SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission File No. 0-9377
KINNARD INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972952
(State of incorporation) (I.R.S. Employer identification number)
920 Second Avenue South, Minneapolis, Minnesota 55402 (612) 370-2700
(Address of principal executive offices) Telephone number
Not applicable
Former name, former address and former fiscal year, if changed since last report
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 at least the past 90 days. Yes X
No _____
Shares of $0.02 par value common stock outstanding at May 9, 1997: 6,296,646
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONTENTS
PART I Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statements of financial condition...........3
Consolidated statements of operations....................4
Consolidated statements of shareholders' equity..........5
Consolidated statements of cash flows....................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................9
PART II
OTHER INFORMATION...........................................12
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
================================================================================= ==================== ====================
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------- -------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $254 $12,518
Funds held in escrow 1,531 1,513
Receivable from clearing firm and other broker-dealers 2,691 968
Miscellaneous receivables 2,475 2,140
Trading securities, at market 7,759 7,658
Office equipment at cost, less accumulated depreciation
of $3,467 and $3,327, respectively 929 980
Investment securities, at fair value 24,930 20,940
Income tax receivable 241 0
Deferred tax receivable 137 0
Other assets 328 424
- --------------------------------------------------------------------------------- -------------------- --------------------
Total assets $41,275 $47,141
================================================================================= ==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Securities sold but not yet purchased, at market $1,312 $842
Employee compensation and related taxes payable 1,811 3,900
Other accounts payable and accrued expenses 2,447 3,011
Income taxes payable 0 3,228
Deferred tax liability 0 131
- --------------------------------------------------------------------------------- -------------------- --------------------
Total liabilities 5,570 11,112
- --------------------------------------------------------------------------------- -------------------- --------------------
Shareholders' equity
Preferred stock, authorized 1,000 shares; none issued or outstanding 0 0
Undesignated stock, authorized 16,500 shares; none issued or outstanding 0 0
Common stock, $.02 par value; authorized 7,500 shares; issued
and outstanding 6,030 and 6,027 shares, respectively 120 120
Additional paid-in capital 12,701 12,710
Retained earnings 22,884 23,199
- --------------------------------------------------------------------------------- -------------------- --------------------
Total shareholders' equity 35,705 36,029
- --------------------------------------------------------------------------------- -------------------- --------------------
Total liabilities and shareholders' equity $41,275 $47,141
================================================================================= ==================== ====================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
================================================================================ =============================================
Three Months Ended
March 31,
- -------------------------------------------------------------------------------- ---------------------------------------------
1997 1996
- -------------------------------------------------------------------------------- ----------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Commission income $3,677 $10,106
Principal transactions 6,501 9,151
Investment account income (loss) (683) 792
Investment banking 537 471
Interest 583 591
Other 558 1,049
- -------------------------------------------------------------------------------- ----------------------- ---------------------
Total revenues 11,173 22,160
- -------------------------------------------------------------------------------- ----------------------- ---------------------
Expenses
Compensation and benefits 8,168 10,710
Bank commissions 0 4,137
Floor brokerage and clearance 982 1,209
Communications 187 320
Occupancy and computer 1,198 1,495
Other 1,152 2,067
- -------------------------------------------------------------------------------- ----------------------- ---------------------
Total expenses 11,687 19,938
- -------------------------------------------------------------------------------- ----------------------- ---------------------
Income (loss) before income taxes (514) 2,222
Income tax expense (benefit) (199) 893
- -------------------------------------------------------------------------------- ----------------------- ---------------------
Net income (loss) ($315) $1,329
================================================================================ ======================= =====================
Earnings (loss) per common share:
Primary ($0.05) $0.22
Fully diluted ($0.05) $0.21
================================================================================ ======================= =====================
Weighted average number of common and common equivalent shares outstanding:
Primary 6,027 6,181
Fully diluted 6,031 6,199
================================================================================ ======================= =====================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
================================================ =============================== ============= ============= =============
Additional Unearned
Common Stock Paid-in Compen- Retained
Shares Amount Capital sation Earnings
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 5,881 $118 $12,861 ($26) $8,122
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Forfeiture of restricted shares and
adjustment to common stock dividend (1) (5) 6 2
Exercise of warrants 381 7 850
Issuance of shares under the employee
stock option plan 11 0 22
Repurchase of shares (15) 0 (48)
Amortization of unearned compensation 20
Net income 3,376
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Balance, December 31, 1995 6,257 125 13,680 0 11,500
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Issuance of shares under employee stock
purchase plan 11 0 51
Issuance of shares under the employee
stock option plan 88 2 311
Repurchase of shares (329) (7) (1,332)
Net income 11,699
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Balance, December 31, 1996 6,027 120 12,710 0 23,199
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Issuance of shares under the employee
stock option plan 13 0 50
Repurchase of shares (10) 0 (59)
Net loss (315)
- ------------------------------------------------ --------------- --------------- ------------- ------------- -------------
Balance, March 31, 1997 (unaudited) 6,030 $120 $12,701 $0 $22,884
================================================ =============== =============== ============= ============= =============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
============================================================================== ===========================================
Three Months Ended
March 31,
1997 1996
- ------------------------------------------------------------------------------ --------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers, brokers-dealers
and clearing agencies $9,919 $15,141
Cash paid to suppliers and employees (14,439) (18,998)
Interest:
Received 565 591
Paid 0 (71)
Income taxes paid (3,538) (424)
- ------------------------------------------------------------------------------ --------------------- ---------------------
Net cash used in operating activities (7,493) (3,761)
- ------------------------------------------------------------------------------ --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 3,998 6,957
Purchase of:
Office equipment (89) (170)
Investment securities (8,671) (2,721)
- ------------------------------------------------------------------------------ --------------------- ---------------------
Net cash provided by (used in) investing activities (4,762) 4,066
- ------------------------------------------------------------------------------ --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 50 47
Repurchase of common stock (59) (995)
Net payments on notes payable and
revolving credit agreements 0 (1,847)
- ------------------------------------------------------------------------------ --------------------- ---------------------
Net cash used in financing activities (9) (2,795)
- ------------------------------------------------------------------------------ --------------------- ---------------------
Decrease in cash and cash equivalents (12,264) (2,490)
Cash and cash equivalents at beginning of period 12,518 5,766
- ------------------------------------------------------------------------------ --------------------- ---------------------
Cash and cash equivalents at end of period $254 $3,276
============================================================================== ===================== =====================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
=============================================================================== ===========================================
Three Months Ended
March 31,
1997 1996
- ------------------------------------------------------------------------------- --------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income (loss) ($315) $1,329
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 141 199
Net unrealized loss (gain) on investment securities 698 (221)
Net realized gain on sale of investment securities (15) (571)
Deferred income taxes (268) (72)
(Increase) decrease in:
Receivable from clearing firm and other brokers-dealers (1,723) (2,773)
Receivable from customers 0 (3,917)
Miscellaneous receivables (354) (197)
Trading securities, at market (101) (22)
Income tax receivable (241) 0
Other assets 96 99
Increase (decrease) in:
Due to clearing firm and other broker-dealers 0 (169)
Payable to customers 0 1,169
Securities sold but not yet purchased 470 (93)
Employee compensation and related taxes payable (2,089) (91)
Other accounts payable and accrued expenses (564) 1,028
Income taxes payable (3,228) 541
- ------------------------------------------------------------------------------- --------------------- ---------------------
Net cash used in operating activities ($7,493) ($3,761)
=============================================================================== ===================== =====================
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The accompanying consolidated financial statements of Kinnard
Investments, Inc., (the "Company") have been prepared in
conformity with generally accepted accounting principles and
should be read in conjunction with the Company's annual report for
the year ended December 31, 1996. The results of operations for
the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the year ended
December 31, 1997.
The consolidated statement of financial condition as of March 31,
1997 and other financial information for the three months ended
March 31, 1997 and 1996, are unaudited, but management of the
Company believes that all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the
results of operations for the periods have been included.
Note 2. Net Capital Requirements
Pursuant to the net capital provision of the Securities Exchange
Act of 1934, the Company's subsidiary, John G. Kinnard and
Company, Incorporated ("JGK") is required to maintain minimum net
capital as defined under such provisions. Also under this rule,
JGK's ratio of aggregate indebtedness to net capital may not
exceed 15 to 1, and JGK may be prohibited from expanding its
business or declaring cash dividends if its ratio of aggregate
indebtedness to net capital is greater than 10 to 1.
At March 31, 1997, JGK had net capital of $5.6 million, a net
capital requirement of $590,000 and a ratio of aggregate
indebtedness to net capital of .83 to 1.
Note 3. Commitments and Contingent Liabilities
In May 1997, a lawsuit seeking class action status was filed in
U.S. District Court in Minnesota alleging that Photran
Corporation, its management, and JGK violated securities laws by
issuing false and misleading statements related to financial
results. JGK managed the initial public offering of Photran in May
1996. JGK believes that it has substantial defenses against these
claims, and intends to defend itself vigorously against them. The
ultimate effect of this matter on the future operating results and
financial condition of the Company is unknown at this time.
JGK is a defendant in various other actions relating to its
business, some of which involve claims for unspecified amounts.
Although the resolution of these matters cannot be predicted with
certainty, the Company's management believes that while their
outcome may have a material effect on the earnings in a particular
period, the outcome will not have a material adverse effect on the
financial condition of the Company.
In the normal course of business, the Company enters into
underwriting and other commitments. The ultimate settlement of
such transactions open at quarter-end is not expected to have a
material effect on the consolidated financial statements.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Management's Discussion and
Analysis contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
Results of Operations
The following table sets forth a summary of changes in the major
categories of revenues and expenses:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended
Unaudited March 31, 1997 versus March 31, 1996
Increase (Decrease)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Commission income ($6,429) (64%)
Principal transactions (2,650) (29)
Investment account income (1,475) (186)
Investment banking 66 14
Interest (8) (1)
Other (491) (47)
- -------------------------------------------------------------------------------------------------------------------
Total revenues (10,987) (50)
- -------------------------------------------------------------------------------------------------------------------
Expenses
Compensation and benefits (2,542) (24)
Bank commissions (4,137) (100)
Floor brokerage and clearance (227) (19)
Communications (133) (42)
Occupancy and computer (297) (20)
Other (915) (44)
- -------------------------------------------------------------------------------------------------------------------
Total expenses (8,251) (41)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes (2,736) (123)
Income taxes (1,092) (122)
- -------------------------------------------------------------------------------------------------------------------
Net income ($1,644) (124%)
===================================================================================================================
</TABLE>
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1997 and 1996
The broader market lost momentum during the quarter as the Federal Reserve
increased interest rates for the first time in over a year. The Nasdaq composite
finished down 5%, while the Dow Jones Industrial Average and S&P 500 both
finished up slightly over 2%.
For the quarter, the Company recorded a net loss of $315,000, or 5 cents per
share, on revenues of $11.2 million. This compares with net income of $1.3
million, or 22 cents per share, on revenues of $22.2 million for the same period
last year. Included in the prior year are results for PRIMEVEST Financial
Services, Inc. ("PFS") which was sold by the Company in October 1996. Excluding
PFS, revenues and net income for the first quarter of 1996 would have been $14.1
million and $778,000, or 13 cents per share, respectively.
Commission income declined by $6.4 million, but increased by $185,000 when
excluding the results of PFS from the prior year. Sales of listed and
over-the-counter equity securities along with insurance products increased,
while sales of mutual fund products were slightly lower.
Revenue from principal transactions declined by 29%. The decline would have been
26% excluding the results of PFS. This decline is due primarily to lower
transaction levels in small capitalization equities, which is a primary focus of
the Company. Fixed income principal transactions were flat compared to the prior
year.
The change in valuation of securities in the investment account was a loss of
$683,000 in the current quarter, compared to income of $792,000 ($668,000
excluding PFS) for first quarter of 1996. This account has historically been a
volatile source of income for the Company.
Investment banking revenues increased by $66,000 based on increases in public
finance and corporate finance advisory fee activity. The Company completed one
private placement during the current quarter versus two in the prior year.
Interest income declined by 1%, but increased by 78% excluding the results of
PFS. The increase was due primarily to interest income earned on the proceeds
from the sale of PFS and higher investable balances in the current period.
Employee compensation decreased by 24% as reported, and 9% excluding the results
of PFS. Bank commissions, which were related entirely to the business of PFS,
are zero for the current period. Floor brokerage and clearing declined as a
result of lower revenues. Other operating expenses declined in part due to the
resolution of certain litigation matters.
Liquidity and Capital Resources
Operating Activities
A large portion of the Company's assets are cash and assets readily convertible
to cash. The liquid portions of the Company's trading and investment securities
are stated at quoted market values and are readily marketable. The less liquid
portions of trading and investment securities, which totaled $2.6 million at
March 31, 1997, are stated at fair value, which is determined by management's
best estimate.
