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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period From _______________ to ________________
Commission file number 0-15187
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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
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(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) 407-5726
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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
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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 30, 1996, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $2,438,700.
As of August 30, 1996, there were outstanding 33,624,530 shares of the
Registrant's common stock.
This is page 1 of 170 sequentially numbered pages.
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PART I
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Item 1 - Business
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(a) General Development of Business.
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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 continued 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 a wholly-owned subsidiary of the Registrant, until it
was dissolved in May, 1996, 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, 1996, 33,624,530 shares
of common stock.
On May 31, 1996, an agreement was reached to sell, transfer and assign to
E.D.& F. Man International Inc. ("MINC") substantially all of the brokerage
accounts maintained by Index, together with all positions, securities, and other
assets held in or for such accounts and other agreed-upon assets used in the
conduct of the brokerage activities ("Sale of Assets"). MINC is a unit of E.D.&
F. Man Group, plc, a London-based international trading and finance
conglomerate. This sale was completed as of July 1, 1996.
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As the result of this transaction, Index no longer acts as a futures broker
for public customers and has withdrawn as a clearing member from all commodity
exchanges, where there no longer will be any necessity for it to maintain such
status, though it remains a registered futures commission merchant. In addition,
commencing July 1, 1996, 207 of Index's 313 employees began employment at MINC
and 85 employees resigned or were terminated. During the next approximately six
months' transition period, MINC may terminate additional former Index employees.
By withdrawing from clearing memberships, Index no longer will be required
to maintain substantial qualifying capital required to be a clearing member.
Furthermore, inasmuch as the public discount futures brokerage business as
conducted by Index was a labor intensive one, the substantial reduction in its
personnel should provide a substantial cost savings to Index and thereby the
Registrant. Moreover, a portion of Index's regulatory capital represented by
subordinated loans will now be prepaid, thereby saving interest expense on the
principal amount of such loans. In addition, other costs of operating a futures
brokerage firm dealing with the public, such as operating and maintaining
computer installations, substantial bookkeeping and accounting expenses,
communications systems expenses, and the like, will no longer be incurred by
Index. The Registrant believes that the foregoing should enable it to reduce
its consolidated costs and expenses associated with operating a clearing futures
brokerage business and should make capital available for expansion or
establishment of other activities. No such other activities, other than foreign
exchange trading, as yet have been identified.
While the Registrant has not yet determined what, if any, other alternative
operations it may commence, there is no present intention either to liquidate
the Registrant or for it to "go private".
The Registrant continues to believe that, while there are no current
proceeds to Index, the Sale of Assets will provide a significant stream of
income over approximately the next 5 1/2 years. The Registrant believes this is
especially true in light of the requirements that Index receive substantial
payments from MINC if certain major customer accounts are terminated or if MINC
disposes of or ceases the discount brokerage business it acquired from Index.
All payments under the Sale of Assets agreement are guaranteed by its ultimate
parent, E.D.& F. Man Group, plc, a worldwide conglomerate whose shares are
traded on the London Stock Exchange. The Registrant estimates, based on historic
levels of revenues as well as estimates of reductions in the business expenses
as the result of the transaction, that the total purchase price over the time
will be between $7,000,000 and $16,000,000. (This range is less than previously
estimated due to a general slowdown in trading volume in recent months.)
However, there can be no assurance that the aggregate purchase price will be in
that range. This is principally because of the uncertainty that former Index
customers will
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not continue to maintain their account at MINC or trade there at levels similar
to their trading at Index, or the risk that MINC will not retain sufficient
former Index or other employees adequate to service such customers and their
trading. However, the Registrant does believe that the amounts it will receive
will likely be significant.
In considering this transaction, the Board of Directors of the Registrant
took into account the continuing growth of competitive pressure on the retail
futures discount brokerage business, including the costs of providing additional
services to customers, the costs of additional regulatory capital necessary for
significant increases in the amounts of customer segregated funds to be held on
deposit, the potential "economies of scale" to Index based on the reductions in
costs for generating revenues from its customer base, and what appears to be the
continuing consolidation of firms in the futures brokerage industry, especially
with firms and other financial institutions of international stature.
Historically in the futures industry when customer accounts have been
transferred from one firm to another, "trail commissions," or continuing
payments to the transferor over some period of time, have been commonplace. As
such, the Board of Directors believes that the level of payments to be received
over the course of the term of the agreement with MINC are favorable to Index
when compared with what the Board of Directors believes would have been the
results of operations had Index continued to operate as a futures commission
merchant and clearing member with all the attendant costs, both operationally
and with respect to regulatory capital, over the same time period.
In addition, in light of his services in connection with finding and
negotiating the transaction with MINC and its ultimate parent, E.D.& F. Man
Group, plc, the Board of Directors determined that Mr. Lee S. Casty, the
principal stockholder of the Registrant, should receive a finder's fee. Shortly
following the closing of the transaction, Mr. Casty advised the Registrant that
he will decline to accept any finder's fee with respect to the transaction.
With each payment Index is to receive, there will be an accompanying
written report prepared by MINC setting forth the computation and supporting
documentation in sufficient detail to permit Index to verify the accuracy of the
payment received. This is true with respect to the quarterly payments and the
year end payments. Any dispute under the agreement which the parties are unable
or unwilling to resolve informally are subject to submission to binding
arbitration to be held in Chicago, Illinois, in accordance with the Rules of the
American Arbitration Association.
Index intends to account for the transaction as a contingent payment sale
of its business over the sixty-six month term of the payments to be received.
Accordingly, payments Index receives
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will be taxed as income in the year of receipt. Thus, there will be no direct
federal income tax assessed against any stockholder by reason of the
transaction, and Index will be taxed only as the payments are received.
Effective at the close of business July 1, 1996, Burton J. Meyer, formerly
President of the Registrant, became an executive of MINC and as of that date
resigned all his positions with the Registrant and its subsidiaries. Because of
his expertise in operating the business transferred to MINC and the necessity
for the continued success of that business to maximize the purchase price to be
received by Index, it was a condition precedent to consummation of the
transaction by the Registrant that Mr. Meyer enter into an employment agreement
with MINC acceptable to him. Accordingly, Mr. Meyer entered into an employment
agreement with an initial term expiring June 30, 1998 to serve as President of
the Jack Carl Futures Discount Division of MINC and as a Managing Director of
the MINC Group Brokerage Division in charge of the activities transferred from
Index to MINC. Under the employment agreement, Mr. Meyer is to receive a base
salary of $300,000 per year and an annual incentive bonus based on the
profitability of MINC's operations under his direction.
In terminating Mr. Meyer's employment agreement, the Board of Directors
authorized the Registrant to pay Mr. Meyer severance in the amount of $316,100.
Mr. Meyer will be paid an additional $316,100 by the Registrant if he leaves the
employ of MINC, voluntarily or involuntarily, before the expiration of twelve
months. In addition, in connection with such termination by the Registrant and
as an additional inducement to Mr. Meyer to accept employment with MINC, the
Board of Directors of the Registrant, on November 7, 1996 reissued to Mr. Meyer
options to purchase 1,250,000 shares of the Registrant's common stock at an
option price of $.24 per share. The original five year option to purchase
1,250,000 shares of the Registrant's common stock at an option price of $.24 per
share was granted to Mr. Meyer on February 28, 1994 and contained an early
termination if Mr. Meyer no longer is employed by the Registrant. The original
option agreement terminated July 1, 1996 upon Mr. Meyer's employment with
MINC.
The only contractual obligation for severance payments which the Registrant
has as a result of the Sale of Assets is to Philip Tanzar, formerly General
Counsel to the Registrant, in the amount of $100,000. Mr. Tanzar is now
employed as an in-house counsel at MINC and has advised the Registrant that he
will waive such severance as long as he continues to be employed by MINC through
and including December 31, 1998. Mr. Tanzar has also resigned as a director of
the Registrant effective October 1, 1996.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year
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ended June 30, 1996. Rather, income will be recognized as earned on a quarterly
basis over the next five and one-half years. A condition of the Sale of Assets
agreement required Mr. Casty, the principal shareholder, to sign a non-
competition agreement. As compensation for providing such an agreement, a
portion of the purchase price will be allocated to the principal shareholder and
recorded by the Registrant concurrently with its recognition of income as
described above. Management does not believe this amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the Sale of
Assets, was reflected in the statement of operations for fiscal year 1996.
Additionally, a restructuring gain of $664,000, from the sale of Board of Trade
Clearing Corporation stock, will be reflected in income in fiscal 1997.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of the transferred activities, as defined in the Sale
of Assets agreement, interest on its capital and income from operations of Index
FX, Ltd. An unaudited pro forma consolidated statement of financial condition as
of June 30, 1996 and an unaudited pro forma consolidated statement of operations
for the year ended June 30, 1996 are included as part of the Registrant's
financial statements. These pro forma financial statements represent the
Registrant's unaudited financial position as of June 30, 1996 and the unaudited
results of operations for the year ended June 30, 1996 as if the Sale of Assets
had taken place on July 1, 1995.
(b) Narrative Description of Business.
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General
The Registrant is a holding company with its businesses 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 a futures commission
merchant. The Registrant no longer handles commodity futures customer accounts,
having transferred all of its accounts to Index. Effective July 1, 1996, neither
the Registrant nor any of its subsidiaries will handle commodity futures
customer accounts.
Index 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"). Prior to the Sale of Assets, it was
involved in all aspects of brokerage of futures and options on futures
contracts. It was 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,
the New York Cotton Exchange and the Coffee, Sugar & Cocoa Exchange. It provided
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., until July 1, 1996 acted as a
commodity pool operator. Index, until July 1, 1996, was the clearing agent for
other non-clearing futures commission merchants, financial institutions,
regional brokerage houses and introducing brokers.
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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. As of July 1, 1996, IMSI no longer operates commodity pools.
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.
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, 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. Brokers Resource Corp. ("BRC"), formerly a
subsidiary of Index, was a subsidiary of the Registrant until its dissolution in
May, 1996.
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
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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. BRC was dissolved in May, 1996.
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. 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. Subsequent to the sale, BRC's operations were
minimal. In January, 1994, BRC voluntarily withdrew its registration as a
futures commission merchant.
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. There was no activity in 1996.
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. IFX primarily makes a market in interbank foreign exchange
currencies for primarily non private customers. The transactions made with
customers are offset with money center banks and other major foreign exchange
dealing firms.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of transferred activities as defined in the Sale of
Assets agreement, interest on its capital and income from operations of IFX.
Management intends to sell or dissolve all subsidiaries except Index and
IFX during the coming year. All remaining companies, including the Registrant,
will be required to change their names in accordance with the Sale of Assets
agreement.
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Customers
The Registrant is a holding company. Prior to the Sale of Assets, Index
was the Registrant's principal source of revenue and was the Registrant's
principal operating subsidiary responsible for commodity and futures related
activities. Included in its full-range of services, Index maintained retail and
discount divisions. With respect to its discount brokerage customers, Index
acted as an agent for the transmitting of orders and did not provide in-house
generated research. Such discount brokerage customers obtained trading advice
elsewhere or made their own trading decisions. Commissions charged by Index to
such discount brokerage customers were discounted from those charged by full
service commodity brokerage firms. Index's discount customers were charged
round-turn transaction commissions which were generally between $12 and $30, as
compared to full service firms which management believes charged between $45 and
$100 per round-turn. Index provided 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 created and offered to
the public, either by itself or in cooperation with others, various commodity
futures fund offerings which may have been marketed through broker-dealers or
through regional brokerage houses.
Index's revenues from trading activities related directly to the volume of
its customers' orders, generally irrespective of the underlying prices of
futures contracts. Such revenues were 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 were derived from interest earned on
uncommitted cash balances of customer deposits. This practice complies with
CFTC regulations and is standard industry practice.
Marketing
For the fiscal year ended June 30, 1996, 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, engaged in promotions whereby it
provided subscriptions to independent research materials and/or portable futures
price quotation machines at advantageous prices or without charge.
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Competition
Prior to the Sale of Assets, Index competed 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.
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.
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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, 1996,
Index had adjusted net capital of approximately $12,038,300 which was
approximately $5,216,200 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 was the designated self-regulatory
organization of Index until July 9, 1996 when the NFA assumed that role. 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.
Prior to the Sale of Assets, Index was in the business of clearing and
executing futures contracts and options on futures contracts for the accounts of
its customers. As such, Index guaranteed to the respective clearinghouses its
customers' performance under these contracts. To reduce its risk, Index
required its customers to meet, at a minimum, the margin
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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 adjusted 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, 1996, 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.
Employees
As of June 30, 1996, the Registrant had 313 full and part-time employees.
These employees included 105 floor operations employees, 80 back office
employees, 41 discount department employees, 60 sales employees and 27
administrative employees. Effective with the Sale of Assets, 207 employees were
offered employment at MINC and 85 employees resigned or were terminated.
Item 2 - Properties
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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.
At June 30, 1996, the Registrant or its subsidiaries also had 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 were leased at rates competitive for the respective locations.
As of July 1, 1996, the leases for all offices, except for the corporate
headquarters and London, England, were transferred to MINC or terminated.
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
-13-
<PAGE>
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 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), 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.
On May 29, 1996, the district judge dismissed the complaint in its entirety.
Supplemental Plaintiff filed a Notice of Appeal with the U.S. Court of Appeals
for the Seventh Circuit on June 28, 1996. The Seventh Circuit has yet to rule
on whether this case may be appealed.
Index was also 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, was
seeking damages of $1,000,000, alleging misrepresentation of risk and
unauthorized trading. In July, 1996, an arbitration panel entered an award of
no damages for the claimant.
-14-
<PAGE>
In Arnold and Edith Katzowski v. Philip B. Jones and Index Futures Group,
----------------------------------------------------------------------
Inc., (E.D. Pa. No. 95-CV-1181), Index defended a complaint filed by former
- ----
partners of a general partnership which cleared its trades at Index. The
plaintiffs alleged 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. This case was settled in November,
1995 for $25,000.
Edward Schwarz ("Schwarz"), a former executive of Index whose employment
was terminated as a result of the Sale of Assets, has rejected Index's severance
payment offer. Schwarz has made a demand for $500,000, and has threatened
litigation, if a satisfactory offer of settlement is not made. The Registrant
believes that its original severance offer was reasonable and Schwarz's claims
are without merit.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of the fiscal year ended June 30, 1996, no
matters were submitted to a vote of security holders. However, on June 11, 1996,
a definite Information Statement ("Information Statement") was filed by the
Registrant with the Securities and Exchange Commission and sent to stockholders
to notify them, in accordance with Section 228 of the Delaware General
Corporation Law, that the holders of a sufficient number of votes by written
consent, on July 1, 1996, would consent to the transaction between Index and
MINC. No votes were solicited and no meeting was held. On September 4, 1996, the
Registrant sent a notice to its security holders that the Sale of Assets was
completed on July 1, 1996. MINC's principal office is located at Two World
Financial Center, New York, New York 19281-2700.
As noted above, no consents were solicited by the Information Statement.
Delaware law does not provide dissenters' rights for a transaction such as the
Sale of Assets. On July 1, 1996, a total of 19,443,354 shares of the 33,624,530
shares of common stock issued and outstanding of the Registrant and owned by Mr.
Lee S. Casty, his two minor children, his father, Mr. David Casty, and Mr.
Burton J. Meyer, at the time President of the Registrant, constituting 57.82% (a
majority) of all the issued and outstanding common stock of the Registrant, by
written consent in lieu of a meeting, authorized the Registrant, as the sole
shareholder of Index, to consummate the Sale of Assets.
-15-
<PAGE>
PART II
-------
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.
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
-16-
<PAGE>
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, 1996, 33,624,530 shares
of common stock.
Set forth below is the range of high and low, trade prices per share of the
common stock in the over-the-counter 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 August 30, 1996, 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: 1/8; ask: 3/16.
<TABLE>
<CAPTION>
Type of Quarter
Security Ended High Trade Low Trade
- -------- ------- ---------- ---------
<S> <C> <C> <C>
Common Stock 12/31/94 (1) 1/4 1/8
3/31/95 3/16 1/8
6/30/95 9/32 1/8
9/30/95 13/32 5/32
12/31/95 9/32 1/8
3/31/96 3/16 3/32
6/30/96 13/32 3/32
8/31/96 (2) 3/16 1/8
</TABLE>
(1) Includes only the period December 7, through December 31, 1994.
(2) Includes only the months of July, 1996 and August, 1996.
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,
-17-
<PAGE>
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> <C>
Common Stock 7/01/94-8/18/94 1/4 1/16
Bid Ask
-------------- ----------------
High Low High Low
------ ------ ------- -------
8/18/94-9/30/94 $.16 $.04 $.20 $.16
10/01/94-12/06/94 $.20 $.03125 $.25 $.09375
</TABLE>
Approximate Number of Holders of Securities
As of August 30, 1996, there were 1,015 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.
-18-
<PAGE>
HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
--------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Operating Data:
<S> <C> <C> <C> <C> <C>
Revenues $41,134,900 $41,658,300 $37,565,300 $36,670,400 $39,227,300
========== ========== ========== ========== ==========
Income (loss) before income taxes
and extraordinary item $(1,307,200) $ 3,947,800 $ 992,300 $ 308,900 $ 1,210,100
Income tax expense (benefit) (174,100) 1,536,200 406,200 149,600 361,600
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item (1,133,100) 2,411,600 586,100 159,300 848,500
Extraordinary item (1) - - - - 3,000
---------- ---------- ---------- ---------- ----------
Net income (loss) (1,133,100) 2,411,600 586,100 159,300 851,500
Assumed cumulative dividend on Class A
preferred stock (40,000) (40,000) (40,000) (40,000) (40,000)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock $(1,173,100) $ 2,371,600 $ 546,100 $ 119,300 $ 811,500
========== ========== ========== ========== ==========
Primary earnings (loss) share as
restated for the one-for-four
reverse split of common stock (2):
Income (loss) before extraordinary item $ (.03) $ .08 $ .03 $ .01 $ .04
========== ========== ========== ========== ==========
Net income (loss) $ (.03) $ .08 $ .03 $ .01 $ .04
========== ========== ========== ========== ==========
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 33,721,179 30,680,524 20,175,612 20,178,239 20,178,239
========== ========== ========== ========== ==========
Fully diluted earnings (loss) per share
as restated for the one-for-four
reverse split of common stock (2):
Income (loss) before extraordinary item $ (.03) $ .08 $ .03 $ .01 $ .04
============ ============ ============ ============ ============
Net income (loss) $ (.03) $ .08 $ .03 $ .01 $ .04
============ ============ ============ ============ ============
Weighted average number of shares
outstanding, as restated for the
one-for-four reverse split of
common stock 33,721,179 30,680,524 20,175,612 20,178,239 20,178,239
============ ============ ============ ============ ============
<CAPTION>
Balance Sheet Data:
As of June 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $239,887,700 $190,932,400 $202,806,200 $151,817,500 $143,654,300
Notes payable 6,390,000 6,390,000 7,690,000 9,615,600 10,140,600
Subordinated debt 4,000,000 1,690,000 2,000,000 - 225,000
Stockholders' equity 6,216,500 7,364,100 3,876,500 3,295,200 3,135,900
</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.
-19-
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations for the Year Ended
- --------------------------------
June 30, 1996
- -------------
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 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, 1996, Index's segregated asset
requirement increased by approximately $27,976,800 to $183,950,300. At June 30,
1996, Index's segregated funds exceeded the requirement by $3,536,200. Index is
also required to secure all balances due to U.S. based customers for activities
in foreign futures or options. At June 30, 1996, funds secured in separate
accounts exceeded secured requirements by $4,333,300. These increases in the
segregated and secured asset requirements resulted in a increase in Index's net
capital requirements. As of June 30, 1996, Index's regulatory capital exceeded
the minimum net capital requirements of the CFTC by $5,216,200.
Prior to March, 1996, Index exceeded the net capital requirements of the
CFTC and the various exchanges of which it is a member. In March, 1996, at the
request of its non-regulated customers trading in the cash markets, Index
transferred funds to IFX. Upon clarification of the net capital rules, it was
determined that the receivable from IFX could not accurately be classified as a
current asset. As a result, Index was under early warning and minimum capital
requirements. As of March 31, 1996, Index's regulatory capital was $11,272,800
less than the minimum net capital requirements of the CFTC. Index informed the
Chicago Mercantile Exchange and the CFTC of the capital deficiency. Index took
immediate action to correct the deficiency and as of April 23, 1996, was fully
in compliance with minimum net capital requirements.
The Registrant, at June 30, 1996, had $6,390,000 in notes payable to
related parties and $4,000,000 of subordinated debt maturing during the year
ending June 30, 1997. 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 had a $4,000,000 revolving subordinated debt line of
credit. As of June 30, 1996, Index borrowed the total $4,000,000 from this line
of credit. These borrowings were repaid in full in August, 1996 and the line of
-20-
<PAGE>
credit was cancelled. 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, increased
$2,310,000 at June 30, 1996 compared to the prior year, and (ii) the proceeds
from the issuance of stock, which since inception through June 30, 1996 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. As the business now exists subsequent to the Sale of Assets, the
Registrant's capital needs are significantly reduced. This may change if the
Registrant enters into new business ventures.
The Registrant, during fiscal 1996 generated $3,000,000 cash from new
subordinated loans from its revolving credit line. This cash was used for
various operating activities as well as to repay $690,000 of subordinated debt
and for start up costs, including purchases of furniture and equipment, incurred
by the Registrant's London subsidiary, which began trading operations in
October, 1995.
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 1996 Compared to Fiscal 1995
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 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
a wholly-owned subsidiary of the Registrant until it was dissolved in May, 1996,
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.
The Company, during fiscal 1996, organized IFX, located in London, England
to conduct foreign exchange business. IFX incurred start up costs early in the
year and commenced trading operations in October, 1995. The revenue generated
by IFX is recorded as trading gains.
-21-
<PAGE>
On May 31, 1996, an agreement was reached to sell, transfer and assign to
MINC substantially all of the brokerage accounts maintained by IFG, together
with all positions, securities, and other assets held in or for such accounts
and other agreed-upon assets used in the conduct of the brokerage activities.
MINC is a unit of E.D.& F. Man Group, plc, a London-based international trading
and finance conglomerate. This sale was completed as of July 1, 1996. Shortly
thereafter, Index ceased being a clearing member at all exchanges, though it
remains a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year ended June 30, 1996. Rather, income will
be recognized as earned on a quarterly basis over the next five and one-half
years. A condition of the Sale of Assets agreement required the principal
shareholder to sign a non-competition agreement. As compensation for providing
such an agreement, a portion of the purchase price will be allocated to the
principal shareholder and recorded by the Registrant concurrently with its
recognition of income as described above. Management does not believe this
amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the Sale of
Assets, was reflected in the statement of operations for fiscal year 1996.
Additionally, a restructuring gain of $664,000, from the sale of Board of Trade
Clearing Corporation stock, will be reflected in income in fiscal 1997.
Effective July 1, 1996, the Registrant's revenue stream will primarily
consist of the net income of the transferred activities, as defined in the Sale
of Assets agreement, interest on its capital and income from operations of IFX.
An unaudited pro forma consolidated statement of financial condition as of June
30, 1996 and an unaudited pro forma consolidated statement of operations for the
year ended June 30, 1996 are included as part of the Registrant's financial
statements. These pro forma financial statements represent the Registrant's
unaudited financial position as of June 30, 1996 and the unaudited results of
operations for the year ended June 30, 1996 as if the Sale of Assets had taken
place on July 1, 1995.
Commission revenues, which generally are related to trading volume,
decreased $3,058,500 or 9% in 1996. Included in commission revenue for 1995 is
$481,900 from the sale of BRC's introducing broker business. Commission
revenue, excluding the affect of the BRC revenue, decreased 8% on an 8% increase
in trading volume. The decrease 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
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.
-22-
<PAGE>
Interest income increased $555,800 in 1996 compared to 1995. The
increase in interest income is primarily attributable to the following factors.
The Registrant's continuing to invest in longer term U.S. Government obligations
which increases the yield on its investments. Such investments are interest
rate sensitive which cause fluctuation in income as interest rates vary. The
change in the appreciation of these investments due to market value fluctuations
generated a $301,200 decrease in interest income in 1996 compared to 1995.
Also, the Registrant during 1996, by increasing its customer base and by
increasing its subordinated debt borrowings, had additional funds available to
invest and those investments generally yielded higher returns because interest
rates, for the majority of fiscal 1996, continued their upward trend.
Trading gains increased $2,246,500 during the year ended June 30, 1996.
Included in trading gains in fiscal 1996 is $2,058,900 of revenue generated from
IFX.
Commissions, floor brokerage and clearing costs decreased $1,556,300 or 8%
in 1996. The decrease in expense 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, thus reducing commission
expense. Also, as 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 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.
Compensation and related benefits increased $1,588,400 or 18% during fiscal
1996. The increase is the result of an increase in the number of employees,
which includes employees at IFX, and salary increases. Also 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 $915,900 during fiscal 1996 compared to fiscal
1995. Included in interest expense during 1996 is a $100,000 interest accrual
related to the settlement of prior revenue agent reviews through 1992. The
balance of the increases are the result of higher interest rates on the
Company's obligations during fiscal 1996 and increased customer deposits on
which the Company pays interest expense.
