<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 27, 1996 Commission file number:
0-23644
INVESTMENT TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13 - 3757717
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
900 Third Avenue, New York, New York (212) 755 - 6800
(Address of Principal Executive Offices) (Registrant's Telephone Number,
Including Area Code)
10022
(Zip Code)
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 [ ]
As of November 1, 1996, the Registrant had 18,254,800 shares of common stock,
$.01 par value, outstanding.
<PAGE> 2
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
------------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Financial Condition:
September 27, 1996 (unaudited) and December 31, 1995............................... 3
Consolidated Statement of Operations (unaudited):
Nine Months Ended September 27, 1996 and September 29, 1995....................... 4
Consolidated Statement of Operations (unaudited):
Three Months Ended September 27, 1996 and September 29, 1995...................... 5
Consolidated Statement of Changes in Stockholders' Equity (unaudited):
Nine Months Ended September 27, 1996 ............................................. 6
Consolidated Statement of Cash Flows (unaudited):
Nine Months Ended September 27, 1996 and September 29, 1995....................... 7
Condensed Notes to Consolidated Financial Statements (unaudited)...................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations................................................................
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................... 12
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 2 of 13
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
September 27, December 31,
1996 1995
---------------- ----------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents ................................. $ 39,986 $ 17,960
Securities owned .......................................... 6,858 8,509
Trade receivables ......................................... 4,227 2,482
Trade receivable from affiliate ........................... 2,700 7,766
Due from affiliates ....................................... 645 5,001
Premises and equipment .................................... 6,922 4,852
Capitalized software ...................................... 3,361 2,757
Other assets .............................................. 7,612 2,640
Goodwill .................................................. 2,609 3,021
Deferred tax asset ........................................ 1,832 330
---------------- ----------------
$ 76,752 $ 55,318
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses ..................... $ 9,757 $ 5,112
Software royalties payable..... ........................... 2,280 1,794
Securities sold, not yet purchased ........................ 1,189 -
Due to affiliates ......................................... 2,722 2,243
Income taxes payable to affiliate ......................... 208 690
---------------- ----------------
16,156 9,839
Stockholders' equity:
Preferred stock, par value $.01; shares authorized:
5,000,000; none issued .............................. - -
Common stock, par value $.01; shares authorized:
30,000,000; shares issued: 18,700,000 ............... 187 187
Additional paid-in capital .............................. 36,055 36,055
Retained earnings................... 28,119 11,279
Common stock held in treasury, at cost; shares:
445,200 at September 27, 1996 and 310,200 at
December 31, 1995 ................................... (3,765) (2,042)
---------------- ----------------
Total stockholders' equity .............................. 60,596 45,479
---------------- ----------------
$ 76,752 $ 55,318
================ ================
Book value per share ...................................... $ 3.32 $ 2.47
================ ================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 3 of 13
<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 27, September 29,
1996 1995
------- -------
<S> <C> <C>
Revenues .................................................. $81,664 $52,448
Expenses:
Compensation and employee benefits ................... 18,246 11,825
Transaction processing ............................... 11,815 7,641
Software royalties ................................... 6,515 4,210
Occupancy and equipment .............................. 4,183 2,614
Consulting ........................................... 1,998 1,257
Telecommunications and data processing services ...... 3,393 2,026
Other general and administrative ..................... 5,821 4,331
------- -------
51,971 33,904
------- -------
Earnings before income tax expense ................... 29,693 18,544
Income tax expense ........................................ 12,853 7,138
------- -------
Net earnings .............................................. $16,840 $11,406
======= =======
Primary net earnings per share of common stock ............ $ 0.91 $ 0.62
======= =======
Fully diluted net earnings per share of common stock ...... $ 0.90 $ 0.62
======= =======
Primary weighted average shares of common stock and common
stock equivalents outstanding .......................... 18,482 18,491
======= =======
Fully diluted weighted average shares of common stock and
common stock equivalents outstanding ................... 18,726 18,491
======= =======
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 4 of 13
<PAGE> 5
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
September 27, September 29,
1996 1995
-------- -------
<S> <C> <C>
Revenues................................................... $ 28,684 $19,405
Expenses:
Compensation and employee benefits.................... 6,225 4,754
Transaction processing................................ 4,340 2,707
Software royalties.................................... 2,272 1,565
Occupancy and equipment............................... 1,899 913
Consulting............................................ 452 298
Telecommunications and data processing services....... 1,217 864
Other general and administrative...................... 2,072 1,432
-------- -------
18,477 12,533
-------- -------
Earnings before income tax expense.................... 10,207 6,872
Income tax expense......................................... 4,330 1,990
-------- -------
Net earnings............................................... $ 5,877 $ 4,882
======== =======
Primary net earnings per share of common stock............. $ 0.32 $ 0.27
======== =======
Fully diluted net earnings per share of common stock....... $ 0.31 $ 0.27
======== =======
Primary weighted average shares of common stock and common
stock equivalents outstanding............................ 18,572 18,421
======== =======
Fully diluted weighted average shares of common stock and
common stock equivalents outstanding..................... 18,691 18,421
======== =======
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 5 of 13
<PAGE> 6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 27, 1996
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Common Total
Additional Stock Stock-
Preferred Common Paid-in Retained Held in holders'
Stock Stock Capital Earnings Treasury Equity
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... $- $187 $36,055 $11,279 $(2,042) $ 45,479
Purchase of common stock
for treasury (135,000 shares)............. (1,723) (1,723)
Net earnings............................... 16,840 16,840
--------------------------------------------------------------------------------
Balance at September 27, 1996.............. $- $ 187 $36,055 $28,119 $(3,765) $ 60,596
================================================================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 6 of 13
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 27, September 29,
1996 1995
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 16,840 $ 11,406
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Deferred income tax (benefit) expense...................................... (1,502) 2,422
Depreciation and amortization.............................................. 3,035 1,560
Unearned (loss) income related to investments.............................. (176) 53
Decrease (increase) in operating assets:
Securities owned...................................................... 1,651 (363)
Trade receivables..................................................... (1,745) -
Trade receivable from affiliate....................................... 5,066 (704)
Due from affiliates................................................... 4,356 (85)
Income taxes receivable from affiliate................................ - 1,511
Other assets.......................................................... (5,138) (2,099)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses................................. 4,987 714
Software royalties payable............................................ 486 504
Termination of plans expense payable.................................. - (758)
Due to affiliates..................................................... 479 996
Securities sold, not yet purchased.................................... 1,189 -
Income taxes payable to affiliate..................................... (482) 782
------------------------
Net cash provided by operating activities...................................... 29,046 15,939
------------------------
Cash flows from financing activities:
Purchase of common stock for treasury.......................................... (1,723) (1,319)
------------------------
Net cash used by financing activities.......................................... (1,723) (1,319)
------------------------
Cash flows from investing activities:
Purchase of premises and equipment............................................. (3,415) (4,098)
Capitalization of software development costs................................... (1,882) (1,689)
------------------------
Net cash used by investing activities.......................................... (5,297) (5,787)
------------------------
Net increase in cash and cash equivalents...................................... 22,026 8,833
Cash and cash equivalents - beginning of period..................................... 17,960 21,446
------------------------
Cash and cash equivalents - end of period........................................... $ 39,986 $ 30,279
========================
Supplemental cash flow information:
Interest paid.................................................................. $ 87 $ 32
========================
Income taxes paid to affiliate................................................. $ 14,837 $ 2,423
========================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 7 of 13
<PAGE> 8
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Investment
Technology Group, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"), principally ITG Inc. ("ITG"), a Delaware corporation, registered as
a broker-dealer in securities under the Securities Exchange Act of 1934, and ITG
Global Trading, Inc. ("Global Trading") which is a 50% partner in the Global
POSIT joint venture. Jefferies Group, Inc. ("Jefferies Group") owned over 80% of
the Company's common stock at September 27, 1996.
