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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
(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
JACK CARL/312-FUTURES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3399452
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
200 WEST ADAMS STREET, CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 407-5726
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$.004 PAR VALUE COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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 149 sequentially numbered pages
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PART I
ITEM 1--BUSINESS
(a) General Development of Business.
The Registrant was incorporated under the laws of the State of Illinois on
July 26, 1985 under the name SFA, Inc. On August 1, 1985, SFA, Inc. acquired
100% of the capital stock of a corporation (the "Predecessor Corporation")
from Oppenheimer Rouse Futures, Inc. The Registrant is the successor to the
business and operations of the Predecessor Corporation. As of November 21,
1985, the Predecessor Corporation was merged into SFA, Inc. and SFA, Inc.,
changed its name to 312-Futures, Inc. At that time and until Jack Carl
Associates, Inc., a privately held Delaware corporation, ("JCA"), merged on
August 29, 1986, into the Registrant, the Registrant's business activities
were limited to effecting transactions in futures contracts and options on
futures contracts on a "discounted basis" for retail customers nationwide. The
Registrant is the surviving corporation of the merger and its corporate name
was changed to Jack Carl/312-Futures, Inc. As a consequence of the merger, the
Registrant's brokerage activities were expanded and diversified with it
succeeding to the clearing membership of JCA on the Chicago Mercantile
Exchange and clearing the transactions on that Exchange for approximately 200
professional market makers and for customers of introducing brokers on a fully
disclosed basis. Accordingly, for the fiscal year ended June 30, 1987, the
Registrant was engaged in the commodity brokerage business, which included
effecting transactions in futures contracts and options on futures contracts
as a clearing member firm on the Chicago Mercantile Exchange for its various
customers. During the fiscal year ended June 30, 1987, the Registrant cleared
its customers' 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 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.
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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.
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 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.
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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 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.
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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 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.
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.
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.
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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 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.
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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.
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.
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
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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.
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.
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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 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
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 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:
9
<PAGE>
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.
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
definitive 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.
10
<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 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.
11
<PAGE>
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: 1/16.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
TYPE OF SECURITY ENDED TRADE 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, 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> <C> <C>
Common Stock........................ 7/01/94-8/18/94 1/4 1/16
<CAPTION>
BID ASK
------------ ------------
HIGH LOW HIGH LOW
---- ------- ---- -------
<S> <C> <C> <C> <C> <C>
8/18/94-9/30/94 $.16 $.04 $.20 $.16
10/01/94-12/06/94 $.20 $.03125 $.25 $.09375
</TABLE>
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.
12
<PAGE>
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.
HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
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>
AS OF JUNE 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
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.
13
<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 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.
14
<PAGE>
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.
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.
15
<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 fluctuations 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.
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
16
<PAGE>
changed toward business that generates higher trading volume and lower revenue
and expense per trade than other types of retail business. Included in this
type of business are accounts from non-clearing futures commission merchants,
other wholesale business and execution only business.
Interest income increased $3,975,300 in 1995 compared to 1994. This increase
in interest income is attributable to the following factors. The Registrant is
continuing to invest in longer term U.S. Government obligations which
increases the yield on its investments. These investments are interest rate
sensitive which cause fluctuations in income as interest rates vary. The
change in the appreciation of these investments due to market value
fluctuations generated an increase in interest income of $494,300 in 1995
compared to 1994. The Registrant, during 1995, by increasing its customers
base, had additional funds available to invest and those investments generally
yielded higher returns because interest rates continued their upward trend
during fiscal 1995.
Commissions, floor brokerage and clearing costs decreased $1,198,500 or 6%
in 1995. The decrease is the result of the gradual restructuring of sales
agreements to include the absorption of certain production related costs by
certain sales people before commissions are earned. Also, as a part of the
restructuring, certain sales people are being compensated by salary in
addition to commissions. Another reason for the decrease in commissions, floor
brokerage and clearing costs is the change in business mix toward business
which generates higher trading volume and lower commission revenue and expense
per trade than other types of retail business. Included in this type of
business are accounts from non-clearing futures commission merchants, other
wholesale business and execution only business.
