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<SEC-DOCUMENT>0000950123-01-500726.txt : 20010416
<SEC-HEADER>0000950123-01-500726.hdr.sgml : 20010416
ACCESSION NUMBER:		0000950123-01-500726
CONFORMED SUBMISSION TYPE:	PRE 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010524
FILED AS OF DATE:		20010412

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BKF CAPITAL GROUP INC
		CENTRAL INDEX KEY:			0000009235
		STANDARD INDUSTRIAL CLASSIFICATION:	INVESTMENT ADVICE [6282]
		IRS NUMBER:				360767530
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		PRE 14A
		SEC ACT:		
		SEC FILE NUMBER:	811-02144
		FILM NUMBER:		1601657

	BUSINESS ADDRESS:	
		STREET 1:		200 W. MADISON ST.
		STREET 2:		SUITE 3510
		CITY:			CHICAGO
		STATE:			IL
		ZIP:			60606
		BUSINESS PHONE:		2123328400

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	BAKER FENTRESS & CO
		DATE OF NAME CHANGE:	19970829

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	BAKER FENTRESS & CO ET AL
		DATE OF NAME CHANGE:	19940714
</SEC-HEADER>
<DOCUMENT>
<TYPE>PRE 14A
<SEQUENCE>1
<FILENAME>y47060ppre14a.txt
<DESCRIPTION>BFK CAPITAL GROUP, INC.
<TEXT>

<PAGE>   1

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL      , 2001

                                  SCHEDULE 14A
                                 (RULE 14A-101)

                    INFORMATION REQUIRED IN PROXY STATEMENT
                            SCHEDULE 14A INFORMATION

                  PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S>                                            <C>
[X]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

                            BKF CAPITAL GROUP, INC.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]  No fee required.

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     (1)  Title of each class of securities to which transaction applies:

        ------------------------------------------------------------------------

     (2)  Aggregate number of securities to which transaction applies:

        ------------------------------------------------------------------------

     (3)  Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):

        ------------------------------------------------------------------------

     (4)  Proposed maximum aggregate value of transaction:

        ------------------------------------------------------------------------

     (5)  Total fee paid:

        ------------------------------------------------------------------------

[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
     0-11(a)(2) and identify the filing for which the offsetting fee was paid
     previously. Identify the previous filing by registration statement number,
     or the Form or Schedule and the date of its filing.

     (1)  Amount Previously Paid:

        ------------------------------------------------------------------------

     (2)  Form, Schedule or Registration Statement No.:

        ------------------------------------------------------------------------

     (3)  Filing Party:

        ------------------------------------------------------------------------

     (4)  Date Filed:

        ------------------------------------------------------------------------
<PAGE>   2

                            BFK CAPITAL GROUP, INC.
                             ONE ROCKEFELLER PLAZA
                            NEW YORK, NEW YORK 10020
                                 (212) 332-8400

                                                                  April   , 2001

Dear Stockholder:

     You are cordially invited to attend the Annual Meeting of Stockholders of
BKF Capital Group, Inc. (the "Company") at the Waldorf-Astoria Hotel, 301 Park
Avenue, New York, New York on Thursday, May 24, 2001, at 8:30 a.m., local time.

     At the meeting you will be asked to consider and vote on the election of
three (3) directors, an amendment to the Company's Restated Certificate of
Incorporation, an amendment to the Company's 1998 Incentive Compensation Plan
and the ratification of Ernst & Young LLP as the Company's independent auditors.

     The board of directors has unanimously approved these proposals and
recommends that you vote FOR each of them.

     A copy of the Company's Annual Report for the fiscal year ended December
31, 2000 is also enclosed.

     The formal notice of Annual Meeting and the Proxy Statement follow. It is
important that your shares be represented and voted, regardless of the size of
your holdings. Accordingly, whether or not you plan to attend the meeting in
person, please complete, sign, date and return the enclosed proxy card promptly
so that your shares will be represented. The proxy card is revocable and will
not affect your right to vote in person if you attend the meeting.

                                          Very truly yours,

                                          /s/ JOHN A. LEVIN
                                          --------------------------------------
                                          John A. Levin
                                          President,
                                          Chief Executive Officer and Chairman
<PAGE>   3

                     PRELIMINARY COPY, DATED APRIL 12, 2001

                            BKF CAPITAL GROUP, INC.

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD ON MAY 24, 2001

To Our Stockholders:

     The annual meeting of stockholders (the "Annual Meeting") of BKF Capital
Group, Inc., a Delaware Corporation (the "Company"), will be held at the
Waldorf-Astoria Hotel, 301 Park Avenue, New York, New York, on Thursday, May 24,
2001, at 8:30 a.m., local time, for the following purposes:

     1. to elect three (3) directors to hold office as specified in the
        accompanying Proxy Statement;

     2. to amend the Company's Restated Certificate of Incorporation to reduce
        the authorized shares of common stock of the Company from 60 million to
        15 million shares;

     3. to amend and restate the Company's 1998 Incentive Compensation Plan;

     4. to ratify the appointment of Ernst & Young LLP as independent auditors
        for the Company; and

     5. to transact such other business as may properly come before the meeting
        or any adjournment or postponement thereof.

     Stockholders of record at the close of business on April 16, 2001, the
record date, are entitled to vote at the Annual Meeting.

                                          By Order of the Board of Directors

                                          /s/ NORRIS NISSIM
                                          --------------------------------------
                                          Norris Nissim
                                          Secretary

New York, NY
April   , 2001

     YOUR VOTE IS IMPORTANT! WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU
ATTEND THE ANNUAL MEETING.
<PAGE>   4

                                PROXY STATEMENT

     The board of directors of the Company is soliciting proxies from
stockholders for use at the Annual Meeting that will be held on May 24, 2001 and
at any adjournment or adjournments of that meeting. The Company began mailing
these proxy materials to stockholders on or about April   , 2000.

     THIS PROXY STATEMENT DESCRIBES EACH OF THE MATTERS ON WHICH THE BOARD OF
DIRECTORS IS ASKING STOCKHOLDERS TO VOTE. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE IN FAVOR OF EACH OF THESE PROPOSALS.

ITEM 1.  ELECTION OF DIRECTORS

     The board of directors is asking you to elect three directors at the
meeting. The board of directors has nominated the following persons to serve as
directors for terms expiring at the annual meeting of stockholders in 2004:
Anson M. Beard, Jr., Peter J. Solomon and Dean J. Takahashi. Each currently is a
director of the Company.

     If any nominee should be unable to serve, the persons named as proxies
shall vote for such other person as shall be determined by such persons in
accordance with their judgment.

     Information concerning the nominees and the directors who are continuing in
office appears below.

                        DIRECTORS NOMINATED FOR ELECTION

<TABLE>
<CAPTION>
                                                          EXPIRATION   EXPIRATION
 NAME, AGE, AND PRINCIPAL OCCUPATION   DIRECTOR           OF CURRENT    OF TERM
     DURING THE LAST FIVE YEARS         SINCE     CLASS      TERM      IF ELECTED        OTHER BUSINESS AFFILIATION(S)
 -----------------------------------   --------   -----   ----------   ----------        -----------------------------
<S>                                    <C>        <C>     <C>          <C>           <C>
Anson M. Beard, Jr. -- age 64            2000      II        2001         2004
  Retired; former investment banker.
Peter J. Solomon -- age 62               2000      II        2001         2004       Director of Monro Muffler Brake, Inc.
  Chairman of Peter J. Solomon                                                       (automotive repair services), Office
  Company Limited and Peter J.                                                       Depot, Inc. (supplier of office
  Solomon Securities Co., LTD                                                        products) and Phillips-Van Heusen
  (investment banking) since 1995.                                                   Corporation (apparel and footwear
                                                                                     marketer/manufacturer)
Dean J. Takahashi -- age 43              1997      II        2001         2004
  Senior director of investments,
  Yale University, since
              .
</TABLE>

REQUIRED VOTE

     Stockholders are entitled to one vote per share in the election of
directors (called straight voting), with no right of cumulation. A plurality
vote of the shares cast at the meeting is required to elect directors, assuming
a quorum is present.

     THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE THREE (3) NOMINEES
NAMED ABOVE.

                         DIRECTORS CONTINUING IN OFFICE

<TABLE>
<CAPTION>
                                                                EXPIRATION
    NAME, AGE, AND PRINCIPAL OCCUPATION      DIRECTOR           OF CURRENT
        DURING THE LAST FIVE YEARS            SINCE     CLASS      TERM             OTHER BUSINESS AFFILIATION(S)
    -----------------------------------      --------   -----   ----------          -----------------------------
<S>                                          <C>        <C>     <C>          <C>
J. Barton Goodwin -- age 54                    1987     III        2002      Director of Factual Data Corp. (mortgage
  Managing director of BCI Partners, Inc.                                    servicing company)
  (private capital investment group),
  general partner of Bridge Associates II
  and Teaneck Associates and member of
  Glenpointe Associates, LLC, Glenpointe V,
  LLC and BCI Investors, LLC since
            .
David D. Grumhaus -- age 64                    1988       I        2003      Director of Niche Software Systems, Inc.
  President of Casey Travel Corporation                                      (computer software company)
  (travel agency) since 1991.
</TABLE>

                                        2
<PAGE>   5

<TABLE>
<CAPTION>
                                                                EXPIRATION
    NAME, AGE, AND PRINCIPAL OCCUPATION      DIRECTOR           OF CURRENT
        DURING THE LAST FIVE YEARS            SINCE     CLASS      TERM             OTHER BUSINESS AFFILIATION(S)
    -----------------------------------      --------   -----   ----------          -----------------------------
<S>                                          <C>        <C>     <C>          <C>
John A. Levin -- age 62*                       1996     III        2002      Director of Morgan Stanley Dean Witter
  Chairman since February 2000, Chief                                        group of investment funds (13 funds)
  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.
Burton G. Malkiel -- age 68                    1982     III        2002      Director of Prudential Insurance Co. of
  Professor of Economics, Princeton                                          America, Banco Bilbao Vizcaya Gestinova
  University since           .                                               (Spanish bank) and Vanguard group of
                                                                             investment funds (12 funds)
James S. Tisch -- age 48                      2000-       I        2003      Director of CNA Financial Corp. (holding
  President since October 1994 and Chief                                     company whose subsidiaries consist of
  Executive Officer since January 1999 of                                    insurance companies) and Vail Resorts, Inc.
  Loews Corporation (holding company whose                                   (resort operator)
  subsidiaries are engaged in insurance,
  cigarette manufacturing, hotel
  operations, offshore oil and gas
  operations and distribution of watches
  and clocks) and Chief Executive Officer
  of Diamond Offshore Drilling, Inc.
  (offshore oil and gas company) since
  March 1998; prior thereto, Chief
  Operating Officer of Loews Corporation
  since 1994.
</TABLE>

MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD OF
DIRECTORS

     During 2000, the board of directors conducted four meetings including
scheduled and special meetings. Each attended at least 75% of the meetings of
the board of directors and committees of which he or she served during 2000.

     The Company has standing audit, compensation and nominating committees,
whose current functions and members are described below. It is anticipated that
at its first meeting following the Annual Meeting, the board of directors will
designate the directors who currently serve on these committees to serve on each
of these committees until the next annual meeting of stockholders.

AUDIT COMMITTEE

     The audit committee is composed of David D. Grumhaus, J. Barton Goodwin and
Burton G. Malkiel. This committee makes recommendations regarding the selection
of independent auditors and meets with representatives of the Company's
independent auditors to determine the scope, and review the results, of each
audit. The audit committee had five meetings during 2000. Each of the members of
the audit committee is independent as defined by The New York Stock Exchange's
listing standards.

COMPENSATION COMMITTEE

     The compensation committee is composed of Anson M. Beard, Jr., David D.
Grumhaus and Burton G. Malkiel. Through February 2000, William H. Springer and
Frederick S. Addy, former directors of the company, were members of the
compensation committee. Messrs. Beard, Grumhaus and Malkiel became members of
the compensation committee in February 2000. The compensation committee makes
recommendations compensation policies. The compensation committee also
administers, the Company's 1998 Incentive Compensation Plan. The compensation
committee had eight meetings in 2000.

NOMINATING COMMITTEE

     The nominating committee is composed of J. Barton Goodwin, Peter J.
Solomon, James S. Tisch and John A. Levin. The nominating committee makes
recommendations to the board of directors regarding the

                                        3
<PAGE>   6

selection of candidates to be nominated for election of the board of directors.
The nominating committee does not consider nominees recommended by stockholders.
The nominating committee had one meeting during 2000.

ITEM 2.  AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION

     On January 7, 2000, as part of the Plan For Distribution of Assets pursuant
to which the Company distributed or liquidated substantially all of its assets,
with the exception of Levin Management Co., Inc. ("Levin Management") and its
subsidiaries (collectively, "Levco"), and changed the nature of its business so
that it ceased to operate as an investment company, the Company effected a
one-for-six reverse stock split, reducing the number of its shares outstanding
as of January 7, 2000 to 6,504,852. As of March 26, 2001, the number of shares
outstanding of the Company was 6,518,665. The Restated Certificate of
Incorporation of the Company currently authorizes the issuance of 60,000,000
shares of common stock. The annual franchise tax paid to the State of Delaware
on the basis of the number of authorized shares was $150,000 in 2000. In light
of the reverse stock split and the franchise tax that must be paid on the
authorized shares, the board of directors recommends that the authorized shares
should be reduced to 15,000,000, which would result in a Delaware franchise tax
savings of approximately $88,000.

     The board of directors of the Company has unanimously adopted and approved,
and recommends that the Company's stockholders adopt and approve, the following
amendment (the "Amendment") to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, which would change the number of
authorized shares to 15,000,000:

          The Restated Certificate of Incorporation of the Company is hereby
     amended by changing Article FOURTH thereof so that, as amended, Article
     FOURTH of the Certificate of Incorporation of the Company shall read in its
     entirety as follows:

          "FOURTH: The total number of shares of all stock which the corporation
     shall have authority to issue is 15,000,000 shares of common stock, $1 par
     value per share."

     The proposed Certificate of Amendment to the Restated Certificate of
Incorporation of the Company is attached hereto as Exhibit A.

REQUIRED VOTE

     The affirmative vote of the holders of a majority of the outstanding shares
of common stock entitled to vote on this matter is necessary to approve the
proposed Amendment. Unless otherwise instructed, properly executed proxies which
are returned in a timely manner will be voted in favor of adoption of the
proposed Amendment.

     THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT.

ITEM 3.  AMENDMENT OF 1998 INCENTIVE COMPENSATION PLAN

     In December 1998, the Company's stockholders approved the Baker, Fentress &
Company 1998 Incentive Compensation Plan (the "ICP"). Among other things, the
ICP allows the Company to:

     - Advance the interests of the Company and its shareholders by providing
       incentives to attract, retain, motivate and reward employees and
       non-employee directors of the Company and its subsidiaries;

     - Create long-term shareholder value by linking the participants'
       compensation to the Company's performance with stock-based and cash-based
       incentives; and

     - Recognize individual contributions and reward achievement of Company
       goals.