All material intercompany balances and transactions are eliminated in
consolidation. The consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for the fair statement of the
results for the interim periods and should be read in conjunction with the
Company's 1995 annual report on Form 10-K.
Certain reclassifications have been made to the financial statements for the
prior period to conform to the presentation for 1996.
INCOME TAXES
The Company is a member of the Jefferies affiliated group ("Group") for purposes
of filing a Federal income tax return (i.e., Jefferies Group owns more than 80%
of the Company). The Company's tax liability is determined on a "separate
return" basis. That is, the Company is required to pay to Jefferies Group its
proportionate share of the consolidated tax liability plus any excess of its
"separate" tax liability (assuming a separate tax return were to be filed by the
Company) over its proportionate amount of the consolidated Group tax liability.
Alternatively, Jefferies Group is required to pay the Company an "additional
amount" for the amount by which the consolidated tax liability of the Group is
decreased by reason of inclusion of the Company in the Group.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 8 of 13
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIRST NINE MONTHS OF 1996 VERSUS FIRST NINE MONTHS OF 1995 (Dollars in millions,
except as noted)
<TABLE>
<CAPTION>
Nine Months Ended Change
----------- ------------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Revenues $81.7 $52.4 $29.3 55.9%
Number of Trading Days 189 189 0 0%
Revenues per Trading Day (Dollars in thousands) $432 $277 $155 55.9%
</TABLE>
Increased revenues is due to a growing use of POSIT, QuantEX and the Company's
other electronic trading desk services. For the nine months ended September 27,
1996, POSIT revenues were approximately 49% or $16.3 million above the
comparable period for 1995, while QuantEX revenues were approximately 75% or
$8.3 million above the comparable period for 1995. For the nine months ended
September 27, 1996, other electronic trading desk services were 77% or $5.0
million above the comparable period for 1995.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $18.2 $11.8 $6.4 54.2%
Number of employees at period end 153 123 30 24.4%
Revenues per employee (Dollars in thousands) $534 $426 $108 25.4%
Compensation and employee benefits expense per
employee (Dollars in thousands) $119 $96 $23 24.0%
</TABLE>
The increase in compensation and employee benefits expense is due primarily to
an increase in the number of employees and an increase in profitability based
compensation.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $11.8 $7.6 $4.2 55.3%
Transaction processing expense as a percentage
of revenues 14.4% 14.5% (0.1%) (0.7%)
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions in 1996. In addition, QuantEX is a larger portion of total
revenues, causing higher execution charges.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $6.5 $4.2 $2.3 54.8%
Software royalties expense as a percentage of
POSIT revenues 13.1% 12.5% 0.6% 0.1%
</TABLE>
The increase is due to higher revenue associated with POSIT.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $4.2 $2.6 $1.6 61.5%
</TABLE>
The increase is due primarily to depreciation of premises and equipment acquired
since the beginning of 1996 and accelerated depreciation of leasehold
improvements and furniture related to the relocation of the New York office in
second quarter of 1997.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $2.0 $1.3 $0.7 53.8%
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 9 of 13
<PAGE> 10
Consulting is primarily for equity research functions which the Company
currently believes are advantageous to out-source. The increase is due primarily
to the Company undertaking special projects related to contingency planning and
systems' security.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $3.4 $2.0 $1.4 70.0%
</TABLE>
The increase is due primarily to an increase in quotation services and
communications charges associated with the increased number of QuantEX
installations. In addition, an increased level of activity in the existing
QuantEX business raised the semi-variable component of the quotation services
and communications charges.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $5.8 $4.3 $1.5 34.9%
</TABLE>
The increase is largely due to an increase in amortization of capitalized
software and allowances for general legal and bad debt expenses.
<TABLE>
<CAPTION>
Nine Months Ended Change
----------------- ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $12.9 $7.1 $5.8 81.7%
</TABLE>
The increase is primarily due to an increase in pretax earnings. In addition,
1995 was favorably impacted by a lower tax rate resulting from the recognition
of research and development tax credits attributable to prior periods.