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.
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.
17
<PAGE>
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 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.
18
<PAGE>
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.
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.
ITEM 11--EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Registrant
as well as the number of stock options earned by the Registrant's chief
executive officer and the three other most highly compensated executive
officers, exceeding $100,000, during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 Direc-
tor 1995 $300,000 $153,700 -- --
1994 $225,000 $ 50,000 -- 1,250,000
Michael J.
Moss (2)(6) 1996 -- -- $538,800 -- --
President
of Index 1995 -- -- $668,200 --
1994 -- -- $414,100 500,000
Allyson D.
Laackman
(3) 1996 $135,000 $ 74,700 -- -- --
Chief Fi-
nancial Of-
ficer 1995 $133,200 $ 14,100 -- --
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.
19
<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.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------- ------------------------
% OF
TOTAL OPTIONS
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.
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>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT JUNE 30, 1996 AT JUNE 30, 1996
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/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>
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.
20
<PAGE>
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 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.
21
<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 OF
NAME BENEFICIAL OWNERSHIP 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.
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.
22
<PAGE>
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.
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.
23
<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/A-2
commencing on page 28.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Jack Carl/312-Futures, Inc.:
Report of Independent Public Accountants................................ 28
Consolidated Statements of Financial Condition as of June 30, 1996 and
1995................................................................... 29
Consolidated Statements of Operations for the Years Ended June 30, 1996,
1995 and 1994.......................................................... 30
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.......................................... 31
Consolidated Statements of Changes in Liabilities Subordinated to Claims
of General Creditors for the Years Ended June 30, 1996, 1995 and 1994.. 32
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996,
1995 and 1994.......................................................... 33
Notes to Consolidated Financial Statements.............................. 35
Unaudited Pro Forma Consolidated Statement of Financial
Condition as of June 30, 1996.......................................... 46
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended June 30, 1996.................................................... 47
Notes to Unaudited Pro Forma Consolidated Statements
of Financial Condition and Operations.................................. 48
E.D. & F. Man International Inc.:
Report of Independent Accountants....................................... 50
Consolidated Statement of Financial Condition as of March 31, 1996...... 51
Consolidated Statement of Operations for the Year Ended March 31, 1996.. 52
Consolidated Statement of Changes in Subordinated Liabilities for the
Year Ended March 31, 1996.............................................. 53
Consolidated Statement of Changes in Stockholder's Equity for the Year
Ended March 31, 1996................................................... 54
Consolidated Statement of Cash Flows for the Year Ended March 31, 1996.. 55
Notes to Consolidated Financial Statements.............................. 56
Supplemental Information................................................ 62
(2) SCHEDULES
Schedule II--Valuation and qualifying accounts............................ 67
</TABLE>
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.
24
<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:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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
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
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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
</TABLE>
(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.
26
<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: January 14, 1997
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-2 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/A-2 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Allyson D. Laackman Chief Financial Officer January 14, 1997
- ------------------------------------
Allyson D. Laackman
/s/ Joel H. Eidelstein President and Director January 14, 1997
- ------------------------------------
Joel M. Eidelstein
/s/ George A. Myers Director January 14, 1997
- ------------------------------------
George A. Myers
</TABLE>
27
<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.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 27, 1996
28
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C> <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
----------- -----------
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
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Payables:
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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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.
34
<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.
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.
35
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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 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>
36
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
37
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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.
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
---------- ----------
<S> <C> <C>
Bank, interest at prime plus 3%, due:
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.
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
38
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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
forfeited. The following summarizes, after restatement for the November 4,
1994 one-for-four reverse stock split, all outstanding options at June 30,
1996.
