessee or a person duly
      authorised by him to do so on 10th February 2005 in the form set out in
      Paragraph 8 of Schedule 2 to the 2003 Order

      the Lessor and the Lessee agree to exclude the provisions of Sections 24
      to 28 (inclusive) of the 1954 Act in relation to the tenancy created by
      this Lease.

IN WITNESS whereof the parties hereto have caused their respective common seals
or their hands and seals (as the case may require) to the hereunto affixed the
day and year first above written.


                                       12



                                   SCHEDULE 1

                         (Rights included in this Lease)


1.    RIGHTS OF WAY

      The right for the Lessee and its servants, agents, invitees and licensees
      for all proper purposes in connection with the use and enjoyment of the
      demised premises in common with the Lessor and the lessees of all the
      other Units and all others having the like right to pass and re-pass on
      foot over the Service Area for the purpose of access to and egress from
      and the carriage of goods to and from the demised premises.

2.    SERVICES

      The right of free passage and running and supply of electricity,
      telephone, water, gas (where a supply is provided to the demised premises)
      soil, air conditioning and other services from and to the demised premises
      through the pipes, wires, ducts, cables, conduits, drains, systems and
      mains as may before the expiration of the perpetuity period be in under or
      above the Scheme.

3.    SUPPORT AND SHELTER

      The right for the demised premises to be supported and/or protected and
      sheltered by other parts of the Scheme and the soil thereof.

4.    RIGHTS OUT OF OTHER LEASES

      All easements and similar rights excepted and reserved out of leases of
      other Units in the Scheme for the benefit of inter alia the demised
      premises.

5.    TOILET

      The right to use in common with the Lessor and other persons authorised by
      the Lessor the toilets situate on the first floor of the Scheme
      immediately adjacent to the Demised Premises.

6.    SIGNS

      The right to affix and display the Tenant's (or other permitted
      occupiers') trade name on the occupier's display board in the entrance
      foyer of the Scheme and also to display such name in the Service Area of
      the first floor of the Scheme in a location and of a type and size
      approved by the Landlord such approval not to be unreasonably withheld or
      delayed.


                                       13



7.    ACCESS TO THE OTHER PARTS OF THE SCHEME

      Subject to the prior written consent of the Landlord (not to be
      unreasonably withheld or delayed) and if reasonably required to comply
      with the Lessee's covenants in this Lease rights of access to other parts
      of the Scheme with and without workmen and machinery which is reasonably
      necessary to comply with such covenants.


                                       14



                                   SCHEDULE 2

                (Exceptions and Reservations out of this Lease)


1.    REPAIRS

      The right for the Lessor and the Superior Lessor, their servants, agents
      and licensees on 48 hours' prior written notice at all reasonable times
      after prior consultation with the Lessee or in the case of emergency
      without such notice to enter upon the demised premises with all necessary
      tools, appliances and materials for the purposes of carrying out repairs,
      cleansing, maintenance, rebuilding and renewal for which the Lessor is
      responsible under the terms of this Lease and for the repair, maintenance
      and renewal of all wires, pipes, cables, conduits and systems laid through
      under or upon or attached to the demised premises at the date hereof the
      Lessor and the Superior Lessor causing to the demised premises and the
      Lessee's fixtures, furnishings, fittings and equipment as little damage
      and to the Lessee as little inconvenience as possible and making good
      forthwith all damage or injury thereby occasioned to the demised premises
      and the Lessee's fixtures, furnishings, fittings and equipment to the
      reasonable satisfaction of the Lessee but without being liable to pay
      compensation therefore except in the event of negligence or willful
      default on the part of the person exercising such right.

2.    REBUILDING

      The right for the Lessor after prior consultation with the Lessee to
      rebuild or alter or to consent to any person rebuilding or altering any
      part of the Scheme (other than the demised premises) or rebuilding or
      altering any of the adjoining or neighbouring buildings PROVIDED THAT in
      any such matters there shall not be any material interference with the
      proper use and enjoyment of the demised premises by the Lessee and the
      rights hereby granted PROVIDED ALWAYS that the Lessor shall cause (or
      ensure that there is caused) as little damage to the demised premises and
      as little inconvenience to the Lessee as possible and shall forthwith make
      good any damage caused to the demised premises and the Lessee's fittings
      and equipment as a result of any matters set out in this paragraph 2 to
      the reasonable satisfaction of the Lessee.

3.    RENEWAL OF SERVICES

      The right for any appropriate competent Authority at all reasonable times
      and upon reasonable notice (except in the case of emergency) to maintain,
      repair or renew any existing or to install any new services either within
      or over the demised premises and for that purpose subject to it causing as
      little damage and inconvenience as possible to have


                                       15



      access to and into the demised premises with all necessary tools,
      appliances and materials.

4.    SUPPORT

      The right for the other parts of the Scheme to support and/or protection
      and shelter from the demised premises.

5.    SERVICES

      The right of the Lessor and other the lessees or occupiers of the other
      Units within the Scheme of passage and running of electricity, telephone,
      water, gas and soil and other services from and to any other parts of the
      Scheme through the pipes, wires, ducts, cables, conduits, drains, systems
      and mains which now are or may before the expiration of the perpetuity
      period be in, on or under the demised premises.

6.    MAINTENANCE OF SCHEME

      The right of the Lessor and the Superior Lessor, their respective
      servants, agents or licensees at all reasonable times upon reasonable
      written notice or in the case of emergency without such notice to enter
      upon the demised premises for the purposes of cleaning or executing,
      repairs and alterations (where beyond economic repair) to any other part
      of the Scheme and for the repair, maintenance and renewal of all pipes,
      wires, ducts, cables, conduits, drains, systems and mains now or as may
      from time to time be laid through under or upon or attached to the demised
      premises and used solely in connection with the supply of services to such
      other Units the person so entering the demised premises dong so only where
      the works cannot reasonably be carried out without such entry and causing
      as little damage or inconvenience as possible and the Lessor making good
      all damage or injury thereby occasioned and complying with all reasonable
      directions of the Lessee.

7.    SUPERIOR LEASE

      All other of the exceptions and reservations contained in the Superior
      Lease.


                                       16



                                   SCHEDULE 3

                            (Covenants by the Lessee)

1.    TO PAY RENT

      To pay the rent hereby reserved (including any increased rent following a
      review under the provisions contained in Schedule 5 hereto) at the times
      and in the manner herein mentioned.

2.    TO PAY EXCESS INSURANCE

      To pay to the Lessor on demand any excess payments made by the Lessor
      following any claim on the Lessor's and the Superior Lessor's insurance
      policy or policies against the Insured Risks arising out of any act or
      omission of the Lessee, his servants, agents, invitees or licensees in
      relation to the demised premises or any other part of the Scheme.

3.    TO YIELD UP

      At the expiration or sooner determination of the term peaceably and
      quietly to deliver up to the Lessor the demised premises in such repair
      and condition as shall be in accordance with the covenants in that behalf
      herein contained (damage by any Insured Risks excepted save to the extent
      that the insurance moneys are irrecoverable through the act, neglect or
      default of the Lessee, its servants, agents, invitees or licensees and
      damage by Terrorism also excepted where not an Insured Risk) and to remove
      every molding, sign, writing or painting of the name or business of the
      Lessee or other occupiers from the demised premises and to make good all
      damage caused to the demised premises by the removal of the Lessee's
      fixtures, fittings, furniture and effects Provided that nothing in this
      Schedule shall require the Lessee to keep nor yield up the Demised
      Premises in any better state of repair and condition than they are at the
      Commencement Date as evidenced by the Schedule of Condition.

4.    TO REPAIR ON NOTICE

      Within two (2) months or sooner if requisite after the Lessor or the
      Superior Lessor shall have given written notice requiring the Lessee so to
      do to commence and diligently to proceed to make good such defects and
      wants of reparation or decoration as shall be specified in such notice and
      for which the Lessee is liable hereunder PROVIDED that if the Lessee
      defaults in complying with any such notice the Lessor or the Superior
      Lessor may (but without prejudice to the right of reentry hereinbefore
      contained) enter the demised premises and execute such work causing as
      little damage and inconvenience as possible.


                                       17



5.    TO REPAY COST OF REPAIR

      To repay to the Lessor or the Superior Lessor on written demand the
      reasonable and proper cost of any such work carried out by the Lessor or
      the Superior Lessor pursuant to the proviso to the last foregoing covenant
      together with all reasonable and proper solicitor's and surveyor's charges
      and other expenses which may reasonably be incurred by the Lessor or the
      Superior Lessor in connection therewith.

6.    TO PERMIT LESSOR TO ENTER TO TAKE INVENTORIES

      To permit the Lessor and the Superior Lessor and all persons respectively
      properly authorized by them to enter the demised premises accompanied by a
      representative of the Lessee (if the Lessee shall so require) at all
      reasonable times (on 48 hours' prior written notice except in the event of
      emergency) when such notice as can be given will be given:

6.1   to take inventories of the Lessor's fixtures and fittings and of any
      dilapidations therein;

6.2   to review the condition of the demised premises; or

6.3   to exercise the rights referred to in Schedule 2 hereto;

      PROVIDED THAT the person exercising such right shall (i) cause as little
      inconvenience and damage as possible and in the case of paragraphs 6.1 and
      6.2 of this Schedule the Lessor shall forthwith make good any damage done
      (ii) comply with all reasonable requirements of the Lessee and (iii) cause
      as little inconvenience to the business carried on thereat as practicable
      and provided further that (save in an emergency) where the purpose of
      entry is to carry out works not less than seven day's notice will be
      given.

7.    TO CLEAN WINDOWS, ETC.

      To keep the interiors of all windows and all glass (if any) in the
      entrance door thereto of the demised premises reasonably clean.

8.    NOTICES, SIGNS, ETC.

      Not without the written consent of the Lessor (such consent not to be
      unreasonably withheld or delayed) to exhibit or permit to be exhibited on
      or from the demised premises any sign, signboard, fascia, advertisement,
      placard or sky sign.

9.    AUCTION, SALES

      Not to have or permit or suffer to be held any sale by auction in or upon
      the demised premises or any part thereof without the previous written
      consent of the Lessor.


                                       18



10.   FLOOR LOADING ETC.

      Not to overload the floors of the demised premises beyond the margin of
      safety prescribed by the Lessor's surveyor or if no margin is prescribed
      beyond a proper margin of safety.

11.   NOT TO BLOCK UP LAVATORIES ETC.

      Not to use or permit the use of lavatories, water closets or drains in the
      demised premises or in the Scheme for disposal of refuse or for any
      purpose which may cause a stoppage or injury thereto and in the event of
      any such stoppage or injury forthwith to make good all such damage to the
      entire reasonable satisfaction of the Lessor's surveyors.