     Certain amendments to the ICP were approved by stockholders in April 2000
to eliminate provisions in the ICP that had been required prior to the Company's
deregistration as an investment company. As the Company's name has been changed
and the number of shares previously available for issuance have now

                                        4
<PAGE>   7

largely been granted, the following proposed amendments were adopted by the
board of directors in March, 2001:

     - Change the formal name of the ICP from "Baker, Fentress & Company 1998
       Incentive Compensation Plan (as amended and restated)" to "BKF Capital
       Group, Inc. 1998 Incentive Compensation Plan (as amended and restated on
       March 28, 2001)";

     - Increase the number of shares available for issuance under the ICP from
       1,300,000 to 2,600,000, plus the number of shares (not to exceed 700,000)
       purchased by the Company after March 28, 2001; and

     - Extend the expiration date of the ICP until no shares are available under
       the ICP, subject to earlier termination by the board of directors.

     A summary of the material features of the ICP (including the proposed
amendments) follows. It is subject to, and you should also review, the full text
of the ICP, which can be found at Exhibit B. Please read the full text of the
ICP before you decide how to vote.

     ELIGIBLE PARTICIPANTS.  Employees and non-employee directors of the Company
or its subsidiaries are eligible for awards under the ICP. Any person who is
offered employment will also be eligible but cannot receive any benefit under
his or her award until after beginning employment with the Company or a
subsidiary. Currently, approximately 100 employees and seven non-employee
directors are eligible for awards.

     OVERALL LIMITS.  Upon approval by the Company's stockholders, the ICP will
authorize the Company to issue an additional 1,300,000 shares, for a total of
2,600,000 shares, of Company common stock (about 39.9% of the Company's
currently outstanding common stock), plus 10% of the number of shares of common
stock issued or delivered by the Company during the term of the ICP (excluding
any issuance or delivery in connection with awards under the ICP), plus the
number of shares of common stock (not to exceed 700,000) purchased by the
Company after March 28, 2001. Shares covered by awards granted under the ICP
that wholly or in part are not earned, or that expire or are forfeited,
terminated, cancelled, settled in cash, payable solely in cash or exchanged for
other awards, do not count toward the overall limit. As of the record date of
the Annual Meeting, the Company had 1,099,982 shares reserved for outstanding
awards under the ICP, and 186,205 shares remained available for future awards
under the ICP. Shares may be issued from treasury or other currently authorized
but unissued shares. The closing price of the Company's common stock on the
record date of the Annual Meeting was $     per share.

     SPECIAL LIMITS.  The Company may not grant incentive stock options for more
than 1,000,000 shares. If an incentive stock option expires or is terminated,
the unissued shares will be available for other incentive stock options. The
Company may grant incentive stock options only to individuals who at the time of
grant are employees of the Company or a subsidiary. In each fiscal year, no
individual may receive stock options, stock appreciation rights, restricted
stock, deferred stock, or any other type of award relating to, in each case,
more than 1,000,000 shares of common stock, subject to adjustment. The ICP also
limits the maximum dollar amount of cash awards that a participant may earn in a
single year to $20,000,000.

     ADJUSTMENTS.  The Committee (as defined below) may adjust (i) the number
and kind of shares of stock which may be delivered in connection with awards
granted and outstanding awards, (ii) the number and kind of shares of stock by
which annual per-person award limitations are measured, and (iii) the exercise
price, grant price or purchase price relating to any award and/or make provision
for payment of cash or other property in respect of any outstanding award in the
event of a dividend, recapitalization, stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, awards in recognition of unusual or nonrecurring
events.

     PLAN ADMINISTRATION.  A committee (the "Committee") selected by the board
of directors will administer the ICP. The Committee will consist of two or more
directors who are "non-employee directors" within the meaning of Rule 16b-3 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
"outside directors" within the meaning of Internal Revenue Code Section 162(m)
("Code Sec-

                                        5
<PAGE>   8

tion 162(m)"), unless administration of the ICP by "outside directors" is not
then required in order to qualify for tax deductibility under Code Section
162(m). For convenience, anyone who administers the ICP is referred to as the
"Committee". In general, the Committee has full and final authority to select
participants, determine the type, terms and conditions of awards, and adopt
rules, regulations and guidelines for the proper administration of the ICP. The
Committee may delegate certain of its duties, power and authority to the
Company's officers or managers. The board of directors will perform the
functions of the Committee for purposes of interpreting or otherwise
administering grants to non-employee directors.

     FORM OF AWARDS -- GENERALLY.  Awards made pursuant to the ICP may take a
number of forms, including non-qualified and incentive stock options
("Options"), stock appreciation rights ("SARs") (including freestanding and
tandem stock appreciation rights), restricted stock ("Restricted Stock"),
deferred stock ("Deferred Stock"), bonus stock ("Bonus Stock"), dividend
equivalents ("Dividend Equivalents"), annual incentive awards ("Annual Incentive
Awards"), long-term performance awards ("Performance Awards"), or any
combination of the above.

     STOCK OPTIONS.  Options include both incentive stock options (called
"ISOs"), which may result in favorable tax treatment to the participant, and
non-qualified stock options. The terms of any ISOs that are granted to any
participant will comply with the provisions of Internal Revenue Code Section
422. The Committee will determine exercise prices for Options, but these may not
be less than the fair market value of the Company's common stock on the grant
date. The Committee may adjust the price of an Option to reflect certain
corporate actions or, if the Option is granted in lieu of cash compensation,
discount the exercise price by the amount of cash compensation the participant
gives up in order to receive the Option. Options will have a maximum term of ten
years.

     STOCK APPRECIATION RIGHTS.  A SAR entitles the participant to receive
payment of the amount of appreciation, if any, in the market value of his or her
shares on the exercise date over the grant price, or in the case of a tandem SAR
granted in tandem with an Option, the exercise price of the related Option. The
Committee will determine whether or not an SAR is granted as a tandem award
(which is an award that is combined with another award, usually to provide an
alternative form of compensation of comparable economic value) and any other
terms and conditions of any SAR.

     RESTRICTED STOCK.  Restricted Stock is a grant of shares that is subject to
a risk of forfeiture, transferability restrictions and/or other restrictions as
determined by the Committee. Upon termination of employment or service,
Restricted Stock that is subject to restriction will be forfeited (subject to
the Committee's discretion to make exceptions on a case by case basis).
Restricted Stock generally entitles the recipient to all the rights of a
stockholder, including the right to vote and receive dividends, unless the
participant is limited by the terms of the ICP or any award agreement relating
to the Restricted Stock. During the period of restriction, the participant
generally may not sell, transfer, pledge, hypothecate, margin or otherwise
encumber the Restricted Stock.

     DEFERRED STOCK.  A grant of "Deferred Stock" is the right to receive the
Company's common stock, cash, or a combination of stock or cash at the end of a
time period specified by the Committee. At the end of the deferral period or, if
permitted by the Committee, at the time elected by the participant, the Company
will deliver the Company's common stock (or cash having an equal value, or a
combination of cash and stock) to the participant. Except as the Committee
otherwise determines, if a participant's employment is terminated during the
applicable deferral period, the participant will forfeit all Deferred Stock that
is at that time subject to deferral (other than a deferral at the election of a
participant).

     BONUS STOCK.  The ICP authorizes the Committee to grant Company stock as a
bonus, or to grant such stock or other award in lieu of obligations to pay cash
or deliver other property under the ICP or other plans or compensatory
arrangements.

     DIVIDEND EQUIVALENTS.  Under the ICP, the Committee may grant Dividend
Equivalents to a participant, which entitle a participant to receive cash,
Company stock or other awards equal in value to dividends paid for a specified
number of shares of Company stock or other periodic payments.

                                        6
<PAGE>   9

     ANNUAL INCENTIVE AWARDS AND PERFORMANCE AWARDS.  The ICP permits the
Committee to make Annual Incentive Awards and Performance Awards. The Company
may pay these awards in cash, other awards or Company stock. The grant, exercise
and/or settlement of such award will be contingent upon the achievement of
pre-established performance goals, unless the Committee determines that a
Performance Award or Annual Incentive Award is not intended to qualify as
"performance-based compensation" for purposes of Code Section 162(m). In this
way, the Committee intends to qualify such awards to avoid the limitation on tax
deductibility under Code Section 162(m). The Committee will establish a targeted
level or levels of performance measured by certain general business criteria.
The Committee will measure whether a participant has achieved a performance goal
over a performance period of one year or less for an Annual Incentive Award, or
up to ten years for a Performance Award. The Committee may reduce the amount
paid to a participant in connection with an Annual Incentive Award or
Performance Award, but may not increase the amount unless the Committee
determines at the time of grant that the award is not intended to qualify as
"performance-based compensation" for purposes of Code Section 162(m).

     EXERCISABILITY.  Unless the Committee provides otherwise, an Option, SAR or
grant of Restricted Stock or Deferred Stock will become exercisable or
settleable in three equal installments after each of the first, second and third
anniversaries of the date of grant based on the participant's continued
employment with the Company or any of its subsidiaries. Unless the Committee
provides otherwise, an Option or SAR will have a maximum term of ten years after
the date of grant and will expire 30 days after the participant's termination of
employment with the Company; however, if such termination occurs by reason of
the participant's death, retirement or disability, the Option or SAR will be
immediately exercisable and may be exercised by the participant within one year
following termination. Subject to the terms of the ICP and any applicable
agreement, payments upon the exercise of an Option or other award may be made in
such forms as the Committee determines, including, without limitation, cash,
shares or other awards. The settlement of any award may be accelerated, and cash
paid in lieu of stock in connection with such settlement, in the discretion of
the Committee or upon the occurrence of one or more specified events.

     LOANS.  With the consent of the Committee, the Company or any subsidiary
may lend money to a participant (or arrange or guarantee a loan to a
participant) to give the participant the cash needed to exercise any Option,
purchase Company stock or make any other payment in connection with any award,
including the payment of taxes due in connection with any award. The Committee
shall have the discretion to determine the amount, terms and provisions of any
such loan or loans, including the interest rate to be charged, the terms on
which the loan is to be repaid and the conditions, if any, under which the loan
may be forgiven.

     CHANGE IN CONTROL.  If a Change in Control (as defined in the ICP) of the
Company occurs, all outstanding awards will immediately vest and become fully
exercisable, and any deferral of settlement, forfeiture conditions and/or other
restrictions will lapse and such awards shall be fully payable as of the
effective date of the Change in Control (unless waived or deferred at the
participant's option). Unless a participant's employment is terminated for cause
following a Change in Control, awards carrying a right to exercise will remain
exercisable for the balance of the stated term of such award. In addition,
performance goals and conditions will be deemed to have been met with respect to
Annual Incentive Awards and Performance Awards if the award agreements governing
such awards provide for such treatment.

     TERMINATION AND AMENDMENT OF THE ICP.  Unless earlier terminated by the
board of directors, the ICP will remain in effect until such time as no shares
remain available for delivery under the ICP and the Company has no further
rights or obligations under the ICP. The board of directors may amend, alter,
suspend, discontinue or terminate the ICP or the Committee's authority to grant
awards under the ICP without stockholder approval, except that any amendment or
alteration to the ICP shall be subject to stockholder approval at the annual
meeting next following such board action if stockholder approval is required by
any state or federal law or regulation or the rules of any stock exchange on
which the Company's stock is listed or quoted. The Committee may waive any
conditions or rights, or amend, alter, suspend or discontinue any award granted;
provided that no action may materially and adversely affect the rights of
participants under any granted and outstanding awards without consent of the
affected participant.

                                        7
<PAGE>   10

     FEDERAL INCOME TAX SUMMARY.  The following is a summary of the general,
current federal income tax consequences of awards under the ICP. It is not
intended to be a comprehensive description of all possible tax consequences
related to awards under the ICP.

     The grant of an Option or SAR will trigger no federal income tax for a
participant or a deduction for the Company. Nor will the participant have
taxable income upon exercising an ISO, although the alternative minimum tax may
apply. Upon the exercise of an Option that is not an ISO, the difference between
the exercise price and the fair market value of the Option shares is taxable to
the participant as ordinary income on the exercise date. On the exercise of a
SAR, the cash or the fair market value of the shares received will also be
taxable as ordinary income.

     If a participant disposes of ISO shares before the end of applicable ISO
holding periods, he or she will be taxed on ordinary income equal to the lesser
of (1) the fair market value of the shares at exercise minus the exercise price,
or (2) the amount realized upon the disposition minus the exercise price. The
applicable ISO holding period is the longer of two years from the date of grant
or one year from the date of exercise. Otherwise, a disposition of shares
acquired by exercising an Option or SAR will result in short-term or long-term
capital gain or loss equal to the sale price minus the participant's tax basis
in such shares. The tax basis is the exercise price paid plus any amount
previously taxed as ordinary income upon exercise of the award.

     The Company is normally entitled to a tax deduction equal to the amount
taxed as ordinary income to the participant. The Company will not be entitled to
a tax deduction for amounts taxed as capital gain to the participant. Therefore,
the Company will not be entitled to a tax deduction if a participant exercises
an ISO and holds the shares received for the ISO holding period.

     In the case of awards other than Options and SARs, the participant
generally will be taxed on ordinary income equal to the fair market value of
shares, cash or other property received. This tax will accrue at the time of
receipt, except in the case of an award that is non-transferable and subject to
a risk of forfeiture. In that case, the tax may not accrue until lapse of at
least one of these restrictions, although the participant may elect to be taxed
at the time of grant. Subject to an exception discussed below under "Compliance
with Code Section 162(m)", the Company will be entitled to a tax deduction in an
amount equal to the ordinary income taxed to the participant.

     COMPLIANCE WITH CODE SECTION 162(M).  The Committee intends that some
awards under the ICP should qualify as performance-based, as defined in Code
Section 162(m). Code Section 162(m) imposes a cap of $1 million on the amount of
tax deductions the Company may take for compensation to a particular executive
in a single year, but qualifying performance-based compensation remains fully
deductible regardless of its amount. Under the ICP, awards to employees whom the
Committee expects to be named executives, which are conditioned upon achievement
of performance goals, are intended to qualify as performance-based compensation.

     By approving the amendments to the ICP, stockholders will also be approving
the eligibility of executive officers and others to participate, the per-person
limitations and general business criteria on which performance objectives for
performance-based awards may be based. The ICP imposes per-person limitations so
that a participant may not receive awards intended to qualify as
performance-based in excess of his or her annual limit. For each type of award,
a participant's annual limit is 1,000,000 shares in any fiscal year. In
addition, the maximum cash award that may be earned under the ICP in any fiscal
year is $20,000,000. The annual limit has been set above the Committee's present
anticipated award levels because Code Section 162(m) permits only downward
discretionary adjustments.

     In establishing goals for a performance-based award to an executive who is
subject to Code Section 162(m), the Committee will establish a targeted level or
levels of performance measured by one or more of the following business
criteria: (1) earnings per share; (2) revenues; increase in revenues; the excess
of all or a portion of revenues over operating expenses (excluding expenses
determined by the Committee at the time performance goals are established); (3)
cash flow; (4) cash flow return on investment; (5) return on net assets, return
on assets, return on investment, return on capital, return on equity; (6)
economic value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation,

                                        8
<PAGE>   11

amortization and/or incentive compensation; pretax operating earnings; operating
earnings; (9) total shareholder return; (10) performance of managed fund(s);
(11) market share; (12) assets under management; (13) reduction in costs; (14)
increase in the fair market value of Company stock; and (15) any of the above
goals as compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Russell 1000
Value Index, the Standard & Poor's 500 Stock Index, the Standard & Poor's
Financial Index, the SNL Investment Adviser Index or a group of comparator
companies.