<TABLE>
<CAPTION>
SHARES SHARES SHARES SHARES SHARES
GRANTED PRICE EXERCISABLE FORFEITED CANCELLED REMAINING
--------- ----- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 1990........ 410,000 $.60 317,500 72,969 19,531 317,500
February 1992........ 125,000 $.25 125,000 -- -- 125,000
May 1992............. 75,000 $.60 50,000 25,000 -- 50,000
September 1992....... 125,000 $.375 125,000 -- -- 125,000
February 1994........ 1,250,000 $.24 1,250,000 -- -- 1,250,000
January 1995......... 250,000 $.125 250,000 -- -- 250,000
--------- --------- ------ ------ ---------
Total............ 2,235,000 2,117,500 97,969 19,531 2,117,500
========= ========= ====== ====== =========
</TABLE>
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.
39
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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.
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.
40
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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> <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
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
-------- ---------
<S> <C> <C>
Deferred income tax assets:
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.
41
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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>
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
42
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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 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.
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
43
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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 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, 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
44
<PAGE>
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
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>
<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>
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.
45
<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
Affiliates............. 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
============ ============= =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
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.
46
<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.
47
<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.
48
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
E. D. & F. MAN INTERNATIONAL INC.
YEAR ENDED MARCH 31, 1996
(CONFIDENTIAL TREATMENT REQUESTED)
49
<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.
/s/ PRICE WATERHOUSE LLP
50
<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
========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
<S> <C>
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.
51
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues
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>
The accompanying notes are an integral part of these statements.
52
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CHANGES IN SUBORDINATED LIABILITIES
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<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.
53
<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.
54
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
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.
55
<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.
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.
56
<PAGE>
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.
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
57
<PAGE>
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.
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>
<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.
The provision (benefit) for income taxes includes the following:
<TABLE>
<S> <C>
Current:
Federal...................................................... $ 622,400
State........................................................ (143,100)
Local........................................................ (159,300)
Deferred:
Federal...................................................... (118,000)
State........................................................ (5,700)
Local........................................................ 2,100
---------
Total...................................................... $ 198,400
=========
</TABLE>
58
<PAGE>
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: $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:
<TABLE>
<S> <C>
1997........................................................... $ 927,500
1998........................................................... $ 713,900
1999........................................................... $ 733,400
----------
Total...................................................... $2,374,800
==========
</TABLE>
Rent expenses and sublease rental income for the year ended March 31, 1996,
were approximately $1,741,500 and $86,800, respectively.
59
<PAGE>
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 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.
60
<PAGE>
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.
61
<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 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.
62
<PAGE>
The Board of Directors E. D. & F. Man International Inc. Page -2-
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.
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.
/s/ PRICE WATERHOUSE LLP
63
<PAGE>
E. D. & F. MAN INTERNATIONAL INC. ANALYSIS OF NON-ALLOWABLE ASSETS
MARCH 31, 1996
<TABLE>
<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>
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE SIPC ANNUAL ASSESSMENT
REQUIRED BY SEC RULE 17A-5
May 30, 1996
The Board of Directors E. D. & F. Man International Inc. (a wholly owned
subsidiary of E. D. & F. Man Inc.)
In accordance with rule 17a-5(e)(4) of the Securities and Exchange
Commission, we have performed the following procedures with respect to the
accompanying schedule (Form SIPC-7T) of Securities Investor Protection
Corporation assessments and payments of E. D. & F. Man International Inc. for
the period April 1, 1995 to December 31, 1995. Our procedures were performed
solely to assist you in complying with rule 17a-5(e)(4), and our report is not
to be used for any other purpose. The procedures we performed are as follows:
1. Compared listed assessment payments with respective cash disbursement
record entries;
2. Compared amounts reported in the General Assessment Reconciliation (Form
SIPC-7T) with the financial records of E. D. & F. Man International Inc.