12.   NOT TO CAUSE NUISANCE ETC.

      Not to do or permit to be done upon the demised premises or any part
      thereof or in any other part of the Scheme anything which may be or tend
      to be a nuisance or the cause of unreasonable annoyance or damage or
      unreasonable disturbance to the Lessor, the Superior Lessor or any of the
      occupants of the adjoining or neighbouring Units or property or to the
      general public provided that the carrying on of the Lessee's ordinary
      business in a proper and efficient manner shall not constitute a breach of
      this provision.

13.   MUSICAL INSTRUMENTS ETC.

      Not to play any sound producing or reproducing instruments or equipment
      unduly loudly.

14.   DANGEROUS THINGS ETC.

      Without prejudice to the next following clauses not without the Lessor's
      consent to store or place or suffer to be stored or placed in or about the
      demised premises or any part thereof or any other part of the Scheme any
      articles of a radioactive, explosive, specially combustible, specially
      inflammable or dangerous nature.

15.   NOT TO VITIATE LESSOR'S INSURANCE ETC.

15.1  Not knowingly to do or permit to be done anything whereby the policy or
      policies of insurance relating to the demised premises or any other part
      of the Scheme against damage by the Insured Risks may become void or
      voidable or in consequence of which the Lessor would or might be prevented
      from insuring the demised premises or any other part of the Scheme at the
      ordinary rate of premium and not without the written consent of the Lessor
      to do or allow to be done anything whereby the rate of premium thereon may
      be increased or the renewal thereof may be refused and to repay to the
      Lessor all sums paid by it by way of increase in premiums and all expenses
      properly and reasonably


                                       19



      incurred by it in or about any renewal of such policy or policies rendered
      necessary by any breach or non-observance of the terms of this paragraph
      15.1.

15.2  In the event of the demised premises of the Scheme or any part thereof
      being damaged or destroyed by any one or more of the Insured Risks at any
      time during the term and the insurance money under any policy of insurance
      effected thereon by the Lessor being wholly or partially irrecoverable by
      reason solely or in part of any act or default of the Lessee (but in the
      event of the risk of damage increasing the Lessor immediately having
      become aware of the same shall give notice to the insurers and pay any
      premiums if required) the Lessee will forthwith on written demand (in
      addition to the said rents) pay to the Lessor the amount so withheld or a
      reasonable proportion thereof reasonably attributable to the Lessee's act
      or default such proportion in default of agreement to be determined by
      arbitration together with from the date of payment by the Lessor of the
      cost of repairs to the date of repayment by the Lessee interest thereon at
      the rate of three per cent (3%) per annum above the base rate for lending
      of Barclays Bank Pic from time to time in force or (if no such rate
      exists) such other rate as nearly equivalent thereto as possible as may in
      default of agreement be determined by arbitration and compounded on the
      quarter days.

16.   USE OF SERVICES

      To comply at all times with the lawful regulations of every company or
      authority which shall for the time being supply gas water or electricity
      to the demised premises and to keep all water pipes forming part of the
      demised premises reasonably protected against frost and not to waste or
      permit to be wasted any water or allow anything of a harmful nature to
      pass into the drains of the demised premises or any other part of the
      Scheme nor wilfully or negligently allow any water to overflow to the
      floor from any sink lavatory basin or water closet and in case any damage
      shall be caused to the demised premises or the Service Area or any part
      thereof or to any other part of the Scheme through the breach of the
      provisions of this paragraph 16 by the Lessee its servants licensees or
      invitees the Lessee shall forthwith make good the same at its own expense
      in all respects (except as covered by the Insured Risks).

17.   TO COMPLY WITH INSURANCE REGULATIONS AND REQUIREMENTS

      To comply with all lawful regulations or requirements applicable to the
      demised premises (other than any requiring structural works or any others
      falling within the ambit of the Lessor's covenants herein contained or
      outside the areas comprised in the demised premises) which may be notified
      to the Lessee in writing and made by the Fire Authority to ensure
      certification or by the Lessor's insurers to secure insurance of the
      demised premises or the Service Area or any other part of the Scheme
      against the Insured Risks.


                                       20



18.   PLANNING ACTS

      Not to do or permit to be done or omitted any act matter or thing in on or
      respecting the demised premises required to be done or omitted (as the
      case may be) by the Planning Acts or which shall contravene the provisions
      of the said Acts and at all times hereafter to indemnify the Lessor and
      the Superior Lessor and keep them indemnified against all actions,
      proceedings, reasonable costs, expenses, claims and demands in respect of
      any such matter or thing contravening the said provisions or any of them
      insofar as the same are applicable to the Demised Premises.

19.   PLANNING ACTS

      Not without the previous written consent of the Lessor and (where required
      by the terms of the Superior Lease) the Superior Lessor (which the Lessor
      and the Superior Lessor may if they think fit and for any reason withhold)
      to make any application for planning permission under the Planning Acts or
      take any other steps which may entitle an appropriate authority
      compulsorily to acquire the demised premises or which could lead to
      adverse financial or taxation consequences upon the Lessor or the Superior
      Lessor.

20.   ALTERATIONS

20.1  Not without the consent of the Lessor and (where required by the terms of
      the Superior Lease) the Superior Lessor to cut, remove, divide, alter,
      maim or injure any structure or supporting walls or frames or structural
      floors or roofs of the demised premises or make any openings in the walls
      or ceilings thereof or merge the demised premises with any adjoining
      premises.

20.2  Not to overload the electrical installations within the demised premises
      or the Scheme.

20.3  Not to do or permit to be done anything in the demised premises which may
      adversely affect or interfere with the water system or any fire sprinkler
      system (if any) or any alarm system installed by the Lessor in the Scheme.

21.   ALTERATIONS

      Without prejudice to the generality of the foregoing covenant not to make
      any alterations or additions to the demised premises or any part thereof
      (other than any partitioning or non-structural internal alterations for
      which no consent shall be required but in respect of which the Lessee will
      supply a layout plan to the Lessor) whether of a temporary or movable
      nature except with the previous written consent of the Lessor and (where
      required by the terms of the Superior Lease) the Superior Lessor and in
      accordance with drawings and specifications


                                       21



      previously submitted to and approved in writing by the Lessor's and (where
      required by the terms of the Superior Lease) the Superior Lessor's
      surveyors (which consent and approval of the Lessor shall not be
      unreasonably withheld or delayed) and such consent if granted to be
      without prejudice nevertheless to the provisions of proviso (a) hereto
      provided always that:

      (a)   the Lessor may as a condition of giving such consent require the
            Lessee to enter into such covenants with the Lessor as the Lessor
            may reasonably require in regard to the execution of any works and
            the reinstatement of the demised premises at the end or sooner
            determination of the term (howsoever the same may be determined or
            otherwise) provided further that in the event that the Lessee fails
            to observe the provisions of this clause 21 it shall be lawful for
            the Lessor with or without agents and materials to enter upon the
            demised premises and remove any alterations or additions and execute
            such works as are necessary to restore the demised premises to their
            former state and the reasonable expense thereof (including surveyors
            and other professional fees) shall be paid by the Lessee to the
            Lessor on demand;

      (b)   the Lessee shall as soon as reasonably practicable notify the Lessor
            of the reinstatement value of any works alterations or additions
            carried out by the Lessee with the written consent of the Lessor and
            (where required by the terms of the Superior Lease) the Superior
            Lessor under this paragraph 21 or paragraph 20 of this Schedule so
            as to enable the Lessor where appropriate to notify its insurers
            thereof.

22.   MATERIAL CHANGES

      If the Lessor and (where required by the terms of the Superior Lease) the
      Superior Lessor shall grant any consent under the provisions of paragraphs
      20 and 21 of this Schedule to apply to the appropriate Planning Authority
      for any necessary permission in relation to the matters in respect of
      which the Lessor and the Superior Lessor shall have given such consent and
      not to implement any planning permission until the same has been submitted
      to and approved in writing by the Lessor (such consent not to be
      unreasonably withheld or delayed) and (where required by the terms of the
      Superior Lease) the Superior Lessor and at all times to indemnify and keep
      the Lessor and Superior Lessor against all proceedings, costs, expenses,
      claims, charges and demands whatsoever in respect of or arising out of any
      such application and unless the Lessor and (where required by the terms of
      the Superior Lease) the Superior Lessor shall otherwise direct to carry
      out before the determination of the term (howsoever the same may be
      determined) any work stipulated to be carried out to the demised premises
      by a date subsequent to such expiration or sooner determination as a
      condition of


                                       22



      any planning permission which may have been granted to and implemented by
      the Lessee.

23.   TO GIVE PARTICULARS OF NOTICES ETC. UNDER PLANNING ACTS

      As soon as reasonably practicable and in any event within ten (10) days
      after the service thereof upon the Lessee to give full particulars to the
      Lessor of any notice, order or proposal therefore relating to the demised
      premises given made or issued under or by virtue of the Planning Acts
      which relate to the Demised Premises and without unreasonable delay and at
      the Lessee's expense to comply with or appeal against the same in so far
      as the demised premises are affected and except to the extent that it is
      due to an act, neglect or omission of the Lessor or lessee of another Unit
      provided that if the Lessor reasonably so requires in writing the Lessee
      will at the cost of the Lessor unless such notice order or proposal is due
      to the act or default of the Lessee join with the Lessor in objecting to
      or contesting the same.

24.   OFFICIAL NOTICES

      As soon as reasonably practicable and in any event within ten (10) days
      after the service thereof on the Lessee or of the same coming to the
      actual notice of the Lessee to give full particulars to the Lessor of any
      notice order or proposal relating to the demised premises given made or
      served or proposed to be given made or served by any Local or other
      competent authority and without delay and at the Lessee's expense to
      comply with or appeal against the same in so far as the demised premises
      are affected and except to the extent that it is due to an act default or
      omission by the Lessor or lessee of another Unit provided that if the
      Lessor reasonably so requires in writing the Lessee will at the cost of
      the Lessor unless such notice order or proposal is due to the act or
      default of the Lessee join with the Lessor in objecting to or contesting
      the same.

25.   WORKS ETC. REQUIRE BY STATUTE

      To do or execute or cause to be done or executed all such works as under
      or by virtue of any enactment or statutory instrument or any notice
      thereunder or direction given or made pursuant thereto for the time being
      in force are or shall be directed or necessary to be done or executed upon
      or in respect of the demised premises or any part thereof whether by the
      owner or occupier in consequent of the user of the demised premises for
      the purpose authorised by this Lease or otherwise save those works and
      things for which the Lessor is liable hereunder and at all times to keep
      the Lessor and the Superior Lessor indemnified against all proceedings
      costs, expenses, claims, charges, demands and liability in respect thereof
      provide always that notwithstanding any other provision contained in this
      Lease to the contrary any works


                                       23



      required to be carried out pursuant to this clause 25 may be carried out
      without the Lessor's consent or approval.

