-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ByqqwrZXFAxHucxXTxEaWJWZmTWgCcRp7urySEUCRvQ9uLGfu0xicQNvsQ5Zs6sQ EKgKrujPrnVdbcHqKq2E/A== 0000950131-96-004819.txt : 19961001 0000950131-96-004819.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950131-96-004819 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARL JACK 312 FUTURES INC CENTRAL INDEX KEY: 0000792861 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363399452 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15187 FILM NUMBER: 96637263 BUSINESS ADDRESS: STREET 1: 200 WEST ADAMS ST STREET 2: STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124075700 MAIL ADDRESS: STREET 2: 200 WEST ADAMS ST STE 1500 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: 312 FUTURES INC DATE OF NAME CHANGE: 19860916 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended June 30, 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 100 sequentially numbered pages. 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 customer's transactions at the Chicago Board of Trade and certain other exchanges on an omnibus basis through its then affiliate, Index Futures Group, Inc. ("Index"). On July 1, 1987, the Registrant purchased all of the stock of its affiliate, Index. Incidental to such purchase, the Registrant transferred all of its commodity futures customer accounts to Index and, since such transfer, such business has been conducted through Index and its divisions. During fiscal 1988, in an effort to better manage risk, the Registrant effectively discontinued the business of clearing transactions for professional market makers. On January 1, 1989, the Registrant voluntarily withdrew its registration as a futures commission merchant. The Registrant is currently a holding company with its businesses conducted through its subsidiaries. On November 16, 1990, Jack Carl/312-Futures, Inc. and Index sold to Credit Agricole Futures, Inc. certain assets used by Index in its clearing operations. Concurrent with the sale, approximately 30 employees of Index became employees of Credit -2- Agricole Futures, Inc. Index continued to be a clearing member of various commodity exchanges. In January, 1993, Brokers Resource Corp., at the time, a wholly-owned subsidiary of Index, and a wholly-owned subsidiary of the Registrant, until it was dissolved in May, 1996, sold the majority of its guaranteed introducing broker business to an unrelated entity. In May, 1994, the Registrant, by written consent of the shareholders, changed its state of incorporation from Illinois to Delaware. In July, 1994, the Registrant offered to its common stockholders the non- transferable right to purchase, at a subscription price of $.02 per share, two- thirds of a share of common stock for each one share of common stock owned of record on July 15, 1994 ("Rights Offering"). 53,799,304 shares of common stock were available and purchased in the Rights Offering. Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the Registrant's President and a director and Michael J. Moss, President of Index, purchased their allocable number of shares in the Rights Offering. In addition, Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02, immediately following the expiration of the Rights Offering, the shares of common stock which were not purchased by other shareholders so that all 53,799,304 shares of common stock were purchased. The gross proceeds of the Rights Offering were $1,076,000. Effective at the close of business November 4, 1994, the Registrant effected a one-for-four reverse split of its common stock, par value $.001. Each four shares of such common stock were reclassified and changed into one share of common stock having a par value of $.004. Pursuant to the reverse split, the Registrant is obligated to pay any holder of fractional shares resulting from the reverse split $.05 per share of common stock up to a maximum of $.15 for three shares. At the close of business on November 4, 1994, the outstanding shares of common stock were reduced to approximately 33,624,565 shares from 134,498,260 shares before the reverse split. As the result of the repurchase of fractional shares, there were outstanding as of June 30, 1996, 33,624,530 shares of common stock. On May 31, 1996, an agreement was reached to sell, transfer and assign to E.D.& F. Man International Inc. ("MINC") substantially all of the brokerage accounts maintained by Index, together with all positions, securities, and other assets held in or for such accounts and other agreed-upon assets used in the conduct of the brokerage activities ("Sale of Assets"). MINC is a unit of E.D.& F. Man Group, plc, a London-based international trading and finance conglomerate. This sale was completed as of July 1, 1996. -3- 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 -4- not continue to maintain their account at MINC or trade there at levels similar to their trading at Index, or the risk that MINC will not retain sufficient former Index or other employees adequate to service such customers and their trading. However, the Registrant does believe that the amounts it will receive will likely be significant. In considering this transaction, the Board of Directors of the Registrant took into account the continuing growth of competitive pressure on the retail futures discount brokerage business, including the costs of providing additional services to customers, the costs of additional regulatory capital necessary for significant increases in the amounts of customer segregated funds to be held on deposit, the potential "economies of scale" to Index based on the reductions in costs for generating revenues from its customer base, and what appears to be the continuing consolidation of firms in the futures brokerage industry, especially with firms and other financial institutions of international stature. Historically in the futures industry when customer accounts have been transferred from one firm to another, "trail commissions," or continuing payments to the transferor over some period of time, have been commonplace. As such, the Board of Directors believes that the level of payments to be received over the course of the term of the agreement with MINC are favorable to Index when compared with what the Board of Directors believes would have been the results of operations had Index continued to operate as a futures commission merchant and clearing member with all the attendant costs, both operationally and with respect to regulatory capital, over the same time period. In addition, in light of his services in connection with finding and negotiating the transaction with MINC and its ultimate parent, E.D.& F. Man Group, plc, the Board of Directors determined that Mr. Lee S. Casty, the principal stockholder of the Registrant, should receive a finder's fee. Shortly following the closing of the transaction, Mr. Casty advised the Registrant that he will decline to accept any finder's fee with respect to the transaction. With each payment Index is to receive, there will be an accompanying written report prepared by MINC setting forth the computation and supporting documentation in sufficient detail to permit Index to verify the accuracy of the payment received. This is true with respect to the quarterly payments and the year end payments. Any dispute under the agreement which the parties are unable or unwilling to resolve informally are subject to submission to binding arbitration to be held in Chicago, Illinois, in accordance with the Rules of the American Arbitration Association. Index intends to account for the transaction as a contingent payment sale of its business over the sixty-six month term of the payments to be received. Accordingly, payments Index receives -5- 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 has 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 receives 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 extended until June 30, 1998 his options to purchase 1,250,000 shares of the Registrant's common stock at an option price of $.24 per share. This five year option was originally granted to Mr. Meyer on February 28, 1994 and contains an early termination if Mr. Meyer no longer is employed by the Registrant. 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 -6- 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. (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. -7- Index presently has one wholly-owned subsidiary, Index Management Services, Inc. ("IMSI"). Index Futures Arb Group, Inc. ("Arb"), Index Forward Trading Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG") were wholly-owned subsidiaries of Index until they were dissolved in fiscal 1995. IMSI, which was organized in May, 1986, is registered with the CFTC as a commodity pool operator and is a member of the NFA. IMSI was organized to create and offer to the public, either by itself or in cooperation with others through joint ventures, various commodity futures fund offerings which may be marketed through broker-dealers or through participating regional brokerage houses. As of July 1, 1996, IMSI no longer operates commodity pools. Arb, a Delaware corporation, was organized in September, 1988, as Manhattan Coin Exchange, Inc. and was thereafter renamed Jack Carl Options Management, Inc. In May, 1991, its name was changed to Index Futures Arb Group, Inc. Its business was to conduct proprietary arbitrage trading in foreign currencies. Arb commenced and ceased operations during the year ended June 30, 1993. Arb was dormant during fiscal 1994 and was dissolved in fiscal 1995. IFTG, a Delaware corporation, was organized in July, 1992 to conduct proprietary arbitrage trading in foreign currencies. IFTG was dormant during fiscal 1993 and 1994 and was dissolved in fiscal 1995. ICTG, a Delaware corporation was organized in July, 1992 to conduct proprietary arbitrage trading in foreign currencies. ICTG was dormant during fiscal 1993 and 1994 and was dissolved in fiscal 1995. In addition to Index, Index Securities, Inc. ("ISI"), Jack Carl Management and Trading, Inc. ("JCMT") and Index FX, Ltd. ("IFX") are wholly-owned subsidiaries of the Registrant. Stark Research, Inc. ("Stark") is a majority- owned subsidiary of the Registrant. Brokers Resource Corp. ("BRC"), formerly a subsidiary of Index, was a subsidiary of the Registrant until its dissolution in May, 1996. In December, 1993, Index transferred its investment in BRC to the Registrant, in the form of a dividend. BRC, organized in February, 1985, was a non-clearing futures commission merchant which provided a full range of services to the independent futures professional. These services included product development (such as providing its customers with ideas in advertising and the generation of leads to increase business), office operation services (such as assisting in compliance matters and in acquiring equipment and systems that promote efficient operations) and trading support services (including -8- availability of market information, providing accurate and timely statements and access to international markets). BRC was a member of the NFA and was registered with the CFTC. BRC was dissolved in May, 1996. In January, 1993, BRC sold the majority of its guaranteed introducing broker business to an unrelated entity in return for a portion of future earnings on such business. In connection with this sale, Index and BRC issued a limited indemnification agreement to the purchaser. The agreement covers potential customer claims arising from activity prior to the sale. There have been no such claims to date. Subsequent to the sale, BRC's operations were minimal. In January, 1994, BRC voluntarily withdrew its registration as a futures commission merchant. ISI was organized in January, 1987 and is a registered securities broker- dealer. In June, 1990, ISI sold all of its customer accounts to an unrelated party and its activities presently are primarily limited to acting as the selling agent for commodity pools. As a broker-dealer, ISI is regulated by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. JCMT was organized in January, 1992 to serve as a commodity trading advisor ("CTA") and is registered with the CFTC as a CTA. The operations of JCMT were minimal during fiscal 1994 and 1995. There was no activity in 1996. In September, 1993, the Registrant purchased a controlling interest in Stark and became the majority shareholder in that company. Stark is an investment research company which publishes monthly and quarterly magazines regarding investments with a primary focus on funds investing in commodities. IFX, a British corporation located in London, England was organized in August, 1995. IFX primarily makes a market in interbank foreign exchange currencies for primarily non private customers. The transactions made with customers are offset with money center banks and other major foreign exchange dealing firms. Effective July 1, 1996, the Registrant's revenue stream will primarily consist of the net income of transferred activities as defined in the Sale of Assets agreement, interest on its capital and income from operations of IFX. Management intends to sell or dissolve all subsidiaries except Index and IFX during the coming year. All remaining companies, including the Registrant, will be required to change their names in accordance with the Sale of Assets agreement. -9- 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. -10- Competition Prior to the Sale of Assets, Index competed directly with other firms, both discount and full commission. Competition among futures brokerage firms is intense and is based upon both price and service. Other institutions offer their customers some or all of the same types of services provided by Index and may offer more services than those provided by Index. At the same time, the number of active participants in futures trading is relatively small when compared to those engaged in securities trading. In addition, other independent securities and commodities brokerage firms may enter the brokerage business in direct competition with