-23-
<PAGE>
Business promotion expense increased $493,900 during fiscal 1996 compared
to fiscal 1995. The increase is primarily the result of a general increase in
print advertising, promotions and increased television advertising during fiscal
1996.
Doubtful accounts expense increased $726,600 in fiscal 1996 compared to
1995. This increase is due to a $586,000 credit to bad debt expense in fiscal
1995. The credit was primarily the result of the receipt of a bankruptcy
settlement for a bad debt which was previously written off, collection of
deficit accounts and a reduction in the Registrant's bad debt experience.
During fiscal 1996, the Registrant took a net pre-tax restructuring charge
of $1,556,500, related to the sale of brokerage accounts to MINC.
The aforementioned revenue and expenses resulted in a net loss of
$1,133,100 or $.03 per share for fiscal 1996 compared to net income of
$2,411,600 or $.08 per share for fiscal 1995.
Results of Operations - Fiscal 1995 Compared to Fiscal 1994
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
-24-
<PAGE>
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.
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.
-25-
<PAGE>
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
For financial information, see the financial statements and notes thereto
set forth at Item 14 hereof.
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 1996 or
1995.
PART III
--------
Item 10 - Directors and Executive Officers
- ------------------------------------------
The Directors and Executive Officers of the Registrant as of June 30, 1996
were as follows:
<TABLE>
<CAPTION>
Name Age Office
- ----------------------- --- ---------------------------
<S> <C> <C>
Burton J. Meyer 49 President and Director
Joel M. Eidelstein 29 Director
George A. Myers 46 Director
Allyson D. Laackman 39 Chief Financial Officer
Bruce E. Mathias 45 Treasurer and Secretary
Michael J. Moss 49 President of Index
Philip A. Tanzar 46 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
-26-
<PAGE>
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").
All officer positions Mr. Meyer held with the Registrant and its
subsidiaries were effectively terminated with the expiration of his employment
contract on July 1, 1996. Mr. Meyer resigned as a Director effective as of the
close of business July 1, 1996.
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, until immediately prior to the Sale of Assets, he was
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 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.
-27-
<PAGE>
In accepting employment with MINC, Mr. Moss resigned as president effective
July 1, 1996.
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. On
September 24, 1996, Mr. Tanzar resigned as a Director of the Registrant
effective October, 1, 1996.
All executive officer positions Mr. Tanzar held with the Registrant and its
subsidiaries were effectively terminated, upon accepting employment with MINC.,
on July 1, 1996.
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.
-28-
<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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------------
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) (6) 1996 $300,000 $344,600 - - $316,100
President and 1995 $300,000 $153,700 - -
Director 1994 $225,000 $ 50,000 - 1,250,000
Michael J. Moss (2) (6) 1996 - - $538,800 - -
President 1995 - - $668,200 -
of Index 1994 - - $414,100 500,000
Allyson D. Laackman (3) 1996 $135,000 $74,700 - - -
Chief Financial 1995 $133,200 $14,100 - -
Officer 1994 $125,000 $ 5,800 - -
Philip A. Tanzar (4)(6) 1996 $130,000 $14,300 - - -
Director and Vice 1995 $122,000 $16,700 - -
President and 1994 $117,000 $ 2,600 - -
General Counsel
</TABLE>
- --------------------------------
(1) Mr. Meyer's bonuses relate to the prior fiscal years. All Other
Compensation is a severance payment. Mr. Meyer resigned as a Director as of
the close of business July 1, 1996.
(2) Mr. Moss's 500,000 options expired June 30, 1995. Other annual compensation
is commissions.
(3) Ms. Laackman earned a $38,800 bonus for fiscal 1994 and 1995, $24,700 of
which was paid in fiscal 1996. Also, Ms. Laackman earned a $50,000 bonus
for fiscal 1996, which was paid in fiscal 1996.
(4) Mr. Tanzar became a Director effective February, 1994. He has resigned
October 1, 1996.
(5) The options have been restated for the November, 1994 one-for-four reverse
split.
(6) Resigned from executive officer positions effective July 1, 1996.
-29-
<PAGE>
Fiscal 1996 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 1996. 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.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1996
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 1996.
-30-
<PAGE>
Fiscal 1996 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 1996, 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, 1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Acquired June 30, 1996 June 30, 1996
on Exercise Value Exercisable/ Exercisable/
Name Realized Unexercisable Unexercisable
- ---------------------------- --------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Burton J. Meyer - - 1,850,000/0 $15,625/0
Michael J. Moss - - 0/0 $0/0
Allyson D. Laackman - - 125,000/0 $0/0
Philip A. Tanzar - - 25,000/0 $0/0
</TABLE>
-31-
<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.
As a result of the Sale of Assets, Mr. Meyer's employment contract was not
extended. As a settlement of his contract the Board of Directors agreed to pay
Mr. Meyer $316,100 in severance. If Mr. Meyer's position at MINC is terminated
voluntarily or involuntarily prior to July 1, 1997, Mr. Meyer will be entitled
to receive additional severance of $316,100.
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, the Registrant is obligated to pay Ms. Laackman
a severance equal to nine months of base salary. The severance may be reduced
-32-
<PAGE>
under certain circumstances. This contract has not yet been extended, however,
Ms. Laackman continues to serve as Chief Financial Officer.
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.
Mr. Tanzar's employment agreement, effective December 31, 1995, provides,
among other things, that he serves as the Registrant's Vice President and
General Counsel and for a base annual compensation of $138,200 for a term ending
December 31, 1996. In addition to his base annual rate of compensation, Mr.
Tanzar is entitled to a discretionary bonus.
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.
Effective July 1, 1996 Mr. Tanzar accepted employment at MINC, thereby
terminating his employment contract with the Registrant. As an inducement for
Mr. Tanzar to accept employment with MINC and as a settlement of his contract,
the Registrant has agreed to pay him up to $100,000 as severance if he is
terminated by MINC prior to January 1, 1999.
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. This agreement was terminated when Mr. Moss accepted employment
with MINC on July 1, 1996.
Compensation Committee Interlocks and Insider Participation
Compensation Decisions
The Registrant does not have a compensation committee. Prior to the Sale of
Assets, Mr. Burton J. Meyer, at the time, President and a Director of the
Registrant, participated in the negotiations of employment agreements for
executive officers of the Registrant.
-33-
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth as of August 30, 1996, 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>
Approximate
Amount and Nature of Percent
Name Beneficial Ownership of Class
- -------------------------- -------------------- ------------
<S> <C> <C>
Lee S. Casty (1) (2) (3) 16,164,453 48.07%
Burton J. Meyer(4) (7) (8) 2,321,074 6.78%
Joel M. Eidelstein 127,975 .38
George A. Myers 3,666 .01
Allyson D. Laackman (5) 125,000 .37
Michael J. Moss (7) 1,801,063 5.36
Philip A. Tanzar (6) (7) (9) 25,000 .07
All officers and directors
as a group (5 persons) 306,641 .91
</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 600,000 exercisable options, of which beneficial ownership can be
acquired. Does not include 1,250,000 options which terminated July 1, 1996,
upon Mr. Meyer's employment with MINC. As part of the resolution of matters
concerning Mr. Meyer's employment agreement such options were reissued by
the Board of Directors on November 7, 1996.
(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.
(7) Ceased to be an executive officer effective July 1, 1996.
(8) Resigned as Director effective close of business July 1, 1996.
(9) Resigned as a Director effective October 1, 1996.
-34-
<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, 1996, cumulative dividends in arrears amounted to $413,300. 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, 1996, all notes payable due to Mr. Casty aggregating $940,000
were extended to January 31, 1997.
The Registrant, during the year ended June 30, 1996, paid Mr. Casty,
approximately $117,900 in interest on notes payable.
-35-
<PAGE>
In August, 1995, Mr. Casty made a $1,000,000 short term advance to the
Registrant. The Registrant repaid the advance in September, 1995.
The Registrant, during the year ended June 30, 1996, earned $53,500 of
interest income on a note receivable from C. Adam, Ltd., a company wholly-owned
by Mr. Casty.
In January, 1996, all notes payable to French-American Securities, Inc., a
company wholly-owned by Mr. Casty, aggregating $4,550,000 were extended to
January 31, 1997.
The Registrant, during the year ended June 30, 1996, paid French-American
Securities, Inc. $570,600 in interest on notes payable.
In January, 1996, all notes payable to Mr. Meyer aggregating $900,000 were
extended to January 31, 1997.
The Registrant during the year ended June 30, 1996 paid Mr. Meyer $112,900
in interest on notes payable.
The Registrant, during the year ended June 30, 1996, paid Mr. Meyer $61,500
for rent of an exchange membership.
-36-
<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 41.
Page
----
Jack Carl/312-Futures, Inc:
Report of Independent Public Accountants 41
Consolidated Statements of Financial Condition
as of June 30, 1996 and 1995 42
Consolidated Statements of Operations for the Years
Ended June 30, 1996, 1995 and 1994 43
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1996, 1995 and
1994 as Restated for the One-For-Four Reverse Split of
Common Stock 44
Consolidated Statements of Changes in Liabilities
Subordinated to Claims of General Creditors for
the Years Ended June 30, 1996, 1995 and 1994 45
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995 and 1994 46
Notes to Consolidated Financial Statements 48
Unaudited Pro Forma Consolidated Statement of Financial
Condition as of June 30, 1996 65
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended June 30, 1996 66
Notes to Unaudited Pro Forma Consolidated Statements
of Financial Condition and Operations 67
E.D. & F. Man International Inc.:
Report of Independent Accountants 69
Consolidated Statement of Financial Condition
as of March 31, 1996 70
Consolidated Statement of Operations for the Year Ended
March 31, 1996 71
Consolidated Statement of Changes in Subordinated
Liabilities for the Year Ended March 31, 1996 72
Consolidated Statement of Changes in Stockholder's Equity
for the Year Ended March 31, 1996 73
Consolidated Statement of Cash Flows for the Year Ended
March 31, 1996 74
Notes to Consolidated Financial Statements 75
Supplemental Information 82
(2) Schedules
---------
Schedule II - Valuation and qualifying accounts 88
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.
-37-
<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:
10.34 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 Corporation
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.
The following exhibits are hereby incorporated by reference
from Form 10-K for the Registrant as filed on September 27,
1995 with the Securities and Exchange Commission:
10.38 Employment agreement, dated September 14, 1994, between Jack
Carl/312-Futures, Inc. and Allyson D. Laackman
-38-
<PAGE>
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
The following exhibits are filed herewith:
10.42 Employment agreement, dated December 31, 1995, between Jack
Carl/312-Futures, Inc. and Philip A. Tanzar
10.43 Heads of Agreement, dated July 19, 1995 between Jack
Carl/312-Futures, Inc., Simon Drabble, Graham Wellesley and
Lorenzo Naldini
10.44 Service Agreement, dated July 19, 1995 between Index Forex
Limited and Simon Drabble, Graham Wellesley and Lorenzo
Naldini
10.45 Service Agreement dated September 1, 1995 between Index FX
Limited and Simon Drabble
10.46 Service Agreement dated November 13, 1995 between Index FX
Limited and Graham Wellesley
10.47 Service Agreement dated November 13, 1995 between Index
Forex Limited and Lorenzo Naldini
10.48 Letters containing terms of employment dated October 12,
1995 and October 27, 1995 between Index FX Limited and
Barrie J. Swift
10.49 Letter containing terms of employment dated February 6, 1996
between Index FX Ltd and Figen Yardimci
10.50 Letter containing terms of employment dated March 19, 1996
between Index FX Limited and Charles Owens
11.1 Computation of Earnings per Common Share
17.1 Letter confirming resignation, dated September 26, 1996,
from Burton J. Meyer
17.2 Letter of resignation, dated September 24, 1996, from Philip
A. Tanzar
21.1 Subsidiaries of the Registrant
24.1 Power of Attorney
27 Financial Data Schedule (Edgar Version Only)
99.1 Report on Form 8-K for the Registrant as filed on June 14,
1996 with the Securities and Exchange Commission
(b) Reports on Form 8-K:
The Registrant filed a report on Form 8-K on June 14, 1996, reporting under
item 2, a consummation of a material sale to E.D.& F. Man International
Inc., substantially all of the business of the Registrant's principal
wholly-owned subsidiary, Index Futures Group, Inc.
-39-
<PAGE>
EXHIBIT 24.1
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/ ALLYSON D. LAACKMAN
- --------------------------------------------------------------------------------
Allyson D. Laackman, Chief Financial Officer
Date: December 30, 1996
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Allyson D. Laackman 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/A 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/ ALLYSON D. LAACKMAN Chief Financial Officer December 30, 1996
- ----------------------
Allyson D. Laackman
/S/ JOEL M. EIDELSTEIN Director December 30, 1996
- ----------------------
Joel M. Eidelstein
/S/ GEORGE A. MYERS Director December 30, 1996
- ----------------------
George A. Myers
-40-
<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, 1996 and 1995, 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, 1996, 1995 and
1994. 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, 1996 and 1995, and the results of their operations
and their cash flows for the years ended June 30, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an 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 Commissions 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.
Chicago, Illinois,
September 27, 1996
-41-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash $ 1,587,300 $ 1,034,900
Cash segregated or secured under Commodity
Exchange Act 2,009,500 1,181,700
U.S. Government obligations 144,328,800 82,885,600
Other short term investments 28,856,100 -
Deposits with clearing organizations 43,488,500 78,030,700
Warehouse receipts 959,500 1,537,200
Receivables:
Brokers and dealers 2,291,900 9,253,400
Clearing organizations 12,383,200 12,627,900
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C> <C>
Customers $1,138,400 $1,152,200
Affiliates 1,000 7,300
Other 1,061,800 379,100
Less - Allowance
for doubtful
accounts (409,300) (191,900) 1,791,900 1,346,700
--------- ---------
<CAPTION>
<S> <C> <C>
Investments in and advances to
affiliated partnerships - 39,100
Notes receivable 627,200 633,700
Exchange memberships, at cost (market value
of $960,400 in 1996 and $1,228,100 in 1995 781,300 781,300
Furniture, equipment, and leasehold
improvements, net of accumulated depreciation
and amortization of $2,213,400 in 1996 and
$1,602,800 in 1995 279,500 682,900
Goodwill, net of accumulated amortization of
$4,596,400 in 1996 and $4,054,500 in 1995 - 541,900
Other assets 503,000 355,400
----------- -----------
Total $239,887,700 $190,932,400
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Payables:
<S> <C> <C>
Clearing organizations $ 165,900 $ 185,900
Customers 216,705,300 168,500,000
Officers and employees 2,865,000 2,221,500
Accounts payable and accrued expenses 3,545,000 4,580,900
Notes payable 6,390,000 6,390,000
----------- -----------
Total 229,671,200 181,878,300
----------- -----------
Liabilities subordinated to claims of
general creditors 4,000,000 1,690,000
----------- -----------
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, 33,624,530 and 33,624,532
shares issued and outstanding in 1996
and 1995, respectively 134,500 134,500
Paid-in capital 8,395,300 8,395,300
Retained deficit (2,698,800) (1,565,700)
Cumulative translation adjustment (14,500) -
----------- -----------
Total stockholders' equity 6,216,500 7,364,100
----------- -----------
Total $239,887,700 $190,932,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-42-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Commissions $30,606,500 $33,665,000 $33,529,100
Interest 7,920,800 7,365,000 3,389,700
Trading gains, net 2,411,400 164,900 330,300
Other 196,200 463,400 316,200
----------- ----------- -----------
Total revenues 41,134,900 41,658,300 37,565,300
----------- ----------- -----------
Expenses:
Commissions, floor brokerage and
clearing costs 16,825,600 18,381,900 19,580,400
Compensation and related benefits 10,536,500 8,948,100 7,605,400
Interest 4,238,900 3,323,000 1,807,700
Communications 2,066,800 1,672,000 1,973,500
Business promotion 2,173,900 1,680,000 1,222,300
Rent and other occupancy costs 1,546,300 1,465,900 1,382,600
Professional and consulting fees 670,400 451,100 897,200
Depreciation 320,800 234,800 254,900
Amortization of goodwill 53,600 53,600 53,600
Doubtful accounts expense (benefit) 140,600 (586,000) 49,100
Other 2,312,200 2,086,100 1,746,300
Restructuring charge, net 1,556,500 - -
----------- ----------- -----------
Total expenses 42,442,100 37,710,500 36,573,000
----------- ----------- -----------
Income (loss) before income taxes (1,307,200) 3,947,800 992,300
Income tax expense (benefit) (174,100) 1,536,200 406,200
----------- ----------- -----------
Net income (loss) (1,133,100) 2,411,600 586,100
Assumed cumulative dividend on Class
A preferred stock (40,000) (40,000) (40,000)
----------- ----------- -----------
Net income (loss) applicable to
common stock $(1,173,100) $ 2,371,600 $ 546,100
=========== =========== ===========
Primary earnings (loss) per share,
restated for reverse split:
Net income (loss) $ (.03) $ .08 $ .03
=========== =========== ===========
Weighted average number of shares
outstanding 33,721,179 30,680,524 20,175,612
=========== =========== ===========
Fully diluted earnings (loss) per
share, restated for reverse split:
Net income (loss) $ (.03) $ .08 $ .03
=========== =========== ===========
Weighted average number of shares
outstanding 33,721,179 30,680,524 20,175,612
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-43-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(AS RESTATED FOR THE ONE-FOR-FOUR REVERSE SPLIT OF COMMON STOCK)
<TABLE>
<CAPTION>
Class A Common Stock Cumulative
Preferred ------------ Paid-In Retained Translation
Stock Shares Amount Capital Deficit Adjustment Total
--------- ----------------- ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
Repurchase of common
stock pursuant to
reverse split - (2) - - - - -
Net (loss) - - - - (1,133,100) - (1,133,100)
Foreign currency translation - - - - - (14,500) (14,500)
-------- ---------- ------- ---------- ----------- ----------- -----------
Balance June 30, 1996 $400,000 33,624,530 $134,500 $8,395,300 $(2,698,800) $ (14,500) $6,216,500
======== ========== ======== ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-44-
<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, 1996, 1995 AND 1994
<TABLE>
<S> <C>
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
New borrowings 4,000,000
Maturities (1,690,000)
----------
Balance, June 30, 1996 $4,000,000
==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-45-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (1,133,100) $ 2,411,600 $ 586,100
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 374,400 288,400 308,500
Deferred taxes (272,300) 315,600 175,000
Doubtful accounts expense (benefit) 140,600 (586,000) 49,100
Gain on sale of assets - - (8,500)
Equity in net (gain) loss of affiliated partnerships (6,400) 18,700 7,900
Restructuring charge, net 1,556,500 - -
Changes in:
Cash segregated or secured under
Commodity Exchange Act (827,800) 2,098,100 (1,726,700)
U.S. Government obligations (61,443,200) 40,898,300 (19,094,900)
Other short term investments (28,856,100) - -
Deposits with clearing organizations 34,542,200 (25,147,900) (23,442,900)
Warehouse receipts 577,700 (573,500) (234,400)
Receivables 6,620,400 (5,633,200) (6,503,900)
Other assets 92,800 (188,500) 34,900
Payables 48,828,800 (14,577,900) 49,007,500
Accounts payable and accrued expenses (1,699,000) 826,500 1,325,500
------------ ------------ ------------
Cash provided by (used in) operating activities (1,504,500) 150,200 483,200
------------ ------------ ------------
Cash Flows From Investing Activities:
(Increase) decrease in investments in and advances
to affiliated partnerships 45,500 (13,400) 98,000
Decrease in notes receivable 6,500 7,600 30,000
Purchase of exchange membership - (130,000) -
Purchase of furniture, equipment and leasehold
improvements (290,600) (357,800) (227,900)
Rebate from purchase of equipment - 50,000 -
Proceeds from sale of assets - - 8,500
------------ ------------ ------------
Cash (used in) investing activities (238,600) (443,600) (91,400)
------------ ------------ ------------
Cash Flows From Financing Activities:
Increase in short term advance 1,000,000 - -
Repayment of short term advance (1,000,000) - -
Increase in liabilities subordinated
to claims of general creditors 3,000,000 1,190,000 2,000,000
Repayment of liabilities subordinated
to claims of general creditors (690,000) (1,500,000) -
Repayments of notes payable - (1,300,000) (1,925,600)
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 2,310,000 (534,000) 69,600
----------- ------------ ------------
Effect of exchange rate changes on cash (14,500) - -
----------- ------------ ------------
Increase (decrease) in cash 552,400 (827,400) 461,400
Cash, beginning of period 1,034,900 1,862,300 1,400,900
------------ ------------ ------------
Cash, end of period $ 1,587,300 $ 1,034,900 $ 1,862,300
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-46-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Supplemental Schedule of Non Cash Investing
and Financing Activities
1996
Notes payable aggregating $6,390,000 due January 31, 1996 were extended to
January 31, 1997.
In February, 1996, $1,000,000 of a $1,690,000 subordinated loan was
extended to February 24, 1997. The remaining $690,000 was repaid.
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.
-47-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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. Subsequent to June 30, 1996, Index sold,
transferred and assigned substantially all of its brokerage accounts ("Sale of
Assets") to E.D.& F. Man International Inc. ("MINC"). (See Note 19)
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., Jack Carl
Management and Trading, Inc. and Index FX, Ltd. ("Index FX") as well as those of
its majority-owned subsidiary, Stark Research, Inc. All material intercompany
accounts and transactions are eliminated in consolidation. Brokers Resource
Corp., formerly a subsidiary of JC/312, was dissolved in May, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
-48-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. See Note 19 for the effect of the Sale of Assets
on furniture, equipment and leasehold improvements.
Goodwill
Prior to the Sale of Assets, the excess of cost over estimated fair value
of net assets acquired was reflected as goodwill and was being amortized over
twenty years. Goodwill arose as a result of business combinations which
occurred in 1985 and 1986. As a result of the Sale of Assets, the remaining
goodwill was written off as of June 30, 1996. See Note 19 for further
information.
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, 1996 and 1995, the total market value of
customer-owned securities included in the consolidated statements of financial
condition as both assets and liabilities was $46,891,300 and $45,768,800,
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 Note 12.
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
-49-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
New Pronouncements
The Company is required to adopt Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
effective July 1, 1996. This statement requires a fair value based method of
accounting for employee stock options, and establishes disclosure requirements
for stock-based employee compensation arrangements. Management has not yet
calculated the effect of adopting SFAS 123. However, it does not believe that
it will have a material impact on its financial statements.
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>
1996 1995
------------ ------------
<S> <C> <C>
Cash $ 2,009,500 $ 1,181,700
U.S. Government obligations 142,898,700 81,482,000
Deposits with clearing
organizations 37,464,000 69,531,900
Receivables from clearing
organizations, net 12,223,000 12,043,300
Receivables from brokers and dealers 1,879,000 8,436,200
Warehouse receipts 959,500 1,537,200
------------ ------------
Total segregated and
secured assets $197,433,700 $174,212,300
============ ============
Amount required to be
segregated and secured $189,564,200 $167,730,300
============ ============
</TABLE>
-50-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 4 - OTHER SHORT TERM INVESTMENTS
Other short term investments consist of $28,856,100 of time deposits due
July 1, 1996.
NOTE 5 - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations, including house and customer funds,
at June 30, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
U.S. Government obligations $37,961,600 $75,964,600
Guarantee deposits 1,232,300 1,163,700
Stock in exchange clearing organization
at cost (market value of $1,024,000 in
1996 and $960,000 in 1995) 360,000 360,000
Cash margins 3,934,600 542,400
----------- -----------
Total $43,488,500 $78,030,700
=========== ===========
</TABLE>
NOTE 6 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS
Index Management Services, Inc. ("IMSI"), a subsidiary of Index, as a
general partner, 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 was also the sponsor of an exempted Cayman
Islands limited liability company. At June 30, the investment in and advances
to such entities consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Investment $ - $28,000
Advances - 11,100
------- -------
Total $ - $39,100
======= =======
</TABLE>
-51-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 6 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS (Continued)
IMSI was 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 was in compliance with those requirements. At June 30, 1996
there were no such requirements. Index provided commodity brokerage services to
the pools at agreed upon rates and IMSI received administrative fees from
certain pools.
NOTE 7 - NOTES PAYABLE
Notes payable at June 30, consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Principal stockholder,
interest at prime plus 4%, due:
January 31, 1997 and January 31, 1996 $ 540,000 $ 540,000
January 31, 1997 and January 31, 1996 400,000 400,000
Affiliates and other related parties,
interest at prime plus 4%, due:
January 31, 1997 and January 31, 1996 2,000,000 2,000,000
January 31, 1997 and January 31, 1996 1,800,000 1,800,000
January 31, 1997 and January 31, 1996 750,000 750,000
January 31, 1997 and January 31, 1996 750,000 750,000
January 31, 1997 and January 31, 1996 150,000 150,000
---------- ----------
Total $6,390,000 $6,390,000
========== ==========
</TABLE>
Interest paid on notes payable during the years ended June 30, 1996, 1995
and 1994 was $801,400, $894,100 and $764,000, respectively, substantially all of
which was paid to related parties.