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995 (Dollars in millions, except as
noted)
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Revenues $28.7 $19.4 $9.3 47.9%
Number of Trading Days 63 63 0 0%
Revenues per Trading Day (Dollars in thousands) $456 $308 $148 47.9%
</TABLE>
Increased revenues is due to a growing use of POSIT, QuantEX and the Company's
other electronic trading desk services. For the quarter ended September 27,
1996, POSIT revenues were approximately 32% or $4.2 million above the comparable
period for 1995, while QuantEX revenues were approximately 93% or $3.2 million
above the comparable period for 1995. For the quarter ended September 27, 1996,
other electronic trading desk services were 74% or $1.8 million above the
comparable period for 1995.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Compensation and employee benefits expense $6.2 $4.8 $1.4 29.2%
Number of employees at period end 153 123 30 24.4%
Revenues per employee (Dollars in thousands) $188 $158 $30 19.0%
Compensation and employee benefits expense per
employee (Dollars in thousands) $41 $39 $2 5.1%
</TABLE>
The increase in compensation and employee benefits expense is due primarily to
an increase in the number of employees and an increase in profitability based
compensation.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Transaction processing expense $4.3 $2.7 $1.6 59.3%
</TABLE>
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 10 of 13
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Transaction processing expense as a percentage
of revenues 15.0% 13.9% 1.1% 7.9%
</TABLE>
The increase is primarily due to the expense associated with a higher volume of
transactions in 1996. In addition, QuantEX is a larger portion of total
revenues, causing higher execution charges.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Software royalties expense $2.3 $1.6 $0.7 43.8%
Software royalties expense as a percentage of
POSIT revenues 13.3% 12.2% 1.1% 0.9%
</TABLE>
The increase is due to higher revenue associated with POSIT.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Occupancy and equipment expense $1.9 $0.9 $1.0 111.1%
</TABLE>
The increase is due primarily to depreciation of premises and equipment acquired
since the beginning of 1996 and accelerated depreciation of leasehold
improvements and furniture related to the relocation of the New York office in
second quarter of 1997.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Consulting expense $0.5 $0.3 $0.2 66.7%
</TABLE>
Consulting is primarily for equity research functions which the Company
currently believes are advantageous to out-source. The increase is due primarily
to the Company undertaking special projects related to contingency planning and
systems' security.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Telecommunications and data processing
services expense $1.2 $0.9 $0.3 33.3%
</TABLE>
The increase is due primarily to an increase in quotation services and
communications charges associated with the increased number of QuantEX
installations. In addition, an increased level of activity in the existing
QuantEX business raised the semi-variable component of the quotation services
and communications charges.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Other general and administrative expense $2.1 $1.4 $0.7 50.0%
</TABLE>
The increase is largely due to an increase in the amortization of capitalized
software.
<TABLE>
<CAPTION>
Three Months Ended Change
------------------ ------
September 27, 1996 September 29, 1995 Amount Percentage
------------------ ------------------ ------ ----------
<S> <C> <C> <C> <C>
Income tax expense $4.3 $2.0 $2.3 115.0%
</TABLE>
The increase is primarily due to an increase in pretax earnings. In addition,
1995 was favorably impacted by a lower tax rate resulting from the recognition
of research and development tax credits attributable to prior periods.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 11 of 13
<PAGE> 12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.3.1 - Amended 1994 Stock Ownership and Long-Term
Incentive Plan
Exhibit 10.3.1A - Amended Non-Employee Directors' Stock Option
Plan
Exhibit 10.3.2A - Amendment No.2 to Employment Agreement between
Raymond L. Killian, Jr., the Company and ITG Inc.
Exhibit 10.3.4A - Amendment to Form of Employment Agreement
between the Company, ITG Inc. and Senior Vice Presidents
Electing to Reprice Stock Options
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
September 27, 1996.
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 12 of 13
<PAGE> 13
SIGNATURE
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 thereunto duly authorized.
INVESTMENT TECHNOLOGY GROUP, INC.
---------------------------------
(Registrant)
Date: November 11, 1996 By: /s/ John R. MacDonald
------------------- ----------------------
John R. MacDonald
Chief Financial Officer, and
Duly Authorized Signatory of
Registrant
INVESTMENT TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
Page 13 of 13
<PAGE> 1
Exhibit 10.3.1
Amendments to Investment Technology Group, Inc.
1994 Stock Option and Long-Term Incentive Plan
The following amendments to the Investment Technology Group,
Inc. 1994 Stock Option and Long-Term Incentive Plan (the "Plan") were adopted by
the Board of Directors on May 14, 1996.
1. Section 5.5 of the Plan is amended by deleting such section
in its entirety and substituting therefor the following new Section 5.5.
5.5 In the event of a merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, other extraordinary
dividend or other changes in corporate structure or capitalization
affecting the Common Stock, the Committee may make appropriate
adjustment in the number or kind of shares subject to options, rights
and other Awards granted under the Plan, and other terms and conditions
of Awards and/or the exercise price of Awards in the event of any stock
dividend, stock split, spin-off or recapitalization in the form of
large, special and non-recurring dividends, appropriate provision for
supplemental payments of cash, other Awards, or other property, or
appropriate adjustment in the maximum number of shares referred to in
Section 5 of the Plan, as the Committee may determine to be necessary
or appropriate in order to prevent dilution or enlargement of the
rights of Participants. In the event that the Company declares a cash
dividend (other than one constituting a large, special and
non-recurring dividend), the Committee shall make appropriate
adjustment to the number of shares subject to options, rights and other
Awards granted under the Plan or shall make appropriate provision for
supplemental payments of cash, other Awards or other property, but
shall not make any adjustment to the exercise price of Awards.
2. Section 6.1 of the Plan is amended by deleting such section
in its entirety and substituting therefor the following new Section 6.1.
6.1 Stock Options. The Committee may grant Incentive Stock
Options, Non-Qualified Stock Options or both to purchases shares of
Common Stock from the Company to such Officers and other key employees,
in such amount and subject to such terms and conditions, as the
Committee shall determine in its sole discretion, subject to the
provisions of the Plan, provided, however, that in no event may any
Stock Option granted hereunder be exercisable prior to May 4, 1997 or
after the expiration of 10 years from the date of such grant. The
automatic or discretionary grant of "reload" Stock Options is
specifically authorized.
<PAGE> 2
3. Except as so amended, the terms and conditions of the Plan
are unchanged and remain in full force and effect.
Adopted by the Board of Directors: May 14, 1996
<PAGE> 1
Exhibit 10.3.1 (A)
INVESTMENT TECHNOLOGY GROUP, INC.
AMENDED NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of this Non-Employee Directors' Stock
Option Plan (the "Plan") of Investment Technology Group, Inc. (the "Company") is
to promote ownership by eligible non-employee Directors of a greater proprietary
interest in the Company, thereby aligning such Directors' interests more closely
with the interests of stockholders of the Company, and to assist the Company in
attracting and retaining highly qualified persons to serve as non-employee
Directors.