Index. Regulation In order to maintain its listing on the National Association of Securities Dealers' Automated Quotation System ("NASDAQ"), the Registrant must satisfy the National Association of Securities Dealers, Inc.'s revised entry and maintenance standards for NASDAQ listed stocks. One such requirement is that a minimum of two active market makers be maintained. In May, 1994, the Registrant was advised by NASDAQ that it had failed to meet the two active market maker requirement and would become subject to a formal delisting action if it failed to obtain the required market makers by June 3, 1994. The Registrant requested both a temporary exception to the minimum active market maker requirement and a hearing on the matter. On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ Listing Qualifications Committee determined that an exception to the market maker requirement would not be granted and, accordingly, the securities of the Registrant were delisted from the NASDAQ SmallCap Market effective August 18, 1994. The Registrant appealed NASDAQ's decision and secured additional market makers. On December 7, 1994, the Registrant's common stock resumed trading on the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994 to December 6, 1994, was traded in the over-the-counter market OTC Bulletin Board of the NASDAQ. Commodity exchanges and professionals in the United States are subject to regulation by the CFTC under the Commodity Exchange Act, as amended (the "Act") and the regulations promulgated thereunder, and by the NFA and by various self- regulatory organizations. The principal function of the CFTC is to promote orderly and efficient commodity futures markets through regulation. -11- As a futures commission merchant, Index is subject to the Act. With respect to domestic futures and options trading, the Act requires all futures commission merchants, such as Index, to meet and maintain specified financial requirements, and maintain segregated accounts for all customers' funds, property and positions, and specified books and records on customer transactions, all of which are open to inspection by the staff of the CFTC. Failure to meet its regulatory requirements could subject Index to disciplinary actions including fines, censure, suspension or revocation of registration. In addition, under the Act, the NFA is registered with the CFTC as a self- regulatory body which has established and enforces training standards and proficiency tests, minimum financial requirements and standards of fair practice. The CFTC has delegated its registration functions to the NFA. ISI is subject to the Uniform Net Capital Rule adopted by the Securities and Exchange Commission and as such is required to maintain minimum net capital. Throughout the year ISI was in compliance with such requirements. Index is subject to the minimum capital requirements under the Act and accordingly, is required to maintain minimum adjusted net capital, as defined by the CFTC. Adjusted net capital changes from day to day, but at June 30, 1996, Index had adjusted net capital of approximately $12,038,300 which was approximately $5,216,200 in excess of its required minimum. BRC also was subject to the minimum capital requirement under the Act until January, 1994, when BRC withdrew its registration as a Futures Commission Merchant. The minimum net capital requirements may effectively restrict, among other things, the payment of cash dividends and the repayment of subordinated loans. The Chicago Mercantile Exchange was the designated self-regulatory organization of Index until July 9, 1996 when the NFA assumed that role. As self-regulatory organizations, the NFA and the Chicago Mercantile Exchange have authority to enforce their rules, the violation of which could lead to various penalties, including expulsion. Since NFA membership is mandatory for all CFTC registered commodity professionals, loss or suspension of such membership would preclude a firm from engaging in the futures business. The above-described regulatory structure may be modified by the CFTC or by legislative changes enacted by the Congress. Prior to the Sale of Assets, Index was in the business of clearing and executing futures contracts and options on futures contracts for the accounts of its customers. As such, Index guaranteed to the respective clearinghouses its customers' performance under these contracts. To reduce its risk, Index required its customers to meet, at a minimum, the margin -12- 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 -13- Index is a party plaintiff against customers to collect deficit amounts due from customers, to customer complaints, allegations by regulatory authorities of alleged improprieties by, or lack of registration of, employees of Index and the like. It also may be likely in some of these actions that allegations requesting such items as monetary penalties, license suspensions or revocations and the like will be made. The number of such complaints, matters of litigation and administrative proceedings amount to a small percentage of Index's total business. The foregoing discussion is also applicable to BRC. Management of the Registrant, after consultation with legal counsel, is of the opinion that neither the Registrant nor Index, nor any of the Registrant's other subsidiaries, is involved in any current civil litigation or administrative proceeding which it believes would have a material adverse effect on either the Registrant's, Index's, or any of the Registrant's other subsidiaries financial condition. Notwithstanding that, the following matters are ordinary and routine litigation incidental to the business, the Registrant believes it appropriate to set forth the following information: On September 29, 1992, the CFTC filed an administrative action against Index alleging that on or about October 24, 1989, Index violated certain sections of the Commodity Exchange Act and CFTC Regulations alleging the conversion of funds of a commodity pool, and failure to properly segregate and separately account for, treat and deal with customer funds. In April, 1994, Index, without admitting or denying the allegations, paid a $100,000 penalty to the CFTC, settling the administrative action. In a related action in the United States District Court for the Northern District of Illinois entitled CFTC v. ------- Tobin, et al; John Troelstrup, Equity Receiver v. Index Futures Group, Inc. (89 - --------------------------------------------------------------------------- C 8576), the equity receiver of the alleged commodity pool operator brought an action to recover losses of approximately $600,000, alleging various theories such as constructive trust, negligence, breach of fiduciary duty and conversion. On May 29, 1996, the district judge dismissed the complaint in its entirety. Supplemental Plaintiff filed a Notice of Appeal with the U.S. Court of Appeals for the Seventh Circuit on June 28, 1996. The Seventh Circuit has yet to rule on whether this case may be appealed. Index was also defending against a Demand for Arbitration (Klein v. Index -------------- Futures Group, Inc. and Jay Tuch, 95-ARB-29) filed on March 20, 1995, before the - -------------------------------- National Futures Association ("NFA"). The claimant, a former client, was seeking damages of $1,000,000, alleging misrepresentation of risk and unauthorized trading. In July, 1996, an arbitration panel entered an award of no damages for the claimant. -14- In Arnold and Edith Katzowski v. Philip B. Jones and Index Futures Group, ---------------------------------------------------------------------- Inc., (E.D. Pa. No. 95-CV-1181), Index defended a complaint filed by former - ---- partners of a general partnership which cleared its trades at Index. The plaintiffs alleged that the general partner, a co-defendant, defrauded them by failing to disclose risks and misrepresenting account performance. Index is alleged to have aided and abetted the general partner by permitting him to act as a Commodity Pool Operator without proper registration and by furnishing account statements and other account data to the general partner which were then altered by the general partner and used to defraud plaintiffs. Plaintiffs' actual losses were approximately $157,000. This case was settled in November, 1995 for $25,000. Edward Schwarz ("Schwarz"), a former executive of Index whose employment was terminated as a result of the Sale of Assets, has rejected Index's severance payment offer. Schwarz has made a demand for $500,000, and has threatened litigation, if a satisfactory offer of settlement is not made. The Registrant believes that its original severance offer was reasonable and Schwarz's claims are without merit. Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ During the fourth quarter of the fiscal year ended June 30, 1996, no matters were submitted to a vote of security holders. However, on June 11, 1996, a definite Information Statement ("Information Statement") was filed by the Registrant with the Securities and Exchange Commission and sent to stockholders to notify them, in accordance with Section 228 of the Delaware General Corporation Law, that the holders of a sufficient number of votes by written consent, on July 1, 1996, would consent to the transaction between Index and MINC. No votes were solicited and no meeting was held. On September 4, 1996, the Registrant sent a notice to its security holders that the Sale of Assets was completed on July 1, 1996. MINC's principal office is located at Two World Financial Center, New York, New York 19281-2700. As noted above, no consents were solicited by the Information Statement. Delaware law does not provide dissenters' rights for a transaction such as the Sale of Assets. On July 1, 1996, a total of 19,443,354 shares of the 33,624,530 shares of common stock issued and outstanding of the Registrant and owned by Mr. Lee S. Casty, his two minor children, his father, Mr. David Casty, and Mr. Burton J. Meyer, at the time President of the Registrant, constituting 57.82% (a majority) of all the issued and outstanding common stock of the Registrant, by written consent in lieu of a meeting, authorized the Registrant, as the sole shareholder of Index, to consummate the Sale of Assets. -15- PART II ------- Item 5 - Market for Registrant's Common Equity and Related - ---------------------------------------------------------- Stockholder Matters - ------------------- Principal Markets Since June 10, 1986, the Registrant's securities have been traded in the over-the-counter market. The common stock was, until April 15, 1994, quoted on NASDAQ. In order to maintain its listing on NASDAQ, the Registrant, must satisfy the National Association of Securities Dealers, Inc.'s revised entry and maintenance standards for NASDAQ listed stocks. One such requirement is that a minimum of two active market makers be maintained. In May, 1994, the Registrant was advised by NASDAQ that it had failed to meet the two active market maker requirement and would become subject to a formal delisting action if it failed to obtain the required market makers by June 3, 1994. The Registrant requested both a temporary exception to the minimum active market maker requirement and a hearing on the matter. On August 17, 1994, the Registrant was advised by NASDAQ that the NASDAQ Listing Qualifications Committee determined that an exception to the market maker requirement would not be granted and, accordingly, the securities of the Registrant were delisted from the NASDAQ SmallCap Market effective August 18, 1994. The Registrant appealed NASDAQ's decision and secured additional market makers. On December 7, 1994 the Registrant's common stock resumed trading on the NASDAQ SmallCap Market. The Registrant's common stock, from April 16, 1994 to December 6, 1994, was traded in the over-the-counter market OTC Bulletin Board of the NASDAQ. In July, 1994, the Registrant offered to its common stockholders the non- transferable right to purchase, at a subscription price of $.02 per share, two- thirds of a share of common stock for each one share of common stock owned of record on July 15, 1994. 53,799,304 shares of common stock were available and purchased in the Rights Offering. Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer, the Registrant's President and a director and Michael J. Moss, President of Index, purchased their allocable number of shares in the Rights Offering. In addition, Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02, immediately following the expiration of the Rights Offering, the shares of common stock which were not purchased by other shareholders so that all 53,799,304 shares of common stock -16- were purchased. The gross proceeds of the Rights Offering were $1,076,000. Effective at the close of business November 4, 1994, the Registrant effected a one-for-four reverse split of its common stock, par value $.001. Each four shares of such common stock were reclassified and changed into one share of common stock having a par value of $.004. Pursuant to the reverse split, the Registrant is obligated to pay any holder of fractional shares resulting from the reverse split $.05 per share of common stock up to a maximum of $.15 for three shares. At the close of business on November 4, 1994, the outstanding shares of common stock were reduced to approximately 33,624,565 shares from 134,498,260 shares before the reverse split. As the result of the repurchase of fractional shares, there were outstanding as of June 30, 1996, 33,624,530 shares of common stock. Set forth below is the range of high and low, trade prices per share of the common stock in the over-the-counter market as reported by NASDAQ for the periods indicated. The quotations do not include retail markups, markdowns, or commissions. The prices have been restated for the November 4, 1994 one-for-four reverse split of common stock. On August 30, 1996, the closing representative bid price and ask price per share of common stock, as reported through NASDAQ, in the over-the-counter market was bid: 1/8; ask: 3/16.