     A number of other requirements must be met in order for particular
compensation to qualify as performance-based under Code Section 162(m). There
can be no assurance that compensation resulting from awards under the ICP
intended to qualify under Code Section 162(m) will in fact be fully deductible
under all circumstances. The Committee's policy is to preserve corporate tax
deductions attributable to the compensation of executives while maintaining the
flexibility to approve, when appropriate, compensation arrangements which it
deems to be in the best interests of the Company and its stockholders, but which
may not always qualify for full tax deductibility.

     Because of the discretionary nature of the ICP, the benefits and amounts to
be received under the plan, as amended, are not determinable.

REQUIRED VOTE

     The affirmative vote of the holders of a majority of the shares of common
stock present in person or by proxy and entitled to vote at the Annual Meeting
is necessary to approve the amendments to the ICP. Unless otherwise instructed,
properly executed proxies which are returned in a timely manner will be voted in
favor of adoption of the amendments.

     THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO
THE ICP.

ITEM 4.  RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

     The Company's board of directors has selected Ernst & Young LLP,
independent auditors, to audit the financial statements of the Company for the
year ending December 31, 2001. Ernst & Young LLP has served the Company in this
capacity since 1987 and has no direct or indirect financial interest in the
Company except as independent auditors. The Company is asking stockholders to
ratify the selection of Ernst & Young LLP as independent auditors of the
Company. A representative of Ernst & Young LLP is expected to attend the meeting
and will be available to respond to questions raised at the Annual Meeting. The
representative from Ernst & Young LLP also will have the opportunity to make a
statement if he or she desires to do so.

AUDIT FEES

     Ernst & Young LLP received $186,000 in fees for professional services in
connection with the 2000 annual audit, including the audit of the consolidated
financial statements, timely quarterly reviews and audits of consolidated
subsidiaries.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

     Ernst & Young LLP did not render any professional services or receive any
fees in connection with financial information systems design and implementation.

ALL OTHER FEES

     Ernst & Young received $30,300 from the Company for all other services
provided by it in 2000, including audit related services of $25,000 and nonaudit
services of $5,300. Audit related services generally include fees for accounting
consultations and SEC registration statements. The audit committee of the board
of directors believes these additional services were compatible with maintaining
the independence of Ernst & Young LLP.

                                        9
<PAGE>   12

REQUIRED VOTE

     The affirmative vote of the holders of a majority of the shares of common
stock present in person or by proxy and entitled to vote at the Annual Meeting
is necessary to ratify the appointment of Ernst & Young LLP as independent
auditors of the Company. Unless otherwise instructed, properly executed proxies
which are returned in a timely manner will be voted in favor of the ratification
of Ernst & Young LLP.

     THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY.

                                 OTHER MATTERS

     As of the date of this proxy statement, the board of directors does not
intend to bring any other matters before the Annual Meeting and is not aware of
any proposals to be presented to the Annual Meeting by others. If any other
matter comes before the Annual Meeting, however, the persons named in the proxy
solicited by the board of directors will vote thereon in accordance with their
judgment.

                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     The table below sets forth the beneficial ownership as of March 31, 2001 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 (4) all directors, nominees and executive officers of the Company
as a group. Except as indicated, each person had sole voting and dispositive
powers with respect to such shares.

<TABLE>
<CAPTION>
                                                               NUMBER      PERCENT OF
NAME OF BENEFICIAL OWNER                                      OF SHARES      CLASS
- ------------------------                                      ---------    ----------
<S>                                                           <C>          <C>
Chilton Investment Company, Inc.
  65 Locust Avenue, 2nd Floor
  New Canaan, CT 06840......................................   384,500         5.9
Mario J. Gabelli
Marc J. Gabelli
  One Corporate Center
  Rye, NY 10580.............................................   453,351         6.9
Newberg Family Trust
  11601 Wilshire Boulevard
  Los Angeles, CA 90025.....................................   357,450         5.5
Royce & Associates, Inc.
Royce Management Company
  1414 Avenue of the Americas
  New York, NY 10019........................................   525,400         8.1
Liberty Wanger Asset Management, L.P.
WAM Acquisition GP, Inc.
  227 West Monroe Street, Suite 3000
  Chicago, Illinois 60606...................................   352,900         5.4
Anson M. Beard, Jr..........................................         0           *
J. Barton Goodwin...........................................   112,947(6)     1.73
David D. Grumhaus...........................................    11,991(7)        *
John A. Levin...............................................   634,050(8)     9.70
Burton G. Malkiel...........................................         0           *
Peter J. Solomon............................................     1,000           *
Dean J. Takahashi...........................................       182           *
James S. Tisch..............................................     2,000           *
Gregory T. Rogers...........................................    21,680(9)        *
</TABLE>

                                        10
<PAGE>   13

<TABLE>
<CAPTION>
                                                               NUMBER      PERCENT OF
NAME OF BENEFICIAL OWNER                                      OF SHARES      CLASS
- ------------------------                                      ---------    ----------
<S>                                                           <C>          <C>
Glenn A. Aigen..............................................     1,646(10)       *
Norris Nissim...............................................         0           *
Jeffrey A. Kigner...........................................         0           *
Directors and officers as a group (8 persons)...............   785,496       11.98
</TABLE>

- ---------------
  *  Less than 1%

 (1) The information set forth with respect to Chilton Investment Company, Inc.
     is based solely on the Schedule 13G filed with the Securities and Exchange
     Commission (the "SEC") on January 19, 2001.

 (2) The information set forth with respect to Mario J. Gabelli and Marc J.
     Gabelli is based solely on the Schedule 13D filed with SEC on December 29,
     2000 by Mario J. Gabelli, Marc J. Gabelli and various entities which either
     one directly or indirectly controls or for which either acts as chief
     investment officer. Marc J. Gabelli and Mario J. Gabelli disclaim
     beneficial ownership of any of the common stock included on the Schedule
     13D,

 (3) The information set forth with respect to Newberg Family Trust is based
     solely on the Schedule 13G filed with the SEC on December 12, 2001.

 (4) The information set forth with respect to Royce & Associates, Inc. and
     Royce Management Company is based solely on the Schedule 13G filed with the
     SEC on February 7, 2001 by such entities and Charles M. Royce. Mr. Royce
     may be deemed to be a controlling person of each of the two entities, which
     act as investment advisers, and disclaims beneficial ownership of the
     shares held by such entities. Royce & Associates, Inc. has sole voting and
     dispositive power with respect to 471,000 shares, and Royce Management
     Company exercises sole voting and dispositive power with respect to 54,400
     shares.

 (5) The information set forth with respect to Liberty Wanger Asset Management,
     L.P. and WAM Acquisition GP, Inc. is based solely on the Schedule 13G filed
     by such entities with the SEC on February 14, 2001. Liberty Wanger Asset
     Management is an investment adviser, and WAM Acquisition GP, Inc. is the
     general partner of the investment adviser. They share voting and
     dispositive power over 352,900 shares.

 (6) Includes 112,947 shares of common stock owned by immediate family members.

 (7) Includes 10,759 shares held by family members or family related entities.

 (8) Includes 19,595 shares held by family members or family related entities
     and 17,285 shares relating to options which have voted or will not within
     60 days of March 31, 2001.

 (9) Includes 21,680 shares of common stock relating to options.

(10) Includes 1,646 shares of common stock relating to options.

            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 Securities and
Exchange Commission within a specified period following a transaction. Based on
our review of filings with the Securities and Exchange Commission and written
representations furnished to us, during 2000 the directors, executive officers
and 10% beneficial owners filed all such reports within the specified time
period except Mr. Tisch's Form 3 was filed three days late and Mr. Solomon's
Form 3 was filed four days late.

                                        11
<PAGE>   14

                               EXECUTIVE OFFICERS

     The current executive officers of the Company are:

<TABLE>
<CAPTION>
NAME, AGE, AND PRINCIPAL OCCUPATION
DURING LAST FIVE YEARS                             OFFICE(A)             YEAR FIRST ELECTED
- -----------------------------------                ---------             ------------------
<S>                                          <C>                       <C>
John A. Levin -- age 62                      Chairman, Chief           2000 (as Chairman)
  Chairman since February 2000, Chief        Executive Officer and     1996 (as CEO and
  Executive Officer and President of the     President                 President)
  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. since 1982.
Gregory T. Rogers -- age 35                  Executive Vice            2000
  Executive Vice President and Chief         President and Chief
  Operating Officer of the Company, Levin    Operating Officer
  Management Co., Inc. and John A. Levin &
  Co., Inc. since February 2000; prior
  thereto, Managing Director of BARRA
  Strategic Consulting since             .
Glenn A. Aigen -- age 38                     Senior Vice President,    2000
  Senior Vice President, Chief Financial     Chief Financial
  Officer and Treasurer of the Company,      Officer and Treasurer
  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.
Norris Nissim -- age 34                      Vice President,           2000
  Vice President, General Counsel and        General Counsel and
  Secretary of the Company and Vice          Secretary
  President and General Counsel of Levin
  Management Co., Inc. and John A. Levin &
  Co., Inc. since February 2000; Director
  of Legal Affairs of Levin Management Co.,
  Inc. and John A. Levin & Co., Inc. from
  August 1996 to February 2000; prior
  thereto, Associate at Schulte Roth &
  Zabel LLP since 1993.
</TABLE>

- ---------------
(a) 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.

                                  COMPENSATION

DIRECTORS' COMPENSATION

     Company employees who serve as directors of the Company receive no
compensation for such services. The Company pays non-employee directors an
annual retainer of $20,000, payable in quarterly installments. Non-employee
directors receive $1,500 for each board meeting and $500 for each meeting of a
committee of the board that they attend in person or by telephone and $5,000 per
year for serving as the chairman of any committee of the Board. The Company also
reimburses directors for their out-of-pocket expenses incurred in connection
with such meetings. On March 28, 2001, each non-employee director received 1,000
restricted stock units in lieu of $20,800 of future cash compensation. The
restricted stock units vested March 28, 2001, but the underlying shares may not
be transferred or sold prior to their delivery on December 31, 2001.

                                        12
<PAGE>   15

EXECUTIVE OFFICER COMPENSATION

     The following table sets forth compensation for the years ended December
31, 2000, December 31, 1999 and December 31, 1998 received by the Company's
Chief Executive Officer, the Company's three other most highly compensated
executive officers serving at the end of fiscal year 2000 and a former executive
officer of the Company who resigned from his position on July 21, 2000 (each of
whom was paid in excess of $100,000 in aggregate compensation by the Company).
These five officers are referred to as the "Named Executive Officers".

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                            LONG TERM
                                                                       COMPENSATION AWARDS
                                                                  ------------------------------
                                       ANNUAL COMPENSATION                          SECURITIES
                                  -----------------------------     RESTRICTED      UNDERLYING        ALL OTHER
NAME AND PRINCIPAL POSITION       YEAR  SALARY($)    BONUS($)     STOCK AWARD($)   OPTIONS(1)(#)   COMPENSATION($)
- ---------------------------       ----  ---------   -----------   --------------   -------------   ---------------
<S>                               <C>   <C>         <C>           <C>              <C>             <C>
John A. Levin...................  2000   837,624     1,956,962      1,499,673(4)          --           10,500(8)
  Chairman, Chief                 1999   867,165     1,635,000        189,005         34,570           30,000(9)
  Executive Officer and           1998   990,748     1,614,706             --             --           30,000(9)
  President

Gregory T. Rogers...............  2000   375,883       785,500      1,366,008(5)          --           10,500(8)
  Executive Vice President and    1999
  Chief Operating Officer
                                                       400,000(3)                     65,049(3)            --

Glenn A. Aigen..................  2000   192,800       807,200      1,366,008(6)      24,393           10,500(8)
  Senior Vice President and
  Chief Financial Officer

Norris Nissim...................  2000   217,519       124,500        105,000(7)          --           10,500(8)
  Vice President and General
  Counsel

Jeffrey A. Kigner(2)............  2000   334,735       720,187             --             --           10,500(8)
  Former Vice Chairman
</TABLE>

- ---------------
(1) All option grants were made under the Company's 1998 Incentive Compensation
    Plan.

(2) Mr. Kigner resigned as Vice Chairman of the Company effective July 21, 2000.

(3) Represents a signing bonus paid to Mr. Rogers.

(4) Represents the grant date value of 71,413 restricted stock units (RSU)
    granted on January 12, 2001 with respect to 2000 bonus compensation. The
    shares underlying such RSU's may not be delivered prior to January 12, 2004.
    As of December 31, 2000, Mr. Levin held 14,504 RSU's with an aggregate value
    of $264,968. All of such RSU's have vested, except for 7,252 which vest on
    December 31, 2001.

(5) Represents the grant date value of 65,048 RSU's granted on January 12, 2001
    with respect to 2000 bonus compensation. The shares underlying such RSU's
    may not be delivered prior to January 12, 2004.

(6) Represents the grant date value of 65,048 RSU's granted on January 12, 2001
    with respect to 2000 bonus compensation. The shares underlying such RSU's
    may not be delivered prior to January 12, 2004. As of December 31, 2000, Mr.
    Aigen held 1,382 RSU's with an aggregate value of $25,222. All of such RSU's
    have vested, except for 691 which vest on December 31, 2001.

(7) Represents the grant date value of 5,000 RSU's granted on January 12, 2001
    with respect to 2000 bonus compensation. The shares underlying such RSU's
    may not be delivered prior to January 12, 2004.

(8) Represents amounts contributed to the Company's 401(k) plan by the Company.

(9) Represents contributions made with respect to Mr. Levin to a target benefit
    pension plan.

                                        13
<PAGE>   16

                             OPTION GRANTS IN 2000

     The Company granted the following options in 2000 to the Named Executive
Officers.

<TABLE>
<CAPTION>
                                                PERCENT OF TOTAL
                           NUMBER OF SHARES    OPTIONS GRANTED TO                                   GRANT DATE
                          UNDERLYING OPTIONS      EMPLOYEES IN      EXERCISE OR BASE   EXPIRATION    PRESENT
NAME                          GRANTED(1)          FISCAL YEAR       PRICE ($/SHARE)       DATE       VALUE(2)
- ----                      ------------------   ------------------   ----------------   ----------   ----------
<S>                       <C>                  <C>                  <C>                <C>          <C>
Glenn A. Aigen..........         3,293                --%                $13.03         01/20/10     $ 16,366
                                24,393                                   $15.88         06/30/10     $151,968
John A. Levin...........        34,570                                   $13.03         01/20/10     $171,813
Gregory T. Rogers.......        65,049                                   $13.03         01/20/10     $323,294
Norris Nissim...........             0                 0                     --               --           --
Jeffrey A. Kigner.......             0                 0                     --               --           --
</TABLE>

- ---------------
(1) The exercise price of each option is the fair market value of the Company's
    common stock on the date of grant. Each of the options expiring on January
    20, 2010 were subject to a vesting schedule whereby 50% vested on December
    31, 2000 and 50% will vest on December 31, 2001. The options expiring on
    June 30, 2010 are subject to a vesting schedule whereby one third vest on
    June 30, 2001, one third vest on June 30, 2002 and one third vest on June
    30, 2003.

(2) The fair value of each option granted in 2000 was estimated using the
    Black-Scholes option pricing model with the following assumptions: for
    options granted in January 2000 -- 0% dividend yield, 15.45% volatility,
    6.35% risk-free interest, and an exercise period of seven years; for options
    granted in July 2000 -- 0% dividend yield, 19.37% volatility, 6.07%
    risk-free interest, and an exercise period of seven years.

