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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period From _______________ to ________________
Commission file number 0-15187
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Jack Carl/312-Futures, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-3399452
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 West Adams Street, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 407-5700
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Securities registered pursuant to Section 12(g) of the Act:
$.004 Par Value Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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As of August 31, 1995, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $3,223,000.
As of August 31, 1995, there were outstanding 33,624,532 shares of the
Registrant's common stock.
This is page 1 of 91 sequentially numbered pages.
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PART I
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ITEM 1 - BUSINESS
(a) General Development of Business.
The Registrant was incorporated under the laws of the State of Illinois on
July 26, 1985 under the name SFA, Inc. On August 1, 1985, SFA, Inc. acquired
100% of the capital stock of a corporation (the "Predecessor Corporation") from
Oppenheimer Rouse Futures, Inc. The Registrant is the successor to the business
and operations of the Predecessor Corporation. As of November 21, 1985, the
Predecessor Corporation was merged into SFA, Inc. and SFA, Inc., changed its
name to 312-Futures, Inc. At that time and until Jack Carl Associates, Inc., a
privately held Delaware corporation, ("JCA"), merged on August 29, 1986, into
the Registrant, the Registrant's business activities were limited to effecting
transactions in futures contracts and options on futures contracts on a
"discounted basis" for retail customers nationwide. The Registrant is the
surviving corporation of the merger and its corporate name was changed to Jack
Carl/312-Futures, Inc. As a consequence of the merger, the Registrant's
brokerage activities were expanded and diversified with it succeeding to the
clearing membership of JCA on the Chicago Mercantile Exchange and clearing the
transactions on that Exchange for approximately 200 professional market makers
and for customers of introducing brokers on a fully disclosed basis.
Accordingly, for the fiscal year ended June 30, 1987, the Registrant was engaged
in the commodity brokerage business, which included effecting transactions in
futures contracts and options on futures contracts as a clearing member firm on
the Chicago Mercantile Exchange for its various customers. During the fiscal
year ended June 30, 1987, the Registrant cleared its customer's transactions at
the Chicago Board of Trade and certain other exchanges on an omnibus basis
through its then affiliate, Index Futures Group, Inc. ("Index").
On July 1, 1987, the Registrant purchased all of the stock of its
affiliate, Index. Incidental to such purchase, the Registrant transferred all
of its commodity futures customer accounts to Index and, since such transfer,
such business has been conducted through Index and its divisions. During fiscal
1988, in an effort to better manage risk, the Registrant effectively
discontinued the business of clearing transactions for professional market
makers. On January 1, 1989, the Registrant voluntarily withdrew its
registration as a futures commission merchant. The Registrant is currently a
holding company with its businesses conducted through its subsidiaries.
On November 16, 1990, Jack Carl/312-Futures, Inc. and Index sold to Credit
Agricole Futures, Inc. certain assets used by Index in its clearing operations.
Concurrent with the sale, approximately 30 employees of Index became employees
of Credit
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Agricole Futures, Inc. Index continues to be a clearing member of various
commodity exchanges.
In January, 1993, Brokers Resource Corp., at the time, a wholly-owned
subsidiary of Index, and currently a wholly-owned subsidiary of the Registrant,
sold the majority of its guaranteed introducing broker business to an unrelated
entity.
In May, 1994, the Registrant, by written consent of the shareholders,
changed its state of incorporation from Illinois to Delaware.
In July, 1994, the Registrant offered to its common stockholders, the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994 ("Rights Offering"). 53,799,304 shares of common stock
were available and purchased in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock were purchased. The gross proceeds of the
Rights Offering were $1,076,000.
Effective at the close of business November 4, 1994, the Registrant
effected a one-for-four reverse split of its common stock, par value $.001. Each
four shares of such common stock were reclassified and changed into one share of
common stock having a par value of $.004. Pursuant to the reverse split, the
Registrant is obligated to pay any holder of fractional shares resulting from
the reverse split $.05 per share of common stock up to a maximum of $.15 for
three shares. At the close of business on November 4, 1994, the outstanding
shares of common stock were reduced to approximately 33,624,565 shares from
134,498,260 shares before the reverse split. As the result of the repurchase of
fractional shares, there were outstanding as of June 30, 1995, 33,624,532 shares
of common stock.
(b) Narrative Description of Business.
General
The Registrant is a holding company with its businesses substantially
conducted through Index and other subsidiaries. The Registrant was a futures
commission merchant registered with the Commodity Futures Trading Commission
("CFTC") until January 1, 1989 when it voluntarily withdrew its registration as
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a futures commission merchant. The Registrant no longer handles commodity
futures customer accounts, having transferred all of its accounts to Index.
Index, the Registrant's principal operating subsidiary which is responsible
for commodity and futures related activities, is a futures commission merchant
registered with the CFTC and the Securities and Futures Authority ("SFA") in the
United Kingdom and is a member of the National Futures Association ("NFA").
It is involved in all aspects of brokerage of futures and options on futures
contracts. It is a clearing member of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Mid-America Commodity Exchange, the Commodity
Exchange, Inc., the New York Mercantile Exchange, the New York Futures Exchange
and the New York Cotton Exchange and effective January 1, 1995, the Coffee,
Sugar & Cocoa Exchange. It provides a full-range of futures brokerage, clearing
and back office services for professional, institutional and public commodities
traders and, through a subsidiary, Index Management Services, Inc., acts as a
commodity pool operator. Index is the clearing agent for other non-clearing
futures commission merchants, financial institutions, regional brokerage houses
and introducing brokers.
Index presently has one wholly-owned subsidiary, Index Management Services,
Inc. ("IMSI"). Index Futures Arb Group, Inc. ("Arb"), Index Forward Trading
Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG") were
wholly-owned subsidiaries of Index until they were dissolved in fiscal 1995.
IMSI, which was organized in May, 1986, is registered with the CFTC as a
commodity pool operator and is a member of the NFA. IMSI was organized to
create and offer to the public, either by itself or in cooperation with others
through joint ventures, various commodity futures fund offerings which may be
marketed through broker-dealers or through participating regional brokerage
houses. IMSI is presently the general partner and commodity pool operator of
LBR Pacific Fund, L.P., a Delaware limited partnership and Beacon STS Fund,
L.P., an Illinois limited partnership. IMSI is also the sponsor of Index
International Futures Fund Ltd., an exempted Cayman Islands limited liability
company formed to engage in speculative trading of world futures markets. As of
June 30, 1995, Index International Futures Fund Ltd. was in the process of
liquidation.
Arb, a Delaware corporation, was organized in September, 1988, as Manhattan
Coin Exchange, Inc. and was thereafter renamed Jack Carl Options Management,
Inc. In May, 1991, its name was changed to Index Futures Arb Group, Inc. Its
business was to conduct proprietary arbitrage trading in foreign currencies.
Arb commenced and ceased operations during the year ended June 30, 1993. Arb
was dormant during fiscal 1994 and was dissolved in fiscal 1995.
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IFTG, a Delaware corporation, was organized in July, 1992 to conduct
proprietary arbitrage trading in foreign currencies. IFTG was dormant during
fiscal 1993 and 1994 and was dissolved in fiscal 1995.
ICTG, a Delaware corporation was organized in July, 1992 to conduct
proprietary arbitrage trading in foreign currencies. ICTG was dormant during
fiscal 1993 and 1994 and was dissolved in fiscal 1995.
In addition to Index, Brokers Resource Corp. ("BRC"), formerly a subsidiary
of Index, Index Securities, Inc. ("ISI"), Jack Carl Management and Trading, Inc.
("JCMT") and Index FX, Ltd. ("IFX") are wholly-owned subsidiaries of the
Registrant. Stark Research, Inc. ("Stark") is a majority-owned subsidiary of
the Registrant.
In December, 1993, Index transferred its investment in BRC to the
Registrant, in the form of a dividend.
BRC, organized in February, 1985, was a non-clearing futures commission
merchant which provided a full range of services to the independent futures
professional. These services included product development (such as providing
its customers with ideas in advertising and the generation of leads to increase
business), office operation services (such as assisting in compliance matters
and in acquiring equipment and systems that promote efficient operations) and
trading support services (including availability of market information,
providing accurate and timely statements and access to international markets).
BRC was a member of the NFA and was registered with the CFTC.
In January, 1993, BRC sold the majority of its guaranteed introducing
broker business to an unrelated entity in return for a portion of future
earnings on such business. Subsequent to the sale, BRC's operations have been
minimal. In January, 1994, BRC voluntarily withdrew its registration as a
futures commission merchant. In connection with this sale, Index and BRC issued
a limited indemnification agreement to the purchaser. The agreement covers
potential customer claims arising from activity prior to the sale. There have
been no such claims to date.
ISI was organized in January, 1987 and is a registered securities broker-
dealer. In June, 1990, ISI sold all of its customer accounts to an unrelated
party and its activities presently are primarily limited to acting as the
selling agent for commodity pools. As a broker-dealer, ISI is regulated by the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc.
JCMT was organized in January, 1992 to serve as a commodity trading advisor
("CTA") and is registered with the CFTC as a CTA. The operations of JCMT were
minimal during fiscal 1994 and 1995.
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In September, 1993, the Registrant purchased a controlling interest in
Stark and became the majority shareholder in that company. Stark is an
investment research company which publishes monthly and quarterly magazines
regarding investments with a primary focus on funds investing in commodities.
IFX, a British corporation located in London, England was organized in
August, 1995 to conduct foreign exchange business. The corporation has not
commenced operations.
Customers
The Registrant is a holding company, with Index being the Registrant's
principal operating subsidiary responsible for commodity and futures related
activities. Index is the Registrant's principal source of revenue. Included in
its full-range of services, Index maintains retail and discount divisions. With
respect to its discount brokerage customers, Index acts as an agent for the
transmitting of orders and does not provide in-house generated research. Such
discount brokerage customers obtain trading advice elsewhere or make their own
trading decisions. Commissions charged by Index to such discount brokerage
customers are discounted from those charged by full service commodity brokerage
firms. Index's discount customers are charged round-turn transaction
commissions which are generally between $12 and $30, as compared to full service
firms which management believes charge between $45 and $100 per round-turn.
Index provides a full range of futures brokerage, clearing and back office
services for professional, institutional and public commodities traders. In
addition, through its subsidiary IMSI, it creates and offers to the public,
either by itself or in cooperation with others, various commodity futures fund
offerings which may be marketed through broker-dealers or through regional
brokerage houses.
Index's revenues from trading activities relate directly to the volume of
its customers' orders, generally irrespective of the underlying prices of
futures contracts. Such revenues are directly affected by substantial
fluctuations in trading volume. Trading volume may be affected by price levels
of commodity transactions which are directly affected by regional, national and
international economic and political conditions, broad trends in business and
finance, inflation and supply and demand of commodities underlying futures and
options contracts.
A material amount of Index's revenues are derived from interest earned on
uncommitted cash balances of customer deposits. This practice complies with
CFTC regulations and is standard industry practice.
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<PAGE>
Marketing
For the fiscal year ended June 30, 1995, Index's primary marketing and
advertising activities centered around the promotion of its Jack Carl Futures
Discount Division utilizing the print and electronic media, primarily
newspapers, magazines and television, which report on the futures markets and
their activities. Index, from time to time, engages in promotions whereby it
provides subscriptions to independent research materials and/or portable futures
price quotation machines at advantageous prices or without charge.
Competition
Index competes directly with other firms, both discount and full
commission. Competition among futures brokerage firms is intense and is based
upon both price and service. Other institutions offer their customers some or
all of the same types of services provided by Index and may offer more services
than those provided by Index. At the same time, the number of active
participants in futures trading is relatively small when compared to those
engaged in securities trading. In addition, other independent securities and
commodities brokerage firms may enter the brokerage business in direct
competition with Index.
Regulation
In order to maintain its listing on the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ"), the Registrant must satisfy the
National Association of Securities Dealers, Inc.'s revised entry and maintenance
standards for NASDAQ listed stocks. One such requirement is that a minimum of
two active market makers be maintained.
In May, 1994, the Registrant was advised by NASDAQ that it had failed to
meet the two active market maker requirement and would become subject to a
formal delisting action if it failed to obtain the required market makers by
June 3, 1994. The Registrant requested both a temporary exception to the
minimum active market maker requirement and a hearing on the matter.
On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ
Listing Qualifications Committee determined that an exception to the market
maker requirement would not be granted and, accordingly, the securities of the
Registrant were delisted from the NASDAQ SmallCap Market effective August 18,
1994.
The Registrant appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994, the Registrant's common stock resumed trading on
the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994
to December 6, 1994, was traded in the over-the-counter market OTC Bulletin
Board of the NASDAQ.
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Commodity exchanges and professionals in the United States are subject to
regulation by the CFTC under the Commodity Exchange Act, as amended (the "Act")
and the regulations promulgated thereunder, and by the NFA and by various self-
regulatory organizations. The principal function of the CFTC is to promote
orderly and efficient commodity futures markets through regulation.
As a futures commission merchant, Index is subject to the Act. With
respect to domestic futures and options trading, the Act requires all futures
commission merchants, such as Index, to meet and maintain specified financial
requirements, and maintain segregated accounts for all customers' funds,
property and positions, and specified books and records on customer
transactions, all of which are open to inspection by the staff of the CFTC.
Failure to meet its regulatory requirements could subject Index to disciplinary
actions including fines, censure, suspension or revocation of registration.
In addition, under the Act, the NFA is registered with the CFTC as a self-
regulatory body which has established and enforces training standards and
proficiency tests, minimum financial requirements and standards of fair
practice. The CFTC has delegated its registration functions to the NFA.
ISI is subject to the Uniform Net Capital Rule adopted by the Securities
and Exchange Commission and as such is required to maintain minimum net capital.
Throughout the year ISI was in compliance with such requirements.
Index is subject to the minimum capital requirements under the Act and
accordingly, is required to maintain minimum adjusted net capital, as defined by
the CFTC. Adjusted net capital changes from day to day, but at June 30, 1995,
Index had adjusted net capital of approximately $12,811,600 which was
approximately $6,803,600 in excess of its required minimum. BRC also was
subject to the minimum capital requirement under the Act until January, 1994,
when BRC withdrew its registration as a Futures Commission Merchant. The
minimum net capital requirements may effectively restrict, among other things,
the payment of cash dividends and the repayment of subordinated loans.
The Chicago Mercantile Exchange is the designated self-regulatory
organization of Index. As self-regulatory organizations, the NFA and the
Chicago Mercantile Exchange have authority to enforce their rules, the violation
of which could lead to various penalties, including expulsion. Since NFA
membership is mandatory for all CFTC registered commodity professionals, loss or
suspension of such membership would preclude a firm from engaging in the futures
business.
The above-described regulatory structure may be modified by the CFTC or by
legislative changes enacted by the Congress.
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Index is in the business of clearing and executing futures contracts and
options on futures contracts for the accounts of its customers. As such, Index
guarantees to the respective clearinghouses its customers' performance under
these contracts. To reduce its risk, Index requires its customers to meet, at a
minimum, the margin requirement established by each of the exchanges on which
the contract is traded. This margin is a good faith deposit from the customer
which reduces the risk to Index of failure on behalf of the customer to fulfill
any obligation under the contract. To minimize its exposure to risk of loss due
to market variation, Index adjusts these margin requirements, as needed, due to
daily fluctuations in the values of the underlying positions. If necessary,
certain positions may be liquidated to satisfy resulting changes in margin
requirements. Management believes that the margin deposits held at June 30,
1995, were adequate to minimize the risk of material loss which could be created
by the positions held at that time.