2. Definitions. In addition to terms defined in Section 1 of
the Plan, the following are defined terms under the Plan:
(a) "Code" means the Internal Revenue Code of 1986, as
amended. References to any provision of the Code shall be deemed to include
successor provisions thereto and rules and regulations thereunder.
(b) "Exchange Act" means the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act shall be deemed to
include successor provisions thereto and rules and regulations thereunder.
(c) "Fair Market Value" of Stock means the closing sales price
of a share of Stock on the date on which such value is to be determined, as
reported for such day in the Nasdaq National Market, or, if no sales of Stock
were reported for such date, such closing sales price on the last preceding date
on which a sale of Stock was reported in the Nasdaq National Market.
(d) "Option" means the right, granted to a Participant under
Section 6, to purchase Stock at the specified exercise price for a specified
period of time under the Plan. Options granted under the Plan will be
"non-qualified stock options" and not "incentive stock options" qualifying under
Section 422 of the Code.
(e) "Participant" means a Director who has been granted one or
more Options which are exercisable or may become exercisable under the Plan.
(f) "Stock" means the Common Stock, $.01 par value, of the
Company and such other securities as may be substituted for Stock or such other
securities pursuant to Section 7.
3. Shares Available Under the Plan. The total number of shares
of Stock reserved and available for issuance under the Plan is 125,000 (subject
to adjustment under Section 7). Shares issued under the Plan may be authorized
but unissued shares or treasury shares. If any Option expires or terminates for
any reason without having been
<PAGE> 2
exercised in full, the unpurchased shares subject to such Option will again be
available for issuance under the Plan.
4. Administration of the Plan. The Plan will be administered
by the Board of Directors of the Company; provided, however, that any action by
the Board of Directors relating to the Plan will be taken only if, in addition
to any other required vote, approved by the affirmative vote of a majority of
the Directors who are not then eligible to participate in the Plan. Ministerial
tasks in connection with the Plan will be performed by executive officers of the
Company.
5. Eligibility. Each Director of the Company who, on any date
on which an Option is to be granted hereunder, is not, and has not been during
the preceding three months, (i) an employee of the Company or any parent or
subsidiary of the Company or (ii) a consultant who has received, during the
preceding 12-month period, payments in excess of $150,000 from the Company and
its subsidiaries for consulting services, will be eligible to receive a grant of
an Option at such date. No person other than those specified in this Section 5
may be granted an Option under the Plan.
6. Options. An Option to purchase 10,000 shares of Stock (subject to
adjustment under Section 7) will be granted under the Plan to each person who,
after the effective date of the Plan, is first elected or appointed to serve as
a Director of the Company, such grant to be effective at the date of such first
election or appointment, if such Director is then eligible to receive an Option
grant. In addition, beginning in 1995 and each year thereafter, an Option to
purchase 2,500 shares of Stock (subject to adjustment under Section 7) will be
granted, on the 45th day following the Company's Annual Meeting of Stockholders
at which Directors (or a class of Directors if the Company then has a classified
Board of Directors) are elected or reelected by the Company's stockholders, each
year to each Director of the Company who is then eligible to receive an Option
grant. The foregoing notwithstanding, no Director may be granted an Option more
than once during any one calendar year under the Plan. Options granted under the
Plan will be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under an Option will be equal to 100% of the Fair Market Value of
Stock on the date of grant of the Option.
(b) Option Term. Each Option will expire five years after the
date of grant; provided, however, if the Participant ceases to serve as a
Director of the Company prior to five years after the date of grant, the Option
will expire as follows (except as otherwise provided in Section 9(e)): (i) if
the Participant ceases to serve as a Director of the Company due to death,
disability, or retirement at or after age 65, at the later of the date 12 months
after such cessation of service or July 3, 1997, but in no event later than five
years after the date of grant; (ii) if the Participant ceases to serve as a
Director of the Company on or before May 4, 1997 for any reason other than due
to death, disability, or retirement at or after age 65, at June 3, 1997; and
(iii) if the Participant ceases to serve as
<PAGE> 3
a Director of the Company after May 4, 1997 for any reason other than due to
death, disability, or retirement at or after age 65, at the date 60 days after
such cessation of service, but in no event later than five years after the date
of grant.
(c) Exercisability. Each Option will become fully exercisable
beginning at the later of three months after the date of grant or May 4, 1997,
and will thereafter remain exercisable until the Option expires; provided,
however, that a Participant's Option will be exercisable after the Participant
ceases to serve as a Director of the Company for any reason other than death,
disability, or retirement at or after age 65 only if the Option was granted at
least three months prior to such cessation of service.
(d) Method of Exercise. A Participant (or other person
entitled to exercise an Option) may exercise an Option, in whole or in part, at
such time as it is exercisable and prior to its expiration by giving written
notice of exercise to the Company specifying the Option to be exercised and the
number of shares to be purchased, and paying in full the exercise price in cash
(including by check) or by surrender of shares of Stock acquired by the
Participant prior to the exercise date and having a Fair Market Value at the
time of exercise equal to the exercise price, or a combination of a cash payment
and surrender of such Stock; provided, however, that shares previously acquired
by exercise of a stock option granted by the Company may be surrendered under
this Section 6(d) only if such shares have been held by the Director for at
least six months.
7. In the event any recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of shares or other
securities of the Company, stock split, reverse split, stock dividend, other
extraordinary dividend, liquidation, dissolution, or other similar corporate
transaction or event affects the Stock such that an adjustment is determined by
the Board of Directors to be appropriate in order to prevent dilution or
enlargement of Participant's rights under the Plan, then the Board of Directors
will, in a manner that is proportion to the change to the Stock and is otherwise
equitable, adjust (i) the number and kind of shares of Stock reserved and
available for future issuance under the Plan, (ii) the number and kind of shares
of Stock to be subject to each automatic grant of Options under Section 6, and
(iii) the number and kind of shares of Stock issuable upon exercise of
outstanding Options, and/or the exercise price thereof in the event of any stock
dividend, stock split, spin-off or recapitalization in the form of large,
special and non-recurring dividends.