                   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 2000 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, 2000.

<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                                            UNDERLYING UNEXERCISED       IN-THE-MONEY OPTIONS
                              SHARES                           OPTIONS AT FISCAL          AT FISCAL YEAR-END
                             ACQUIRED                          YEAR-END 2000(#)               2000($)(1)
NAME                        ON EXERCISE   VALUE REALIZED   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
- ----                        -----------   --------------   -------------------------   -------------------------
<S>                         <C>           <C>              <C>                         <C>
John A Levin..............      -0-            -0-              17,285 / 17,285             90,206 /  90,206
Gregory T. Rogers.........      -0-            -0-              21,680 / 43,369            113,142 / 226,332
Glenn A. Aigen............      -0-            -0-               1,646 / 26,040              8,590 /  66,528
Norris Nissim.............      -0-            -0-                          0/0                          0/0
Jeffrey A. Kigner.........      -0-            -0-                          0/0                          0/0
</TABLE>

- ---------------
(1) On December 29, 2000 (the last trading day during fiscal 2000), the closing
    price of the Company's common stock on the New York Stock Exchange was
    $18.25 per share.

EMPLOYMENT CONTRACTS

     John A. Levin.  Mr. Levin entered into an employment agreement with the
Company at the time the Company acquired John A. Levin & Co., Inc. in June 1996.
The contract has a term of five years and expires on June 28, 2001. Under the
contract Mr. Levin is entitled to an annual base salary of at least $825,000, to
be adjusted annually in accordance with the Urban Consumer Price Index for the
New York Metropolitan Area. Mr. Levin is also entitled to participate in all
incentive compensation and benefit plans available to senior executives of the
Company. In the event he is terminated other than for cause, Mr. Levin's
agreement

                                        14
<PAGE>   17

provides that he will receive an amount equal to (1) his base salary until the
earlier of (x) the remainder of the term of the employment agreement or (y)
three years following the termination date, and (2) the bonus compensation to
which he would have been entitled during the year of termination pursuant to the
compensation plan then in effect. In addition, Mr. Levin's agreement contains
confidentiality provisions that prohibit him from disclosing confidential
information relating to the Company and its subsidiaries following the
termination of the employment agreement. Mr. Levin's contract also contains
non-competition and non-solicitation provisions that terminate with the
expiration of the agreement.

     Gregory T. Rogers.  Mr. Rogers is party to an employment agreement with the
Company effective December 31, 1999. The agreement has an initial three year
term, unless otherwise terminated as provided therein, with automatic annual one
year renewals unless either the Company or the employee gives at least six
months written notice of their intention not to extend the term. Under the
contract, Mr. Rogers is entitled to an annual base salary of $400,000, to be
adjusted annually to reflect increases in the cost of living. Mr. Rogers is also
entitled to participate in all incentive compensation and benefit plans
available to senior executives of the Company. With respect to calendar years
2000 and 2001, he is entitled to bonus compensation of at least $600,000, up to
30% of which may be paid in stock options or other equity-based awards.

     In addition, Mr. Rogers received a signing bonus of $403, 848 and an award
of stock options to purchase 65,049 shares of common stock of the Company at the
stock price on the date of grant. The stock options vest in three equal annual
installments commencing on December 31, 2001. All the options vest immediately
and become exercisable upon a change of control.

     In the event he is terminated other than for cause, Mr. Rogers' agreement
provides that he will receive an amount equal to the base salary and bonus
compensation he would have been entitled to during the term of the contract. For
these purposes, bonus compensation in the years following 2001 would be deemed
to be at least $600,000.

     Mr. Rogers' agreement contains confidentiality provisions that prohibit him
from disclosing confidential information relating to the Company and its
subsidiaries following the termination of the employment agreement. Mr. Rogers'
contract also contains non-competition provisions that apply six months
following the termination of the agreement by the Company for cause or by the
employee without good reason and non-solicitation provisions that apply for one
year following the termination of employment.

TARGET BENEFIT PLAN

     As of January 1, 2000, the Company froze its target benefit plan, which
covered all employees who reach the age of 20.5 and had completed nine months of
service to the Company. No contributions were made to the plan in 2000. The
benefit upon retirement depends on the aggregate contributions made to the plan
for the participant and the investment performance for those assets.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Until February 10, 2000, William H. Springer and Frederick S. Addy served
as members of the compensation committee. They served as directors of the
Company until April 18, 2000. Anson M. Beard, Jr., David D. Grumhaus and Burton
G. Malkiel served as members of the compensation committee commencing on
February 10, 2000. None of these persons were ever officers or employees of the
Company. During 2000, 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.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The compensation committee of the board of directors makes decisions on
compensation of the Company's executives. Each member of the compensation
committee is a non-employee director. The compensation committee establishes the
compensation of John A. Levin, Chief Executive Officer, based on its evaluation
of Mr. Levin's performance. It establishes the compensation of the other
officers of the Company in

                                        15
<PAGE>   18

consultation with Mr. Levin. The full board of directors reviews all decisions
by the compensation committee relating to the compensation of all the Company's
officers.

     The Company's executive compensation program reflects the philosophy that
compensation should reward executives for outstanding individual performance
and, at the same time, align the interests of executives closely with those of
shareholders. To implement that philosophy, the Company offers each of its
executives a combination of base salary and annual cash bonuses. Through this
compensation structure, the Company aims to reward above-average corporate
performance and recognize individual initiative and achievements.

     The compensation committee administers the Company's 1998 Incentive
Compensation Plan, as amended, pursuant to which the Company may pay its
employees, based on performance, in cash or in Company stock (including stock
options and restricted stock units).

BASE SALARY

     Base salaries reflect individual positions, responsibilities, experience,
and potential contribution to the success of the Company. Actual salaries vary
according to the compensation committee's subjective assessment of a number of
factors in its review of base salaries of Company executives. The Company
conducts annual reviews to ensure that base salaries are competitive, that they
reflect the specific responsibilities of individual executives and that they
appropriately reward individual executives for their contributions to the
Company's performance.

BONUSES

     At the compensation committee's sole discretion, the Company may pay each
executive officer a cash bonus based on the compensation committee's assessment
of the executive officer's individual performance and the performance of the
Company or business unit. In its evaluation of the performance of the officer
and the determination of incentive bonuses, the compensation committee does not
assign quantitative relative weights to different factors or follow mathematical
formulas. Rather, the compensation committee makes its determination in each
case after considering the factors it deems relevant at the time.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

     Mr. Levin received a base salary in 2000 in accordance with the terms of
his employment agreement. His annual bonus was determined by the compensation
committee of the board of directors in accordance with the guidelines
established by it for the executive officers of the firm. These guidelines took
into consideration the overall profitability of the firm, and in the case of Mr.
Levin, the profitability of pooled investment vehicles which earned
performance-based fees and with respect to which he acted as the portfolio
manager.

     Mr. Levin also received a grant of restricted units with regard to 71,413
shares of common stock. This award was made in the context of aggregate grants
of 650,504 restricted stock units to employees of the Company made on November
16, 2001 and to each of the Named Executive Officers in office at the time on
January 12, 2001. These grants of restricted stock units were made as part of an
effort to retain key personnel and develop long-term shareholder value through
the alignment of interests of employees and shareholders.

LIMITS ON DEDUCTIBILITY OF COMPENSATION

     For corporate income tax purposes, the Company may not deduct executive
compensation in excess of $1 million, unless it is performance-based
compensation and is paid pursuant to a plan meeting certain requirements of the
Code. The Committee currently anticipates that, to the extent practicable and in
the Company's best interest, the Company will pay executive compensation in a
manner that satisfies the requirements of the Code to permit the Company to
deduct the compensation.

                                          COMPENSATION COMMITTEE MEMBERS
                                          Anson M. Beard, Jr. (Chairman)
                                          David D. Grumhaus
                                          Burton G. Malkiel

                                        16
<PAGE>   19

                             AUDIT COMMITTEE REPORT

     The board of directors has adopted a charter for the audit committee,
Pursuant to this charter, the audit committee makes recommendations regarding
the selection of independent auditors and meets with representatives of the
Company's independent auditors to determine the scope, and review the results,
of each audit.

     In March 2001, the audit committee met with Ernst & Young LLP to review the
results of the 2000 audit with members of the Ernst & Young engagement team. The
audit committee also discussed the audited financial statements and the results
of the audit with the Company's management.

     During the March 2001 meeting, the audit committee discussed the matters
required to be discussed by Statements on Auditing Standards No. 61, as amended,
with Ernst & Young. Further, the Committee has received the written statements
required by Independence Standards Board Standard No. 1. Standard No. 1 requires
auditors to communicate, in writing, at least annually all relationships between
the auditor and the Company that, in the auditor's professional judgment, may
reasonably be thought to affect the auditor's independence. The audit committee
has received this written disclosure and has discussed with Ernst & Young its
independence and considered the compatibility of nonaudit services with the
auditor's independence.

     Based on the above-mentioned review and discussions with management and the
independent auditors, the audit committee recommended to the board of directors
that the Company's audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for
filing with the Securities and Exchange Commission.

                                          AUDIT COMMITTEE MEMBERS
                                          David D. Grumhaus (Chairman)
                                          Burton G. Malkiel
                                          J. Barton Goodwin

              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     John A. Levin, the Company's Chairman, Chief Executive Officer and
President, is the managing member of Island Drive Management, LLC, which serves
as a general partner of Island Drive Partners, 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. Island Drive
Management, LLC received an incentive allocation of $350,799 from Island Drive
Partners, L.P. in 2000.

     In 2000, John A. Levin & Co., Inc. received $99,835 in investment
management fees in connection with accounts owned by Peter J. Solomon, a
director of the Company, and trusts established for the benefit of members of
Mr. Solomon's immediate family.

                COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

     The following chart shows the Company's annual total returns from December
29, 1995 through December 29, 2000. On August 19 1999, the Company's
stockholders approved the Plan for Distribution of Assets of the Company,
pursuant to which the Company distributed or liquidated substantially all of its
assets, with the exception of Levco and its subsidiaries, and changed the nature
of the Company's business so that it no longer operated as a registered
investment company. Currently, the Company's chief operating business is as an
investment adviser. Because the chart that follows contains the Company's
returns from 1995 through 2000, the chart includes information about the Company
during that period in which the Company was operating as a registered investment
company and during the period after the August 19, 1999 stockholder meeting in
which the Company distributed or liquidated substantially all of its assets
except Levco. To reflect the changing nature of the Company's business, the
chart sets forth a comparison of the Company's total return with the annual
return of (i) all closed-end, domestic equity investment companies ("Closed-End

                                        17
<PAGE>   20

Funds") reported by Morningstar, Inc.; (ii) the S&P Financial Index; and (iii)
the S&P 500 Index. The chart is based on an investment of $100 on December 29,
1995, and assumes that all dividends, capital gain distributions and returns of
capital were reinvested. The chart is not an indicator of the future performance
of the Company. Thus, it should not be used to predict the future performance of
the Company's stock.

                COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN

LOGO

<TABLE>
<CAPTION>
                                 12/29/95    12/29/96    12/31/97    12/31/98    12/31/99    12/29/00
                                 --------    --------    --------    --------    --------    --------
<S>                              <C>         <C>         <C>         <C>         <C>         <C>
BKF Capital Group, Inc.........    $100        116         145         150         201         252
Closed-End Funds...............     100        134         138         205         212         240
S&P Financial Index............     100        135         199         221         230         290
S&P 500 Index..................     100        123         164         211         255         232
</TABLE>

     Total returns assume that dividends and capital gain distributions are
reinvested.

                PROXY SOLICITATION; QUORUM; VOTING; ADJOURNMENT

PROXY SOLICITATION

     If you properly sign your proxy and return it on time, your shares will be
voted at the Annual Meeting in accordance with the directions you mark on your
proxy card. If you properly sign and return your proxy, but don't mark any
directions on it, your shares will be voted FOR the election of each of the
nominated directors, FOR approval of the Amendment, FOR approval of the
amendments to the ICP, and FOR the ratification of the appointment of Ernst &
Young LLP as independent auditors of the Company.

     You may revoke your proxy at any time before it is voted, either in person
at the meeting, by written notice to the Company, or by delivery of a later
dated proxy. No appraisal rights exist for any action proposed to be taken at
the Annual Meeting.

     Stockholders of record at the close of business on April 16, 2001 are
entitled to participate in the meeting and to cast one vote for each share held.
The Company had 6,518,665 shares of common stock outstanding on the record date.
There is no other class of stock outstanding. Stockholders are entitled to one
vote per share for each matter eligible to be voted upon.

     Proxies will be solicited by mail. Directors, officers, and a small number
of regular employees may solicit proxies, personally or by telephone, telegraph
or mail, but such persons will not be specially compensated for such services.
In addition, the Company may engage ChaseMellon to render proxy solicitation
services at a cost estimated at $8,000. The Company will inquire of any
stockholder of record known to be a broker, dealer,
                                        18
<PAGE>   21

bank, or other nominee as to whether other persons were the beneficial owners of
shares held of record by such persons. If so, the Company will supply additional
copies of solicitation materials for forwarding to beneficial owners and will
make reimbursement for reasonable out-of-pocket costs. The Company will bear all
costs of solicitation and related actions.

QUORUM

     ChaseMellon Shareholder Services, LLC, the Company's transfer agent,
tabulates the proxies. Under Delaware law (under which the Company is organized)
and the Company's bylaws, a majority of the shares outstanding on the record
date, excluding shares held in the Company's treasury, must be present at the
meeting in person or by proxy to constitute a quorum for the transaction of
business. Shares abstaining from voting and shares present but not voting,
including broker non-votes, are counted as "present" for purposes of determining
the existence of a quorum. Broker non-votes are shares held by a broker or
nominee for which an executed proxy is received by the Company, but which are
not voted as to one or more proposals because instructions have not been
received from the beneficial owners or persons entitled to vote and the broker
or nominee does not have discretionary voting power to vote such shares.

VOTING

     Election of Directors

     In the election of directors, you may vote FOR all of the nominees or your
vote may be WITHHELD with respect to one or more of the nominees. For the other
proposals, you may vote FOR, AGAINST or ABSTAIN. If you ABSTAIN, it has the same
effect as a vote AGAINST. If you sign your proxy card or broker voting
instruction card with no further instructions, your shares will be voted in
accordance with the recommendations of the board of directors.

     The affirmative vote of a plurality of the shares cast at the meeting is
required for the election of directors. A properly executed proxy marked
WITHHOLD AUTHORITY with respect to the election of one or more directors will
not be voted with respect to the director or directors indicated, although it
will be counted for purposes of determining whether there is a quorum.

     Amendment to Restated Certificate of Incorporation

     The affirmative vote of the majority of the outstanding shares of common
stock entitled to vote is required for approval of the proposed Amendment to the
Company's Restated Certificate of Incorporation. Absentees and broker non-votes
with respect to this matter will not be voted and will have the effect of a vote
against this proposal, although they will be counted for purposes of determining
whether there is a quorum.

     Other Proposals

     For each other proposal, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote on the
proposal will be required for approval. A properly executed proxy marked ABSTAIN
with respect to any such proposal will not be voted and will have the effect of
a vote against any such proposal, although it will be counted for purposes of
determining whether there is a quorum. Brokers non-votes will not be counted in
determining the number of shares necessary for approval and will have no effect
on the outcome of any such proposal. Shares represented by such "broker
non-votes" will, however, be counted in determining whether there is a quorum.