Type of Quarter Security Ended High Trade Low Trade - -------- ------- ---------- --------- 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
(1) Includes only the period December 7, through December 31, 1994. (2) Includes only the months of July, 1996 and August, 1996. Although the Registrant's common stock was traded on NASDAQ there are no bid and ask quotations available for the period April 15, 1994 through August 18, 1994, due to lack of market maker participation. Set forth below is the range of high and low trade prices per share of common stock or the range of high and low, bid and ask prices per share of common stock in the OTC Bulletin Board market as reported by NASDAQ for the periods indicated. The quotations do not include retail markups, -17- 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.
Type of Security Period High Trade Low Trade - -------- ------ -------------- ---------------- Common Stock 7/01/94-8/18/94 1/4 1/16 Bid Ask -------------- ---------------- High Low High Low ------ ------ ------- ------- 8/18/94-9/30/94 $.16 $.04 $.20 $.16 10/01/94-12/06/94 $.20 $.03125 $.25 $.09375
Approximate Number of Holders of Securities As of August 30, 1996, there were 1,015 holders of record of the Registrant's common stock. The Registrant believes it has a greater number of shareholders because the Registrant believes that a substantial amount of its common stock is held of record in street name by broker-dealers for their customers. Dividends The Registrant has never paid a cash dividend on its common stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operation of its business. Item 6 - Selected Financial Data - -------------------------------- Summary Financial Information The following table presents summary historical information for the Registrant. This summary information is derived from the historical financial statements of the Registrant. -18- HISTORICAL FINANCIAL INFORMATION
JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES -------------------------------------------- Year Ended June 30, ------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- 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 ============ ============ ============ ============ ============ Balance Sheet Data: As of June 30, ------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- 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
- -------------------------------- (1) Represents tax benefits resulting from utilization of net operating loss carryforward. (2) Earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding during each year, adjusted for the effect of common stock equivalents arising from the assumed exercise of stock options and warrants if dilutive. -19- Item 7 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations for the Year Ended - -------------------------------- June 30, 1996 - ------------- Liquidity and Capital Resources Jack Carl/312-Futures, Inc. ("JC/312") is a holding company that operates its business through its various subsidiaries. JC/312 is a significant source of capital for its subsidiaries through subordinated loans. Index is subject to the minimum capital requirements adopted and administered by various exchanges and regulatory bodies. Among these are requirements for registered futures commission merchants to maintain minimum net capital based on a percentage of the amount of customer funds required to be segregated. During the year ended June 30, 1996, Index's segregated asset requirement increased by approximately $27,976,800 to $183,950,300. At June 30, 1996, Index's segregated funds exceeded the requirement by $3,536,200. Index is also required to secure all balances due to U.S. based customers for activities in foreign futures or options. At June 30, 1996, funds secured in separate accounts exceeded secured requirements by $4,333,300. These increases in the segregated and secured asset requirements resulted in a increase in Index's net capital requirements. As of June 30, 1996, Index's regulatory capital exceeded the minimum net capital requirements of the CFTC by $5,216,200. Prior to March, 1996, Index exceeded the net capital requirements of the CFTC and the various exchanges of which it is a member. In March, 1996, at the request of its non-regulated customers trading in the cash markets, Index transferred funds to IFX. Upon clarification of the net capital rules, it was determined that the receivable from IFX could not accurately be classified as a current asset. As a result, Index was under early warning and minimum capital requirements. As of March 31, 1996, Index's regulatory capital was $11,272,800 less than the minimum net capital requirements of the CFTC. Index informed the Chicago Mercantile Exchange and the CFTC of the capital deficiency. Index took immediate action to correct the deficiency and as of April 23, 1996, was fully in compliance with minimum net capital requirements. The Registrant, at June 30, 1996, had $6,390,000 in notes payable to related parties and $4,000,000 of subordinated debt maturing during the year ending June 30, 1997. The majority of the proceeds from the notes were loaned to Index in the form of subordinated loans which are included in net capital for regulatory purposes. Index had a $4,000,000 revolving subordinated debt line of credit. As of June 30, 1996, Index borrowed the total $4,000,000 from this line of credit. These borrowings were repaid in full in August, 1996 and the line of -20- credit was cancelled. The ability to refinance its debt depends on the lenders desire to continue such loans with the Registrant. The Registrant has historically satisfied its needs for capital from (i) subordinated loans and notes payable, which, in the aggregate, increased $2,310,000 at June 30, 1996 compared to the prior year, and (ii) the proceeds from the issuance of stock, which since inception through June 30, 1996 were approximately $8,930,000. It is anticipated that the Registrant's short-term and long-term capital needs will primarily be satisfied through loans, operations and investing activities as well as from the proceeds of the issuance of stock. As the business now exists subsequent to the Sale of Assets, the Registrant's capital needs are significantly reduced. This may change if the Registrant enters into new business ventures. The Registrant, during fiscal 1996 generated $3,000,000 cash from new subordinated loans from its revolving credit line. This cash was used for various operating activities as well as to repay $690,000 of subordinated debt and for start up costs, including purchases of furniture and equipment, incurred by the Registrant's London subsidiary, which began trading operations in October, 1995. The majority of the Registrant's assets are liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects the Registrant's expenses, such as employee compensation and other operating expenses. Results of Operations - Fiscal 1996 Compared to Fiscal 1995 The Registrant's commission revenues relate directly to the volume of its customers' orders, generally irrespective of the underlying prices of futures contracts. Trading volume may be affected by price levels of commodities which are directly affected by regional, national and international economic and political conditions, broad trends in business and finance, inflation and supply and demand of the commodities underlying futures and options contracts. In January, 1993, BRC, at the time a wholly-owned subsidiary of Index, and a wholly-owned subsidiary of the Registrant until it was dissolved in May, 1996, sold the majority of its guaranteed introducing broker business to an unrelated entity in return for a portion of future earnings on such business through January 15, 1995. The Company, during fiscal 1996, organized IFX, located in London, England to conduct foreign exchange business. IFX incurred start up costs early in the year and commenced trading operations in October, 1995. The revenue generated by IFX is recorded as trading gains. -21- 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. Commission revenues, which generally are related to trading volume, decreased $3,058,500 or 9% in 1996. Included in commission revenue for 1995 is $481,900 from the sale of BRC's introducing broker business. Commission revenue, excluding the affect of the BRC revenue, decreased 8% on an 8% increase in trading volume. The decrease in commission revenue compared to the increase in trading volume is primarily attributable to the Registrant's business mix which has changed toward business that generates higher trading volume and lower revenues and expenses per trade than other types of retail business. Included in this type of business are accounts from non-clearing futures commission merchants, other wholesale business and execution only business. -22- Interest income increased $555,800 in 1996 compared to 1995. The increase in interest income is primarily attributable to the following factors. The Registrant's continuing to invest in longer term U.S. Government obligations which increases the yield on its investments. Such investments are interest rate sensitive which cause fluctuation in income as interest rates vary. The change in the appreciation of these investments due to market value fluctuations generated a $301,200 decrease in interest income in 1996 compared to 1995. Also, the Registrant during 1996, by increasing its customer base and by increasing its subordinated debt borrowings, had additional funds available to invest and those investments generally yielded higher returns because interest rates, for the majority of fiscal 1996, continued their upward trend. Trading gains increased $2,246,500 during the year ended June 30, 1996. Included in trading gains in fiscal 1996 is $2,058,900 of revenue generated from IFX. Commissions, floor brokerage and clearing costs decreased $1,556,300 or 8% in 1996. The decrease in expense is the result of the gradual restructuring of sales agreements to include the absorption of certain production related costs by certain sales people before commissions are earned, thus reducing commission expense. Also, as part of the restructuring, certain sales people are being compensated by salary in addition to commissions. Another reason for the decrease in commissions, floor brokerage and clearing costs is the change in business mix toward business which generates higher trading volume and lower commission revenues and expenses per trade than other types of retail business. Included in this type of business are accounts from non-clearing futures commission merchants, other wholesale business and execution only business. Compensation and related benefits increased $1,588,400 or 18% during fiscal 1996. The increase is the result of an increase in the number of employees, which includes employees at IFX, and salary increases. Also contributing to the increase is the restructuring of sales agreements which provide for certain sales people to be compensated by salary in addition to commissions. Interest expense increased $915,900 during fiscal 1996 compared to fiscal 1995. Included in interest expense during 1996 is a $100,000 interest accrual related to the settlement of prior revenue agent reviews through 1992. The balance of the increases are the result of higher interest rates on the Company's obligations during fiscal 1996 and increased customer deposits on which the Company pays interest expense. -23- Business promotion expense increased $493,900 during fiscal 1996 compared to fiscal 1995. The increase is primarily the result of a general increase in print advertising, promotions and increased television advertising during fiscal 1996. Doubtful accounts expense increased $726,600 in fiscal 1996 compared to 1995. This increase is due to a $586,000 credit to bad debt expense in fiscal 1995. The credit was primarily the result of the receipt of a bankruptcy settlement for a bad debt which was previously written off, collection of deficit accounts and a reduction in the Registrant's bad debt experience. During fiscal 1996, the Registrant took a net pre-tax restructuring charge of $1,556,500, related to the sale of brokerage accounts to MINC. The aforementioned revenue and expenses resulted in a net loss of $1,133,100 or $.03 per share for fiscal 1996 compared to net income