8. Changes to the Plan. The Board of Directors may amend,
alter, suspend, discontinue, or terminate the Plan or authority to grant Options
under the Plan without the consent of stockholders or Participants, except that
any such action will be subject to the approval of the Company's stockholders at
the next annual meeting of stockholders having a record date after the date such
action was taken if such stockholder approval is required by any federal or
state law or regulation or the rules of any automated quotation system or
securities exchange on which the Stock may then be quoted or listed, or if the
Board of Directors determines in its discretion to seek such stockholder
approval; provided, however, that, without the consent of an affected
<PAGE> 4
Participant, no such action may materially impair the rights of such Participant
with respect to any previously granted Option; and provided, further, that any
Plan provision that specifies the Directors who may receive grants of Options,
the amount and price of securities to be granted to such Directors, and the
timing of grants to such Directors, or is otherwise a "plan provision" referred
to in Rule 16b-3(c)(2)(ii)(B) under the Exchange Act, shall not be amended more
than once every six months, other than to comport with changes in the Code or
the rules thereunder.
9. General Provisions.
(a) Consideration for Grants; Agreements. Options will be
granted under the Plan in consideration of the services of Participants and,
except for the payment of the Option exercise price, no other consideration
shall be required therefor. Grants of Options will be evidenced by agreements
executed by the Company and the Participant containing the terms and conditions
set forth in the Plan together with such other terms and conditions not
inconsistent with the Plan as the Board of Directors may from time to time
approve.
(b) Compliance with Laws and Obligations. The Company will not
be obligated to issue Stock in connection with any Option in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any state securities law, any requirement under any listing
agreement between the Company and any automated quotation system or securities
exchange, or any other law, regulation, or contractual obligation, until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(c) Non-transferability. Options and any other right under the
Plan that may constitute a "derivative security" as generally defined in Rule
16a-1(c) under the Exchange Act will not be transferable by a Participant except
by will or the laws of descent and distribution (or to a designated beneficiary
in the event of a Participant's death), and will be exercisable during the
lifetime of a Participant only by such Participant or his or her guardian or
legal representative.
(d) Compliance with Rule 16b-3. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of Rule
16b-3 under the Exchange Act. Accordingly, if any provision of this Plan or any
agreement hereunder does not comply with the requirements of Rule 16b-3 as then
applicable to any Participant or any Option, or would cause any Participant to
not be deemed a "disinterested person" within the meaning of Rule 16b-3, such
provision will be construed or deemed amended to the extent necessary to conform
to such requirements or to preserve such status as a "disinterested person." In
addition, the Board of Directors shall have no authority to
<PAGE> 5
make any amendment, alteration, suspension, discontinuation, or termination of
the Plan or any agreement hereunder, make any adjustment under Section 9, or
take other action if and to the extent such authority would cause a
Participant's transactions under the Plan not to be exempt, or would cause a
Participant to not be deemed a "disinterested person," under Rule 16b-3.
(e) Continued Service as an Employee. If a Participant ceases
serving as a Director and, immediately thereafter, he is employed by the Company
or any subsidiary, then, solely for purposes of Sections 6(b) and (c) of the
Plan, such Participant will not be deemed to have ceased service as a Director
at that time, and his or her continued employment by the Company or any
subsidiary will be deemed to be continued service as a Director; provided,
however, that such former Director will not be eligible for additional grants of
Options under the Plan.
(f) No Right to Continue as a Director; Other Compensation.
Nothing contained in the Plan or any agreement hereunder will confer upon any
Participant any right to continue to serve as a Director of the Company. Nothing
contained in the Plan or any agreement hereunder will preclude the Company from
paying other compensation to Directors, including grants of options and
stock-related awards under other plans and arrangements.
(g) No Stockholder Rights Conferred. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant any rights of a
stockholder of the Company unless and until an Option is duly exercised
hereunder.
(h) Governing Law. The validity, construction, and effect of
the Plan and any agreement hereunder will be determined in accordance with the
laws of the State of Delaware and applicable federal law.
10. Effective Date and Duration of Plan. The Plan will be
effective on June 28, 1995, subject to subsequent approval, at or before the
Company's 1996 Annual Meeting of Stockholders, by stockholders of the Company
eligible to vote in the election of directors, by a vote sufficient to meet the
requirements of Rule 16b-3 under the Exchange Act, the Nasdaq National Market,
and other laws, regulations, and obligations of the Company applicable to the
Plan. Options shall be automatically granted prior to such stockholder approval
in accordance with the terms of the Plan, but such Options shall not be
exercisable until such time as stockholders have approved the Plan in accordance
with this Section 10, and such Options shall be forfeited if stockholders have
failed to approve the Plan by the close of business of the 1996 Annual Meeting
of Stockholders. Unless earlier terminated by action of the Board of Directors,
the Plan will remain in effect until such time as no Stock remains available for
issuance under the Plan and the Company has no further rights or obligations
with respect to outstanding Options under the Plan.
Adopted by the Board of Directors: June 28, 1995
<PAGE> 1
Exhibit 10.3.2A
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
This Amendment No. 2 to the Employment Agreement, dated as of
May 1, 1994, among Investment Technology Group, Inc., a Delaware corporation
("Holding"), ITG Inc., a Delaware corporation, and Raymond L. Killian, Jr. (the
"Employee") (the "Employment Agreement") is made and entered into among the
parties as of this 22nd day of November, 1995.
WHEREAS, the parties previously entered into the Employment
Agreement which, among other things, provided for the grant to the Employee of a
stock option to purchase shares of the Common Stock, par value $.01 per share
(the "Common Stock") of Holding;
WHEREAS, the Board of Directors of Holding has determined that
it is in the interests of Holding to permit employees to elect to exchange a
portion of their existing stock options for new stock options to purchase shares
of Common Stock at various exercise prices; and
WHEREAS, the Employee has elected to exercise his right to
exchange all or a portion of his existing stock options for new stock options to
purchase shares of Common Stock;
NOW, THEREFORE, the parties agree to amend the Employment
Agreement as follows:
1. Capitalized terms used in this Amendment and not otherwise
defined shall have the meanings assigned thereto in the Employment Agreement. In
addition, as used in this Amendment, the following terms have the assigned
meanings:
"New Options" mean the stock options granted by Holding to the
Employee hereby to acquire the number of shares of Common Stock identified on
Appendix A hereto as subject to options with exercise prices of $9.13 and $11.06
per share, as listed under the caption "Options Outstanding".