ADJOURNMENT

     Any decision to adjourn the meeting would be made by vote of the shares
present at the meeting, in person or by proxy. Proxies would be voted in favor
of adjournment if there were not enough shares present at the meeting to
constitute a quorum. If sufficient shares were present to constitute a quorum,
but insufficient votes had been cast in favor of an item to approve it, proxies
would be voted in favor of adjournment only if the board determined that
adjournment and additional solicitation was reasonable and in the best interest
of

                                        19
<PAGE>   22

shareholders, taking into account the nature of the proposal, the percentage of
votes actually cast, the percentage of negative votes, the nature of any further
solicitation that might be made and the information provided to stockholders
about the reasons for additional solicitation.

                           PROPOSALS OF STOCKHOLDERS

     Under the Company's bylaws, no business may be brought before an annual
meeting of stockholders unless it is specified in the notice of the meeting or
is otherwise brought before the meeting by or at the direction of the board of
directors or by a stockholder entitled to vote who has delivered notice to the
Company (containing certain information specified in the bylaws) not less than
60 days prior to the date on which the Company first mailed its proxy materials
for the prior year's annual meeting; provided, however, that if the date of the
annual meeting has been advanced by more than 30 days from the date of the prior
years annual meeting, then such notice must be received by the Secretary of the
Company not later than the close of business on the tenth day following the date
on which the Company first makes public disclosure of the date of the meeting.
These regulations are separate from and in addition to the SEC's requirements
that a stockholder must meet in order to have stockholder proposal included in
the Company's proxy statement.

     Stockholders interested in submitting a proposal for inclusion in the proxy
materials for the annual meeting of stockholders in 2002 may do so by following
the procedures prescribed in SEC Rule 14a-8. To be eligible for inclusion,
stockholder proposals must be received by the Company's Secretary no later
than          , 2001.

                             AVAILABLE INFORMATION

     STOCKHOLDERS OF THE COMPANY WILL RECEIVE WITH THIS PROXY STATEMENT A COPY
OF THE COMPANY ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
STOCKHOLDERS OF THE COMPANY MAY OBTAIN, WITHOUT CHARGE, ADDITIONAL COPIES OF THE
COMPANY'S ANNUAL REPORT BY WRITING TO THE COMPANY AT ONE ROCKEFELLER PLAZA, 19TH
FLOOR, NEW YORK, NEW YORK 10020 OR BY CALLING (800) BKF-1891. SHAREHOLDERS MAY
ALSO OBTAIN COPIES OF THE ANNUAL AND QUARTERLY REPORTS ON THE COMPANY'S WEB SITE
AT WWW.BKFCAPITAL.COM.

                                          By Order of the Board of Directors

                                          /s/ NORRIS NISSIM
                                          --------------------------------------
                                          Norris Nissim
                                          Secretary
New York, New York
April   , 2001

                                        20
<PAGE>   23
                                                                       EXHIBIT A


                            CERTIFICATE OF AMENDMENT
                                       OF
                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                             BKF CAPITAL GROUP, INC.



      BKF Capital Group, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:

            FIRST: That by unanimous vote of the Board of Directors of the
      Company, resolutions were duly adopted setting forth a proposed amendment
      to the Restated Certificate of Incorporation of the Company, declaring
      such amendment to be advisable and calling for the consideration of the
      proposed amendment by the stockholders of the Company at the next annual
      meeting. The resolutions setting forth the proposed amendment are as
      follows:

                  RESOLVED, that the Board of Directors of the Company hereby
            declares it advisable that the Restated Certificate of Incorporation
            of the Company be amended by deletion of article FOURTH and the
            insertion of the following in lieu thereof:

                  "FOURTH:  The total number of shares of all stock which the
            corporation shall have authority to issue is 15,000,000 shares of
            common stock, $1 par value per share."

            SECOND: That thereafter, pursuant to resolution of its Board of
      Directors, the annual meeting of the stockholders of the Company was duly
      called and held, upon notice in accordance with Section 222 of the General
      Corporation Law of the State of Delaware, at which meeting the necessary
      number of shares as required by statute were voted in favor of the
      amendment.

            THIRD:  That said amendment was duly adopted in accordance with the
      provisions of Section 242 of the General Corporation Law of the State of
      Delaware.

            FOURTH: That said amendment shall be effective upon filing of this
      certificate and the amendment provided for herein shall be effective as of
      that time and date.
<PAGE>   24
            IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Norris Nissim, its Vice President, General Counsel and Secretary, this
24th day of May 2001.

                                         BKF CAPITAL GROUP, INC.



                                         By:
                                             --------------------------------
                                             Norris Nissim
                                             Vice President, General Counsel
                                             and Secretary


                                       2

<PAGE>   25
                                                                       EXHIBIT B




                           BKF CAPITAL GROUP, INC.


- ------------------------------------------------------------------------------

                        1998 Incentive Compensation Plan
                   (as amended and restated on March 28, 2001)

- ------------------------------------------------------------------------------
<PAGE>   26
                             BKF CAPITAL GROUP, INC.


- ------------------------------------------------------------------------------

                       1998 Incentive Compensation Plan
                 (as amended and restated on March __, 2001)

- ------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
  1. Purpose...........................................................      1

  2. Definitions.......................................................      1

  3. Administration....................................................      3
     (a) Authority of the Committee....................................      3
     (b) Manner of Exercise of Committee Authority.....................      3
     (c) Limitation of Liability.......................................      4

  4. Stock Subject to Plan.............................................      4
     (a) Overall Number of Shares of Stock Available for Delivery......      4
     (b) Application of Limitation to Grants of Awards.................      4
     (c) Availability of Shares Not Delivered under Awards ............      5

  5. Eligibility; Per-Person Award Limitations.........................      5

  6. Specific Terms of Awards..........................................      5
     (a) General.......................................................      5
     (b) Options.......................................................      5
     (c) Stock Appreciation Rights.....................................      6
     (d) Restricted Stock..............................................      6
     (e) Deferred Stock................................................      7
     (f) Bonus Stock and Awards in Lieu of Obligations.................      8
     (g) Dividend Equivalents..........................................      8
     (h) Annual Incentive and Performance Awards.......................      8

  7. Certain Provisions Applicable to Awards...........................      8
     (a) Stand-Alone, Additional, Tandem, and Substitute Awards .......      8
     (b) Term of Awards................................................      9
     (c) Form and Timing of Payment under Awards; Deferrals ...........      9
     (d) Exemptions from Section 16(b) Liability.......................      9
     (e) Loan Provisions...............................................      9
     (f) General Terms Relating to Awards..............................     10
</TABLE>
<PAGE>   27
                             BKF CAPITAL GROUP, INC.


- ------------------------------------------------------------------------------

                       1998 Incentive Compensation Plan
                 (as amended and restated on March __, 2001)

- ------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
  8. Performance and Annual Incentive Awards...........................     10
     (a) Performance Conditions........................................     10
     (b) Performance Awards Granted to Designated Covered Employees ...     10
     (c) Annual Incentive Awards Granted to Designated Covered Employees    12
     (d) Written Determinations........................................     13
     (e) Status of Section 8(b) and 8(c) Awards under Code Section 162(m)   13


  9. Change in Control.................................................     13
     (a) Effect of "Change in Control" on Non-Performance Based Awards.     13
     (b) Effect of "Change in Control" on Performance-Based Awards.....     14
     (c) Definition of "Change in Control".............................     14
     (d) Definition of "Change in Control Price".......................     15

10.  General Provisions................................................     15
     (a) Compliance with Legal and Other Requirements..................     15
     (b) Limits on Transferability; Beneficiaries......................     16
     (c) Adjustments...................................................     16
     (d) Taxes.........................................................     17
     (e) Changes to the Plan and Awards................................     17
     (f) Limitation on Rights Conferred under Plan.....................     17
     (g) Unfunded Status of Awards; Creation of Trusts.................     17
     (h) Nonexclusivity of the Plan....................................     18
     (i) Payments in the Event of Forfeitures; Fractional Shares ......     18
     (j) Governing Law.................................................     18
     (k) Plan Effective Date and Shareholder Approval..................     18
</TABLE>
<PAGE>   28
                            BKF CAPITAL GROUP, INC.
                        1998 INCENTIVE COMPENSATION PLAN
                   (AS AMENDED AND RESTATED ON MARCH __, 2001)



      1. PURPOSE. The purpose of this 1998 Incentive Compensation Plan, as
amended and restated on March __, 2001 (the "Plan"), is to assist BKF Capital
Group, Inc. ("BKF") and its subsidiaries in attracting, retaining, motivating,
and rewarding high-quality executives, employees, and other persons who provide
services to BKF and/or its subsidiaries, enabling such persons to acquire or
increase a proprietary interest in BKF in order to strengthen the mutuality of
interests between such persons and shareholders of BKF, and providing such
persons with annual and long-term performance incentives to expend their maximum
efforts in the creation of shareholder value. The Plan is also intended to
qualify certain compensation awarded under the Plan for tax deductibility under
Code Section 162(m) to the extent deemed appropriate by the Committee (or any
successor committee) of the Board of Directors of BKF. Adoption of the Plan and
the grant of Awards in accordance with the terms of the Plan has been determined
by the Board of Directors of BKF to be in the best interests of BKF and its
shareholders.

      2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:

            (a) "Annual Incentive Award" means an Award granted to a Participant
      which is conditioned upon satisfaction, during a period not in excess of
      one year, of performance criteria established by the Committee.

            (b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
      Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
      Other Stock-Based Award, Performance Award or Annual Incentive Award,
      together with any other right or interest granted to a Participant under
      the Plan.

            (c) "Beneficiary" means the person, persons, trust or trusts which
      have been designated by a Participant in his or her most recent written
      beneficiary designation filed with the Committee to receive the benefits
      specified under the Plan upon such Participant's death or to which Awards
      or other rights are transferred if and to the extent permitted under
      Section 10(b) hereof. If, upon a Participant's death, there is no
      designated Beneficiary or surviving designated Beneficiary, then the term
      Beneficiary means the Participant's estate.

            (d) "Beneficial Owner" shall have the meaning ascribed to such term
      in Rule 13d-3 under the Exchange Act and any successor to such Rule.

            (e) "Board" means BKF's Board of Directors.

            (f) "Code" means the Internal Revenue Code of 1986, as amended from
      time to time, including regulations thereunder and successor provisions
      and regulations thereto.


                                      -1-
<PAGE>   29
            (g) "Committee" means a committee of two or more directors
      designated by the Board to administer the Plan, each of whom shall be (i)
      a "non-employee director" within the meaning of Rule 16b-3 under the
      Exchange Act, and (ii) an "outside director" as defined under Code Section
      162(m), unless administration of the Plan by "outside directors" is not
      then required in order to qualify for tax deductibility under Code Section
      162(m).

            (h) "Covered Employee" means an Eligible Person who is a Covered
      Employee as specified in Section 8(e) of the Plan.

            (i) "Deferred Stock" means a right, granted to a Participant under
      Section 6(e) hereof, to receive Stock, cash or a combination thereof at
      the end of a specified deferral period.

            (j) "Dividend Equivalent" means a right, granted to a Participant
      under Section 6(g), to receive cash, Stock, other Awards or other property
      equal in value to dividends paid with respect to a specified number of
      shares of Stock, or other periodic payments.

            (k) "Effective Date" means the date on which BKF shareholders
      approve the adoption of the Plan.

            (l) "Eligible Person" means each Executive Officer or director of
      BKF and other officers and employees of BKF or any of its subsidiaries. An
      employee on leave of absence may be considered as still in the employ of
      BKF or a subsidiary for purposes of eligibility for participation in the
      Plan. In addition, a person who has been offered employment by BKF or any
      of its subsidiaries or agreed to become a director of BKF is eligible to
      be granted an Award under the Plan; provided, however, that such Award
      shall be canceled if such person fails to commence such employment or
      service as a director, and no payment of value may be made in connection
      with such Award until such person has commenced such employment or
      service.

            (m) "Exchange Act" means the Securities Exchange Act of 1934, as
      amended from time to time, including rules thereunder and successor
      provisions and rules thereto.

            (n) "Executive Officer" means an executive officer of BKF as defined
      under the Exchange Act.

            (o) "Fair Market Value" means the fair market value of Stock, Awards
      or other property as determined by the Committee or under procedures
      established by the Committee. Unless otherwise determined by the
      Committee, the Fair Market Value of Stock shall be equal to the closing
      price per share reported on a consolidated basis on the principal stock
      exchange upon which Stock is traded on the date on which the value is to
      be determined (or the last immediately preceding date on which Stock was
      traded).

            (p) "Incentive Stock Option" or "ISO" means any Option intended to
      be and designated as an incentive stock option within the meaning of Code
      Section 422 or any successor provision thereto.


                                      -2-
<PAGE>   30
            (q) "Option" means a right, granted to a Participant under Section
      6(b) hereof, to purchase Stock or other Awards at a specified price during
      specified time periods.

            (r) "Participant" means a person who has been granted an Award under
      the Plan which remains outstanding, including a person who is no longer an
      Eligible Person.

            (s) "Performance Award" means an Award granted to a Participant
      which is conditioned upon satisfaction, during a period in excess of one
      year but in no event more than ten years, of performance criteria
      established by the Committee.

            (t) "Person" shall have the meaning ascribed to such term in Section
      3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
      and shall include a "group" as defined in Section 13(d) thereof.

            (u) "Restricted Stock" means Stock granted to a Participant under
      Section 6(d) hereof that is subject to certain restrictions and to a risk
      of forfeiture.

            (v) "Rule 16b-3" means Rule 16b-3, as from time to time in effect
      and applicable to the Plan and Participants, promulgated by the Securities
      and Exchange Commission under Section 16 of the Exchange Act.

            (w) "Stock" means either BKF Common Stock, and such other securities
      as may be substituted (or resubstituted) for BKF Common Stock pursuant to
      Section 10(c) hereof.

            (x) "Stock Appreciation Rights" or "SAR" means a right granted to a
      Participant under Section 6(c) hereof.

      3.    ADMINISTRATION.

            (a) Authority of the Committee. The Plan shall be administered by
      the Committee. A majority of the Committee shall constitute a quorum, and
      the acts of a majority of the members present at any meeting at which a
      quorum is present, or acts approved in writing by all of the members,
      shall be the acts of the Committee. The Committee shall have full and
      final authority, in each case subject to and consistent with the
      provisions of the Plan, to select Eligible Persons to become Participants,
      grant Awards, determine the type, number and other terms and conditions
      of, and all other matters relating to, Awards, prescribe Award agreements
      (which need not be identical for each Participant) and rules and
      regulations for the administration of the Plan, construe and interpret the
      Plan and Award agreements and correct defects, supply omissions or
      reconcile inconsistencies therein, and to make all other decisions and
      determinations as the Committee may deem necessary or advisable for the
      administration of the Plan. Other provisions of the Plan notwithstanding,
      the Board shall perform the functions of the Committee for purposes of
      interpreting or otherwise administering grants to non-employee directors.