of $2,411,600 or $.08 per share for fiscal 1995. Results of Operations - Fiscal 1995 Compared to Fiscal 1994 Commission revenues, which generally are related to trading volume, increased $135,900 in 1995 on a 21% increase in trading volume. The revenue from the sale of BRC in the amounts of $481,900 and $982,000 for 1995 and 1994, respectively, is included in commission revenue. The small increase in commission revenue compared to the increase in trading volume is primarily attributable to the Registrant's business mix which has changed toward business that generates higher trading volume and lower revenue and expense per trade than other types of retail business. Included in this type of business are accounts from non-clearing futures commission merchants, other wholesale business and execution only business. Interest income increased $3,975,300 in 1995 compared to 1994. This increase in interest income is attributable to the following factors. The Registrant is continuing to invest in longer term U.S. Government obligations which increases the yield on its investments. These investments are interest rate sensitive which cause fluctuations in income as interest rates vary. The change in the appreciation of these investments due to market value fluctuations generated an increase in interest income of $494,300 in 1995 compared to 1994. The Registrant, during 1995, by increasing its customers base, had additional funds available to invest and those investments generally yielded higher returns because interest rates continued their upward trend during fiscal 1995. Commissions, floor brokerage and clearing costs decreased $1,198,500 or 6% in 1995. The decrease is the result of the gradual restructuring of sales agreements to include the -24- absorption of certain production related costs by certain sales people before commissions are earned. Also, as a part of the restructuring, certain sales people are being compensated by salary in addition to commissions. Another reason for the decrease in commissions, floor brokerage and clearing costs is the change in business mix toward business which generates higher trading volume and lower commission revenue and expense per trade than other types of retail business. Included in this type of business are accounts from non-clearing futures commission merchants, other wholesale business and execution only business. Compensation and related benefits increased $1,342,700 or 18% in 1995. The increase is attributed to a 15% increase in the number of employees and salary increases. Another factor contributing to the increase is the restructuring of sales agreements which provide for certain sales people to be compensated by salary in addition to commissions. Interest expense increased $1,515,300 in 1995. The increase is the result of higher interest rates on the Registrant's obligations during fiscal 1995 and increased deposits on which the Registrant pays interest expense. Business promotion increased $457,700 or 37% in 1995 compared to 1994. The increase is the result of a general increase in the advertising of Index's discount division which included a series of television commercials. Communications expense decreased $301,500 or 15% in 1995 compared to 1994. The decrease is the result of a change in long distance carrier which led to lower rates and a one time $50,000 "sign-on" credit. The Registrant also realized savings resulting from its increased capital expenditures on more efficient communications equipment. Professional and consulting fees decreased $446,100 in 1995. The decrease is the result of a decrease in legal fees incurred in fiscal 1995 due to decreased activity on pending litigation. Doubtful accounts expense decreased $635,100 in 1995 compared to 1994. The decrease is the result of the receipt of funds from a bankruptcy settlement for a debt that was previously written off, collection of deficit accounts and a reduction in the Registrant's bad debt experience. The aforementioned revenue and expenses resulted in net income of $2,411,600 or $.08 per share for fiscal 1995 compared to net income of $586,100 or $.03 per share for fiscal 1994. -25- Item 8 - Financial Statements and Supplementary Data - ---------------------------------------------------- For financial information, see the financial statements and notes thereto set forth at Item 14 hereof. Item 9 - Changes In and Disagreements With Accountants On Accounting and - ------------------------------------------------------------------------ Financial Disclosures - --------------------- The Registrant did not have any changes in, or any material disagreements on accounting and financial disclosure with, its accountants in fiscal 1996 or 1995. PART III -------- Item 10 - Directors and Executive Officers - ------------------------------------------ The Directors and Executive Officers of the Registrant as of June 30, 1996 were as follows:
Name Age Office - ----------------------- --- --------------------------- 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
Burton J. Meyer has been with the Registrant since its inception and has been a Director since August, 1986 and President since July, 1987. Since July 20, 1987, Mr. Meyer has also been an executive vice president and a director of Index, president of the Jack Carl/312-Futures discount division of Index until November, 1990 when he became Chief Executive Officer of Index. Also since July 20, 1987, Mr. Meyer has been a director of Brokers Resource Corp. ("BRC"), a wholly-owned subsidiary of the Registrant, a director of Index Securities, Inc. ("ISI"), a wholly-owned subsidiary of the Registrant, since September, 1988. Mr. Meyer has been a director of Index Management Services, Inc. ("IMSI"), a wholly- owned subsidiary of Index, since November, 1990 and served as president from November, 1990 until January, 1992 and has been chief executive officer of IMSI since May, 1992. Since May, 1991, Mr. Meyer has also been president and -26- secretary of Index Futures Arb Group, Inc. ("Arb"). Since January, 1992, Mr. Meyer has been vice president of Jack Carl Management and Trading, Inc. ("JCMT"). Since July, 1992, Mr. Meyer has been president of Index Forward Trading Group, Inc. ("IFTG") and Index Currency Trading Group, Inc. ("ICTG"). All officer positions Mr. Meyer held with the Registrant and its subsidiaries were effectively terminated with the expiration of his employment contract on July 1, 1996. Mr. Meyer resigned as a Director effective as of the close of business July 1, 1996. Joel M. Eidelstein was elected Director of the Registrant effective November 16, 1990. Mr. Eidelstein graduated from Brandeis University in May, 1988. Since June, 1988, until immediately prior to the Sale of Assets, he was an independent trader and a floor manager with Index. George A. Myers was elected Director of the Registrant effective November 16, 1990. Mr. Myers, since 1981, has been managing general partner of MC Capital, a diversified real estate company with offices in Chicago, Illinois; Phoenix, Arizona; and San Diego, California. On September 14, 1992, Allyson D. Laackman, became Chief Financial Officer of the Registrant, BRC and ISI and chief financial officer and director of Index, Arb, JCMT, IFTG and ICTG. Ms. Laackman was also Chief Financial Officer and director of IMSI from September 14, 1992 until she voluntarily resigned from those positions in January, 1994. Prior to joining the Registrant, Ms. Laackman, a Certified Public Accountant, had been with Arthur Andersen & Co. since 1981 and was an experienced manager in the financial services division. Bruce E. Mathias has been Treasurer of the Registrant since November 16, 1990. Mr. Mathias was also Assistant Secretary of the Registrant from November 16, 1990 until he was appointed Secretary in March, 1994. He was also Chief Financial Officer of the Registrant, Index, BRC, IMSI, RDI and Arb from November, 1990 until January, 1992 when he was elected president of IMSI until February, 1994, when he was reappointed chief financial officer of IMSI. Prior to November, 1990 he was the Director of Financial Reporting of the Registrant from May, 1987 and secretary of Index since November, 1987. In addition, since November 16, 1990, he has been treasurer and a director of Index and treasurer and assistant secretary of BRC. Since November, 1990, Mr. Mathias has been a director of IMSI. Mr. Mathias is a Certified Public Accountant. Michael J. Moss has been president and a director of Index since January, 1992. Prior to joining Index, Mr. Moss was an independent floor trader from 1978 until 1987. Mr. Moss was senior vice president of Gerald, Inc., a futures commission merchant, from 1987 until December, 1991. -27- In accepting employment with MINC, Mr. Moss resigned as president effective July 1, 1996. Philip A. Tanzar joined 312-Futures, Inc. at its inception in 1983. Mr. Tanzar was chief operating officer of the discount brokerage division of Index from 1986 until November, 1990. In November, 1990, Mr. Tanzar was appointed chief operating officer of Index until March, 1993 when Mr. Tanzar was appointed Vice President and General Counsel of the Registrant, Index, BRC and IMSI. In February, 1994, Mr. Tanzar was elected a Director of the Registrant. On September 24, 1996, Mr. Tanzar resigned as a Director of the Registrant effective October, 1, 1996. All executive officer positions Mr. Tanzar held with the Registrant and its subsidiaries were effectively terminated, upon accepting employment with MINC., on July 1, 1996. Directors are elected and serve until the next annual meeting or until their successors are elected and qualified. Officers are elected annually by the Board of Directors. -28- Item 11 - Executive Compensation - -------------------------------- The following table sets forth all cash compensation paid by the Registrant as well as the number of stock options earned by the Registrant's chief executive officer and the three other most highly compensated executive officers, exceeding $100,000, during the last three fiscal years.
SUMMARY COMPENSATION TABLE Annual Compensation -------------------------------------------- Long Term Compensation ------------ Name and Year Other Option Principal Ended Annual Awards All Other Position June 30, Salary Bonus Compensation (Shs) (5) Compensation - ----------------------- -------- -------- -------- ------------ ------------ ------------ Burton J. Meyer (1) (6) 1996 $300,000 $344,600 - - $316,100 President and 1995 $300,000 $153,700 - - Director 1994 $225,000 $ 50,000 - 1,250,000 Michael J. Moss (2) (6) 1996 - - $538,800 - - President 1995 - - $668,200 - of Index 1994 - - $414,100 500,000 Allyson D. Laackman (3) 1996 $135,000 $74,700 - - - Chief Financial 1995 $133,200 $14,100 - - Officer 1994 $125,000 $ 5,800 - - Philip A. Tanzar (4)(6) 1996 $130,000 $14,300 - - - Director and Vice 1995 $122,000 $16,700 - - President and 1994 $117,000 $ 2,600 - - General Counsel
- -------------------------------- (1) Mr. Meyer's bonuses relate to the prior fiscal years. All Other Compensation is a severance payment. Mr. Meyer resigned as a Director as of the close of business July 1, 1996. (2) Mr. Moss's 500,000 options expired June 30, 1995. Other annual compensation is commissions. (3) Ms. Laackman earned a $38,800 bonus for fiscal 1994 and 1995, $24,700 of which was paid in fiscal 1996. Also, Ms. Laackman earned a $50,000 bonus for fiscal 1996, which was paid in fiscal 1996. (4) Mr. Tanzar became a Director effective February, 1994. He has resigned October 1, 1996. (5) The options have been restated for the November, 1994 one-for-four reverse split. (6) Resigned from executive officer positions effective July 1, 1996. -29- 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 Individual Grants - ---------------------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price % of Appreciation Total Options for Option Term Granted to ----------------------- Options Employees in Exercise Expiration Name Granted Fiscal Year Price Date 5% 10% - -------------------- -------- ------------- -------- ---------- --------- ---------
No options were granted to the Registrant's chief executive officer or the Registrant's three other most highly compensated executive officers during fiscal 1996. -30- 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.