Between December 31, 1996 and March 31, 1997 trading securities increased
$101,000 and securities sold but not yet purchased increased by $470,000. Both
long and short inventories are generally maintained to facilitate customer
transactions rather than for market speculation.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As a securities broker-dealer, JGK is required by SEC regulations to meet
certain liquidity and capital standards. It has been in compliance with these
regulations at all times.
Based on the Company's current liquidity positions, available bank lines and
operating plans, it is anticipated that the Company has sufficient resources to
meet the cash requirements of its operations in the foreseeable future.
Investing Activities
The majority of investing activities during the current period resulted from the
sale and purchase of securities held in the investment account. A large portion
of the investment account is comprised of liquid investment-grade fixed income
securities.
Financing Activities
JGK maintains a credit facility in order to meet short-term operating needs. At
December 31, 1996 and March 31, 1997 there were no outstanding balances under
this facility.
During the first three months of 1997, the Company repurchased 10,000 shares of
its common stock at a total cost of $59,000. The Board of Directors has
authorized the repurchase of up to 1.1 million shares of the Company's common
stock, of which a total of 597,000 shares have been repurchased as of March 31,
1997.
Cautionary Statements
As provided under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors of the following factors which could affect
the Company's results of operations and cause such results to differ materially
from those anticipated in forward-looking statements made in this document or
elsewhere by or on behalf of the Company: volatility in the securities markets,
risks in the ownership and underwriting of securities, consolidation in the
financial services industries, volatility in earnings and losses of investment
accounts, competition, government regulation, customer litigation and
arbitration, and off-balance-sheet credit and market risks. For a more complete
discussion of these and other factors, see the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
<PAGE>
KINNARD INVESTMENTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Note 3 in Notes to Consolidated Financial Statements.
ITEM 2 - CHANGES IN SECURITIES
Effective April 7, 1997, the Registrant sold to William
F. Farley, 325,000 Units for $1,706,250. Each Unit
consists of one share of Common Stock of the Registrant
and a Warrant to purchase an additional share of Common
Stock at a price of $6.00 per share. The sale of such
securities was deemed to be exempt from registration
under the Securities Act of 1933 by virtue of Section
4(2) thereof. Mr. Farley represented his intention to
acquire the securities for investment purposes only,
and not with a view to the distribution thereof; in
addition, a restrictive securities legend has been
placed on the certificates representing the securities.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Subscription and Purchase Agreement dated
April 7, 1997 between the Registrant and William
F. Farley.
10.2 Warrant dated April 7, 1997 to purchase 325,000
shares of the Registrant's Common Stock
issued to William F. Farley.
10.3 Employment Agreement dated April 7, 1997
between the Registrant and William F. Farley.
10.4 Incentive Stock Option Agreement dated April 7,
1997 between the Registrant and William F.
Farley.
10.5 Nonqualified Stock Option Agreement dated
April 7, 1997 between the Registrant and William
F. Farley.
10.6 Kinnard Investments, Inc. 1997 Stock Option
Plan, as amended, including forms of Incentive
Stock Option Agreement and Nonqualified Stock
Option Agreement.
10.7 Promissory Note dated April 30, 1997 payable to
the Registrant by William F. Farley.
27 Financial Data Schedule (filed in electronic
format only)
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KINNARD INVESTMENTS, INC.
/s/ Daniel R. Sass
Daniel R. Sass
Treasurer (principal financial and
accounting officer)
Date 05/9/97
Exhibit 10.1
SUBSCRIPTION AND PURCHASE AGREEMENT
SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the 7th
day of April, 1997, by and between KINNARD INVESTMENTS, INC., a Minnesota
corporation (the "Company"), and WILLIAM F. FARLEY, a natural person (the
"Subscriber").
RECITALS:
WHEREAS, Subscriber and the Company have arranged for this Subscription and
Purchase Agreement (the "Agreement") to provide for the subscription and, if
such subscription as set forth in this Agreement is accepted by the Company, the
purchase by the Subscriber, on the terms and subject to the conditions set forth
in this Agreement, of 325,000 units (the "Units") at a purchase price of $5.25
per Unit, and
WHEREAS, each Unit consists of one share of the Company's Common Stock, par
value $.02 per share ("Shares") and a five-year warrant ("Warrants") to purchase
one share of the Company's Common Stock at $6.00 per share ("Warrant Shares")
substantially in the form attached hereto as Exhibit A; and
WHEREAS, the Company's Common Stock is listed for trading on the Nasdaq
National Market, and the Company is subject to the reporting requirements of
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and has been subject to such filing requirements for the past ninety (90)
days; and
WHEREAS, the Subscriber is an "accredited investor" as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act"); and
WHEREAS, the Units, Shares, Warrants and Warrant Shares (collectively, the
"Securities") shall not be registered securities under federal or state
securities laws or quoted or listed for trading on any securities exchange,
organized market or quotation system at the time of acquisition hereunder; and
WHEREAS, in order to induce the Subscriber to enter into this Agreement and
to subscribe for and purchase the Securities on the terms and subject to the
conditions hereof, the Company is granting certain registration rights hereunder
with respect to the Shares and the Warrant Shares as hereinafter set forth; and
WHEREAS, in reliance upon certain representations made by the Subscriber
herein, the transactions contemplated by this Agreement are such that the offer
and sale of the Securities by the Company hereunder will be exempt from
registration under applicable federal and state securities laws pursuant to
exemptions made available under such laws.
<PAGE>
AGREEMENTS:
NOW, THEREFORE, for and in consideration of the premises, and the mutual
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Subscription for and Purchase of Securities. On the basis of the
representations, warranties, covenants and agreements, and subject to the terms
and conditions set forth herein, the Company agrees to sell, transfer, convey
and deliver to the Subscriber, and the Subscriber agrees to purchase, acquire
and accept delivery from the Company, 325,000 Units at $5.25 per Unit for an
aggregate purchase price of $1,706,250. Simultaneously with the execution of
this Agreement, Subscriber has delivered to the Company, by wire transfer or
personal check, the purchase price for the Units being purchased. Upon receipt
by the Company of the purchase price for the Units being purchased, the Company
has caused certificates representing the Shares and the Warrants to be delivered
to the Subscriber.
2. Representations, Warranties and Covenants of Subscriber. In connection
with this Agreement, the Subscriber hereby represents, warrants and covenants to
the Company as follows:
a. Investment Intent. The Subscriber represents and warrants that the
Securities being purchased are being acquired solely for the Subscriber's own
account, for investment purposes only and not with a view toward the
distribution or resale to others. Subscriber acknowledges, understands and
appreciates that the Securities have not been registered under the Securities
Act of 1933, as amended (the "Act") by reason of a claimed exemption under the
provisions of such Act which depends, in large part, upon Subscriber's
representations as to investment intention, investor status and related and
other matters set forth herein. Subscriber understands that, in the view of the
United States Securities and Exchange Commission (the "SEC"), among other
things, a purchase now with an intent to distribute or resell would represent a
purchase and acquisition with an intent inconsistent with its representation to
the Company, and the SEC might regard such a transfer as a deferred sale for
which the registration exemption is not available. Subscriber agrees and
consents to the placement of a legend on the Securities stating that such
Securities have not been registered under the Act or applicable state securities
laws.
b. Certain Risk. The Subscriber has conducted his own due diligence review
of the Company and recognizes that the purchase of the Securities involves a
degree of risk in that (i) an investment in the Company is highly speculative
and only investors who can afford the loss of their entire investment should
consider investing in the Company; (ii) an investor may not be able to liquidate
his investment; (iii) transferability of the Securities is extremely limited;
(iv) in the event of a disposition of the Company an investor could sustain the
loss of his entire investment; (v) no return on investment, whether through
distributions, appreciation, transferability or otherwise, and no performance
by, through or of the Company, has been promised, assured, represented or
warranted by the Company, or by any director, officer, employee, agent or
representative thereof; and (vi) while the Company's Common Stock is
<PAGE>
presently quoted and traded on the Nasdaq National Market and while the
Subscriber is a beneficiary of certain registration rights provided herein,
neither the Units nor the Warrants are quoted, traded or listed for trading or
quotation on any organized market or quotation system and there is therefore no
market for the Units or the Warrants, and there can be no assurance that the
Company's Common Stock will continue to be quoted, traded or listed for trading
or quotation on the Nasdaq National Market or on any other organized market or
quotation system.
c. Transfer Restrictions.
i. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the Securities under the
Act, with the exception that the Company is obligated to provide those
registration rights set forth in Section 4 hereof. The Subscriber will
not transfer the Securities unless the Securities are registered under
the Act and any applicable state "blue sky" laws ("Securities Laws") or
unless an exemption is available therefrom. The Subscriber acknowledges
that the Company will permit the transfer of the Securities out of its
name only when its request for transfer is accompanied by an opinion of
counsel reasonably satisfactory to the Company that neither the sale
nor the proposed transfer results in a violation of the Act and
applicable Securities Laws. The Subscriber agrees to hold the Company
and its directors, officers and controlling persons and their
respective heirs, representatives, successors and assigns harmless and
to indemnify them against all liabilities, costs and expenses incurred
by them as a result of any misrepresentation made by the Subscriber
contained herein or any sale or distribution by the Subscriber in
violation of any Securities Laws.
ii. The Subscriber understands that the Company at a future
date may file a registration or offering statement (the "Registration
Statement") with the Securities and Exchange Commission to facilitate a
public offering of its shares. The Subscriber agrees, for the benefit
of the Company, that should such a public offering be made and should
the managing underwriter of such offering require, the Subscriber, or
any transferee of the Subscriber, will not, without the prior written
consent of the Company and such underwriter, during the period
commencing on the effective date of the Registration Statement and
ending 180 days thereafter or such shorter period required of
affiliates of the Company (the "Lockup Period") (i) sell, transfer or
otherwise dispose of, or agree to sell, transfer or otherwise dispose
of any of the Securities beneficially held by the Subscriber during the
Lockup Period, (ii) sell, transfer or otherwise dispose of, or agree to
sell, transfer or otherwise dispose of any options, rights or warrants
to purchase any of the Securities beneficially held by the Subscriber
during the Lockup Period, or (iii) sell or grant, or agree to sell or
grant, options, rights or warrants with respect to any of the
Securities. The foregoing lockup would not prohibit, during the Lockup
Period, gifts to donees or restrictions set forth herein or transfers
by will or the laws of descent to heirs or beneficiaries provided such
donees, heirs and beneficiaries shall be bound by the restrictions set
forth herein.
d. Accredited Investor; Residency. The Subscriber represents that (i) it is
an "accredited investor" as defined in Regulation D under the Act; (ii) it has
adequate means of providing for the Subscriber's current financial needs and
possible contingencies and has no need
<PAGE>
for liquidity of the Subscriber's investment in the Securities; (iii) it is able
to bear the economic risks inherent in an investment in the Securities and that
an important consideration bearing on its ability to bear the economic risk of
the purchase of Securities is whether the Subscriber can afford a complete loss
of the Subscriber's investment in the Securities and the Subscriber represents
and warrants that the Subscriber can afford such a complete loss; (iv) it has
such knowledge and experience in business, financial, investment and banking
matters (including, but not limited to, investments in restricted, non-listed
and non-registered securities) that the Subscriber is capable of evaluating the
merits, risks and advisability of an investment in the Securities; and (v) he is
a resident of the state indicated on the signature page hereof.
e. Documents, Information and Access. The Subscriber acknowledges that (i)
its decision to purchase the Securities is not based on any promotional,
marketing or sales materials, and (ii) it and its representatives have been
afforded, prior to purchase thereof, the opportunity to ask questions of, and to
receive answers from, the Company and its management, and has had access to all
documents and information which Subscriber deems material to an investment
decision with respect to the purchase of Securities hereunder, including,
without limitation, copies of certain documents which have been filed with the
SEC pursuant to Sections 13(a), 14(a), 14(c) or 15(d) of the Exchange Act since
December 31, 1995.
f. Accuracy or Representations and Warranties. Subscriber represents that
all of the representations, warranties, understandings and acknowledgements that
Subscriber has made herein are true and correct in all material respects as of
the date of execution hereof, and that Subscriber will perform and comply fully
in all material respects with all covenants and agreements set forth herein and
Subscriber covenants and agrees that until the acceptance of this Agreement by
the Company, Subscriber shall inform the Company immediately in writing of any
changes in any of the representations or warranties provided or contained
herein.