-52-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 7 - NOTES PAYABLE (Continued)
The weighted average interest rates on short-term borrowings outstanding at
June 30, 1996 and 1995 are 11.8% and 12.9%, 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, 1996, all notes payable mature during the year ended June 30,
1997. In September, 1996, $900,000 of notes payable to affiliates and other
related parties were repaid.
NOTE 8 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors at June 30, consist
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
Bank, interest at prime plus 3%, due:
<S> <C> <C>
February 28, 1996 $ - $1,690,000
September 30, 1996 1,750,000 -
February 26, 1997 1,000,000 -
April 28, 1997 1,250,000 -
---------- ----------
Total $4,000,000 $1,690,000
========== ==========
</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, during fiscal 1995, Index's regulatory capital would have
increased on a dollar for dollar basis. The full amount of the borrowing was
repaid in August, 1996 and the line was cancelled.
Interest expense on liabilities subordinated to claims of general creditors
during the years ended June 30, 1996, 1995, and 1994 was $352,000, $234,100 and
$54,400, respectively.
NOTE 9 - 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.
-53-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 9 - 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, 1996,
cumulative dividends in arrears amounted to $413,300 or $1.03 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, 1996, 33,624,530 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
-54-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 9 - 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, 1996.
Shares Shares Shares Shares Shares
Granted Price Exercisable Forfeited Cancelled Remaining
------- ----- ----------- --------- --------- ---------
Dec.
1990 410,000 $.60 317,500 72,969 19,531 317,500
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
Jan.
1995 250,000 $.125 250,000 - - 250,000
--------- --------- ------- ------ ---------
Total 2,235,000 2,117,500 97,969 19,531 2,117,500
========= ========= ======= ====== =========
NOTE 10 - RELATED PARTY TRANSACTIONS
A note receivable in the amount of $627,200 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. The Company earned $53,500, $52,400, and
$39,000 of interest income on this note during the years ended June 30, 1996,
1995 and 1994, respectively.
The Company rents from an officer and director, an exchange membership
having a market value at June 30, 1996 of approximately $525,000. Rent expense
for the years ended June 30, 1996, 1995 and 1994 was $61,500, $64,000, and
$49,200, respectively.
-55-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 10 - RELATED PARTY TRANSACTIONS (Continued)
Certain exchange memberships owned by officers and others, having an
aggregate market value of $4,870,000 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 7 for the terms and balances at June 30, 1996 and 1995.
In August, 1995, the principal stockholder made a $1,000,000 short term
advance to the Company. The Company repaid the advance in September, 1995.
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 11 - SALE OF BRC ASSETS
In January, 1993, Brokers Resource Corp. ("BRC"), at the time a wholly-
owned subsidiary of Index and until it was dissolved in May, 1996, 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 and 1994, the Company earned $481,900, and $982,000,
respectively, from the transaction, which is included in commission income. The
revenue stream from this transaction ended effective January 15, 1995.
-56-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 12-INCOME TAXES
The provision for Federal income taxes for each of the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current $ 98,200 $1,220,600 $ 581,200
Deferred (272,300) 315,600 (175,000)
---------- ---------- ----------
Total provision $(174,100) $1,536,200 $ 406,200
========== ========== ==========
</TABLE>
State income tax expense is immaterial for the years ended June 30, 1996,
1995 and 1994.
Reconciliation of the total provision for income taxes to the Federal
statutory rate for the years ended June 30, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Amount % Amount % Amount %
----------------- -------------- --------------
<S> <C> <C> <C>
At Federal
statutory rate $ (444,400) 34.0 $1,342,300 34.0 $337,400 34.0
Amortization of
goodwill 184,300 (14.1) 18,200 .5 18,200 1.8
Non-taxable
translation gain (10,600) .8 - - - -
Additional tax due IRS
for 1987-1989
settlement 30,300 (2.3) 49,500 1.2 - -
Non-deductible travel
and entertainment 18,000 (1.4) 8,600 .2 4,000 .4
Non-deductible loss
of majority-owned
subsidiary 6,000 (.5) 41,200 1.0 40,500 4.1
Additional provision
for current and
deferred taxes 32,500 (2.4) 8,800 .9 - -
Penalties - - 45,100 .5 - -
Other, net 9,800 (.8) 22,500 .6 6,100 .6
-------- ----- -------- ---- ------- ----
Net amounts $ (174,100) 13.3 $1,536,200 38.9 $406,200 40.9
========= ==== ========= ==== ======= ====
</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
-57-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 12 - INCOME TAXES (Continued)
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:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
Deferred income tax assets:
<S> <C> <C>
Bad debt reserve $ 38,600 66,100
Book and tax depreciation
difference 235,800 67,500
Commission accrual 37,500 -
Bonus accrual 4,400 65,400
Accrued legal expense - 40,800
-------- ---------
Total deferred tax assets $316,300 $ 239,800
-------- ---------
Deferred income tax liabilities:
Unrealized gain on U.S.
Government obligations $ (4,500) $(135,900)
Partnership income (34,900) (26,200)
Prepaid rent (4,900) (18,100)
1987-1989 audit adjustment - (61,300)
Other, net (2,800) (1,400)
-------- ---------
Total deferred tax liabilities $(47,100) $(242,900)
-------- ---------
Net deferred tax assets
(liabilities) $269,200 $ (3,100)
======== =========
</TABLE>
No valuation allowance has been provided as management believes deferred
tax assets are realizable.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company has a noncancellable lease for office space which expires in
the year 2002. Minimum annual rentals, excluding escalations and increases in
operating expenses and taxes, are as follows:
<TABLE>
<CAPTION>
Year Ending June 30, Amount
-------------------- ---------
<S> <C>
1997 $ 283,900
1998 350,500
1999 362,300
2000 374,000
2001 and thereafter 849,900
---------
Total $2,220,600
=========
</TABLE>
-58-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
Other office space leases the Company had at June 30, 1996 were transferred
to MINC, effective July 1, 1996, and have not been included in the above
amounts.
The Company has entered into employment agreements which expire at varying
dates through fiscal 1998 with certain of its employees, providing for aggregate
minimum annual payments for the years ending June 30, 1997 and 1998 of
approximately $336,400 and $204,500, respectively.
As a result of the Sale of Assets, if certain conditions occur over the
next two years, the Company may be subject to additional severance payments of
up to $517,400.
The Company has guaranteed performance under the Commodity Exchange Act of
certain introducing brokers with respect to their customer accounts. These
introducing broker guarantees were transferred to MINC effective July 1, 1996.
Index and BRC issued a limited indemnification agreement to the purchaser
of the BRC business (see Note 11). This agreement covers potential customer
claims arising from activity prior to the sale. No such claims are currently
outstanding.
A similar limited indemnification agreement was issued to MINC related to
the Sale of Assets. No claims are currently pending. See Note 19.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
Prior to the Sale of Assets, the Company, through Index, was in the
business of clearing and executing futures contracts and options on futures
contracts for the accounts of its customers. As such, Index guaranteed to the
respective clearinghouses its customers' performance under these contracts. To
reduce its risk, Index required its customers to meet, at a minimum, the margin
requirement established by each of the exchanges at which the contract was
traded. This margin was a good faith deposit from the customer which reduced 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 adjusted these margin requirements, as needed, due to daily
fluctuations in the values of the underlying positions. If necessary, certain
positions may have been liquidated to satisfy resulting changes in margin
requirements. Management believes that the margin deposits held at June 30,
1996, were adequate to minimize the risk of material loss which could be created
by the positions held at that time.
To facilitate small orders from customers, the Company entered into
proprietary positions at the MidAmerica Commodity Exchange and offsets these
positions at the Chicago Board of Trade and the Chicago Mercantile Exchange,
thereby assuming no market risk. At June 30, 1996, Index held proprietary long
financial futures positions with an aggregate notional value of $165,130,900 and
proprietary short financial futures positions with an aggregate notional value
of $165,130,900. At June 30, 1995, Index held proprietary long financial futures
positions and
-59-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK (Continued)
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.
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, 1996 Index's open financial contracts were transacted
at the Chicago Mercantile Exchange, Chicago Board of Trade, and MidAmerican
Commodity Exchange. At June 30, 1996, Index held no foreign currency forward
contracts. 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.
Index FX conducts business for its customers in foreign currencies on the
spot market in which trades generally settle on the next business day. Index FX
offsets its customer positions to manage its currency risk. It also requires
certain customers to post margin deposits. Management believes that with the
trades settling the next business day and the margin policy it employs, its
credit risk is reduced substantially. At June 30, 1996, Index FX held long
foreign currency positions with an aggregate notional value of $2,101,661,100
and short foreign currency positions with an aggregate notional value of
$2,101,662,400.
At June 30, 1996, the Index FX foreign currency business was transacted
with several international financial institutions.
NOTE 15 - 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.
-60-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 15 - LITIGATION (Continued)
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 an arbitration filed by a former client
to recover damages of $1,000,000 alleging misrepresentation of risk and
unauthorized trading. The client's actual losses were approximately $850,000. In
July, 1996, an arbitration panel entered an award of no damages for the
claimant.
In April, 1994, Index without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of an 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. On May 29, 1996, the district judge dismissed the
complaint in its entirety. Supplemental Plaintiff filed a Notice of Appeal with
the U.S. Court of Appeals for the Seventh Circuit on June 28, 1996. The Seventh
Circuit has yet to rule on whether this case may be appealed.
Index defended a complaint filed by former partners of a general
partnership which cleared its trades at Index. The plaintiff alleged that the
general partner, a co-defendant, defrauded them by failing to disclose risks and
misrepresenting account performance. The Plaintiffs' actual losses were
approximately $157,000. The case was settled in November, 1995 for $25,000.
A former officer of Index whose employment was terminated as a result of
the Sale of Assets has rejected Index's severance payment offer. The officer has
made a demand for $500,000, and has threatened litigation, if a satisfactory
offer of settlement is not made. The Company believes that its original
severance offer was reasonable and the officer's claims are without merit.
NOTE 16 - CAPITAL REQUIREMENTS
Index is subject to the minimum capital requirements adopted and
administered by the CFTC and by certain exchanges of which Index is a member. As
of June 30, 1996, adjusted net capital, as
-61-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 16 - CAPITAL REQUIREMENTS (Continued)
defined, of approximately $12,038,300 is approximately $5,216,200 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.
At the request of certain of its non-regulated customers trading in the
cash markets, Index transferred funds to its affiliate Index FX. Upon
clarification of the net capital rules, it was determined that the receivable
from Index FX could not accurately be classified as a current asset. As a
result, Index was under early warning and minimum capital requirements and as of
March 31, 1996 it had an adjusted net capital, as defined, of $4,406,800 which
was $11,272,800 less than the minimum required under the regulations of the CFTC
and exchanges. Index informed the Chicago Mercantile Exchange and the CFTC of
the capital deficiency. Index took immediate action to correct the deficiency
and as of April 23, 1996, was fully in compliance with minimum capital
requirements.
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, 1996,
the subsidiary is in compliance with those requirements.
NOTE 17 - 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.
NOTE 18 - 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, 1996, 1995 and 1994 amounted to $4,043,800, $3,194,300 and
$1,706,300, respectively. The Company made income tax payments in the amount of
$1,100,000, $444,600 and $185,000 during the years ended June 30, 1996, 1995 and
1994, respectively.
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS
On May 31, 1996, an agreement was reached to sell, transfer and assign to
MINC substantially all of the brokerage accounts maintained by Index,
-62-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued)
together with all positions, securities and other assets held in or for such
accounts and other agreed-upon assets used in the conduct of the brokerage
activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based
international trading and finance conglomerate. This sale was completed as of
July 1, 1996. Shortly thereafter, Index ceased being a clearing member at all
exchanges, though it remains a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
As the purchase price is contingent upon the future earnings of the customer
accounts sold, none of which is guaranteed, no gain on the sale was reflected in
the financial statements for the year ended June 30, 1996. Rather, income will
be recognized as earned over the next five and one-half years. A condition of
the sales agreement required the principal shareholder to sign a non-competition
agreement. As compensation for providing such an agreement, a portion of the
purchase price will be allocated to the principal shareholder and recorded by
the Company concurrently with its recognition of income as described above.
Management does not believe this amount will be significant.
A net pre-tax, restructuring charge of $1,556,500, related to the sale, was
reflected in the income statement for fiscal year 1996. Additionally, a
restructuring gain of $664,000 will be reflected in income in fiscal 1997. These
amounts consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Write-off of remaining goodwill $ (488,400)
Accrue employee benefits related to
terminated and transferred employees (643,700)
Revalue of furniture, fixtures and equipment (373,100)
Accrue lease obligation (154,600)
Accrue legal expenses related to the sale (110,000)
Write-off printing stock (97,100)
Reduce bonus accrual, related to terminated
and transferred employees 195,000
Write-off deferred rent for assumed lease 65,200
Reduce business promotion accruals 50,200
-----------
Total restructuring charge in fiscal 1996 $(1,556,500)
===========
Gain on sale of Board of Trade Clearing
Corporation stock, July, 1996 $ 664,000
===========
</TABLE>
-63-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued)
It is anticipated that the exchange memberships Index currently holds will
be liquidated in fiscal 1997 at close to their current market value, which would
result in a pre-tax gain of approximately $149,000.
In addition, in conjunction with the sale, the Company issued a limited
indemnification agreement to MINC. The agreement covers potential customer
claims arising from activity prior to the sale.
-64-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
------------------------------
1996 E.D. & F. Man 1996
Historical Sale Other Pro Forma
------------ ------------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C>
Cash $ 1,587,300 $ 77,000 $ (900,000) $ 764,300(8)
Cash segregated or secured under Commodity Exchange Act 2,009,500 (2,009,500) - -
U.S. Government obligations 144,328,800 (132,815,300) (1,952,600) 9,560,900(8)
Other short term investments 28,856,100 - - 28,856,100
Deposits with clearing organizations 43,488,500 (43,488,500)(3) - -
Warehouse receipts 959,500 (959,500) - -
Receivables:
Brokers and Dealers 2,291,900 (2,291,900) - -
Clearing organizations 12,383,200 (12,383,200) - -
Customers 1,138,400 (598,900) - 539,500
Affliliates 1,000 - - 1,000
Other 1,061,800 (177,600) 705,600 (2) 1,589,800
Less - Allowance for doubtful accounts (409,300) - - (409,300)
Notes receivable 627,200 - - 627,200
Exchange memberships, at cost (market value of $960,400) 781,300 - (781,300)(4) -
Furniture, equipment, and leasehold improvements, net of
accumulated depreciation and amortization of $2,213,400 279,500 (77,000) - 202,500
Other assets 503,000 - (134,800) 368,200
------------ ------------- ----------- -----------
Total $239,887,700 $(194,724,400) $(3,063,100) $42,100,200
============ ============= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
Clearing organizations $ 165,900 $ (165,900) $ - $ -
Customers 216,705,300 (189,884,000) - 26,821,300
Officers and employees 2,865,000 (1,514,300) - 1,350,700
Accounts payable and accrued expenses 3,545,000 (2,132,800) 49,500 (5) 1,461,700
Notes payable 6,390,000 - (900,000)(6) 5,490,000
------------ ------------- ----------- -----------
Total 229,671,200 (193,697,000) (850,500) 35,123,700
------------ ------------- ----------- -----------
Liabilities subordinated to claims of general creditors 4,000,000 - (4,000,000)(7) -
------------ ------------- ----------- -----------
Stockholders' equity
Class A preferred stock, $1 par value; 10% cumulative,
redeemable, 400,000 shares authorized and outstanding 400,000 - - 400,000
Common stock, $.004 par value; 150,000,000 shares
authorized, 33,624,530 shares issued and outstanding 134,500 - - 134,500
Paid-in capital 8,395,300 - - 8,395,300
Retained deficit (2,698,800) (1,027,400)(1) 1,787,400(2,3,4) (1,938,800)
Cumulative translation adjustment (14,500) - - (14,500)
------------ ------------- ----------- -----------
Total stockholders' equity 6,216,500 (1,027,400) 1,787,400 6,976,500
------------ ------------- ----------- -----------
Total $239,887,700 $(194,724,400) $(3,063,100) $42,100,200
============ ============= =========== ===========
</TABLE>
- --------------------
(1) 1996 restructuring charge, net of tax, was adjusted to retained earnings as
of the end of fiscal 1995.
(2) $1,612,800 of other income is the estimated pre-tax revenue from the Sale of
Assets to MINC, which was based upon 1996 actual trading levels, commission
revenue, commission expense, brokerage and clearing costs and production
expenses. The general administrative expenses used in this calculation were
based on the highest level permitted under the sales agreement and 1996
actual trading levels. Actual results may be significantly higher or lower
if these assumptions do not hold true. The $705,600 other receivable is the
Company's estimated receivable from the Sale of Assets to MINC.
(3) $664,000 of other income is the assumed pre-tax gain on the sale of clearing
corporation stock in July, 1995. The proceeds were assumed to have been
reinvested. (Actual sale occurred in July, 1996.)
(4) $179,100 of other income is the assumed pre-tax gain on the sale of all
exchange memberships in November, 1995. The proceeds were assumed to have
been reinvested. (The sale prices were assumed to be the market values at
the end of June, 1996. The actual gain may be higher or lower if the market
values increase or decrease.)
(5) Restructuring charge liabilities were assumed to have been paid in 1996.
(6) $900,000 of notes payable were assumed repaid in September, 1995. (Actual
repayment was September, 1996.)
(7) $4,000,000 of subordinated loans were assumed repaid at the beginning of
August, 1995. (Actual repayment was the beginning of August, 1996.)
(8) The statement of financial condition assumes that most cash generated by the
Sale of Assets was reinvested in U.S. Government obligations, with a nominal
level of cash for operating expenses. Other such balances reflect the on-
going balances of Index FX.
-65-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
-----------------------------
1996 E.D.& F. Man 1996
Historical Sale Other Pro Forma
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions $30,606,500 $(30,606,500) $ - $ -
Interest 7,920,800 (6,751,300) (156,100)(2) 1,013,400
Trading gains, net 2,411,400 (352,600) - 2,058,800(10)
Other 196,200 (196,200) 2,455,900 (3,4,5) 2,455,900
----------- ------------ ----------- -----------
Total revenues 41,134,900 (37,906,600) 2,299,800 5,528,100
----------- ------------ ----------- -----------
Expenses:
Commissions, floor brokerage and clearing costs 16,825,600 (16,704,800) - 120,800
Compensation and related benefits 10,536,500 (9,297,800) - 1,238,700(8)
Interest 4,238,900 (2,559,400) (408,400)(6,7) 1,271,100
Communications 2,066,800 (1,753,500) - 313,300
Business promotion 2,173,900 (1,949,700) - 224,200
Rent and other occupancy costs 1,546,300 (1,132,400) - 413,900
Professional and consulting fees 670,400 (380,900) - 289,500
Depreciation 320,800 (256,100) - 64,700
Amortization of goodwill 53,600 (53,600) - -
Doubtful accounts expense (benefit) 140,600 (96,300) - 44,300
Other 2,312,200 (2,165,500) - 146,700
Restructuring charge, net 1,556,500 (1,556,500)(1) - -
----------- ------------ ----------- -----------
Total expenses 42,442,100 (37,906,500) (408,400) 4,127,200(9)
----------- ------------ ----------- -----------
Income (loss) before income taxes (1,307,200) (100) 2,708,200 1,400,900
Income tax expense (benefit) (174,100) (166,100) 920,800 580,600
----------- ------------ ----------- -----------
Net income (loss) (1,133,100) 166,000 1,787,400 820,300
Assumed cumulative dividend on Class A
preferred stock (40,000) - - (40,000)
----------- ------------ ----------- -----------
Net income (loss) applicable to common stock $(1,173,100) $ 166,000 $ 1,787,400 $ 780,300
=========== ============ =========== ===========
Primary earnings (loss) per share, restated
for reverse split:
Net income (loss) $ (.03) $ .00 $ .05 $ .02
=========== ============ =========== ===========
Weighted average number of shares outstanding 33,721,179 33,721,179 33,721,179 33,721,179
=========== ============ =========== ===========
Fully diluted earnings (loss) per share, restated
for reverse split:
Net income (loss) $ (.03) $ .00 $ .05 $ .02
=========== ============ =========== ===========
Weighted average number of shares outstanding 33,721,179 33,721,179 33,721,179 33,721,179
=========== ============ =========== ===========
</TABLE>
- ------------------
(1) 1996 restructuring charge was adjusted to retained earnings as of the end
of fiscal 1995.
(2) A 5.25% interest rate was assumed for interest income on liquidated assets.
(3) $1,612,800 of other income is the estimated pre-tax revenue from the Sale
of Assets to MINC, which was based upon 1996 actual trading levels,
commission revenue, commission expense, brokerage and clearing costs and
production expenses. The general administrative expenses used in this
calculation were based on the highest level permitted under the sales
agreement and 1996 actual trading levels. Actual results may be
significantly higher or lower if these assumptions do not hold true.
(4) $664,000 of other income is the assumed pre-tax gain on the sale of
clearing corporation stock in July, 1995. The proceeds were assumed to have
been reinvested. (Actual sale occurred in July, 1996.)
(5) $179,100 of other income is the assumed pre-tax gain on the sale of all
exchange memberships in November, 1995. The proceeds were assumed to have
been reinvested. (The sale prices were assumed to be the market values at
the end of June, 1996. The actual gain may be higher or lower if the
market values increase or decrease.)
(6) $900,000 of notes payable were assumed repaid in September, 1995. (Actual
repayment was September, 1996.)
(7) $4,000,000 of subordinated loans were assumed repaid at the beginning of
August, 1995. (Actual repayment was the beginning of August, 1996.)
(8) Compensation and related benefits reflects three months of transitional
costs, followed by nine months of on-going, reduced expenditures.
(9) Other expenses reflect nominal estimated on-going expenses of Index as well
as actual 1996 expenditures for Index FX.
(10) Trading gains reflect the revenue generated by Index FX.
-66-
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION AND OPERATIONS
JUNE 30, 1996
(1) The pro forma statement of financial condition represents the unaudited
financial position of Jack Carl/312-Futures, Inc. and Subsidiaries at June 30,
1996 adjusted as if the agreement to sell, transfer and assign to E.D.& F. Man
International Inc. substantially all of the brokerage accounts mantained by
Index, together with all positions, securities, and other assets held in or for
such accounts and other agreed-upon assets used in the conduct of the brokerage
activities ("Sale of Assets") had taken place on July 1, 1995. The pro forma
statement of operations represents the unaudited results of operations for the
year ended June 30, 1996, adjusted as if the Sale of Assets had taken place on
July 1, 1995. These statements have been prepared from the historical financial
statements of the Company.
(2) The pro forma statement of financial condition includes adjustments of the
historical financial information to reflect (1) the reclassification of the 1996
restructuring charge to retained earnings as of the end of fiscal 1995; (2)
recording an estimated $1,612,800 from the Sale of Assets, $664,000 from the
sale of clearing corporation stock and an estimated $179,100 from the sale of
exchange memberships; (3) the assumption that the restructuring charge
liabilities were paid in 1996; (4) the assumed repayment of $900,000 of notes
payable and $4,000,000 of subordinated debt; (5) the assumption that most cash
generated by the Sale of Assets, and the sale of clearing corporation stock and
exchange memberships was invested in U.S. Government obligations, with a nominal
level of cash for operating expenses; (6) the assumption that the payment of
liabilities were made from cash or the liquidation of U.S. Government
obligations, and (7) the reclassification of certain assets and liabilities to
conform with the Company's accounting policy.
(3) The pro forma statement of operations includes adjustments of the
historical financial information to reflect (1) the reclassification of the 1996
restructuring charge to retained earnings as of the end of fiscal 1995; (2)
recording, as other income, of an estimated $1,612,800 from the Sale of Assets,
$664,000 from the sale of clearing corporation stock and an estimated $179,100
from the sale of exchange memberships; (3) the assumption of a 5.25% interest
rate for interest income; (4) the assumed repayment of $900,000 of notes payable
and $4,000,000 of subordinated debt; (5) compensation and related benefits
reflects three months of transitional costs, followed by nine months of on-going
reduced expenditures; (6) other expenses reflect nominal estimated on-going
expenses of Index as well as actual expenditures for Index FX, and (7) income
taxes or benefits that would have occurred.
(4) In the opinion of management, all material adjustments necessary for a fair
presentation of the pro forma results of operations for the year ended June 30,
1996 have been reflected. The pro forma results of operations are not
necessarily indicative of the results of operations that would have occurred had
the Sale of Assets actually taken place on July 1, 1995.