26.   USER

      Not to use the demised premises except as offices.

27.   RESTRICTIONS

      Not to use the demised premises or any part thereof at any time during the
      term for or in connection with any illegal or immoral purpose nor for the
      manufacture distribution sale or supply of intoxicating liquor nor for any
      purpose in connection with the organisation or practice of gambling in any
      of its forms nor as a public dance hall nor to do or permit or suffer to
      be done in or upon the demised premises or any part thereof or any part of
      the service area or of the Scheme anything which may tend to harm or
      injure the status of the demised premises or any part of the Scheme or the
      occupancy of any adjoining property.

28.   ALIENATION

28.1  Not to assign underlet agree to underlet share or part with possession or
      occupation of part only of the demised premises.

28.2  Not to assign or transfer the whole of the demised premises without the
      previous consent in writing of the Lessor (such consent not to be
      unreasonably withheld and which shall if the Lessor requires take the form
      of a formal licence executed as a deed) provided that the Lessor shall be
      entitled:

      (a)   to withhold its consent in any of the circumstance set out in
            paragraph 28.3 of this Schedule;

      (b)   to impose all or any of the matters set out in paragraph 28.4 of
            this Schedule.

28.3  This circumstance referred to in paragraph 28.2(a) of this Schedule are as
      follows:

      (a)   where the assignee is an associated company of the Lessee unless
            that associated company is of no lesser financial strength than the
            Lessee at the date of the application for consent to assign;

      (b)   where the proposed assignee enjoys diplomatic or state immunity; and

      (c)   where the assets of the proposed assignee upon which any reasonable
            assessment of financial strength is based are not in the United
            Kingdom or some other jurisdiction with which


                                       24



            there is subsisting with the United Kingdom a system of reciprocal
            enforcement of judgements.

28.4  For the purposes of Sub-Section 19(1)(A) Landlord and Tenant Act 1927 (as
      amended) and in addition to any other condition or requirement which the
      Lessor may reasonably impose the Lessor may grant its consent to an
      assignment or transfer of the demised premises subject to the following
      conditions:

      (a)   the Lessee and/or any former tenant (as defined by Section 16(6) of
            the Landlord and Tenant (Covenants) Act 1995) enters into and
            delivers to the Lessor prior to or contemporaneously with the
            assignment in question an authorised guarantee agreements (as
            defined by Section 16 of the Landlord and Tenant (Covenants) Act
            1995) prepared by the Lessor's solicitors (but at the cost of the
            Lessee in accordance with paragraph 31 of this Schedule) with the
            Lessor should the Lessor so require under which the Lessee:

            (i)   guarantees the performance by the intended assignee (but not
                  any further or subsequent assignees) of all the covenants on
                  the part of the Lessee contained in this Lease;

            (ii)  is liable to the Lessor as principal debtor and is not
                  released even if the Lessor gives the intended assignee extra
                  time to comply with any obligations;

            (iii) agrees that in the event that this Lease is disclaimed by a
                  liquidator or trustee in bankruptcy of the assignee or other
                  person with power to disclaim and on being so required by the
                  Lessor the Lessee will accept the grant of a new tenancy of
                  the demised premises:

                  (A)   on the same terms and conditions as this Lease at the
                        date of the disclaimer; and

                  (B)   for a term expiring on the term date of this Lease;

      (b)   the Lessee procures that any intended assignee shall in a deed
            prepared by the Lessor's solicitors but at the cost of the Lessee in
            accordance with paragraph 31 of this Schedule covenant direct with
            both the Lessor that the said assignee will pay the rent reserved by
            and will observe and perform the covenants and conditions contained
            in this Lease;

      (c)   the Lessee if requested procures that such persons as the Lessor may
            reasonably require where it is reasonable in the circumstances so to
            do shall act as guarantors for the intended


                                       25



            assignee and shall (inter alia) jointly and severally (where
            relevant) covenant in a deed prepared by the Lessor's solicitors but
            at the cost of the Lessee in accordance with paragraph 31 of this
            Schedule with the Lessor that the said assignee will pay the rent
            reserved by and will observe and perform the covenants on the part
            of the Lessee and the conditions contained in this Lease and such
            covenant shall also provide that:

            (i)   any neglect or forbearance of the Lessor in endeavouring to
                  obtain payment of the rent or delay to take any steps to
                  enforce performance by the assignee of the said covenants and
                  conditions or any other act omission matter or thing whatever
                  including any variation in this Lease whereby (but for this
                  provision) the guarantors would be exonerated either wholly or
                  in part from the guarantee other than a release under seal
                  given by the Lessor shall not release or in any way lessen or
                  affect the liability of the guarantor;

            (ii)  should the said assignee being a company go into liquidation
                  and the liquidator disclaim this Lease or if the said company
                  should be wound up or cease to exist then the guarantors will,
                  should the Lessor so require, accept a new lease of the
                  demised premises such new lease to commence as from the date
                  of such disclaimer or (as the case may be) such winding-up or
                  ceasing to exist and to be for the residue then unexpired of
                  the Term and to be at the rent payable (such rent to commence
                  as from the date of such disclaimer or winding-up or cesser of
                  existence and to be subject to the same provisos and
                  conditions as those in force immediately before such
                  disclaimer) and to be granted at the cost in all respects of
                  the guarantors in exchange for a counterpart duly executed by
                  the guarantors.

Subject as aforesaid for the purposes of Sub-Section 19(1)(A) Landlord and
Tenant Act 1927 (as amended) and in addition to any other condition or
requirement which the Lessor may reasonably impose the Lessor may lawfully
withhold its consent to a proposed assignment for as long as there are
outstanding unpaid rents under this Lease;


                                       26



28.5  Not to underlet or unconditionally agree to underlet the demised premises
      or permit any person to occupy the demised premises at a fine or premium
      nor at a rent which is less than the open market rental value of the
      demised premises nor to permit the reduction of rent paid or payable by
      any under lessee.

28.6  Not to underlet agree to underlet nor share nor part with the possession
      or occupation of the whole of the demised premises without procuring:

      (a)   that any intended underlease shall only be of the whole of the
            demised premises;

      (b)   that any intended under lessee shall covenant with the Lessor as
            from the date of the underlease to observe and perform the covenants
            and conditions herein contained (excluding the covenant to pay the
            rents hereinbefore reserved) and not to underlet or agree to
            underlet or share or part with possession or occupation of the whole
            or any part of the underlet premises save on terms consistent with
            the provisions of the Lease and the intended under lessee (if a
            company) may share occupation of the whole or part of the underlet
            premises with a company that is a member of the same group of
            companies as the under lessee (within the meaning of Section 42 of
            the Landlord and Tenant Act 1954) provided that no tenancy is
            created and provided further that within 21 days of such sharing the
            Lessor receives notice of the company sharing occupation and the
            address of its registered office;

      (c)   that in any underlease the rent shall be payable no more than two
            quarters in advance;

      (d)   that Sections 24-28 (inclusive) of the 1954 Act are lawfully
            excluded from the underlease.

28.7  Subject as aforesaid and provided that the Lessor shall have approved the
      principal terms of any underlease and the form of underlease finally
      agreed with the proposed underlessee (such approval not to be unreasonably
      withheld or delayed) the Lessee shall be permitted to underlet the demised
      premises as a whole with the prior written consent of the Lessor which
      shall not be unreasonably withheld or delayed provided that the Lessor may
      lawfully withhold its consent to a proposed underletting for as long as
      there are outstanding unpaid rents under this Lease.


                                       27



28.8  The Lessor may waive in whole or part any of the circumstances or
      conditions set out in this paragraph 28 of this Schedule.

28.9

      (a)   Notwithstanding the above 11(a) the Lessee may with the consent of
            the Lessor (such consent not to be unreasonably withheld or delayed)
            share occupation of the whole or part of the demised premises with
            any partners or associated companies provided that no relationship
            of landlord and tenant is thereby created and such sharing ceases
            upon such association or partnership termination.

      (b)   The Lessee (if a company) may without the consent of the Lessor
            share occupation with a company that is a member of the same group
            of companies as the Lessee (within the meaning of Section 42 of the
            1954 Act)

29.   REGISTRATION OF DISPOSITIONS

      Within twenty eight (28) days of every assignment underlease or any other
      devolution or Statutory Assignment of the interest of the Lessee to give
      notice thereof in writing to the Solicitors for the time being of the
      Lessor and to produce and leave for registration with them a certified
      copy of such assignment or in the case of devolution the probate of the
      will or the Letters of administration or other the deed or document under
      which such devolution or Statutory Assignment arises and pay a reasonable
      registration fee (being not less than five (5) pounds per document) in
      respect of each such registration.

30.   TO PAY LESSOR'S COSTS

      To pay to the Lessor and the Superior Lessor all reasonable and proper
      costs charges and expenses including but without prejudice to the
      generality of the foregoing all reasonable and proper Solicitors' costs
      counsel's architects' surveyors' and other professional fees and
      commission payable to the bailiff necessarily and properly incurred by the
      Lessor:

30.1  in connection with the preparation and service of a notice under Section
      146 of the Law of Property Act 1925 and/or in connection with proceedings
      under Section 146 or 147 of the said Act (whether or not any right of
      re-entry or forfeiture has been waived by the Lessor or notice served
      under the said Section 146 is subsequently complied with by the Lessee or
      the Lessee has been relieved under the provisions of the said Act and
      notwithstanding forfeiture is avoided otherwise than by relief granted by
      a Court);

30.2  in the preparation and service of a schedule of dilapidations at any time
      during or within three months after the expiration of the term


                                       28



      howsoever the same be determined (but relating in all cases only to
      dilapidations which accrued prior to the expiration or sooner
      determination of the term and for which the Lessee is liable hereunder);

30.3  in connection with or procuring the remedying of any breach of covenant on
      the part of the Lessee contained in this Lease including without prejudice
      to the generality of the foregoing the recovery of any arrears of rent the
      Interim Charge and the Service Charge provided that before being
      responsible for any costs expenses fees and disbursements hereinbefore
      referred to the Lessee shall first have been given a reasonable
      opportunity to remedy any breach of covenant (which breach shall be
      notified to it by the Lessor in writing) and the Lessee has failed to
      remedy such breach within a reasonable time.