3. Representations, Warranties and Covenants of the Company. In order to
induce Subscriber to enter into this Agreement and to purchase the Securities,
the Company hereby represents, warrants and covenants to Subscriber as follows:
a. Organization, Authority, Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Minnesota. The Company has full corporate power and authority to own,
lease and operate its properties and assets and to conduct and carry on its
business as it is now being conducted and operated. The Company is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of its properties, or the conduct
of its business as it is now being conducted and operated, requires such
qualification and in which the failure to be qualified or in good standing would
have a material adverse effect on the business of the Company.
b. Authorization. The Company has full power and authority to execute and
deliver this Agreement and to perform its obligations under and consummate the
transactions contemplated by this Agreement. Upon the execution of this
Agreement by the Company and delivery of the Securities, this Agreement and the
Securities shall have been duly and validly executed and delivered by the
Company and this Agreement and the Warrants shall constitute
<PAGE>
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with its terms except as enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors' rights and remedies generally
and except as rights to indemnification and contribution hereunder may be
limited by applicable securities laws and policies. The Company has sufficient
shares of Common Stock duly authorized by its Articles of Incorporation to issue
the Shares and the Warrant Shares upon exercise of the Warrants.
c. Ownership of, and Title to, Securities: Exemption from Registration.
i. The Shares and Warrant Shares have been duly authorized
and, when issued and delivered pursuant to this Agreement and the terms
of the Warrants, will be validly issued, fully paid and nonassessable
shares of the Common Stock of the Company. Upon consummation of the
acquisition of the Shares and Warrant Shares pursuant to this Agreement
and the Warrants, the Subscriber will own and acquire title to the
Shares and Warrant Shares free and clear of any and all proxies, voting
trusts, pledges, options, restrictions or other legal or equitable
encumbrance of any nature whatsoever (other than those restrictions
created by the Subscriber and the restrictions on transfer due to
securities laws or as otherwise provided for in this Agreement).
ii. The Company represents and warrants that the offer and
sale of the Securities to the Subscriber in accordance with the terms
and provisions of this Agreement is being effected in accordance with
the Act pursuant to (i) a private placement exemption to the
registration provisions of the Act pursuant to Section 3(b) or 4(2) of
such Act and Regulation D promulgated under such Act.
d. No Violation of Agreements. The Company is not in violation of its
Articles of Incorporation or Bylaws. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which the Company or its properties are bound, and there does not exist any
state of facts which constitutes an event of default on the part of the Company
or which, with notice or lapse of time or both, would constitute such an event
of default under these agreements. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to (i) any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note,
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument to which the Company is a party or by which the property or assets
of the Company is bound, or (ii) the Company's Articles of Incorporation or
Bylaws or (iii) any statute or any order, rule or regulation of any court,
governmental agency or body having jurisdiction over the Company.
4. Registration Rights. In order to induce the Subscriber to enter into
this Agreement and purchase the Securities, the Company hereby covenants and
agrees to grant to
<PAGE>
the Subscriber the rights set forth in this Section 4 with respect to the
registration of the Shares and the Warrant Shares.
a. Demand Registration. Subject to the terms of Section 4 hereof, the
Company agrees that, upon the request of the Subscriber at any time after the
third anniversary of the issuance of the Warrants, the Company shall prepare and
file with the SEC, a registration statement on Form S-3 (or successor form) and
such other documents, including a prospectus, as may be necessary in the opinion
of counsel for the Company in order to comply with the provisions of the Act, so
as to permit a public offering and sale of the Shares and the Warrant Shares. In
connection with the offering of such Common Stock registered pursuant to this
Section 4, the Company shall take such actions as shall be reasonably necessary
to qualify the Common Stock covered by such registration statement under such
Securities Laws as shall be reasonably necessary to permit the public offering
and sale of shares of Common Stock covered by such registration statement;
provided, however, that the Company shall not be required (i) to qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) to subject itself to
taxation in any such jurisdiction. It is expressly agreed that in no event are
any registration rights being granted to the Units or the Warrants, but only
with respect to the Shares and the Warrant Shares issuable upon exercise of the
Warrants.
b. Participatory Registration. If at any time after the third anniversary
of the issuance of the Warrants, the Company proposes to register under the 1933
Act (except by a Form S-4 or Form S-8 Registration Statement or any successor
forms thereto) or qualify for a public distribution under Section 3(b) of the
1933 Act, any of its securities, it will give written notice to the Subscriber
of its intention to do so and, on the written request of the Subscriber given
within twenty (20) days after receipt of any such notice from the Company (which
request shall specify the Shares and Warrant Shares intended to be sold or
disposed of by the Subscriber), the Company will use its best efforts to cause
all such Shares and Warrant Shares, to be included in such registration
statement proposed to be filed by the Company; provided, however, that if a
greater number of Shares and Warrant Shares is offered for participation in the
proposed offering than in the reasonable opinion of the managing underwriter of
the proposed offering can be accommodated without adversely affecting the
proposed offering, then the amount of Shares and Warrant Shares proposed to be
offered by the Subscriber for registration, as well as the number of securities
of any other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter, which may be zero.
c. Current Registration Statement. Once effective, the Company shall use
its reasonable efforts to cause any registration statement filed under Section
4.a. hereof to remain current and effective for a period of one (1) year or
until the Shares and Warrant Shares covered by such registration statement are
sold by the Subscriber, whichever is less. The Subscriber shall promptly provide
all such information and materials and take all such action as may be required
in order to permit the Company to comply with all applicable requirements of the
SEC and to obtain any desired acceleration of the effective date of such
registration statement.
<PAGE>
d. Other Provisions. In connection with the offering of any Shares or
Warrant Shares registered pursuant to this Section 4, the Company shall furnish
to the Subscriber such number of copies of any final prospectus as it may
reasonably request in order to effect the offering and sale of the Shares and
Warrant Shares to be offered and sold. In connection with any offering of Shares
and Warrant Shares registered pursuant to this Section 4, the Company shall
instruct any transfer agent and registrar of the Shares and Warrant Shares to
release immediately any stop transfer order, and to remove any restrictive
legend, with respect to Shares and Warrant Shares included in any registration
becoming effective pursuant to this Agreement.
e. Costs. Subject to the immediately following sentence, the Company shall
in all events pay and be responsible for all fees, expenses, costs and
disbursements associated with the registration statement under this Section 4,
including filing fees, fees, costs and disbursements of any counsel, accountants
and other consultants representing the Company in connection therewith.
Notwithstanding anything set forth herein to the contrary, Subscriber shall be
responsible for any and all underwriting discounts and commissions in connection
with the sale of the Shares and Warrant Shares pursuant hereto and all fees of
its legal counsel and other advisors retained in connection with reviewing any
registration statement.
f. Successors. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, properties, stock or assets of the Company,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place.
g. Indemnification.
i. The Company will indemnify and hold harmless the
Subscriber, its directors and officers, and any underwriter (as defined
in the Act) for the Subscriber and each person, if any, who controls
the Subscriber or such underwriter within the meaning of the Act, from
and against, and will reimburse the Subscriber and each such
underwriter and controlling person with respect to, any and all loss,
damage, liability, cost and expense to which such holder or any such
underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or
arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of, or is based
upon, an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by
the Subscriber, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
<PAGE>
ii. The Subscriber will indemnify and hold harmless the
Company, its directors and officers, any controlling person and any
underwriter from and against, and will reimburse the Company, its
directors and officers, any controlling person and any underwriter with
respect to, any and all loss, damage, liability, cost or expense to
which the Company or any controlling person and/or any underwriter may
become subject under the Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of, or are based upon,
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon, and in strict conformity
with, written information furnished by, or on behalf of, the Subscriber
specifically for use in the preparation thereof.
iii. Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (i) or (ii) of this Section 4(g) of
notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party will, if
a claim thereof is to be made against the indemnifying party pursuant
to the provisions of said paragraph (i) or (ii), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, assume the defense thereof; or, if there is a
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified
parties have the right to select only one (1) separate counsel to
participate in the defense of such action on behalf of all such
indemnified parties. After notice from the indemnifying parties to such
indemnified party of the indemnifying parties' election so to assume
the defense thereof, the indemnifying parties will not be liable to
such indemnified parties pursuant to the provisions of said paragraph
(i) or (ii) for any legal or other expense subsequently incurred by
such indemnified parties in connection with the defense thereof, other
than reasonable costs of investigation, unless (i) the indemnified
parties shall have employed counsel in accordance with the provisions
of the preceding sentence; (ii) the indemnifying parties shall not have
employed counsel satisfactory to the indemnified parties to represent
the indemnified parties within a reasonable time after the notice of
the commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying parties.
5. Securities, Legends and Notices. Subscriber represents and warrants that
it has read, considered and understood that the following legends, substantially
in the form and substance set forth below, shall be placed on the Securities:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAW AND AN OPINION OF COUNSEL
FOR KINNARD INVESTMENTS, INC. THAT SUCH REGISTRATION AND QUALIFICATION
IS NOT REQUIRED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
AN EXEMPTION THEREFROM.
SALE OR OTHER TRANSFER OF THESE SECURITIES IS FURTHER RESTRICTED FOR UP
TO 180 DAYS FOLLOWING A PUBLIC OFFERING OF SECURITIES OF THE COMPANY BY
THE TERMS OF A SUBSCRIPTION AND PURCHASE AGREEMENT, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY.
6. Miscellaneous.
a. Amendment; Waiver. Neither this Agreement nor the Warrants shall be
changed, modified or amended in any respect except by the mutual written
agreement of the parties hereto. Any provision of this Agreement or the Warrants
may be waived in writing by the party which is entitled to the benefits thereof.
No waiver of any provision of this Agreement or the Warrants shall be deemed to,
or shall constitute a waiver of, any other provision hereof or thereof (whether
or not similar), nor shall any such waiver constitute a continuing waiver.
b. Binding Effect; Assignment. Neither this Agreement nor any rights or
obligations hereunder are assignable by the Subscriber.
c. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Minnesota without giving effect to such state's conflicts of law provisions.
d. Severability. Any term or provisions of this Agreement or the Warrants
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction only, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or thereof
affecting the validity or enforceability of such provision in any other
jurisdiction.
e. Headings. The captions, headings and titles preceding the text of each
or any Section, subsection or paragraph hereof are for convenience or reference
only and shall not affect the construction, meaning or interpretation of this
Agreement or the Debentures or any term or provisions hereof or thereof.
<PAGE>
f. Counterparts. This Agreement may be executed in one or more original or
facsimile counterparts, each of which shall be deemed an original and all of
which shall be considered one and the same agreement, binding on all of the
parties hereto, notwithstanding that all parties are not signatories to the same
counterpart. Upon delivery of an executed counterpart by the undersigned
Subscriber to the Company, which in turn is executed and delivered by the
Company, this Agreement shall be binding as one original agreement between
Subscriber and the Company.
g. Transfer Taxes. Each party hereto shall pay all such sales, transfer,
use, gross receipts, registration and similar taxes arising out of, or in
connection with, the transactions contemplated by this Agreement and the
Warrants (collectively, the "Transfer Taxes") as are payable by such party under
applicable law, and the Company shall pay the cost of any documentary stock
transfer stamps, if any, to be affixed to the certificates representing the
Shares and Warrant Shares to be issued.
h. Entire Agreement. This Agreement and the Warrants merge and supersede
any and all prior agreements, understandings, discussions, assurances, promises,
representations or warranties among the parties with respect to the subject
matter hereof, and contains the entire agreement among the parties with respect
to the subject matter set forth herein and therein.
i. No Brokers. Each of the parties hereto represents and warrants to the
other than there are no broker's, finder's or any other similar fees and
commissions due or payable with respect to the sale of the Securities by the
Company to the Subscriber and each of the parties hereby agrees to indemnify and
hold harmless the other with respect to such representation and warranty and any
breach thereof.
j. Notices. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing, by hand or by fax,
by certified or registered mail, return receipt requested, postage prepaid, or
by U.S. Express Mail service, or by private overnight mail service (e.g.,
Federal Express). Any such notice shall be deemed to have been given (i) on the
business day actually received if given by hand or by fax, (ii) on the business
day immediately subsequent to mailing, if sent by U.S. Express Mail service or
private overnight mail service, or (iii) five (5) business days following the
mailing thereof, if mailed by certified or registered mail, postage prepaid,
return receipt requested, and all such notices shall be sent to the addresses
identified on the signature page hereof (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section).
k. No Third Party Beneficiaries. This Agreement and the rights, benefits,
privileges, interests, duties and obligations contained or referred to herein
shall be solely for the benefit of the parties hereto and no third party shall
have any rights or benefits hereunder as a third party beneficiary or otherwise
hereunder.
l. Public Announcements. Neither Subscriber nor any affiliate or affiliated
person or entity of Subscriber, shall make or issue any press releases or
otherwise make any public statements or make any disclosures to any third person
or entity with respect to the transactions
<PAGE>
contemplated herein and will not make or issue any press releases or otherwise
make any public statements of any nature whatsoever with respect to the Company
without the express prior approval of the Company provided, however, that
Subscriber may make any such filings or disclosures that may be required by
applicable state and federal securities laws without such prior approval of the
Company. Neither the Company nor any officer, director, stockholder, employee,
affiliate or affiliated person or entity of the Company, shall make or issue any
press releases or otherwise make any public statements or make any disclosures
to any third person or entity with respect to the transactions contemplated
herein and will not make or issue any press releases or otherwise make any
public statements of any nature whatsoever with respect to Subscriber without
the express prior approval of Subscriber; provided, however, that the Company
may make any such filings or disclosures that may be required by applicable
state and federal securities laws without such prior approval of Subscriber.
m. Indemnity.
i. Subscriber hereby agrees to indemnify and hold harmless the
Company, and the Company's successors and assigns, from, against and in
all respects of any demands, claims, actions or causes of action,
assessments, liabilities, losses, costs, damages, penalties, charges,
fines or expenses (including, without limitation, interest, penalties,
and attorneys' and accountants' fees, disbursements and expenses),
arising out of or relating to any breach by Subscriber of any
representations, warranty, covenant or agreement made by Subscriber in
this Agreement. Such right to indemnification shall be in addition to
any and all other rights of the Company under this Agreement or
otherwise, at law or in equity.
ii. The Company hereby agrees to indemnify and hold harmless
the Subscriber, and the Subscriber's successors and assigns, from,
against and in all respects of any demands, claims, actions or causes
of action, assessments, liabilities, losses, costs, damages, penalties,
charges, fines or expenses (including, without limitation, interest,
penalties, and attorneys' and accountants' fees, disbursements and
expenses), arising out of or relating to any breach by the Company of
any representations, warranty, covenant or agreement made by the
Company in this Agreement. Such right to indemnification shall be in
addition to any and all other rights of the Subscriber under this
Agreement or otherwise, at law or in equity.
n. Survival. The Company and the Subscriber each expressly acknowledge and
agree that all of their respective representations, warranties, agreements and
covenants set forth in this Agreement shall be of the essence hereof and shall
survive the execution and delivery of this Agreement, the sale and purchase of
the Securities and the exercise of the Warrants.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have executed this Agreement
in the manner appropriate to each, all as of the date first above written.