-67-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
----------------------------
E. D. & F. MAN INTERNATIONAL INC.
--------------------------------
YEAR ENDED MARCH 31, 1996
-------------------------
(Confidential Treatment Requested)
-68-
<PAGE>
Report of Independent Accountants
---------------------------------
May 30, 1996
Board of Directors
E. D. & F. Man International Inc.
(a wholly owned subsidiary of E. D. & F. Man Inc.)
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of operations, of changes in
subordinated liabilities, of changes in stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of E. D. & F.
Man International Inc. and its subsidiaries at March 31, 1996, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in
Supplemental Information is presented for purposes of additional analysis and is
not a required part of the basic financial statements, but is supplementary
information required by Regulation 1.10 of the Commodity Exchange Act and Rule
17a-5 under the Securities Exchange Act of 1934. Such information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, the information is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
-69-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
MARCH 31, 1996
--------------
(in thousands)
<TABLE>
<CAPTION>
Assets
- ------
<S> <C>
Cash $ 7,142
Cash segregated under federal regulation 2,371
Due from brokers, dealers and clearing organizations 131,745
Due from customers and noncustomers 28,614
Due from affiliates 3,353
Securities purchased under agreements to resell 715,742
Securities owned
U.S. Government securities 31,098
Other marketable securities 6,132
Not readily marketable, at estimated fair value 421
Memberships in exchanges, at cost
(market value of $14,724) 10,040
Furniture, equipment, and leasehold improvements,
net of accumulated depreciation of $2,929 2,893
Other assets 4,038
--------
Total assets $943,589
========
Liabilities and stockholder's equity
- ------------------------------------
Liabilities:
Due to brokers, dealers and clearing organizations $ 17,003
Due to customers and noncustomers 758,922
Due to affiliates 8,224
Accounts payable and accrued liabilities 29,932
--------
814,081
Subordinated debt 123,000
--------
Total liabilities 937,081
--------
Stockholder's equity:
Common stock 350
Additional paid-in capital 4,900
Retained earnings 1,258
--------
Total stockholder's equity 6,508
--------
Total liabilities and stockholder's equity $943,589
========
</TABLE>
The accompanying notes are an integral part of these statements.
-70-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
YEAR ENDED MARCH 31, 1996
-------------------------
(in thousands)
<TABLE>
<CAPTION>
Revenues
- --------
<S> <C>
Commissions $103,244
Interest 16,380
Other 8,044
--------
127,668
--------
Expenses
- --------
Sales commissions 14,252
Floor brokerage, clearing and exchange fees 51,267
Employee compensation and benefits 24,846
Occupancy and equipment costs 3,472
Depreciation and amortization 1,215
Communications 6,431
Office and data processing 3,303
Professional services 2,019
Interest 12,690
Other 9,030
--------
128,525
--------
Loss before taxes (857)
Income tax expense 198
--------
Net loss $ (1,055)
========
</TABLE>
-71-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SUBORDINATED LIABILITIES
-------------------------------------------------------------
YEAR ENDED MARCH 31, 1996
-------------------------
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
Subordinated debt at April 1, 1995 $112,500
Borrowings 28,500
Repayments (18,000)
--------
Subordinated debt at March 31, 1996 $123,000
========
</TABLE>
The accompanying notes are an integral part of these statements.
-72-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------------------
YEAR ENDED MARCH 31, 1996
-------------------------
(in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
---------- ------- --------- --------
<S> <C> <C> <C> <C>
Balance at April 1, 1995 $ 350 $4,900 $ 4,331 $ 9,581
Net loss - - (1,055) (1,055)
Dividend paid to E. D. & F.
Man, Inc. - - (2,018) (2,018)
---------- ------- ------- -------
Balance at March 31, 1996 $ 350 $4,900 $ 1,258 $ 6,508
========== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-73-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------
(in thousands)
Cash flows from operating activities
- ------------------------------------
<S> <C>
Net loss $ (1,055)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,093
Gain on sale of exchange memberships and stock (308)
Deferred tax benefit (122)
Other 799
Decrease in cash segregated under federal regulation 6,475
Increase in due from brokers, dealers and
clearing organizations (66,271)
Decrease in due from customers 24,106
Decrease in due from affiliates 45,912
Increase in securities purchased under
agreements to resell (124,543)
Decrease in securities owned 54,997
Decrease in other assets 6,275
Decrease in due to brokers, dealers and
clearing organizations (24,998)
Decrease in due to affiliates (77,564)
Increase in due to customers 142,686
Decrease in accounts payable and accrued liabilities (3,930)
---------
Net cash used in operating activities (16,448)
---------
Cash flows from investing activities
- ------------------------------------
Proceeds from sales of exchange memberships 4,234
Dividend paid (2,018)
Purchase of fixed assets, net of disposals (1,847)
---------
Net cash provided by investing activities 369
---------
Cash flows provided by financing activities
- -------------------------------------------
Proceeds from subordinated borrowings 28,500
Repayments of subordinated debt (18,000)
---------
Net cash provided by financing activities 10,500
---------
Net decrease in cash (5,579)
Cash at beginning of year 12,721
---------
Cash at end of year $ 7,142
=========
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest $ 12,027
Income taxes $ 126
</TABLE>
The accompanying notes are an integral part of these financial statements.
-74-
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1996
--------------
NOTE 1 - ORGANIZATION:
- ----------------------
E. D. & F. Man International Inc, ("MINC") is a wholly owned subsidiary of E. D.
& F. Man Inc., a United States corporation, whose ultimate parent is E. D. & F.
Man Group plc, a United Kingdom corporation.
MINC is registered with the Commodity Futures Trading Commission ("CFTC") as a
futures commission merchant and is a member of the National Futures Association,
an industry self regulatory agency. MINC is also registered with the Securities
and Exchange Commission ("SEC") and the National Association of Securities
Dealers ("NASD") as a broker-dealer. MINC provides brokerage services to
customers and affiliates on United States securities and commodities exchanges
and on overseas exchanges through affiliates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
- -----------------------------------------
Consolidation Policy
- --------------------
The consolidated financial statements include the accounts of MINC and
Geldermann, Inc. ("Geldermann"), a wholly owned subsidiary (collectively, the
"Company"). All material intercompany balances and transactions have been
eliminated.
Revenue Recognition
- -------------------
Commission income and the associated direct costs related to customer futures
transactions are recognized on a half-turn basis. Customers' securities
transactions, and the related revenues and expenses thereon, are recorded on a
settlement date basis which does not differ from that which would have been
recorded on a trade date basis.
Interest income on U.S. Government securities and securities purchased under
agreements to resell is presented net of interest expense related to customers
and affiliates of $39,548,300 in the consolidated statement of operations.
U. S. Government Securities
- ---------------------------
U. S. Government securities are carried at cost plus accrued interest, which
approximates market value. Approximately $7,293,900 of these securities
represent guarantee deposits maintained at clearing organizations.
-75-
<PAGE>
Securities Purchased Under Agreements to Resell
- -----------------------------------------------
Securities purchased under agreements to resell are carried at the amounts at
which the securities will be subsequently resold plus accrued interest, which
approximates market value. The securities purchased under agreements to resell
are restricted due to segregation requirements of the CFTC. Such reverse
repurchase agreements are with several U. S. banking institutions and are
collateralized by U. S. Government securities. It is the Company's policy to
obtain possession or control of the underlying collateral. The Company monitors
the fair value of the securities purchased under these agreements on a daily
basis and obtains additional collateral from counterparties as necessary.
Property, Plant and Equipment
- -----------------------------
Fixed assets consist of furniture, equipment and leasehold improvements.
Furniture and equipment is depreciated over their estimated useful lives using
the straight-line method. Leasehold improvements are amortized over the lease
term using the straight-line method.
Benefit Plans
- -------------
Eligible employees of MINC are covered by E. D. & F. Man Inc.'s non-contributory
defined benefit pension plan. During the year ended March 31, 1996, MINC's
allocated pension expense amounted to approximately $1,101,400 which was
recognized in the consolidated statement of operations.
Income Taxes
- ------------
The Company is included in the consolidated federal income tax return of E. D. &
F. Man Inc. Federal income taxes are determined on a separate return basis
pursuant to a tax sharing agreement with its parent. The Company accounts for
income taxes under the liability method. Under this method, deferred taxes are
provided for differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when these differences are expected to reverse.
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
-76-
<PAGE>
Goodwill
- --------
Goodwill is amortized over 15 years on a straight line basis. Included within
goodwill is the excess of the fixed consideration paid or accrued over the
estimated fair value of the net assets acquired of Geldermann as well as the
capitalization of direct costs associated with the purchase, including severance
and lease termination payments and accruals for rental costs related to
redundant space and equipment.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of financial instruments approximates fair value except for
subordinated debt. Based on the related party nature of the subordinated debt,
the fair value of such debt is not considered to be readily determinable.
NOTE 3 - COMMON STOCK
- ---------------------
At March 31, 1996, the Company's capital shares consist of the following
classes:
Class A (Voting), $10 par value; 25,000 shares authorized;
20,000 shares issued and outstanding $200,000
Class B (Non-Voting), $10 par value; 25,000 shares
authorized; 15,000 shares issued and outstanding $150,000
NOTE 4 - CAPITAL REQUIREMENTS:
- ------------------------------
MINC is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1), which
requires a broker-dealer that is also registered as a futures commission
merchant to maintain adjusted net capital equal to or above the greater of its
requirement under paragraph (a)(1)(ii) of Rule 15c3-1, or 4 percent of the funds
required to be segregated pursuant to the Commodity Exchange Act and the
regulations thereunder. At March 31, 1996, MINC had adjusted net capital, as
defined, of approximately $66,191,900, which was approximately $34,933,000 in
excess of the minimum required to be maintained.
Geldermann, Inc. is subject to the net capital requirements of the CFTC. At
March 31, 1996 Geldermann, Inc.'s regulatory net capital of approximately
$17,603,100 exceeded the minimum net capital requirement by approximately
$17,271,500.
MINC and its regulated subsidiaries are subject to certain notification and
other provisions of the net capital rules of the SEC and CFTC regarding advances
to affiliates, repayments of subordinated liabilities, dividend payments and
other equity withdrawals.
-77-
<PAGE>
NOTE 5 - SEGREGATION OF FUNDS
- -----------------------------
The Company is required under the Commodity Exchange Act and the Securities
Exchange Act of 1934 to segregate assets at least equivalent to balances due to
customers trading in regulated futures and options on futures contracts and U.S.
domiciliaries trading on foreign futures markets and trading in securities and
options on securities markets, respectively. At March 31, 1996, the Company
maintained segregated assets and foreign secured assets, including customer
owned securities, as follows:
<TABLE>
<CAPTION>
<S> <C>
Pursuant to Commodity Exchange Act:
Cash $ 2,229,200
Firm owned securities 5,375,300
Customer owned securities 226,296,000
Securities purchased under agreements to resell 574,800,200
Receivables from exchanges and clearing organizations 49,091,700
Net equities with other futures commission merchants 4,184,000
------------
Total $861,976,400
============
Foreign Secured Assets Relating to Foreign Futures Activities:
Cash $ 49,706,600
Firm owned securities 1,075,900
Customer owned securities 14,155,400
Securities purchased under agreements to resell 70,032,400
Receivables from exchanges and clearing organizations 19,300
Net equities with other futures commission merchants (2,660,000)
------------
Total $132,329,600
============
Pursuant to Securities Exchange Act Requirements:
Securities purchased under agreements to resell $ 23,406,800
============
</TABLE>
At March 31, 1996, the Company was in compliance with these segregation
requirements.
NOTE 6 - INCOME TAXES:
- ----------------------
The Company files consolidated Federal, and New York state and City income tax
returns with its parent, E. D. & F. Man Inc. The Company also files income tax
returns in Illinois and certain other states.
-78-
<PAGE>
The provision (benefit) for income taxes includes the following:
Current:
Federal $ 622,400
State (143,100)
Local (159,300)
Deferred:
Federal (118,000)
State (5,700)
Local 2,100
---------
Total $ 198,400
=========
The tax benefits relating to state and local income taxes result from the
Company's participation in the consolidated returns of its parent.
The difference between the Company's effective tax rate and the statutory
federal tax rate principally relates to state and local taxes, certain
non-deductible expenses and adjustment to the prior year tax payable amount due
to the disallowance of a deduction.
NOTE 7 - RELATED PARTY TRANSACTIONS:
- ------------------------------------
E. D. & F. Man Inc. provides certain administrative services to the Company.
These services include payment of the Company's payroll costs, occupancy costs,
equipment rentals, communication costs as well as various other operating
expenses. The Company reimburses E. D. & F. Man Inc. for these expenditures.
During the year ended March 31, 1996, the Company was charged $1,992,300 by
E. D. & F. Man Inc. in connection with computer systems, personnel support
services, legal, occupancy and other overhead expenses.
The Company enters into various execution and brokerage activities with
affiliates on bases determined by management. For the year ended March 31, 1996,
the Company earned from affiliates approximately $10,053,900 in commission
revenue and was charged by affiliates commission expense of approximately
$6,205,500.
The Company paid commitment fees of approximately $1,073,400 to an affiliate for
committed bank and credit facilities during the year ended March 31, 1996.
The Company recognized approximately $17,698,000 (including $12,027,000 related
to subordinated debt) of interest expense and approximately $6,290,000 in
interest income arising from transactions with affiliates during the year ended
March 31, 1996.
At March 31, 1996, subordinated borrowings from E. D. & F. Man Group plc total
$37,500,000 expiring January 31, 1997, and from E. D. & F. Man Inc. total
$85,500,000 expiring as follows:
-79-
<PAGE>
$5,000,000 on May 31, 1996, $57,000,000 on June 15, 1997, and $23,500,000 on
June 2, 1996. Such borrowings are subordinated to the claims of all present and
future creditors and bear interest at prime plus 1%.
The Company has an agreement with the E.D. & F. Man International Ltd. ("MIL")
to introduce customers to MIL who desire to purchase or sell London Metals
Exchange futures and options contracts. For such contracts, the counterparties
are customers of MIL with no obligation of performance by the Company. The
Company is reimbursed by MIL for its expenses related to such transactions. The
Company also receives a service fee equal to a share of the Net Profits, as
defined in the agreement, from such transactions. For the year ended March 31,
1996, the Company received approximately $2,338,000 and approximately $614,000,
respectively, for reimbursement of expenses incurred and the service fee.
NOTE 8 - LEASES:
The Company leases certain office premises, equipment and computer hardware for
its own use. At March 31, 1996, the minimum annual rental commitment under
non-cancelable leases was:
1997 $ 927,500
1998 $ 713,900
1999 $ 733,400
---------
Total $2,374,800
==========
Rent expenses and sublease rental income for the year ended March 31, 1996, were
approximately $1,741,500 and $86,800, respectively.
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK:
Off-balance sheet market risk or futures and options positions undertaken by the
Company's customers and affiliates is borne by such entities. The Company's
operational credit risk is primarily limited to amounts due from brokers,
dealers, exchanges, clearing organizations, customers and affiliates.
Transactions in future contracts are conducted through regulated exchanges for
which the Company, its customers and other counterparties are subject to margin
requirements and are settled in cash on a daily basis, thereby minimizing credit
risk. Credit losses could arise should counterparties fail to perform and the
value of any collateral proves inadequate. The Company manages credit risk by
monitoring net exposure to individual counterparties on a daily basis,
monitoring credit limits and requiring additional collateral where appropriate.
Securities trades are recorded on a settlement date basis. Should either the
customer or broker fail to perform, the Company may be required to complete the
transaction at prevailing market prices resulting in a credit risk. Trades
pending at March 31, 1996 were settled without adverse effect on the Company's
consolidated financial statements.
In the normal course of business, the Company invests in U.S. government
obligations and other
-80-
<PAGE>
short-term instruments with U.S.financial institutions or U.S. branches of major
foreign banks. Management does not anticipate that losses, if any, as a result
of credit risk would materially affect the Company's financial position.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Various legal actions are pending against the Company. Any legal actions
involving significant damage claims relate to activities of Geldermann prior to
acquisition by MINC. As part of the acquisition agreement, the seller has
agreed to indemnify the Company and its officers against any liabilities up to
$63,000,000 in respect to known or unknown claims, as of the acquisition date,
including any pending or threatened litigation against Geldermann.
As of March 31, 1996, a non-guaranteed subsidiary (which has been liquidated) of
Geldermann had an outstanding judgment against it of approximately $2,000,000,
which has been accrued in the consolidated statement of financial condition.
Additional amounts, which have not been accrued, for interest and attorneys
costs may also become payable. In addition to the seller's indemnification, any
liability related to this litigation matter has also been indemnified by the
previous corporate owner of such subsidiary. The accrued liability of
$2,000,000 has therefore been fully offset by recording a corresponding
receivable due from the parties issuing the indemnifications. The accrued
liability and corresponding receivable are reflected in the consolidated
statement of financial condition in accounts payable and accrued liabilities and
other assets, respectively.
At March 31, 1996, outstanding letters of credit aggregated approximately
$41,000,000. Such letters of credit were used principally in lieu of original
margin deposits with various clearing associations and in lieu of capital
deposits with various exchanges.
The Company guarantees certain third party loans on a collateralized basis.
Guarantees at March 31, 1996, amounted to approximately $1,948,500 and the
market value of the collateral, consisting of exchange memberships, was
approximately $6,162,000.
In the opinion of management, these matters will be resolved with no material
adverse effect on the Company's consolidated financial position or results of
operations.
NOTE 11 - DISPOSITIONS OF SUBSIDIARIES
On March 29, 1996, the Company sold its interest in Greystone International
Limited, a wholly owned subsidiary of Gotham Asset Management, Inc. ("GAMI").
The Company also sold its interest in Greystone Partners, a partnership interest
of GAMI. GAMI is a wholly owned subsidiary of Heinhold Asset Management, Inc.
("HAMI"), formerly a wholly owned subsidiary of Geldermann. The Company
recognized a loss of $619,000 on the sale of these interests.
Subsequent to the above sales, the Company dividended its remaining interest in
HAMI on March 31, 1996, for its net book value of $2,018,200 to E.D. & F. Man
Inc. The effects of this disposition are disclosed within the changes in assets
and liabilities in the statement of cash flows.
-81-
<PAGE>
Supplementary Report of Independent Accountants on
Internal Control Structure
May 30, 1996
The Board of Directors
E. D.& F. Man International Inc.
(a wholly owned subsidiary of E. D. & F. Man Inc.)
In planning and performing our audit of the financial statements of E. D.
& F. Man International Inc. for the year ended March 31, 1996, we
considered its internal control structure, including procedures for
safeguarding customer and firm assets, in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements and not to provide assurance on the internal control structure.
Also, as required by Rule 17a-5(g)(1) of the Securities and Exchange
Commission ("SEC") and Regulation 1.16 of the Commodities Futures Trading
Commission ("CFTC"), we have made a study of the practices and procedures
followed by the Company including tests of such practices and procedures
that we considered relevant to the objectives stated in Rule 17a-5(g) and
Regulation 1.16 in making: (I) the periodic computations of aggregate
debit items and net capital under Rule 17a-3(a)(11) and the reserve
required by Rule 15c3-3(e) of the SEC; (ii) the daily computations of the
foreign futures and foreign options secured amount requirements pursuant
to Regulation 30.7 of the CFTC; (iii) the daily computations of the
segregation requirements of Section 4d(2) of the Commodity Exchange Act
("CEA") and the regulations thereunder, and the segregation of funds based
upon such computations; (iv) the periodic computations of the minimum
financial requirements pursuant to Regulation 1.17; (v) the quarterly
securities examinations, counts, verifications and comparisons, and the
recordation of differences required by Rule 17a-13; (vi) in complying with
the requirements for prompt payment of securities under section 8 of
Regulation T of the Board of Governors of the Federal Reserve system; and
(vii) in obtaining and maintaining physical possession or control of all
fully paid and excess margin securities of customers as required by Rule
15c3-3.
The management of the Company is responsible for establishing and
maintaining an internal control structure and the practices and procedures
referred to in the preceding paragraph. In fulfilling this responsibility,
estimates and judgments by management are
-82-
<PAGE>
The Board of Directors
E. D. & F. Man International Inc.
Page -2-
required to assess the expected benefits and related costs of internal
control structure policies and procedures and of the practices and
procedures referred to in the preceding paragraph and to assess whether
those practices and procedures can be expected to achieve the SEC's and
CFTC's above mentioned objectives. Two of the objectives of an internal
control structure and the practices and procedures are to provide
management with reasonable, but not absolute, assurance that assets for
which the Company has responsibility are safeguarded against loss from
unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit
preparation of financial statements in conformity with generally accepted
accounting principles. Rule 17a-5(g) and Regulation 1.16 list additional
objectives of the practices and procedures referred to in the preceding
paragraph.
Because of inherent limitations in any internal control structure or the
practices and procedures referred to above, errors or irregularities may
occur and not be detected. Also, projection of any evaluation of them to
future periods is subject to the risk that they may become inadequate
because of changes in conditions or that the effectiveness of their design
and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be
material weaknesses under standards established by the American Institute
of Certified Public Accountants. A material weakness is a condition in
which the design or operation of the specific internal control structure
elements does not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving the internal
control structure, including procedures for safeguarding customer and firm
assets, that we consider to be material weaknesses as defined above.
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
SEC and CFTC to be adequate for their purposes in accordance with the
Securities Exchange Act of 1934 and the CEA and related regulations, and
that practices and procedures that do not accomplish such objectives in
all material respects indicate a material inadequacy for such purposes.
Based on this understanding and on our study, we believe that the
Company's practices and procedures were adequate at March 31, 1996, to
meet the SEC's and CFTC's objectives.
-83-
<PAGE>
The Board of Directors
E. D. & F. Man International Inc.
Page -3-
This report is intended solely for the information and use of the Board of
Directors, management, the SEC, the CFTC and other regulatory agencies that
rely on Rule 17a-5(g) under the Securities Exchange Act of 1934 or CFTC
Regulation 1.16, and should not be used for any other purposes.
-84-
<PAGE>
E. D. & F. Man International Inc.
Analysis of Non-allowable Assets
March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investments in and receivables from affiliates $26,206,722
Receivables from customers 884,800
Receivables from broker/dealers 3,418,361
Memberships in exchanges - at cost 8,615,723
Other assets 1,550,519
Furniture, equipment and leasehold improvements 2,029,679
Securities owned, not readily marketable 15,000
Loans and advances 42,316
-----------
Total Non-allowable Assets $42,763,120
===========
</TABLE>
-85-
<PAGE>
SUPPLEMENTARY REPORT OF INDEPENDENT AUDITORS ON THE
SIC ANNUAL ASSESSMENT
REQUIRED BY THE SEC RULE 17a-5
The Board of Directors
E. D. & F. Man International Inc.
We have performed the procedures enumerated below, which are in accordance with
Rule 17a-5(e)(4) of the Securities and Exchange Commission, solely to assist you
with respect to the accompanying schedule (Form SIC-7) of the Securities
Investor Protection Corporation on assessments and payments of E. D. & F. Man
International Inc. for the year ended March 31, 1996. This engagement to apply
agreed-upon procedures was performed in accordance with standards established by
the American Institute of Certified Public Accountants. The sufficiency of the
procedures is solely the responsibility of the specified users of the report.
Consequently, we make no representation regarding the sufficiency of the
procedures described below either for the purpose for which this report has been
requested or for any other purpose.
1. Compared listed assessment payments with respective disbursement record
entries:
2. Compared amounts reported on the audited Forms X-17A-5 for the year ended
March 31, 1996 with the amounts reported in the General Assessment
Reconciliation (Form SIC-7).
3. Compared any adjustments reported in Form SIC-7 with supporting schedules and
working papers;
4. Proved the arithmetic accuracy of the calculations reflected in Form SIC-7
and in the related schedules and working papers supporting adjustments; and
5. Compared the amount of any overpayment applied with the Form SIC-7 on which
it was computed.
We were not engaged to, and did not, perform an audit, the objective of which
would be the expression of an opinion on the specified elements, accounts, or
items. Accordingly, we do not express such an opinion. Had we performed
additional procedures, other matters might have come to our attention that would
have been reported to you.
This report is intended solely for the use of the specified users listed above
and should not be used by those who have not agreed to the procedures and taken
responsibility for the sufficiency of the procedures for their purposes.