Index has a branch office in London, and as a result is also subject to the
rules and regulations of the SFA. The SFA generally defers to the United States
regulators for activities in the United States. This branch has not yet
commenced operations in the United Kingdom.
Employees
As of June 30, 1995, the Registrant had 289 full and part-time employees.
These employees included 108 floor operations employees, 67 back office
employees, 39 discount department employees, 50 sales employees and 25
administrative employees.
ITEM 2 - PROPERTIES
The Registrant leases office space at 200 West Adams Street, Chicago,
Illinois. This location serves as the Registrant's primary business location
and corporate headquarters.
The Registrant or its subsidiaries also have offices at the Chicago
Mercantile Exchange Center, 30 South Wacker Drive, Chicago, Illinois, 111 West
Jackson Boulevard, Chicago, Illinois, 14 Wall Street, New York, New York, 1020
Prospect Street, La Jolla, California and in London, England, Zurich and Lugano,
Switzerland and Istanbul, Turkey. All such facilities are leased at rates
competitive for the respective locations.
ITEM 3 - LEGAL PROCEEDINGS
As a brokerage firm having numerous customers and correspondents, Index,
from time to time, is subject to various lawsuits, including civil litigation,
arbitrations and reparations proceedings and administrative proceedings by
regulators in the commodity futures industry relating to customers and
regulatory requirements incidental to carrying on such brokerage business. Such
matters range from those in which Index is a party plaintiff against customers
to collect deficit amounts due from customers, to customer complaints,
allegations by regulatory authorities of alleged improprieties by, or lack of
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registration of, employees of Index and the like. It also may be likely in some
of these actions that allegations requesting such items as monetary penalties,
license suspensions or revocations and the like will be made. The number of
such complaints, matters of litigation and administrative proceedings amount to
a small percentage of Index's total business. The foregoing discussion is also
applicable to BRC. Management of the Registrant, after consultation with legal
counsel, is of the opinion that neither the Registrant nor Index, nor any of the
Registrant's other subsidiaries, is involved in any current civil litigation or
administrative proceeding which it believes would have a material adverse effect
on either the Registrant's, Index's, or any of the Registrant's other
subsidiaries financial condition.
Notwithstanding that the following matters are ordinary and routine
litigation incidental to the business, the Registrant believes it appropriate to
set forth the following information:
On September 29, 1992, the CFTC filed an administrative action against
Index alleging that on or about October 24, 1989, Index violated certain
sections of the Commodity Exchange Act and CFTC Regulations alleging the
conversion of funds of a commodity pool, and failure to properly segregate and
separately account for, treat and deal with customer funds. In April, 1994,
Index without admitting or denying the allegations, paid a $100,000 penalty to
the CFTC, settling the administrative action. In a related action in the United
States District Court for the Northern District of Illinois entitled CFTC v.
Tobin, et al; John Troelstrup, Equity Receiver v. Index Futures Group, Inc. (89
C 8576), which is still pending, the equity receiver of the alleged commodity
pool operator brought an action to recover losses of approximately $600,000,
alleging various theories such as constructive trust, negligence, breach of
fiduciary duty and conversion. Index denies the allegations, believes they are
without merit and intends to defend this action vigorously.
Index is also currently defending against a Demand for Arbitration (Klein
v. Index Futures Group, Inc. and Jay Tuch, 95-ARB-29) filed on March 20, 1995,
before the National Futures Association ("NFA"). The claimant, a former client,
seeks damages of $1,000,000, alleging misrepresentation of risk and unauthorized
trading. Although the claimant lost over $850,000 in trading, management
believes the claim is without merit and will defend this action vigorously.
On May 3, 1995, the United States District Court for the District Court of
Colorado entered an order granting Index and BRC's motion for summary judgment
in March v. Hanks, Civil Action No. 92-S-1222, dismissing the plaintiff's claims
in their entirety and directing that judgment be entered in favor of Index and
BRC and against the plaintiff.
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In (Arnold and Edith Katzowski v. Philip B. Jones and Index Futures Group,
Inc., E.D. Pa. No. 95-CV-1181), Index is defending a complaint filed by former
partners of a general partnership which cleared its trades at Index. The
plaintiffs allege that the general partner, a co-defendant, defrauded them by
failing to disclose risks and misrepresenting account performance. Index is
alleged to have aided and abetted the general partner by permitting him to act
as a Commodity Pool Operator without proper registration and by furnishing
account statements and other account data to the general partner which were then
altered by the general partner and used to defraud plaintiffs. Plaintiffs'
actual losses were approximately $157,000. Index believes the allegations are
without merit and will defend vigorously.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is not applicable since no matters were submitted to a vote of
security holders during the fourth quarter of the fiscal year ended June 30,
1995.
PART II
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ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Markets
Since June 10, 1986, the Registrant's securities have been traded in the
over-the-counter market. The common stock was, until April 15, 1994, quoted on
NASDAQ.
In order to maintain its listing on NASDAQ, the Registrant, must satisfy
the National Association of Securities Dealers, Inc.'s revised entry and
maintenance standards for NASDAQ listed stocks. One such requirement is that a
minimum of two active market makers be maintained.
In May, 1994, the Registrant was advised by NASDAQ that it had failed to
meet the two active market maker requirement and would become subject to a
formal delisting action if it failed to obtain the required market makers by
June 3, 1994. The Registrant requested both a temporary exception to the
minimum active market maker requirement and a hearing on the matter.
On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ
Listing Qualifications Committee determined that an exception to the market
maker requirement would not be granted and, accordingly, the securities of the
Registrant were delisted from the NASDAQ SmallCap Market effective August 18,
1994.
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The Registrant appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994 the Registrant's common stock resumed trading on
the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994
to December 6, 1994, was traded in the over-the-counter market OTC Bulletin
Board of the NASDAQ.
In July, 1994, the Registrant offered to its common stockholders the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994. 53,799,304 shares of common stock were available and
purchased in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock were purchased. The gross proceeds of the
Rights Offering were $1,076,000.
Effective at the close of business November 4, 1994, the Registrant
effected a one-for-four reverse split of its common stock, par value $.001.
Each four shares of such common stock were reclassified and changed into one
share of common stock having a par value of $.004. Pursuant to the reverse
split, the Registrant is obligated to pay any holder of fractional shares
resulting from the reverse split $.05 per share of common stock up to a maximum
of $.15 for three shares. At the close of business on November 4, 1994, the
outstanding shares of common stock were reduced to approximately 33,624,565
shares from 134,498,260 shares before the reverse split. As the result of the
repurchase of fractional shares, there were outstanding as of June 30, 1995,
33,624,532 shares of common stock.
Set forth below is the range of high and low, bid and ask prices per share
of the common stock in the over-the-counter market as reported by NASDAQ for the
periods indicated. The prices represent quotations between dealers. The
quotations do not include retail markups, markdowns, or commissions and may not
represent actual transactions. The prices have been restated for the November
4, 1994 one-for-four reverse split of common stock.
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On August 31, 1995, the closing representative bid price and ask price per share
of common stock, as reported through NASDAQ, in the over-the-counter market was
bid: 7/32 ask: 9/32.
<TABLE>
<CAPTION>
Bid Ask
Type of Quarter ----------- ----------
Security Ended High Low High Low
- -------- -------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Common Stock 9/30/93 1/8 1/8 1/4 1/4
12/31/93 1/8 1/8 1/4 1/4
3/31/94 1/8 1/8 1/4 1/4
4/15/94 (1) 1/8 1/8 1/4 1/4
12/31/94 (2) 1/8 1/8 1/4 5/32
3/31/95 5/32 1/8 7/32 5/32
6/30/95 1/4 1/8 9/32 5/32
8/31/95 (3) 11/32 5/32 7/16 3/16
</TABLE>
(1) Includes only the period April 1, through April 15, 1994.
(2) Includes only the period December 7, through December 31, 1994.
(3) Includes only the months of July, 1995 and August, 1995.
Although the Registrant's common stock was traded on NASDAQ there are no
bid and ask quotations available for the period April 15, 1994 through August
18, 1994, due to lack of market maker participation. Set forth below is the
range of high and low trade prices per share of common stock or the range of
high and low, bid and ask prices per share of common stock in the OTC Bulletin
Board market as reported by NASDAQ for the periods indicated. The quotations do
not include retail markups, markdowns or commissions. The prices have been
restated for the November 4, 1994 one-for-four reverse split of common stock.
On December 6, 1994, the last day of trading on the OTC Bulletin Board, the
closing trade price per share of common stock as quoted through NASDAQ's OTC
Bulletin Board was $.125.
<TABLE>
<CAPTION>
Type of
Security Period High Trade Low Trade
- -------- ------ ---------- -------------
<S> <C> <C>
Common Stock 4/16/94-6/30/94 3/8 1/16
7/01/94-8/18/94 1/4 1/16
</TABLE>
<TABLE>
<CAPTION>
Bid Ask
------------- -------------
High Low High Low
---- ------- ---- -------
<S> <C> <C> <C> <C>
8/18/94-9/30/94 $.16 $.04 $.20 $.16
10/01/94-12/06/94 $.20 $.03125 $.25 $.09375
</TABLE>
-13-
<PAGE>
Approximate Number of Holders of Securities
As of August 31, 1995, there were 1,021 holders of record of the
Registrant's common stock. The Registrant believes it has a greater number of
shareholders because the Registrant believes that a substantial amount of its
common stock is held of record in street name by broker-dealers for their
customers.
Dividends
The Registrant has never paid a cash dividend on its common stock and does
not expect to pay a cash dividend in the foreseeable future, but intends to
devote all funds to the operation of its business.
ITEM 6 - SELECTED FINANCIAL DATA
Summary Financial Information
The following table presents summary historical information for the
Registrant. This summary information is derived from the historical financial
statements of the Registrant.
-14-
<PAGE>
HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
--------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues $ 41,658,300 $ 37,565,300 $ 36,670,400 $ 39,227,300 $ 38,545,300
============ ============ ============ ============ ============
Income before income taxes
and extraordinary item $ 3,947,800 $ 992,300 $ 308,900 $ 1,210,100 $ 2,281,400
Income tax expense 1,536,200 406,200 149,600 361,600 1,212,500
------------ ------------ ------------ ------------ ------------
Income before extraordinary item 2,411,600 586,100 159,300 848,500 1,068,900
Extraordinary item (1) - - - 3,000 1,059,800
------------ ------------ ------------ ------------ ------------
Net income 2,411,600 586,100 159,300 851,500 2,128,700
Assumed cumulative dividend on Class A
preferred stock (40,000) (40,000) (40,000) (40,000) (40,000)
------------ ------------ ------------ ------------ ------------
Net income applicable to common
stock $ 2,371,600 $ 546,100 $ 119,300 $ 811,500 $ 2,088,700
============ ============ ============ ============ ============
Primary earnings per share as
restated for the one-for-four
reverse split of common stock (2):
Income before extraordinary item $ .08 $ .03 $ .01 $ .04 $ .06
============ ============ ============ ============ ============
Net income $ .08 $ .03 $ .01 $ .04 $ .11
============ ============ ============ ============ ============
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 30,680,524 20,175,612 20,178,239 20,178,239 20,178,239
============ ============ ============ ============ ============
Fully diluted earnings per share
as restated for the one-for-four
reverse split of common stock (2):
Income (loss) before extraordinary item $ .08 $ .03 $ .01 $ .04 $ .06
============ ============ ============ ============ ============
Net income (loss) $ .08 $ .03 $ .01 $ .04 $ .11
============ ============ ============ ============ ============
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 30,680,524 20,175,612 20,178,239 20,178,239 20,178,239
============ ============ ============ ============ ============
Balance Sheet Data:
As of June 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
Total assets $190,932,400 $202,806,200 $151,817,500 $143,654,300 $121,140,400
Notes payable 6,390,000 7,690,000 9,615,600 10,140,600 550,000
Subordinated debt 1,690,000 2,000,000 - 225,000 9,828,100
Stockholders' equity 7,364,100 3,876,500 3,295,200 3,135,900 2,284,400
</TABLE>
_______________________________________
(1) Represents tax benefits resulting from utilization of net operating loss
carryforward.
(2) Earnings per share are computed on the basis of the weighted average number
of shares of common stock outstanding during each year, adjusted for the
effect of common stock equivalents arising from the assumed exercise of
stock options and warrants if dilutive.
-15-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
Liquidity and Capital Resources
Jack Carl/312-Futures, Inc. ("JC/312") is a holding company that operates
its business through its various subsidiaries. JC/312 is a significant source
of capital for its subsidiaries through subordinated loans.
Index, JC/312's primary operating subsidiary, is subject to the minimum
capital requirements adopted and administered by various exchanges and
regulatory bodies. Among these are requirements for registered futures
commission merchants to maintain minimum net capital based on a percentage of
the amount of customer funds required to be segregated. During the year ended
June 30, 1995, Index's segregated asset requirement decreased by approximately
$19,798,700 to $155,973,500. This decrease in the segregated asset requirement
resulted in a decrease in Index's net capital requirements. Index is also
required to secure all balances due to U.S. based customers for activities in
foreign futures or options. At June 30, 1995, funds segregated in separate
accounts in connection with transactions in regulated commodities exceeded
requirements by $4,922,600. At June 30, 1995, funds secured in separate
accounts exceeded secured requirements by $1,559,400. Throughout the year,
Index exceeded the net capital requirements of the CFTC and various exchanges of
which it is a member. As of June 30, 1995, Index's regulatory capital exceeded
the minimum net capital requirements of the CFTC by $6,803,600.
The Registrant, at June 30, 1995, had $6,390,000 in notes payable to
related parties and $1,690,000 of subordinated debt maturing during the year
ending June 30, 1996. The majority of the proceeds from the notes were loaned
to Index in the form of subordinated loans which are included in net capital for
regulatory purposes. Index has a $4,000,000 revolving subordinated debt line of
credit, with a $2,310,000 available balance. The line of credit expires
October 31, 1996. The ability to refinance its debt depends on the lenders
desire to continue such loans with the Registrant.
The Registrant has historically satisfied its needs for capital from (i)
subordinated loans and notes payable, which, in the aggregate, decreased
$1,610,000 at June 30, 1995 compared to the prior year, and (ii) the proceeds
from the issuance of stock, which since inception through June 30, 1995 were
approximately $8,930,000. It is anticipated that the Registrant's short-term
and long-term capital needs will primarily be satisfied through loans,
operations and investing activities as well as from the proceeds of the issuance
of stock.
-16-
<PAGE>
The Registrant, during fiscal 1995, repaid $1,610,000 of debt, purchased an
additional exchange membership and increased its purchases of equipment. These
cash expenditures were funded primarily from net income. The Registrant also
generated $1,076,000 of cash by the issuance of common stock from the Rights
Offering in July, 1994 which was used to pay down intercompany payables to
Index. This enabled Index to increase its regulatory capital.