KINNARD INVESTMENTS, INC.
By /s/ Hilding C. Nelson
Its Chairman
/s/ William F. Farley
William F. Farley
Exhibit 10.2
The securities represented by this certificate has not been registered, under
either the Securities Act of 1933, as amended, or applicable state securities
laws. They may not be sold, offered for sale or transferred in the absence of an
effective registration under the Securities Act of 1933, as amended, and the
applicable state securities laws or an opinion of counsel satisfactory in form
and substance to counsel for the Company that such transaction will not result
in a prohibited transaction under the Securities Act of 1933, as amended, or the
applicable state securities laws.
WARRANT
To Purchase 325,000 Shares of Common Stock
of
Kinnard Investments, Inc.
THIS CERTIFIES THAT, for good and valuable consideration William F. Farley
(the "Investor") or his registered assigns, is entitled to subscribe for and
purchase from Kinnard Investments, Inc., a Minnesota corporation (the
"Company"), an aggregate of Three Hundren and Twenty-five Thousand (325,000)
fully paid and nonassessable shares of the Common Stock of the Company at $6.00
per share (the "Warrant Exercise Price"), subject to the antidilution provisions
of this Warrant, according to the following schedule: 125,000 at any time on or
after December 31, 1997 and 200,000 at any time on or before December 31, 1998,
provided that in all events this Warrant shall expire April 6, 2002.
Notwithstanding the foregoing, the Holder (as defined below) may exercise this
Warrant prior to its expiration in the event of any consolidation or merger to
which the Company is a party and in which the Company is not the acquiring
entity, any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, or the liquidation or
dissolution of the Company. Reference is made to this Warrant in the
Subscription and Purchase Agreement dated April 7, 1997 by and between Investor
and the Company. The shares which may be acquired upon exercise of this Warrant
are referred to herein as the "Warrant Shares." As used herein, the term
"Holder" means Investor or any party who acquires all or a part of this Warrant
as a registered transferee of the Investor, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. The term "Common Stock" means and includes the Company's presently
authorized common stock, par value $.02 per share, and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares.
(b) This Warrant may be sold, transferred, assigned, hypothecated or
divided into two or more Warrants of smaller denominations, and the Warrant
Shares issued pursuant to exercise of this
<PAGE>
Warrant may be transferred, subject to the provisions of Section 7 hereof and
applicable federal and state securities laws and regulations.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Investor shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 60 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
<PAGE>
5. Antidilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable
in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of Warrant Shares, calculated to the nearest full share, obtained by
multiplying the number of Warrant Shares purchasable prior to adjustment by the
Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a party
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), there shall be no adjustment under Subsection (a) of this Section
above but the Holder of each Warrant then outstanding shall have the right
thereafter to convert such Warrant into the kind and amount of shares of stock
and other securities and property which he would have owned or have been
entitled to receive
<PAGE>
immediately after such consolidation, merger, statutory exchange, sale or
conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section with respect to the
rights and interests thereafter of any Holders of the Warrant, to the end that
the provisions set forth in this Section shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this Section
7, the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof to the Holder, and
the Holder will limit its activities in respect to such as, in the opinion of
both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if
<PAGE>
any, of the Market Price of such fractional share over the proportional part of
the Warrant Exercise Price represented by such fractional share, plus (b) the
proportional part of the Warrant Exercise Price represented by such fractional
share. For purposes of this Section, the term "Market Price" with respect to
shares of Common Stock of any class or series means:
(i) if the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding exercise of the Warrant,
(ii) if the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market but is traded on the Nasdaq
SmallCap Market or other over-the-counter market, then the average
closing bid and asked prices reported for the ten (10) business days
immediately preceding the exercise of the Warrant, and
(iii) if the Company's Common Stock is not traded on an
exchange, the Nasdaq National Market, or the Nasdaq SmallCap Market or
other over-the-counter market, then the price established by the
Company's Board of Directors.
9. Registration Rights. The Holder shall be entitled to the registration
rights with respect to the Warrant Shares that are provided for in the
Subscription and Purchase Agreement referred to on the first page hereof.
10. Additional Right to Convert Warrant.
(a) The Holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time after it is
exercisable, but prior to its expiration into shares of Company Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any
Warrant Exercise Price) that number of shares of Company Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Company Common Stock immediately prior to
the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time or
from time to time after it is exercisable, prior to its expiration, on any
business day by delivering a written notice in the form attached hereto (the
"Conversion Notice") to the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of shares of Stock the
Holder will purchase pursuant to such conversion and (ii) a place and date not
less than one or more than 20 business days from the date of the Conversion
Notice for the closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
<PAGE>
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market but is traded on the Nasdaq
SmallCap Market(sm) or other over-the-counter market, then the average
closing bid and asked prices reported for the ten (10) business days
immediately preceding the Determination Date, and
(iii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market, Nasdaq SmallCap Market(sm)
or other over-the-counter market, then the price established in good
faith by the Board of Directors.
IN WITNESS WHEREOF, Kinnard Investments, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated April 8,
1997.
"Company"
Kinnard Investments, Inc.
By /s/ Hilding C. Nelson
Its Chairman
<PAGE>
To: Kinnard Investments, Inc.
NOTICE OF EXERCISE OF WARRANT To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, of the shares issuable upon the exercise
of such Warrant, and requests that certificates for such shares (together
with a new Warrant to purchase the number of shares, if any, with respect to
which this Warrant is not exercised) shall be issued in the name of
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate ( ) Address:
Date: , 19
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant, or in the case of a transferee, with
the name as it appears on the Assignment Form, in every particular without
alteration or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto __________________________________________________ the right to
purchase the securities of Kinnard Investments, Inc. to which the within Warrant
relates and appoints ____________________, attorney, to transfer said right on
the books of Kinnard Investments, Inc. with full power of substitution in the
premises.
Dated:________________ _____________________________
(Signature)
Address:
------------------------------
------------------------------
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
To: Kinnard Investments, Inc.
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, ______________ shares of Common Stock, as provided for in
Section 10 therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name___________________________________
(Please print name)
Address:
Social Security No._______________________
Signature______________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of April 7, 1997, between and among KINNARD
INVESTMENTS, INC., a Minnesota corporation (hereinafter called "KII"), JOHN G.
KINNARD AND COMPANY, INCORPORATED, a Minnesota corporation (hereinafter called
"JGK"), and WILLIAM F. FARLEY (hereinafter called "EXECUTIVE"):
RECITALS
l. The following recitals shall be considered a part of this Agreement and
explain the general nature and purposes of KII's and JGK's businesses and the
PARTIES' rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. KII is a holding company, which owns JGK. JGK is engaged in the highly
competitive business of a securities brokerage firm.
3. EXECUTIVE desires to be employed by KII and its wholly-owned subsidiary,
JGK, and KII and JGK desire to employ EXECUTIVE on the terms stated in this
Agreement.
4. EXECUTIVE recognizes, agrees and understands that execution of this
Agreement is an express condition of becoming and remaining employed by KII and
JGK.
NOW, THEREFORE, in consideration of KII and JGK hiring EXECUTIVE and the
continuation of his employment, any promotions, increases in compensation,
and/or other benefits now or hereafter paid or made available to EXECUTIVE by
KII or JGK, EXECUTIVE and KII agree as follows:
ARTICLE I
DEFINITIONS
1.01 Confidential Information. For the purposes of this Agreement,
"Confidential Information" means any information not generally known to the
public and proprietary to KII or JGK and includes, without limitation, trade
secrets, inventions, and information pertaining to research, development,
purchasing, marketing, selling, accounting, licensing, business systems,
business techniques, customer lists, prospective customer lists, price lists,
business strategies and plans, pending patentable materials and/or designs,
design documentation, documentation of meetings, tests and/or test standards, or
manuals whether in document, electronic, computer or other form. For example,
Confidential Information may be contained in KII's or JGK's customer lists,
prospective customer lists, the particular needs and requirements of customers,
the particular needs and requirements of prospective customers, and the identity
of customers or prospective customers. Information shall be treated as
Confidential Information irrespective of its source and any information which is
labelled or marked as being "confidential" or "trade secret" shall be presumed
to be Confidential Information.
1.02 Invention. For purposes of this Agreement, the term "Invention" means
ideas, discoveries, and improvements whether or not shown or described in
writing or reduced to practice and whether patentable or not, relating to any of
KII's or JGK's present or future sales, research, or other business activities,
or reasonably foreseeable business interests of KII or JGK.
<PAGE>
ARTICLE II
EMPLOYMENT, COMPENSATION AND BENEFITS
2.01 Employment With KII. KII hereby initially hires EXECUTIVE in the
position of Chief Operating Officer and EXECUTIVE hereby accepts such employment
with KII. EXECUTIVE shall also serve, subject to employment with KII and annual
election of the shareholders of KII, as a Director on KII's Board of Directors.
The KII Board of Directors will entertain recommendations made by EXECUTIVE as
to any other KII Board members prior to their election to the KII Board of
Directors, including one nominee already recommended by EXECUTIVE to KII's
Chairman of the Board.
2.02 Employment With JGK. KII hereby initially hires EXECUTIVE in the
positions of Chief Executive Officer and President of JGK, and EXECUTIVE hereby
accepts such employment with JGK. EXECUTIVE shall also serve as Chairman of
JGK's Board of Directors so long as he remains employed by JGK. EXECUTIVE,
during his term as Chairman of JGK's Board, will have the authority to name the
members of the JGK Board of Directors, whether from inside or outside the
Company. During his employment with JGK, EXECUTIVE will be responsible for
naming the management of JGK and determining the terms and conditions of their
employment.
2.03 Duties.
(a) EXECUTIVE agrees, during his employment, to devote his full time
and best efforts to the businesses of KII and JGK, including,
without limitation, the performance of those duties and
responsibilities reasonably and customarily associated with his
positions; provided, however, that EXECUTIVE's duties and
responsibilities shall be subject to determination by KII's Board
of Directors. EXECUTIVE shall be granted such powers and
authority as are reasonably and customarily associated with his
positions.
(b) EXECUTIVE shall report to, and at all times shall be subject to
the direction of, the Chairman of KII's Board of Directors.
(c) EXECUTIVE, at all times during his employment with KII and JGK,
shall comply with KII's and JGK's reasonable standards,
regulations and policies as determined or set forth by the KII
Board of Directors from time to time and as applicable to senior
executive employees of KII and JGK.
(d) EXECUTIVE shall maintain and improve his managerial skills and
knowledge of KII's and JGK's businesses by attending appropriate
conventions and seminars, and participating in other activities
reasonably related thereto. JGK shall pay and/or reimburse those
expenses of EXECUTIVE, approved by KII, which are reasonably
related to this subparagraph 2.03(d).
(e) Subject to the provisions set forth in Article III and Paragraph
10.05, and if still then employed by KII, EXECUTIVE shall be
offered the position of Chief Executive Officer of KII on or
before December 31, 1999, and once EXECUTIVE accepts such
position he shall retain such position during EXECUTIVE's
employment with KII.