            (b) Manner of Exercise of Committee Authority. Any action of the
      Committee shall be final, conclusive and binding on all persons, including
      BKF, its subsidiaries, Participants, Beneficiaries, transferees under
      Section 10(b) hereof or other persons


                                      -3-
<PAGE>   31
      claiming rights from or through a Participant, and shareholders. The
      express grant of any specific power to the Committee, and the taking of
      any action by the Committee, shall not be construed as limiting any power
      or authority of the Committee. The Committee may delegate to officers or
      managers of BKF or any subsidiary, or committees thereof, the authority,
      subject to such terms as the Committee shall determine, to perform such
      functions, including administrative functions, as the Committee may
      determine, to the extent that such delegation will not result in the loss
      of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants
      subject to Section 16 of the Exchange Act in respect of BKF and will not
      cause Awards intended to qualify as "performance-based compensation" under
      Code Section 162(m) to fail to so qualify. The Committee may appoint
      agents to assist it in administering the Plan.

            (c) Limitation of Liability. The Committee and each member thereof
      shall be entitled, in good faith, to rely or act upon any report or other
      information furnished to him or her by any executive officer, other
      officer or employee of BKF or a subsidiary, BKF's independent auditors,
      consultants or any other agents assisting in the administration of the
      Plan. Members of the Committee and any officer or employee of BKF or a
      subsidiary acting at the direction or on behalf of the Committee shall not
      be personally liable for any action or determination taken or made in good
      faith with respect to the Plan, and shall, to the extent permitted by law,
      be fully indemnified and protected by BKF with respect to any such action
      or determination; provided that nothing herein shall be construed to
      protect any such person from any liability to BKF or its shareholders to
      which such person would otherwise be subject by reason of willful
      misfeasance, bad faith, or gross negligence in the performance of his or
      her duties, or by reason of reckless disregard of his or her obligations
      and duties.

      4.    STOCK SUBJECT TO PLAN.

            (a) Overall Number of Shares of Stock Available for Delivery.
      Subject to adjustment as provided in Section 10(c) hereof, the total
      number of shares of Stock reserved and available for delivery in
      connection with Awards under the Plan shall be (i) 2,600,000, plus (ii)
      10% of the number of shares of Stock issued or delivered by BKF during the
      term of the Plan (excluding any issuance or delivery in connection with
      Awards, or any other compensation or benefit plan of BKF), plus (iii) the
      number of shares of Stock (not to exceed 700,000) purchased by BKF after
      March __, 2001; provided, however, that the total number of shares of
      Stock with respect to which ISOs may be granted shall not exceed one
      million. Any shares of Stock delivered under the Plan shall consist of
      authorized and unissued shares or treasury shares.

            (b) Application of Limitation to Grants of Awards. No Award may be
      granted if the number of shares of Stock to be delivered in connection
      with such Award or, in the case of an Award relating to shares of Stock
      but settleable only in cash (such as cash-only SARs), the number of shares
      to which such Award relates, exceeds the number of shares of Stock
      remaining available under the Plan minus the number of shares of Stock
      issuable in settlement of or relating to then-outstanding Awards. The
      Committee may adopt reasonable counting procedures to ensure appropriate
      counting, avoid double counting (as, for example, in the case of tandem or
      substitute awards) and make adjustments if the number of shares of Stock
      actually delivered differs from the number of shares previously counted in
      connection with an Award.


                                      -4-
<PAGE>   32
            (c) Availability of Shares Not Delivered under Awards. Shares of
      Stock subject to an Award under the Plan that is canceled, expired,
      forfeited, settled in cash or otherwise terminated without a delivery of
      shares to the Participant, including (i) the number of shares withheld in
      payment of any exercise or purchase price of an Award or taxes relating to
      Awards, and (ii) the number of shares surrendered in payment of any
      exercise or purchase price of an Award or taxes relating to any Award,
      will again be available for Awards under the Plan, except that if any such
      shares could not again be available for Awards to a particular Participant
      under any applicable law or regulation, such shares shall be available
      exclusively for Awards to Participants who are not subject to such
      limitation.

      5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than one million shares of Stock, subject to adjustment as provided in
Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g) and
6(h). For purposes of applying the foregoing limitation to Sections 6(b) and
6(c), any Option or SAR that is canceled shall be treated as remaining
outstanding, and any amendment to an Option or SAR that reduces the exercise or
grant price (other than customary anti-dilution adjustments) shall be treated as
the cancellation of the original Option or SAR and the issuance of a new Option
or SAR. In addition, the maximum cash Award that may be earned under the Plan
pursuant to Section 6(h) in respect of any fiscal year shall be $20 million,
determined on an annualized basis in the case of a Performance Award.

      6.    SPECIFIC TERMS OF AWARDS.

            (a) General. Awards may be granted on the terms and conditions set
      forth in this Section 6. In addition, the Committee may impose on any
      Award or the exercise thereof, at the date of grant or thereafter (subject
      to Section 10(e)), such additional terms and conditions, not inconsistent
      with the provisions of the Plan, as the Committee shall determine,
      including terms requiring forfeiture of Awards in the event of termination
      of employment by the Participant and terms permitting a Participant to
      make elections relating to his or her Award. The Committee shall retain
      full power and discretion to accelerate, waive or modify, at any time, any
      term or condition of an Award that is not mandatory under the Plan. Except
      in cases in which the Committee is authorized to require other forms of
      consideration under the Plan, or to the extent other forms of
      consideration must by paid to satisfy the requirements of the Delaware
      General Corporation Law, no consideration other than services may be
      required for the grant (but not the exercise) of any Award.

            (b) Options. The Committee is authorized to grant Options to
      Participants on the following terms and conditions:

                  (i) Exercise Price. The exercise price per share of Stock
            purchasable under an Option shall be determined by the Committee,
            provided that such exercise price shall be not less than the Fair
            Market Value of a share of Stock on the date of grant of such Option
            except as provided under Section 7(a) hereof.

                  (ii) Time and Method of Exercise. The Committee shall
            determine the time or times at which or the circumstances under
            which an Option may be exercised in whole or in part (including
            based on achievement of performance


                                      -5-
<PAGE>   33
            goals and/or future service requirements), the methods by which such
            exercise price may be paid or deemed to be paid, the form of such
            payment, including, without limitation, cash, Stock, other Awards,
            or other property (including notes or other contractual obligations
            of Participants to make payment on a deferred basis), and the
            methods by or forms in which Stock will be delivered or deemed to be
            delivered to Participants.

                  (iii) ISOs. The terms of any ISO granted under the Plan shall
            comply in all respects with the provisions of Code Section 422.
            Anything in the Plan to the contrary notwithstanding, no term of the
            Plan relating to ISOs (including any SAR in tandem therewith) shall
            be interpreted, amended or altered, nor shall any discretion or
            authority granted under the Plan be exercised, so as to disqualify
            either the Plan or any ISO under Code Section 422, unless the
            Participant has first requested the change that will result in such
            disqualification.

            (c) Stock Appreciation Rights. The Committee is authorized to grant
      SARs to Participants on the following terms and conditions:

                  (i) Right to Payment. A SAR shall confer on the Participant to
            whom it is granted a right to receive, upon exercise thereof, the
            excess of (A) the Fair Market Value of one share of Stock on the
            date of exercise over (B) the grant price of the SAR as determined
            by the Committee.

                  (ii) Other Terms. The Committee shall determine at the date of
            grant or thereafter, the time or times at which and the
            circumstances under which a SAR may be exercised in whole or in part
            (including based on achievement of performance goals and/or future
            service requirements), the method of exercise, method of settlement,
            form of consideration payable in settlement, method by or forms in
            which Stock will be delivered or deemed to be delivered to
            Participants, whether or not a SAR shall be in tandem or in
            combination with any other Award, and any other terms and conditions
            of any SAR. SARs may be either freestanding or in tandem with other
            Awards.

            (d) Restricted Stock. The Committee is authorized to grant
      Restricted Stock to Participants on the following terms and conditions:

                  (i) Grant and Restrictions. Restricted Stock shall be subject
            to such restrictions on transferability, risk of forfeiture and
            other restrictions, if any, as the Committee may impose, which
            restrictions may lapse separately or in combination at such times,
            under such circumstances (including based on achievement of
            performance goals and/or future service requirements), in such
            installments or otherwise, as the Committee may determine at the
            date of grant or thereafter. Except to the extent restricted under
            the terms of the Plan and any Award agreement relating to the
            Restricted Stock, a Participant granted Restricted Stock shall have
            all of the rights of a shareholder, including the right to vote the
            Restricted Stock and the right to receive dividends thereon (subject
            to any mandatory reinvestment or other requirement imposed by the
            Committee). During the restricted period applicable to the
            Restricted Stock, subject to Section 10(b) below, the Restricted
            Stock may not be sold, transferred, pledged, hypothecated, margined
            or otherwise encumbered by the Participant.


                                      -6-
<PAGE>   34
                  (ii) Forfeiture. Except as otherwise determined by the
            Committee, upon termination of employment during the applicable
            restriction period, Restricted Stock that is at that time subject to
            restrictions shall be forfeited and reacquired by the issuing
            company; provided that the Committee may provide, by rule or
            regulation or in any Award agreement, or may determine in any
            individual case, that restrictions or forfeiture conditions relating
            to Restricted Stock shall be waived in whole or in part in the event
            of terminations resulting from specified causes, and the Committee
            may in other cases waive in whole or in part the forfeiture of
            Restricted Stock.

                  (iii) Certificates for Stock. Restricted Stock granted under
            the Plan may be evidenced in such manner as the Committee shall
            determine. If certificates representing Restricted Stock are
            registered in the name of the Participant, the Committee may require
            that such certificates bear an appropriate legend referring to the
            terms, conditions and restrictions applicable to such Restricted
            Stock, that the issuing company retain physical possession of the
            certificates, and that the Participant deliver a stock power to the
            issuing company, endorsed in blank, relating to the Restricted
            Stock.

                  (iv) Dividends, Distributions and Splits. As a condition to
            the grant of an Award of Restricted Stock, the Committee may require
            that any cash dividends or distributions paid on a share of
            Restricted Stock be automatically reinvested in additional shares of
            Restricted Stock or applied to the purchase of additional Awards
            under the Plan. Unless otherwise determined by the Committee, Stock
            distributed in connection with a Stock split, Stock dividend or
            distribution, and other property distributed as a dividend, shall be
            subject to restrictions and a risk of forfeiture to the same extent
            as the Restricted Stock with respect to which such Stock or other
            property has been distributed.

            (e) Deferred Stock. The Committee is authorized to grant Deferred
      Stock to Participants, which are rights to receive Stock, cash, or a
      combination thereof at the end of a specified deferral period, subject to
      the following terms and conditions:

                  (i) Award and Restrictions. Satisfaction of an Award of
            Deferred Stock shall occur upon expiration of the deferral period
            specified for such Deferred Stock by the Committee (or, if permitted
            by the Committee, as elected by the Participant). In addition,
            Deferred Stock shall be subject to such restrictions (which may
            include a risk of forfeiture) as the Committee may impose, if any,
            which restrictions may lapse at the expiration of the deferral
            period or at earlier specified times (including based on achievement
            of performance goals and/or future service requirements), separately
            or in combination, in installments or otherwise, as the Committee
            may determine. Deferred Stock may be satisfied by delivery of Stock,
            cash equal to the Fair Market Value of the specified number of
            shares of Stock covered by the Deferred Stock, or a combination
            thereof, as determined by the Committee at the date of grant or
            thereafter.

                  (ii) Forfeiture. Except as otherwise determined by the
            Committee, upon termination of employment during the applicable
            deferral period or portion thereof to which forfeiture conditions
            apply (as provided in the Award


                                      -7-
<PAGE>   35
            agreement evidencing the Deferred Stock), all Deferred Stock that is
            at that time subject to deferral (other than a deferral at the
            election of the Participant) shall be forfeited; provided that the
            Committee may provide, by rule or regulation or in any Award
            agreement, or may determine in any individual case, that
            restrictions or forfeiture conditions relating to Deferred Stock
            shall be waived in whole or in part in the event of terminations
            resulting from specified causes, and the Committee may in other
            cases waive in whole or in part the forfeiture of Deferred Stock.

                  (iii) Dividend Equivalents. Unless otherwise determined by the
            Committee at date of grant, Dividend Equivalents on the specified
            number of shares of Stock covered by an Award of Deferred Stock
            shall be either (A) paid with respect to such Deferred Stock at the
            dividend payment date in cash or in shares of unrestricted Stock
            having a Fair Market Value equal to the amount of such dividends, or
            (B) deferred with respect to such Deferred Stock and the amount or
            value thereof automatically deemed reinvested in additional Deferred
            Stock, other Awards or other investment vehicles, as the Committee
            shall determine or permit the Participant to elect.

            (f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
      authorized to grant Stock as a bonus, or to grant Stock or other Awards in
      lieu of obligations to pay cash or deliver other property under the Plan
      or under other plans or compensatory arrangements, provided that, in the
      case of Participants subject to Section 16 of the Exchange Act, the amount
      of such grants remains within the discretion of the Committee to the
      extent necessary to ensure that acquisitions of Stock or other Awards are
      exempt from liability under Section 16(b) of the Exchange Act. Stock or
      Awards granted hereunder shall be subject to such other terms as shall be
      determined by the Committee.

            (g) Dividend Equivalents. The Committee is authorized to grant
      Dividend Equivalents to a Participant, entitling the Participant to
      receive cash, Stock, or other Awards equal in value to dividends paid with
      respect to a specified number of shares of Stock, or other periodic
      payments. Dividend Equivalents may be awarded on a free-standing basis or
      in connection with another Award. The Committee may provide that Dividend
      Equivalents shall be paid or distributed when accrued or shall be deemed
      to have been reinvested in additional Stock, Awards, or other investment
      vehicles, and subject to such restrictions on transferability and risks of
      forfeiture, as the Committee may specify.

         (h) Annual Incentive and Performance Awards. The Committee is
     authorized to make Annual Incentive Awards and Performance Awards payable
     in cash, Stock, or other Awards, on terms and conditions established by the
     Committee, subject to Section 8 in the event of Annual Incentive Awards or
     Performance Awards intended to qualify as "performance-based compensation"
     for purposes of Code Section 162(m).

      7.    CERTAIN PROVISIONS APPLICABLE TO AWARDS.

            (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
      granted under the Plan may, in the discretion of the Committee, be granted
      either alone or in addition to, in tandem with, or in substitution or
      exchange for, any other Award or any award granted under another plan of
      BKF, any subsidiary, or any business entity to be


                                      -8-
<PAGE>   36
      acquired by BKF or any subsidiary, or any other right of a Participant to
      receive payment from BKF or any subsidiary. Such additional, tandem, and
      substitute or exchange Awards may be granted at any time. If an Award is
      granted in substitution or exchange for another Award or award, the
      Committee shall require the surrender of such other Award or award in
      consideration for the grant of the new Award. In addition, Awards may be
      granted in lieu of cash compensation, including in lieu of cash amounts
      payable under other plans of BKF or any subsidiary, in which the value of
      Stock subject to the Award is equivalent in value to the cash compensation
      (for example, Deferred Stock or Restricted Stock), or in which the
      exercise price, grant price or purchase price of the Award in the nature
      of a right that may be exercised is equal to the Fair Market Value of the
      underlying Stock minus the value of the cash compensation surrendered (for
      example, Options granted with an exercise price "discounted" by the amount
      of the cash compensation surrendered).

            (b) Term of Awards. The term of each Award shall be for such period
      as may be determined by the Committee; provided that in no event shall the
      term of any Option or SAR exceed a period of ten years (or such shorter
      term as may be required in respect of an ISO under Code Section 422).