31.   COST OF LICENCE

      To pay all reasonable and proper legal costs architects' and surveyors'
      fees necessarily and properly incurred by the Lessor and the Superior
      Lessor in respect of any application by the Lessee for any licence or
      consent required by this Lease including reasonable and proper legal costs
      architects' and surveyors' fees which may have been incurred when any
      licence or consent is refused or any application therefore is withdrawn
      except in such cases where the Lessor unreasonably withholds or delays its
      consent or proffers it subject to unreasonable conditions.

32.   INTEREST ON SUMS DUE TO LESSOR

      Where under the terms of this Lease any sum of money becomes due and
      payable by the Lessee to the Lessor or to the Superior Lessor and remains
      unpaid for a period of twenty one (21) days after the due date to pay to
      the Lessor as well before as after any judgement on demand in writing
      interest on such sum from the date on which the payment of such sum became
      due and payable until the date of actual payment at a rate of two per cent
      (2%) above the base rate for the time being of Barclays Bank Pic or (if no
      such rate exists) such other rate as nearly equivalent thereto as possible
      as may in default of agreement be determined by arbitration provided that
      any such written demand shall be served within three (3) months of the
      said sum having become due and payable.

33.   TO PREVENT ENCROACHMENTS ETC.

      To give immediate notice to the Lessor of any threatened encroachment or
      attempt to acquire any new rights of light, passage, drainage or other
      easement over upon or under the demised premises as soon as the same shall
      come (or with reasonable diligence should have come) to the actual
      knowledge of the Lessee and at the request and cost of the Lessor to take
      all reasonably necessary steps to prevent any threatened


                                       29



      encroachment or attempt to acquire any such easement including joining
      with the Lessor in taking proceedings.

34.   TO DISCLOSE INFORMATION

      Upon making any application for any written consent or approval which is
      required under this Lease the Lessee shall disclose to the Lessor and
      where required to the Superior Lessor such information as they may
      reasonably require provided always that the Lessee may in its absolute
      discretion withhold any such information which the Lessee considered to be
      of a confidential or sensitive nature without prejudice to the Lessee's
      application for consent or approval.

35.   TO LET OR SALE BOARDS

      To permit the Lessor or its agents during the six (6) months immediately
      preceding the expiration or sooner determination of the term to affix and
      retain without interference on some reasonable and conspicuous part of the
      demised premises (but not so as to obscure the doors or windows or the
      Lessee's business name or advertising or to affect the access of light and
      air to the demised premises) not more than one (1) notice board
      advertising the sale or letting of the demised premises together with any
      other particulars which may be reasonably necessary and during the said
      period to permit all persons with written authority from the Lessor or its
      agents and on at least 24 hours' prior written notice and accompanied by a
      representative of the Lessee (if the Lessee shall so require) at all
      reasonable times of a normal working day to view the demised premises.

36.   RATES AND OUTGOINGS

      To pay satisfy and discharge throughout the term all rates taxes, duties,
      impositions, charges, assessments and outgoings whatsoever of a recurring
      nature whether parliamentary, local or otherwise which are now or may at
      any time hereafter be assessed charged or imposed on the demised premises
      or the owner landlord tenant or occupier thereof except only such as the
      owner by law is bound to pay notwithstanding any contract to the contrary
      and such as are assessed on the Lessor in respect of the rents hereby
      reserved or the entitlement to the same or in respect of any dealing with
      any reversion mediately or immediately expectant on the determination of
      the term provided always that if any of the foregoing be assessed, charged
      or imposed upon the Scheme or any part thereof (being a part including the
      demised premises) without apportionment or assessed, charged or imposed on
      the Service Area then the Lessee shall pay a fair proportion thereof
      unless the same is included in the Service Charge hereinafter referred to.


                                       30



37.   REPAIR OF INTERIOR ETC.

      At all times during the term well and substantially to repair renew
      cleanse, maintain, uphold and keep the demised premises and every part
      thereof (damage by any of the Insured Risks excepted save to the extent
      that the insurance monies are irrecoverable through the act neglect or
      default of the Lessee its servants, agents, licensees or invitees and
      damage by Terrorism also excepted where not an Insured Risk) and it is
      hereby agreed and declared that there shall be included in this covenant
      as repairable by the Lessee any internal plastering and other finishes of
      walls and ceilings and the screed and finish of the floors and the finish
      of all structural parts of the Scheme within the demised premises
      including (but without limitation) all fixed floor coverings, ceilings,
      suspended ceilings and raised floors therein and all electrical
      installations within and exclusively serving the demised premises and the
      Lessor's fixtures and fittings (other than the Lessor's plant and
      equipment including the heating and air conditioning systems) together
      with the fascias windows window frames doors and door frames of the
      demised premises provided always and it is hereby agreed and declared
      that:

      (a)   all non-structural walls which are currently common to the demised
            premises and any adjoining Unit are hereby declared to be party
            structures (except for plaster and decorative finishes) and the
            expense of maintaining them shall be borne in equal shares by the
            Lessee and the lessee or other the owner or occupier of the
            adjoining Unit;

      (b)   all non-structural walls which are common to the demised premises
            and any other part of the Scheme not being an adjoining Unit shall
            (except for the plaster and decorative finish on that side of the
            all which faces onto the demised premises) be maintained by the
            Lessor; and

      (c)   nothing in this Schedule shall require the Lessee to keep nor yield
            up the demised premises in any better state of repair and condition
            than they are at the Commencement Date as evidenced by the Schedule
            of Condition.

38.   REPAIR SERVICES AND CONDUCTING MEDIA

      To keep in repair and replace when reasonably necessary and (solely in
      relation to any kitchen installed by the Lessee) all pipes, wires, ducts
      and other like media installed for the purpose of supplying water (cold or
      hot) electricity or gas and for the purpose of draining away water from
      the demised premises in so far as such pipes, wires, ducts or other like
      media are solely installed or used only for the purposes of the demised
      premises and are fixtures and fittings and for the purpose of such repair
      the Lessee and his workmen shall have access to such pipes, wires, ducts
      or other like media whereever they are in upon or


                                       31



      under the parts of the Scheme not included in this demise upon proper
      notice (except in the case of emergency) to the Lessor or the occupier
      thereof the Lessee nevertheless forthwith making good all damage to the
      parts of the Scheme occasioned by the carrying out of such repairs to the
      reasonable satisfaction of the Lessor.

39.   SERVICE CHARGE

39.1  To pay to the Lessor the Interim Charge and the Service Charge as defined
      in Part I of Schedule 6 hereto at the times and in manner therein
      provided.

39.2  Where the Lessor employs a managing agent in respect of the Scheme as
      referred to in paragraph 6 of Part II of Schedule 6 to this Lease to pay
      to the Lessor with the Service Charge a reasonable and proper fee towards
      the Lessor's general administrative expenses necessarily incurred in the
      proper management of the Scheme (such fee not to exceed ten per cent of
      the Service Charge)

39.3  Where the Lessor does not employ a managing agent to pay to the Lessor
      with the Service Charge a reasonable fee (such fee not to exceed ten per
      cent of the Service Charge) to defray the Lessor's own costs necessarily
      incurred in the proper management of the Scheme.

40.   OBSTRUCTION

      Not to obstruct or permit to be obstructed the Service Area or any part
      thereof.

41.   REFUSE

      Not to store or stack crates bottles barrels or similar containers or any
      cardboard boxes or any other refuse anywhere within the Scheme other than:

      (a)   within the demised premises; or

      (b)   tidily in the refuse store or other area specifically provided for
            that purpose.

42.   REFUSE RECEPTACLES

      Not to use any receptacles for refuse except dustbins or other receptacles
      of a pattern approved by the Lessor (such approval not to be unreasonably
      withheld or delayed) or prescribed by the Local authority and to maintain
      the same in good condition and not to place the same in the Service Area
      (other than the refuse store specifically provided for that purpose)
      except on the days for the collection of refuse by the local authority.


                                       32



43.   TO COMPLY WITH LESSOR'S DIRECTIONS

      To comply with such reasonable written directions as may from time to time
      be given by the Lessor or the Lessor's managing agents for the good and
      efficient regulation of the Service Area with a view to facilitating the
      use thereof by all persons entitled to use the same but not so as to
      prevent access thereto or to the demised premises at any time.

44.   TO PAINT AND DECORATE THE INTERIOR

      To paint and decorate the interior of the Demised Premises with paint or
      paper and/or other material of good quality as often as reasonably
      necessary so as to maintain the decorative condition of the Demised
      Premises in no worse state of repair and condition than that evidenced by
      the attached Schedule of Condition.

45.   TO PAY INSURANCE PREMIUM

      To repay to the Lessor within fourteen (14) days of receiving a written
      demand therefore the premium for insuring the demised premises against the
      Insured Risks or if no separate premium is allocated to the demised
      premises a fair proportion of the premium in respect of the Scheme (unless
      forming part of the Service Charge) provided that the Lessee shall not be
      required to pay any amount over the ordinary rate of premium if charged as
      a result of any act omission or neglect of the Lessor or tenants or
      occupiers of other Units.

46.   VAT

      In addition to the rents and other payments of whatsoever nature which are
      or shall be reserved or which are or may become payable pursuant to the
      provisions of this Lease by or on behalf of the Lessee to the Lessor or to
      the Superior Lessor or any person or persons acting on their behalf then
      in addition to such payments the Lessee shall pay any Value Added Tax or
      similar impost or other tax replacing the same which is or may at any time
      hereafter become payable in respect of such payment subject (in the case
      of supplies to the Lessee) to the provision of a valid VAT invoice within
      14 days of payment of the VAT by the Lessor.

47.   COVENANTS IN SUPERIOR LEASE

47.1  By way of indemnity only to perform and observe and at all times during
      the term be bound by the Lessee's or tenant's covenants contained in
      clauses numbered 3 (8)(9)(10)(l1)(12)(13) and (14) in the Superior Lease
      so far as they affect the demised premises.

47.2  To permit the Lessor and any authorised person to enter the demised
      premises at any reasonable time upon reasonable prior notice (except in


                                       33



      the case of emergency when such notice as can be given will be given) in
      order to comply with any of the Superior Lease covenants which may be
      necessary to prevent a forfeiture of the Superior Lease and which arise
      from the actions or default of the Lessee or any of its underlessees
      servants or agents Provided that the Lessor shall not enter for the
      purpose of compliance with the covenants on its part contained in the
      Superior Lease to the extent that the obligation to comply with such
      covenants is imposed on the Lessee by this lease unless and until the
      Lessee shall first have been given a reasonable opportunity to remedy any
      breach by it of such covenants (which breach shall be notified to it by
      the Lessor in writing) and the Lessee has then failed to remedy such
      breach within a reasonable time.

48.   NOTICE BY SUPERIOR LESSOR

      To give immediate notice to the Lessor of any notice given to the Lessee
      or left on the demised premises by the Superior Lessor requiring any
      repairs to be done to the demised premises and to furnish the Lessor with
      a copy of such notice.