-86-
<PAGE>
<TABLE>
<CAPTION>
E. D. & F. Man International Inc.
Reconciliation from Unaudited FOCUS to
Consolidated Statement of Financial Condition
March 31, 1996
MINC
Unaudited
Unconsolidated Consolidation
FOCUS Geldermann, Inc. Reclassification Eliminations Consolidated
-------------- ---------------- ---------------- ------------ ------------
Assets
- ------
<S> <C> <C> <C> <C> <C>
Cash $ 7,048,800 $ 93,400 $ $ $ 7,142,200
Cash segregated under federal regulations 2,054,800 315,800 2,370,600
Due from brokers, dealers and clearing
organizations 96,753,800 31,033,400 3,957,200 131,744,400
Due from customers 25,596,100 3,836,700 (840,900) 28,591,900
Due from non customers 22,100 22,100
Due from affiliates 26,206,700 5,062,000 400 (27,916,300) 3,352,800
Securities purchased under agreements
to resell 663,119,300 52,622,900 715,742,200
Securities owned
U.S. government securities 21,173,300 9,676,000 248,500 31,097,800
Other marketable securities 6,132,200 6,132,200
Not readily marketable, at fair value 15,000 406,000 421,000
Memberships in exchanges 8,615,700 1,424,600 10,040,300
Furniture, equipment, and leasehold
improvements 2,029,700 863,600 2,893,300
Other assets 4,665,400 3,925,800 (4,553,000) 4,038,200
------------- ------------- ------------ ------------ -------------
Total assets $ 863,432,900 $ 108,854,200 $ (781,800) $(27,916,300) $ 943,589,000
============= ============= ============ ============ =============
Liabilities and stockholder's equity
- ------------------------------------
Due to brokers, dealers and clearing
organizations $ (8,977,800) $ (8,024,100) $ $ $ (17,001,900)
Due to customers (663,170,900) (57,543,100) (720,714,000)
Due to non customers (38,207,600) (38,207,600)
Due to affiliates (12,608,400) (607,000) (2,700) 4,994,500 (8,223,600)
Accounts payable and accrued liabilities (25,438,300) (5,280,100) 784,500 (29,933,900)
------------- ------------- ------------ ------------ -------------
Total liabilities (748,403,000) (71,454,300) 781,800 4,994,500 (814,081,000)
Subordinated debt (110,000,000) (13,000,000) (123,000,000)
Common Stock (350,000) (1,000) 1,000 (350,000)
Additional paid in capital (4,900,000) (24,398,900) 24,398,900 (4,900,000)
Retained earnings 220,100 (1,478,100) (1,258,000)
------------- ------------- ------------ ------------ -------------
Total stockholder's equity (5,029,000) (24,399,900) 22,921,800 (6,508,000)
Total liabilities and stockholder's equity $(863,432,900) $(108,854,200) $ 781,800 $ 27,916,300 $(943,589,000)
============= ============= ============ ============ =============
</TABLE>
-87-
<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,
1996: $191,900 $140,600 $144,800(b) $ (68,000)(a) $409,300
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
</TABLE>
(a) Uncollected receivables written off.
(b) Collection of receivables previously written off.
-88-
<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
- ----------- -----------
<S> <C> <C>
The following exhibits are filed herewith:
10.42 Employment agreement, dated December 31,
1995, between Jack Carl/312-Futures,
Inc. and Philip A. Tanzar 93
10.43 Heads of Agreement, dated July 19, 1995
between Jack Carl/312-Futures, Inc.,
Simon Drabble, Graham Wellesley and
Lorenzo Naldini 101
10.44 Service Agreement, dated July 19, 1995
between Index Forex Limited and
Simon Drabble, Graham Wellesley and
Lorenzo Naldini 105
10.45 Service Agreement dated September 1, 1995
between Index FX Limited and Simon Drabble 116
10.46 Service Agreement dated November 13, 1995
between Index FX Limited and Graham Wellesley 128
10.47 Service Agreement dated November 13, 1995
between Index Forex Limited and Lorenzo Naldini. 139
10.48 Letter containing terms of employment dated
October 12, 1995 and October 27, 1995
between Index FX Limited and Barrie J. Swift 150
10.49 Letter containing terms of employment dated
February 6, 1996 between Index FX Ltd. and
Figen Yardimci 155
10.50 Letter containing terms of employment
dated March 19, 1996 between Index FX
Limited and Charles Owens 159
11.1 Computation of Earnings
Per Common Share 90
17.1 Letter confirming resignation, dated September
26, 1996, from Burton J. Meyer 163
17.2 Letter of resignation, dated September
24, 1996, from Philip A. Tanzar 164
21.1 Subsidiaries of the Registrant 92
24.1 Power of Attorney 40
27 Financial Data Schedule (Edgar Version Only)
99.1 Report on Form 8-K for the Registrant
as filed on June 14, 1996 with the
Securities and Exchange Commission 165
</TABLE>
-89-
<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,
---------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Primary
- -------
Earnings
Net income (loss) $(1,133,100) $2,411,600 $586,100
Deduct assumed dividends on
Class A preferred stock (40,000) (40,000) (40,000)
---------- --------- -------
Net income (loss) applicable
to common stock $(1,173,100) $2,371,600 $546,100
========== ========= =======
Shares
Weighted average number of
common shares outstanding 33,721,179 30,680,524 20,175,612
========== ========== ==========
Primary earnings (loss) per
common share:
Net income (loss) $ (.03) $ .08 $ .03
========= ========= =======
</TABLE>
-90-
<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,
-------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Assuming Full Dilution
- ----------------------
Earnings
Net income (loss) $(1,133,100) $2,411,600 $586,100
========= ========== ========
Shares
Weighted average number of
common shares outstanding 33,721,179 30,680,524 20,175,612
========== ========== ==========
Earnings (loss) per common
share assuming full dilution:
Net income (loss) $ (.03) $ .08 $ .03
========== ========= =======
</TABLE>
-91-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
As of June 30, 1996, Index Futures Group, Inc., a Delaware Corporation, Index
Securities, Inc., a Delaware corporation, Jack Carl Management and Trading,
Inc., an Illinois corporation and Index FX Ltd., a British 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,
1996, 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.
-92-
<PAGE>
EXHIBIT 10.42
EMPLOYMENT AGREEMENT
--------------------
PARTIES: JACK CARL/312-FUTURES, INC., a corporation organized under
- -------- the laws of Illinois (the "Company"), and PHILIP A. TANZAR, an
Illinois resident ("Employee").
DATE: December 31, 1995
- -----
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 Vice President and General Counsel of the Company.
Employee agrees to diligently and faithfully perform such duties of a Vice
President and General Counsel as are assigned to him by the President 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. In
such capacity, Employee shall be entitled to office space, secretarial support
and other assistance consistent with the character of his position with the
Company. In no event shall Employee be required to occupy an office or be
provided with secretarial support less favorable than that made available to any
other Vice President and General Counsel of the Company. Employee's principal
place of employment shall be in the Chicago area and Employee shall not be
assigned duties without his consent which would require Employee to move from
the Chicago area. Employee shall devote to his employment his 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 his own
account so long as such activities do not interfere with the performance of his
duties hereunder.
-93-
<PAGE>
2. Term. The term of Employee's employment hereunder shall commence on the
----
date hereof and terminate on December 31, 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 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
(c) the disregard or serious neglect by Employee of his duties as a Vice
President and General Counsel and employee of the Company as reasonably
determined by the Board of Directors of the Company; or
(d) 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, (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 his duties hereunder
for a period of more than one hundred and twenty (120) days, or (iii) result in
a material restriction on his 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 extend that such
restriction materially adversely affects his ability to discharge his 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
-94-
<PAGE>
(e) the death or total disability, as herein defined, of Employee.
As issued herein, Employee shall be deemed to be "totally disabled" if he
is unable to perform, by reason of physical or mental incapacity, his duties or
obligations as set forth under this Agreement for a period of ninety (90)
consecutive days during any twelve (12) consecutive month period. For purposes
of computing the period of ninety (90) consecutive days of disability, if after
being so disabled Employee performs his 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 .
Employee shall have the right to terminate this Agreement for nonpayment of
his 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.
in such event, in lieu of any damages to which Employee otherwise may be
entitled, the Company shall pay to Employee in a lump sum payment, as liquidated
damages, an amount equal to $100,000; and, in addition, Employee shall be
relieved of any obligation under paragraph 6 hereof.
3. Compensation. For all services rendered by Employee under this
-------------
Agreement, the Company shall pay Employee:
a) a base salary during the term of this Agreement at the rate of
$138,216.00 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 cost of living raise each year the amount of which shall be
established at the discretion of the Company, plus
(c) a discretionary bonus which shall not without the approval of the
Company's Board of Directors exceed twice the Employee's annual base salary.
4. Forfeiture of Compensation. In the event that Employee's employment
--------------------------
hereunder shall be terminated pursuant to subparagraph 2(a), (b), (c) or (d)
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.
-95-
<PAGE>
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.
The Company shall reimburse Employee for such travel, entertainment and
other business expenses reasonably incurred by him 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 three (3) 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); provided that Employee
shall forfeit such benefit to the extent it is not used by Employee during such
'fiscal year. 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
---------------
six (6) months thereafter, Employee covenants and agrees with Company that he
shall not, directly or indirectly, conduct, provide financial assistance to
(whether through a loan or otherwise), act as an independent contractor, hold an
equity or profit sharing interest in (except for ownership of less than 1% of
the outstanding share in a company whose stock is publicly traded), in any
manner have a business interest in, be employed by, or in any other manner take
part in, any commodity or securities brokerage business or other business in the
United States of America which is competitive with the business of the Company
as such business is conducted during the term of this Agreement except that
Employee at all times after the term of this Agreement may execute orders as a
floor broker and trade for his own account and, in addition, may function as a
commodity trading advisor, pool operator or introducing broker subject to the
restrictions set forth in the next sentence of this paragraph and provided that
Employee clears all commodity trades which
-96-
<PAGE>
are affected in connection with Employee's activities as a commodity trading
advisor, pool operator or introducing broker through the Company so long as the
Company has the ability to clear such trades and does not charge more than for
such clearing functions than the rates otherwise available to Employee.
Provided, however, this provision number 6 shall not be applicable to Employee
should Employee function solely as an attorney in any capacity relating to or
connected with the futures industry. During the term of this Agreement and for
a period of eighteen (l8) months thereafter, Employee covenants and agrees with
the Company that he shall not, directly or indirectly; (a) solicit or provide
commodity or securities brokerage services to any persons or entities that are
or were during the period by this sentence 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.
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 except by reason of a termination for "good cause" as defined
in paragraph 2 hereof, Employee shall receive severance pay of $100,000 in a
lump sum payment at the time of such termination. Employee shall remain subject
to the provisions contained in this paragraph 6 for the full periods 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's obligations pursuant to the first sentence of this
paragraph 6 shall cease and be of no further force and effect provided,
however, if the Company shall pay Employee in a lump sum payment, an amount
equal to 50% of Employee's annual base salary, Employee shall remain subject to
the provisions contained in the first sentence of this paragraph 6 for the full
six month period specified therein.
In the event, that Employee voluntarily terminates his employment
hereunder, Employee's obligations pursuant to the first sentence of this
-97-
<PAGE>
paragraph 6 shall cease and be of no further force and effect; provided,
however, if the company shall pay Employees in a lump sum payment, an amount
equal to 50% of Employee's annual base salary, Employee shall remain subject to
the provisions contained in the first sentence of this paragraph 6 for the full
six month period specified therein.
7. 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.
8. Enforcement. Each of the covenants contained in paragraphs 6 and
-----------
7 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 threaten
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 and 7 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.
-98-
<PAGE>
9. 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 his last known place of residence, as last furnished by Employee to
Company.
10. 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.
11. 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.
12. 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.
13. 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.
14. Headings. The headings in this Agreement are inserted for
--------
convenience only and are not to be considered in construction of the provisions
hereof.
-99-
<PAGE>
15. 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 much 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.
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
his hand and seal on the day and year first above written.
JACK CARL/312-FUTURES, INC.
By:
---------------------------------
President
---------------------------------
Philip A. Tanzar
-100-
<PAGE>
Exhibit 10.43
HEADS OF AGREEMENT
These Heads of Agreement are entered into this 19th day of July 1995
BETWEEN
(1) Jack Carl/312 Futures, Inc. of 200 West Adams, Chicago, Illinois 60606
USA ("JCI"); and
(2) Simon Drabble of Dublin Farmhouse, Wherwell, Nr Andover, Hampshire
SPl1 7PJ, Graham Wellesley of 38 Santos Road, London SW18 1MS and
Lorenzo Naldini of 19 Stanley Gardens, London Wil 2NG (together the
"Traders").
WHEREAS
A. JCI is interested in establishing a United Kingdom subsidiary (to be
called Index Forex Limited or such other name as JCI may determine
(the "Company")) and employing the Traders through the Company.
B. The Traders are interested in joining the Company on the terms set out
herein.
C. These Heads of Agreement are legally binding.
NOW IT IS AGREED AS FOLLOWS:
1. JCI will procure the incorporation of the Company with a paid up share
capital of not less than (Pounds)100,000 and will use its best
endeavors to ensure the Company commences business not later than 30th
September 1995 and in any event by 31st December 1995 (the effective
date hereinafter referred to as "Completion Date").
2. The purpose of the Company will be to trade spot and forward inter-
bank foreign exchange and OTC foreign exchange options and the Company
will apply for membership of the Securities and Futures Authority
Limited ("SFA"), such application to have been approved within 3
months of the Completion Date. Prior to authorization by SFA the
Company will not conduct investment business as defined in the
Financial Services Act 1986.
3. JCI will procure that the Company will enter into employment
agreements with the Traders in substantially the form set out at
Appendix 1 hereto and the Traders agree to execute such agreements on
or before and with effect from the Completion Date.
-101-
<PAGE>
4. JCI will procure office space for the Company at the approximate costs and
the required infrastructure specified at Appendix 2.
5. JCI and the Traders will use their best endeavors to introduce clients to
the Company in respect of inter-bank foreign exchange business and to
introduce on-exchange futures and options execution and clearing business
to Index Futures Group, Inc.
6. It is a condition precedent to this Agreement that the Company shall be
fully operational and that all of the obligations of JCI hereunder
(including any obligations of the Company to be procured by JCI) have been
fulfilled on or before the Completion Date. Should such conditions
precedent not have been fulfilled, the Traders shall not be obliged to
enter into the employment agreement and, if executed, such employment
agreements shall cease to have any effect, save that JCI shall be obliged
to pay compensation to each of the Traders equal to 3 months draw as
specified in the employment agreements.
7. In consideration of the undertakings of JCI herein and recognising the
costs to be incurred by JCI in establishing the Company and the required
infrastructure as set out in Appendix 2 prior to the Completion Date, the
Traders agree that, provided JCI and the Company have performed their
obligations hereunder, should any of the Traders not take up their
employments with the Company, fail to obtain authorisation by SFA in order
to carry out their duties for the Company or if any of them terminate such
employments within 3 months of the Completion Date, the Traders shall pay
compensation to JCI equal to the costs incurred by JCI and the company
subject to a maximum amount of (Pounds)100,000.
8. The Parties shall not discuss the contents of this Agreement or any of the
discussions or negotiations thereto, or the matters referred to herein with
anyone other than their professional advisers or, in the case of JCI,
persons within the group who have a need to know.
9. The obligations of the Traders hereunder shall be joint and several.
10. None of the provisions of this agreement shall be deemed to constitute a
partnership between JCI and the Traders.
11. Neither JCI nor the Traders shall divulge to any person (without the prior
written consent of the other) the
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matter thereof or any financial or other information relating to the other
or their clients and which is acquired as a result of entering into this
Agreement. This restriction shall continue to apply after the expiration or
termination of this Agreement without limit in point of time but shall
cease to apply to secrets or information which come into the public domain
through no fault of the party concerned.
12. Neither party may assign or transfer, or purport to assign or transfer, any
of their rights or obligations under this Agreement without the prior
written consent of the other.
13. The rights which each of the parties has under this Agreement shall not be
prejudiced or restricted by any indulgence or forbearance extended to the
other party. No waiver by either party in respect of a breach shall operate
as a waiver in respect of any subsequent breach.
14. This Agreement shall not be varied or canceled, unless the variation or
cancellation is expressly agreed in writing by a duly authorised director
of each party.
15. If any of the provisions of this Agreement is found by a court or other
competent authority to be void or unenforceable, it shall be deemed to be
deleted from this Agreement and the remaining provisions shall continue to
apply. The parties shall negotiate in good faith in order to agree the
terms of a mutually satisfactory provision to be substituted for the
provision found to be void or unenforceable.
16. This Agreement supersedes any previous agreement between the parties in
relation to the matters with which it deals and represents the entire
understanding between the parties in relation to those matters.
17. Any notice to be given under this Agreement shall be either delivered
personally or sent by first class recorded delivery post (airmail if
overseas). The address for service of each party is the address stated
above or any other address for service previously notified to the other
parties in writing. A notice is deemed to have been served as follows:
17.1 if personally delivered, at the time of delivery;
17.2 if posted, at the expiration of 48 hours or (in the case of airmail)
7 days after the envelope containing it is delivered into the custody
of the postal authorities.
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In proving service it is sufficient to provide that personal delivery
was made or that the envelope containing the notice was properly
addressed and delivered into the custody office of the postal
authority as a prepaid first class recorded delivery or airmail letter
(as appropriate).
18. The construction, validity and performance of this agreement shall be
governed in all respects by English law. The parties hereto submit to
the non-exclusive jurisdiction of the High Court of Justice in
England.
SIGNED by Jack Carl/312-Futures, Inc.:
-------------------------------------
SIGNED by Simon Drabble:
-------------------------------------
SIGNED by G. Graham Wellesley Jr.:
-------------------------------------
SIGNED by Lorenzo Naldini:
-------------------------------------
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SERVICE AGREEMENT Exhibit 10.44
Dated 19th, July 1995
PARTIES
(1) INDEX FOREX LIMITED whose registered office is at 11 Old Jewry, London
EC2R 8DU (the "Company"); and
(2) MR. GRAHAM WELLESLEY of 38 Santos Road, London SW18 1MS (the
"Executive") SIMON DRABBLE, LORENZO NALDINI
1. INTERPRETATION
In this Agreement:-
(a) the "Board" means the board of directors of the Company;
(b) the "Commencement Date" means the ___ day of
_______________ 1995;
(c) the "Group" means:
(i) the Company;
(ii) the Company's holding company (if any);
(iii)any other subsidiary of the Company or the Company's holding
Company; and
(iv) any other company in which the Company is interested and whose
name is notified to the Executive by the Company as being a
member of the Group
and (where the context so admits) includes any member of the Group.
For this purpose "holding company" and "subsidiary' have the meanings
given to them by section 736, 736A and 736B of the companies Act 1985;
(d) "Net Income of the Company" means 50% (fifty per cent) of the gross
income of the Company resulting from business undertaken by the Team
(including introductory commissions from Index Futures Group, Inc.)
less 50% (fifty percent) of the costs incurred by the Company in
supporting the Team including, for the avoidance of doubt, the items
and the indicative costs set out at Appendix 1 and trading errors and
unpaid debts of the Team's clients.
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(e) the "Team" means Simon Drabble, Graham Wellesley and Lorenzo Naldini
and such other persons as may be agreed from time to time by the
parties.
(f) the "Termination Date" means the date on which the Executive's
employment under this Agreement ceases;
(g) reference to any statutory provision includes a reference to that
provision as amended, extended or reenacted and to any statutory
replacement thereof (either before or after the date of this
Agreement).
2. APPOINTMENT, TERM AND CONTINUITY
(a) Subject to the provisions of this Agreement, the Executive is
appointed and shall serve the Company as a Director from the
Commencement Date until his employment is terminated by either party
giving to the other not less than (three months') notice expiring at
any time.
(b) The Executive's period of continuous employment with the Company for
the purposes of the Employment Protection (Consolidation) Act 1978
commenced on _________________ 1995.
3. REMUNERATION
(a) The Executive shall be entitled to a commission share of the Net
Income of the Company, his proportion of such commission to be
determined by agreement with the other members of the Team and
notified to the Company in writing.
(b) The Company shall pay the Executive as draw against commissions to be
earned under sub-clause (a) above at the rate of US$8,565 per month or
at such other rate as the Board may from time to time decide. Such
draw shall be paid monthly in arrears on the last working day in every
month and shall be repayable by deduction from the commission share
due in future quarters to the Executive pursuant to (C) below if the
commission earned by the Team under (a) above are less than US$25,695
in aggregate in any month or on average over any quarterly period
Provided That the draw against commissions paid to the executive in
the first three months of his employment shall not be repayable if the
commissions earned by the Team under (a) above are less than US$25,695
in aggregate in any of those three months or on average over such
period.
(C) 50% (fifty per cent) of the commission share of the Executive under
(a) above shall be payable quarterly in arrears after deduction of any
draw against commission
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under (b) above with the balance of such commission share being
payable at the Company's financial year end.
4. EXPENSES
The Company shall reimburse the Executive all reasonable out of pocket
expenses properly incurred by him on the Company's business and evidenced
to the Company's reasonable satisfaction provided that such expenses shall
not exceed such amounts as may be agreed from time to time unless approved
in advance.
5. DUTIES
(a) The Executive shall act as a broker in spot and forward foreign
exchange in the inter-bank market and as a introducer of clients to
other Group companies in relation to on-exchange futures and options
broking and clearing business. The Executive shall also perform such
other duties and exercises such powers as are consistent with his
appointment and as are from time to time given to him by the Board and
shall use his best endeavors to further the interests of the Group.
The Executive shall comply with all policies and directives of the
Board and the rules of the Securities and Futures Authority Limited
("SFA") and in particular personal account dealing and other
regulatory notices and requirements in compliance with the SFA rules.
(b) Without prejudice to sub-clause (a) the Executive shall at all times
keep the Board fully informed of his conduct of his duties on behalf
of the Company and, as the case may be, of any other member of the
Group when appropriate and shall promptly provide such information and
explanations as may be requested from time to time by the Board.
(c) The Executive's normal working hours shall be (7:30 a.m. to 5:30 p.m.)
on Mondays to Fridays inclusive with one hour for lunch and he shall
devote such further time as may be necessary for the proper
performance of his duties. Pressure of work may well necessitate that
longer hours are worked.
(d) The company may require the Executive to perform his duties anywhere
within or outside the United Kingdom in the ordinary course of his
duties.
(e) During his employment the Executive shall not, except with the prior
written consent of the Board, be directly or indirectly engaged,
concerned or interested in any other business or occupation provided
that he may hold and/or be interested in (for the purpose of
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investment only and not exceeding one per cent of the issued share
capital of any company) any securities listed on a recognized stock
exchange or dealt in on any public securities market.
(f) There shall be no obligation on the Company to vest in or assign to
the Executive any powers or duties or to provide any work for him, and
the Company may at any time or from time to time during any period of
notice as specified in clause 2(a) (or in circumstances in which it
reasonably believes that the Executive is guilty of misconduct or in
breach of this Agreement, in order that the circumstances giving rise
to that belief may be investigated) suspend the executive from the
performance of his duties or exclude him from any premises of the
Company and need not give any reason for so doing. During such
suspension or exclusion the Company may require the Executive to be
available by telephone during normal working hours. Salary and other
benefits will not cease to be payable by reason only of such
suspension or exclusion.
6. HOLIDAYS
(a) In addition to public holidays the Executive shall be entitled to (25)
working days' paid holiday in each calendar year which shall be taken
at such time or times as may be agreed between the Executive and the
Board. Holiday entitlement during each of the first and last calendar
years of employment shall be in direct proportion (to the nearest day)
to the length of the Executive's service during such year. The
Executive shall have no claim against the Company if he does not take
his full holiday entitlement and holiday not taken in one calendar
year may not be carried forward in whole or in part to a subsequent
calendar year.
(b) Reasonable notice of proposed holiday dates must be given by the
Executive and the dates agreed with the Board. No holiday may be
taken by the Executive after notice to terminate the Executive's
employment has been given. On termination of his employment the
Executive shall be entitled to remuneration in lieu of any outstanding
holiday entitlement and the Company shall have the right to make an
appropriate deduction from his final remuneration in respect of any
excess holiday taken by the Executive.
(c) The retirement age of the Executive shall be 65.
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7. SECRECY
(a) The Executive shall not (except in the proper course of his duties
hereunder), either before or after the Termination Date, make use of
or divulge to any person, and shall use his best endeavors to prevent
the publication or disclosure of, any trade secret or any other
private, confidential or secret information concerning the business or
finances of the Group or any of its dealings, transaction or affairs
or concerning any third party with which the Group has dealt and all
notes, memoranda and other records of such trade secrets or
information made or received by the Executive during the course of his
employment hereunder shall be the property of the Company and shall be
surrendered by him to someone duly authorized on their behalf at the
termination of his employment with the Company or at the request of
the Board at any time during the course of his employment. In this
Agreement confidential information includes, but is not limited to,
the following:
(i) information relating to the Group's clients, prospective clients,
persons to whom the Group has made presentations and for whom
quotations have been prepared, and the requirements of such
persons in terms of the Group's business or services;
(ii) information relating to the Group's suppliers, agents and
distributors;
(iii)information relating to intellectual property in which the Group
has an interest, the marketing of the Group's products and
services and the fee arrangements in force between the Group and
its clients.
(b) Whenever requested to do so by the Company, and in any event upon
termination of his employment with the Company, the Executive shall
hand over to the Company all models, equipment, documents and records
(including all computer software and programs), and other things in
his possession or control which relate to the business or affairs of
the Group or of any third party with which the group has had dealings
and no copies shall be retained by him. As between the company and
the Executive all such documents and records are deemed to be the
property of the Company.
(c) The restrictions in sub-clause (a) shall cease to apply to information
or knowledge which may (otherwise than through the Executive's fault)
become available to the public.