In July, 1994, the Registrant offered to holders of record of its common
stock, the non-transferable right to purchase, at a subscription price of $.02
per share, two-thirds of a share of common stock for each one share of common
stock owned of record on July 15, 1994, by such shareholder ("Rights Offering").
53,799,304 shares of common stock were available and purchased in the Rights
Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock were purchased. The gross proceeds of the
Rights Offering were $1,076,000.
Effective at the close of business November 4, 1994, the Registrant
effected a one-for-four reverse split of its common stock, par value $.001.
Each four shares of such common stock were reclassified and changed into one
share of common stock having a par value of $.004. Pursuant to the reverse
split, the Registrant is obligated to pay any holder of fractional shares
resulting from the reverse split $.05 per share of common stock up to a maximum
of $.15 for three shares. At the close of business on November 4, 1994, the
outstanding shares of common stock were reduced to approximately 33,624,565
shares from 134,498,260 shares before the reverse split. As the result of the
repurchase of fractional shares, there were outstanding as of June 30, 1995,
33,624,532 shares of common stock.
The majority of the Registrant's assets are liquid in nature and are not
significantly affected by inflation. However, the rate of inflation affects the
Registrant's expenses, such as employee compensation and other operating
expenses.
Results of Operations - Fiscal 1995 Compared to Fiscal 1994
The Registrant's commission revenues relate directly to the volume of its
customers' orders, generally irrespective of the underlying prices of futures
contracts. Trading volume may be
-17-
<PAGE>
affected by price levels of commodities which are directly affected by regional,
national and international economic and political conditions, broad trends in
business and finance, inflation and supply and demand of the commodities
underlying futures and options contracts.
In January, 1993, BRC, at the time a wholly-owned subsidiary of Index, and
currently a wholly-owned subsidiary of the Registrant, sold the majority of its
guaranteed introducing broker business to an unrelated entity in return for a
portion of future earnings on such business through January 15, 1995.
Commission revenues, which generally are related to trading volume,
increased $135,900 in 1995 on a 21% increase in trading volume. The revenue
from the sale of BRC in the amounts of $481,900 and $982,000 for 1995 and 1994,
respectively, is included in commission revenue. The small increase in
commission revenue compared to the increase in trading volume is primarily
attributable to the Registrant's business mix which has changed toward business
that generates higher trading volume and lower revenue and expense per trade
than other types of retail business. Included in this type of business are
accounts from non-clearing futures commission merchants, other wholesale
business and execution only business.
Interest income increased $3,975,300 in 1995 compared to 1994. This
increase in interest income is attributable to the following factors. The
Registrant is continuing to invest in longer term U.S. Government obligations
which increases the yield on its investments. These investments are interest
rate sensitive which cause fluctuations in income as interest rates vary. The
change in the appreciation of these investments due to market value fluctuations
generated an increase in interest income of $494,300 in 1995 compared to 1994.
The Registrant, during 1995, by increasing its customers base, had additional
funds available to invest and those investments generally yielded higher returns
because interest rates continued their upward trend during fiscal 1995.
Commissions, floor brokerage and clearing costs decreased $1,198,500 or 6%
in 1995. The decrease is the result of the gradual restructuring of sales
agreements to include the absorption of certain production related costs by
certain sales people before commissions are earned. Also, as a part of the
restructuring, certain sales people are being compensated by salary in addition
to commissions. Another reason for the decrease in commissions, floor brokerage
and clearing costs is the change in business mix toward business which generates
higher trading volume and lower commission revenue and expense per trade than
other types of retail business. Included in this type of business are accounts
from non-clearing futures commission merchants, other wholesale business and
execution only business.
-18-
<PAGE>
Compensation and related benefits increased $1,342,700 or 18% in 1995. The
increase is attributed to a 15% increase in the number of employees and salary
increases. Another factor contributing to the increase is the restructuring of
sales agreements which provide for certain sales people to be compensated by
salary in addition to commissions.
Interest expense increased $1,515,300 in 1995. The increase is the result
of higher interest rates on the Registrant's obligations during fiscal 1995 and
increased deposits on which the Registrant pays interest expense.
Business promotion increased $457,700 or 37% in 1995 compared to 1994. The
increase is the result of a general increase in the advertising of Index's
discount division which included a series of television commercials.
Communications expense decreased $301,500 or 15% in 1995 compared to 1994.
The decrease is the result of a change in long distance carrier which led to
lower rates and a one time $50,000 "sign-on" credit. The Registrant also
realized savings resulting from its increased capital expenditures on more
efficient communications equipment.
Professional and consulting fees decreased $446,100 in 1995. The decrease
is the result of a decrease in legal fees incurred in fiscal 1995 due to
decreased activity on pending litigation.
Doubtful accounts expense decreased $635,100 in 1995 compared to 1994. The
decrease is the result of the receipt of funds from a bankruptcy settlement for
a debt that was previously written off, collection of deficit accounts and a
reduction in the Registrant's bad debt experience.
The aforementioned revenue and expenses resulted in net income of
$2,411,600 or $.08 per share for fiscal 1995 compared to net income of $586,100
or $.03 per share for fiscal 1994.
Results of Operations - Fiscal 1994 Compared to Fiscal 1993
Commission revenue increased $790,000 or 2% in 1994 on an 11% increase in
trading volume. This increase is primarily the result of an additional $456,500
of revenue generated in 1994 from the sale of BRC's guaranteed introducing
broker business. The revenue stream from such sale continued until January 15,
1995. The disproportionate change in volume compared to revenue is caused by
the Company's change in business mix toward discounted business that generates
higher volume and lower revenues and expenses per trade than other types of
retail business. Included in this type of business are accounts from non-
clearing futures commission merchants, other wholesale business and execution
only business.
-19-
<PAGE>
Interest income was practically unchanged during 1994 compared to 1993.
Although interest income was flat during 1994, the Company, in an effort to
increase its yield, invested in longer term U.S. Government obligations. Such
investments are interest rate sensitive and cause fluctuations in income as
interest rates vary. During the last quarter of fiscal 1994, interest rates
continued rising which caused decreases in the market value of some U.S.
Government obligations to the point where some investments had cumulative
unrealized net losses. Such unrealized losses are recognized for book purposes
but are not recognized for tax purposes until realized. The Company, because of
the tax effects, liquidated a majority of those investments with losses of
approximately $400,000 prior to year end, in order to improve cash flow and
generate a tax deduction in 1994.
Commissions, floor brokerage and clearing costs decreased $1,394,200 or 7%
which is primarily the result of the change in business mix toward discounted
business which generates higher trading volume and lower commission revenues and
expenses per trade than other types of retail business. Included in this type
of business are accounts from non-clearing futures commission merchants, other
wholesale business and execution only business.
Interest expense increased $433,500 in 1994. This increase is the result
of both higher interest rates, on the Company's obligations, during the fiscal
1994, and increased customer deposits on which the Company pays interest
expense.
Professional and consulting fees also increased $364,900 in fiscal 1994.
This increase is the result of additional legal fees and settlements incurred
during 1994.
The increase in interest expense and professional and consulting fees and
other minor increases in expense line items offset the decrease in commissions,
floor brokerage and clearing costs to a net increase in total expense of
$211,500 in 1994.
The aforementioned revenue and expenses, resulted in net income of $586,100
or $.03 per share for fiscal 1994 compared to net income of $159,300 or less
than $.01 per share for fiscal 1993.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial information, see the financial statements and notes thereto
set forth at Item 14 hereof.
-20-
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Registrant did not have any changes in, or any material disagreements
on accounting and financial disclosure with its accountants in fiscal 1995 or
1994.
-21-
<PAGE>
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Registrant as of June 30, 1995
are as follows:
<TABLE>
<CAPTION>
Name Age Office
- ------------------------- --- ---------------------------
<S> <C> <C>
Burton J. Meyer 48 President and Director
Joel M. Eidelstein 28 Director
George A. Myers 45 Director
Allyson D. Laackman 38 Chief Financial Officer
Bruce E. Mathias 44 Treasurer and Secretary
Michael J. Moss 48 President of Index
Philip A. Tanzar 45 Director and Vice President
and General Counsel
</TABLE>
Burton J. Meyer has been with the Registrant since its inception and has
been a Director since August, 1986 and President since July, 1987. Since July
20, 1987, Mr. Meyer has also been an executive vice president and a director of
Index, president of the Jack Carl/312-Futures discount division of Index until
November, 1990 when he became Chief Executive Officer of Index. Also since July
20, 1987, Mr. Meyer has been a director of Brokers Resource Corp. ("BRC"), a
wholly-owned subsidiary of the Registrant, a director of Index Securities, Inc.
("ISI"), a wholly-owned subsidiary of the Registrant, since September, 1988. Mr.
Meyer has been a director of Index Management Services, Inc. ("IMSI"), a wholly-
owned subsidiary of Index, since November, 1990 and served as president from
November, 1990 until January, 1992 and has been chief executive officer of IMSI
since May, 1992. Since May, 1991, Mr. Meyer has also been president and
secretary of Index Futures Arb Group, Inc. ("Arb"). Since January, 1992, Mr.
Meyer has been vice president of Jack Carl Management and Trading, Inc.
("JCMT"). Since July, 1992, Mr. Meyer has been president of Index Forward
Trading Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG").
Joel M. Eidelstein was elected Director of the Registrant effective
November 16, 1990. Mr. Eidelstein graduated from Brandeis University in May,
1988. Since June, 1988 he has been an independent trader and a floor manager
with Index.
George A. Myers was elected Director of the Registrant effective November
16, 1990. Mr. Myers, since 1981, has been managing general partner of MC
Capital, a diversified real estate
-22-
<PAGE>
company with offices in Chicago, Illinois; Phoenix, Arizona; and San Diego,
California.
On September 14, 1992, Allyson D. Laackman, became Chief Financial Officer
of the Registrant, BRC and ISI and chief financial officer and director of
Index, Arb, JCMT, IFTG and ICTG. Ms. Laackman was also Chief Financial Officer
and director of IMSI from September 14, 1992 until she voluntarily resigned from
those positions in January, 1994. Prior to joining the Registrant, Ms.
Laackman, a Certified Public Accountant, had been with Arthur Andersen & Co.
since 1981 and was an experienced manager in the financial services division.
Bruce E. Mathias has been Treasurer of the Registrant since November 16,
1990. Mr. Mathias was also Assistant Secretary of the Registrant from November
16, 1990 until he was appointed Secretary in March, 1994. He was also Chief
Financial Officer of the Registrant, Index, BRC, IMSI, RDI and Arb from
November, 1990 until January, 1992 when he was elected president of IMSI until
February, 1994, when he was reappointed chief financial officer of IMSI. Prior
to November, 1990 he was the Director of Financial Reporting of the Registrant
from May, 1987 and secretary of Index since November, 1987. In addition, since
November 16, 1990, he has been treasurer and a director of Index and treasurer
and assistant secretary of BRC. Since November, 1990, Mr. Mathias has been a
director of IMSI. Mr. Mathias is a Certified Public Accountant.
Michael J. Moss has been president and a director of Index since January,
1992. Prior to joining Index, Mr. Moss was an independent floor trader from
1978 until 1987. Mr. Moss was senior vice president of Gerald, Inc., a futures
commission merchant, from 1987 until December, 1991.
Philip A. Tanzar joined 312-Futures, Inc. at its inception in 1983. Mr.
Tanzar was chief operating officer of the discount brokerage division of Index
from 1986 until November, 1990. In November, 1990, Mr. Tanzar was appointed
chief operating officer of Index until March, 1993 when Mr. Tanzar was appointed
Vice President and General Counsel of the Registrant, Index, BRC and IMSI. In
February, 1994, Mr. Tanzar was elected a Director of the Registrant.
Directors are elected and serve until the next annual meeting or until
their successors are elected and qualified. Officers are elected annually by
the Board of Directors.
-23-
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Registrant
as well as the number of stock options earned by the Registrant's chief
executive officer and the three other most highly compensated executive
officers, exceeding $100,000, during the last three fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Name and Year Other Option
Principal Ended Annual Awards All Other
Position June 30, Salary Bonus Compensation (Shs)(5) Compensation
- ---------------------- -------- -------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Burton J. Meyer (1) 1995 $300,000 $153,700 - - -
President and 1994 $225,000 $ 50,000 - 1,250,000
Director 1993 $224,100 $ 50,000 - -
Michael J. Moss (2) 1995 $240,000 - $428,200 - -
President 1994 $240,000 - $174,100 500,000
of Index 1993 $284,800 - - -
Allyson D. Laackman (3) 1995 $133,200 $ 14,100 - - -
Chief Financial 1994 $125,000 $ 5,800 - -
Officer 1993 $ 96,500 $ 7,100 - 125,000
Philip A. Tanzar (4) 1995 $122,000 $ 16,700 - - -
Director and Vice 1994 $117,000 $ 2,600 - -
President and 1993 $ 99,000 $ 7,500 - -
General Counsel
</TABLE>
________________________________
(1) Mr. Meyer's bonuses relate to the prior fiscal years. Mr. Meyer earned a
$349,600 bonus for fiscal 1995, which was paid in fiscal 1996.
(2) Mr. Moss's 500,000 options expired June 30, 1995. Other annual compensation
is commissions.
(3) Ms. Laackman became Chief Financial Officer effective September 14, 1992.
Ms. Laackman earned a $24,700 bonus for fiscal 1995, which was paid in
fiscal 1996. Also, Ms. Laackman was paid in August, 1995 a $50,000 bonus
related to fiscal 1996.
(4) Mr. Tanzar became a Director effective February, 1994 and Vice President and
General Counsel effective March, 1993.
(5) The options have been restated for the November, 1994 one-for-four reverse
split.
-24-
<PAGE>
FISCAL 1995 OPTION GRANTS TABLE
The following table sets forth stock options granted to the Registrant's
chief executive officer and the Registrant's three other most highly compensated
executive officers during fiscal 1995. Under Securities and Exchange Commission
regulations, companies are required to project an estimate of appreciation of
the underlying shares of stock during the option term. The Registrant has
chosen the 5% - 10% formula approved by the SEC. However, the ultimate value
will depend on the market value of the Registrant's stock at a future date,
which may or may not correspond to the projections below.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
% of Appreciation
Total Options for Option Term
Granted to -----------------------
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- -------------------- -------- ------------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
No options were granted to the Registrant's chief executive officer or the
Registrant's three other most highly compensated executive officers during
fiscal 1995.
-25-
<PAGE>
FISCAL 1995 OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth options exercised by the Registrant's chief
executive officer and the Registrant's three other most highly compensated
executive officers during fiscal 1995, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers to
options having an exercise price which is less than the market price of the
Registrant's stock on June 30, 1995. On that date none of the Registrant's
executive officers held exercisable options which were "in-the-money".
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
June 30, 1995 June 30, 1995
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ------------------- --------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Burton J. Meyer - - 1,350,000/0 $0/0
Michael J. Moss - - 0/0 $0/0
Allyson D. Laackman - - 125,000/0 $0/0
Philip A. Tanzar - - 25,000/0 $0/0
</TABLE>
-26-
<PAGE>
Compensation of Directors
Directors are not currently compensated in connection with their duties as
directors, but may be reimbursed for expenses incurred by them.