2.04 Outside Activities. KII and JGK acknowledge and agree that from time
to time EXECUTIVE may serve as a member of the Board of Directors of one or more
nonprofit entities or businesses other than KII or JGK; provided, however, that
EXECUTIVE provides KII's Board of
<PAGE>
Directors with information about each proposed directorship, including time
required by such directorship, whether such directorship may involve conflicts
of interest with KII or JGK or their businesses, the types of risks which such
directorship may involve, and any other factors EXECUTIVE or the KII Board of
Directors considers material respecting such directorship. KII's Board of
Directors shall promptly consider all submissions by EXECUTIVE pursuant to this
Paragraph 2.04. KII's Board of Directors may request in good faith that
EXECUTIVE not accept a particular directorship, or more than a specific number
of directorships, or that EXECUTIVE resign from a particular directorship, and
EXECUTIVE agrees to honor such requests.
2.05 Base Salary By JGK. EXECUTIVE's initial base salary shall be
calculated on the gross amount of $250,000 per year, less withholding for income
and FICA taxes and any other proper deductions. EXECUTIVE'S base salary will be
paid to him in accordance with JGK's normal payroll practices. Future increases,
beginning in 1999, in annual base salary may be negotiated between the EXECUTIVE
and KII's Board of Directors.
2.06 Incentive Compensation By JGK. EXECUTIVE shall participate in the JGK
Management Bonus Pool plan or other incentive plans or programs adopted by KII's
Board of Directors. The Compensation Committee of the KII Board of Directors
(the "Compensation Committee") will decide upon the amount of EXECUTIVE's
incentive compensation, subject to the following minimum amounts. EXECUTIVE and
KII will devise a new or revised incentive compensation plan or program that
will take into account financial and non-financial objectives. The financial
objectives will be as stated in the existing JGK plan, plus some additional
targets to be defined for KII, which may include such measurements as per share
earnings growth, return on equity and other objectives. The non-financial
objectives will be based on the business development plans of KII and JGK from
time to time.
(a) For 1997, EXECUTIVE shall receive a minimum incentive
compensation of $280,000.
(b) For 1998, EXECUTIVE shall receive a minimum incentive
compensation of $250,000.
(c) For 1999 and years thereafter, EXECUTIVE's incentive compensation
shall be an amount to be approved by the KII Board of Directors.
EXECUTIVE'S incentive compensation will be paid to him in a lump sum within 60
days after the close of each fiscal year.
2.07 Stock Options. EXECUTIVE shall be granted options to purchase 165,000
shares of common stock of KII pursuant to the KII 1997 Stock Option Plan. Such
options shall have an exercise price of $6.00 per share, shall vest in equal
annual increments on December 31 in each of the years 1997 through 2001, and
shall have a ten-year term. Of such options, 82,500 shall be incentive stock
options and 82,500 shall be non-statutory stock options.
2.08 Fringe Benefits From JGK.
(a) In addition to cash compensation, EXECUTIVE shall be eligible to
receive fringe benefits as they may be made available to senior
executive employees of KII or JGK and offered to EXECUTIVE from
time to time in the exclusive discretion of KII's Board of
Directors or authorized delegate(s) of the KII Board of
Directors. Such benefits may include, but are not limited to,
bonuses, qualified pension or retirement plans, health insurance
and disability plans and deferred compensation agreements.
<PAGE>
(b) EXECUTIVE shall be eligible to participate in any and all other
employee benefit plans and programs offered by JGK from time to
time, including, but not limited to, any medical, dental,
short-term disability and life insurance coverage, stock option,
or retirement plans, in accordance with the terms and conditions
of those benefit plans and programs and on a basis consistent
with that customarily provided to JGK's senior executive
employees.
(c) The PARTIES shall enter into a separate agreement under which JGK
shall provide EXECUTIVE with a supplemental retirement benefit
("SRB") so that in the event EXECUTIVE's employment terminates
before he is fully vested under the John G. Kinnard and Company,
Incorporated Pension Plan ("Plan"), the total benefit paid under
the Plan and the SRB will provide EXECUTIVE with the same total
retirement benefit as if he was fully vested under the Plan.
(d) JGK shall pay all of EXECUTIVE'S expenses for trade association
memberships and fees to obtain the necessary securities licenses.
2.09 Non-Reimbursed Additional Expenses. JGK shall pay EXECUTIVE $25,000
per annum for other non-reimbursed additional expenses, which payments shall be
made in quarterly installments on the last business day of each quarter
beginning on June 30, 1997. In addition, JGK shall match charitable
contributions made by EXECUTIVE, up to an aggregate annual limit of $10,000
beginning in 1998 and $7,500 for 1997.
2.10 Vacation. In addition to the foregoing cash and fringe benefit
compensation, EXECUTIVE may be entitled to a paid vacation of a duration
determined by KII's Board of Directors.
2.11 Compensation During Sickness or Disability.
(a) Subject to the remaining provisions of this Paragraph 2.11,
EXECUTIVE shall be entitled to full compensation, calculated in
accordance with Article II hereof, for absences for physical or
mental illness or injury.
(b) If EXECUTIVE is absent from his employment for more than four
consecutive weeks at any one time or more than eight weeks in
total in any 12-month period, by reason of physical or mental
illness or injury which prevents him from performing the
essential functions of his position, with or without reasonable
accommodation, EXECUTIVE shall be deemed disabled for the
purposes hereof. In such event, EXECUTIVE shall be entitled to
receive (1) his base salary and incentive and bonus compensation
under Article II hereof, including payments under Paragraphs
2.05, 2.06, and 2.09, (2) continued payment on behalf of
EXECUTIVE of JGK's share of health, life, and disability
insurance premiums to the extent such benefits are offered by JGK
to its senior executive employees and subject to the conditions
or limitations of such insurance plans, (3) continued entitlement
of EXECUTIVE to other fringe benefits under Paragraphs 2.08 and
2.13(a) and (c), and (4) EXECUTIVE's continued accrual of
vacation time, all for a period of 90 days from the date such
disability is determined to have occurred.
JGK may, in its discretion, provide the health, life and
disability benefits described herein under JGK's group plans or
under no less favorable insurance contracts or arrangements
secured by JGK. For purposes of Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the date of
the "qualifying event" for
<PAGE>
EXECUTIVE and his dependents shall be the date such disability is
determined to have occurred.
Immediately upon completion of such 90-day period:
(i) EXECUTIVE's employment as an officer and employee under
this Agreement shall terminate effective at 12:00
midnight on such 90th day; and
(ii) All payments to EXECUTIVE of base salary under
Paragraph 2.05 shall terminate; and
(iii)EXECUTIVE shall receive all incentive compensation or
bonus amounts earned by EXECUTIVE pro rated to the date
of termination, except that (1) incentive compensation
or bonus amounts payable upon the completion of
specified tasks or objectives shall be paid in full if
such tasks or objectives have been completed by
EXECUTIVE prior to the date of termination, and (2)
EXECUTIVE shall receive the full amount of all
incentive compensation or bonus amounts earned for any
year ending during or prior to such 90-day period; and
(iv) EXECUTIVE shall receive or not receive payment for
unused vacation to the date of termination in
accordance with JGK's policy as to payment for unused
vacation in effect on the date of termination; and
(v) JGK's obligation to provide, subject to limitations of
law, and pay for benefits provided by JGK to EXECUTIVE
shall terminate; and
(vi) EXECUTIVE shall not be entitled to use unused vacation
to defer the commencement of, or extend, the 90-day
disability period established in this Paragraph 2.11.
(c) If prior to the termination of EXECUTIVE's employment pursuant to
the provisions of this Paragraph 2.11, EXECUTIVE is able to
resume performance of his duties under this Agreement, and if
within six months of the resumption of such duties EXECUTIVE is
again absent from his employment by reason of the same physical
or mental illness or injury as defined in subparagraph 2.11(b)
for a period of more than two consecutive weeks, such subsequent
disability period, including such two-week period, shall be
deemed to be a continuation of the immediately preceding
disability period, and the disability payments made by JGK to
EXECUTIVE shall be made only for the remainder, if any, of the
90-day income continuation period provided for above, and in no
event shall disability payments hereunder be made for a period or
periods aggregated in accordance with this subparagraph 2.11(c)
of more than 90 days.
(d) Any disability period commencing after EXECUTIVE has returned to
his employment hereunder and has given reasonable and proper
attention to his duties for a continuous period of six months
shall be deemed a new period of disability for purposes of this
Paragraph 2.11.
(e) Any disability compensation payable under this Article II shall
be reduced by:
<PAGE>
(i) Any amount which is paid to EXECUTIVE with respect to
the 90-day disability period established in Paragraph
2.11 under any private disability benefit plan or
arrangement to which JGK directly contributes or has
directly contributed, but only to the extent that such
amount is attributable to such direct contributions by
JGK.
(ii) Any benefits paid to EXECUTIVE with respect to the
90-day disability period established in Paragraph 2.11
on account of the disability of EXECUTIVE under any
worker's compensation law, occupational disease law, or
similar legislation of any state or the federal
government.
(iii)50% of the amount of any related benefit paid to
EXECUTIVE with respect to the 90-day disability period
established in Paragraph 2.11 under the Federal Social
Security Act as in effect at the time the payment
hereunder is made.
However, in order to maintain EXECUTIVE's cash flow during the
90-day disability period, JGK agrees to make full compensation
payments to EXECUTIVE as previously provided and EXECUTIVE
agrees promptly upon receipt of payments within the provisions
of this subparagraph 2.11(e), if any, to remit such payments
to JGK, properly endorsed, or repay to JGK the full amount of
such received payments.
(f) In the event of partial physical or mental disability, if
EXECUTIVE is able to perform a substantial portion of the
essential functions of his position, with or without reasonable
accommodation, he may, if he so desires, with the consent of JGK,
which consent shall be by action of JGK's Board of Directors,
work part-time on a basis of compensation and other terms
determined by JGK.
(g) If EXECUTIVE's employment is terminated for the reasons stated in
subparagraphs 3.01(a), (b), (c)(v), or (c)(vi) while JGK is
making disability payments to EXECUTIVE, EXECUTIVE shall not be
entitled to receive the disability payments for the remainder, if
any, of the 90-day compensation continuation period provided for
above, EXECUTIVE 's repayment obligations under subparagraph
2.11(e) above shall cease, and EXECUTIVE shall have no further
employment obligation to JGK and KII. In all other instances of
termination pursuant to Paragraph 3.01, EXECUTIVE shall be
entitled to continue to receive disability payments for the
remainder of the 90-day compensation continuation period.
2.12 Expenses. During the term of this Agreement, EXECUTIVE shall be
entitled to prompt reimbursement by JGK for all reasonable, ordinary and
necessary travel, entertainment and other business related expenses incurred by
EXECUTIVE (in accordance with the policies and procedures established by JGK for
senior executive employees from time to time) in the performance of his duties
and responsibilities under this Agreement; provided, however, that EXECUTIVE
shall properly account for such expenses in accordance with federal, state and
local tax requirements and JGK's policies and procedures.
2.13 Additional Perquisites.
(a) JGK shall reimburse EXECUTIVE for annual dues at the Minneapolis
Club and for annual dues at a country club, which country club
dues shall be prorated between business purposes and personal
use.
<PAGE>
(b) KII shall lend EXECUTIVE an amount not to exceed $125,000 for his
purchase of an equity interest in the Spring Hill Country Club
(or any successor thereto); such loan shall be interest free and
shall be repaid upon EXECUTIVE's termination of employment with
KII and shall be evidenced by a promissory note signed by
EXECUTIVE in exchange for the loan.
(c) JGK shall provide EXECUTIVE at its expense with indoor parking, a
cellular phone and a computer and a fax machine for business
purposes.
ARTICLE III
TERMINATION
3.01 Events of Termination. EXECUTIVE's employment with KII and JGK:
(a) May be terminated by mutual written agreement of KII and
EXECUTIVE.
(b) Shall terminate immediately upon the death of EXECUTIVE.
(c) May be terminated upon written notice from KII to EXECUTIVE for
cause, which shall mean the following:
(i) Material failure of EXECUTIVE to (a) faithfully,
diligently or competently perform the material duties,
requirements and responsibilities of his employment as
contemplated by this Agreement or as assigned by KII's
Board of Directors, or (b) take reasonable direction
consistent with his position from the KII's Board of
Directors; or
(ii) Failure of EXECUTIVE to materially comply with the
material, reasonable policies, regulations and
directives of KII as in effect from time to time; or
(iii)Any act or omission on the part of EXECUTIVE which
constitutes a material failure to comply with material
provisions of this Agreement; or
(iv) Any act or omission on the part of EXECUTIVE which is
clearly and materially harmful to the reputations or
businesses of KII and JGK, including, but not limited
to, personal conduct of EXECUTIVE which is inconsistent
with federal and state laws respecting harassment of,
or discrimination against, one or more of KII's or
JGK's employees; or
(v) Failure to maintain licenses as required by applicable
regulatory agencies; or
(vi) Conviction of EXECUTIVE of, or a guilty or nolo
contendere plea by EXECUTIVE with respect to, any crime
punishable as a felony; or any bar against EXECUTIVE
from serving as a director, officer or executive of any
firm the securities of which trade publicly.