Value of Number of Unexercised Unexercised In-the-Money Options at Options at Shares Acquired June 30, 1996 June 30, 1996 on Exercise Value Exercisable/ Exercisable/ Name Realized Unexercisable Unexercisable - ---------------------------- --------------- -------- ------------- ------------- 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
-31- Compensation of Directors Directors are not currently compensated in connection with their duties as directors, but may be reimbursed for expenses incurred by them. Executive Employment Contracts Mr. Meyer's employment agreement, effective July 1, 1994, provides, among other things, that he serve as the Registrant's President and for a base annual compensation of $300,000 for a term ending July 1, 1996. In addition to his base annual compensation, Mr. Meyer is entitled to an incentive bonus if certain pre-tax earnings levels are achieved, or if such pre-tax earnings levels are not achieved, Mr. Meyer may receive a discretionary bonus. In the event that the terms of Mr. Meyer's employment agreement are not extended by the Registrant, for reasons other than "good cause", on terms substantially equivalent to the current terms, the Registrant is obligated to pay Mr. Meyer a severance of $300,000 plus an amount equal to the bonus for the previous fiscal year. As a result of the Sale of Assets, Mr. Meyer's employment contract was not extended. As a settlement of his contract the Board of Directors agreed to pay Mr. Meyer $316,100 in severance. If Mr. Meyer's position at MINC is terminated voluntarily or involuntarily prior to July 1, 1997, Mr. Meyer will be entitled to receive additional severance of $316,100. Ms. Laackman's employment agreement, effective September 14, 1994, provides, among other things, that she serve as the Registrant's Chief Financial Officer and for a base annual compensation of $135,000 for a term ending December 31, 1995. In addition to her base annual compensation, Ms. Laackman is entitled to a discretionary bonus which may not exceed 100% of her base salary. Effective July 1, 1995, Ms. Laackman signed another employment agreement which supersedes the September 14, 1994 agreement. This agreement provides, among other things, that she serve as the Registrant's Chief Financial Officer and for a base annual compensation of $135,000 for a term ending June 30, 1996. In addition to her base annual compensation, Ms. Laackman is entitled to an annual bonus if certain pre-tax earnings levels are achieved. In the event that the terms of Ms. Laackman's employment are not extended by the Registrant, for reasons other than "good cause", on terms substantially equivalent to the current terms, the Registrant is obligated to pay Ms. Laackman a severance equal to nine months of base salary. The severance may be reduced -32- under certain circumstances. This contract has not yet been extended, however, Ms. Laackman continues to serve as Chief Financial Officer. Mr. Tanzar's employment agreement, effective November 1, 1993, provides, among other things, that he serve as the Registrant's Vice President and General Counsel and for a base annual compensation of $122,000 for a term ending December 31, 1995. In addition to his base annual rate of compensation, Mr. Tanzar is entitled to a guaranteed bonus of $5,000 per annum. However, such bonus may exceed $5,000 as determined by the President of the Registrant. Mr. Tanzar's employment agreement, effective December 31, 1995, provides, among other things, that he serves as the Registrant's Vice President and General Counsel and for a base annual compensation of $138,200 for a term ending December 31, 1996. In addition to his base annual rate of compensation, Mr. Tanzar is entitled to a discretionary bonus. In the event that the terms of Mr. Tanzar's employment are not extended by the Registrant for reasons other than "good cause", on terms substantially equivalent to the current terms, the Registrant is obligated to pay Mr. Tanzar a severance of $100,000. Effective July 1, 1996 Mr. Tanzar accepted employment at MINC, thereby terminating his employment contract with the Registrant. As an inducement for Mr. Tanzar to accept employment with MINC and as a settlement of his contract, the Registrant has agreed to pay him up to $100,000 as severance if he is terminated by MINC prior to January 1, 1999. Mr. Moss's letter of understanding dated August 4, 1993 provides, among other things, that he serve as President of Index and for a monthly draw of $20,000 against commissions earned for the term of employment a term ending June 30, 1995. Mr. Moss's agreement was extended, on July 1, 1995, until June 30, 1997. In the event that the terms of Mr. Moss's letter of understanding are not renewed under the same general terms or he is terminated without cause, Index is obligated to pay Mr. Moss any commissions due him for the nine months following the termination without cause or the expiration and non-renewal of the letter of understanding. This agreement was terminated when Mr. Moss accepted employment with MINC on July 1, 1996. Compensation Committee Interlocks and Insider Participation Compensation Decisions The Registrant does not have a compensation committee. Prior to the Sale of Assets, Mr. Burton J. Meyer, at the time, President and a Director of the Registrant, participated in the negotiations of employment agreements for executive officers of the Registrant. -33- 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:
Approximate Amount and Nature of Percent Name Beneficial Ownership of Class - -------------------------- -------------------- ------------ Lee S. Casty (1) (2) (3) 16,164,453 48.07% Burton J. Meyer(4) (7) (8) 3,571,074 10.07 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
(1) Does not give effect to 400,000 shares of Class A Preferred Stock, $1.00 par value, one vote per share, beneficially owned by Mr. Casty and constituting 100% of the issued and outstanding Class A Preferred Stock of the Registrant. By giving effect to one vote per share of the Class A Preferred Stock the percentage of the total number of votes that can be cast by Mr. Casty will increase. (2) Mr. Casty may be deemed a parent and promoter of the Registrant as those terms are defined under the Securities Act of 1933, as amended. (3) c/o French-American Securities, Inc., 200 West Adams Street, Suite 1500, Chicago, Illinois 60606. (4) Includes 1,850,000 exercisable options, of which beneficial ownership can be acquired. (5) Includes 125,000 exercisable options, of which beneficial ownership can be acquired. (6) Includes 25,000 exercisable options, of which beneficial ownership can be acquired. (7) Ceased to be an executive officer effective July 1, 1996. (8) Resigned as Director effective close of business July 1, 1996. (9) Resigned as a Director effective October 1, 1996. -34- In July, 1994, the Registrant offered to holders of record of its common stock, the non-transferable right to purchase, at a subscription price of $.02 per share, two-thirds of a share of common stock for each one share of common stock owned of record on July 15, 1994, by such shareholder ("Rights Offering"). 53,799,304 shares of common stock were available in the Rights Offering. Lee S. Casty, the Registrant's principal shareholder, Burton J. Meyer the Registrant's President and a director and Michael J. Moss, President of Index, purchased their allocable number of shares in the Rights Offering. In addition, Messrs. Casty, Meyer and Moss purchased at the subscription price of $.02, immediately following the expiration of the Rights Offering, the shares of common stock which were not purchased by other shareholders so that all 53,799,304 shares of common stock available were purchased. The gross proceeds of the Rights Offering were $1,076,000. The Registrant, on October 24, 1994, received shareholder approval to amend its Certificate of Incorporation which resulted in a reverse split of its common stock, effective November 4, 1994, on a basis whereby each four shares of common stock was reclassified and changed into one share of common stock having a par value of $.004. Item 13 - Certain Transactions - ------------------------------ Effective November 30, 1985, Mr. Casty, the principal shareholder, loaned the Registrant $400,000 evidenced by a "satisfactory subordination agreement" approved by the regulatory authorities to which the Registrant is subject. This subordinated loan was due to mature on December 1, 1988. On March 5, 1986, the Registrant amended its Articles of Incorporation to authorize 400,000 shares of Preferred Stock, par value $1.00 per share, 10% cumulative, all of which Preferred Stock was thereupon issued to Mr. Casty in satisfaction of such subordinated loan. The Preferred Stock is redeemable, with cumulative dividends, at the option of the Registrant under certain circumstances. At June 30, 1996, cumulative dividends in arrears amounted to $413,300. No liability for these dividends has been recorded as dividends are not payable until declared. As part of the Merger, the Articles of Incorporation of the Registrant were amended and the Preferred Stock was redesignated "Class A Preferred Stock." In January, 1996, all notes payable due to Mr. Casty aggregating $940,000 were extended to January 31, 1997. The Registrant, during the year ended June 30, 1996, paid Mr. Casty, approximately $117,900 in interest on notes payable. -35- In August, 1995, Mr. Casty made a $1,000,000 short term advance to the Registrant. The Registrant repaid the advance in September, 1995. The Registrant, during the year ended June 30, 1996, earned $53,500 of interest income on a note receivable from C. Adam, Ltd., a company wholly-owned by Mr. Casty. In January, 1996, all notes payable to French-American Securities, Inc., a company wholly-owned by Mr. Casty, aggregating $4,550,000 were extended to January 31, 1997. The Registrant, during the year ended June 30, 1996, paid French-American Securities, Inc. $570,600 in interest on notes payable. In January, 1996, all notes payable to Mr. Meyer aggregating $900,000 were extended to January 31, 1997. The Registrant during the year ended June 30, 1996 paid Mr. Meyer $112,900 in interest on notes payable. The Registrant, during the year ended June 30, 1996, paid Mr. Meyer $61,500 for rent of an exchange membership. -36- PART IV ------- Item 14 - Exhibits, Financial Statement Schedules and Reports on - ---------------------------------------------------------------- Form 8-K - -------- (a) The following documents are filed as a part of this report: (1) Financial Statements: The following financial statements are attached to this Form 10-K commencing on page 41. Page ---- Report of Independent Public Accountants 41 Consolidated Statements of Financial Condition as of June 30, 1996 and 1995 42 Consolidated Statements of Operations for the Years Ended June 30, 1996, 1995 and 1994 43 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1996, 1995 and 1994 as Restated for the One-For-Four Reverse Split of Common Stock 44 Consolidated Statements of Changes in Liabilities Subordinated to Claims of General Creditors for the Years Ended June 30, 1996, 1995 and 1994 45 Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 46 Notes to Consolidated Financial Statements 48 (2) Schedules --------- Schedule II - Valuation and qualifying accounts 65 All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto. -37- (3) Exhibits -------- The following exhibits required by Item 601 of Regulation S-K to be filed herewith are incorporated by reference to previously filed documents: Exhibit No. Description ----------- ----------- The following exhibits are hereby incorporated by reference from Form 10-K for the Registrant as filed on September 27, 1993 with the Securities and Exchange Commission: 10.34 Letter of understanding, dated August 4, 1993, between Index Futures Group, Inc. and Michael Moss. The following exhibits are hereby incorporated by reference from Form 10-K for the Registrant as filed on September 28, 1994 with the Securities and Exchange Commission: 3.1 Certificate of Incorporation of 312 Merger Corporation 3.2 By-Laws of 312 Merger Corp. 3.3 Certificate of Ownership and Merger of Jack Carl/312- Futures, Inc. (an Illinois Corporation) into 312 Merger Corporation (a Delaware Corporation) 10.35 Employment agreement, dated November 1, 1993, between Jack Carl/312-Futures, Inc. and Philip A. Tanzar. 