49.   OFFICES SHOPS ETC ACTS

      At all times to comply with all such requirements as may be imposed on the
      occupier by or under the Offices, Shops and Railway Premises Act 1963 or
      any statutory modification or re-enactment thereof in respect of the user
      of the demised premises and to indemnify the Lessor against liability in
      respect of any non-compliance


                                       34



                                   SCHEDULE 4

                            (Covenants by the Lessor)



1.    QUIET ENJOYMENT

      So long as the Lessee shall pay the rent and make the other payments
      reserved and made payable in manner aforesaid and observe and perform the
      covenants and conditions on its part herein contained the Lessee shall and
      may peaceably and quietly hold and enjoy the demised premises and the
      rights hereby granted during the term without any claim or demand by the
      Lessor or any person rightfully claiming through under or in trust for it.

2.    TO INSURE THE SCHEME

      To insure the Scheme (including the demised premises and the service area)
      in the joint names of the Superior Lessor and the Lessor against damage by
      the Insured Risks in a sum representing the full cost of reinstatement
      thereof from time to time during the term and:

2.1   within 14 days of a written request from the Lessee to produce to the
      Lessee a copy of the policy of insurance or sufficient evidence of the
      terms of the cover in force and the receipt of the current premium and to
      provide to the Lessee details of any material changes therein or the
      conditions thereof;

2.2   to use all reasonable endeavours to note the interest of the Lessee upon
      the policy of insurance so arranged and to obtain from the insurers a
      letter of waiver of subrogation rights (but without any warranty that the
      same will be procured);

2.3   to give to the Lessee written notice of material changes in the insurance
      policy (including without limitation any changes in the Insured Risks)
      and in the event of any damage or destruction of the Scheme or any part
      thereof by any of the Insured Risks (unless such insurance shall have been
      forfeited or vitiated by the act or default of the Lessee) subject
      nevertheless to any relevant provisions of the Superior Lease to take with
      all due speed and diligence such steps as may be proper and use all
      reasonable endeavours to obtain any necessary permits and consents under
      any regulations or enactment for the time being in force and will as soon
      as such permits and consents have been obtained apply all money received
      by virtue of such insurance (except the insurance relating to loss of
      rent) in making good the loss or damaged in respect of which the same
      shall have been received or in rebuilding or reinstating the Scheme or
      such part as shall have been destroyed or damages in a good and
      workmanlike manner with good quality and


                                       35



      sound materials as expeditiously as possible in accordance with the
      original plans, elevations and details of the Scheme with such variations
      (if any) as may be necessary having regard to the provisions of the
      Superior Lease the then existing statutory provisions, bye laws and
      regulations affecting the same and any necessary planning approval making
      up any difference in the amount actually received and the cost of
      rebuilding or reinstating out of the Lessor's own money and if the demised
      premises shall be rendered wholly or partially unfit for occupation and
      use or access through damage or destruction of the Scheme or any part
      thereof by any of the Insured Risks or Terrorism where not an Insured Risk
      then except to the extent that the insurance monies are irrecoverable or
      are reduced through the act or default of the Lessee its servants, agents,
      invitees or licensees to allow an abatement with effect from the date of
      the destruction or damage of the whole or a fair and reasonable proportion
      of the rent hereby reserved and of the Service Charge according to the
      nature and extent of the damage or destruction until the demised premises
      and the relevant parts of the Scheme (including plant and conducting media
      the ground floor entrance and reception and the staircase and lift(s) and
      the parts of the Service area at first floor level) are again rendered
      fully fit for occupation use and access such proportion to be determined
      in the event of dispute by an independent surveyor to be appoint in
      default of agreement on the application of either party by the President
      for the time being of the Royal Institution of Chartered Surveyors to act
      as an expert and not an arbitrator.

2.4   The following provisions apply in the event of an act of Terrorism which
      causes damage to or destruction of the Demised Premises at a time when
      Terrorism is not an Insured Risk:-

      (a)   Within 9 months of any act of Terrorism the Lessor shall give
            written notice to the Lessee ("Election Notice") stating whether or
            not it proposes to rebuild or reinstate the demised premises.

      (b)   If the Election Notice states that the Lessor proposes to rebuild or
            reinstate the demise premises then for the purposes of this Lease
            the act of Terrorism shall be deemed to have been damaged by Insured
            Risks and the provisions of paragraph 2.3 of this Schedule will
            apply.

      (c)   If the Election Notice states that the Lessor does not propose to
            rebuild or reinstate the demised premises or if no Election Notice
            is served strictly within the period of 9 months referred to in
            paragraph (a) above then the Lessee may within one month of service
            of the Election Notice or the expiry of such 9 month period (as the
            case may be) give written notice to the Lessor to determine the
            Term.


                                       36



3.    TO PAY RATES FOR THE SCHEME

      To pay all existing and future rates, taxes, assessments, duties,
      impositions, charges and outgoings whatsoever of a recurring nature and
      which are now or shall hereafter be charged assessed or imposed upon or
      payable in respect of the Scheme whether parliamentary, parochial local or
      otherwise howsoever so far as they are not payable by the several lessees
      in respect of their Units.

4.    TO REPAIR AND MAINTAIN THE SCHEME

      Except in so far as such matters are expressly the responsibility of the
      Lessee under the provisions of this lease:

4.1   To keep and maintain the Scheme or procure to be kept and maintained in
      good and substantial repair order and condition and clean and to rebuild
      renew or replace as and when necessary for such purposes the Scheme (and
      in particular but without prejudice to the generality of the foregoing)
      its exterior and its structure its roof and foundations including for such
      purposes the matters referred to in clause 2.4(c)(i) to (vi) inclusive
      of this Lease the Service Area and any toilets, passenger lifts, lift
      shafts, boilers, central heating and all apparatus, equipment, plant and
      machinery serving the same in good and substantial repair and condition
      and decoration and to renew or replace the same or any part or parts
      thereof whenever such renewal or replacement is necessary.

4.2   Without prejudice to paragraph 4.1 to keep and maintain in good working
      order and condition (including replacement where necessary or desirable
      for such purposes) all pipes, wires, ducts, passenger lifts, boilers,
      central heating and air conditioning or other like media and
      installations, apparatus and plant installed in the Scheme for the purpose
      of supplying water (cold and hot), air conditioning ventilation
      electricity or gas to and for the purpose of draining away water and soil
      for allowing the escape of steam or other deleterious matter from and in
      respect of any other service to or for the demised premises except in so
      far as such pipes, wires, ducts or other like media and installations
      apparatus and plant are solely installed (other than for the heating and
      air conditioning installations and machinery and conducts ancillary
      thereto) for the purposes of and exclusively servicing the demised
      premises.

5.    TO EXECUTE WORKS

      To execute such works of a structural nature within the demised premises
      and the Scheme as may be required by the fire authority or the Lessor's
      insurers and to do all things and take such steps as are required from
      time to time to ensure that there is a fire certificate in force for the
      Scheme and that all lawful requirements relating to fire precautions are
      complied with.


                                       37



6.    TO PRODUCE RECEIPTS

      From time to time to allow the Lessee to inspect such receipts and
      vouchers and other relevant information in relation to the Service Charge
      as the Lessee may reasonably require under the provisions of paragraph 6
      of Part I of Schedule 6 to this Lease and at the request and cost of the
      Lessee to supply copies of the same.

7.    TO CLEAN AND HEAT SERVICE AREA

      To keep the Service Area reasonably cleaned heated and lit where
      reasonably necessary or appropriate and to ensure that the toilets in the
      Scheme are supplied with hot water soap towels and other usual requisites.

8.    TO SUPPLY HEAT AIR CONDITIONING AND HOT AND COLD WATER TO THE DEMISED
      PREMISES

      To supply and maintain heating air conditioning and hot and cold water to
      the demised premises.

9.    ENTRYPHONE

      To keep in good and substantial repair and renew when necessary the video
      entryphone system in the Scheme so as to serve the demised premises.

10.   NOT TO ERECT SIGNS

      Not to erect any signs of any kind on the flank wall of the demised
      premises without the Lessee's consent such consent not to be unreasonably
      withheld.

11.   SUPERIOR LEASE

      To pay the rent reserved by the Superior Lease and to perform and observe
      the covenants therein contained on the part of the Lessor (as Lessee
      thereunder) to be observed and performed and the conditions therein
      contained (save and so far as such covenants and conditions fall to be
      performed and observed by the Lessee hereunder) and if requested to do so
      by the Lessee (at the Lessee's cost) to enforce the Lessor's covenants and
      obligations contained in the Superior Lease.

12.   SUPERIOR LESSOR'S CONSENT

      Where the Lessee requests the consent or approval of the Lessor and the
      consent or approval of the Superior Lessor is required pursuant to the
      Superior lease the Lessor shall at the request and at the cost of the
      Lessee use all reasonable endeavours (in consultation with and on the
      instructions of the Lessee where necessary) to obtain such consent or


                                       38



      approval in any case where the Lessor would be prepared or is lawfully
      required to give its consent or approval.

13.   RELEVANT MATTERS

      Notwithstanding any other provisions contained in this Lease the Lessor
      shall provide such of the relevant matters (as defined in Part I of
      Schedule 6 hereto) as are reasonable and proper for the benefit of the
      Lessees and occupiers of the Scheme in accordance with the principles of
      good estate management and shall provide the same in a good efficient and
      economical manner.

14.   DIRECTIONS AND REGULATIONS

      The Lessor shall ensure that any directions and/or regulations made
      relating to the Scheme or any part or parts thereof are communicated to
      the Lessee in writing and do not in any way adversely or materially
      interfere with or affect the use and enjoyment of the demised premises and
      in the event of any conflict between those directions and/or regulations
      and the provisions of this Lease the provisions of this Lease shall
      prevail.

15.   PUBLIC AND THIRD PARTY LIABILITY

      At all times during the term maintain in force insurance policies in
      respect of property owner's public and third party liability in respect of
      the Scheme for an adequate sum with an insurance office of repute and
      apply all money received under or in respect of any such insurance in
      settlement of any third party claims.

16.   SECURITY

      In exercising any rights of entry upon the demised premises granted
      hereunder to preserve the security of the demised premises.


                                       39



                                   SCHEDULE 5

                   (Above referred to Rent Review Provisions)


1.    REVIEW DATES

      In this schedule "Review Date" means 25 September 2009 and "Review Period"
      means the period starting with the Review Date and expiring at the end of
      the Term.

2.    RENT

2.1   Until the Review Date the rent payable hereunder shall be the Rent shown
      in clause 1.

2.2   During the Review Period the said rent shall be that payable immediately
      prior to the Review Date or such revised rent as may be ascertained as
      herein provided whichever shall be the greater.