In the event of termination pursuant to subparagraphs
3.01(c)(i) through (iv) above, KII shall give EXECUTIVE
written notice (the "Cause Notice") of proposed termination
<PAGE>
which provides reasonable detail as to the cause or causes
asserted by KII. EXECUTIVE shall have 60 days within which he
shall have the opportunity to cure the performance or conduct
upon which the Cause Notice is based, to the satisfaction of
KII's Board of Directors. If EXECUTIVE asserts that there is
no performance or conduct to cure, or after 60 days the KII
Board of Directors believes that EXECUTIVE has failed to
adequately cure the performance or conduct, the KII Board of
Directors shall set forth a date of a meeting of KII's Board
of Directors, which date shall be no sooner than five business
days after the date on which the 60-day cure period expires or
upon receipt of notice by EXECUTIVE that he believes there is
no performance or conduct which requires a cure, at which KII
Board of Directors meeting EXECUTIVE may appear, with an
advisor of his choice if EXECUTIVE so desires, to discuss
EXECUTIVE's proposed termination. At such meeting EXECUTIVE
and EXECUTIVE's advisor will honor requests by the director
presiding at the meeting to leave the meeting to allow for
discussion by the directors in EXECUTIVE's absence. At such
time as the KII Board of Directors reaches a decision with
respect to EXECUTIVE's termination, whether at the meeting set
forth in the notice to EXECUTIVE, or at a subsequent meeting,
if the decision to terminate EXECUTIVE is affirmed by KII's
Board of Directors, EXECUTIVE will be given written notice of
such affirmation and EXECUTIVE's employment will terminate
immediately upon the giving of such notice to EXECUTIVE. In
the event of termination pursuant to subparagraphs 3.01(c)(v)
and (vi) above, EXECUTIVE's termination shall be immediate
upon the giving of written notice to EXECUTIVE.
(d) Shall terminate in accordance with the provisions of Paragraph
2.11(b) hereof. Nothing in Paragraph 2.11(b) hereof or in this
Paragraph 3.01(d) shall limit the right of either party to
terminate EXECUTIVE's employment under any other subparagraph of
Paragraph 3.01; provided, however, that if EXECUTIVE is receiving
disability payments under subparagraph 2.11(b), KII may not
terminate this Agreement under subparagraphs 3.01(c)(i),(ii), or
(iii), (e), or (i).
(e) May be terminated by KII or EXECUTIVE upon 60 days' written
notice to the other upon the commencement of a bankruptcy case
filed by or against KII or JGK under the United States Code or
other similar law.
(f) Shall terminate at the end of the month during which EXECUTIVE
reaches the normal retirement date established by JGK for senior
management employees of JGK, but in no event earlier than the
compulsory retirement age permitted under federal or similar law
for senior management employees.
(g) May be terminated by EXECUTIVE for "Good Reason" upon 60 days'
written notice to KII's Board of Directors setting forth in
reasonable detail such Good Reason, unless during such 60-day
period KII's Board of Directors materially cures all material
items set forth in EXECUTIVE's notice. Good Reason shall only
exist in the event that KII:
(i) Reduces EXECUTIVE's base salary below the level set in
Paragraph 2.05, fails to provide EXECUTIVE with
incentive compensation as contemplated in Paragraph
2.06, or reduces any KII-provided benefit to EXECUTIVE
as then paid or provided to EXECUTIVE; provided,
however, that KII may reduce benefits provided to
EXECUTIVE if such reduction is part of a broad-based
<PAGE>
management initiative which applies to all senior
executive employees and substantially all other
employees of KII or JGK; or
(ii) Takes any action to reduce EXECUTIVE's titles,
positions or duties, or any action directed only at
EXECUTIVE which materially and adversely affects the
overall physical conditions of EXECUTIVE's immediate
working environment and places EXECUTIVE in a
substandard working environment relative to KII's other
senior executive employees; or
(iii)Requires EXECUTIVE to relocate his principal office to
a location more than 50 miles from the location of
KII's principal place of business at the time this
Agreement was executed.
(iv) Fails to offer the EXECUTIVE the position of Chief
Executive Officer of KII no later than December 31,
1999.
(h) May be terminated by EXECUTIVE for any reason other than those
set forth in subparagraph 3.10(g) on 60 days' written notice to
KII.
(i) May be terminated by KII for any reason on 60 days' written
notice to EXECUTIVE by payment of severance equal to EXECUTIVE's
base salary in lieu of such notice.
(j) May be terminated by KII no earlier than June 30, 1999, on six
months' written notice to EXECUTIVE of KII's intent not to renew
this Agreement under Paragraph 10.05.
(k) Change of Control. If there is a Change-of-Control (defined as
some individual, group, or institution other than existing KII or
future employee-related programs of KII or its subsidiaries
acquiring over 20% of the voting equity of KII, but not including
(a) a transaction initiated by KII to obtain participation funds;
(b) a transaction initiated by KII where KII is the surviving
entity and EXECUTIVE is the Chief Executive Officer of KII after
the transaction; or (c) a transaction initiated by an individual,
group, or institution acting at the instigation of or in concert
with EXECUTIVE), whether or not EXECUTIVE's employment
terminates, EXECUTIVE will immediately become vested in all stock
options granted simultaneously with the execution of this
Agreement. EXECUTIVE will be entitled to payments to cover all
the base salary, incentive compensation, bonuses, benefits, and
perquisites that he would receive if he were to remain employed
by KII for an additional 36 months at his then current base
salary, with his annual incentive payments calculated at two
times his then current base salary. Payments will be made on a
periodic basis. EXECUTIVE will be entitled to receive these
payments even if the 20% owner wants EXECUTIVE to remain in
employment and even if EXECUTIVE elects to remain in employment.
If EXECUTIVE remains in employment, however, the 36-month payout
period for base salary, incentive compensation, bonuses,
benefits, and perquisites will be reduced by one month for each
full month of his continued employment. If the vesting of any
stock options and other amounts payable to EXECUTIVE upon a
Change-of-Control not initiated by KII constitute an "excess
parachute payment" within the meaning of Internal Revenue Code
Section 280G, then EXECUTIVE shall entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by EXECUTIVE of all taxes (including any interest
or penalties imposed with respect to such taxes other than
interest and penalties imposed on EXECUTIVE as a result of his
failure to file timely income tax
<PAGE>
returns or to disclose required information respecting such
excise tax), including, without limitation, any income taxes and
excise tax imposed upon the Gross-Up Payment, EXECUTIVE retains
an amount of the Gross-Up Payment sufficient to pay the excise
tax imposed upon the excess parachute payment. If any other
agreement between EXECUTIVE and KII provides for payments by KII
similar in nature to the Gross-Up Payment provided for in this
Paragraph 3.01(k), and EXECUTIVE receives such similar payments
under such other agreement, then the Gross-Up Payment otherwise
required hereunder shall be reduced to the extent necessary to
avoid duplication of the benefit intended to be conferred upon
EXECUTIVE by the making of a Gross-Up Payment pursuant to this
Agreement. If there is a Change-of-Control and if the acquiring
party seeks to have the transaction accounted for on a "pooling
of interests" basis and, in the opinion of KII's independent
certified public accountants, accelerating the exercisability of
EXECUTIVE's options as a result of the transaction would preclude
a pooling of interests under generally accepted accounting
principles, then the exercisability of such options will not
accelerate.
3.02 Compensation Upon Termination of EXECUTIVE's Employment. In the event
that EXECUTIVE's employment with KII and JGK terminates the following provisions
shall govern as applicable:
(a) If termination occurs pursuant to subparagraph 3.01(a) the
agreement of the parties shall control.
(b) If termination occurs pursuant to subparagraphs 3.01(b), (c), (f)
or (h), all benefits and compensation shall terminate as of the
end of the month in which the termination occurs and a prorated
incentive compensation amount shall be paid based upon the number
of months EXECUTIVE worked during that calendar year.
(c) If the termination occurs pursuant to subparagraph 3.01(e), all
benefits and compensation shall terminate as of the termination
date.
(d) If termination occurs pursuant to subparagraph 3.01(d), the
provisions of Paragraph 2.11 shall govern the termination of
benefits, base salary, bonus, and incentive compensation.
(e) If termination occurs pursuant to subparagraphs 3.01(g), (i), or
(j), EXECUTIVE shall receive cash payments equal to the amounts
EXECUTIVE would have been paid under Paragraph 2.09 if he had
remained employed for the balance of the then current term of the
Agreement and, for the balance of the then current term of the
Agreement plus the 12-month period immediately following the end
of such term (the "Severance Period"), EXECUTIVE (i) shall become
immediately vested in all stock options granted simultaneously
with the execution of this Agreement that would have become
vested if EXECUTIVE had remained employed by KII for the
Severance Period; (ii) shall receive the base salary and
incentive compensation provided for in Paragraphs 2.05 and 2.06
for the Severance Period; provided, however, that the incentive
compensation shall not be prorated and, for purposes of this
provision only, EXECUTIVE's incentive compensation for 1999 will
be deemed to be $500,000 and for subsequent years will be either
an amount determined under the then applicable incentive
compensation plan or program or, in the absence of such plan or
program, two times EXECUTIVE's then current base salary; (iii)
shall continue to participate in the benefit plans and programs
specified in Paragraph 2.08 to the extent permitted by the terms
of such plans and programs or, in
<PAGE>
lieu of such continued participation, shall receive cash payments
equal to the value of the benefits EXECUTIVE would have received
under such plans and programs (excluding any long-term disability
insurance) had he remained employed by KII for the Severance
Period; and (iv) shall receive cash payments equal to the amounts
EXECUTIVE would have been paid under subparagraph 2.13(a) had he
remained employed by KII for the Severance Period.
(f) If termination occurs pursuant to subparagraph 3.10(k), the
compensation set forth in that provision shall apply.
(g) All payments made to EXECUTIVE under this Paragraph 3.02 shall be
reduced by amounts (i) required to be withheld in accordance with
federal, state and local laws and regulations in effect at the
time of payment, or (ii) owed to KII and JGK by EXECUTIVE for any
amounts advanced, loaned or misappropriated.
3.03 Return of KII and JGK Property. In the event of termination of
EXECUTIVE's employment all corporate documents, records, files, credit cards,
computer disks and tapes, computer access cards, codes and keys, file access
codes and keys, building and office access cards, codes and keys, materials,
equipment and other property of KII and JGK which is in EXECUTIVE's possession
shall be returned to KII and JGK at their principal business offices on the date
of termination of EXECUTIVE's employment, or within five business days
thereafter if termination occurs without notice. EXECUTIVE may copy, at
EXECUTIVE's expense, documents, records, materials and information of KII and
JGK only with KII's and JGK's express, written permission.
ARTICLE IV
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
4.01 Confidential Information. The definition of "Confidential Information"
as set forth in Paragraph 1.01 is not intended to be complete. From time to time
during the term of his employment, EXECUTIVE may gain access to other
information not generally known to the public and proprietary to KII or JGK
concerning KII's and/or JGK's businesses that is of commercial value to KII
and/or JGK, which information shall be included in the definition under
Paragraph 1.01 above, even though not specifically listed in that Paragraph. The
definition of Confidential Information and the provisions of this Article IV
apply to any form in which the subject information, trade secrets, or data may
appear, whether written, oral, or any other form of recording or storage.
4.02 Maintain in Confidence. EXECUTIVE shall hold the Confidential
Information, including trade secrets and/or data, in the strictest confidence
and will never, without prior written consent of KII and JGK, (directly or
indirectly) disclose, assign, transfer, convey, communicate to or use for his
own or another's benefit or (directly or indirectly) disclose, assign, transfer,
convey, communicate to or use by him, a competitor of KII or JGK or any other
person or entity, including, but not limited to, the press, other professionals,
corporations, partnerships or the public, at any time during his employment with
KII or JGK or at any time after his termination of employment with KII or JGK,
regardless of the reason for the EXECUTIVE's termination, whether voluntary or
involuntary; provided however, that the restrictions provided herein in
Paragraph 4.02 as to the identity of customers or prospective customers shall
terminate at the same time as the expiration of the non-compete period as set
forth in Paragraph 5.01. EXECUTIVE further promises and agrees that he will
faithfully abide by any rules, policies, practices
<PAGE>
or procedures existing or which may be established by KII and JGK for insuring
the confidentiality of the Confidential Information, including, but not limited
to, rules, policies, practices or procedures:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing, data or recording;
(c) Requiring storage of property, documents or data in secure
facilities provided by KII or JGK and limiting safe or vault lock
combinations or keys to authorized personnel; and/or
(d) Checkout and return or other procedures promulgated by KII or JGK
from time to time.