Executive Employment Contracts
Mr. Meyer's employment agreement, effective July 1, 1994, provides, among
other things, that he serve as the Registrant's President and for a base annual
compensation of $300,000 for a term ending July 1, 1996. In addition to his
base annual compensation, Mr. Meyer is entitled to an incentive bonus if certain
pre-tax earnings levels are achieved, or if such pre-tax earnings levels are not
achieved, Mr. Meyer may receive a discretionary bonus.
In the event that the terms of Mr. Meyer's employment agreement are not
extended by the Registrant, for reasons other than "good cause", on terms
substantially equivalent to the current terms, the Registrant is obligated to
pay Mr. Meyer a severance of $300,000 plus an amount equal to the bonus for the
previous fiscal year.
Ms. Laackman's two year employment agreement, effective September 14, 1992,
provides, among other things, that she serve as the Registrant's Chief Financial
Officer and for a base annual compensation of $120,000 during the first year and
$125,000 during the second year. In addition to her base annual compensation,
Ms. Laackman is entitled to a guaranteed bonus of $10,000 per annum and a
discretionary bonus at the discretion of the Board of Directors.
Ms. Laackman's employment agreement, effective September 14, 1994, provides,
among other things, that she serve as the Registrant's Chief Financial Officer
and for a base annual compensation of $135,000 for a term ending December 31,
1995. In addition to her base annual compensation, Ms. Laackman is entitled to
a discretionary bonus which may not exceed 100% of her base salary.
Effective July 1, 1995, Ms. Laackman signed another employment agreement
which supersedes the September 14, 1994 agreement. This agreement provides,
among other things, that she serve as the Registrant's Chief Financial Officer
and for a base annual compensation of $135,000 for a term ending June 30, 1996.
In addition to her base annual compensation, Ms. Laackman is entitled to an
annual bonus if certain pre-tax earnings levels are achieved.
In the event that the terms of Ms. Laackman's employment are not extended by
the Registrant, for reasons other than "good cause", on terms substantially
equivalent to the current terms,
-27-
<PAGE>
the Registrant is obligated to pay Ms. Laackman a severance equal to nine months
of base salary. The severance may be reduced under certain circumstances.
Mr. Tanzar's employment agreement, effective November 1, 1993, provides,
among other things, that he serve as the Registrant's Vice President and General
Counsel and for a base annual compensation of $122,000 for a term ending
December 31, 1995. In addition to his base annual rate of compensation, Mr.
Tanzar is entitled to a guaranteed bonus of $5,000 per annum. However, such
bonus may exceed $5,000 as determined by the President of the Registrant.
In the event that the terms of Mr. Tanzar's employment are not extended by
the Registrant for reasons other than "good cause", on terms substantially
equivalent to the current terms, the Registrant is obligated to pay Mr. Tanzar a
severance of $100,000.
Mr. Moss's letter of understanding dated August 4, 1993 provides, among other
things, that he serve as President of Index and for a monthly draw of $20,000
against commissions earned for the term of employment a term ending June 30,
1995. Mr. Moss's agreement was extended, on July 1, 1995, until June 30, 1997.
In the event that the terms of Mr. Moss's letter of understanding are not
renewed under the same general terms or he is terminated without cause, Index is
obligated to pay Mr. Moss any commissions due him for the nine months following
the termination without cause or the expiration and non-renewal of the letter of
understanding.
Compensation Committee Interlocks and Insider Participation
Compensation Decisions
The Registrant does not have a compensation committee. Mr. Burton J. Meyer,
President and a Director of the Registrant, participates in the negotiations of
employment agreements for executive officers of the Registrant.
-28-
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 31, 1995, certain information
regarding the common stock beneficially owned by each present director, the
Registrant's chief executive officer and the Registrant's three other most
highly compensated officers, each person known by the Registrant to own more
than five percent or more of the common stock of the Registrant and all present
officers and directors as a group:
<TABLE>
<CAPTION>
Amount and
Nature of Approximate
Beneficial Percent
Name Ownership of Class
- -------------------------- ---------- ------------
<S> <C> <C>
Lee S. Casty (1) (2) (3) 16,714,453 49.71%
Burton J. Meyer (4) 3,071,074 8.78
Joel M. Eidelstein 127,975 .38
George A. Myers 3,666 .01
Allyson D. Laackman (5) 125,000 .37
Michael J. Moss 1,801,063 5.36
Philip A. Tanzar (6) 25,000 .07
All officers and directors
as a group (7 persons) 5,178,778 14.73
</TABLE>
(1) Does not give effect to 400,000 shares of Class A Preferred Stock, $1.00
par value, one vote per share, beneficially owned by Mr. Casty and
constituting 100% of the issued and outstanding Class A Preferred Stock of
the Registrant. By giving effect to one vote per share of the Class A
Preferred Stock the percentage of the total number of votes that can be
cast by Mr. Casty will increase.
(2) Mr. Casty may be deemed a parent and promoter of the Registrant as those
terms are defined under the Securities Act of 1933, as amended.
(3) c/o French-American Securities, Inc., 200 West Adams Street, Suite 1500,
Chicago, Illinois 60606.
(4) Includes 1,350,000 exercisable options, of which beneficial ownership can
be acquired.
(5) Includes 125,000 exercisable options, of which beneficial ownership can be
acquired.
(6) Includes 25,000 exercisable options, of which beneficial ownership can be
acquired.
-29-
<PAGE>
In July, 1994, the Registrant offered to holders of record of its common
stock, the non-transferable right to purchase, at a subscription price of $.02
per share, two-thirds of a share of common stock for each one share of common
stock owned of record on July 15, 1994, by such shareholder ("Rights Offering").
53,799,304 shares of common stock were available in the Rights Offering.
Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer the
Registrant's President and a director and Michael J. Moss, President of Index,
purchased their allocable number of shares in the Rights Offering. In addition,
Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02,
immediately following the expiration of the Rights Offering, the shares of
common stock which were not purchased by other shareholders so that all
53,799,304 shares of common stock available were purchased. The gross proceeds
of the Rights Offering were $1,076,000.
The Registrant, on October 24, 1994, received shareholder approval to amend
its Certificate of Incorporation which resulted in a reverse split of its common
stock, effective November 4, 1994, on a basis whereby each four shares of common
stock was reclassified and changed into one share of common stock having a par
value of $.004.
ITEM 13 - CERTAIN TRANSACTIONS
Effective November 30, 1985, Mr. Casty, the principal shareholder, loaned
the Registrant $400,000 evidenced by a "satisfactory subordination agreement"
approved by the regulatory authorities to which the Registrant is subject. This
subordinated loan was due to mature on December 1, 1988. On March 5, 1986, the
Registrant amended its Articles of Incorporation to authorize 400,000 shares of
Preferred Stock, par value $1.00 per share, 10% cumulative, all of which
Preferred Stock was thereupon issued to Mr. Casty in satisfaction of such
subordinated loan. The Preferred Stock is redeemable, with cumulative
dividends, at the option of the Registrant under certain circumstances. At June
30, 1995, cumulative dividends in arrears amounted to $373,300. No liability
for these dividends has been recorded as dividends are not payable until
declared. As part of the Merger, the Articles of Incorporation of the
Registrant were amended and the Preferred Stock was redesignated "Class A
Preferred Stock."
In January, 1995, all notes payable due to the principal shareholder
aggregating $940,000 were extended to January 31, 1996.
The Registrant, during the year ended June 30, 1995, paid Mr. Casty,
approximately $116,200 in interest on notes payable.
-30-
<PAGE>
The Registrant, during the year ended June 30, 1995, earned $52,400 of
interest income on a note receivable from SRC, a company wholly-owned by Mr.
Casty. Also during the year, Mr. Casty collateralized the note with deposits at
Index.
In January, 1995, all notes payable due to French-American Securities,
Inc., a company wholly-owned by Mr. Casty, aggregating $5,750,000 were extended
to January 31, 1996.
In March, 1995, the Registrant repaid French-American Securities, Inc.
$1,200,000 of a $3,000,000 note payable due January 31, 1996.
The Registrant, during the year ended June 30, 1995, paid French-American
Securities, Inc. $664,100 in interest on notes payable.
In September, 1994, the Registrant repaid Mr. Burton J. Meyer, President
and a Director, $100,000 of a $250,000 note payable due January 31, 1995.
In January, 1995, all notes payable due to Mr. Meyer aggregating $900,000
were extended to January 31, 1996.
The Registrant during the year ended June 30, 1995 paid Mr. Meyer $113,800
in interest on notes payable.
The Registrant, during the year ended June 30, 1995, paid Mr. Meyer $64,000
for rent of an exchange membership.
Pursuant to the Rights Offering, Mr. Casty, Mr. Meyer and Michael J. Moss,
President of Index, immediately following the expiration of the Rights Offering,
purchased, in addition to their allocable number of shares in the Rights
Offering, 9,768,516, 4,884,259 and 4,884,259 shares, respectively, of the
Registrant's common stock at the subscription price of $.02 per share. Such
shares were the shares not purchased by other shareholders during the Rights
Offering.
-31-
<PAGE>
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
The following financial statements are attached to this Form 10-K
commencing on page 36.
Page
----
Report of Independent Public Accountants 36
Consolidated Statements of Financial Condition
as of June 30, 1995 and 1994 37
Consolidated Statements of Operations for the Years
Ended June 30, 1995, 1994 and 1993 38
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1995, 1994 and
1993 as Restated for the One-For-Four Reverse Split of
Common Stock 39
Consolidated Statements of Changes in Liabilities
Subordinated to Claims of General Creditors for
the Years Ended June 30, 1995, 1994 and 1993 40
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1995, 1994 and 1993 41
Notes to Consolidated Financial Statements 43
(2) Schedules
Schedule II - Valuation and qualifying accounts 57
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
-32-
<PAGE>
(3) Exhibits
The following exhibits required by Item 601 of Regulation S-K to be filed
herewith are incorporated by reference to previously filed documents:
Exhibit No. Description
----------- -----------
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 27,
1993 with the Securities and Exchange Commission:
10.31 Employment agreement, dated September 14, 1992, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman.
10.34 Letter of understanding, dated August 4, 1993, between Index
Futures Group, Inc. and Michael Moss.
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 28,
1994 with the Securities and Exchange Commission:
3.1 Certificate of Incorporation of 312 Merger Coporation
3.2 By-Laws of 312 Merger Corp.
3.3 Certificate of Ownership and Merger of Jack Carl/312-
Futures, Inc. (an Illinois Corporation) into 312 Merger
Corporation (a Delaware Corporation)
10.35 Employment agreement, dated November 1, 1993, between Jack
Carl/312-Futures, Inc. and Philip A. Tanzar.
10.36 Employment agreement, dated January 7, 1994, between Jack
Carl/312-Futures, Inc. and Anthony J. Pecoraro.
10.37 Employment agreement dated July 1, 1994, between Jack
Carl/312-Futures, Inc. and Burton J. Meyer.
-33-
<PAGE>
The following exhibits are filed herewith:
10.38 Employment agreement, dated September 14, 1994, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman
10.39 Employment agreement, dated July 1, 1995, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman
10.40 Letter containing terms of employment, dated January 27,
1995, between Index Futures Group (UK) Limited and Charles
Romilly
10.41 Letter of understanding, dated July 1, 1995, between Index
Futures Group, Inc. and Michael Moss
11.1 Computation of Earnings per Common Share
21.1 Subsidiaries of the Registrant
24.1 Power of Attorney
27 Financial Data Schedule (Edgar Version Only)
(b) Reports on Form 8-K. There were no reports filed on Form 8-K for the three
months ended June 30, 1995.
-34-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JACK CARL/312-FUTURES, INC.
- --------------------------------------------------------------------------------
By: /S/ BURTON J. MEYER
----------------------------------------------------------------------------
Burton J. Meyer, President
Date: September 22, 1995
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Burton J. Meyer his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him in his name, place and stead, in any
and all capacities, to sign this Form 10-K and all amendments thereto and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/BURTON J. MEYER President and Director September 22, 1995
- ----------------------
Burton J. Meyer
/S/ALLYSON D. LAACKMAN Chief Financial Officer September 22, 1995
- ----------------------
Allyson D. Laackman
/S/JOEL M. EIDELSTEIN Director September 22, 1995
- ----------------------
Joel M. Eidelstein
/S/GEORGE A. MYERS Director September 22, 1995
- ----------------------
George A. Myers
/S/PHILIP A. TANZAR Director September 22, 1995
- ----------------------
Philip A. Tanzar
-35-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders of
Jack Carl/312-Futures, Inc.
and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of JACK CARL/312-FUTURES, INC. (a Delaware corporation) AND
SUBSIDIARIES as of June 30, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, changes in
liabilities subordinated to claims of general creditors and cash flows for the
years ended June 30, 1995, 1994 and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jack Carl/312-Futures, Inc.
and Subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for the years ended June 30, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 22, 1995
-36-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Cash $ 1,034,900 $ 1,862,300
Cash segregated or secured under Commodity Exchange Act 1,181,700 3,279,800
U.S. Government obligations 82,885,600 123,783,900
Deposits with clearing organizations 78,030,700 52,882,800
Warehouse receipts 1,537,200 963,700
Receivables:
Brokers and dealers 9,253,400 5,313,200
Clearing organizations 12,627,900 10,906,400
1995 1994
---------- ---------
Customers $1,152,200 $ 915,800
Affiliates 7,300 13,800
Other 379,100 366,200
Less - Allowance for doubtful accounts (191,900) (506,600) 1,346,700 789,200
---------- ---------
Investments in and advances to affiliated partnerships 39,100 44,400
Notes receivable 633,700 641,300
Exchange memberships, at cost (market value of $1,228,100
in 1995 and $955,500 in 1994) 781,300 652,300
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $1,602,800
in 1995 and $1,379,000 in 1994 682,900 608,900
Goodwill, net of accumulated amortization of $4,054,500
in 1995 and $4,000,900 in 1994 541,900 595,500
Other assets 355,400 482,500
------------ ------------
Total $190,932,400 $202,806,200
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Payables:
Clearing organizations $ 185,900 $ 6,000
Customers 168,500,000 181,590,900
Officers and employees 2,221,500 3,888,400
Accounts payable and accrued expenses 4,580,900 3,754,400
Notes payable 6,390,000 7,690,000
------------ ------------
Total 181,878,300 196,929,700
------------ ------------
Liabilities subordinated to claims of general creditors 1,690,000 2,000,000
------------ ------------
Stockholders' equity:
Class A preferred stock, $1 par value; 10% cumulative,
redeemable, 400,000 shares authorized and outstanding 400,000 400,000
Common stock, restated for reverse split, $.004 par value;
150,000,000 shares authorized, 33,624,532 and 20,174,739
shares issued and outstanding in 1995 and 1994, respectively 134,500 80,700
Paid-in capital 8,395,300 7,373,100
Retained deficit (1,565,700) (3,977,300)
------------ ------------
Total stockholders' equity 7,364,100 3,876,500
------------ ------------
Total $190,932,400 $202,806,200
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-37-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Commissions $33,665,000 $33,529,100 $32,739,100
Interest 7,365,000 3,389,700 3,403,000
Trading gains (losses), net 164,900 330,300 223,400
Other 463,400 316,200 304,900
----------- ----------- -----------
Total revenues 41,658,300 37,565,300 36,670,400
----------- ----------- -----------
Expenses:
Commissions, floor brokerage and clearing costs 18,381,900 19,580,400 20,939,400
Compensation and related benefits 8,948,100 7,605,400 7,401,600
Interest 3,323,000 1,807,700 1,374,200
Communications 1,672,000 1,973,500 1,781,300
Business promotion 1,680,000 1,222,300 1,064,800
Rent and other occupancy costs 1,465,900 1,382,600 1,255,000
Professional and consulting fees 451,100 897,200 532,300
Depreciation 234,800 254,900 325,300
Amortization of goodwill 53,600 53,600 53,600
Doubtful accounts expense (benefit) (586,000) 49,100 (155,700)
Other 2,086,100 1,746,300 1,789,700
----------- ----------- -----------
Total expenses 37,710,500 36,573,000 36,361,500
----------- ----------- -----------
Income before income taxes 3,947,800 992,300 308,900
Income tax expense 1,536,200 406,200 149,600
----------- ----------- -----------
Net income 2,411,600 586,100 159,300
Assumed cumulative dividend on Class A preferred stock (40,000) (40,000) (40,000)
----------- ----------- -----------
Net income applicable to common stock $ 2,371,600 $ 546,100 $ 119,300
=========== =========== ===========
Primary earnings per share, restated for reverse split:
Net income $ .08 $ .03 $ .01
=========== =========== ===========
Weighted average number of shares outstanding 30,680,524 20,175,612 20,178,239
=========== =========== ===========
Fully diluted earnings per share, restated for
reverse split:
Net income $ .08 $ .03 $ .01
=========== =========== ===========
Weighted average number of shares outstanding 30,680,524 20,175,612 20,178,239
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-38-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK)
<TABLE>
<CAPTION>
Class A Common Stock
Preferred ------------ Paid-In Retained
Stock Shares Amount Capital Deficit Total
--------- ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $400,000 20,178,239 $ 80,700 $7,377,900 $(4,722,700) $3,135,900
Net income - - - - 159,300 159,300
-------- ---------- -------- ---------- ----------- ----------
Balance June 30, 1993 400,000 20,178,239 80,700 7,377,900 (4,563,400) 3,295,200
Conversion of redeemable
convertible preferred stock - (3,500) - (4,800) - (4,800)
Net income - - - - 586,100 586,100
-------- ---------- -------- ---------- ----------- ----------
Balance June 30, 1994 400,000 20,174,739 80,700 7,373,100 (3,977,300) 3,876,500
Issuance of common stock
pursuant to rights offering - 13,449,826 53,800 1,022,200 - 1,076,000
Repurchase of common stock
pursuant to reverse split - (33) - - - -
Net income - - - - 2,411,600 2,411,600
-------- ---------- -------- ---------- ----------- ----------
Balance June 30, 1995 $400,000 33,624,532 $134,500 $8,395,300 $(1,565,700) $7,364,100
======== ========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-39-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
<S> <C>
Balance, June 30, 1992 $ 225,000
Maturities (225,000)
-----------
Balance, June 30, 1993 -
New borrowings 2,000,000
-----------
Balance, June 30, 1994 2,000,000
New borrowings 1,190,000
Reissuance 2,000,000
Reductions:
Repayments (1,500,000)
Maturities (2,000,000)
-----------
Balance, June 30, 1995 $ 1,690,000
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-40-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,411,600 $ 586,100 $ 159,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 288,400 308,500 378,900
Deferred taxes 315,600 175,000 286,100
Doubtful accounts expense (benefit) (586,000) 49,100 (155,700)
Gain on sale of assets - (8,500) (200)
Equity in net loss of affiliated partnerships 18,700 7,900 17,100
Changes in:
Cash segregated or secured under
Commodity Exchange Act 2,098,100 (1,726,700) (746,200)
U.S. Government obligations 40,898,300 (19,094,900) (1,686,400)
Deposits with clearing organizations (25,147,900) (23,442,900) (3,019,500)
Warehouse receipts (573,500) (234,400) 91,600
Receivables (5,633,200) (6,503,900) (2,290,800)
Other assets (188,500) 34,900 (150,200)
Payables (14,577,900) 49,007,500 10,442,400
Accounts payable and accrued expenses 826,500 1,325,500 1,306,200
------------ ------------ -----------
Cash provided by operating activities 150,200 483,200 2,020,200
------------ ------------ -----------
Cash Flows From Investing Activities:
(Increase) decrease in investments in and advances
to affiliated partnerships (13,400) 98,000 406,100
Decrease in notes receivable 7,600 30,000 18,900
Purchase of exchange membership (130,000) - (6,600)
Purchase of furniture, equipment and leasehold
improvements (357,800) (227,900) (124,500)
Rebate from purchase of equipment 50,000 - -
Proceeds from sale of assets - 8,500 3,200
------------ ------------ -----------
Cash provided by (used in) investing activities (443,600) (91,400) 297,100
------------ ------------ -----------
Cash Flows From Financing Activities:
Increase in liabilities subordinated
to claims of general creditors 1,190,000 2,000,000 -
Repayment of liabilities subordinated to claims of
general creditors (1,500,000) - -
Repayments of notes payable (1,300,000) (1,925,600) (750,000)
Conversion of redeemable convertible preferred stock - (4,800) -
Issuance of common stock pursuant to rights offering 1,076,000 - -
------------ ------------ -----------
Cash provided by (used in) financing activities (534,000) 69,600 (750,000)
------------ ------------ -----------
Increase (decrease) in cash (827,400) 461,400 1,567,300
Cash (bank overdrafts), beginning of period 1,862,300 1,400,900 (166,400)
------------ ------------ -----------
Cash, end of period $ 1,034,900 $ 1,862,300 $ 1,400,900
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-41-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
1995
Notes payable aggregating $7,590,000, due January 31, 1995 were extended to
January 31, 1996, of which $1,200,000 was subsequently repaid.
In March, 1995 a subordinated loan in the amount of $2,000,000 was extended
to February 28, 1996.
1994
Notes payable aggregating $3,700,600, due July 31, 1993 were extended to
July 31, 1994. A $540,000 note payable due July 31, 1993 was extended to
January 1, 1994 and subsequently extended to January 31, 1994.
A $250,000 note payable due November 1, 1993 was extended to November 1,
1994. Notes payable aggregating $5,000,000 due December 31, 1993 were extended
to January 31, 1994.
In February, 1994, all notes payable due at various dates, were extended to
January 1995.
1993
Notes payable in the amount of $3,140,600 due July 31, 1992 were extended
to July 31, 1993 and $250,000 of a $1,000,000 note payable due July 31, 1992 was
extended to July 31, 1993. A $250,000 note payable due November 1, 1992 was
extended to November 1, 1993. Notes payable in the amounts of $2,000,000 and
$3,000,000 due December 31, 1992 and January 31, 1993, respectively, were
extended to December 31, 1993.
Subordinated loans in the amount of $100,000 and $125,000 which matured on
July 31, 1992 were replaced by notes payable due to the same parties. The new
notes mature July 31, 1993.
-42-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - ORGANIZATION OF JACK CARL/312-FUTURES, INC.
Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the "Company"),
engages principally in the business of effecting transactions in futures and
options on futures contracts for the accounts of customers and the operation of
commodity pools. Index Futures Group, Inc. ("Index"), the principal operating
subsidiary of JC/312, is a registered futures commission merchant with the
Commodity Futures Trading Commission ("CFTC"). Another subsidiary of JC/312 is
a registered broker-dealer.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of JC/312 and
its wholly-owned subsidiaries, Index, Index Securities, Inc., Brokers Resource
Corp. and Jack Carl Management and Trading, Inc. as well as those of its
majority-owned subsidiary, Stark Research, Inc. All material intercompany
accounts and transactions are eliminated in consolidation.
REVENUE RECOGNITION
Commission revenues on commodity futures and options transactions and
related commission expenses are recorded on a half-turn basis.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are valued at market. The change in unrealized
appreciation on house and customer funds invested in U.S. Government obligations
is reflected in interest income.
INVESTMENTS IN PARTNERSHIPS
The investments in partnerships are accounted for on the equity method.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the lesser of their useful lives or the
remaining terms of the leases.
-43-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
The excess of cost over estimated fair value of net assets acquired is
reflected as goodwill and is being amortized over twenty years. Goodwill arose
as a result of business combinations which occurred in 1985 and 1986.
CUSTOMER-OWNED SECURITIES
Customer-owned securities are reflected at market value in the consolidated
statements of financial condition. This presentation has no effect on
stockholders' equity. At June 30, 1995 and 1994, the total market value of
customer-owned securities included in the consolidated statements of financial
condition as both assets and liabilities was $45,768,800 and $48,059,300,
respectively.
INCOME TAXES
Deferred income taxes are provided to reflect the tax effects of timing
differences between financial and tax reporting. The nature of the timing
differences are discussed in footnote 11.
EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number
of shares of common stock outstanding during each year, adjusted for the effect
of common stock equivalents arising from the assumed exercise of stock options,
if dilutive. The earnings per share data has been restated for the November,
1994 one-for-four reverse split of common stock.
RECLASSIFICATION
Certain amounts previously reported have been reclassified to conform to
the current method of presentation.
-44-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - ASSETS SEGREGATED AND SECURED UNDER COMMODITY EXCHANGE ACT
Under the Commodity Exchange Act, Index is required to segregate all
balances due to customers in connection with transactions in regulated
commodities. In addition, in accordance with CFTC Regulation 30.7, Index is
required to secure all balances due to U.S. customers for activities in foreign
futures or options. Segregated and secured assets included in the consolidated
statements of financial condition at June 30, are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash $ 1,181,700 $ 3,279,800
U.S. Government obligations 81,482,000 123,105,300
Deposits with clearing
organizations 69,531,900 47,651,800
Receivables from clearing
organizations, net 12,043,300 10,517,600
Receivables from brokers and dealers 8,436,200 4,821,100
Warehouse receipts 1,537,200 963,700
------------ ------------
Total segregated and
secured assets $174,212,300 $190,339,300
============ ============
Amount required to be
segregated and secured $167,730,300 $181,115,700
============ ============
</TABLE>
NOTE 4 - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations, including house and customer funds,
at June 30, are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
U.S. Government obligations $ 75,964,600 $ 51,509,300
Guarantee deposits 1,163,700 960,400
Stock in exchange clearing organization
at cost (market value of $960,000)
in 1995 and $896,000 in 1994 360,000 360,000
Cash margins 542,400 53,100
------------ ------------
Total $ 78,030,700 $ 52,882,800
============ ============
</TABLE>
-45-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 5 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS
Index Management Services, Inc. ("IMSI"), a subsidiary of Index, as a
general partner, has invested in commodity pools and was a Co-general partner of
Index Asset Management Partners ("IAMP"), which was a general partner of a
commodity pool. In addition, IMSI is also the sponsor of an exempted Cayman
Islands limited liability company which is in the process of liquidation. At
June 30, the investment in and advances to such entities consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Investment $28,000 $31,700
Advances 11,100 12,700
------- -------
Total $39,100 $44,400
======= =======
</TABLE>
IMSI is required to maintain minimum net worth and investments in the
commodity pools as defined in the commodity pool partnership agreements. At
June 30, 1995, IMSI is in compliance with those requirements. The commodity
pool of which IAMP was the General Partner liquidated during the year ended June
30, 1994. Index provides commodity brokerage services to the remaining active
pool at agreed upon rates and IMSI currently receives administrative fees from
that pool.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Principal stockholder,
interest at prime plus 4%, due:
January 31, 1996 and January 31, 1995 $ 540,000 $ 540,000
January 31, 1996 and January 31, 1995 400,000 400,000
Affiliates and other related parties,
interest at prime plus 4%, due:
January 31, 1996 and January 31, 1995 750,000 750,000
January 31, 1996 and January 31, 1995 150,000 250,000
January 31, 1996 and January 31, 1995 2,000,000 2,000,000
January 31, 1996 and January 31, 1995 1,800,000 3,000,000
January 31, 1996 and January 31, 1995 750,000 750,000
---------- ----------
Total $6,390,000 $7,690,000
========== ==========
</TABLE>
-46-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 6 - NOTES PAYABLE (CONTINUED)
Interest paid on notes payable during the years ended June 30, 1995, 1994
and 1993 was $894,100, $764,000 and $703,600, respectively, substantially all of
which was paid to related parties.
The weighted average interest rates on short-term borrowings outstanding at
June 30, 1995 and 1994 are 12.9% and 10.8%, respectively. Short-term borrowings
include notes payable and liabilities subordinated to claims of general
creditors. The weighted average interest rate was calculated by dividing
interest expense by the related average amount outstanding in June.
At June 30, 1995, all notes payable mature during the year ended June 30,
1996.
NOTE 7 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors at June 30, consist
of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Bank, interest at prime plus 3% and
prime plus 2% due February 28, 1996
and March 9, 1995 $1,690,000 $2,000,000
========== ==========
</TABLE>
These liabilities are borrowed in accordance with the terms of a revolving
subordinated debt line totalling $4,000,000. Had any of the remaining funds
been borrowed, Index's regulatory capital would have increased on a dollar for
dollar basis.
Interest expense on liabilities subordinated to claims of general creditors
during the years ended June 30, 1995, 1994, and 1993 was $234,100, $54,400 and
$1,600, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
RIGHTS OFFERING
In July, 1994, the Company offered to its common stockholders the non-
transferable right to purchase, at a subscription price of $.02 per share, two-
thirds of a share of common stock for each one share of common stock owned of
record on July 15, 1994. 53,799,304 shares of common stock were available and
purchased in the Rights Offering. The gross proceeds of the Rights Offering
were $1,076,000.
-47-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
CLASS A PREFERRED STOCK
The Company has issued 400,000 shares of Class A preferred stock, 10%
cumulative, to its principal stockholder. The shares are redeemable at par,
with accumulated dividends, at the option of the Company. At June 30, 1995,
cumulative dividends in arrears amounted to $373,300 or $.93 per share. No
liability for these dividends has been recorded as dividends are not payable
until declared.
COMMON STOCK
Effective at the close of business November 4, 1994, the Company effected a
one-for-four reverse split of its common stock, par value $.001. Each four
shares of such common stock were reclassified and changed into one share of
common stock having a par value of $.004. Pursuant to the reverse split, the
Company is obligated to pay any holder of fractional shares resulting from the
reverse split $.05 per share of common stock up to a maximum of $.15 for three
shares. At the close of business on November 4, 1994, the outstanding shares of
common stock were reduced to approximately 33,624,565 shares from 134,498,260
shares before the reverse split. As the result of the repurchase of fractional
shares, there are outstanding as of June 30, 1995, 33,624,532 shares of common
stock.
All outstanding share, earnings per share and weighted average information
has been restated to reflect the one-for-four reverse split of common stock.
STOCK OPTION PLAN
In March, 1986, the Company adopted an incentive stock option plan
reserving 500,000 shares of common stock. In December, 1990, the Company
granted options for 410,000 shares at the then market price exercisable through
December, 2000. The Company also has granted options other than in accordance
with the March 1986 incentive stock option plan.