10.36 Employment agreement, dated January 7, 1994, between Jack Carl/312-Futures, Inc. and Anthony J. Pecoraro. 10.37 Employment agreement dated July 1, 1994, between Jack Carl/312-Futures, Inc. and Burton J. Meyer. The following exhibits are hereby incorporated by reference from Form 10-K for the Registrant as filed on September 27, 1995 with the Securities and Exchange Commission: 10.38 Employment agreement, dated September 14, 1994, between Jack Carl/312-Futures, Inc. and Allyson D. Laackman -38- 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 11.1 Computation of Earnings per Common Share 17.1 Letter confirming resignation, dated September 26, 1996, from Burton J. Meyer 17.2 Letter of resignation, dated September 24, 1996, from Philip A. Tanzar 21.1 Subsidiaries of the Registrant 24.1 Power of Attorney 27 Financial Data Schedule (Edgar Version Only) 99.1 Report on Form 8-K for the Registrant as filed on June 14, 1996 with the Securities and Exchange Commission (b) Reports on Form 8-K: The Registrant filed a report on Form 8-K on June 14, 1996, reporting under item 2, a consummation of a material sale to E.D.& F. Man International Inc., substantially all of the business of the Registrant's principal wholly-owned subsidiary, Index Futures Group, Inc. -39- 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: September 27, 1996 POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Allyson D. Laackman his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign this Form 10-K and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /S/ ALLYSON D. LAACKMAN Chief Financial Officer September 27, 1996 - ---------------------- Allyson D. Laackman /S/ JOEL M. EIDELSTEIN Director September 27, 1996 - ---------------------- Joel M. Eidelstein /S/ GEORGE A. MYERS Director September 27, 1996 - ---------------------- George A. Myers Director - ---------------------- Philip A. Tanzar -40- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders of Jack Carl/312-Futures, Inc. and Subsidiaries: We have audited the accompanying consolidated statements of financial condition of JACK CARL/312-FUTURES, INC. (a Delaware corporation) AND SUBSIDIARIES as of June 30, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity, changes in liabilities subordinated to claims of general creditors and cash flows for the years ended June 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jack Carl/312-Futures, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for the years ended June 30, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commissions rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Chicago, Illinois, September 27, 1996 -41- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1996 AND 1995 ASSETS
1996 1995 ---- ---- 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 1996 1995 ---- ---- 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 =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
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 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. -42- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- 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 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. -43- 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)
Class A Common Stock Cumulative Preferred ------------ Paid-In Retained Translation Stock Shares Amount Capital Deficit Adjustment Total --------- ----------------- ------- -------- ------------ ----- 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 ======== ========== ======== ========== =========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. -44- 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 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 ==========
The accompanying notes are an integral part of the consolidated financial statements. -45- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ------------- ------------- ------------- 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 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. -46- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 Supplemental Schedule of Non Cash Investing and Financing Activities 1996 Notes payable aggregating $6,390,000 due January 31, 1996 were extended to January 31, 1997. In February, 1996, $1,000,000 of a $1,690,000 subordinated loan was extended to February 24, 1997. The remaining $690,000 was repaid. 1995 Notes payable aggregating $7,590,000, due January 31, 1995 were extended to January 31, 1996, of which $1,200,000 was subsequently repaid. In March, 1995 a subordinated loan in the amount of $2,000,000 was extended to February 28, 1996. 1994 Notes payable aggregating $3,700,600, due July 31, 1993 were extended to July 31, 1994. A $540,000 note payable due July 31, 1993 was extended to January 1, 1994 and subsequently extended to January 31, 1994. A $250,000 note payable due November 1, 1993 was extended to November 1, 1994. Notes payable aggregating $5,000,000 due December 31, 1993 were extended to January 31, 1994. In February, 1994, all notes payable due at various dates, were extended to January 1995. -47- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE 1 - ORGANIZATION OF JACK CARL/312-FUTURES, INC. Jack Carl/312-Futures, Inc. ("JC/312") and Subsidiaries, (the "Company"), engages principally in the business of effecting transactions in futures and options on futures contracts for the accounts of customers and the operation of commodity pools. Index Futures Group, Inc. ("Index"), the principal operating subsidiary of JC/312, is a registered futures commission merchant with the Commodity Futures Trading Commission ("CFTC"). Another subsidiary of JC/312 is a registered broker-dealer. Subsequent to June 30, 1996, Index sold, transferred and assigned substantially all of its brokerage accounts ("Sale of Assets") to E.D.& F. Man International Inc. ("MINC"). (See Note 19) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of JC/312 and its wholly-owned subsidiaries, Index, Index Securities, Inc., Jack Carl Management and Trading, Inc. and Index FX, Ltd. ("Index FX") as well as those of its majority-owned subsidiary, Stark Research, Inc. All material intercompany accounts and transactions are eliminated in consolidation. Brokers Resource Corp., formerly a subsidiary of JC/312, was dissolved in May, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Commission revenues on commodity futures and options transactions and related commission expenses are recorded on a half-turn basis. U.S. Government Obligations U.S. Government obligations are valued at market. The change in unrealized appreciation on house and customer funds invested in U.S. Government obligations is reflected in interest income. -48- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments in Partnerships The investments in partnerships are accounted for on the equity method. Furniture, Equipment and Leasehold Improvements Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the lesser of their useful lives or the remaining terms of the leases. See Note 19 for the effect of the Sale of Assets on furniture, equipment and leasehold improvements. Goodwill Prior to the Sale of Assets, the excess of cost over estimated fair value of net assets acquired was reflected as goodwill and was being amortized over twenty years. Goodwill arose as a result of business combinations which occurred in 1985 and 1986. As a result of the Sale of Assets, the remaining goodwill was written off as of June 30, 1996. See Note 19 for further information. Customer-Owned Securities Customer-owned securities are reflected at market value in the consolidated statements of financial condition. This presentation has no effect on stockholders' equity. At June 30, 1996 and 1995, the total market value of customer-owned securities included in the consolidated statements of financial condition as both assets and liabilities was $46,891,300 and $45,768,800, respectively. Income Taxes Deferred income taxes are provided to reflect the tax effects of timing differences between financial and tax reporting. The nature of the timing differences are discussed in Note 12. Earnings per Share Earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding during each year, adjusted for the effect of common stock equivalents arising from the assumed exercise of stock options, if dilutive. The -49- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) earnings per share data has been restated for the November, 1994 one-for-four reverse split of common stock. Reclassification Certain amounts previously reported have been reclassified to conform to the current method of presentation. New Pronouncements The Company is required to adopt Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", effective July 1, 1996. This statement requires a fair value based method of accounting for employee stock options, and establishes disclosure requirements for stock-based employee compensation arrangements. Management has not yet calculated the effect of adopting SFAS 123. However, it does not believe that it will have a material impact on its financial statements. NOTE 3 - ASSETS SEGREGATED AND SECURED UNDER COMMODITY EXCHANGE ACT Under the Commodity Exchange Act, Index is required to segregate all balances due to customers in connection with transactions in regulated commodities. In addition, in accordance with CFTC Regulation 30.7, Index is required to secure all balances due to U.S. customers for activities in foreign futures or options. Segregated and secured assets included in the consolidated statements of financial condition at June 30, are as follows:
1996 1995 ------------ ------------ 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 ============ ============
-50- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 4 - OTHER SHORT TERM INVESTMENTS Other short term investments consist of $28,856,100 of time deposits due July 1, 1996. NOTE 5 - DEPOSITS WITH CLEARING ORGANIZATIONS Deposits with clearing organizations, including house and customer funds, at June 30, are as follows:
1996 1995 ----------- ----------- 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 =========== ===========
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:
1996 1995 ------- ------- Investment $ - $28,000 Advances - 11,100 ------- ------- Total $ - $39,100 ======= =======
-51- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 6 - INVESTMENTS IN AND ADVANCES TO AFFILIATED PARTNERSHIPS (Continued) IMSI was required to maintain minimum net worth and investments in the commodity pools as defined in the commodity pool partnership agreements. At June 30, 1995, IMSI was in compliance with those requirements. At June 30, 1996 there were no such requirements. Index provided commodity brokerage services to the pools at agreed upon rates and IMSI received administrative fees from certain pools. NOTE 7 - NOTES PAYABLE Notes payable at June 30, consist of the following:
1996 1995 ---------- ---------- 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 ========== ==========
Interest paid on notes payable during the years ended June 30, 1996, 1995 and 1994 was $801,400, $894,100 and $764,000, respectively, substantially all of which was paid to related parties. -52- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 7 - NOTES PAYABLE (Continued) The weighted average interest rates on short-term borrowings outstanding at June 30, 1996 and 1995 are 11.8% and 12.9%, respectively. Short-term borrowings include notes payable and liabilities subordinated to claims of general creditors. The weighted average interest rate was calculated by dividing interest expense by the related average amount outstanding in June. At June 30, 1996, all notes payable mature during the year ended June 30, 1997. In September, 1996, $900,000 of notes payable to affiliates and other related parties were repaid. NOTE 8 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS Liabilities subordinated to claims of general creditors at June 30, consist of the following:
1996 1995 ---------- ---------- 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 ========== ==========