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(d) These obligations are in addition to and not in submission for any
obligations imposed upon the Executive by law or otherwise.
8. RESTRICTIONS
(a) The Executive shall not at any time during a period of six months
after the Termination Date and in material competition with any
business carried on by the Company or any other member of the Group at
the Termination Date solicit the custom of or deal with any person,
firm or company which was a client of or a prospective client of
material importance to the Company or any other member of the Group
and with whom the Executive had communicated or associated to any
material extent in the course of his employment during the twelve
months preceding the Termination Date unless the Company ceases to
carry on inter-bank foreign business.
(b) The Executive shall not at any time after the Termination Date
represent himself or cause or permit himself to be represented as
being in any way connected with the Group.
(c) The Executive shall be bound by the following restrictions in respect
of any employee of the Group who is an employee of the Company or any
other member of the Group at the Termination Date or at any time
during the preceding twelve months in an executive, managerial,
technical or sales capacity-
(i) the Executive shall not at any time during a period of six months
from the Termination Date employ or offer to any such employee
any alternative employment or attempt in any way to persuade any
such employee to enter any alternative employment or to leave the
employment of the Group.
(ii) the Executive shall during a period of six months from the
Termination Date use his best endeavors to prevent any person,
firm or company with whom he may be engaged or connected from
employing or offering to any such employee any alternative
employment or from attempting in any way to persuade any such
employee to enter into any alternative employment or to leave the
employment of the Group.
(d) The Executive acknowledges that in all the circumstances of this
Agreement (including, but not limited to, the remuneration payable to
the Executive hereunder) the restrictions and provisions herein
contained are reasonable and necessary for the
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protection of the Group's legitimate business interests and he further
acknowledges that, having regard to those circumstances, such
restrictions and provisions do not work harshly on him.
(e) Notwithstanding sub-clause (d), the parties agree that the covenants
set out in this clause shall be separate and severable and enforceable
accordingly and, if any of the above periods of six months following
the Termination Date referred to in sub-clauses (a), (b) and (c) shall
be adjudged to go beyond what is reasonable in all the circumstances
for the protection of the Group, a period or periods of three months
following the termination Date shall be submitted thereof.
(f) The undertakings in this clause shall cover all actions by the
Executive in whatever capacity and whether directly or indirectly
through or with any third party, agent, company, partnership,
employee, employer, associate (within the meaning of section 435 of
the Insolvency Act 1985) or trust which if done by him personally
would breach the provisions of this clause.
(g) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
9. INJUNCTIVE RELIEF FOR SECRECY AND RESTRICTIONS
The Executive acknowledges that the Company will have no adequate remedy at
law if the Executive violates the terms of the provisions of either of
clauses 7 ("Secrecy") or 8 ("Restrictions") above. In the event of any
such violation, the Company shall have the right, in addition to and
without prejudice to any other rights it may have, to obtain in any court
of competent jurisdiction injunctive relief of or specific performance to
restrain any breach or threatened breach of this Agreement.
10. DISCIPLINARY AND GRIEVANCE PROCEDURE
In the execution of his duties the Executive shall conduct
himself in a manner befitting his appointment hereunder. If the Executive
is dissatisfied with any disciplinary decision or wishes to seek redress
for any grievance relating to his employment he shall refer it to Charles
Romilly whose decision shall be final.
11. TERMINATION
(a) The Executives' employment may be terminated by the Company forthwith
by notice if:-
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(i) he makes any arrangement or composition with his creditors generally
or there are grounds under section 267 if the Insolvency Act 1986 for
the presentation of a credit's petition for a bankruptcy order to be
made against him or an interim receiver of his property is appointed
under section 286 of that Act;
(ii) he is convicted of a criminal offense as a result of which he is
sentenced to a term of imprisonment;
(iii)he commits any serious breach of his obligations to the Company;
(iv) having committed any breach of his obligations to the Company he fails
to rectify such breach (if reasonably capable of rectification) or
commits a further or continuing breach after warning by the Company;
(v) his conduct is in the opinion of the Board prejudicial to the
interests of the Group. The Board may take into account a conviction
for any criminal offense not covered by sub-clause (ii) ;
(vi) being a director of any company in the Group he resigns his
directorship or become prohibited by law from being a director;
(vii)he becomes of unsound mind or becomes a patient under the Mental
Health Act 1983;
(viii)by reason of ill health or incapacity he is prevented from performing
his duties for periods which have exceeded (or in the reasonable
estimation of the Board are likely to exceed) in aggregate twenty-six
weeks in any twelve month period.
(xi) he ceases to be authorised to conduct investment business in the
United Kingdom.
(b) Upon termination of his employment howsoever arising the Executive
shall resign without claim for compensation from all directorships and
other offices within the Group and should he fail to do so the Company
is hereby irrevocably authorized by the Executive to appoint some
person in his name and on his behalf as his attorney to sign any
documents and do all things necessary or requisite to give effect
thereto.
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(c) Upon the termination of the Executive's employment for whatever reason
the Company will be entitled to deduct from any payments then due or
becoming due to the Executive (whether in respect of any period before
such termination or not) any moneys which may then be or become due or
may become due thereafter from the Executive to the Company or any
other member of the Group.
(d) If the Executive's employment shall be terminated by reason only of
the liquidation of the Company for the purpose of amalgamation or
reconstruction and the Executive shall be offered employment with any
concern or undertaking resulting from such amalgamation or
reconstruction on terms no less favorable than the terms of this
Agreement the Executive shall have no claim against the Company in
respect of the termination of his employment hereunder.
12. NOTICES
All notices under this Agreement shall be in writing. Notices to the
Company may be given by the Executive either personally to Charles Romilly
or by prepaid first class letter, facsimile or telex addressed to the
Company at its registered office for the time being. Notices to the
Executive may be given by the Company either personally or by prepaid first
class letter, facsimile or telex addressed to the Executive at his last
known address or his place of work. Any such notice unless given
personally shall be deemed, if given by letter, to have been served 48
hours from the time of posting and in proving service by post it shall be
sufficient to show that the letter was properly addressed and posted in
accordance with the provisions of this clause and, if given by facsimile or
telex, to have been served at the time it is transmitted if transmitted
between 9:00 a.m. and 5:30 p.m. London time on a business day or, if not so
transmitted, at 9:00 a.m. London time on the first business day thereafter.
In proving service by facsimile or telex it shall be sufficient to show
that the transmission was properly made and that the transmitting device
was connected to a device with a facsimile or telex telephone number
reasonably believed to be that of the party to be served.
13f PREVIOUS AGREEMENTS
(a) This Agreement supersedes any previous agreement (whether written,
oral or implied) between any member of the Group and the Executive
relating to his employment which, without prejudice to his right to
receive sums accrued due thereunder, shall be void from the
Commencement Date.
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(b) The Executive acknowledges and warrants that there are no agreements
or arrangements, whether oral, written or implied, between any member
of the Group and the Executive other than those expressly set out in
this Agreement and that he is not entering into this Agreement in
reliance on any representation not expressly set out herein.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
English law and the Executive hereby irrevocably agrees for the exclusive
benefit of the Company that the English Courts are to have jurisdiction to
settle any disputes which may arise out of or in connection with this
Agreement.
EXECUTED (in the case of the Executive as a deed) on the date appearing at the
beginning of this document.
SIGNED by
the duly authorized representative of
THE COMPANY in the presence of:
Witness:
SIGNED AND DELIVERED as a deed by
THE EXECUTIVE in the presence of:
Witness:
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Appendix 2
<TABLE>
<CAPTION>
<S> <C>
Agreed Fixed Overheads
Staff Costs
Graham Wellesley $ 8,565
Simon Drabble 8,565
Lorenzo Naldini 8,565
Alex (Assistant) 4,280
Settlements 5,900
Treasurer 5,900
Inputter 1,000
42,775
Medical Insurance ?
Subsistence
Recruitment & Training 300
300
Marketing
Advertising 2,500
Printing ?
Entertaining 1,500
Travel 1,500
Postage & Stationary 1,500
7,000
IT
Data Processing 3,000
Information Services 8,250 2 Reuters 2000 &
2 Reuters 2000 Dealers
Depreciation/Fixed writeoff ?
Tullett & Tokyo Broker Box 4,500
15,750
Premises Cost
Rent, Rates, Services etc. 4,700 (1,020 Square feet @ 37
4,700 Lombard Street)
Other Expenses
Subscriptions 410 (SFA)
Telecoms 2,000
Audit & Accounting 1,000
Legal & professional 2,000
Insurance 500
Bank Charges 1,000
Sundries 1,000
Irrevocable VAT ?
7,910
Errors ?
Cost of Capital 20,400
Total Overhead 98,635
Less draws (25,695)
73,140
Bonus escrow $124,530
</TABLE>
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Exhibit 10.45
Dated 1st September 1995
SERVICE AGREEMENT
Between
INDEX FX LIMITED
And
MR SIMON DRABBLE
M.W. Cornish & Co
Solicitors
11 Old Jewry
London EC2R 8DU
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SERVICE AGREEMENT
Dated 1995
PARTIES
(1) INDEX FX LIMITED whose registered office is at 37 Lombard Street, London
EC3V 9BQ (the "Company"); and
(2) MR SIMON DRABBLE of Dublin Farmhouse, Wherwell, Nr. Andover, Hampshire SP11
7JP (the "Executive").
1. INTERPRETATION
In this Agreement:--
(a) the "Board" means the board of directors of the Company;
(b) the "Commencement Date" means the 1st day of September 1995;
(c) the "Group" means:
(i) the Company;
(ii) the Company's holding company (if any);
(iii) any other subsidiary of the Company or the Company's holding company;
and
(iv) any other company in which the Company is interested and whose name
is notified to the Executive by the Company as being a member of the
Group
and (where the context so admits) includes any member of the Group. For this
purpose "holding company" and "subsidiary" have the meanings given to them
by sections 736, 736A and 736B of the Companies Act 1985;
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(d) "Net Income of the Company" means 50% (fifty per cent.) of the gross income
of the Company resulting from business undertaken by the Team (including
introductory commissions from Index Futures Group Inc.) less 50% (fifty
percent) of the costs incurred by the Company in supporting the Team
including, for the avoidance of doubt, the items and the indicative costs
set out at Appendix 1 and trading errors and unpaid debts of the Team's
clients.
(e) the "Team" means Simon Drabble, Graham Wellesley and Lorenzo Naldini and
such other persons as may be agreed from time to time by the parties.
(f) the "Termination Date" means the date on which the Executive's employment
under this Agreement ceases;
(g) reference to any statutory provision includes a reference to that provision
as amended, extended or re-enacted and to any statutory replacement thereof
(either before or after the date of this Agreement).
2. APPOINTMENT, TERM AND CONTINUITY
(a) Subject to the provisions of this Agreement, the Executive is appointed and
shall serve the Company as a Director from the Commencement Date until his
employment is terminated by either party giving to the other not less than
[three months'] notice expiring at any time.
(b) The Executive's period of continuous employment with the Company for the
purposes of the Employment Protection (Consolidation) Act 1978 commenced on
1st day of September 1995.
3. REMUNERATION
(a) The Executive shall be entitled to a commission share of the Net Income of
the Company, his proportion of such commission to be determined by agreement
with the other members of the Team and notified to the Company in writing.
(b) The Company shall pay the Executive a draw against commissions to be earned
under sub-clause (a) above at the rate of US$8,565 per month or at such
other rate as the Board may from time to time decide. Such draw shall be
paid monthly in arrears on the last working day in every month and shall be
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repayable by deduction from the commission share due in future quarters to
the Executive pursuant to (c) below if the commissions earned by the Team
under (a) above are less than US$25,695 in aggregate in any month or on
average over any quarterly period Provided That the draw against commissions
paid to the Executive in the first three months of his employment shall not
be repayable if the commissions earned by the Team under (a) above are less
than US$25,695 in aggregate in any of those three months or on average over
such period.
(c) 50% (fifty per cent.) of the commission share of the Executive under (a)
above shall be payable quarterly in arrears after deduction of any draw
against commission under (b) above with the balance of such commission share
being payable at the Company's financial year end.
4. EXPENSES
The Company shall reimburse the Executive all reasonable out of pocket
expenses properly incurred by him on the Company's business and evidenced to
the Company's reasonable satisfaction provided that such expenses shall not
exceed such amounts as may be agreed from time to time unless approved in
advance.
5. DUTIES
(a) The Executive shall act as a broker in spot and forward foreign exchange in
the inter-bank market and as an introducer of clients to other Group
companies in relation to on-exchange futures and options broking and
clearing business. The Executive shall also perform such other duties and
exercise such powers as are consistent with his appointment and as are from
time to time given to him by the Board and shall use his best endeavours to
futher the interests of the Group. The Executive shall comply with all
policies and directives of the Board and the rules of the Securities and
Futures Authority Limited ("SFA") and in particular personal account dealing
and other regulatory notices and requirements in compliance with the SFA
rules.
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(b) Without prejudice to sub-clause (a) the Executive shall at all times keep
the Board fully informed of his conduct of his duties on behalf of the
Company and, as the case may be, of any other member of the Group when
appropriate and shall promptly provide such information and explanations as
may be requested from time to time by the Board.
(c) The Executive's normal working hours shall be [7.30 a.m. to 5.30 p.m.] on
Mondays to Fridays inclusive with one hour for lunch and he shall devote
such further time as may be necessary for the proper performance of his
duties. Pressure of work may well necessitate that longer hours are worked.
(d) The Company may require the Executive to perform his duties anywhere within
or outside the United Kingdom in the ordinary course of his duties.
(e) During his employment the Executive shall not, except with the prior written
consent of the Board, be directly or indirectly engaged, concerned or
interested in any other business or occupation provided that he may hold
and/or be interested in (for the purpose of investment only and not
exceeding one per cent. of the issued share capital of any company) any
securities listed on a recognised stock exchange or dealt in on any other
public securities market.
(f) There shall be no obligation on the Company to vest in or assign to the
Executive any powers or duties or to provide any work for him, and the
Company may at any time or from time to time during any period of notice as
specified in clause 2(a) (or in circumstances in which it reasonably
believes that the Executive is guilty of misconduct or in breach of this
Agreement, in order that the circumstances giving rise to that belief may be
investigated) suspend the Executive from the performance of his duties or
exclude him from any premises of the Company and need not give any reason
for so doing. During such suspension or exclusion the Company may require
the Executive to be available by telephone during normal working hours.
Salary and other benefits will not cease to be payable by reason only of
such suspension or exclusion.
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6. HOLIDAYS
(a) In addition to public holidays the Executive shall be entitled to [25]
working days' paid holiday in each calendar year which shall be taken at
such time or times as may be agreed between the Executive and the Board.
Holiday entitlement during each of the first and last calendar years of
employment shall be in direct proportion (to the nearest day) to the length
of the Executive's service during such year. The Executive shall have no
claim against the Company if he does not take his full holiday entitlement
and holiday not taken in one calendar year may not be carried forward in
whole or in part to a subsequent calendar year.
(b) Reasonable notice of proposed holiday dates must be given by the Executive
and the dates agreed with the Board. No holiday may be taken by the
Executive after notice to terminate the Executive's employment has been
given. On termination of his employment the Executive shall be entitled to
remuneration in lieu of any outstanding holiday entitlement and the Company
shall have the right to make an appropriate deduction from his final
remuneration in respect of any excess holiday taken by the Executive.
(c) The retirement age for the Executive shall be 65.
7. SECRECY
(a) The Executive shall not (except in the proper course of his duties
hereunder), either before or after the Termination Date, make use of or
divulge to any person, and shall use his best endeavours to prevent the
publication or disclosure of, any trade secret or any other private,
confidential or secret information concerning the business or finances of
the Group or any of its dealings, transactions or affairs or concerning any
third party with which the Group has dealt and all notes, memoranda and
other records of such trade secrets or information made or received by the
Executive during the course of his employment hereunder shall be the
property of the Company and shall be surrendered by him to someone duly
authorised on their behalf at the termination of his employment with the
Company or at the request of the Board at any time during the course of his
employment. In this Agreement confidential information includes, but is not
limited to, the following:--
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(i) information relating to the Group's clients, prospective clients,
persons to whom the Group has made presentations and for whom
quotations have been prepared, and the requirements of such persons in
terms of the Group's business or services;
(ii) information relating to the Group's suppliers, agents and
distributors;
(iii) information relating to intellectual property in which the Group has
an interest, the marketing of the Group's products and services and
the fee arrangements in force between the Group and its clients.
(b) Whenever requested to do so by the Company, and in any event upon
termination of his employment with the Company, the Executive shall hand
over to the Company all models, equipment, documents and records (including
all computer software and programs), and other things in his possession or
control which relate to the business or affairs of the Group or of any third
party with which the Group has had dealings and no copies shall be retained
by him. As between the Company and the Executive all such documents and
records are deemed to be the property of the Company.
(c) The restrictions in sub-clause (a) shall cease to apply to information or
knowledge which may (otherwise than through the Executive's fault) become
available to the public generally.
(d) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
8. RESTRICTIONS
(a) The Executive shall not at any time during a period of six months after the
Termination Date and in material competition with any business carried on by
the Company or any other member of the Group at the Termination Date solicit
the custom of or deal with any person, firm or company which was a client of
or a prospective client of material importance to the Company or any other
member of the Group and with whom the Executive had communicated or
associated to any material extent in the course of his employment during the
twelve months preceding the Termination Date unless the Company ceases to
carry on inter-bank foreign business.
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(b) The Executive shall not at any time after the Termination Date represent
himself or cause or permit himself to be represented as being in any way
connected with the Group.
(c) The Executive shall be bound by the following restrictions in respect of any
employee of the Group who is an employee of the Company or any other member
of the Group at the Termination Date or at any time during the preceding
twelve months in an executive, managerial, technical or sales capacity:--
(i) the Executive shall not at any time during a period of six months from
the Termination Date employ or offer to any such employee any
alternative employment or attempt in any way to persuade any such
employee to enter any alternative employment or to leave the employment
of the Group.
(ii) the Executive shall during a period of six months from the Termination
Date use his best endeavours to prevent any person, firm or company
with whom he may be engaged or connected from employing or offering to
any such employee any alternative employment or from attempting in any
way to persuade any such employee to enter into any alternative
employment or to leave the employment of the Group.
(d) The Executive acknowledges that in all the circumstances of this Agreement
(including, but not limited to, the remuneration payable to the Executive
hereunder) the restrictions and provisions herein contained are reasonable
and necessary for the protection of the Group's legitimate business
interests and he further acknowledges that, having regard to those
circumstances, such restrictions and provisions do not work harshly on him.
(e) Notwithstanding sub-clause (d), the parties agree that the covenants set out
in this clause shall be separate and severable and enforceable accordingly
and, if any of the above periods of six months following the Termination
Date referred to in sub-clauses (a), (b) and (c) shall be adjudged to go
beyond what is reasonable in all the circumstances for the protection of the
Group, a period or periods of three months following the Termination Date
shall be substituted therefor.
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(f) The undertakings in this clause shall cover all actions by the Executive in
whatever capacity and whether directly or indirectly through or with any
third party, agent, company, partnership, employee, employer, associate
(within the meaning of section 435 of the Insolvency Act 1985) or trust
which if done by him personally would breach the provisions of this clause.
(g) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
9. INJUNCTIVE RELIEF FOR SECRECY AND RESTRICTIONS
The Executive acknowledges that the Company will have no adequate remedy at
law if the Executive violates the terms of the provisions of either of
clauses 7 ("Secrecy") or 8 ("Restrictions") above. In the event of any such
violation, the Company shall have the right, in addition to and without
prejudice to any other rights it may have, to obtain in any court of
competent jurisdiction injunctive relief or specific performance to restrain
any breach or threatened breach of this Agreement.
10. DISCIPLINARY AND GRIEVANCE PROCEDURE
In the execution of his duties the Executive shall conduct himself in a
manner befitting his appointment hereunder. If the Executive is dissatisfied
with any disciplinary decision or wishes to seek redress for any grievance
relating to his employment he shall refer it to Charles Romilly whose
decision shall be final.
11. TERMINATION
(a) The Executive's employment may be terminated by the Company forthwith by
notice if:--
(i) he makes any arrangement or composition with his creditors generally
or there are grounds under section 267 of the Insolvency Act 1986 for
the presentation of a creditor's petition for a bankruptcy order to
be made against him or an interim receiver of his property is
appointed under section 286 of that Act;
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(ii) he is convicted of a criminal offence as a result of which he is
sentenced to a term of imprisonment;
(iii) he commits any serious breach of his obligations to the Company;
(iv) having committed any breach of his obligations to the Company he
fails to rectify such breach (if reasonably capable of rectification)
or commits a further or continuing breach after warning by the
Company;
(v) his conduct is in the opinion of the Board prejudicial to the
interests of the Group. The Board may take into account a conviction
for any criminal offence not covered by sub-clause (ii);
(vi) being a director of any company in the Group he resigns his
directorship or becomes prohibited by law from being a director;
(vii) he becomes of unsound mind or becomes a patient under the Mental
Health Act 1983;
(viii) by reason of ill health or incapacity he is prevented from performing
his duties for periods which have exceeded (or in the reasonable
estimation of the Board are likely to exceed) in aggregate twenty-six
weeks in any twelve month period.
(ix) he ceases to be authorised to conduct investment business in the
United Kingdom.
(b) Upon termination of his employment howsoever arising the Executive shall
resign without claim for compensation from all directorships and other
offices within the Group and should he fail to do so the Company is hereby
irrevocably authorised by the Executive to appoint some person in his name
and on his behalf as his attorney to sign any documents and do all things
necessary or requisite to give effect thereto.
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(c) Upon the termination of the Executive's employment for whatever reason the
Company will be entitled to deduct from any payments then due or becoming
due to the Executive (whether in respect of any period before such
termination or not) any moneys which may then be or become due or may become
due thereafter from the Executive to the Company or any other member of the
Group.
(d) If the Executive's employment shall be terminated by reason only of the
liquidation of the Company for the purpose of amalgamation or reconstruction
and the Executive shall be offered employment with any concern or
undertaking resulting from such amalgamation or reconstruction on terms no
less favourable than the terms of this Agreement the Executive shall have no
claim against the Company in respect of the termination of his employment
hereunder.
12. NOTICES
All notices under this Agreement shall be in writing. Notices to the Company
may be given by the Executive either personally to Charles Romilly or by
prepaid first class letter, facsimile or telex addressed to the Company at
its registered office for the time being. Notices to the Executive may be
given by the Company either personally or by prepaid first class letter,
facsimile or telex addressed to the Executive at his last known address or
his place of work. Any such notice unless given personally shall be deemed,
if given by letter, to have been served 48 hours from the time of posting
and in proving service by post it shall be sufficient to show that the
letter was properly addressed and posted in accordance with the provisions
of this clause and, if given by facsimile or telex, to have been served at
the time it is transmitted if transmitted between 9.00 am and 5.30 pm London
time on a business day or, if not so transmitted, at 9.00 am London time on
the first business day thereafter. In proving service by facsimile or telex
it shall be sufficient to show that the transmission was properly made and
that the transmitting device was connected to a device with a facsimile or
telex telephone number reasonably believed to be that of the party to be
served.
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13. PREVIOUS AGREEMENTS
(a) This Agreement supersedes any previous agreement (whether written, oral or
implied) between any member of the Group and the Executive relating to his
employment which, without prejudice to his right to receive sums accrued due
thereunder, shall be void from the Commencement Date.
(b) The Executive acknowledges and warrants that there are no agreements or
arrangements, whether oral, written or implied, between any member of the
Group and the Executive other than those expressly set out in this Agreement
and that he is not entering into this Agreement in reliance on any
representation not expressly set out herein.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with English
law and the Executive hereby irrevocably agrees for the exclusive benefit of
the Company that the English Courts are to have jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement.
EXECUTED (in the case of the Executive as a deed) on the date appearing at the
beginning of this document.
SIGNED by /s/ SIMON DRABBLE
the duly authorised representative of
THE COMPANY in the presence of:--
Witness: /s/ CHARLES ROMILLY
SIGNED AND DELIVERED as a deed
by THE EXECUTIVE in the presence of:--
Witness: /s/ CHARLES ROMILLY
0523/MWC
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Exhibit 10.46
SERVICE AGREEMENT
Dated November 13, 1995
PARTIES
(1) INDEX FX LIMITED whose registered office is at 137 Lombard Street,
London, EC3V 9BQ (the "Company"); and
(2) MR GRAHAM WELLESLEY of 38 Santos Road, London SW18 1MS (the "Executive").