For the period April 1, 1995 to December 31, 1995 and included in the
amounts reported on the audited Form X-17A-5 for the year ended March 31,
1996;
3. Compared any adjustments reported in Form SIPC-7T with supporting schedules
and working papers;
4. Proved the arithmetical accuracy of the calculations reflected in Form
SIPC-7T and in the related schedules and working papers supporting
adjustments.
Because the above procedures do not constitute an audit made in accordance
with generally accepted auditing standards, we do not express an opinion on
the schedule referred to above. Had we performed additional procedures, other
matters might have come to our attention that would have been reported to you.
This report relates only to the schedule referred to above and does not extend
to any financial statements of E. D. & F. Man International Inc. taken as a
whole.
/s/ PRICE WATERHOUSE LLP
65
<PAGE>
E. D. & F. MAN INTERNATIONAL INC.
RECONCILIATION FROM UNAUDITED FOCUS TO
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1996
<TABLE>
<CAPTION>
MINC UNAUDITED
UNCONSOLIDATED CONSOLIDATION
ASSETS FOCUS GELDERMANN, INC. RECLASSIFICATION ELIMINATIONS CONSOLIDATED
------ -------------- ---------------- ---------------- ------------- -------------
<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
============= ============= =========== ============ =============
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
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>
66
<PAGE>
SCHEDULE II
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------
CHARGED TO
BALANCE (BENEFITS CHARGED BALANCE
AT AGAINST) TO OTHER AT END
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS 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.
67
<PAGE>
EXHIBIT INDEX
Certain exhibits to this report on Form 10-K/A-2 have been incorporated by
reference. For a list of these exhibits, see Item 14 hereof.
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIALLY
EXHIBIT NUMBERED SYSTEM
NUMBER DESCRIPTION WHERE FOUND
------- ----------- ---------------
<C> <S> <C>
The following exhibits are filed herewith:
10.42 Employment agreement, dated December 31, 1995, be-
tween Jack Carl/312-Futures, Inc. and Philip A.
Tanzar 72
10.43 Heads of Agreement, dated July 19, 1995 between
Jack Carl/312-Futures, Inc., Simon Drabble, Graham
Wellesley and Lorenzo Naldini 80
10.44 Service Agreement, dated July 19, 1995 between In-
dex Forex Limited and Simon Drabble, Graham
Wellesley and Lorenzo Naldini 84
10.45 Service Agreement dated September 1, 1995 between
Index FX Limited and Simon Drabble 95
10.46 Service Agreement dated November 13, 1995 between
Index FX Limited and Graham Wellesley 107
10.47 Service Agreement dated November 13, 1995 between
Index Forex Limited and Lorenzo Naldini. 118
10.48 Letter containing terms of employment dated Octo-
ber 12, 1995 and October 27, 1995 between Index FX
Limited and Barrie J. Swift 129
10.49 Letter containing terms of employment dated Febru-
ary 6, 1996 and between Index FX Ltd. and Figen
Yardimci 134
10.50 Letter containing terms of employment dated March
19, 1996 between Index FX Limited and Charles Ow-
ens 138
11.1 Computation of Earnings Per Common Share 69
17.1 Letter confirming resignation, dated September 26,
1996, from Burton J. Meyer 142
17.2 Letter of resignation, dated September 24, 1996,
from Philip A. Tanzar 143
21.1 Subsidiaries of the Registrant 71
24.1 Power of Attorney 27
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 144
</TABLE>
68
<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>
69
<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>
70
<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.
71
<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.
72
<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
73
<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.
74
<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
75
<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
76
<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.
77
<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.
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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
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<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.
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<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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<PAGE>
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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<PAGE>
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:
-------------------------------------
83
<PAGE>
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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<PAGE>
(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
85
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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(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
131
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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
134
<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.
135
<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
136
<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)
137
<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
138
<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.
139
<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
140
<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)
141
<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
142
<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
143
<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)
144
<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
145
<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.
146
<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.
147
<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
148
<PAGE>
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)
149