            (c) Form and Timing of Payment under Awards; Deferrals. Subject to
      the terms of the Plan and any applicable Award agreement, payments to be
      made by BKF or any subsidiary upon the exercise of an Option or other
      Award or settlement of an Award may be made in such forms as the Committee
      shall determine, including, without limitation, cash, Stock, or other
      Awards, and may be made in a single payment or transfer, in installments,
      or on a deferred basis. The settlement of any Award may be accelerated,
      and cash paid in lieu of Stock in connection with such settlement, in the
      discretion of the Committee or upon the occurrence of one or more
      specified events. Installment or deferred payments may be required by the
      Committee to the extent necessary to qualify payments for deductibility
      under Code Section 162(m), or permitted at the election of the Participant
      on terms and conditions established by the Committee. Payments may
      include, without limitation, provisions for the payment or crediting of
      reasonable interest on installment or deferred payments or the grant or
      crediting of Dividend Equivalents or other amounts in respect of
      installment or deferred payments denominated in Stock. Any payments
      mandatorily deferred by the Committee to qualify such payments for
      deductibility under Code Section 162(m) shall include a reasonable rate of
      interest.

            (d) Exemptions from Section 16(b) Liability. It is the intent of BKF
      and its subsidiaries that the grant of any Awards to or other transaction
      by a Participant who is subject to Section 16 of the Exchange Act shall be
      exempt under Rule 16b-3 (except for transactions acknowledged in writing
      to be non-exempt by such Participant). Accordingly, if any provision of
      this Plan or any Award agreement does not comply with the requirements of
      Rule 16b-3 as then applicable to any such transaction, such provision
      shall be construed or deemed amended to the extent necessary to conform to
      the applicable requirements of Rule 16b-3 so that such Participant shall
      avoid liability under Section 16(b).

            (e) Loan Provisions. With the consent of the Committee, and subject
      at all times to, and only to the extent, if any, permitted under and in
      accordance with, laws and regulations and other binding obligations or
      provisions applicable to BKF and/or any subsidiary, BKF and/or any
      subsidiary may make, guarantee or arrange for a loan or loans to a
      Participant with respect to the exercise of any Option, purchase of Stock
      or other


                                      -9-
<PAGE>   37
      payment in connection with any Award, including the payment by a
      Participant of any or all federal, state or local income or other taxes
      due in connection with any Award. Subject to such limitations, the
      Committee shall have full authority to decide whether to make a loan or
      loans hereunder and to determine the amount, terms and provisions of any
      such loan or loans, including the interest rate to be charged in respect
      of any such loan or loans, the terms on which the loan is to be repaid and
      conditions, if any, under which the loan or loans may be forgiven.

            (f) General Terms Relating to Awards. Unless the Committee provides
      otherwise at the time of grant or by amendment, an Option, SAR, grant of
      Restricted Stock or Deferred Stock will become exercisable or settleable,
      as the case may be, in three equal installments after each of the first,
      second and third anniversaries of the date of grant based on the
      Participant's continued employment with BKF or any of its subsidiaries.
      Unless the Committee provides otherwise at the time of grant or by
      amendment, an Option or SAR will have a maximum term of ten years after
      the date of grant and will expire 30 days after the Participant's
      termination of employment with BKF and its subsidiaries, except if such
      termination occurs by reason of the Participant's death, retirement or
      disability, in which case the Option or SAR will be immediately
      exercisable and may be exercised by the Participant or his or her
      Beneficiary within one year following such termination (but in no event
      later than the maximum term of the Option or SAR).

      8.    PERFORMANCE AND ANNUAL INCENTIVE AWARDS.

            (a) Performance Conditions. The right of a Participant to exercise
      or receive a grant or settlement of any Award, and the timing thereof, may
      be subject to such performance conditions as may be specified by the
      Committee. The Committee may use such business criteria and other measures
      of performance as it may deem appropriate in establishing any performance
      conditions, and may exercise its discretion to reduce or increase the
      amounts payable under any Award subject to performance conditions;
      provided, however, that all Performance Awards and Annual Incentive Awards
      shall comply with the requirements of Sections 8(b) and 8(c) hereof unless
      the Committee specifically determines at the time of grant that such Award
      is not intended to qualify as "performance-based compensation" under Code
      Section 162(m).

            (b) Performance Awards Granted to Designated Covered Employees.
      Unless the Committee determines that a Performance Award is not intended
      to qualify as "performance-based compensation" for purposes of Code
      Section 162(m), the grant, exercise and/or settlement of such Performance
      Award shall be contingent upon achievement of preestablished performance
      goals and other terms set forth in this Section 8(b).

                  (i) Performance Goals Generally. The performance goals for
            such Performance Awards shall consist of one or more business
            criteria and a targeted level or levels of performance with respect
            to each of such criteria, as specified by the Committee consistent
            with this Section 8(b). Performance goals shall be objective and
            shall otherwise meet the requirements of Code Section 162(m) and
            regulations thereunder (including Regulation 1.162-27 and successor
            regulations thereto), including the requirement that the level or
            levels of performance targeted by the Committee result in the
            achievement of performance goals being "substantially uncertain."
            The Committee may determine that such Performance Awards shall be
            granted, exercised and/or settled upon achievement of any one
            performance goal or


                                      -10-
<PAGE>   38
            that two or more of the performance goals must be achieved as a
            condition to grant, exercise and/or settlement of such Performance
            Awards. Performance goals may differ for Performance Awards granted
            to any one Participant or to different Participants.

                  (ii) Business Criteria. One or more of the following business
            criteria for BKF, on a consolidated basis, and/or for specified
            subsidiaries, business units, funds or partnerships of BKF or any of
            its subsidiaries (except with respect to the total shareholder
            return and earnings per share criteria), shall be used by the
            Committee in establishing performance goals for such Performance
            Awards: (1) earnings per share; (2) revenues; increase in revenues;
            the excess of all or a portion of revenues over operating expenses
            (excluding expenses determined by the Committee at the time
            performance goals are established); (3) cash flow; (4) cash flow
            return on investment; (5) return on net assets, return on assets,
            return on investment, return on capital, return on equity; (6)
            economic value added; (7) operating margin; (8) net income; pretax
            earnings; pretax earnings before interest, depreciation,
            amortization and/or incentive compensation; pretax operating
            earnings; operating earnings; (9) total shareholder return; (10)
            performance of managed fund(s); (11) market share; (12) assets under
            management; (13) reduction in costs; (14) increase in the Fair
            Market Value of Stock; and (15) any of the above goals as compared
            to the performance of a published or special index deemed applicable
            by the Committee including, but not limited to, the Russell 1000
            Value Index, the Standard & Poor's 500 Stock Index, the Standard &
            Poor's Financial Index, the SNL Investment Adviser Index or a group
            of comparator companies. One or more of the foregoing business
            criteria shall also be exclusively used in establishing performance
            goals for Annual Incentive Awards granted to a Covered Employee
            under Section 8(c) hereof.

                  (iii) Performance Period; Timing for Establishing Performance
            Goals. Achievement of performance goals in respect of such
            Performance Awards shall be measured over a performance period of up
            to ten years, as specified by the Committee. Performance goals shall
            be established not later than 90 days after the beginning of any
            performance period applicable to such Performance Awards, or at such
            other date as may be required or permitted for "performance-based
            compensation" under Code Section 162(m).

                  (iv) Performance Award Pool. The Committee may establish a
            Performance Award pool, which shall be an unfunded pool, for
            purposes of measuring performance of BKF, any subsidiary and/or any
            business unit of BKF and/or any of its subsidiaries in connection
            with Performance Awards. The amount of such Performance Award pool
            shall be based upon the achievement of a performance goal or goals
            based on one or more of the business criteria set forth in Section
            8(b)(ii) hereof during the given performance period, as specified by
            the Committee in accordance with Section 8(b)(iii) hereof. The
            Committee may specify the amount of the Performance Award pool as a
            percentage of any of such business criteria, a percentage thereof in
            excess of a threshold amount, or as another amount which need not
            bear a strictly mathematical relationship to such business criteria,
            provided that the amount of the Performance Award pool can be
            determined by an independent third party in possession of all the
            relevant facts.


                                      -11-
<PAGE>   39
                  (v) Settlement of Performance Awards; Other Terms. Settlement
            of such Performance Awards shall be in cash, Stock or other Awards,
            in the discretion of the Committee. The Committee may, in its
            discretion, reduce the amount of a settlement otherwise to be made
            in connection with such Performance Awards, but may not exercise
            discretion to increase any such amount payable to a Covered Employee
            in respect of a Performance Award subject to this Section 8(b). The
            Committee shall specify the circumstances in which such Performance
            Awards shall be paid or forfeited in the event of termination of
            employment by the Participant prior to the end of a performance
            period or settlement of Performance Awards.

            (c) Annual Incentive Awards Granted to Designated Covered Employees.
      Unless the Committee determines that an Annual Incentive Award is not
      intended to qualify as "performance-based compensation" for purposes of
      Code Section 162(m), the grant, exercise and/or settlement of such Annual
      Incentive Award shall be contingent upon achievement of preestablished
      performance goals and other terms set forth in this Section 8(c).

                  (i) Annual Incentive Award Pool. The Committee may establish
            an Annual Incentive Award pool, which shall be an unfunded pool, for
            purposes of measuring performance of BKF, any subsidiary and/or any
            business unit of BKF and/or any of its subsidiaries in connection
            with Annual Incentive Awards. The amount of such Annual Incentive
            Award pool shall be based upon the achievement of a performance goal
            or goals based on one or more of the business criteria set forth in
            Section 8(b)(ii) hereof during the given performance period, as
            specified by the Committee in accordance with Section 8(b)(iii)
            hereof. The Committee may specify the amount of the Annual Incentive
            Award pool as a percentage of any of such business criteria a
            percentage thereof in excess of a threshold amount, or as another
            amount which need not bear a strictly mathematical relationship to
            such business criteria, provided that the amount of the Annual
            Incentive Award pool can be determined by an independent third party
            in possession of all the relevant facts.

                  (ii) Potential Annual Incentive Awards. Not later than the end
            of the 90th day of each fiscal year, or at such other date as may be
            required or permitted in the case of Awards intended to be
            "performance-based compensation" under Code Section 162(m), the
            Committee shall determine the Eligible Persons who will potentially
            receive Annual Incentive Awards, and the amounts potentially payable
            thereunder, for that fiscal year, either out of an Annual Incentive
            Award pool established by such date under Section 8(c)(i) hereof or
            as individual Annual Incentive Awards. In the case of individual
            Annual Incentive Awards intended to qualify under Code Section
            162(m), the amount potentially payable shall be based upon the
            achievement of a performance goal or goals based on one or more of
            the business criteria set forth in Section 8(b)(ii) hereof in the
            given performance year, as specified by the Committee; in other
            cases, such amount shall be based on such criteria as shall be
            established by the Committee.

                  (iii) Payout of Annual Incentive Awards. After the end of each
            fiscal year, the Committee shall determine the amount, if any, of
            (A) the Annual Incentive Award pool, and the maximum amount of
            potential Annual Incentive Award payable to each Participant in the
            Annual Incentive Award pool, or (B) the amount of potential Annual
            Incentive Award otherwise payable to each Participant. The Committee
            may, in its


                                      -12-
<PAGE>   40
            discretion, determine that the amount payable to any Participant as
            a final Annual Incentive Award shall be increased or reduced from
            the amount of his or her potential Annual Incentive Award, including
            a determination to make no final Award whatsoever, but may not
            exercise discretion to increase any such amount in the case of an
            Annual Incentive Award intended to qualify under Code Section
            162(m). The Committee shall specify the circumstances in which an
            Annual Incentive Award shall be paid or forfeited in the event of
            termination of employment by the Participant prior to the end of a
            fiscal year or settlement of such Annual Incentive Award. Settlement
            of Annual Incentive Awards shall be in cash, Stock or other Awards,
            in the discretion of the Committee.

            (d) Written Determinations. All determinations by the Committee as
      to the establishment of performance goals, the amount of any Performance
      Award pool or potential individual Performance Awards and as to the
      achievement of performance goals relating to Performance Awards under
      Section 8(b), and the amount of any Annual Incentive Award pool or
      potential individual Annual Incentive Awards and the amount of final
      Annual Incentive Awards under Section 8(c), shall be made in writing in
      the case of any Award intended to qualify under Code Section 162(m). No
      Performance Award or Annual Incentive Award intended to qualify under Code
      Section 162(m) shall be paid until the Committee has certified in writing
      that the applicable performance goals have been achieved. The Committee
      may not delegate any responsibility relating to such Performance Awards or
      Annual Incentive Awards.

            (e) Status of Section 8(b) and Section 8(c) Awards under Code
      Section 162(m). It is the intent of BKF and its subsidiaries that
      Performance Awards and Annual Incentive Awards under Sections 8(b) and
      8(c) hereof granted to persons who are likely to be Covered Employees
      within the meaning of Code Section 162(m) and regulations thereunder
      (including Regulation 1.162-27 and successor regulations thereto) shall,
      if so designated by the Committee, constitute "performance-based
      compensation" within the meaning of Code Section 162(m) and regulations
      thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e),
      including the definitions of Covered Employee and other terms used
      therein, shall be interpreted in a manner consistent with Code Section
      162(m) and regulations thereunder. The foregoing notwithstanding, because
      the Committee cannot determine with certainty whether a given Participant
      will be a Covered Employee with respect to a fiscal year that has not yet
      been completed, the term Covered Employee as used herein shall mean any
      Eligible Person who receives a Performance Award or an Annual Incentive
      Award unless the Committee determines, at the time of grant, that such
      Award is not intended to qualify as "performance-based compensation" for
      purposes of Code Section 162(m). If any provision of the Plan as in effect
      on the date of adoption or any agreements relating to Performance Awards
      or Annual Incentive Awards that are designated as intended to comply with
      Code Section 162(m) does not comply or is inconsistent with the
      requirements of Code Section 162(m) or regulations thereunder, such
      provision shall be construed or deemed amended to the extent necessary to
      conform to such requirements.

      9.    CHANGE IN CONTROL.

            (a) Effect of "Change in Control" on Non-Performance Based Awards.
      In the event of a "Change in Control," the following provisions shall
      apply to non-performance based Awards, including Awards as to which
      performance conditions previously have been


                                      -13-
<PAGE>   41
      satisfied or are deemed satisfied under Section 9(b), unless otherwise
      provided by the Committee in the Award document:

                  (i) All deferral of settlement, forfeiture conditions and
            other restrictions applicable to Awards granted under the Plan shall
            lapse and such Awards shall be fully payable as of the time of the
            Change in Control without regard to deferral and vesting conditions,
            except to the extent of any waiver by the Participant or other
            express election to defer beyond a Change in Control and subject to
            applicable restrictions set forth in Section 10(a);

                  (ii) Any Award carrying a right to exercise that was not
            previously exercisable and vested shall become fully exercisable and
            vested as of the time of the Change in Control and shall remain
            exercisable and vested for the balance of the stated term of such
            Award without regard to any termination of employment or service by
            the Participant other than a termination for "cause" (as defined in
            any employment or severance agreement between the Company or a
            subsidiary or affiliate and the Participant then in effect or, if
            none, as defined by the Committee and in effect at the time of the
            Change in Control), subject only to applicable restrictions set
            forth in Section 10(a); and

                  (iii) The Committee may, in its discretion, determine to
            extend to any Participant who holds an Option the right to elect,
            during the 60-day period immediately following the Change in
            Control, in lieu of acquiring the shares of Stock covered by such
            Option, to receive in cash the excess of the Change in Control Price
            over the exercise price of such Option, multiplied by the number of
            shares of Stock covered by such Option, and to extend to any
            Participant who holds other types of Awards denominated in shares
            the right to elect, during the 60-day period immediately following
            the Change in Control, in lieu of receiving the shares of Stock
            covered by such Award, to receive in cash the Change in Control
            Price multiplied by the number of shares of Stock covered by such
            Award.