"Old Option" means the stock option previously granted by
Holding to the Employee to acquire the number of shares of Common Stock
identified on Appendix A hereto as subject to options with an exercise price of
$13.00 per share, as listed under the caption "Options Outstanding".
"Option Prices" mean the exercise prices in respect of the New
Options and the Old Option, as such exercise prices are set forth on Appendix A
hereto under the caption "Options Outstanding".
1
<PAGE> 2
"Originally Granted Option" means the stock option previously
granted by Holding to the Employee to acquire the number of shares of Common
Stock set forth on Appendix A under the caption "Originally Granted Option".
2. Section 5 of the Employment Agreement is amended by
deleting such section in its entirety and substituting therefor new Section 5
set forth below:
5. Stock Option.
5.1.1. Holding hereby grants to the Employee
nonqualified New Options to purchase shares of the Common Stock for the
numbers of shares of Common Stock identified on Appendix A hereto as
subject to options with exercise prices of $9.13 and $11.06 per share
listed under the caption "Options Outstanding". The New Options are
intended to be nonqualified stock options, and the Old Option is a
nonqualified stock option and neither shall be treated as incentive
stock options under the provisions of the Internal Revenue Code of
1986, as amended. The New Options and Old Option are fully vested and
nonforfeitable, and shall remain exercisable whether or not employment
continues. The grant of the New Options are (and the grant of the Old
Option was) exempt from the provisions of Section 16(b) of the
Securities Exchange Act of 1934 pursuant to the provisions of Rule
16b-3, all of the requirements of which have been satisfied.
5.1.2. The number of shares of Common Stock that may
be acquired upon exercise of the Originally Granted Option is hereby
reduced to the number of shares identified on Appendix A hereto as
subject to options with an exercise price of $13.00 per share listed
under the caption "Options Outstanding".
5.1.3. In consideration for Holding's grant of the
New Options to the Employee hereunder, as a condition of such grant,
the Employee hereby surrenders to Holding, for cancellation and
termination, that portion of the Originally Granted Option set forth on
Appendix A hereto under the caption "Options Surrendered Upon
Conversion". Accordingly, such portion of the Originally Granted Option
is hereby canceled and terminated as of the date of this Agreement.
5.2. (a) The Old Option (to the extent not earlier
exercised) will expire at 11:59 p.m., New York City time, on April 30,
1999.
(b) The New Options (to the extent not earlier
exercised) will expire at 11:59 p.m., New York City time, on November
21, 2000.
5.3.1. The Old Option may be exercised in whole or in
part at any time at the earlier of (i) May 1, 1997 or (ii) immediately
prior to a change
2
<PAGE> 3
of control (as hereinafter defined). The New Options may be exercised
in whole or in part at any time at the earlier of (i) November 22, 1998
or (ii) immediately prior to a change of control (as hereinafter
defined). Written notice of exercise of the New Options or the Old
Option shall be given to the Secretary of Holding and shall be deemed
to have been received either when delivered personally to the office of
the Secretary or at 11:58 p.m. on the date of any U.S. Postal Service
postmark on the notice, whichever is earlier. Such notice shall be
irrevocable and must be accompanied by the payment of the purchase
price as provided in Section 5.4 below. Upon the exercise of the New
Options or the Old Option, Holding will transfer or will cause to be
issued a certificate or certificates for the Common Stock being
purchased as promptly as practicable.
5.3.2. "Change of control" shall mean (1) any event
that results in Jefferies Group, Inc. ("Group") owning less than eighty
percent (80%) of the Common Stock of Holding (other than a spin-off or
split-off of Holding) or (2) a sale of more than fifty percent (50%) of
the Common Stock of Holding, a merger of Holding with or into an
unaffiliated entity or a sale of substantially all of Holding's assets.
5.4. The purchase price of Common Stock purchased by
the Employee upon exercise of the New Options and the Old Option (the
"Option Shares") shall be paid in full to Holding at the time of such
exercise in cash (including by check) or with Common Stock of Holding.
5.5. In the event that the number of authorized
shares of Common Stock of Holding are increased, decreased or exchanged
for a different number or kind of security, or additional shares or new
or different shares or other non-cash assets are distributed with
respect to such shares or other securities (whether by reason of
recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction), then in order to
prevent dilution or enlargement of rights hereunder, the Board of
Directors of Holding shall make appropriate and proportionate
adjustments in the New Options and the Old Option. In the event that
Holding is the surviving corporation in any reorganization, merger or
consolidation, then the New Options and the Old Option shall pertain to
and apply to the securities to which a holder of the number of shares
of Common Stock subject to such options would have been entitled
immediately following such reorganization, merger or consolidation, and
corresponding proportionate adjustments shall be made to such options.
5.6. The Employee represents and warrants that the
Employee acquired the Old Option, and is acquiring the New Options, for
his own account and not with a view to distribution of such options or
the Option Shares. As a condition to the exercise of the New Options or
the Old Option and in the event that the Option Shares have not yet
been registered under the Securities Act of
3
<PAGE> 4
1933, as amended (the "Act") at the time they are issued, Holding may
require the Employee to make any representation and/or warranty to
Holding as may, in the judgment of counsel to Holding, be required
under any applicable law or regulation, including but not limited to a
representation and warranty that the Option Shares are being acquired
only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for Holding, such
a representation is required under the Act or any other applicable law,
regulation or rule of any governmental agency.
5.7. Neither the Employee nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey the New
Options or the Old Option or any amounts payable pursuant to the
provisions of this Agreement, which options and amounts are, and all
rights under this Agreement are, expressly declared to be unassignable
and nontransferable, other than by will or under the laws of descent
and distribution. No part of the New Options or the Old Option or such
amounts payable shall be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed
by the Employee or any other person, nor be transferable by operation
of law in the event of the Employee's or any other person's bankruptcy
or insolvency.