4.03 Return of Information. Upon termination of the employer-employee
relationship, whether voluntary or involuntary, EXECUTIVE will return to KII and
JGK any and all written or otherwise recorded form of all Confidential
Information (and any copies thereof) in his possession, custody or control,
including, but not limited to, notebooks, memoranda, specifications, customer
lists, prospective or potential customer lists, or price lists, and will take
with him, upon leaving KII's and/or JGK's place of business or employment with
KII or JGK, no such documents, data, writings, recordings, or reproduction in
any form which may have been entrusted or obtained by him during the course of
his employment or to which he had access, possession, custody or control, except
with KII's and JGK's express, written permission. Upon termination of
employment, whether voluntary or involuntary, EXECUTIVE will deliver to KII and
JGK all Confidential Information in recorded form in his possession, custody or
control and shall also deliver any and all property, devices, parts, mock-ups,
and finished or unfinished machinery or equipment in his possession, custody or
control which belongs to KII or JGK. EXECUTIVE shall also deliver, upon his
termination, whether voluntary or involuntary, all records, drawings,
blueprints, notes, notebooks, memoranda, specifications and documents or dates,
in any form, which contain Confidential Information.
4.04 Irreparable Harm. The PARTIES acknowledge that KII and JGK will suffer
irreparable harm if the EXECUTIVE breaches Paragraphs 4.02 or 4.03, either
during or after his employment. Accordingly, KII or JGK shall be entitled, in
addition to any other right and remedy they may have, at law or equity, to a
temporary restraining order and/or injunction, without the posting of a bond or
other security, enjoining or restraining the EXECUTIVE from any violation of
Paragraphs 4.02 or 4.03, and the EXECUTIVE hereby consents to KII's or JGK's
right to seek the issuance of such injunction. If KII or JGK institutes any such
action against EXECUTIVE, alone or in conjunction with any third party or
parties to enforce any terms or provisions of Paragraphs 4.02 or 4.03, then the
party that prevails in such action shall be entitled to receive from the
opposing party (or parties) in the action the prevailing party's reasonable
attorneys' fees incurred in such action and all costs and expenses incurred in
connection therewith in accordance with Paragraph 8.02.
ARTICLE V
COVENANT NOT TO COMPETE
5.01 Noncompete. At no time during the term of this Agreement and for a
period of one year immediately following the termination of EXECUTIVE's
employment (whether voluntary or involuntary) or December 31, 1999, whichever
occurs last, will EXECUTIVE:
(a) Acting on behalf of himself, another business or competitor, call
upon or communicate with or attempt to call upon or communicate
with any customer or potential or
<PAGE>
prospective customer of KII or JGK with whom EXECUTIVE (or other
employees of KII or JGK under his supervision), during the 12
months prior to his termination, had contact, for the purpose
(either directly or indirectly) of soliciting, selling or buying
any services, merchandise or products similar to or competitive
with the services, merchandise or products sold or purchased by
KII or JGK; and
(b) Without the prior written consent of KII or JGK, directly or
indirectly render any services, advice or counsel as an owner,
employee, representative, agent, independent contractor,
consultant or in any other capacity, for any third party, if the
rendering of such services, advice or counsel involves, may
involve, requires or is likely to result in the use or disclosure
by EXECUTIVE of any Confidential Information.
5.02 Irreparable Harm. The parties acknowledge that KII and JGK will suffer
irreparable harm if EXECUTIVE breaches Paragraph 5.01. Accordingly, KII and JGK
shall be entitled, in addition to any other right and remedy they may have, at
law or equity, to a temporary restraining order and/or injunction, without the
posting of a bond or other security, enjoining or restraining EXECUTIVE from any
violation of Paragraph 5.01, and EXECUTIVE hereby consents to KII's and JGK's
right to seek the issuance of such injunction. If KII or JGK institutes any such
action against EXECUTIVE, alone or in conjunction with any third party or
parties to enforce any terms or provisions of Paragraph 5.01, then the party
that prevails in such action shall be entitled to receive from the opposing
party (or parties) in the action the prevailing party's reasonable attorneys'
fees incurred in such action and all costs and expenses incurred in connection
therewith in accordance with Paragraph 8.02.
5.03 Limit to Extent Enforceable. In the event that a court of competent
jurisdiction determines that any of the provisions of Paragraph 5.01 are
unreasonable, it may limit such provision to the extent it deems reasonable,
without declaring the provision or Paragraph 5.01 invalid in its entirety. This
provision shall not be construed as an admission by KII or JGK, but is only
included to provide KII and JGK with the maximum possible protection for their
businesses, Confidential Information, trade secrets and data, consistent with
the right of EXECUTIVE to earn a livelihood subsequent to the termination of his
employment.
ARTICLE VI
INVENTIONS
6.01 Disclosure. EXECUTIVE shall promptly and fully disclose to KII and JGK
and will hold in trust for KII's and JGK's sole right and benefit any invention
which EXECUTIVE, during the period of his employment, makes, conceives, or
reduces to practice or causes to be made, conceived, or reduced to practice
either alone or in conjunction with others that:
(a) Relates to any subject matter pertaining to EXECUTIVE's
employment;
(b) Relates to or is directly or indirectly connected with the
business, products, projects, or Confidential Information of KII
or JGK; or
(c) Involves the use of any time, material, or facility of KII or
JGK.
6.02 Assignment of Ownership. EXECUTIVE hereby assigns to KII and JGK all
of EXECUTIVE's right, title, and interest in and to all such inventions as
described in Paragraph 6.01 and, upon KII's request, EXECUTIVE shall execute,
verify, and deliver to KII or JGK such documents
<PAGE>
including, without limitation, assignments and applications for Letters Patent,
and shall perform such other acts, including, without limitation, appearing as a
witness in any action brought in connection with this Agreement that is
necessary to enable KII or JGK to obtain the sole right, title, and benefit to
all such inventions.
6.03 Excluded Inventions. It is further agreed, and EXECUTIVE is hereby so
notified, that the above agreement to assign inventions to KII or JGK does not
apply to any invention for which no equipment, supplies, facility, or
Confidential Information of KII or JGK was used, which was developed entirely on
EXECUTIVE's own time, and
(a) Which does not relate:
(i) Directly to the businesses of KII or JGK; or
(ii) To KII's or JGK's actual or demonstrably anticipated
research or development; or
(b) Which does not result from any work performed by EXECUTIVE for
KII or JGK.
6.04 Prior Inventions. Attached to this Agreement and initialed by both
PARTIES is a list of all of the inventions, by description, if any, in which
EXECUTIVE possesses any right, title, or interest prior to this employment and
the execution of this Agreement, which are not subject to the terms of this
Agreement.
6.05 Specific Performance; Attorney Fees. EXECUTIVE expressly acknowledges
and agrees that any violation of any terms of Paragraphs 6.01 or 6.02 may result
in the issuance of a temporary restraining order and/or injunction against
EXECUTIVE to effect specific performance of the terms of Paragraphs 6.01 or
6.02. If KII or JGK institutes any action against EXECUTIVE, alone or in
conjunction with any third party or parties, to enforce any term or provision of
Paragraphs 6.01 or 6.02, then the party that prevails in such action shall be
entitled to receive from the opposing party (or parties) in the action the
prevailing party's reasonable attorneys' fees incurred in such action and all
costs and expenses incurred in connection therewith in accordance with Paragraph
8.02.
ARTICLE VII
ARBITRATION
7.01 Agreement to Arbitrate. With the exception of KII's and JGK's rights
to seek injunctive relief in connection with breaches by EXECUTIVE of Paragraphs
4.02, 4.03, 5.01 and/or 6.01 or 6.02 of this Agreement, all disputes or claims
arising out of or in any way relating to this Agreement, including the making of
this Agreement, shall be submitted to and determined by final and binding
arbitration before the National Association of Securities Dealers, Inc. ("NASD")
in accordance with the NASD Code of Arbitration Procedure, or if the NASD
refuses to accept jurisdiction, before the American Arbitration Association
("AAA") under the AAA's National Rules for the Resolution of Employment Disputes
(effective June 1996). The award of the arbitrator(s), or a majority of them,
shall be final and judgment upon such award may be entered in any court of
competent jurisdiction. This arbitration provision shall continue in full force
and effect after EXECUTIVE's termination of employment under this Agreement.
<PAGE>
7.02 Discovery. In addition to any other procedures provided for under the
rules of the NASD or the AAA, upon written request, each party shall, at least
14 days prior to the date of any hearing, provide to the opposite party a copy
of all documents relevant to the issues raised by any claim or counterclaim and
a list of all witnesses to be called by that party at the hearing and each party
shall be permitted to take one deposition at least 14 days prior to any hearing.
7.03 Costs. The costs of proceedings under Article VII shall be paid in
accordance with the provisions of Article VIII below.
ARTICLE VIII
CERTAIN KII REMEDIES
8.01 Certain KII Remedies. The PARTIES acknowledge that KII and JGK will
suffer irreparable harm if the EXECUTIVE breaches Paragraphs 4.02, 4.03, 5.01
and/or 6.01 or 6.02 of this Agreement. Accordingly, KII and JGK shall be
entitled to seek any right or remedy they may have, under this Agreement or
otherwise, at law or equity, including but not limited to, an injunction,
enjoining or restraining EXECUTIVE from any violation of Paragraphs 4.02, 4.03,
5.01 and/or 6.01 or 6.02 of this Agreement.
8.02 Payment of Fees and Expenses. If any party initiates or becomes a
party to a formal proceeding in law or equity, or under Article VII, involving
this Agreement, and if either party obtains a substantial portion of the relief
requested by that party (the "prevailing party"), then the non-prevailing party
shall pay all of its and the prevailing party's reasonable costs and expenses,
including reasonable attorneys' fees and expenses, incurred with respect to such
proceeding. If neither party obtains a substantial portion of the relief
requested each shall bear its/his own expenses. In the event (i) EXECUTIVE is
terminated pursuant to Paragraph 3.01 (c) and determines to challenge KII's
determination of cause, or (ii) EXECUTIVE resigns for Good Reason pursuant to
Paragraph 3.01(g) and KII contends that Good Reason does not exist, KII and
EXECUTIVE shall each bear its/his own expenses in connection with any proceeding
initiated by EXECUTIVE with respect to the determination as to "Cause" or by KII
with respect to the determination of "Good Reason", as the case may be.
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification. As to acts or omissions of EXECUTIVE which are within
the scope of EXECUTIVE's authority as an officer, director, or employee of KII
or JGK and/or any affiliate of KII or JGK, KII and JGK shall indemnify
EXECUTIVE, and his legal representatives and heirs, to the maximum extent
permitted by Minnesota law.
ARTICLE X
MISCELLANEOUS
10.01 Governing Law. This Agreement shall be governed according to the laws
of the State of Minnesota.
10.02 Successors. This Agreement is personal to EXECUTIVE and EXECUTIVE may
not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder,
<PAGE>
to any other person. This Agreement may be assigned by KII. This Agreement is
binding on any successors or assigns of KII or JGK.
10.03 Waiver. The waiver by any party of the breach or nonperformance of
any provision of this Agreement by any other party will not operate or be
construed as a waiver of any future breach or nonperformance under any provision
of this Agreement or any similar agreement with any other employee.
10.04 Notices. Any and all notices referred to herein shall be deemed
properly given only if in writing and delivered personally or sent postage
prepaid, by certified mail, return receipt requested, as follows:
(a) To KII and JGK by notice to each member of KII's Board of
Directors, and to Fredrikson & Byron, P.A., 1100 International
Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402,
Attention: Timothy M. Heaney.
(b) To EXECUTIVE at his home address as it then appears on the
records of KII or JGK, it being the duty of the EXECUTIVE to keep
KII and JGK informed of his current home address at all times.
The date on which notice to KII, JGK or EXECUTIVE shall be deemed to have been
given if mailed as provided above shall be the date on the certified mail return
receipt. Personal delivery to EXECUTIVE shall be deemed to have occurred on the
date notice was delivered to EXECUTIVE personally or deposited in a mail box or
slot or left with security or administrative personnel, at EXECUTIVE's residence
by a representative of KII or any messenger or delivery service.
10.05 Term. This Agreement shall be effective from April 7, 1997, to and
including December 31, 1999, and for one year periods thereafter until December
31, 2008, if not otherwise terminated in accordance with the provisions set
forth in this Agreement; provided, however, that if this Agreement does not
terminate earlier, it shall automatically terminate effective March 31, 2009.
10.06 Modification. This Agreement supersedes any and all prior oral and
written understandings, if any, between the PARTIES relating to the subject
matter of this Agreement. This Agreement sets forth the entire understandings
and agreements between and among the PARTIES and is the complete and exclusive
statement of the terms and conditions thereof, that there are no other written
or oral agreements in regard to the subject matter of this Agreement other than
those agreements, plans, programs and policies expressly referred to herein.
This Agreement shall not be changed or modified except by a written document
signed by the PARTIES hereto.
<PAGE>
IN WITNESS WHEREOF, the PARTIES have hereunto set their hands as of the
date written above.
KINNARD INVESTMENTS, INC.