1. INTERPRETATION
In this Agreement:--
(a) the "Board" means the board of directors of the Company;
(b) the "Commencement Date" means the 13th day of November 1995;
(c) the "Group" means:
(i) the Company;
(ii) the Company's holding company (if any);
(iii) any other subsidiary of the Company or the Company's holding company;
and
(iv) any other company in which the Company is interested and whose name is
notified to the Executive by the Company as being a member of the
Group
and (where the context so admits) includes any member of the Group. For this
purpose "holding company" and "subsidiary" have the meanings given to them
by sections 736, 736A and 736B of the Companies Act 1985;
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(d) "Net Income of the Company" means 50% (fifty per cent.) of the gross income
of the Company resulting from business undertaken by the Team (including
introductory commissions from Index Futures Group Inc.) less 50% (fifty
percent) of the costs incurred by the Company in supporting the Team
including, for the avoidance of doubt, the items and the indicative costs
set out at Appendix 1 and trading errors and unpaid debts of the Team's
clients.
(e) the "Team" means Simon Drabble, Graham Wellesley and Lorenzo Naldini and
such other persons as may be agreed from time to time by the parties.
(f) the "Termination Date" means the date on which the Executive's employment
under this Agreement ceases;
(g) reference to any statutory provision includes a reference to that provision
as amended, extended or re-enacted and to any statutory replacement thereof
(either before or after the date of this Agreement).
2. APPOINTMENT, TERM AND CONTINUITY
(a) Subject to the provisions of this Agreement, the Executive is appointed and
shall serve the Company as a Director from the Commencement Date until his
employment is terminated by either party giving to the other not less than
[three months'] notice expiring at any time.
(b) The Executive's period of continuous employment with the Company for the
purposes of the Employment Protection (Consolidation) Act 1978 commenced on
13 November 1995.
3. REMUNERATION
(a) The Executive shall be entitled to a commission share of the Net Income of
the Company, his proportion of such commission to be determined by agreement
with the other members of the Team and notified to the Company in writing.
(b) The Company shall pay the Executive a draw against commissions to be earned
under sub-clause (a) above at the rate of US$8,565 per month or at such
other rate as the Board may from time to time decide. Such draw shall be
paid monthly in arrears on the last working day in every month and shall be
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repayable by deduction from the commission share due in future quarters to
the Executive pursuant to (c) below if the commissions earned by the Team
under (a) above are less than US$25,695 in aggregate in any month or on
average over any quarterly period Provided That the draw against commissions
paid to the Executive in the first three months of his employment shall not
be repayable if the commissions earned by the Team under (a) above are less
than US$25,695 in aggregate in any of those three months or on average over
such period.
(c) 50% (fifty per cent.) of the commission share of the Executive under (a)
above shall be payable quarterly in arrears after deduction of any draw
against commission under (b) above with the balance of such commission
share being payable at the Company's financial year end.
4. EXPENSES
The Company shall reimburse the Executive all reasonable out of pocket
expenses properly incurred by him on the Company's business and evidenced to
the Company's reasonable satisfaction provided that such expenses shall not
exceed such amounts as may be agreed from time to time unless approved in
advance.
5. DUTIES
(a) The Executive shall act as a broker in spot and forward foreign exchange in
the inter-bank market and as an introducer of clients to other Group
companies in relation to on-exchange futures and options broking and
clearing business. The Executive shall also perform such other duties and
exercise such powers as are consistent with his appointment and as are from
time to time given to him by the Board and shall use his best endeavours to
further the interests of the Group. The Executive shall comply with all
policies and directives of the Board and the rules of the Securities and
Futures Authority Limited ("SFA") and in particular personal account dealing
and other regulatory notices and requirements in compliance with the SFA
rules.
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(b) Without prejudice to sub-clause (a) the Executive shall at all times keep
the Board fully informed of his conduct of his duties on behalf of the
Company and, as the case may be, of any other member of the Group when
appropriate and shall promptly provide such information and explanations as
may be requested from time to time by the Board.
(c) The Executive's normal working hours shall be [7.30 a.m. to 5.30 p.m.] on
Mondays to Fridays inclusive with one hour for lunch and he shall devote
such further time as may be necessary for the proper performance of his
duties. Pressure of work may well necessitate that longer hours are worked.
(d) The Company may require the Executive to perform his duties anywhere within
or outside the United Kingdom in the ordinary course of his duties.
(e) During his employment the Executive shall not, except with the prior written
consent of the Board, be directly or indirectly engaged, concerned or
interested in any other business or occupation provided that he may hold
and/or be interested in (for the purpose of investment only and not
exceeding one per cent. of the issued share capital of any company) any
securities listed on a recognised stock exchange or dealt in on any other
public securities market.
(f) There shall be no obligation on the Company to vest in or assign to the
Executive any powers or duties or to provide any work for him, and the
Company may at any time or from time to time during any period of notice as
specified in clause 2(a) (or in circumstances in which it reasonably
believes that the Executive is guilty of misconduct or in breach of this
Agreement, in order that the circumstances giving rise to that belief may be
investigated) suspend the Executive from the performance of his duties or
exclude him from any premises of the Company and need not give any reason
for so doing. During such suspension or exclusion the Company may require
the Executive to be available by telephone during normal working hours.
Salary and other benefits will not cease to be payable by reason only of
such suspension or exclusion.
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6. HOLIDAYS
(a) In addition to public holidays the Executive shall be entitled to [25]
working days' paid holiday in each calendar year which shall be taken at
such time or times as may be agreed between the Executive and the Board.
Holiday entitlement during each of the first and last calendar years of
employment shall be in direct proportion (to the nearest day) to the length
of the Executive's service during such year. The Executive shall have no
claim against the Company if he does not take his full holiday entitlement
and holiday not taken in one calendar year may not be carried forward in
whole or in part to a subsequent calendar year.
(b) Reasonable notice of proposed holiday dates must be given by the Executive
and the dates agreed with the Board. No holiday may be taken by the
Executive after notice to terminate the Executive's employment has been
given. On termination of his employment the Executive shall be entitled to
remuneration in lieu of any outstanding holiday entitlement and the Company
shall have the right to make an appropriate deduction from his final
remuneration in respect of any excess holiday taken by the Executive.
(c) The retirement age for the Executive shall be 65.
7. SECRECY
(a) The Executive shall not (except in the proper course of his duties
hereunder), either before or after the Termination Date, make use of or
divulge to any person, and shall use his best endeavours to prevent the
publication or disclosure of, any trade secret or any other private,
confidential or secret information concerning the business or finances of
the Group or any of its dealings, transactions or affairs or concerning any
third party with which the Group has dealt and all notes, memoranda and
other records of such trade secrets or information made or received by the
Executive during the course of his employment hereunder shall be the
property of the Company and shall be surrendered by him to someone duly
authorised on their behalf at the termination of his employment with the
Company or at the request of the Board at any time during the course of his
employment. In this Agreement confidential information includes, but is not
limited to, the following:--
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(i) information relating to the Group's clients, prospective clients,
persons to whom the Group has made presentations and for whom
quotations have been prepared, and the requirements of such persons in
terms of the Group's business or services;
(ii) information relating to the Group's suppliers, agents and
distributors;
(iii) information relating to intellectual property in which the Group has
an interest, the marketing of the Group's products and services and
the fee arrangements in force between the Group and its clients.
(b) Whenever requested to do so by the Company, and in any event upon
termination of his employment with the Company, the Executive shall hand
over to the Company all models, equipment, documents and records (including
all computer software and programs), and other things in his possession or
control which relate to the business or affairs of the Group or of any third
party with which the Group has had dealings and no copies shall be retained
by him. As between the Company and the Executive all such documents and
records are deemed to be the property of the Company.
(c) The restrictions in sub-clause (a) shall cease to apply to information or
knowledge which may (otherwise than through the Executive's fault) become
available to the public generally.
(d) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
8. RESTRICTIONS
(a) The Executive shall not at any time during a period of six months after the
Termination Date and in material competition with any business carried on by
the Company or any other member of the Group at the Termination Date solicit
the custom of or deal with any person, firm or company which was a client of
or a prospective client of material importance to the Company or any other
member of the Group and with whom the Executive had communicated or
associated to any material extent in the course of his employment during the
twelve months preceding the Termination Date unless the Company ceases to
carry on inter-bank foreign business.
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(b) The Executive shall not at any time after the Termination Date represent
himself or cause or permit himself to be represented as being in any way
connected with the Group.
(c) The Executive shall be bound by the following restrictions in respect of any
employee of the Group who is an employee of the Company or any other member
of the Group at the Termination Date or at any time during the preceding
twelve months in an executive, managerial, technical or sales capacity:--
(i) the Executive shall not at any time during a period of six months from
the Termination Date employ or offer to any such employee any
alternative employment or attempt in any way to persuade any such
employee to enter any alternative employment or to leave the employment
of the Group.
(ii) the Executive shall during a period of six months from the Termination
Date use his best endeavours to prevent any person, firm or company
with whom he may be engaged or connected from employing or offering to
any such employee any alternative employment or from attempting in any
way to persuade any such employee to enter into any alternative
employment or to leave the employment of the Group.
(d) The Executive acknowledges that in all the circumstances of this Agreement
(including, but not limited to, the remuneration payable to the Executive
hereunder) the restrictions and provisions herein contained are reasonable
and necessary for the protection of the Group's legitimate business
interests and he further acknowledges that, having regard to those
circumstances, such restrictions and provisions do not work harshly on him.
(e) Notwithstanding sub-clause (d), the parties agree that the covenants set out
in this clause shall be separate and severable and enforceable accordingly
and, if any of the above periods of six months following the Termination
Date referred to in sub-clauses (a), (b) and (c) shall be adjudged to go
beyond what is reasonable in all the circumstances for the protection of the
Group, a period or periods of three months following the Termination Date
shall be substituted therefor.
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(f) The undertakings in this clause shall cover all actions by the Executive in
whatever capacity and whether directly or indirectly through or with any
third party, agent, company, partnership, employee, employer, associate
(within the meaning of section 435 of the Insolvency Act 1985) or trust
which if done by him personally would breach the provisions of this clause.
(g) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
9. INJUNCTIVE RELIEF FOR SECRECY AND RESTRICTIONS
The Executive acknowledges that the Company will have no adequate remedy at
law if the Executive violates the terms of the provisions of either of
clauses 7 ("Secrecy") or 8 ("Restrictions") above. In the event of any such
violation, the Company shall have the right, in addition to and without
prejudice to any other rights it may have, to obtain in any court of
competent jurisdiction injunctive relief or specific performance to restrain
any breach or threatened breach of this Agreement.
10. DISCIPLINARY AND GRIEVANCE PROCEDURE
In the execution of his duties the Executive shall conduct himself in a
manner befitting his appointment hereunder. If the Executive is dissatisfied
with any disciplinary decision or wishes to seek redress for any grievance
relating to his employment he shall refer it to Charles Romilly whose
decision shall be final.
11. TERMINATION
(a) The Executive's employment may be terminated by the Company forthwith by
notice if:--
(i) he makes any arrangement or composition with his creditors generally
or there are grounds under section 267 of the Insolvency Act 1986 for
the presentation of a creditor's petition for a bankruptcy order to
be made against him or an interim receiver of his property is
appointed under section 286 of that Act:
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(ii) he is convicted of a criminal offence as a result of which he is
sentenced to a term of imprisonment;
(iii) he commits any serious breach of his obligations to the Company;
(iv) having committed any breach of his obligations to the Company he
fails to rectify such breach (if reasonably capable of rectification)
or commits a further or continuing breach after warning by the
Company;
(v) his conduct is in the opinion of the Board prejudicial to the
interests of the Group. The Board may take into account a conviction
for any criminal offence not covered by sub-clause (ii);
(vi) being a director of any company in the Group he resigns his
directorship or becomes prohibited by law from being a director;
(vii) he becomes of unsound mind or becomes a patient under the Mental
Health Act 1983;
(viii) by reason of ill health or incapacity he is prevented from performing
his duties for periods which have exceeded (or in the reasonable
estimation of the Board are likely to exceed) in aggregate twenty-six
weeks in any twelve month period;
(ix) he ceases to be authorised to conduct investment business in the
United Kingdom.
(b) Upon termination of his employment howsoever arising the Executive shall
resign without claim for compensation from all directorships and other
offices within the Group and should he fail to do so the Company is hereby
irrevocably authorised by the Executive to appoint some person in his name
and on his behalf as his attorney to sign any documents and do all things
necessary or requisite to give effect thereto.
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(c) Upon the termination of the Executive's employment for whatever reason the
Company will be entitled to deduct from any payments then due or becoming
due to the Executive (whether in respect of any period before such
termination or not) any moneys which may then be or become due or may become
due thereafter from the Executive to the Company or any other member of the
Group.
(d) If the Executive's employment shall be terminated by reason only of the
liquidation of the Company for the purpose of amalgamation or reconstruction
and the Executive shall be offered employment with any concern or
undertaking resulting from such amalgamation or reconstruction on terms no
less favourable than the terms of this Agreement the Executive shall have no
claim against the Company in respect of the termination of his employment
hereunder.
12. NOTICES
All notices under this Agreement shall be in writing. Notices to the Company
may be given by the Executive either personally to Charles Romilly or by
prepaid first class letter, facsimile or telex addressed to the Company at
its registered office for the time being. Notices to the Executive may be
given by the Company either personally or by prepaid first class letter,
facsimile or telex addressed to the Executive at his last known address or
his place of work. Any such notice unless given personally shall be deemed,
if given by letter, to have been served 48 hours from the time of posting
and in proving service by post it shall be sufficient to show that the
letter was properly addressed and posted in accordance with the provisions
of this clause and, if given by facsimile or telex. to have been served at
the time it is transmitted if transmitted between 9.00 am and 5.30 pm London
time on a business day or, if not so transmitted, at 9.00 am London time on
the first business day thereafter. In proving service by facsimile or telex
it shall be sufficient to show that the transmission was properly made and
that the transmitting device was connected to a device with a facsimile or
telex telephone number reasonably believed to be that of the party to be
served.
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PREVIOUS AGREEMENTS
(a) This Agreement supersedes any previous agreement (whether written, oral or
implied) between any member of the Group and the Executive relating to his
employment which, without prejudice to his right to receive sums accrued due
thereunder, shall be void from the Commencement Date.
(b) The Executive acknowledges and warrants that there are no agreements or
arrangements, whether oral, written or implied, between any member of the
Group and the Executive other than those expressly set out in this Agreement
and that he is not entering into this Agreement in reliance on any
representation not expressly set out herein.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with English
law and the Executive hereby irrevocably agrees for the exclusive benefit of
the Company that the English Courts are to have jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement.
EXECUTED (in the case of the Executive as a deed) on the date appearing at the
beginning of this document.
SIGNED by /s/ GRAHAM WELLESLEY
the duly authorised representative of
THE COMPANY in the presence of:--
Witness: /s/ CHARLES ROMILLY
/s/ GRAHAM WELLESLEY
SIGNED AND DELIVERED as a deed
by THE EXECUTIVE in the presence of:--
Witness: /s/ CHARLES ROMILLY
0523/MWC
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Exhibit 10.47
SERVICE AGREEMENT
Dated November 13, 1995
PARTIES
(1) INDEX FOREX LIMITED whose registered office is at 11 Old Jewry, London
EC2R 8DU (the "Company"); and
(2) MR LORENZO NALDINI of 19 Stanley Gardens, London W11 2NG (the "Executive").
1. INTERPRETATION
In this Agreement:--
(a) the "Board" means the board of directors of the Company;
(b) the "Commencement Date" means the 13th day of November 1995;
(c) the "Group" means:
(i) the Company;
(ii) the Company's holding company (if any);
(iii) any other subsidiary of the Company or the Company's holding company;
and
(iv) any other company in which the Company is interested and whose name is
notified to the Executive by the Company as being a member of the
Group
and (where the context so admits) includes any member of the Group. For this
purpose "holding company" and "subsidiary" have the meanings given to them by
sections 736, 736A and 736B of the Companies Act 1985;
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(d) "Net Income of the Company" means 50% (fifty per cent.) of the gross income
of the Company resulting from business undertaken by the Team (including
introductory commissions from Index Futures Group Inc.) less 50% (fifty
percent) of the costs incurred by the Company in supporting the Team
including, for the avoidance of doubt, the items and the indicative costs
set out at Appendix 1 and trading errors and unpaid debts of the Team's
clients.
(e) the "Team" means Simon Drabble, Graham Wellesley and Lorenzo Naldini and
such other persons as may be agreed from time to time by the parties.
(f) the "Termination Date" means the date on which the Executive's employment
under this Agreement ceases;
(g) reference to any statutory provision includes a reference to that provision
as amended, extended or re-enacted and to any statutory replacement thereof
(either before or after the date of this Agreement).
2. APPOINTMENT, TERM AND CONTINUITY
(a) Subject to the provisions of this Agreement, the Executive is appointed and
shall serve the Company as a Director from the Commencement Date until his
employment is terminated by either party giving to the other not less than
[three months'] notice expiring at any time.
(b) The Executive's period of continuous employment with the Company for the
purposes of the Employment Protection (Consolidation) Act 1978 commenced on
13 November 1995.
3. REMUNERATION
(a) The Executive shall be entitled to a commission share of the Net Income of
the Company, his proportion of such commission to be determined by agreement
with the other members of the Team and notified to the Company in writing.
(b) The Company shall pay the Executive a draw against commissions to be earned
under sub-clause (a) above at the rate of US$8,565 per month or at such
other rate as the Board may from time to time decide. Such draw shall be
paid monthly in arrears on the last working day in every month and shall be
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repayable by deduction from the commission share due in future quarters to
the Executive pursuant to (c) below if the commissions earned by the Team
under (a) above are less than US$25,695 in aggregate in any month or on
average over any quarterly period Provided That the draw against commissions
paid to the Executive in the first three months of his employment shall not
be repayable if the commissions earned by the Team under (a) above are less
than US$25,695 in aggregate in any of those three months or on average over
such period.
(c) 50% (fifty per cent.) of the commission share of the Executive under (a)
above shall be payable quarterly in arrears after deduction of any draw
against commission under (b) above with the balance of such commission share
being payable at the Company's financial year end.
4. EXPENSES
The Company shall reimburse the Executive all reasonable out of pocket
expenses properly incurred by him on the Company's business and evidenced to
the Company's reasonable satisfaction provided that such expenses shall not
exceed such amounts as may be agreed from time to time unless approved in
advance.
5. DUTIES
(a) The Executive shall act as a broker in spot and forward foreign exchange in
the inter-bank market and as a introducer of clients to other Group
companies in relation to on-exchange futures and options broking and
clearing business. The Executive shall also perform such other duties and
exercise such powers as are consistent with his appointment and as are from
time to time given to him by the Board and shall use his best endeavours to
further the interests of the Group. The Executive shall comply with all
policies and directives of the Board and the rules of the Securities and
Futures Authority Limited ("SFA") and in particular personal account dealing
and other regulatory notices and requirements in compliance with the SFA
rules.
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(b) Without prejudice to sub-clause (a) the Executive shall at all times keep
the Board fully informed of his conduct of his duties on behalf of the
Company and, as the case may be, of any other member of the Group when
appropriate and shall promptly provide such information and explanations as
may be requested from time to time by the Board.
(c) The Executive's normal working hours shall be [7.30 a.m. to 5.30 p.m.] on
Mondays to Fridays inclusive with one hour for lunch and he shall devote
such further time as may be necessary for the proper performance of his
duties. Pressure of work may well necessitate that longer hours are worked.
(d) The Company may require the Executive to perform his duties anywhere within
or outside the United Kingdom in the ordinary course of his duties.
(e) During his employment the Executive shall not, except with the prior written
consent of the Board, be directly or indirectly engaged, concerned or
interested in any other business or occupation provided that he may hold
and/or be interested in (for the purpose of investment only and not
exceeding one per cent of the issued share capital of any company) any
securities listed on a recognised stock exchange or dealt in on any other
public securities market.
(f) There shall be no obligation on the Company to vest in or assign to the
Executive any powers or duties or to provide any work for him, and the
Company may at any time or from time to time during any period of notice as
specified in clause 2(a) (or in circumstances in which it reasonably
believes that the Executive is guilty of misconduct or in breach of this
Agreement, in order that the circumstances giving rise to that belief may be
investigated) suspend the Executive from the performance of his duties or
exclude him from any premises of the Company and need not give any reason
for so doing. During such suspension or exclusion the Company may require
the Executive to be available by telephone during normal working hours.
Salary and other benefits will not cease to be payable by reason only of
such suspension or exclusion.
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6. HOLIDAYS
(a) In addition to public holidays the Executive shall be entitled to [25]
working days' paid holiday in each calendar year which shall be taken at
such time or times as may be agreed between the Executive and the Board.
Holiday entitlement during each of the first and last calendar years of
employment shall be in direct proportion (to the nearest day) to the length
of the Executive's service during such year. The Executive shall have no
claim against the Company if he does not take his full holiday entitlement
and holiday not taken in one calendar year may not be carried forward in
whole or in part to a subsequent calendar year.
(b) Reasonable notice of proposed holiday dates must be given by the Executive
and the dates agreed with the Board. No holiday may be taken by the
Executive after notice to terminate the Executive's employment has been
given. On termination of his employment the Executive shall be entitled to
remuneration in lieu of any outstanding holiday entitlement and the Company
shall have the right to make an appropriate deduction from his final
remuneration in respect of any excess holiday taken by the Executive.
(c) The retirement age for the Executive shall be 65.
7. SECRECY
(a) The Executive shall not (except in the proper course of his duties
hereunder), either before or after the Termination Date, make use of or
divulge to any person, and shall use his best endeavours to prevent the
publication or disclosure of, any trade secret or any other private,
confidential or secret information concerning the business or finances of
the Group or any of its dealings, transactions or affairs or concerning any
third party with which the Group has dealt and all notes, memoranda and
other records of such trade secrets or information made or received by the
Executive during the course of his employment hereunder shall be the
property of the Company and shall be surrendered by him to someone duly
authorised on their behalf at the termination of his employment with the
Company or at the request of the Board at any time during the course of his
employment. In this Agreement confidential information includes, but is not
limited to, the following:--
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(i) information relating to the Group's clients, prospective clients,
persons to whom the Group has made presentations and for whom
quotations have been prepared, and the requirements of such persons in
terms of the Group's business or services;
(ii) information relating to the Group's suppliers, agents and
distributors;
(iii) information relating to intellectual property in which the Group has
an interest, the marketing of the Group's products and services and
the fee arrangements in force between the Group and its clients.
(b) Whenever requested to do so by the Company, and in any event upon
termination of his employment with the Company, the Executive shall hand
over to the Company all models, equipment, documents and records (including
all computer software and programs), and other things in his possession or
control which relate to the business or affairs of the Group or of any third
party with which the Group has had dealings and no copies shall be retained
by him. As between the Company and the Executive all such documents and
records are deemed to be the property of the Company.
(c) The restrictions in sub-clause (a) shall cease to apply to information or
knowledge which may (otherwise than through the Executive's fault) become
available to the public generally.
(d) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
8. RESTRICTIONS
(a) The Executive shall not at any time during a period of six months after the
Termination Date and in material competition with any business carried on by
the Company or any other member of the Group at the Termination Date solicit
the custom of or deal with any person, firm or company which was a client of
or a prospective client of material importance to the Company or any other
member of the Group and with whom the Executive had communicated or
associated to any material extent in the course of his employment during the
twelve months preceding the Termination Date unless the Company ceases to
carry on inter-bank foreign business.
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<PAGE>
(b) The Executive shall not at any time after the Termination Date represent
himself or cause or permit himself to be represented as being in any way
connected with the Group.
(c) The Executive shall be bound by the following restrictions in respect of any
employee of the Group who is an employee of the Company or any other member
of the Group at the Termination Date or at any time during the preceding
twelve months in an executive, managerial, technical or sales capacity:--
(i) the Executive shall not at any time during a period of six months from
the Termination Date employ or offer to any such employee any
alternative employment or attempt in any way to persuade any such
employee to enter any alternative employment or to leave the employment
of the Group.
(ii) the Executive shall during a period of six months from the Termination
Date use his best endeavours to prevent any person, firm or company
with whom he may be engaged or connected from employing or offering to
any such employee any alternative employment or from attempting in any
way to persuade any such employee to enter into any alternative
employment or to leave the employment of the Group.
(d) The Executive acknowledges that in all the circumstances of this Agreement
(including, but not limited to, the remuneration payable to the Executive
hereunder) the restrictions and provisions herein contained are reasonable
and necessary for the protection of the Group's legitimate business
interests and he further acknowledges that, having regard to those
circumstances, such restrictions and provisions do not work harshly on him.
(e) Notwithstanding sub-clause (d), the parties agree that the covenants set out
in this clause shall be separate and severable and enforceable accordingly
and, if any of the above periods of six months following the Termination
Date referred to in sub-clauses (a), (b) and (c) shall be adjudged to go
beyond what is reasonable in all the circumstances for the protection of the
Group, a period or periods of three months following the Termination Date
shall be substituted therefor.
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(f) The undertakings in this clause shall cover all actions by the Executive in
whatever capacity and whether directly or indirectly through or with any
third party, agent, company, partnership, employee, employer, associate
(within the meaning of section 435 of the Insolvency Act 1985) or trust
which if done by him personally would breach the provisions of this clause.
(g) These obligations are in addition to and not in substitution for any
obligations imposed upon the Executive by law or otherwise.