5.8. Neither the Employee nor any other person shall
acquire by reason of the New Options, the Old Option or the Option
Shares any right in or title to any assets, funds or property of
Holding whatsoever including, without limiting the generality of the
foregoing, any specific funds or assets which Holding, in its sole
discretion, may set aside in anticipation of a liability. No trust
shall be created in connection with or by the granting of the New
Options or the Old Option or the purchase of any Option Shares, and any
benefits which become payable hereunder shall be paid from the general
assets of Holding. The Employee shall have only a contractual right to
the amounts, if any, payable pursuant to this Agreement, unsecured by
any asset of Holding or any of its affiliates.
5.9. Nothing herein will limit Holding's right to
issue Common Stock, or options or other rights to purchase Common
Stock, to its employees, subject to vesting, expiration and other terms
and conditions deemed appropriate by Holding and its affiliates.
5.10. The Employee authorizes Holding to withhold, in
accordance with any applicable law, from any compensation payable to
him any taxes required to be withheld by federal, state or local law
upon the issuance of Option Shares or the payment of money pursuant to
the exercise of the New Options or the Old Option.
4
<PAGE> 5
3. Section 6 of the Agreement is amended by deleting such
section in its entirety and substituting therefor the following:
6. Option Shares. Shares issued pursuant to exercise
of the New Options and the Old Option shall be shares of Common Stock,
the issuance of which is registered under the Act. In the event that
the New Options or Old Option evidenced hereby represents the right to
acquire a fractional share of Common Stock, Holding shall not be
obligated to issue any fractional share certificate at the time of
exercise of such option but shall, at the time of exercise of any such
option, eliminate the Employee's right to acquire a fractional share
interest by paying to the Employee an amount determined by multiplying
the then fair market value of a share of Common Stock by the amount of
such fractional interest. Payment of such amount may be made by Holding
by reducing the amount of the exercise price otherwise payable by the
Employee at the time of exercise of any such option.
4. Except as expressly amended hereby, the terms of the
Employment Agreement shall remain in full force and effect.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 2 to Employment Agreement as of the date first above written.
"Holding" INVESTMENT TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:____________________________
James Lynch
Vice President and General Counsel
"Company " INVESTMENT TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:____________________________
James Lynch
Vice President and General Counsel
"Employee"
-------------------------------
Raymond L. Killian, Jr.
6
<PAGE> 1
Exhibit 10.3.4A
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement, dated as of
May 1, 1994, among Investment Technology Group, Inc., a Delaware corporation
("Holding"), ITG Inc., a Delaware corporation, and ___________ (the "Employee")
(the "Employment Agreement") is made and entered into among the parties as of
this 22nd day of November, 1995.
WHEREAS, the parties previously entered into the Employment
Agreement which, among other things, provided for the grant to the Employee of a
stock option to purchase shares of the Common Stock, par value $.01 per share
(the "Common Stock") of Holding;
WHEREAS, the Board of Directors of Holding has determined that
it is in the interests of Holding to permit employees to elect to exchange a
portion of their existing stock options for new stock options to purchase shares
of Common Stock at various exercise prices; and
WHEREAS, the Employee has elected to exercise his right to
exchange all or a portion of his existing stock options for new stock options to
purchase shares of Common Stock;
NOW, THEREFORE, the parties agree to amend the Employment
Agreement as follows:
1. Capitalized terms used in this Amendment and not otherwise
defined shall have the meanings assigned thereto in the Employment Agreement. In
addition, as used in this Amendment, the following terms have the assigned
meanings:
"New Options" mean the stock options granted by Holding to the
Employee hereby to acquire the number of shares of Common Stock identified on
Appendix A hereto as subject to options with exercise prices of $9.13 and $11.06
per share, as listed under the caption "Options Outstanding".
"Old Option" means the stock option previously granted by
Holding to the Employee to acquire the number of shares of Common Stock
identified on Appendix A hereto as subject to options with an exercise price of
$13.00 per share, as listed under the caption "Options Outstanding".
"Option Prices" mean the exercise prices in respect of the New
Options and the Old Option, as such exercise prices are set forth on Appendix A
hereto under the caption "Options Outstanding".
1
<PAGE> 2
"Originally Granted Option" means the stock option previously
granted by Holding to the Employee to acquire the number of shares of Common
Stock set forth on Appendix A under the caption "Originally Granted Option".
2. Section 5 of the Employment Agreement is amended by
deleting such section in its entirety and substituting therefor new Section 5
set forth below:
5. Stock Option.
5.1.1. Holding hereby grants to the Employee
nonqualified New Options to purchase shares of the Common Stock for the
numbers of shares of Common Stock identified on Appendix A hereto as
subject to options with exercise prices of $9.13 and $11.06 per share
listed under the caption "Options Outstanding". The New Options are
intended to be nonqualified stock options, and the Old Option is a
nonqualified stock option and neither shall be treated as incentive
stock options under the provisions of the Internal Revenue Code of
1986, as amended. The New Options and Old Option are fully vested and
nonforfeitable, and shall remain exercisable whether or not employment
continues. The grant of the New Options are (and the grant of the Old
Option was) exempt from the provisions of Section 16(b) of the
Securities Exchange Act of 1934 pursuant to the provisions of Rule
16b-3, all of the requirements of which have been satisfied.
5.1.2. The number of shares of Common Stock that may
be acquired upon exercise of the Originally Granted Option is hereby
reduced to the number of shares identified on Appendix A hereto as
subject to options with an exercise price of $13.00 per share listed
under the caption "Options Outstanding".
5.1.3. In consideration for Holding's grant of the
New Options to the Employee hereunder, as a condition of such grant,
the Employee hereby surrenders to Holding, for cancellation and
termination, that portion of the Originally Granted Option set forth on
Appendix A hereto under the caption "Options Surrendered Upon
Conversion". Accordingly, such portion of the Originally Granted Option
is hereby canceled and terminated as of the date of this Agreement.
5.2. (a) The Old Option (to the extent not earlier
exercised) will expire at 11:59 p.m., New York City time, on April 30,
1999.
(b) The New Options (to the extent not earlier
exercised) will expire at 11:59 p.m., New York City time, on November
21, 2000.