In January, 1995, the Company granted to two officers options totalling
250,000 shares of common stock exercisable from January 3, 1995 until the
termination of their respective agreements. On June 30, 1995, options granted
in May, 1994 expired and options for 500,000 shares of common stock were
-48-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
forfeited. The following summarizes, after restatement for the November 4, 1994
one-for-four reverse stock split, all outstanding options at June 30, 1995.
<TABLE>
<CAPTION>
Shares Shares Shares Shares Shares
Granted Price Exercisable Forfeited Cancelled Remaining
------- ----- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dec.
1990 410,000 $.60 340,000 50,469 19,531 340,000
Feb.
1992 125,000 $.25 125,000 - - 125,000
May
1992 75,000 $.60 50,000 25,000 - 50,000
Sept.
1992 125,000 $.375 125,000 - - 125,000
Feb.
1994 1,250,000 $.24 1,250,000 - - 1,250,000
May
1994 500,000 $.24 - 500,000 - -
Jan.
1995 250,000 $.125 250,000 - - 250,000
--------- --------- ------- ------ ---------
Total 2,735,000 2,140,000 575,469 19,531 2,140,000
========= ========= ======= ====== =========
</TABLE>
NOTE 9 - RELATED PARTY TRANSACTIONS
A note receivable in the amount of $633,700 arose in connection with
advances made by the Company to an affiliated entity. These demand receivables
were converted into a demand note bearing interest at 8% and was subsequently
changed to the prime rate of interest. This note was fully collateralized by
deposits at Index as of June 30, 1995. The Company earned $52,400, $39,000 and
$33,100 of interest income on this note during the years ended June 30, 1995,
1994 and 1993, respectively.
The Company rents from an officer and director, an exchange membership
having a market value at June 30, 1995 of approximately $760,000. The Company,
for six months during the
-49-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
year ended June 30, 1993, also rented an exchange membership from another
officer. Rent expense for the years ended June 30, 1995, 1994 and 1993 was
$64,000, $49,200 and $73,400, respectively.
Certain exchange memberships owned by officers and others, having an
aggregate market value of $5,310,000 have been pledged to various exchange
clearinghouses or corporations on behalf of the Company and may be used by them
under certain circumstances to fulfill the Company's obligations to those
clearinghouses or corporations. These exchange memberships are not included in
the Company's consolidated statements of financial condition. The Company in the
ordinary course of business, guarantees certain loans which are secured by
exchange memberships owned by an individual who is an officer and director, and
by the principal shareholder.
The Company receives funds, in the form of loans, from its principal
shareholder, an affiliated company and an officer and director of the Company.
See Note 6 for the terms and balances at June 30, 1995 and 1994.
Pursuant to the Rights Offering, the principal shareholder, the president
of the Company and the president of Index, immediately following the expiration
of the Rights Offering, purchased, in addition to their allocable number of
shares in the Rights Offering, 9,768,516, 4,884,259 and 4,884,259 shares,
respectively, of the Registrant's common stock at the subscription price of $.02
per share. Such shares were the shares not purchased by other shareholders
during the Rights Offering.
NOTE 10 - SALE OF ASSETS
In January, 1993, Brokers Resource Corp. ("BRC"), at the time a wholly-
owned subsidiary of Index and currently a wholly-owned subsidiary of the
Company, sold the majority of its guaranteed introducing broker business to an
unrelated entity in return for a portion of future earnings on such business
through January 15, 1995. No gain was recognized at the date of the sale due to
the uncertainty of future earnings. During the years ended June 30, 1995, 1994
and 1993, the Company earned $481,900, $982,000 and $525,500, respectively, from
the transaction, which is included in commission income. The revenue stream from
this transaction ended effective January 15, 1995.
-50-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - INCOME TAXES
The provision for Federal income taxes for each of the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current $1,220,600 $ 581,200 $(136,500)
Deferred 315,600 (175,000) 286,100
---------- --------- ---------
Total provision $1,536,200 $ 406,200 $ 149,600
========== ========= =========
</TABLE>
State tax expense is immaterial for the years ended June 30, 1995, 1994 and
1993.
Reconciliation of the total provision for income taxes to the Federal
statutory rate for the years ended June 30, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Amount % Amount % Amount %
---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
At Federal
statutory rate $1,342,300 34.0 $337,400 34.0 $105,000 34.0
Amortization of
goodwill 18,200 .5 18,200 1.8 18,200 5.9
Additional tax due IRS
for 1987-1989
settlement 49,500 1.2 - - - -
Non-deductible loss
of majority-owned
subsidiary 41,200 1.0 40,500 4.1 - -
Additional provision
for current and
deferred taxes 8,800 .9 - - 25,000 8.1
Penalties 45,100 .5 - - - -
Other, net 31,100 .8 10,100 1.0 1,400 .4
---------- ---- -------- ---- -------- ----
Net amounts $1,536,200 38.9 $406,200 40.9 $149,600 48.4
========== ==== ======== ==== ======== ====
</TABLE>
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under this standard,
deferred tax is recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to affect the tax return. Deferred tax assets and liabilities are
adjusted for tax rate changes. The primary components of the Company's deferred
tax assets and liabilities are as follows:
-51-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Bad debt reserve $ 66,100 $ 175,300
Book and tax depreciation
difference 67,500 65,300
Insurance reserve - 56,800
Unrealized loss on U.S.
Government obligations - 30,600
Contingent liability reserve - 28,200
Bonus accrual 65,400 89,700
Accrued legal expense 40,800 -
--------- ---------
Total deferred tax assets $ 239,800 $ 445,900
--------- ---------
Deferred income tax liabilities:
Unrealized gain on U.S.
Government obligations $(135,900) $ -
Common area maintenance reserve - -
Partnership income (26,200) (21,400)
Prepaid rent (18,100) (49,300)
1987-1989 audit adjustment (61,300) (61,100)
Other (1,400) (1,600)
--------- ---------
Total deferred tax liabilities $(242,900) $(133,400)
--------- ---------
Net deferred tax assets
(liabilities) $ (3,100) $ 312,500
========= =========
</TABLE>
No valuation allowance has been provided as management believes deferred
tax assets are realizable.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company has noncancellable leases for office space which expire at
varying dates through the year 2000. Minimum annual rentals, excluding
escalations and increases in operating expenses and taxes, are as follows:
Year Ending June 30, Amount
--------------------- --------
1996 $183,700
1997 164,600
1998 102,500
1999 102,500
2000 and thereafter 119,600
--------
Total $672,900
========
-52-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has entered into employment agreements which expire at varying
dates through fiscal 1997 with certain of its officers, providing for aggregate
minimum annual payments for the years ending June 30, 1996 and 1997 of
approximately $788,500 and $240,000, respectively. Additional compensation is
payable under certain circumstances as defined in the agreements.
The Company has guaranteed performance under the Commodity Exchange Act of
certain introducing brokers with respect to their customer accounts.
Index and BRC issued a limited indemnification agreement to the purchaser
of the BRC business (see Note 10). This agreement covers potential customer
claims arising from activity prior to the sale. No such claims are currently
outstanding.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
The Company, through Index, is in the business of clearing and executing
futures contracts and options on futures contracts for the accounts of its
customers. As such, Index guarantees to the respective clearinghouses its
customers' performance under these contracts. To reduce its risk, Index
requires its customers to meet, at a minimum, the margin requirement established
by each of the exchanges at which the contract is traded. This margin is a good
faith deposit from the customer which reduces the risk to Index of failure on
behalf of the customer to fulfill any obligation under the contract. To
minimize its exposure to risk of loss due to market variation, Index adjusts
these margin requirements, as needed, due to daily fluctuations in the values of
the underlying positions. If necessary, certain positions may be liquidated to
satisfy resulting changes in margin requirements. Management believes that the
margin deposits held at June 30, 1995, were adequate to minimize the risk of
material loss which could be created by the positions held at that time.
At June 30, 1995, Index held proprietary long financial futures positions and
foreign currency forward contracts with an aggregate notional value of
$223,616,200 and proprietary short financial futures positions and foreign
currency forward contracts with an aggregate notional value of $243,566,100.
At June 30, 1994, Index held proprietary long financial futures positions and
foreign currency forward contracts with an aggregate notional value of
$153,761,600 and proprietary short financial futures positions and foreign
currency forward contracts with an aggregate notional value of $153,761,600.
-53-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK (CONTINUED)
The exchange upon which financial futures and options on futures contracts
are traded acts as the counterparty and, accordingly, bears the risk of
performance. At June 30, 1995 Index's open financial contracts were transacted
at the Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange,
Inc. and MidAmerican Commodity Exchange. At June 30, 1995 foreign currency
forward contracts were transacted at DAIWA Securities America, Inc. and Refco,
Inc. At June 30, 1994, Index's open financial contracts were transacted at the
Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange, Inc.
and MidAmerican Commodity Exchange. At June 30, 1994, foreign currency forward
contracts were transacted at First National Bank of Chicago and DAIWA Securities
America, Inc.
NOTE 14 - LITIGATION
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending or threatened action or proceedings will not
have a material effect on the financial position or results of operations of the
Company.
The Company, in October, 1994 settled an Internal Revenue Service
assessment which resulted from the review of its calendar year 1990 customer
income tax withholding filings. The settlement did not materially affect the
financial position or the operations of the Company.
The Company was defending against a complaint filed against Index and BRC,
for alleged negligence and breach of fiduciary duty in conjunction with the
alleged operation of an unregistered commodity pool by a customer of an
introducing broker guaranteed by BRC. Index and BRC filed a motion for summary
judgment. A U.S. District Court entered an order granting Index and BRC's motion
for summary judgment, dismissing the plaintiff's claims in their entirety and
directing that judgment be entered in favor of Index and BRC.
The Company is currently defending against a demand for arbitration filed
by a former client to recover damages of $1,000,000 for misrepresentation of
risk and unauthorized trading. Although the client's actual losses were
approximately $850,000, the Company believes the claims are without merit and
plans to vigorously contest the action. In management's opinion, the ultimate
liability, if any, will not materially affect the financial position or
operations of the Company.
-54-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 14 - LITIGATION (CONTINUED)
The Company is currently defending a complaint filed by former partners of
a general partnership which cleared its trades at the Company. The plaintiffs
allege that the general partner, a co-defendant, defrauded them by failing to
disclose risks and misrepresenting account performance. The Company is alleged
to have aided and abetted the general partner by permitting him to act as a
Commodity Pool Operator without proper registration and by furnishing account
statements and other account data to the general partner which were then altered
by the general partner and used to defraud plaintiffs. Plaintiffs' actual
losses were approximately $157,000. The Company believes the allegations are
without merit and will vigorously defend this action.
In April, 1994, Index without admitting or denying the allegations, paid
$100,000 to the CFTC, settling the administrative action filed on September 29,
1992. The equity receiver of an alleged commodity pool operator brought a
related action which is still pending to recover losses of approximately
$600,000, alleging various theories such as constructive trust, negligence,
breach of fiduciary duty and conversion. Index denies the allegations, believes
they are without merit and intends to defend this action vigorously.
NOTE 15 - CAPITAL REQUIREMENTS
Index is subject to the minimum capital requirements adopted and
administered by the Commodity Futures Trading Commission ("CFTC") and by certain
exchanges of which Index is a member. As of June 30, 1995, adjusted net capital,
as defined, of $12,811,600 is $6,803,600 in excess of the minimum required under
the regulations of the CFTC and exchanges. The net capital requirements may
effectively restrict the payment of cash dividends and the repayment of
subordinated borrowings.
A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted
and administered by the Securities and Exchange Commission. At June 30, 1995,
the subsidiary is in compliance with those requirements.
NOTE 16 - NASDAQ LISTING
On August 17, 1994, the Company was advised by NASDAQ that the securities
of the Company were delisted from the NASDAQ SmallCap Market effective August
18, 1994. The Company appealed NASDAQ's decision and secured additional market
makers. On December 7, 1994, the Company's common stock resumed trading on the
NASDAQ SmallCap Market.
-55-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 17 - CASH FLOWS
For purposes of reporting cash flows, cash does not include segregated or
secured cash, as defined in the Commodity Exchange Act. Interest paid during
the years ended June 30, 1995, 1994 and 1993 amounted to $3,194,300, $1,706,300
and $1,367,400, respectively. The Company made income tax payments in the
amount of $444,600 and $185,000 during the years ended June 30, 1995 and 1994,
respectively, and made no income tax payments during the year ended June 30,
1993.
-56-
<PAGE>
SCHEDULE II
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
----------------------
Charged to
(Benefits Charged
Balance at Against) to Other Balance
Beginning Costs and Accounts Deductions at End of
Description of Period Expenses (Describe) (Describe) Period
- ------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful
accounts
For the year
ended June 30,
1995: $ 506,600 $(586,000) $323,900(b) $ (52,600)(a) $191,900
For the year
ended June 30,
1994: $ 613,200 $ 49,100 $ - $(155,700)(a) $506,600
For the year
ended June 30,
1993: $1,380,000 $(155,700) $ - $(611,100)(a) $613,200
</TABLE>
(a) Uncollected receivables written off.
(b) Collection of receivables previously written off.
-57-
<PAGE>
EXHIBIT INDEX
-------------
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these exhibits, see Item 14 hereof.
<TABLE>
<CAPTION>
Page In
Sequentially
Numbered System
Where Found
---------------
Exhibit No. Description
- ----------- -----------
<C> <S> <C>
The following exhibits are filed herewith:
10.38 Employment agreement, dated September
14, 1994, between Jack Carl/312-Futures,
Inc. and Allyson D. Laackman 62
10.39 Employment agreement, dated July 1, 1995,
between Jack Carl/312-Futures, Inc. and
Allyson D. Laackman 75
10.40 Letter containing terms of employment,
dated January 27, 1995, between Index
Futures Group (UK) Limited and
Charles Romilly 88
10.41 Letter of understanding, dated July 1,
1995, between Index Futures Group, Inc.
and Michael Moss 91
11.1 Computation of Earnings
Per Common Share 59
21.1 Subsidiaries of the Registrant 61
24.1 Power of Attorney 35
</TABLE>
-58-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. & SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Primary
- -------
Earnings
Income before
extraordinary item $ 2,411,600 $ 586,100 $ 159,300
Deduct assumed dividends on
Class A preferred stock (40,000) (40,000) (40,000)
----------- ----------- -----------
Net income applicable
to common stock $ 2,371,600 $ 546,100 $ 119,300
=========== =========== ===========
Shares
Weighted average number of
common shares outstanding 30,680,524 20,175,612 20,178,239
=========== =========== ===========
Primary earnings per
common share:
Net income $ .08 $ .03 $ .01
=========== =========== ===========
</TABLE>
-59-
<PAGE>
Exhibit 11.1
JACK CARL/312-FUTURES, INC. & SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Assuming Full Dilution
- ----------------------
Earnings
Net income $2,411,600 $ 586,100 $ 159,300
========== ========== ==========
Shares
Weighted average number of
common shares outstanding 30,680,524 20,175,612 20,178,239
========== ========== ==========
Earnings per common share
assuming full dilution:
Net income $ .08 $ .03 $ .01
========== ========== ==========
</TABLE>
-60-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
As of June 30, 1995, Index Futures Group, Inc., a Delaware Corporation, Brokers
Resource Corp., an Illinois Corporation, Index Securities, Inc., a Delaware
corporation and Jack Carl Management and Trading, Inc., an Illinois corporation,
are the Registrant's wholly-owned subsidiaries. Stark Research, Inc., an
Illinois corporation, is a majority-owned subsidiary of the Registrant. As of
June 30, 1995, Index Management Services, Inc., an Illinois corporation, is the
only subsidiary of Index Futures Group, Inc. Index Management Services, Inc. is
wholly-owned by Index Futures Group, Inc.