9. INJUNCTIVE RELIEF FOR SECRECY AND RESTRICTIONS
The Executive acknowledges that the Company will have no adequate remedy at
law if the Executive violates the terms of the provisions of either of
clauses 7 ("Secrecy") or 8 ("Restrictions") above. In the event of any such
violation, the Company shall have the right, in addition to and without
prejudice to any other rights it may have, to obtain in any court of
competent jurisdiction injunctive relief or specific performance to restrain
any breach or threatened breach of this Agreement.
10. DISCIPLINARY AND GRIEVANCE PROCEDURE
In the execution of his duties the Executive shall conduct himself in a
manner befitting his appointment hereunder. If the Executive is dissatisfied
with any disciplinary decision or wishes to seek redress for any grievance
relating to his employment he shall refer it to Charles Romilly whose
decision shall be final.
11. TERMINATION
(a) The Executive's employment may be terminated by the Company forthwith by
notice if:--
(i) he makes any arrangement or composition with his creditors generally
or there are grounds under section 267 of the Insolvency Act 1986 for
the presentation of a creditor's petition for a bankruptcy order to
be made against him or an interim receiver of his property is
appointed under section 286 of that Act;
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(ii) he is convicted of a criminal offence as a result of which he is
sentenced to a term of imprisonment;
(iii) he commits any serious breach of his obligations to the Company;
(iv) having committed any breach of his obligations to the Company he
fails to rectify such breach (if reasonably capable of rectification)
or commits a further or continuing breach after warning by the
Company;
(v) his conduct is in the opinion of the Board prejudicial to the
interests of the Group. The Board may take into account a conviction
for any criminal offence not covered by sub-clause (ii);
(vi) being a director of any company in the Group he resigns his
directorship or becomes prohibited by law from being a director;
(vii) he becomes of unsound mind or becomes a patient under the Mental
Health Act 1983;
(viii) by reason of ill health or incapacity he is prevented from performing
his duties for periods which have exceeded (or in the reasonable
estimation of the Board are likely to exceed) in aggregate twenty-six
weeks in any twelve month period.
(ix) he ceases to be authorised to conduct investment business in the
United Kingdom.
(b) Upon termination of his employment howsoever arising the Executive shall
resign without claim for compensation from all directorships and other
offices within the Group and should he fail to do so the Company is hereby
irrevocably authorised by the Executive to appoint some person in his name
and on his behalf as his attorney to sign any documents and do all things
necessary or requisite to give effect thereto.
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(c) Upon the termination of the Executive's employment for whatever reason the
Company will be entitled to deduct from any payments then due or becoming
due to the Executive (whether in respect of any period before such
termination or not) any moneys which may then be or become due or may become
due thereafter from the Executive to the Company or any other member of the
Group.
(d) If the Executive's employment shall be terminated by reason only of the
liquidation of the Company for the purpose of amalgamation or reconstruction
and the Executive shall be offered employment with any concern or
undertaking resulting from such amalgamation or reconstruction on terms no
less favourable than the terms of this Agreement the Executive shall have no
claim against the Company in respect of the terrnination of his employment
hereunder.
12. NOTICES
All notices under this Agreement shall be in writing. Notices to the Company
may be given by the Executive either personally to Charles Romilly or by
prepaid first class letter, facsimile or telex addressed to the Company at
its registered office for the time being. Notices to the Executive may be
given by the Company either personally or by prepaid first class letter,
facsimile or telex addressed to the Executive at his last known address or
his place of work. Any such notice unless given personally shall be deemed,
if given by letter, to have been served 48 hours from the time of posting
and in proving service by post it shall be sufficient to show that the
letter was properly addressed and posted in accordance with the provisions
of this clause and, if given by facsimile or telex, to have been served at
the time it is transmitted if transmitted between 9.00 am and 5.30 pm London
time on a business day or, if not so transmitted, at 9.00 am London time on
the first business day thereafter. In proving service by facsimile or telex
it shall be sufficient to show that the transmission was properly made and
that the transmitting device was connected to a device with a facsimile or
telex telephone number reasonably believed to be that of the party to be
served.
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13. PREVIOUS AGREEMENTS
(a) This Agreement supersedes any previous agreement (whether written, oral or
implied) between any member of the Group and the Executive relating to his
employment which, without prejudice to his right to receive sums accrued due
thereunder, shall be void from the Commencement Date.
(b) The Executive acknowledges and warrants that there are no agreements or
arrangements, whether oral, written or implied, between any member of the
Group and the Executive other than those expressly set out in this Agreement
and that he is not entering into this Agreement in reliance on any
representation not expressly set out herein.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with English
law and the Executive hereby irrevocably agrees for the exclusive benefit of
the Company that the English Courts are to have jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement.
EXECUTED (in the case of the Executive as a deed) on the date appearing at the
beginning of this document.
SIGNED by /s/ CHARLES ROMILLY
the duly authorised representative of
THE COMPANY in the presence of:--
Witness: /s/ LORENZO NALDINI
SIGNED AND DELIVERED as a deed
by THE EXECUTIVE in the presence of:--
Witness: /s/ CHARLES ROMILLY
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Exhibit 10.48
[LOGO OF INDEX]
INDEX FX LTD.
12th October 1995
37 Lombard Street
London EC3V 9BQ
TELEPHONE: 0171 929 4029
DEALERS: 0171 929 4030
Mr. Barrie J. Swift Facsimile: 0171 929 4031
27 East Priors Court Reuters Dealing INFX
Northampton
NN3 8LB
Dear Barrie
Further to our meeting of earlier this morning, we are pleased to offer to you
the position discussed. I have described below the terms of such employment. If
you would like to accept this position, please sign and return the attached copy
of this letter.
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 Employer") is:
Index FX Ltd.
37 Lombard Street
London EC3V 9BQ.
Name and address of employee ("The Employee") is:
Mr. Barrie J. Swift
27 East Priors Court
Northampton
NN3 8LB
2. DESCRIPTION OF EMPLOYMENT:
Your job title is Chief Operations Officer.
3. PLACE OF EMPLOYMENT.
The place of your employment is 37 Lombard Street, London EC3V 9BQ.
4. COMMENCEMENT OF EMPLOYMENT:
(a) The date of commencement of employment will be 13th November 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) Remuneration.
(i) The rate of your remuneration is (Pounds)70,000 per annum paid monthly in
arrears.
(ii) Your remuneration will be reviewed in January of each year.
(iii) An end of year bonus may be paid entirely at the Employer's discretion.
(b) Hours.
Your normal working hours are from 7.30am to 5.00pm, Mondays to
Fridays inclusive, with a break of 1 hour each day for lunch but you may be
required to work outside these hours and days when the needs of the business so
dictate.
Chicago . New York . London . Zurich
Index FX Ltd. Registered Office: 37 Lombard Street, London EC3V 9BQ.
Registered in England No.: 2876284
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(c) Holidays.
(i) You are entitled to bank and other public holidays, plus twenty (20) working
days holiday with pay in each year (until you have completed 3 years of service
when you will become 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 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 Pat
Card or Charles Romilly as soon as possible during the first working day.
(ii) For periods of sickness or injury between 4 and 6 days the Employee must
produce a self-certification certificate and a doctor's 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.
(iii) The Employer will pay the Employee's salary during periods of sickness or
illness for up to six (6) weeks in any period of twelve (12) 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 schemes.
(iv) 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.
(v) Absence due to maternity leave will not be subject to (iii) above and the
statutory regulations will apply.
(vi) 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.
(e) Permanent Health Insurance, Pension, Private Medical Insurance and
Insurance Benefits.
(i) No pension scheme etc. is operated and no contracting out certificate is in
force in respect of your employment. However, the Employer will contribute
(Pounds)7,000 per annum in arrears to your private pension plan.
(ii) The Employer will provide private health insurance.
(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 one (1) month's notice
(four weeks) from either party.
(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:
(i) To divulge or communicate any trade secrets of the Employer to any person;
firm or company whatsoever, and
(ii) To divulge the names and addresses of any customers of the Employer, and
(iii) To take any steps which may prejudice or harm the business of the Employer
and you agree to use your best endeavours 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.
(h) Disciplinary Rules and Grievance Procedure.
If you have any grievance relating to your employment then you should raise
it direct with myself.
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(i) Amendments.
These particulars may be changed by written notice to the Employee.
(j) The Employer will provide a car parking space.
Yours sincerely
/s/ BURTON J. MEYER
For and on behalf of Index FX Ltd.
Burton J. Meyer
Director
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Acknowledgement by the Employee.
--------------------------------
I agree that the proceeding provisions, including those contained in the
documents referred to therein (as varied from time to time) form the basis of my
contract of employment.
Dated this 25th day of Oct. 1995.
/s/ BARRIE SWIFT
Barrie J. Swift
(Employee)
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[LOGO OF INDEX]
INDEX FX LTD.
27th October 1995
37 Lombard Street
London EC3V 9BQ
TELEPHONE: 0171 929 4029
DEALERS: 0171 929 4030
Facsimile: 0171 929 4031
Mr. Barrie J. Swift Telex: 922664 Index G
27 East Priors Court Reuters Dealing INFX
Northampton
NN3 8LB
Dear Barrie
Further to Mr. Burton Meyer's letter of 12th October 1995, and for the avoidance
of doubt, I write to confirm that your contract will run for a minimum period of
two years, from 13th November 1995, the date of the commencement of your
employment with this company.
I hope that this clarifies the position.
Yours sincerely
/s/ CHARLES ROMILLY
Charles Romilly
Director
Chicago . New York . London . Zurich
Index FX Ltd. Registered Office: 37 Lombard Street, London EC3V 9BQ.
Registered in England No.: 2876284
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Exhibit 10.49
[LOGO OF INDEX]
6th February 1996 INDEX FX LTD.
37 Lombard Street
London EC3V 9BQ
TELEPHONE: 0171 929 4029
DEALERS: 0171 929 4030
Mrs. F. Yardimci Facsimile: 0171 929 4031
51 Park Avenue South Telex: 922664 Index G
Hornsey Reuters Dealing INFX
London N8 8LX
Dear Figen
Further to our recent meeting, I am pleased to offer to you the position we
discussed.
The contract will run for a period of two years from the commencement of
employment and in the event of the company terminating the employment, for any
reason, other than gross misconduct or an inability to perform the duties
described, the balance of the two year contract will be paid in full.
If you would like to accept this position, please sign and return the attached
copy of this letter.
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 Employer") is:
Index FX Ltd.
37 Lombard Street
London EC3V 9BQ.
Name and address of employee ("The Employee") is:
As Above.
2. DESCRIPTION OF EMPLOYMENT:
Your job title is Compliance Officer.
3. PLACE OF EMPLOYMENT.
The place of your employment is 37 Lombard Street, London EC3V 9BQ.
4. COMMENCEMENT OF EMPLOYMENT:
(a) The date of commencement of employment will be 1st March 1996.
(b) No employment with a previous employer counts as part of your period of
continuous employment.
Chicago . New York . London . Zurich
Index FX Ltd. Registered Office: 37 Lombard Street, London EC3V 9BQ.
Registered in England No.: 2876284
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<PAGE>
5. THE FOLLOWING ARE THE PARTICULARS OF YOUR EMPLOYMENT AS AT THE DATE OF THIS
LETTER:
(a) Remuneration.
(i) The rate of your remuneration is (Pounds)50,000 per annum paid monthly in
arrears, in addition an amount equal to 12.5% of your salary ((Pounds)6,250)
will be paid monthly in arrears directly into a pension scheme of your choice.
(ii) Your remuneration will be reviewed in January of each year.
(iii) An end of year bonus may be paid entirely at the Employer's discretion.
(b) Hours.
Your working hours will be 9.00am to 5.00pm Mondays to Fridays inclusive, with a
break of 1 hour each day for lunch, although you may be required to work outside
of these hours and days when the needs of the business so dictate.
(c) Holidays.
(i) You are entitled to bank and other public holidays, plus twenty (20) working
days holiday with pay in each year (until you have completed 3 years of service
when you will become 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 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
Barrie Swift as soon as possible during the first working day.
(ii) For periods of sickness or injury between 4 and 6 days the Employee must
produce a self-certification certificate and a doctor's 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.
(iii) The Employer will pay the Employee's salary during periods of sickness or
illness for up to six (6) weeks in any period of twelve (12) 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 schemes.
(iv) 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.
(v) Absence due to maternity leave will not be subject to (iii) above and the
statutory regulations will apply.
(vi) 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.
(e) The Employer will provide private health insurance.
-156-
<PAGE>
(f) Notice.
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:
(i) To divulge or communicate any trade secrets of the Employer to any person,
firm or company whatsoever; and
(ii) To divulge the names and addresses of any customers of the Employer; and
(iii) To take any steps which may prejudice or harm the business of the Employer
and you agree to use your best endeavours 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.
(h) Disciplinary Rules and Grievance Procedure.
If you have any grievance relating to your employment then you should raise it
direct with myself.
(i) Amendments.
These particulars may be changed by written notice to the Employee.
Yours sincerely
/s/ GRAHAM WELLESLEY
For and on behalf of Index FX Ltd.
Graham Wellesley
Managing Director
-157-
<PAGE>
Acknowledgement by the Employee.
--------------------------------
I agree that the proceeding provisions, including those contained in the
documents referred to therein (as varied from time to time) form the basis of my
contract of employment.
Dated this 8th day of February 1996.
As discussed first day of employment will be
Monday 11th March 1996
/s/ F. YARDIMCI
Mrs. F. Yardimci
(Employee)
-158-
<PAGE>
Exhibit 10.50
[LOGO OF INDEX]
19th March 1996 INDEX FX LTD.
37 Lombard Street
London EC3V 9BQ
Mr. Charles Owen TELEPHONE: 0171 929 4029
45 Waldegrave Gardens DEALERS: 0171 929 4030
Strawberry Hill Facsimile: 0171 929 4031
Twickenham Telex: 922664 Index G
Middlesex TW1 4PH Reuters Dealing INFX
Dear Charlie
Further to our recent discussions, I am pleased to offer to you the position we
have discussed.
The contract will run for a period of two years from the commencement of
employment and in the event of the company terminating the employment, for any
reason other than gross misconduct or an inability to perform the duties
described, the balance of the two year contract will be paid in full.
If you would like to accept this position, please sign and return the attached
copy of this letter.
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 Employer") is:
Index FX Ltd.
37 Lombard Street
London EC3V 9BQ.
Name and address of employee ("The Employee") is:
As Above.
2. DESCRIPTION OF EMPLOYMENT:
Your job title is Head Foreign Exchange Dealer.
3. PLACE OF EMPLOYMENT.
The place of your employment is 37 Lombard Street, London EC3V 9BQ.
4. COMMENCEMENT OF EMPLOYMENT:
(a) The date of commencement of employment will be [to be agreed].
(b) No employment with a previous employer counts as part of your period of
continuous employment.
Chicago . New York . London . Zurich
Index FX Ltd. Registered Office: 37 Lombard Street, London EC3V 9BQ.
Registered in England No.: 2876284
-159-
<PAGE>
5. THE FOLLOWING ARE THE PARTICULARS OF YOUR EMPLOYMENT AS AT THE DATE OF THIS
LETTER:
(a) Remuneration.
(i) The rate of your remuneration is (Pounds)70,000 per annum paid monthly in
arrears, in addition an amount equal to 10% ((Pounds)7,000) of your salary, will
be paid directly into a pension scheme of your choice.
(ii) Your remuneration will be reviewed in January of each year.
(iii) An end of year bonus may be paid entirely at the Employer's discretion.
(b) Hours.
Your working hours will be 7.OOam to 6.00pm, Mondays to Fridays inclusive,
although you may be required to work outside of these hours and days, when the
needs of the business so dictate.
(c) Holidays.
(i) You are entitled to bank and other public holidays, plus twenty (20) working
days holiday with pay in each year (until you have completed 3 years of service
when you will become 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 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 Graham
Wellesley as soon as possible during the first working day.
(ii) For periods of sickness or injury between 4 and 6 days the Employee must
produce a self-certification certificate and a doctor's 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.
(iii) The Employer will pay the Employee's salary during periods of sickness or
illness for up to six (6) weeks in any period of twelve (12) 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 schemes.
(iv) 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.
(v) Absence due to maternity leave will not be subject to (iii) above and the
statutory regulations will apply.
(vi) 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.
(e) The Employer will provide private health insurance.
-160-
<PAGE>
(f) Notice.
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:
(i) To divulge or communicate any trade secrets of the Employer to any person,
firm or company whatsoever; and
(ii) To divulge the names and addresses of any customers of the Employer; and
(iii) To take any steps which may prejudice or harm the business of the Employer
and you agree to use your best endeavours 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.
(h) Disciplinary Rules and Grievance Procedure.
If you have any grievance relating to your employment then you should raise it
direct with myself.
(i) Amendments.
These particulars may be changed by written notice to the Employee.
Yours sincerely
/s/ GRAHAM WELLESLEY
For and on behalf of Index FX Ltd.
Graham Wellesley
Managing Director
-161-
<PAGE>
Acknowledgement by the Employee.
--------------------------------
I agree that the proceeding provisions, including those contained in the
documents referred to therein, (as varied from time to time) form the basis of
my contract of employment.
Dated this 10 day of April 1996.
/s/ CHARLES OWENS
Mr. Charles Owens.
(Employee)
-162-
<PAGE>
Exhibit 17.1
September 26, 1996
Bruce E. Mathias
Secretary
Jack Carl/312-Futures, Inc.
200 West Adams Street
Suite 1500
Chicago, IL 60606
Dear Mr. Mathias,
This letter will re-confirm that I have resigned as an officer and director
of Jack Carl/312-Futures, Inc. any and all of its subsidiaries and/or any and
all of its affiliates as of the close of business July 1, 1996.
Sincerely,
/S/ BURTON J. MEYER
Burton J. Meyer
-163-
<PAGE>
Exhibit 17.2
September 24, 1996
Allyson D. Laackman
Chief Financial Officer
Jack Carl/312-Futures, Inc.
200 West Adams Street
Suite 1500
Chicago, IL 60606
Dear Ms. Laackman:
I hereby resign as Director of Jack Carl/312-Futures, Inc. effective
Tuesday, October 1, 1996. As you know, since my employment by E.D.& F. Man
International Inc. began on July 1, 1996, my only involvement with the affairs
of the Company has been in winding up legal matters for Index Futures Group,
Inc.
Sincerely,
/s/PHILIP A TANZAR
Philip A. Tanzar
-164-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,587,300
<SECURITIES> 144,328,800
<RECEIVABLES> 16,876,300
<ALLOWANCES> (409,300)
<INVENTORY> 0
<CURRENT-ASSETS> 237,696,700
<PP&E> 2,492,900
<DEPRECIATION> (2,213,400)
<TOTAL-ASSETS> 239,887,700
<CURRENT-LIABILITIES> 233,671,200
<BONDS> 0
0
400,000
<COMMON> 134,500
<OTHER-SE> 5,682,000
<TOTAL-LIABILITY-AND-EQUITY> 239,887,700
<SALES> 30,606,500
<TOTAL-REVENUES> 41,134,900
<CGS> 0
<TOTAL-COSTS> 16,825,600
<OTHER-EXPENSES> 21,237,000
<LOSS-PROVISION> 140,600
<INTEREST-EXPENSE> 4,238,900
<INCOME-PRETAX> (1,307,200)
<INCOME-TAX> (174,100)
<INCOME-CONTINUING> (1,133,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,133,100)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<PAGE>
Exhibit 99.1
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): June 1, 1996
--------------------------------------------------------------
Jack Carl/312-Futures, Inc.
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-15187 36-3399452
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200 West Adams Street, Chicago, Illinois 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 312-407-5700
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
-165-
<PAGE>
Item 2. Acquisition or Disposition of Assets
- ------- ------------------------------------
(a) On June 1, 1996, the Registrant's principal wholly-owned subsidiary,
Index Futures Group, Inc. ("Index") executed an Asset Purchase and Sale
Agreement ("Agreement") with E.D.& F. Man International, Inc. ("MINC"), a unit
of E.D.& F. Man Group plc. Under the Agreement, Index has agreed to sell,
transfer and assign to MINC its business consisting of substantially all of the
futures and futures options brokerage accounts maintained by Index, together
with all positions, securities and other assets held in or for such accounts and
other agreed physical assets used in the conduct of the business as well as any
new business generated by former employees of Index who are employed by MINC as
part of the transaction ("Business"). The closing of the transaction is
presently set by the parties to be effective July 1, 1996, twenty calendar days
following the date the Registrant's definitive Information Statement describing
the transaction was first sent or given to the Registrant's shareholders.
The purchase price ("Price") payable by MINC in connection with the
transaction is based on a percentage of the Net Income (as defined) from the
Business during the 66 month period following the sale. Generally, Net Income
from the Business means an amount equal to the futures and futures options
brokerage commissions, fees and other income derived, and the net interest
income derived, from the Business, less (i) direct costs, (ii) transaction
specific production expenses and overheads allocable to the Business, and (iii)
an operational general and administrative charge as defined. Based on historic
levels of revenues as well as estimates of reductions in Index's and the
Registrant's expenses as a result of this transaction, the parties estimate that
the total Price over time will be between $10,000,000 and $20,000,000, but there
can be no assurance that the aggregate Price will be in that range.
The Price was negotiated at arms-length between the parties. Neither the
parties nor any of their respective affiliates are or have been in any material
relationship with one another. Effective as of the closing of the transaction,
Burton J. Meyer, President and a director of the Registrant will resign his
-166-
<PAGE>
positions at the Registrant and its subsidiaries. Mr. Meyer has entered into an
Employment Agreement with MINC under which he will be an Executive Vice
President of MINC, the President of the Jack Carl Futures Discount Brokerage
Division of MINC and will have responsibility over the Business being
transferred.
Inasmuch as substantially all of the business operations of the Registrant
are conducted by and through Index, the Registrant determined that the proposed
sale and transfer of Index's customer business requires the affirmative vote of
a majority of the Registrant's stockholders. In accordance with the requirements
of the Delaware General Corporation Law, as amended, such action may be taken by
consent, in lieu of a meeting, of a sufficient number of shares necessary to
take the action (in this case, a majority). Mr. Lee S. Casty, the beneficial
owner of 48.07% of the outstanding common stock of the Registrant (and who acted
as a finder for the Registrant for, and who will execute a non-competition
agreement with MINC as part of, this transaction) and four others, including Mr.
Meyer, President of the Registrant, beneficially owning an aggregate of 9.75% of
the outstanding shares of common stock have advised that they intend to consent
in writing to the transaction, in accordance with the requirements of the
Delaware General Corporation Law. Accordingly, the Registrant need not and did
not solicit votes or consents from the other shareholders. However, the
Registrant has provided its stockholders with a definitive Information Statement
describing the transaction in accordance with Regulation 14C of the Commission's
Rules and Regulations. Said definitive Information Statement, heretofore
electronically filed with the Commission, together with the exhibits thereto, by
this reference is incorporated in this Form 8-K.
-167-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ------ ------------------------------------------------------------------
(c) Exhibits
(20) (i) Notice and definitive Information Statement dated June 11, 1996
of the Registrant and Exhibits thereto heretofore electronically filed with the
Commission are hereby incorporated by reference, in accordance with Rule 12b-32.
(ii) Press Release dated June 3, 1996.
-168-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JACK CARL/312-FUTURES, INC.
--------------------------------
(Registrant)
Date: June 12, 1996 By:
-------------------------------------
Burton J. Meyer
President
-169-
<PAGE>
Exhibit 99.2
FOR IMMEDIATE RELEASE
INDEX FUTURES GROUP, INC. AGREES TO SELL
BROKERAGE ACTIVITIES TO E.D.& F. MAN INTERNATIONAL INC.
Chicago, Illinois (June 3,1996) -- Index Futures Group, Inc., the principal
operating subsidiary of Jack Carl 3l2-Futures, Inc. (NASDAQ FUTR) announced that
it signed an agreement to sell its futures and futures options brokerage
activities to E.D.& F. Man International Inc., the U.S. futures unit of London-
based E.D.& F. Man Group plc. Specific terms were not disclosed. The transaction
will close after completion of all required corporate action, including the
dissemination by Jack Carl/312-Futures, Inc. of a definitive Information
Statement to its shareholders describing the transaction. Closing is expected to
occur in approximately thirty days.
"This transaction should provide Index and its parent with a significant
income strain over the next 5-1/2 years," said Burton J. Meyer, President of
Jack Carl/312-Futures, Inc., the parent company. "Index and its parent will then
be in the position of being able to evaluate other business opportunities and to
concentrate on the foreign exchange business," he noted.
As part of the transaction, Mr. Meyer will join E.D.& F. Man International
Inc. as an Executive Vice President and will also be President of the Jack Carl
Futures Discount Division. Certain other current Index employees will also be
employed by Man as part of the transaction.
-30-
For Further Information Contact:
Burton J. Meyer
Jack Carl/312-Futures, Inc.
200 West Adams Street
Suite 1500
Chicago, Illinois 60606
(312) 407-5700
Exhibit 20(ii)
-170-