These liabilities are borrowed in accordance with the terms of a revolving subordinated debt line totalling $4,000,000. Had any of the remaining funds been borrowed, during fiscal 1995, Index's regulatory capital would have increased on a dollar for dollar basis. The full amount of the borrowing was repaid in August, 1996 and the line was cancelled. Interest expense on liabilities subordinated to claims of general creditors during the years ended June 30, 1996, 1995, and 1994 was $352,000, $234,100 and $54,400, respectively. NOTE 9 - STOCKHOLDERS' EQUITY Rights Offering In July, 1994, the Company offered to its common stockholders the non- transferable right to purchase, at a subscription price of $.02 per share, two- thirds of a share of common stock for each one share of common stock owned of record on July 15, 1994. 53,799,304 shares of common stock were available and purchased in the Rights Offering. The gross proceeds of the Rights Offering were $1,076,000. -53- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 9 - STOCKHOLDERS' EQUITY (Continued) Class A Preferred Stock The Company has issued 400,000 shares of Class A preferred stock, 10% cumulative, to its principal stockholder. The shares are redeemable at par, with accumulated dividends, at the option of the Company. At June 30, 1996, cumulative dividends in arrears amounted to $413,300 or $1.03 per share. No liability for these dividends has been recorded as dividends are not payable until declared. Common Stock Effective at the close of business November 4, 1994, the Company effected a one-for-four reverse split of its common stock, par value $.001. Each four shares of such common stock were reclassified and changed into one share of common stock having a par value of $.004. Pursuant to the reverse split, the Company is obligated to pay any holder of fractional shares resulting from the reverse split $.05 per share of common stock up to a maximum of $.15 for three shares. At the close of business on November 4, 1994, the outstanding shares of common stock were reduced to approximately 33,624,565 shares from 134,498,260 shares before the reverse split. As the result of the repurchase of fractional shares, there are outstanding as of June 30, 1996, 33,624,530 shares of common stock. All outstanding share, earnings per share and weighted average information has been restated to reflect the one-for-four reverse split of common stock. Stock Option Plan In March, 1986, the Company adopted an incentive stock option plan reserving 500,000 shares of common stock. In December, 1990, the Company granted options for 410,000 shares at the then market price exercisable through December, 2000. The Company also has granted options other than in accordance with the March 1986 incentive stock option plan. In January, 1995, the Company granted to two officers options totalling 250,000 shares of common stock exercisable from January 3, 1995 until the termination of their respective agreements. On June 30, 1995, options granted in May, 1994 expired and options for 500,000 shares of common stock were -54- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 9 - STOCKHOLDERS' EQUITY (Continued) forfeited. The following summarizes, after restatement for the November 4, 1994 one-for-four reverse stock split, all outstanding options at June 30, 1996. Shares Shares Shares Shares Shares Granted Price Exercisable Forfeited Cancelled Remaining ------- ----- ----------- --------- --------- --------- Dec. 1990 410,000 $.60 317,500 72,969 19,531 317,500 Feb. 1992 125,000 $.25 125,000 - - 125,000 May 1992 75,000 $.60 50,000 25,000 - 50,000 Sept. 1992 125,000 $.375 125,000 - - 125,000 Feb. 1994 1,250,000 $.24 1,250,000 - - 1,250,000 Jan. 1995 250,000 $.125 250,000 - - 250,000 --------- --------- ------- ------ --------- Total 2,235,000 2,117,500 97,969 19,531 2,117,500 ========= ========= ======= ====== ========= NOTE 10 - RELATED PARTY TRANSACTIONS A note receivable in the amount of $627,200 arose in connection with advances made by the Company to an affiliated entity. These demand receivables were converted into a demand note bearing interest at 8% and was subsequently changed to the prime rate of interest. The Company earned $53,500, $52,400, and $39,000 of interest income on this note during the years ended June 30, 1996, 1995 and 1994, respectively. The Company rents from an officer and director, an exchange membership having a market value at June 30, 1996 of approximately $525,000. Rent expense for the years ended June 30, 1996, 1995 and 1994 was $61,500, $64,000, and $49,200, respectively. -55- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 10 - RELATED PARTY TRANSACTIONS (Continued) Certain exchange memberships owned by officers and others, having an aggregate market value of $4,870,000 have been pledged to various exchange clearinghouses or corporations on behalf of the Company and may be used by them under certain circumstances to fulfill the Company's obligations to those clearinghouses or corporations. These exchange memberships are not included in the Company's consolidated statements of financial condition. The Company in the ordinary course of business, guarantees certain loans which are secured by exchange memberships owned by an individual who is an officer and director, and by the principal shareholder. The Company receives funds, in the form of loans, from its principal shareholder, an affiliated company and an officer and director of the Company. See Note 7 for the terms and balances at June 30, 1996 and 1995. In August, 1995, the principal stockholder made a $1,000,000 short term advance to the Company. The Company repaid the advance in September, 1995. Pursuant to the Rights Offering, the principal shareholder, the president of the Company and the president of Index, immediately following the expiration of the Rights Offering, purchased, in addition to their allocable number of shares in the Rights Offering, 9,768,516, 4,884,259 and 4,884,259 shares, respectively, of the Registrant's common stock at the subscription price of $.02 per share. Such shares were the shares not purchased by other shareholders during the Rights Offering. NOTE 11 - SALE OF BRC ASSETS In January, 1993, Brokers Resource Corp. ("BRC"), at the time a wholly- owned subsidiary of Index and until it was dissolved in May, 1996, a wholly- owned subsidiary of the Company, sold the majority of its guaranteed introducing broker business to an unrelated entity in return for a portion of future earnings on such business through January 15, 1995. No gain was recognized at the date of the sale due to the uncertainty of future earnings. During the years ended June 30, 1995 and 1994, the Company earned $481,900, and $982,000, respectively, from the transaction, which is included in commission income. The revenue stream from this transaction ended effective January 15, 1995. -56- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 12-INCOME TAXES The provision for Federal income taxes for each of the years ended June 30, is as follows:
1996 1995 1994 ---------- ---------- ---------- Current $ 98,200 $1,220,600 $ 581,200 Deferred (272,300) 315,600 (175,000) ---------- ---------- ---------- Total provision $(174,100) $1,536,200 $ 406,200 ========== ========== ==========
State income tax expense is immaterial for the years ended June 30, 1996, 1995 and 1994. Reconciliation of the total provision for income taxes to the Federal statutory rate for the years ended June 30, is as follows:
1996 1995 1994 ---- ---- ---- Amount % Amount % Amount % ----------------- -------------- -------------- 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 ========= ==== ========= ==== ======= ====
Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes. Under this standard, deferred tax is recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to -57- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 12 - INCOME TAXES (Continued) affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes. The primary components of the Company's deferred tax assets and liabilities are as follows:
June 30, June 30, 1996 1995 -------- -------- 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) ======== =========
No valuation allowance has been provided as management believes deferred tax assets are realizable. NOTE 13 - COMMITMENTS AND CONTINGENCIES The Company has a noncancellable lease for office space which expires in the year 2002. Minimum annual rentals, excluding escalations and increases in operating expenses and taxes, are as follows:
Year Ending June 30, Amount -------------------- --------- 1997 $ 283,900 1998 350,500 1999 362,300 2000 374,000 2001 and thereafter 849,900 --------- Total $2,220,600 =========
-58- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued) Other office space leases the Company had at June 30, 1996 were transferred to MINC, effective July 1, 1996, and have not been included in the above amounts. As a result of the Sale of Assets, if certain conditions occur over the next two years, the Company may be subject to additional severance payments of up to $517,400. The Company has guaranteed performance under the Commodity Exchange Act of certain introducing brokers with respect to their customer accounts. These introducing broker guarantees were transferred to MINC effective July 1, 1996. Index and BRC issued a limited indemnification agreement to the purchaser of the BRC business (see Note 11). This agreement covers potential customer claims arising from activity prior to the sale. No such claims are currently outstanding. A similar limited indemnification agreement was issued to MINC related to the Sale of Assets. No claims are currently pending. See Note 19. NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK Prior to the Sale of Assets, the Company, through Index, was in the business of clearing and executing futures contracts and options on futures contracts for the accounts of its customers. As such, Index guaranteed to the respective clearinghouses its customers' performance under these contracts. To reduce its risk, Index required its customers to meet, at a minimum, the margin requirement established by each of the exchanges at which the contract was traded. This margin was a good faith deposit from the customer which reduced the risk to Index of failure on behalf of the customer to fulfill any obligation under the contract. To minimize its exposure to risk of loss due to market variation, Index adjusted these margin requirements, as needed, due to daily fluctuations in the values of the underlying positions. If necessary, certain positions may have been liquidated to satisfy resulting changes in margin requirements. Management believes that the margin deposits held at June 30, 1996, were adequate to minimize the risk of material loss which could be created by the positions held at that time. To facilitate small orders from customers, the Company entered into proprietary positions at the MidAmerica Commodity Exchange and offsets these positions at the Chicago Board of Trade and the Chicago Mercantile Exchange, thereby assuming no market risk. At June 30, 1996, Index held proprietary long financial futures positions with an aggregate notional value of $165,130,900 and proprietary short financial futures positions with an aggregate notional value of $165,130,900. At June 30, 1995, Index held proprietary long financial futures positions and -59- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK (Continued) foreign currency forward contracts with an aggregate notional value of $223,616,200 and proprietary short financial futures positions and foreign currency forward contracts with an aggregate notional value of $243,566,100. The exchange upon which financial futures and options on futures contracts are traded acts as the counterparty and, accordingly, bears the risk of performance. At June 30, 1996 Index's open financial contracts were transacted at the Chicago Mercantile Exchange, Chicago Board of Trade, and MidAmerican Commodity Exchange. At June 30, 1996, Index held no foreign currency forward contracts. At June 30, 1995, Index's open financial contracts were transacted at the Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange, Inc. and MidAmerican Commodity Exchange. At June 30, 1995, foreign currency forward contracts were transacted at DAIWA Securities America, Inc. and Refco, Inc. Index FX conducts business for its customers in foreign currencies on the spot market in which trades generally settle on the next business day. Index FX offsets its customer positions to manage its currency risk. It also requires certain customers to post margin deposits. Management believes that with the trades settling the next business day and the margin policy it employs, its credit risk is reduced substantially. At June 30, 1996, Index FX held long foreign currency