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<PAGE>
Exhibit 10.38
EMPLOYMENT AGREEMENT
--------------------
PARTIES: JACK CARL/312-FUTURES, INC., a corporation organized under the
laws of Delaware (the "Company"), and ALLYSON D. LAACKMAN an
Illinois resident ("Employee").
DATE: September 14, 1994
PREAMBLE: The Company operates a full-service commodity brokerage business,
engaged in buying, selling and otherwise dealing in and providing
brokerage services with respect to commodities and interests
therein and relating thereto, having its principal place of
business at 200 West Adams Street, Suite 1500, Chicago, Illinois
60606. Employee, by education and experience, possesses
extraordinary qualifications to serve as a senior executive
officer of the Company. The parties hereto, recognizing the
value of Employee's services to the Company, desire to secure the
employment of Employee on the terms and conditions herein stated.
TERMS:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts employment as the Chief Financial Officer of the Company. Employee
agrees to diligently and faithfully perform such duties of a Chief Financial
Officer as are assigned to her by the Chief Executive Officer of the Company or
the Board
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of Directors of the Company from time to time, subject to the general
supervision, and pursuant to the orders, advice and directions, of the Board of
Directors of the Company. Employee shall devote to her employment her full time
(exclusive of vacation periods, holidays or periods of illness or incapacity)
and best efforts consistent with commodities industry practices, except that
Employee may make investments, including trade commodities futures for her own
account so long as such activities do not interfere with the performance of her
duties hereunder. Further, employee shall be appointed to the Board of
Directors of Index Futures Group, Inc. and other operating subsidiaries as
designated by the Chief Executive Officer.
2. Term. The term of Employee's employment hereunder shall commence on
the date hereof and terminate on December 31, 1995, unless terminated sooner by
the Company, in its sole discretion, in writing, for "good cause" as hereinafter
defined. "Good cause" as used herein shall be deemed to exist upon the
occurrence of any of the following events:
(a) a material breach by Employee of the terms and conditions of this
Agreement as reasonably determined by the Chief Executive Officer of or
Board of Directors of the Company which breach has not been cured within
thirty (30) days of Employee's receipt of written notice thereof; or
(b) the commission of an act of dishonesty relating to the Company's
business or the commission of a fraudulent act on the part of Employee; or
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(c) actions or failures to act by Employee which directly and proximately
(i) constitute a major offense under the rules of the Chicago Mercantile
Exchange or any comparable rules of any other commodity futures or
securities exchange on which the Company conducts its business, which
offense results in the expulsion from membership of such exchange or a
monetary penalty in excess of fifty thousand dollars ($50,000), (ii) result
in the suspension of Employee from engaging in any aspect of the
commodities futures or securities business which is necessary to the
discharge of her duties hereunder for a period of more than one hundred and
twenty (120) days, or (iii) result in a material restriction on her ability
to supervise other employees by reason of a violation of any laws or rules
and regulations promulgated by the Commodity Futures Trading Commission,
the Securities and Exchange Commission, any commodity futures or securities
exchange, the National Association of Securities Dealers, or the National
Futures Association if and to the extent that such restriction materially
adversely affects her ability to discharge her duties hereunder for a
period of more than one hundred and twenty (120) days, unless in any such
case, Employee (having the burden of proof therefor) demonstrates that said
actions or failures to act did not result from Employee's willful
misconduct or gross negligence; or
(d) the death or total disability, as herein defined, of Employee.
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(e) As used herein, Employee shall be deemed to be "totally disabled," if
she is unable to perform, by reason of physical or mental incapacity, her
duties or obligations as set forth under this Agreement for a period of one
hundred twenty (120) consecutive days during any twelve (12) consecutive
month period. For purposes of computing the period of one hundred twenty
(120) consecutive days of disability, if after being so disabled Employee
performs her duties hereunder for a period of at least thirty (30)
consecutive days, then any subsequent disability shall be deemed to
commence a new period of disability for purposes hereof.
(f) Employee shall have the right to terminate this Agreement for
nonpayment of her compensation when due or in the event of a material
breach by the Company of the terms and conditions of this Agreement, which
breach has not been cured within thirty (30) days after the Company's
receipt of written notice thereof. Employee shall then be relieved of any
obligation under paragraph 6 hereof and shall be entitled to full
compensation, including severance payments as defined below in paragraph 7.
3. Compensation. For all services rendered by Employee under this
Agreement, the Company shall pay Employee:
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(a) a base salary at the rate of $135,000 per annum payable in equal
installments as the Company, from time to time, pays other salaried
employees, but not less frequently than monthly, plus
(b) a discretionary bonus which at the discretion of the Board of
Directors may not exceed 100% the Employee's annual base salary.
(d) an option on 500,000 shares in Jack Carl/312-Futures, Inc. at the
offering price as of the market close on September 30, 1992.
4. Forfeiture of Compensation. In the event that Employee's employment
hereunder shall be terminated pursuant to subparagraph 2(a), (b), or (c) hereof,
the Company shall have no obligation to pay to Employee any further compensation
or other payments under this Agreement, and Employee shall forfeit the same.
5. Benefits. Employee shall be entitled to participate in such group
life and medical insurance plans, and qualified retirement and profit sharing
plans, as the Company may establish, from time to time, for its managerial
employees or executive officers generally. Notwithstanding the foregoing, the
Company shall provide at no cost to Employee a term life insurance policy
insuring the life of Employee and naming as loss
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payee a beneficiary of Employee's choosing in an amount equal to three times the
base compensation set forth under Paragraph 3 (a) above. Said policy or
policies shall contain a provision permitting the assignment or assumption of
said policies by Employee at Employees cost in the event of the termination of
employment hereunder.
The Company shall reimburse Employee for such travel, entertainment and
other business expenses reasonably incurred by her in connection with the
business of the Company upon presentation by Employee to the Company of
substantiating evidence thereof in such form as the Company reasonably may
require from time to time.
Employee shall be entitled to four (4) weeks of paid vacation during each
fiscal year of the Company in which this Agreement shall continue in full force
and effect (pro-rated for any portions of fiscal years during the term of this
Agreement, based on the number of months (or portions thereof) of such fiscal
year which occur during the term of this Agreement). Employee shall be paid for
all unused vacation (not to exceed two (2) weeks) not later than the end of each
calendar year hereof. In addition, Employee shall be entitled to such holidays
as are made available generally to managerial and executive employees of the
Company.
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6. Non-Competition. During the term of this Agreement and for a period
of nine (9) months thereafter ("the severance period"), Employee covenants and
agrees with the Company that she shall not, directly or indirectly; (a) solicit
commodity or securities business from any persons or entities that are or were
during the period covered by this agreement customers of the Company, either as
an employee, agent, consultant, licensee, independent contractor, owner or
otherwise, or (b) solicit for employment or employ any persons who are or were
during the period covered by this sentence employees of the Company.
7. Non-Continuation/Termination. In the event that the term of
Employee's employment hereunder shall not be extended by the Company beyond the
term provided for in paragraph 2 hereof on terms (including compensation)
substantially equivalent to the terms set forth in this Agreement or is
terminated prior to the end of the term except by reason of a termination for
"good cause" as defined in paragraph 2 hereof, Employee shall receive severance
pay (the "severance payments") in an amount equal to nine (9) months salary as
set forth herein payable in equal installments as the Company, from time to
time, pays other salaried employees, but not less frequently than monthly;
provided however that such severance payments shall cease if during the
severance period the Employee secures full-time employment and, further
provided, however, that if Employee shall become self-employed that Employee
shall receive such severance payments as set forth herein only to the extent
that Employee's
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monthly gross income from her self-employment shall be less than the monthly
severance payment. Further, Employee agrees to make all books and records of
such self-employment available to the company upon its request. The parties
further agree that if Employee shall purchase an existing business, Employer
shall have the right to determine the extent by which Employee's taxable
earnings from such business equal or exceed the severance payments called under
this Agreement (herein the "Excess Earnings") which severance payments may be
thereafter reduced by the amount of such Excess. In making this determination,
Employee agrees to make all books and records of such employment available to
company upon its request. Any costs incurred in making the determination set
forth herein shall be paid for by Employer. Employee shall remain subject to
the provisions contained in paragraph 6 for the full period specified herein.
In the event that the Company offers to extend the term of Employee's
employment hereunder on substantially equivalent terms and Employee does not
accept such offer, Employee shall remain subject to the provisions contained in
this paragraph 6 for the full period specified herein.
In the event, that Employee voluntarily terminates her employment
hereunder, Employee shall remain subject to the provisions contained in this
paragraph 7 for the full period specified herein. In the event of Employee's
voluntary termination of this agreement, Employer agrees to provide accurate
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recommendations to those entities requested by Employee, provided however the
content of those recommendations shall be based on the sole judgment of the
Employer.
8. Confidentiality. The Employee shall not at any time during or after
the term of this Agreement or in any manner, either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation in any
manner whatsoever any confidential information relating to the business of the
Company. The term "confidential information" as used herein means all
information of a business or technical nature relative to the business of the
Company, the business of any customer of the Company or the business of any
person, firm or corporation which consults with, or is affiliated with the
Company, including, without limitation, pricing information and customer lists.
Said term shall not include information so generally known as to be part of the
public domain.
9. Enforcement. Each of the covenants contained in paragraphs 6, 7 and 8
hereof is separate and independent. Employee acknowledges and agrees that the
Company's remedies at law may be inadequate in the event of a breach or
threatened breach of the covenants set forth therein, and in such event, the
Company shall be entitled to have an injunction issued by any court of competent
jurisdiction, enjoining and restraining each and every party concerned therewith
from the creation or continuation of such breach (in addition to any other legal
and
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equitable remedies which the Company may have), and each and every such party
concerned therewith, jointly and severally, shall be obligated to pay all costs
and expenses, including reasonable attorneys' fees, related to the enforcement
by the Company to its rights hereunder.
In the event that any provision of paragraphs 6, 7 or 8 hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too great a period of time or over too great a geographical
area, it shall be interpreted to extend only over the maximum period of time for
which it may be enforceable and over the maximum geographical area to which it
may be enforceable.
10. Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided herein, shall be in writing and
deemed given when deposited in the U.S. Mail, registered or certified mail,
return receipt requested, addressed, in the case of the Company, to its
principal place of business in the State of Illinois, and in the case of
Employee, to her last known place of residence, as last furnished by Employee to
Company.
11. Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Illinois, irrespective of the fact that Employee may become
a resident of a different state.
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12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns, subject to the limitations on
assignment referred to in paragraph 15 hereof.
13. Entire Agreement.
(a) This Agreement constitutes the entire agreement between the
parties and contains all of the agreements between the parties with respect
to the subject matter hereof; this Agreement supersedes any and other
agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof.
(b) No change or modification of this Agreement shall be valid unless
the same be in writing and signed by the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
14. Severability. If any portion or portions of this Agreement shall be,
for any reason, invalid or unenforceable, the remaining portion or portions
shall nevertheless be valid, enforceable and carried into effect, unless to do
so would clearly violate the present legal and valid intention of the parties
hereto.
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15. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered in construction of the provisions hereof.
16. Assignability. This Agreement shall not be assignable by either party
hereof, except that the Company may assign its rights to, and cause its
obligations under this Agreement to be assumed by any person, corporation,
partnership or other entity (whether or not affiliated with the Company),
provided that the Company guarantee payment of the obligations and liabilities
assigned or the Company transfers (whether by sale, merger or otherwise) all or
substantially all of its assets to such transferee and such transferee assumes
all of the Company's obligations hereunder. Notwithstanding the foregoing,
nothing contained herein shall be deemed to preclude the executors or
administrators of Employee's estate from assigning rights to payment hereunder
to Employee's heirs or devisees in connection with the probate, administration
or settlement of Employee's estate.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
one of its officers, thereunto duly authorized, and Employee has hereunto set
her hand and seal on the day and year first above written.
JACK CARL/312-FUTURES, INC.
By: /s/ BURTON J. MEYER
------------------------------
Chief Executive Officer
/s/ ALLYSON D. LAACKMAN
------------------------------
Allyson D. Laackman
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Exhibit 10.39
EMPLOYMENT AGREEMENT
--------------------
PARTIES: JACK CARL/312-FUTURES, INC., a corporation organized under the
laws of Delaware (the "Company"), and ALLYSON D. LAACKMAN an
Illinois resident ("Employee").
DATE: July 1, 1995
PREAMBLE: The Company operates a full-service commodity brokerage business,
engaged in buying, selling and otherwise dealing in and providing
brokerage services with respect to commodities and interests
therein and relating thereto, having its principal place of
business at 200 West Adams Street, Suite 1500, Chicago, Illinois
60606. Employee, by education and experience, possesses
extraordinary qualifications to serve as a senior executive
officer of the Company. The parties hereto, recognizing the
value of Employee's services to the Company, desire to secure the
employment of Employee on the terms and conditions herein stated.
TERMS:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts employment as the Chief Financial Officer of the Company. Employee
agrees to diligently and faithfully perform such duties of a Chief Financial
Officer as are assigned to her by the Chief Executive Officer of the Company or
the Board
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of Directors of the Company from time to time, subject to the general
supervision, and pursuant to the orders, advice and directions, of the Board of
Directors of the Company. Employee shall devote to her employment her full time
(exclusive of vacation periods, holidays or periods of illness or incapacity)
and best efforts consistent with commodities industry practices, except that
Employee may make investments, including trade commodities futures for her own
account so long as such activities do not interfere with the performance of her
duties hereunder. Further, employee shall be appointed to the Board of
Directors of Index Futures Group, Inc. and other operating subsidiaries as
designated by the Chief Executive Officer.
2. Term. The term of Employee's employment hereunder shall commence on
the date hereof and terminate on June 30, 1996 unless terminated sooner by the
Company, in its sole discretion, in writing, for "good cause" as hereinafter
defined. "Good cause" as used herein shall be deemed to exist upon the
occurrence of any of the following events:
(a) a material breach by Employee of the terms and conditions of this
Agreement as reasonably determined by the Chief Executive Officer of or
Board of Directors of the Company which breach has not been cured within
thirty (30) days of Employee's receipt of written notice thereof; or
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(b) the commission of an act of dishonesty relating to the Company's
business or the commission of a fraudulent act on the part of Employee; or
(c) actions or failures to act by Employee which directly and proximately
(i) constitute a major offense under the rules of the Chicago Mercantile
Exchange or any comparable rules of any other commodity futures or
securities exchange on which the Company conducts its business, which
offense results in the expulsion from membership of such exchange or a
monetary penalty in excess of fifty thousand dollars ($50,000), (ii) result
in the suspension of Employee from engaging in any aspect of the
commodities futures or securities business which is necessary to the
discharge of her duties hereunder for a period of more than one hundred and
twenty (120) days, or (iii) result in a material restriction on her ability
to supervise other employees by reason of a violation of any laws or rules
and regulations promulgated by the Commodity Futures Trading Commission,
the Securities and Exchange Commission, any commodity futures or securities
exchange, the National Association of Securities Dealers, or the National
Futures Association if and to the extent that such restriction materially
adversely affects her ability to discharge her duties hereunder for a
period of more than one hundred and twenty (120) days, unless in any such
case, Employee (having the burden of proof therefor) demonstrates
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that said actions or failures to act did not result from Employee's willful
misconduct or gross negligence; or
(d) the death or total disability, as herein defined, of Employee.