            (b) Effect of "Change in Control" on Performance-Based Awards. In
      the event of a "Change in Control," with respect to an outstanding Award
      subject to achievement of performance goals and conditions, such
      performance goals and conditions will be deemed to be met if and to the
      extent so provided by the Committee in the Award document governing such
      Award or other agreement with the Participant.

            (c) Definition of "Change in Control." A "Change in Control" shall
      be deemed to have occurred if, after the Effective Date, there shall have
      occurred any of the following:

                  (i) any "person" as such term is currently used in Section
            13(d) of the Exchange Act, other than John A. Levin or any entity
            directly or indirectly controlled by him, becomes a "beneficial
            owner," as such term is currently used in Rule 13d-3 promulgated
            under that Act, of 50% or more of BKF's Voting Stock, which term
            means the issued and outstanding capital stock or other securities
            of any class or classes having general voting power, under ordinary
            circumstances in the absence of contingencies, to elect the
            directors of a corporation;

                  (ii) a majority of the Board consists of individuals other
            than Incumbent Directors, which term means the members of the Board
            on the Effective Date;


                                      -14-
<PAGE>   42
            provided that any individual becoming a director subsequent to such
            date whose election or nomination for election was supported by a
            majority of the directors who then comprised the Incumbent Directors
            shall be considered an Incumbent Director;

                  (iii) all or substantially all of the assets or business of
            BKF are disposed of pursuant to a merger, consolidation, or other
            transaction (other than the asset distribution transactions
            contemplated in BKF's proxy statement dated July 22, 1999) unless
            (A) the shareholders of BKF immediately prior to such merger,
            consolidation or other transaction beneficially own, directly or
            indirectly, in substantially the same proportion as they owned BKF's
            Voting Stock, all of the Voting Stock or other ownership interests
            of the entity or entities, if any, that succeed to the business of
            BKF, or (B) a majority of the board of directors of the surviving
            corporation in such a transaction consists of Incumbent Directors or
            directors appointed by Levin Management Co., Inc. but excluding
            directors who were members of the other entity's board of directors;

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

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

            (d) Definition of "Change in Control Price." The "Change in Control
      Price" means an amount in cash equal to the higher of (i) the amount of
      cash and fair market value of property that is the highest price per share
      paid (including extraordinary dividends) in any transaction triggering the
      Change in Control or any liquidation of shares following a sale of
      substantially all assets of the Company, or (ii) the highest Fair Market
      Value per share at any time during the 60-day period preceding and 60-day
      period following the Change in Control.

      10.   GENERAL PROVISIONS.

            (a) Compliance with Legal and Other Requirements. BKF may, to the
      extent deemed necessary or advisable by the Committee, postpone the
      issuance or delivery of Stock or payment of other benefits under any Award
      until completion of such registration or qualification of such Stock or
      other required action under any federal or state law, rule or regulation,
      listing or other required action with respect to any stock exchange or
      automated quotation system upon which the Stock is listed or quoted, or
      compliance with any other obligation of BKF as the Committee may consider
      appropriate, and may require any Participant to make such representations,
      furnish such information and comply with or be subject to such other
      conditions as it may consider appropriate in connection with the issuance
      or delivery of Stock or payment of other benefits in compliance with
      applicable laws, rules, and regulations, listing requirements, or other
      obligations.


                                      -15-
<PAGE>   43
            (b) Limits on Transferability; Beneficiaries. No Award or other
      right or interest of a Participant under the Plan shall be pledged,
      hypothecated or otherwise encumbered or subject to any lien, obligation or
      liability of such Participant to any party (other than BKF or a
      subsidiary), or assigned or transferred by such Participant otherwise than
      by will or the laws of descent and distribution or to a Beneficiary upon
      the death of a Participant, and such Awards or rights that may be
      exercisable shall be exercised during the lifetime of the Participant only
      by the Participant or his or her guardian or legal representative, except
      that Awards and other rights (other than ISOs and SARs in tandem
      therewith) may be transferred to one or more Beneficiaries or other
      transferees during the lifetime of the Participant to facilitate estate
      planning, and may be exercised by such transferees in accordance with the
      terms of such Award, but only if and to the extent such transfers are
      permitted by the Committee pursuant to the express terms of an Award
      agreement (subject to any terms and conditions which the Committee may
      impose thereon). A Beneficiary, transferee, or other person claiming any
      rights under the Plan from or through any Participant shall be subject to
      all terms and conditions of the Plan and any Award agreement applicable to
      such Participant, except as otherwise determined by the Committee, and to
      any additional terms and conditions deemed necessary or appropriate by the
      Committee.

            (c) Adjustments. In the event that any dividend or other
      distribution (whether in the form of cash, Stock, or other property),
      recapitalization, forward or reverse split, reorganization, merger,
      consolidation, spin-off, combination, repurchase, share exchange,
      liquidation, dissolution or other similar corporate transaction or event
      affects the Stock such that an adjustment is determined by the Committee
      to be appropriate under the Plan, then the Committee shall, in such manner
      as it may deem equitable, adjust any or all of (i) the number and kind of
      shares of Stock which may be delivered in connection with Awards granted
      thereafter, (ii) the number and kind of shares of Stock by which annual
      per-person Award limitations are measured under Section 5 hereof, (iii)
      the number and kind of shares of Stock subject to or deliverable in
      respect of outstanding Awards and (iv) the exercise price, grant price or
      purchase price relating to any Award and/or make provision for payment of
      cash or other property in respect of any outstanding Award. In addition,
      the Committee is authorized to make adjustments in the terms and
      conditions of, and the criteria included in, Awards (including Performance
      Awards and performance goals, and Annual Incentive Awards and any Annual
      Incentive Award pool or performance goals relating thereto) in recognition
      of unusual or nonrecurring events (including, without limitation, events
      described in the preceding sentence, as well as acquisitions and
      dispositions of businesses and assets) affecting BKF, any subsidiary or
      any business unit, or the financial statements of BKF or any subsidiary or
      business unit, or in response to changes in applicable laws, regulations,
      accounting principles, tax rates and regulations or business conditions or
      in view of the Committee's assessment of the business strategy of BKF, any
      subsidiary or business unit thereof, performance of comparable
      organizations, economic and business conditions, personal performance of a
      Participant, and any other circumstances deemed relevant; provided that no
      such adjustment shall be authorized or made if and to the extent that such
      authority or the making of such adjustment would cause Options, SARs,
      Performance Awards granted under Section 8(b) hereof or Annual Incentive
      Awards granted under Section 8(c) hereof to Participants designated by the
      Committee as Covered Employees and intended to qualify as
      "performance-based compensation" under Code Section 162(m) and regulations
      thereunder to otherwise fail to qualify as "performance-based
      compensation" under Code Section 162(m) and regulations thereunder.


                                      -16-
<PAGE>   44
            (d) Taxes. BKF and/or any subsidiary is authorized to withhold from
      any Award granted, any payment relating to an Award under the Plan,
      including from a distribution of Stock, or any payroll or other payment to
      a Participant, amounts of withholding and other taxes due or potentially
      payable in connection with any transaction involving an Award, and to take
      such other action as the Committee may deem advisable to enable BKF and/or
      any subsidiary and Participants to satisfy obligations for the payment of
      withholding taxes and other tax obligations relating to any Award. This
      authority shall include authority to withhold or receive Stock or other
      property and to make cash payments in respect thereof in satisfaction of a
      Participant's tax obligations, either on a mandatory or elective basis in
      the discretion of the Committee.

            (e) Changes to the Plan and Awards. The Board may amend, alter,
      suspend, discontinue or terminate the Plan or the Committee's authority to
      grant Awards under the Plan without the consent of shareholders or
      Participants, except that any amendment or alteration to the Plan shall be
      subject to the approval of BKF's shareholders not later than the annual
      meeting next following such Board action if such shareholder approval is
      required by any federal or state law or regulation or the rules of any
      stock exchange or automated quotation system on which the Stock may then
      be listed or quoted, and the Board may otherwise, in its discretion,
      determine to submit other such changes to the Plan to shareholders for
      approval; provided that, without the consent of an affected Participant,
      no such Board action may materially and adversely affect the rights of
      such Participant under any previously granted and outstanding Award. The
      Committee may waive any conditions or rights under, or amend, alter,
      suspend, discontinue or terminate any Award theretofore granted and any
      Award agreement relating thereto, except as otherwise provided in the
      Plan; provided that, without the consent of an affected Participant, no
      such Committee action may materially and adversely affect the rights of
      such Participant under such Award. Notwithstanding anything in the Plan to
      the contrary, if any right under this Plan would cause a transaction to be
      ineligible for pooling of interest accounting that would, but for the
      right hereunder, be eligible for such accounting treatment, the Committee
      may modify or adjust the right so that pooling of interest accounting
      shall be available, including the substitution of Stock having a Fair
      Market Value equal to the cash otherwise payable hereunder for the right
      which caused the transaction to be ineligible for pooling of interest
      accounting.

            (f) Limitation on Rights Conferred under Plan. Neither the Plan nor
      any action taken hereunder shall be construed as (i) giving any Eligible
      Person or Participant the right to continue as an Eligible Person or
      Participant or in the employ or service of BKF or a subsidiary, (ii)
      interfering in any way with the right of BKF or a subsidiary to terminate
      any Eligible Person's or Participant's employment or service at any time,
      (iii) giving an Eligible Person or Participant any claim to be granted any
      Award under the Plan or to be treated uniformly with other Participants
      and employees, or (iv) conferring on a Participant any of the rights of a
      shareholder of BKF unless and until the Participant is duly issued or
      transferred shares of Stock in accordance with the terms of an Award.

            (g) Unfunded Status of Awards; Creation of Trusts. The Plan is
      intended to constitute an "unfunded" plan for incentive and deferred
      compensation. With respect to any payments not yet made to a Participant
      or obligation to deliver Stock pursuant to an Award, nothing contained in
      the Plan or any Award shall give any such Participant any rights that are
      greater than those of a general creditor of BKF; provided that the


                                      -17-
<PAGE>   45
      Committee may authorize the creation of trusts and deposit therein cash,
      Stock, other Awards or other property, or make other arrangements to meet
      BKF's obligations under the Plan. Such trusts or other arrangements shall
      be consistent with the "unfunded" status of the Plan unless the Committee
      otherwise determines with the consent of each affected Participant. The
      trustee of such trusts may be authorized to dispose of trust assets and
      reinvest the proceeds in alternative investments, subject to such terms
      and conditions as the Committee may specify and in accordance with
      applicable law.

            (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
      the Board nor its submission to the shareholders of BKF for approval shall
      be construed as creating any limitations on the power of the Board or a
      committee thereof to adopt such other incentive arrangements as it may
      deem desirable including incentive arrangements and awards which do not
      qualify under Code Section 162(m).

            (i) Payments in the Event of Forfeitures; Fractional Shares. Unless
      otherwise determined by the Committee, in the event of a forfeiture of an
      Award with respect to which a Participant paid cash or other
      consideration, the Participant shall be repaid the amount of such cash or
      other consideration. No fractional shares of Stock shall be issued or
      delivered pursuant to the Plan or any Award. The Committee shall determine
      whether cash, other Awards or other property shall be issued or paid in
      lieu of such fractional shares or whether such fractional shares or any
      rights thereto shall be forfeited or otherwise eliminated.

            (j) Governing Law. The validity, construction and effect of the
      Plan, any rules and regulations under the Plan, and any Award agreement
      shall be determined in accordance with the Delaware General Corporation
      Law, without giving effect to principles of conflicts of laws, and
      applicable federal law.

            (k) Plan Effective Date and Shareholder Approval. The Plan (as
      amended and restated on March __, 2001) has been adopted by the Board,
      subject to approval by the shareholders of BKF at its 2001 annual meeting.
      Unless earlier terminated by action of the Board in accordance with
      Section 10(e), the Plan shall remain in effect until such time as no Stock
      remains available for delivery under the Plan and the Company has no
      further rights or obligations under the Plan with respect to outstanding
      Awards under the Plan. The Plan may be submitted for re-approval by BKF
      shareholders from time to time in order to maintain an exemption for
      "performance-based compensation" for purposes of Code Section 162(m).


                                      -18-

<PAGE>   46
PROXY                                                                      PROXY


                            BKF CAPITAL GROUP, INC.

                   PROXY SOLICITED BY THE BOARD OF DIRECTORS

             FOR THE ANNUAL MEETING OF SHAREHOLDERS -- MAY 24, 2001

J. Barton Goodwin, John A. Levin and Burton G. Malkiel, or any of them, each
with the power of substitution and revocation, are hereby authorized to
represent the undersigned, with all powers which the undersigned would possess
if personally present, to vote the Common Stock of the undersigned at the annual
meeting of shareholders of BKF Capital Group, Inc. to be held at the
Waldorf-Astoria Hotel, 301 Park Avenue, New York, New York on Thursday, May 24
at 8:30 a.m., local time, and at any postponements or adjournments of that
meeting, as set forth below, and in their discretion upon any other business
that may properly come before the meeting.


                                          Please indicate change of address here
                                          and mark the box on the other side.


                                          --------------------------------------

All capitalized terms used in this        --------------------------------------
proxy shall have the same meanings
assigned to them in the Proxy Statement.  --------------------------------------


                 (Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
                            - FOLD AND DETACH HERE -









                            YOUR VOTE IS IMPORTANT.

             PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
                    USING THE ENCLOSED POSTMARKED ENVELOPE.




<PAGE>   47
The Board of Directors recommends that you vote FOR the proposals below.

Please mark     /X/
your votes as
indicated in
this example

1. To elect three directors:

        FOR all nominees                     WITHHOLD
          listed below                      AUTHORITY
        (except as marked            to vote for all nominees
         to the contrary)                 listed below
              /  /                            /  /

Nominees: Anson M. Beard, Jr., Peter J. Solomon and Dean J. Takahashi

(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)

______________________________________________________________________________

                                                     FOR     AGAINST     ABSTAIN
2. To amend the Company's Restated Certificate of   /  /       /  /        /  /
   Incorporation to reduce the authorized shares
   of common stock of the Company from 80 million
   to 15 million shares;

3. To amend and restate the Company's 1998         /  /       /  /        /  /
   Incentive Compensation Plan;

4. To ratify the selection of Ernst & Young        /  /       /  /        /  /
   LLP as independent auditors for the Company;
   and

5. To transact such other business as may properly come before the meeting.



                             Check here if you plan to attend the meeting.  /  /

                                            Check here for address change.  /  /

                              Dated ______________________________________, 2001


                              __________________________________________________

                              Signature(s)

                              Please vote, sign, date and return this proxy card
                              promptly using the enclosed envelope.

- -------------------------------------------------------------------------------
                           -- FOLD AND DETACH HERE --
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