2.3   In the event of a revised rent not being ascertained as herein provided
      the rent payable shall be the rent payable immediately prior to the Review
      Date.

3.    ASCERTAINMENT OF RENT

3.1   Such revised rent for the Review Period may be agreed at any time between
      the Lessor and the Lessee or (in the absence of such agreement) determined
      not earlier than the relevant Review Date by an independent valuer (acting
      as expert and not as an arbitrator) such valuer to be nominated in the
      absence of agreement by or on behalf of the President for the time being
      of the Royal Institution of Chartered Surveyors on the application of
      either the Lessor or the Lessee made not earlier than three (3) months
      before the Review Date and so that the revised rent to be determined by
      the valuer shall be such as he shall decide should be the yearly rent at
      and from the Review Date for the demised premises.

3.2   Any valuer nominated in pursuance of the immediately preceding sub-clause
      shall be a chartered surveyor with experience of dealing with reviews of
      rent for the same type of premises and in the same locality as the demised
      premises.

4.    BASIS OF REVIEWED RENT

      Whether such revised rent as aforesaid shall be determined by agreement
      between the parties or by a valuer as hereinbefore provided the same shall
      be fixed

4.1   On the following assumptions (if not facts) as at the Review Date:


                                       40



      (a)   that the demised premises are ready to be fitted out for immediate
            occupation and use as offices and that no work has been carried out
            thereon (otherwise than in pursuance of an obligation to the Lessor)
            by the Lessee its sub-tenants (if any) and their respective
            predecessors in title during the term which has diminished the
            rental value of the demised premises and that in case the demised
            premises or any part thereof have been destroyed or damaged by any
            of the Insured Risks they have been fully restored and reinstated;

      (b)   that the demised premises are available for letting by a willing
            landlord to a willing tenant as a whole without a premium but with
            vacant possession and subject to the provisions of this Lease (other
            than clause 6.11 and the provisions relating to Service Charge cap
            and other than the amount of the rent hereby reserved but including
            mutatis mutandis the provisions for rent review herein contained)
            for a term equal to the unexpired residue of the term at the
            Review Date;

      (c)   that the covenants and agreements herein contained on the part of
            the Lessor and the Lessee have been fully performed and observed in
            all respects unless in the case of the Lessor the breach has been
            material and persistent;

      (d)   that no reduction is to be made to take account of any rental
            concession which on a new letting with vacant possession might be
            granted to an incoming tenant for a period within which its fitting
            out works would take place;

            AND having regard to open market rental values current at the
            Review Date.

4.2   But disregarding the following matters (namely):

      (a)   any effect on rent of the fact that the Lessee its sub-tenants (if
            any) or their respective predecessors in title have been in
            occupation of the demised premises;

      (b)   any goodwill attached to the demised premises by reason of the
            carrying on thereat of the respective businesses of the Lessee, its
            sub-tenants (if any) or their respective predecessors in title, and

      (c)   any increase in rental value of the demised premises attributable to
            the existence at the relevant Review Date of any improvement or
            other works to the demised premises or any part thereof carried out
            by the Lessee or its sub-tenants (if any) or their respective
            predecessors in title with consent (where required) otherwise than
            in pursuance of an obligation to the Lessor or its predecessors in
            title.


                                       41



5.    FURTHER PROVISIONS

      It is hereby further provided in relation to any such revised rent that:

5.1   in the case of determination by the valuer

      (a)   the fees and expenses of the valuer including the cost of his
            appointment shall be borne equally by the Lessor and the Lessee who
            shall otherwise each bear their own costs;

      (b)   the valuer shall afford to each of the parties an opportunity to
            make representations (whether written or oral) to him in respect of
            such rent to be revised; and

      (c)   if the valuer shall die delay or become unwilling to act or if for
            any other reason (including the incapacity of the valuer) the
            President for the time being of the Royal Institution of Chartered
            Surveyors or the person acting on his behalf shall in his absolute
            discretion think fit he may in writing discharge the valuer and
            appoint another in his place.

5.2   When the amount of any rent to be ascertained as hereinbefore provided
      shall have been so ascertained memorandum thereof shall thereupon be
      signed by or on behalf of the Lessor and the Lessee and annexed to or
      endorsed upon this lease and the counterpart thereof and the parties shall
      each bear their own costs in respect thereof.

5.3

      (a)   If the revised rent payable on and from the Review Date shall not
            have been ascertained (whether by agreement or valuation) by the
            Review Date the rent FIRST hereby reserved shall continue to be
            payable at the rate previously payable and within fourteen days of
            such revised rent being ascertained as aforesaid the Lessee shall
            pay to the Lessor any shortfall between the new rent and the old
            rent up to the Quarter Day immediately following such ascertainment
            together with interest upon each part of such shortfall from the
            date upon which the same would have been payable (had the revised
            rent been ascertained on the Review Date) to the date of actual
            payment thereof at the base rate for the time being of Barclays Bank
            Plc or (if no such rate exists) such other rate as nearly equivalent
            thereto as possible as may in default of agreement be determined by
            arbitration.

      (b)   For the purposes of this paragraph the revised rent shall be deemed
            to have been ascertained on the date when the same has been agreed
            between the parties in writing or (as the case may be) on the date
            of the determination by the valuer.


                                       42



6.    STATUTORY RESTRICTION

      If by virtue of any act, Statutory Instrument or Order there is at any
      Review Date a restriction upon the Lessor's rights to review the rent then
      upon the ending removal or modification of such restriction the Lessor may
      give to the Lessee not less than one (1) month's written notice requiring
      an additional rent review upon the Quarter Day following the service of
      that notice and for the purposes of this Schedule 5 the said quarter day
      shall be a Review Date.


                                       43



                                   SCHEDULE 6

                               (Above referred to)

                                     Part I

                    The Service Charge and the Interim Charge

1.    DEFINITIONS

      In this schedule:

1.1   "Relevant Matters" means the various items set forth in Part II of this
      Schedule 6;

1.2   "Accounting Period" means the period commencing on the first day of
      January and ending on the thirty first day of December in any year or such
      other annual period as the Lessor may in its discretion from time to time
      determine by notice in writing to the Lessee;

1.3   "Total Expenditure" shall be deemed to include not only those expenses,
      outgoings and other expenditure in respect of the Relevant Matters which
      have been actually disbursed, incurred or made by the Lessor (acting
      reasonably) during the Accounting Period but also such reasonable part of
      all such expenses outgoings and other expenditure as aforesaid which are
      of a periodically recurring nature (whether recurring at regular or
      irregular intervals) whenever to be disbursed, incurred or made including
      a sum or sums by way of reasonable provision for anticipated expenditure
      in respect of the Relevant Matters or any of them as the Lessor or its
      agents may reasonably allocate to the year in question as being fair and
      reasonable in all the circumstances

1.4   "Service Charge" means such Fair Proportion (as defined in clause 2.7 of
      this Lease) of the Total Expenditure excluding any costs and expenses
      incurred relating to the rebuilding reinstatement and renewal (but not
      repair) of the Scheme or any part thereof except for plant and equipment
      as shall from time to time be notified in writing to the Lessee by or on
      behalf of the Lessor and also excluding any costs and expenses incurred by
      the Lessor relating to making good any damage caused by an Insured Risk
      and/or Terrorism whether or not an Insured Risk unless the insurance
      moneys are not recoverable because of some act or default of the Lessee or
      any person deriving title through the Lessee in breach of paragraph 15.1
      of Schedule 3.

1.5   "the Interim Charge" means such reasonable sum on account of the Service
      Charge in respect of each Accounting Period as the Lessor or its agent
      shall in writing specify to the Lessee and for the Accounting Period
      during which this lease is executed the Interim Charge shall be based on
      the anticipated Total Expenditure for the period from the date


                                       44



      of this Lease to the Thirty-first day of December next following (or other
      the last day of the Accounting period in force at the date of such
      execution) and thereafter shall be based on the anticipated Total
      Expenditure for the then current Accounting Period by reference to the
      Total Expenditure for the immediately preceding Accounting Period.

2.    PAYMENT OF INTERIM CHARGE

      The first payment of the Interim Charge (on account of the Service Charge
      for the Accounting Period during which this Lease is executed) shall be
      made on the execution hereof and thereafter the Interim Charge shall be
      paid to the Lessor by equal quarterly payments in advance on the Quarter
      Days.

3.    CARRY FORWARD OF SURPLUS

      If the Interim Charge paid by the Lessee in respect of any Accounting
      Period exceeds the Service Charge for that Accounting Period the surplus
      of the Interim Charge so paid over and above the Service Charge shall be
      carried forward by the Lessor and credited to the account of the Lessee in
      computing the service charge in the succeeding Accounting Period or (if
      the term shall have expired or determined) shall be paid by the Lessor to
      the Lessee.

4.    PAYMENT OF SERVICE CHARGE

      If the Service Charge in respect of any Accounting Period exceeds the
      Interim Charge paid by the Lessee in respect of that Accounting Period
      together with any surplus from the previous year carried forward as
      aforesaid then the Lessee shall pay the excess to the Lessor within
      fourteen (14) days of service upon the Lessee of the certificate referred
      to in paragraph 5 of this Schedule.

5.    CERTIFICATE OF SERVICE CHARGE

      As soon as possible after the expiration of each Accounting Period there
      shall be served upon the Lessee by the Lessor a certificate signed by the
      Lessor's surveyor or auditor or other professional agent containing the
      following information:


                                       45



5.1   the amount of the Total Expenditure for that Accounting Period;

5.2   the amount of the Interim Charge paid by the Lessee in respect of that
      Accounting Period together with any surplus carried forward from the
      previous Accounting Period; and

5.3   the amount of the Service Charge in respect of that Accounting Period and
      of any excess payable by or sum credited to the Lessee in accordance with
      the foregoing provisions of this Schedule 6.

6.    VOUCHERS

      The Lessee shall be entitled within two (2) months after service of such
      certificate to inspect the Lessor's receipts and vouchers and other
      relevant information relating to the Total Expenditure.

7.    SINKING FUND

      The Lessor shall administer or procure to be administered any sinking fund
      established pursuant to paragraph 2 of Part II of this Schedule in an
      efficient manner and shall invest or procure to be invested in a separate
      trust account all moneys in any sinking fund so established in an
      efficient manner and for the benefit of the persons from time to time
      interested in the Scheme as lessees.

                                     Part II

                              The Relevant Matters

                   Items to be included in the Service Charge

1.    PAYMENTS BY LESSOR IN RESPECT OF THE SCHEME

      All costs and expenses reasonably incurred by the Lessor in and about the
      Scheme in the discharge of the obligations on the part of the Lessor
      contained in paragraphs 2,3,4,5,7, 8 & 9 of Schedule 4 to this Lease.