positions with an aggregate notional value of $2,101,661,100 and short foreign currency positions with an aggregate notional value of $2,101,662,400. At June 30, 1996, the Index FX foreign currency business was transacted with several international financial institutions. NOTE 15 - LITIGATION The Company is a defendant in, and may be threatened with, various legal proceedings arising from its regular business activities. Management, after consultation with legal counsel, is of the opinion that the ultimate liability, if any, resulting from any pending or threatened action or proceedings will not have a material effect on the financial position or results of operations of the Company. -60- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 15 - LITIGATION (Continued) The Company, in October, 1994 settled an Internal Revenue Service assessment which resulted from the review of its calendar year 1990 customer income tax withholding filings. The settlement did not materially affect the financial position or the operations of the Company. The Company was defending against an arbitration filed by a former client to recover damages of $1,000,000 alleging misrepresentation of risk and unauthorized trading. The client's actual losses were approximately $850,000. In July, 1996, an arbitration panel entered an award of no damages for the claimant. In April, 1994, Index without admitting or denying the allegations, paid $100,000 to the CFTC, settling an administrative action filed on September 29, 1992. In a related action, the equity receiver of an alleged commodity pool operator brought an action to recover losses of approximately $600,000, alleging various theories such as constructive trust, negligence, breach of fiduciary duty and conversion. On May 29, 1996, the district judge dismissed the complaint in its entirety. Supplemental Plaintiff filed a Notice of Appeal with the U.S. Court of Appeals for the Seventh Circuit on June 28, 1996. The Seventh Circuit has yet to rule on whether this case may be appealed. Index defended a complaint filed by former partners of a general partnership which cleared its trades at Index. The plaintiff alleged that the general partner, a co-defendant, defrauded them by failing to disclose risks and misrepresenting account performance. The Plaintiffs' actual losses were approximately $157,000. The case was settled in November, 1995 for $25,000. A former officer of Index whose employment was terminated as a result of the Sale of Assets has rejected Index's severance payment offer. The officer has made a demand for $500,000, and has threatened litigation, if a satisfactory offer of settlement is not made. The Company believes that its original severance offer was reasonable and the officer's claims are without merit. NOTE 16 - CAPITAL REQUIREMENTS Index is subject to the minimum capital requirements adopted and administered by the CFTC and by certain exchanges of which Index is a member. As of June 30, 1996, adjusted net capital, as -61- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 16 - CAPITAL REQUIREMENTS (Continued) defined, of approximately $12,038,300 is approximately $5,216,200 in excess of the minimum required under the regulations of the CFTC and exchanges. The net capital requirements may effectively restrict the payment of cash dividends and the repayment of subordinated borrowings. At the request of certain of its non-regulated customers trading in the cash markets, Index transferred funds to its affiliate Index FX. Upon clarification of the net capital rules, it was determined that the receivable from Index FX could not accurately be classified as a current asset. As a result, Index was under early warning and minimum capital requirements and as of March 31, 1996 it had an adjusted net capital, as defined, of $4,406,800 which was $11,272,800 less than the minimum required under the regulations of the CFTC and exchanges. Index informed the Chicago Mercantile Exchange and the CFTC of the capital deficiency. Index took immediate action to correct the deficiency and as of April 23, 1996, was fully in compliance with minimum capital requirements. A subsidiary of JC/312 is subject to the Uniform Net Capital Rule adopted and administered by the Securities and Exchange Commission. At June 30, 1996, the subsidiary is in compliance with those requirements. NOTE 17 - NASDAQ LISTING On August 17, 1994, the Company was advised by NASDAQ that the securities of the Company were delisted from the NASDAQ SmallCap Market effective August 18, 1994. The Company appealed NASDAQ's decision and secured additional market makers. On December 7, 1994, the Company's common stock resumed trading on the NASDAQ SmallCap Market. NOTE 18 - CASH FLOWS For purposes of reporting cash flows, cash does not include segregated or secured cash, as defined in the Commodity Exchange Act. Interest paid during the years ended June 30, 1996, 1995 and 1994 amounted to $4,043,800, $3,194,300 and $1,706,300, respectively. The Company made income tax payments in the amount of $1,100,000, $444,600 and $185,000 during the years ended June 30, 1996, 1995 and 1994, respectively. NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS On May 31, 1996, an agreement was reached to sell, transfer and assign to MINC substantially all of the brokerage accounts maintained by Index, -62- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued) together with all positions, securities and other assets held in or for such accounts and other agreed-upon assets used in the conduct of the brokerage activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based international trading and finance conglomerate. This sale was completed as of July 1, 1996. Shortly thereafter, Index ceased being a clearing member at all exchanges, though it remains a registered futures commission merchant. The purchase price payable by MINC in connection with this transaction is based on a percentage of the net income (as defined in the sales agreement) of the transferred activities during the sixty-six month period following the sale. As the purchase price is contingent upon the future earnings of the customer accounts sold, none of which is guaranteed, no gain on the sale was reflected in the financial statements for the year ended June 30, 1996. Rather, income will be recognized as earned over the next five and one-half years. A condition of the sales agreement required the principal shareholder to sign a non-competition agreement. As compensation for providing such an agreement, a portion of the purchase price will be allocated to the principal shareholder and recorded by the Company concurrently with its recognition of income as described above. Management does not believe this amount will be significant. A net pre-tax, restructuring charge of $1,556,500, related to the sale, was reflected in the income statement for fiscal year 1996. Additionally, a restructuring gain of $664,000 will be reflected in income in fiscal 1997. These amounts consisted of the following:
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 ===========
-63- JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE 19 - SUBSEQUENT EVENT - SALE OF ASSETS (Continued) It is anticipated that the exchange memberships Index currently holds will be liquidated in fiscal 1997 at close to their current market value, which would result in a pre-tax gain of approximately $149,000. In addition, in conjunction with the sale, the Company issued a limited indemnification agreement to MINC. The agreement covers potential customer claims arising from activity prior to the sale. -64- SCHEDULE II JACK CARL/312-FUTURES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts
Additions ---------------------- Charged to (Benefits Charged Balance at Against) to Other Balance Beginning Costs and Accounts Deductions at End of Description of Period Expenses (Describe) (Describe) Period - ------------- ---------- --------- ---------- ------------ --------- 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
(a) Uncollected receivables written off. (b) Collection of receivables previously written off. -65- Exhibit Index ------------- Certain exhibits to this report on Form 10-K have been incorporated by reference. For a list of these exhibits, see Item 14 hereof.
Page In Sequentially Numbered System Where Found ----------------- Exhibit No. Description - ----------- ----------- The following exhibits are filed herewith: 10.42 Employment agreement, dated December 31, 1995, between Jack Carl/312-Futures, Inc. and Philip A. Tanzar 70 10.43 Heads of Agreement, dated July 19, 1995 between Jack Carl/312-Futures, Inc., Simon Drabble, Graham Wellesley and Lorenzo Naldini 78 10.44 Service Agreement, dated July 19, 1995 between Index Forex Limited and Simon Drabble, Graham Wellesley and Lorenzo Naldini 82 11.1 Computation of Earnings Per Common Share 67 17.1 Letter confirming resignation, dated September 26, 1996, from Burton J. Meyer 93 17.2 Letter of resignation, dated September 24, 1996, from Philip A. Tanzar 94 21.1 Subsidiaries of the Registrant 69 24.1 Power of Attorney 40 99.1 Report on Form 8-K for the Registrant as filed on June 14, 1996 with the Securities and Exchange Commission 95
-66- EX-10.42 2 EMPLOYMENT AGREEMENT 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. -70- 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 -2- -71- (e) the death or total disability, am 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. -3- -72- 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 -4- -73- 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 -5- -74- 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. -6- -75- 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. -7- -76- 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 -8- -77- EX-10.43 3 HEADS OF AGREEMENT 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. -78- 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 -79- 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. -80- 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: ------------------------------------- -81- EX-10.44 4 SERVICE AGREEMENT 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. -82- (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 -2- -83- 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 3 -84- 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. -4- -85- 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. -5- -86- (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 -6- -87- 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:- -7- -88- (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. -8- -89- (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. -9- -90- (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: -10- -91- Appendix 2
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
-92- EX-11.1 5 COMPUTATION OF EARNINGS 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
Year Ended June 30, --------------------------------- 1996 1995 1994 ------ ------ ------ 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 ========= ========= =======
-67- 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
Year Ended June 30, ------------------------------------- 1996 1995 1994 ---------- ---------- --------- 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 ========== ========= =======
-68- EX-17.1 6 RESIGNATION LETTER OF BURTON MEYER 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 -93- EX-17.2 7 RESIGNATION LETTER OF PHILLIP TANZAR 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 -94- EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT 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. -69- EX-27.1 9 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1996 JUN-30-1996 1,587,300 144,328,800 16,876,300 (409,300) 0 237,696,700 2,492,900 (2,213,400) 239,887,700 233,671,200 0 0 400,000 134,500 5,682,000 239,887,700 30,606,500 41,134,900 0 16,825,600 21,237,000 140,600 4,238,900 (1,307,200) (174,100) (1,133,100) 0 0 0 (1,133,100) (.03) (.03)
EX-99.1 10 FORM 8-K DATED 6/1/96 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) -95- 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 -96- 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. -97- 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. -98- 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 -99- EX-99.2 11 PRESS RELEASE DATED 6/3/96 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) -100- -----END PRIVACY-ENHANCED MESSAGE-----