5.3.1. The Old Option may be exercised in whole or in
part at any time at the earlier of (i) May 1, 1997 or (ii) immediately
prior to a change
2
<PAGE> 3
of control (as hereinafter defined). The New Options may be exercised
in whole or in part at any time at the earlier of (i) November 22, 1998
or (ii) immediately prior to a change of control (as hereinafter
defined). Written notice of exercise of the New Options or the Old
Option shall be given to the Secretary of Holding and shall be deemed
to have been received either when delivered personally to the office of
the Secretary or at 11:58 p.m. on the date of any U.S. Postal Service
postmark on the notice, whichever is earlier. Such notice shall be
irrevocable and must be accompanied by the payment of the purchase
price as provided in Section 5.4 below. Upon the exercise of the New
Options or the Old Option, Holding will transfer or will cause to be
issued a certificate or certificates for the Common Stock being
purchased as promptly as practicable.
5.3.2. "Change of control" shall mean (1) any event
that results in Jefferies Group, Inc. ("Group") owning less than eighty
percent (80%) of the Common Stock of Holding (other than a spin-off or
split-off of Holding) or (2) a sale of more than fifty percent (50%) of
the Common Stock of Holding, a merger of Holding with or into an
unaffiliated entity or a sale of substantially all of Holding's assets.
5.4. The purchase price of Common Stock purchased by
the Employee upon exercise of the New Options and the Old Option (the
"Option Shares") shall be paid in full to Holding at the time of such
exercise in cash (including by check) or with Common Stock of Holding.
5.5. In the event that the number of authorized
shares of Common Stock of Holding are increased, decreased or exchanged
for a different number or kind of security, or additional shares or new
or different shares or other non-cash assets are distributed with
respect to such shares or other securities (whether by reason of
recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction), then in order to
prevent dilution or enlargement of rights hereunder, the Board of
Directors of Holding shall make appropriate and proportionate
adjustments in the New Options and the Old Option. In the event that
Holding is the surviving corporation in any reorganization, merger or
consolidation, then the New Options and the Old Option shall pertain to
and apply to the securities to which a holder of the number of shares
of Common Stock subject to such options would have been entitled
immediately following such reorganization, merger or consolidation, and
corresponding proportionate adjustments shall be made to such options.
5.6. The Employee represents and warrants that the
Employee acquired the Old Option, and is acquiring the New Options, for
his own account and not with a view to distribution of such options or
the Option Shares. As a condition to the exercise of the New Options or
the Old Option and in the event that the Option Shares have not yet
been registered under the Securities Act of
3
<PAGE> 4
1933, as amended (the "Act") at the time they are issued, Holding may
require the Employee to make any representation and/or warranty to
Holding as may, in the judgment of counsel to Holding, be required
under any applicable law or regulation, including but not limited to a
representation and warranty that the Option Shares are being acquired
only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for Holding, such
a representation is required under the Act or any other applicable law,
regulation or rule of any governmental agency.
5.7. Neither the Employee nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey the New
Options or the Old Option or any amounts payable pursuant to the
provisions of this Agreement, which options and amounts are, and all
rights under this Agreement are, expressly declared to be unassignable
and nontransferable, other than by will or under the laws of descent
and distribution. No part of the New Options or the Old Option or such
amounts payable shall be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed
by the Employee or any other person, nor be transferable by operation
of law in the event of the Employee's or any other person's bankruptcy
or insolvency.
5.8. Neither the Employee nor any other person shall
acquire by reason of the New Options, the Old Option or the Option
Shares any right in or title to any assets, funds or property of
Holding whatsoever including, without limiting the generality of the
foregoing, any specific funds or assets which Holding, in its sole
discretion, may set aside in anticipation of a liability. No trust
shall be created in connection with or by the granting of the New
Options or the Old Option or the purchase of any Option Shares, and any
benefits which become payable hereunder shall be paid from the general
assets of Holding. The Employee shall have only a contractual right to
the amounts, if any, payable pursuant to this Agreement, unsecured by
any asset of Holding or any of its affiliates.
5.9. Nothing herein will limit Holding's right to
issue Common Stock, or options or other rights to purchase Common
Stock, to its employees, subject to vesting, expiration and other terms
and conditions deemed appropriate by Holding and its affiliates.
5.10. The Employee authorizes Holding to withhold, in
accordance with any applicable law, from any compensation payable to
him any taxes required to be withheld by federal, state or local law
upon the issuance of Option Shares or the payment of money pursuant to
the exercise of the New Options or the Old Option.
4
<PAGE> 5
3. Section 6 of the Agreement is amended by deleting such
section in its entirety and substituting therefor the following:
6. Option Shares. Shares issued pursuant to exercise
of the New Options and the Old Option shall be shares of Common Stock,
the issuance of which is registered under the Act. In the event that
the New Options or Old Option evidenced hereby represents the right to
acquire a fractional share of Common Stock, Holding shall not be
obligated to issue any fractional share certificate at the time of
exercise of such option but shall, at the time of exercise of any such
option, eliminate the Employee's right to acquire a fractional share
interest by paying to the Employee an amount determined by multiplying
the then fair market value of a share of Common Stock by the amount of
such fractional interest. Payment of such amount may be made by Holding
by reducing the amount of the exercise price otherwise payable by the
Employee at the time of exercise of any such option.
4. Except as expressly amended hereby, the terms of the
Employment Agreement shall remain in full force and effect.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. __ to Employment Agreement as of the date first above written.
"Holding" INVESTMENT TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:____________________________
Raymond L. Killian, Jr.
Chief Executive Officer
"Company " INVESTMENT TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:____________________________
Raymond L. Killian, Jr.
Chief Executive Officer
"Employee"
-------------------------------
[Sign here]
--------------------------------
[Print name here]
6
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of financial condition and the consolidated statements
of earnings as of September 27, 1996 and for the nine months then ended and the
notes thereto and is qualified in its entirety by reference to such financial
statement filed in the 1996 Investment Technology Group, Inc. third quarter
10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 39,986
<RECEIVABLES> 7,572
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 6,858
<PP&E> 6,922
<TOTAL-ASSETS> 76,752
<SHORT-TERM> 0
<PAYABLES> 12,037
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,189
<LONG-TERM> 0
0
0
<COMMON> 187
<OTHER-SE> 60,409
<TOTAL-LIABILITY-AND-EQUITY> 76,752
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 1,100
<COMMISSIONS> 80,654
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 87
<COMPENSATION> 18,246
<INCOME-PRETAX> 29,693
<INCOME-PRE-EXTRAORDINARY> 16,840
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,840
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