2.    SINKING FUND

      Reasonable contributions to any sinking fund from time to time established
      by the Lessor in respect of the several matters mentioned in any clause of
      this Part of this Schedule 6.

3.    INSPECTION ETC

      The cost of periodically inspecting, examining, maintaining, and (where
      beyond economic repair) replacing any and every part of the Scheme and the
      appurtenances thereof including fire alarms, fire


                                       46



      fighting equipment, sprinklers and other security alarms and equipment in
      the Service Area.

4.    ASSESSMENTS

      All charges, assessments, impositions and other outgoings payable by the
      Lessor in respect of all parts of the Scheme not exclusively occupied or
      designed for occupation by a lessee.

5.    INSURANCE

      Without prejudice to paragraph 1 of this Part of this Schedule 6 the cost
      of insuring the Scheme and all the appurtenances thereof and in addition
      the cost of insurance against third party employers and public liability
      and any of the Insured Risks not specifically in this Lease mentioned.

6.    MANAGEMENT

      The reasonable and proper fees of the Lessor's agents from time to time of
      and incidental to the collection of rents in respect of the Scheme and the
      general management of the Scheme (such fees not to exceed 10% of the
      Service Charge).

7.    OTHER EXPENDITURE

7.1   All other reasonable expenditure properly incurred in accordance with good
      estate management principles and properly attributable to the maintenance
      and management of the Scheme (whether it is specifically mentioned in this
      Lease or not) including without prejudice to the generality of the
      foregoing the upkeep, care, servicing and reinstatement of any lifts,
      boilers, central heating systems and other installations forming part of
      the Scheme excluding nevertheless:

      (a)   any costs of or incidental to the recovery of rent or service charge
      for any other tenant in the Scheme or any adjoining or neighbouring
      building of the Lessor or enforcing covenants against any such tenant
      or in relation to the negotiation or the settlement of any rent review
      or in relation to the remedying of any breach of any of the obligations
      of any other such tenant

      (b)   the costs of interpreting this Lease and corresponding with or
      taking action against any other tenant or occupier of the Scheme or
      any contractor or sub-contractor;

      (c)   any costs, damages, fees, awards or other sum payable in connection
      with and/or any unfair and/or wrongful dismissal or any breach of any
      employment contract of any person employed by the Lessor in connection
      with the provision or


                                       47



            carrying out of the Relevant Matters save where such person has been
            dismissed at the request of a majority of the tenants in the Scheme.

7.2   The cost of taking all steps reasonably deemed desirable or expedient by
      the Lessor for complying with making representations against or otherwise
      contesting the incidence of provisions of any legislation or orders or
      statutory requirements thereunder so far as (1) they respectively relate
      to the Scheme and (ii) neither the Lessee nor the Tenant of any Unit are
      directly responsible for.

8.    VAT ETC

      Any Value Added Tax or similar impost properly payable by the Lessor in
      respect of any of the matters herein before mentioned so far as the same
      is not recoverable by the Lessor.


      EXECUTED as a DEED       )
      by BENCHMARK GROUP       )
      LIMITED acting by:       )


                                      Director:  /s/ Illegible


                                      Secretary: /s/ Illegible




      EXECUTED as a DEED       )
      by LEVCO EUROPE, LLP)
      acting by:               )



                                      MEMBER

                          Member


                                       48

EX-10.9

                                                                    Exhibit 10.9

                             BKF CAPITAL GROUP, INC.
                        RESTRICTED STOCK AWARD AGREEMENT

       THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is made and
entered into as of March 10, 2005 (the "Grant Date"), between BKF Capital Group,
Inc., a Delaware corporation ("BKF"), and _____ (the "Employee") pursuant to the
terms and conditions of the BKF 1998 Incentive Compensation Plan, as amended and
restated (the "Plan"). Capitalized terms not defined in this Agreement shall
have the meanings set forth in the Plan. By execution below, Employee agrees to
be bound by the terms and conditions described herein and the provisions of the
Plan.

       1.    Grant of Restricted Stock.

             (a) As of the Grant Date, BKF's Compensation Committee (the
       "Committee") grants to Employee an aggregate of ____ shares of BKF common
       stock, $1.00 par value (the "Stock"), provided that during the
       Restriction Period (as defined below), such shares shall not be sold,
       assigned, transferred, pledged, hypothecated or otherwise disposed of
       (the "Restricted Stock").

             (b) Shares of Restricted Stock issued to Employee shall be held in
       escrow during the Restriction Period (as defined below) by BKF or by an
       escrow agent appointed by the Committee. The Committee may require stock
       powers endorsed in blank to be executed by Employee with respect to such
       shares to facilitate the forfeiture and cancellation of such shares in
       the event vesting conditions are not satisfied.

       2.    Restriction Period. Except as expressly provided herein, the
restrictions set forth in Section 1 hereof shall commence as of the Grant Date
and shall lapse (and the Restricted Stock shall vest) on __________ (the
entirety of such period referred to herein as the "Restriction Period"). Shares
of Stock not previously forfeited or canceled shall be delivered to Employee by
BKF or the escrow agent appointed by BKF, free of all restrictions, no later
than 10 days after the expiration of the Restriction Period, provided that
fractional shares may be settled in cash.

       3.    Shareholder Rights. During the Restriction Period, Employee shall
be entitled to receive dividends on the Restricted Stock when, as, and if
dividends are declared and paid on BKF's Stock, shall be entitled to vote
Restricted Stock on any matter submitted to a vote of holders of BKF's Stock,
and shall have all other rights of a shareholder of BKF except as otherwise
expressly provided hereunder.

       4.    Termination of Employment.

             (a) Except to the extent otherwise provided herein or any
       employment agreement or severance agreement between Employee and BKF, the
       provisions of this Section 4 shall apply to the Restricted Stock upon
       Employee's termination of employment with BKF and all subsidiaries or
       affiliates of BKF ("Termination") for any reason.




             (b) In the event of Employee's Termination by reason of death or
       Disability (as defined below), or by BKF without Cause, all restrictions
       shall lapse (and the Restricted Stock shall vest) as to the aggregate
       number of shares of Restricted Stock then subject to restriction, and BKF
       shall promptly transfer shares of Stock, free of such restrictions, to
       Employee.

             (c) In the event of Employee's Termination for any reason other
       than as provided in Section 4(b), all unvested Restricted Stock held by
       Employee shall be immediately forfeited and canceled.

       5.     Change in Control.

             (a) Provided that the Restricted Stock granted hereunder has not
       otherwise been forfeited or cancelled, upon the occurrence of a Change in
       Control, all restrictions shall lapse (and the Restricted Stock shall
       vest) as to the aggregate number of shares of Restricted Stock then
       subject to restriction, and BKF shall promptly transfer shares of Stock,
       free of such restrictions, to Employee.

              (b) For purposes of this Agreement, a "Change in Control" means
              the occurrence of any of the following:

                  (i) any "person" as such term is currently used in Section
               13(d) of the Exchange Act, other than John A. Levin or any entity
               directly or indirectly controlled by him, becomes a "beneficial
               owner", as such term is currently used in Rule 13d-3 promulgated
               under that Act, of 50% or more of BKF's Voting Stock (as
               defined);

                  (ii) a majority of BKF's board of directors (the "Board")
               consists of individuals other than Incumbent Directors, which
               term means the members of the Board on the date of this
               Agreement; provided that any individual becoming a director
               subsequent to such date whose election or nomination for election
               was supported by a majority of the directors who then comprised
               the Incumbent Directors shall be considered an Incumbent
               Director;

                  (iii) all or substantially all of the assets or business of
               BKF are disposed of pursuant to a merger, consolidation, or other
               transaction, unless (A) the shareholders of BKF immediately prior
               to such merger, consolidation or other transaction beneficially
               own, directly or indirectly, in substantially the same proportion
               as they owned BKF's Voting Stock, all of the Voting Stock or
               other ownership interests of the entity or entities, if any, that
               succeed to the business of BKF, or (B) a majority of the board of
               directors of the surviving corporation in such a transaction
               consists of Incumbent Directors or directors appointed by Levin
               Management Co., Inc. but excluding directors who were members of
               the other entity's board of directors;

                  (iv) the Board adopts any plan of liquidation providing for
               the distribution of all or substantially all of BKF's assets; or


                                      -2-




                   (v) BKF combines with another company and is the surviving
               corporation but, immediately after the combination, the
               shareholders of BKF immediately prior to the combination hold,
               directly or indirectly, 50% or less of the Voting Stock of the
               combined company (there being excluded from the number of shares
               held by such shareholders, but not from the Voting Stock of the
               combined company, any shares received by affiliates of such other
               company in exchange for securities of such other company).

       6.     Additional Forfeiture Conditions.

              (a) Unless the Committee determines otherwise, Employee's rights
       in respect of any unvested Restricted Stock shall immediately terminate
       and no shares of Stock shall be delivered in respect of such Restricted
       Stock if prior to the scheduled vesting date (A) Employee engages in
       conduct specified in Section 6(b), or (B) Employee fails to provide the
       representations and certifications required under Section 6(c); provided,
       however, that in the event Employee is terminated by BKF and/or its
       subsidiaries or affiliates without Cause, Employee shall not be required
       to refrain from the conduct specified in Section 6(b) or provide the
       representations and certifications required under Section 6(c) to receive
       the number of shares of Stock corresponding to the number of shares of
       Restricted Stock that have vested prior to the date of such Employee's
       termination without Cause.