(e) As used herein, Employee shall be deemed to be "totally disabled," if
she is unable to perform, by reason of physical or mental incapacity, her
duties or obligations as set forth under this Agreement for a period of one
hundred twenty (120) consecutive days during any twelve (12) consecutive
month period. For purposes of computing the period of one hundred twenty
(120) consecutive days of disability, if after being so disabled Employee
performs her duties hereunder for a period of at least thirty (30)
consecutive days, then any subsequent disability shall be deemed to
commence a new period of disability for purposes hereof.
(f) Employee shall have the right to terminate this Agreement for
nonpayment of her compensation when due or in the event of a material
breach by the Company of the terms and conditions of this Agreement, which
breach has not been cured within thirty (30) days after the Company's
receipt of written notice thereof. Employee shall then be relieved of any
obligation under paragraph 6 hereof and shall be
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entitled to full compensation, including severance payments as defined
below in paragraph 7.
3. Compensation. For all services rendered by Employee under this
Agreement, the Company shall pay Employee:
(a) a base salary at the rate of $135,000 per annum payable in equal
installments as the Company, from time to time, pays other salaried
employees, but not less frequently than monthly, plus
(b) an annual bonus equal to 1.75% of income, as defined below, if income
is less than two (2) million dollars, and 2.5% of income, as defined below, if
income is greater than two (two) million dollars. "Income" as used in this
paragraph is defined as pre-tax, pre-market-to-market, and pre-bottomline bonus
expenses consolidated income in excess of 15% return on investment.
4. Forfeiture of Compensation. In the event that Employee's employment
hereunder shall be terminated pursuant to subparagraph 2(a), (b), or (c) hereof,
the Company shall have no obligation to pay to Employee any further compensation
or other payments under this Agreement, and Employee shall forfeit the same.
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5. Benefits. Employee shall be entitled to participate in such group
life and medical insurance plans, and qualified retirement and profit sharing
plans, as the Company may establish, from time to time, for its managerial
employees or executive officers generally. Notwithstanding the foregoing, the
Company shall provide at no cost to Employee a term life insurance policy
insuring the life of Employee and naming as loss payee a beneficiary of
Employee's choosing in an amount equal to three times the base compensation set
forth under Paragraph 3 (a) above. Said policy or policies shall contain a
provision permitting the assignment or assumption of said policies by Employee
at Employees cost in the event of the termination of employment hereunder.
The Company shall reimburse Employee for such travel, entertainment and
other business expenses reasonably incurred by her in connection with the
business of the Company upon presentation by Employee to the Company of
substantiating evidence thereof in such form as the Company reasonably may
require from time to time.
Employee shall be entitled to four (4) weeks of paid vacation during each
fiscal year of the Company in which this Agreement shall continue in full force
and effect (pro-rated for any portions of fiscal years during the term of this
Agreement, based on the number of months (or portions thereof) of such fiscal
year which occur during the term of this Agreement).
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Employee shall be paid for all unused vacation (not to exceed two (2) weeks) not
later than the end of each calendar year hereof. In addition, Employee shall be
entitled to such holidays as are made available generally to managerial and
executive employees of the Company.
6. Non-Competition. During the term of this Agreement and for a period
of nine (9) months thereafter ("the severance period"), Employee covenants and
agrees with the Company that she shall not, directly or indirectly; (a) solicit
commodity or securities business from any persons or entities that are or were
during the period covered by this agreement customers of the Company, either as
an employee, agent, consultant, licensee, independent contractor, owner or
otherwise, or (b) solicit for employment or employ any persons who are or were
during the period covered by this sentence employees of the Company.
7. Non-Continuation/Termination. In the event that the term of
Employee's employment hereunder shall not be extended by the Company beyond the
term provided for in paragraph 2 hereof on terms (including compensation)
substantially equivalent to the terms set forth in this Agreement or is
terminated prior to the end of the term except by reason of a termination for
"good cause" as defined in paragraph 2 hereof, Employee shall receive severance
pay (the "severance payments") in an amount equal to nine (9) months salary as
set forth herein payable in equal installments as the Company, from time to
time, pays other
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salaried employees, but not less frequently than monthly; provided however that
such severance payments shall cease if during the severance period the Employee
secures full-time employment and, further provided, however, that if Employee
shall become self-employed that Employee shall receive such severance payments
as set forth herein only to the extent that Employee's monthly gross income from
her self-employment shall be less than the monthly severance payment. Further,
Employee agrees to make all books and records of such self-employment available
to the company upon its request. The parties further agree that if Employee
shall purchase an existing business, Employer shall have the right to determine
the extent by which Employee's taxable earnings from such business equal or
exceed the severance payments called under this Agreement (herein the "Excess
Earnings") which severance payments may be thereafter reduced by the amount of
such Excess. In making this determination, Employee agrees to make all books
and records of such employment available to company upon its request. Any costs
incurred in making the determination set forth herein shall be paid for by
Employer. Employee shall remain subject to the provisions contained in
paragraph 6 for the full period specified herein.
In the event that the Company offers to extend the term of Employee's
employment hereunder on substantially equivalent terms and Employee does not
accept such offer, Employee shall remain subject to the provisions contained in
this paragraph 6 for the full period specified herein.
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In the event, that Employee voluntarily terminates her employment
hereunder, Employee shall remain subject to the provisions contained in this
paragraph 7 for the full period specified herein. In the event of Employee's
voluntary termination of this agreement, Employer agrees to provide accurate
recommendations to those entities requested by Employee, provided however the
content of those recommendations shall be based on the sole judgment of the
Employer.
8. Confidentiality. The Employee shall not at any time during or after
the term of this Agreement or in any manner, either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation in any
manner whatsoever any confidential information relating to the business of the
Company. The term "confidential information" as used herein means all
information of a business or technical nature relative to the business of the
Company, the business of any customer of the Company or the business of any
person, firm or corporation which consults with, or is affiliated with the
Company, including, without limitation, pricing information and customer lists.
Said term shall not include information so generally known as to be part of the
public domain.
9. Enforcement. Each of the covenants contained in paragraphs 6, 7 and 8
hereof is separate and independent. Employee acknowledges and agrees that the
Company's remedies at law may be inadequate in the event of a breach or
threatened
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breach of the covenants set forth therein, and in such event, the Company shall
be entitled to have an injunction issued by any court of competent jurisdiction,
enjoining and restraining each and every party concerned therewith from the
creation or continuation of such breach (in addition to any other legal and
equitable remedies which the Company may have), and each and every such party
concerned therewith, jointly and severally, shall be obligated to pay all costs
and expenses, including reasonable attorneys' fees, related to the enforcement
by the Company to its rights hereunder.
In the event that any provision of paragraphs 6, 7 or 8 hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too great a period of time or over too great a geographical
area, it shall be interpreted to extend only over the maximum period of time for
which it may be enforceable and over the maximum geographical area to which it
may be enforceable.
10. Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided herein, shall be in writing and
deemed given when deposited in the U.S. Mail, registered or certified mail,
return receipt requested, addressed, in the case of the Company, to its
principal place of business in the State of Illinois, and in the case of
Employee, to her last known place of residence, as last furnished by Employee to
Company.
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11. Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Illinois, irrespective of the fact that Employee may become
a resident of a different state.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns, subject to the limitations on
assignment referred to in paragraph 15 hereof.
13. Entire Agreement.
(a) This Agreement constitutes the entire agreement between the
parties and contains all of the agreements between the parties with respect
to the subject matter hereof; this Agreement supersedes any and other
agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof.
(b) No change or modification of this Agreement shall be valid unless
the same be in writing and signed by the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
14. Severability. If any portion or portions of this Agreement shall be,
for any reason, invalid or unenforceable, the
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remaining portion or portions shall nevertheless be valid, enforceable and
carried into effect, unless to do so would clearly violate the present legal and
valid intention of the parties hereto.
15. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered in construction of the provisions hereof.
16. Assignability. This Agreement shall not be assignable by either party
hereof, except that the Company may assign its rights to, and cause its
obligations under this Agreement to be assumed by any person, corporation,
partnership or other entity (whether or not affiliated with the Company),
provided that the Company guarantee payment of the obligations and liabilities
assigned or the Company transfers (whether by sale, merger or otherwise) all or
substantially all of its assets to such transferee and such transferee assumes
all of the Company's obligations hereunder. Notwithstanding the foregoing,
nothing contained herein shall be deemed to preclude the executors or
administrators of Employee's estate from assigning rights to payment hereunder
to Employee's heirs or devisees in connection with the probate, administration
or settlement of Employee's estate.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
one of its officers, thereunto duly authorized, and Employee has hereunto set
her hand and seal on the day and year first above written.
JACK CARL/312-FUTURES, INC.
By: /s/ BURTON J. MEYER
------------------------------
Chief Executive Officer
/s/ ALLYSON D. LAACKMAN
------------------------------
Allyson D. Laackman
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Exhibit 10.40
January 27, 1995
Mr. Charles Romilly
5 Poyntz Road
London
SW11 5BH
Dear Charles:
YOUR TERMS OF EMPLOYMENT
------------------------
The following particulars are given to you pursuant to Part 1 of the
Employment Protection (Consolidation) Act 1978 (as amended by subsequent
legislation).
1. THE PARTIES ARE AS FOLLOWS:
Your Employer ("The Employee"):
Index Futures Group (UK) Limited
International House
World Trade Centre
1 St. Katharines Way
London E1 9UN
Name and address of Employee ("The Employee"):
As above.
2. DESCRIPTION OF EMPLOYMENT:
Your job title is Executive Vice President/Branch Manager (UK)
3. PLACE OF EMPLOYMENT:
The place of your employment is International House, World Trade Centre, 1
St. Katharines Way, London E1 9UN.
4. COMMENCEMENT OF EMPLOYMENT:
(a) The date of commencement of employment will be 1st February 1995.
(b) No employment with a previous employer counts as part of your period
of continuous employment.
5. THE FOLLOWING ARE THE PARTICULARS OF YOUR EMPLOYMENT AS AT THE DATE OF THIS
LETTER:
(a) Renumeration.
(i) The rate of your renumeration is (Pounds)55k per annum paid
monthly in arrears.
(ii) You are entitled to be reimbursed such expenses as are properly
incurred in or about the business of the Employer upon prior
approval of the Employer.
-88-
<PAGE>
(iii) Your remuneration will be reviewed in December of each year.
(iv) An end of year bonus may be paid entirely at the Employer's
discretion (dependent on the results and performance of the
Employee).
(b) Hours of work.
Your normal working hours are from 8:00 am to 6:00 pm Mondays to
Fridays inclusive with a break of 1 hour each day for lunch but you may be
required to work outside those hours and days when the need for business so
dictates.
(c) Holidays
(i) You are entitled to bank and other public holidays plus (20)
working days holiday with pay in each year (until you have
completed 3 years of service when you will be entitled to 25
working days in each year).
(ii) The qualification year for holiday purposes is from 1st January
to 31st December inclusive and all holidays must be taken within
this period and must be taken at a time convenient to the
Employer.
(d) Sickness and Injury
(i) If you are absent from work due to sickness or injury you must
inform Susan Worboys as soon as possible during the first working
day.
(ii) For periods of sickness or injury of between 4 and 6 days the
Employee must produce a self-certification certificate and a
doctors certificate covering longer periods of absence from work.
The Employer reserves the right to request that the Employee
presents doctors certificates for periods of less than 6 days
absence. Any expenses incurred by the Employee in compliance
with such request will be reimbursed by the Employer.
The Employer will pay the Employer's salary during periods of
sickness or illness for up to 6 weeks in any period of twelve
months (thereby discharging the Employer's liability to pay
statutory sick pay) less any sickness or injury benefits received
by the Employee from the DHSS or monies received under any health
insurance scheme.
(iii) Should the Employee remain absent after the expiry of this period
the Employer will review individual cases and may continue to pay
a proportion of the salary for such period as it may determine.
(iv) Absence due to maternity leave will not be subject to (iii) above
and the statutory regulations will apply.
(v) If the Employee is absent through sickness or injury as a result
of action by a third party and a successful claim is made against
the third party, the Employer reserves the right to claim from
the Employee a sum representing the amount received as salary by
the Employee during his or her absence.
-89-
<PAGE>
(e) Permanent health insurance/pension/private medical insurance benefits:
(i) No pension scheme etc. is operated and no contracting out
certificate is in force in respect of your employment.
(ii) No private health insurance is provided by the Employer.
(f) Notice.
(i) Unless otherwise stated in writing the length of notice you are
entitled to receive from or give to the Employer is not less than
three months notice (twelve weeks); however, your employment to
1st August is assured.
(ii) In the case of gross misconduct the Employer reserves the right
to instant dismissal.
(g) Confidentiality.
By acceptance of your employment with the Company you agree not at any
time whether during your employment or at any time after its
termination:
(iii) To divulge or communicate any trade secrets of the Employer to
any person, firm or company whatsoever.
(iv) To divulge the names and addresses of any customers of the
Employer.
(v) To take any steps which may prejudice or harm the business of the
Employer and you agree to use your best endeavors to prevent the
publication or disclosure of any information concerning matters
of the Employer.
On termination of your employment you will procure that all papers,
documents and other property which may be in your possession relating to the
Employer, its business or affairs and any copies thereof shall be handed back to
the Employer on demand.
(f) Disciplinary Rules and Grievance Procedure.
If you have any grievance relating to your employment then you should raise
it direct with the Chief Executive Officer of Index Futures Group, Inc. who may
consult with his co-directors and the decision of the Chief Executive Officer
(as above) shall be final and binding upon yourself.
(g) Amendments.
These particulars maybe changed by written notice to the Employee.
Yours truly,
/s/ BURTON J. MEYER
Burton J. Meyer
Chief Executive Officer
for and on behalf of
Index Futures Group, Inc.
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<PAGE>
Exhibit 10.41
LETTER OF UNDERSTANDING
-----------------------
July 1, 1995
TO: MICHAEL MOSS
RE: AMENDMENT TO AUGUST 4, 1993 AMENDMENT TO NOVEMBER 7, 1991 LETTER OF
UNDERSTANDING BETWEEN MICHAEL MOSS AND INDEX FUTURES GROUP, INC.
Dear Michael,
As we agreed, your employment agreement with Index Futures Group, Inc., as
contained in the "Amendment to 11/7/91 Letter of Understanding Between Michael
Moss and Index Futures Group, Inc." is extended until June 30, 1997, under the
same terms and conditions.
If you are in agreement with the above, please indicate by signing in the
space provided below:
For Index:
/s/ BURTON J. MEYER
________________________________
Burton J. Meyer
CEO
Agreed to by:
/s/ MICHAEL MOSS
________________________________
Michael Moss
-91-
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