              (b) Employee will have engaged in conduct specified in this
       Section 6(b) if, as determined by the Committee, at any time prior to the
       scheduled vesting date, Employee:

                  (i) competes, directly or indirectly, whether as owner,
               partner, investor, consultant, agent, employee, co-venturer or
               otherwise, with BKF and/or its subsidiaries or affiliates in the
               United States in the money management business ("Competitive
               Endeavors") or undertakes any planning for any business that
               would constitute a Competitive Endeavor. For purposes of this
               Section 6(b)(i), the business of BKF and/or its subsidiaries or
               affiliates shall include all Products and Services (as defined
               below) offered by BKF or any of its subsidiaries or affiliates or
               under development, and the Employee's undertaking shall encompass
               all products and services that may be used in substitution for
               Products and Services;

                  (ii) undertakes any outside activity without the prior
               written approval of the Committee, whether or not competitive
               with the business of BKF and/or its subsidiaries or affiliates,
               that could reasonably give rise to a conflict of interest or
               otherwise interfere with the Employee's duties and obligations to
               BKF and/or any of its subsidiaries or affiliates. Notwithstanding
               the foregoing, the Employee may (A) to the extent such activities
               are not competitive with the business of BKF and/or its
               subsidiaries or affiliates, engage in charitable, civic or other
               community activities without compensation to the Employee, and
               (B) render without compensation investment advisory and trust
               services to immediate members of the Employee's family, which
               shall include the Employee and any trust or account that is
               comprised primarily of assets held for the benefit of such
               Employee and/or immediate members of his family;


                                      -3-


                   (iii) directly or indirectly, (A) hires or attempts to hire
               any person who is, or during the prior six-month period was, an
               employee of BKF and/or any of its subsidiaries or affiliates, (B)
               assists another in hiring or attempting to hire any such person,
               (C) encourages any such person to terminate his or her employment
               with BKF and/or any of its subsidiaries or affiliates (other than
               in the course of the Employee's proper performance of his duties
               hereunder), (D) solicits or accepts business from any person or
               entity which is, or during the prior six-month period was, a
               client of BKF and/or any of its subsidiaries or affiliates, (E)
               assists another in soliciting or accepting business from any such
               person or entity, or (F) encourages any such person or entity to
               terminate its business relationship with BKF and/or any of its
               subsidiaries or affiliates (other than in the conduct of the
               Employee's proper performance of his duties); or

                   (iv) fails to (A) comply with the code of ethics of BKF, as
               in effect from time to time, and (B) notify the Committee of all
               directorships or memberships on a board of directors or board of
               trustees held by the Employee, regardless of whether (y) such
               office was held by the Employee prior to the date hereof or (z)
               such office would require prior written consent of the Committee.

              (c) Employee must certify to BKF, in accordance with procedures
       established by the Committee, that Employee has complied with all the
       terms and conditions of this Agreement as of the date such Restricted
       Stock vests. By accepting the delivery of shares of Stock under this
       Agreement, Employee shall be deemed to have represented and certified at
       such time that Employee has complied with all the terms and conditions of
       this Agreement.

Unless the Committee determines otherwise, if the vesting date in respect of any
outstanding Restricted Stock occurs, and shares of Stock with respect to such
Restricted Stock would be deliverable under the terms and conditions of this
Agreement except that Employee has not complied with the conditions or
Employee's obligations under this Section 6 (except in the event of Employee's
death or a Disability that impairs Employee's ability to so comply), all of
Employee's rights with respect to such Restricted Stock shall terminate, and no
shares of Stock shall be delivered. The parties intend that the foregoing
provisions of this Section 6 be deemed to be a series of separate covenants, one
for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective.

       7. Repayment. If, following the delivery of Stock to Employee, the
Committee determines that all terms and conditions of this Agreement in respect
of such delivery were not satisfied, BKF shall be entitled to receive, and
Employee shall be obligated to pay BKF immediately upon demand therefor, the
Fair Market Value of the shares of Stock (determined as of the relevant vesting
date) that were delivered to Employee without reduction for any shares of Stock
applied to satisfy withholding tax or other obligations in respect of such
shares.

       8. Definitions. Unless otherwise defined in any employment agreement
between Employee and BKF (in which case such definition shall apply with respect
to such Employee), the following terms shall have the meanings ascribed to them:


                                      -4-



                   (i) "Cause" means Employee's (A) conviction, whether
               following trial or by plea of guilty or nolo contendere (or
               similar plea), in a criminal proceeding (x) on a misdemeanor
               charge involving fraud, false statements or misleading omissions,
               wrongful taking, embezzlement, bribery, forgery, counterfeiting
               or extortion, or (y) on a felony charge or (z) on an equivalent
               charge to those in clauses (x) and (y) in jurisdictions that do
               not use those designations; (B) engaging in any conduct that
               constitutes an employment disqualification under applicable law
               (including statutory disqualification as defined under the
               Securities and Exchange Act of 1934, as amended); (C) willful
               failure to perform Employee's duties to BKF and/or any of its
               subsidiaries or affiliates; (D) violation of any securities or
               commodities laws, any rules or regulations issued pursuant to
               such laws, or the rules and regulations of any securities or
               commodities exchange or association of which BKF or any of its
               subsidiaries or affiliates is a member; (E) violation of any BKF
               policy concerning hedging or confidential or proprietary
               information, or Employee's material violation of any other BKF
               policy as in effect from time to time; (F) engaging in any act or
               making any statement that impairs, impugns, denigrates,
               disparages or negatively reflects upon the name, reputation or
               business interests of BKF and/or any of its subsidiaries or
               affiliates; or (G) engaging in any conduct detrimental to BKF
               and/or any of its subsidiaries or affiliates. The determination
               as to whether "Cause" has occurred shall be made by the Committee
               in its sole discretion. The Committee shall also have the
               authority in its sole discretion to waive the consequences under
               the Plan or any Agreement of the existence or occurrence of any
               of the events, acts or omissions constituting "Cause".

                   (ii) "Disability" means the Employee's inability, due to
               physical or mental incapacity, to substantially perform his
               duties and responsibilities of employment for a period of 180
               days in any consecutive nine-month period.

                   (iii) "Products and Services" means all products and services
               offered, planned, researched, developed, tested, sold, licensed,
               marketed or otherwise provided by BKF and/or any of its
               subsidiaries or affiliates during the Employee's employment.

                   (iv) "Voting Stock" means the issued and outstanding capital
               stock or other securities of any class or classes having general
               voting power, under ordinary circumstances in the absence of
               contingencies, to elect the directors of a corporation.

       9. No Assignment of Restricted Stock. During the Restriction Period, the
Restricted Stock granted hereunder shall not be subject in any manner to sale,
transfer, pledge, assignment, encumbrance, division or other disposition,
whether by operation of law or otherwise and whether voluntarily or
involuntarily, including any division of property incident to a divorce or other
allocation of marital property.

       10. Adjustment. During the Restriction Period, the aggregate number of
shares of Restricted Stock granted hereunder shall be subject to adjustment due
to any stock split, stock dividend or other form of recapitalization by BKF,
such adjustment to be determined by the Committee acting in good faith.


                                      -5-


       11. Employment Rights. Neither this Agreement nor the grant of Restricted
Stock hereunder shall be deemed to confer on Employee any right to continue in
the employ of BKF or to interfere, in any manner, with the right of BKF to
terminate employment for any reason or no reason in its sole discretion, subject
to the terms of any separate agreement between Employee and BKF.

       12. Amendment and Modification. The terms and conditions set forth herein
may be amended only in writing signed by both Employee and an authorized officer
of BKF.

       13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of Employee and BKF, including their respective
heirs, executors, administrators, successors and assigns.

       14. Plan and Available Information. The Restricted Stock granted
hereunder shall be subject to such additional terms and conditions as may be
imposed under the terms of the Plan, a copy of which has been furnished with
this grant. If any conflict exists between this Agreement and the Plan, the Plan
shall prevail.

       15. Governing Law. The validity, construction, and effect of all rules
and regulations applicable to this award shall be determined in accordance with
the laws of the State of New York and applicable Federal law.

         16. Withholding Tax. BKF may deduct from any payment to be made to
Employee any amount that federal, state, local or foreign tax law requires to be
withheld with respect to the grant of Restricted Stock or delivery of shares of
Stock hereunder. At the Committee's election, BKF may withhold from the number
of shares of Stock to be delivered upon expiration of the Restriction Period a
number of whole shares up to but not exceeding that number which has a fair
market value nearest but not exceeding the amount of taxes required to be
withheld with respect to such expiration of restrictions.


                                   BKF CAPITAL GROUP, INC.

                                   By:
                                      -----------------------



                                   EMPLOYEE


                                   -----------------------------------
                                   , an individual



                                      -6-

EX-23.1

EX-23.1

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      We consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 333-50132 and 333-75014) pertaining to the 1998 Incentive Compensation Plan of BKF Capital Group, Inc. of our report dated March 3, 2004 (except for the last two paragraphs of Note 13, as to which the date is November 2, 2005) with respect to the consolidated financial statements of BKF Capital Group, Inc. for the year ended December 31, 2003 included in this Annual Report (Form 10-K/A) for the year ended December 31, 2004 and incorporation of our report dated March 3, 2004 (except for the last two paragraphs of Note 13, as to which the date is November 2, 2005) with respect to the consolidated financial statements of BKF Capital Group, Inc. for the year ended December 31, 2003 in this Annual Report (Form 10-K/A) for the year ended December 31, 2004.

/s/ ERNST & YOUNG LLP

New York, New York

November 2, 2005

  EX-23.3 6 y13327exv23w3.htm EX-23.3: CONSENT OF EISNER LLP

EXHIBIT 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-50132 and 333-75014) pertaining to the 1998 Incentive Compensation Plan of BKF Capital Group, Inc. of our reports dated October 17, 2002, January 13, 2003, January 13, 2003, January 13, 2003, February 6, 2004, April 11, 2003, January 12, 2004 and January 24, 2005, included in this Annual Report (Form 10-K) of BKF Capital Group, Inc. for the year ended December 31, 2004 with respect to our audits of the respective financial statements (not shown separately herein) of Meadow Lane Associates, L.P., SR Capital Partners, L.P., Greenspring Partners, L.P., PWF Capital Partners, L.P., Levco Debt Opportunity Partners, L.P., AltVantage Absolute Return Fund, L.P., RCL Capital, L.P. and Alvarado Capital Partners, L.P., respectively.

/s/ EISNER LLP

New York, New York
November 2, 2005

EX-23.3

EX-23.3

EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, John C. Siciliano, certify that:

     1. I have reviewed this annual report on Form 10-K/A of BKF Capital Group, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report in being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of he period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ JOHN C. SICILIANO

John C. Siciliano

Chief Executive Officer

Date:  November 3, 2005

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Glenn A. Aigen, certify that:

     1. I have reviewed this annual report on Form 10-K/A of BKF Capital Group, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report in being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of he period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ GLENN A. AIGEN

Glenn A. Aigen

Chief Financial Officer

Date:  November 3, 2005

EX-32.1

EXHIBIT 32.1

BKF CAPITAL GROUP, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of BKF Capital Group, Inc. (the “Company”) on Form 10-K/A for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John C. Siciliano, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350 (including subsections (a) (b) and (c) thereof), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JOHN C. SICILIANO

John C. Siciliano

Chief Executive Officer

November 3, 2005

EX-32.2

EXHIBIT 32.2

BKF CAPITAL GROUP, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of BKF Capital Group, Inc. (the “Company”) on Form 10-K/A for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn A. Aigen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350 (including subsections (a) (b) and (c) thereof), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.

/s/ GLENN A. AIGEN

Glenn A. Aigen

Chief Financial Officer

November 3, 2005