By /s/ Hilding C. Nelson
Its Chairman
- and -
JOHN G. KINNARD AND COMPANY,
INCORPORATED
By /s/ Gerald M. Gifford
Its Executive Vice President
- and -
EXECUTIVE
/s/ William F. Farley
William F. Farley
Exhibit 10.4
INCENTIVE STOCK OPTION AGREEMENT
KINNARD INVESTMENTS, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this 7th day of April, 1997, by and
between Kinnard Investments, Inc., a Minnesota corporation (the "Company"), and
William F. Farley ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee or officer of the
Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to Optionee
to purchase shares of the Company's Common Stock pursuant to the Company's 1997
Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator of the Plan has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the effective
date of this Agreement, the fair market value of the Company's Common Stock is
not more than $6.00 per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of Eighty-two thousand five hundred
(82,500) shares of Common Stock at a per share price of $6.00 on the terms and
conditions set forth herein, and subject to adjustment pursuant to Section 13 of
the Plan. Except as otherwise provided in this Paragraph 1 or in Paragraph 2(b)
or 2(c), this Option is intended to be an incentive stock option within the
meaning of Section 422, or any successor provision, of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder. This Option
shall be treated as a non-qualified stock option if shareholder approval of the
Plan is not obtained within twelve months after adoption of the Plan by the
Company's Board of Directors.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
April 6, 2007, except as otherwise provided in Paragraphs 2(b) through 2(e)
below. This Option shall become exercisable according to the following schedule:
Percentage/Number
Vesting Date of Shares
December 31, 1997 16,500
December 31, 1998 16,500
December 31, 1999 16,500
<PAGE>
December 31, 2000 16,500
December 31, 2001 16,500
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.
b. (1) Termination of Relationship for Cause or Without Good Reason. If
Optionee ceases to be an officer or employee of the Company or any Subsidiary by
reason of his Termination by the Company for "Cause" or by reason of his
resignation other than for "Good Reason", as such terms are defined in the
Employment Agreement between the Company and Optionee dated April 7, 1997 (the
"Employment Agreement"), this Option shall completely terminate on the earlier
of (i) the close of business on the one-month anniversary date of the
termination of his employment, and (ii) the expiration date of this Option
stated in Paragraph 2(a) above. In such period following such termination, this
Option shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the date on which Optionee's employment with
the Company or Subsidiary has terminated, but had not previously been exercised.
To the extent this Option was not exercisable upon the termination of such
employment, or if Optionee does not exercise this Option within the time
specified in this Paragraph 2(b)(1), all rights of Optionee under this Option
shall be forfeited.
(2) Termination of Relationship Other Than for Cause or Without Good
Reason, Change of Control, Disability or Death. If Optionee ceases to be an
officer or employee of the Company or any Subsidiary for any reason (including
the Company's giving notice prior to July 1, 2000 that the term of the
Employment Agreement will not be extended) other than because of termination for
Cause or resignation without Good Reason (Paragraph 2(b)(1) above), Change of
Control (Paragraph 2(c) below), Disability (Paragraph 2(d) below) or Death
(Paragraph 2(e) below), this Option shall completely terminate on the earlier of
(i) the close of business on the one-month anniversary date of the termination
of his employment, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following such termination, this Option
shall be immediately exercisable to the extent it would have been exercisable
had the Optionee continued with his employment with the Company for the balance
of the term of the Employment Agreement plus twelve months. If Optionee does not
exercise this Option within the time specified in this Paragraph 2(b)(2), all
rights of Optionee under this Option shall be forfeited.
c. Change of Control. In the event of a "change of control transaction" as
defined below, this Option shall become immediately exercisable as to the total
number of shares set forth in Paragraph 1 above, provided, however, that if the
acquiring party seeks to have the transaction accounted for on a "pooling of
interests" basis, and, in the opinion of the Company's independent certified
public accountants, accelerating the exercisability of this Option would
preclude a pooling of interests under generally accepted accounting principles,
the exercisability of this Option shall not accelerate. If (i) Optionee ceases
to be an officer or employee of the Company or any Subsidiary in connection with
such a transaction, (ii) such transaction is treated as a "pooling of interests"
under generally accepted accounting principles, and (iii) Optionee is an
"affiliate" of the Company or Subsidiary under applicable legal and accounting
principles, this Option shall completely terminate on the later of (A) the close
of
<PAGE>
business on the one-month anniversary date of the termination of all such
relationships, and (B) the close of business on the date that is sixty (60) days
after the date on which affiliates are no longer restricted from selling,
transferring or otherwise disposing of the shares of stock received in the
change of control transaction. If Optionee does not exercise the Option within
the time specified in this Paragraph 2(c), all rights of Optionee under this
Option shall be forfeited. If Optionee exercises this Option on a date that is
after the three-month anniversary of the termination of his employment or on a
date that is more than ten years after the Date of Grant, this Option shall not
be treated as an incentive stock option within the meaning of Code Section 422.
For purposes of this Paragraph 2(c), a "change of control transaction"
means some individual, group or institution other than existing Company or
future employee-related programs acquiring over 20% of the voting equity of the
Company, but not including (a) a transaction initiated by the Company to obtain
participation funds; (b) a transaction initiated by KII where the Company is the
surviving entity and Optionee is the CEO of the Company after the transaction;
or (c) a transaction initiated by an individual, group or institution acting at
the instigation of or in concert with the Optionee, whether or not Optionee's
employment terminates in connection with such transaction.
d. Disability. If Optionee ceases to be an officer or employee of the
Company or any Subsidiary because of disability (as such term is defined in Code
Section 22(e)(3), or any successor provision), this Option shall completely
terminate on the earlier of (i) the close of business on the six-month
anniversary date of the termination of his employment, and (ii) the expiration
date under this Option stated in Paragraph 2(a) above. In such period following
such termination, this Option shall be exercisable only to the extent the Option
was exercisable on the vesting date immediately preceding the termination of all
of Optionee's relationships. If Optionee does not exercise the Option within the
time specified in this Paragraph 2(d), all rights of Optionee under this Option
shall be forfeited.
e. Death. In the event of Optionee's death, this Option shall terminate on
the earlier of (i) the close of business on the six-month anniversary date of
the date of Optionee's death, and (ii) the expiration date of this Option stated
in Paragraph 2(a) above. In such period following Optionee's death, this Option
may be exercised by the person or persons to whom Optionee's rights under this
Option shall have passed by Optionee's will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee's death. If such person or persons
fail to exercise this Option within the time specified in this Paragraph 2(e),
all rights under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or other proper
party in the event of death or incapacity), subject to the conditions of the
Plan and subject to such other administrative rules as the Administrator may
deem advisable, by delivering within the Option Period written notice of
exercise to the Company at its principal office. The notice shall state the
number of shares as to which the Option is being exercised and shall be
accompanied by payment in full of the Option price for all shares designated in
the notice. The exercise of the Option shall be deemed effective upon receipt of
such notice by the Company and upon payment that complies with the terms of the
Plan and this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the Option period as provided herein.
b. Form of Payment. Subject to approval by the Administrator, payment of
the Option price by Optionee shall be in the form of cash, personal check,
certified check or previously acquired shares of Common Stock of the Company, or
any combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes
<PAGE>
of this Agreement, "previously acquired shares of Common Stock" shall include
shares of Common Stock that are already owned by Optionee at the time of
exercise.
c. Stock Transfer Records. As soon as practicable after the exercise of all
or any part of the Option, Optionee shall be recorded on the stock transfer
books of the Company as the owner of the shares purchased, and the Company shall
deliver to Optionee one or more duly issued stock certificates evidencing such
ownership. All requisite original issue or transfer documentary stamp taxes
shall be paid by the Company.
4. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to continuance of employment by the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 13 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Shares Reserved. The Company shall at all times during the option period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
e. Withholding Taxes on Disqualifying Disposition. In the event of a
disqualifying disposition of the shares acquired through the exercise of this
Option, Optionee hereby agrees to inform the Company of such disposition. Upon
notice of a disqualifying disposition, the Company may take such action as it
deems appropriate to insure that, if necessary to comply with all applicable
federal or state income tax laws or regulations, all applicable federal and
state payroll, income or other taxes are withheld from any amounts payable by
the Company to Optionee. If the Company is unable to withhold such federal and
state taxes, for whatever reason, Optionee hereby agrees to pay to the Company
an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Optionee may, subject to the approval and
discretion of the Administrator or such administrative rules
<PAGE>
it may deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
f. Nontransferability. During the lifetime of Optionee, the accrued Option
shall be exercisable only by Optionee or by the Optionee's guardian or other
legal representative, and shall not be assignable or transferable by Optionee,
in whole or in part, other than by will or by the laws of descent and
distribution.
g. 1997 Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
h. Lockup Period Limitation. Optionee agrees that in the event the Company
advises Optionee that it plans an underwritten public offering of its Common
Stock in compliance with the Securities Act of 1933, as amended, and that the
underwriter(s) seek to impose restrictions under which certain shareholders may
not sell or contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common Stock,
Optionee hereby agrees that for a period not to exceed 180 days from the
prospectus, Optionee will not sell or contract to sell or grant an option to buy
or otherwise dispose of this option or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).
i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days' prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed
given when delivered personally or when deposited in the United States mail,
first class postage prepaid and addressed to Optionee at the address of Optionee
on file with the Company.
j. Accounting Compliance. Optionee agrees that, in the event a "change of
control transaction" (as defined in Paragraph 4(g) above) is treated as a
"pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of pooling
accounting rules and Rule 145 under the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles as may be
applicable, and will execute any documents necessary to ensure such compliance.
k. Stock Legend. The certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) shall bear an
appropriate legend to reflect the restrictions of Paragraphs 4(b), 4(h), 4(i)
and 4(j) of this Agreement.
l. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 4(f) above.
<PAGE>
m. Arbitration. All disputes of claims arising out of or in any way
relating to this Agreement, including the making of this Agreement, shall be
submitted to and determined by final and binding arbitration before the National
Association of Securities Dealers, Inc. ("NASD") in accordance with the NASD
Code of Arbitration Procedure, or if the NASD refuses to accept jurisdiction,
before the American Arbitration Association ("AAA") under the AAA's Rules. The
award of the arbitrator(s), or a majority of them, shall be final and judgment
upon such award may be entered in any court of competent jurisdiction. This
arbitration provision shall continue in full force and effect after the
termination of any employment or other relationship of Optionee with the
Company. In addition to any other procedures provided for under the rules of the
NASD or the AAA, upon written request, each party shall, at least 14 days prior
to the date of any hearing, provide to the opposite party a copy of all
documents relevant to the issues raised by any claim or counterclaim and a list
of all witnesses to be called by that party at the hearing and each party shall
be permitted to take one (1) deposition at least fourteen (14) days prior to any
hearing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
KINNARD INVESTMENTS, INC.
By: /s/ Hilding C. Nelson
Its: Chairman
/s/ Willialm F. Farley
Optionee
Exhibit 10.5
NONQUALIFIED STOCK OPTION AGREEMENT
KINNARD INVESTMENTS, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this 7th day of April, 1997, by and
between Kinnard Investments, Inc., a Minnesota corporation (the "Company"), and
William F. Farley ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee and officer of the
Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant a nonqualified stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator has authorized the grant of a nonqualified stock
option to Optionee;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of Eighty-two thousand five hundred
(82,500) shares of Common Stock at a per share price of $6.00 on the terms and
conditions set forth herein, and subject to adjustment pursuant to Section 12 of
the Plan. This Option is a nonqualified stock option and will not be treated as
an incentive stock option, as defined under Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
April 6, 2007, except as otherwise provided in Paragraphs 2(b) through 2(e)
below. This Option shall become exercisable according to the following schedule:
Percentage/Number
Vesting Date of Shares
December 31, 1997 16,500
December 31, 1998 16,500
December 31, 1999 16,500
December 31, 2000 16,500
December 31, 2001 16,500
<PAGE>
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.
b. (1) Termination of Relationship for Cause or Without Good Reason. If
Optionee ceases to be an officer, employee consultant or advisor of the Company
or any Subsidiary by reason of his Termination by the Company for "Cause" or by
reason of his resignation other than for "Good Reason", as such terms are
defined in the Employment Agreement between the Company and Optionee dated April
7, 1997 (the "Employment Agreement"), this Option shall completely terminate on
the earlier of (i) the close of business on the one-month anniversary date of
the termination of his employment, and (ii) the expiration date of this Option
stated in Paragraph 2(a) above. In such period following such termination, this
Option shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the date on which Optionee's employment with
the Company or Subsidiary has terminated, but had not previously been exercised.
To the extent this Option was not exercisable upon the termination of such
employment, or if Optionee does not exercise this Option within the time
specified in this Paragraph 2(b)(1), all rights of Optionee under this Option
shall be forfeited.
(2) Termination of Relationship Other Than for Cause or Without Good
Reason, Change of Control, Disability or Death. If Optionee ceases to be an
officer or employee of the Company or any Subsidiary for any reason (including
the Company's giving notice prior to July 1, 2000 that the term of the
Employment Agreement will not be extended) other than because of termination for
Cause or resignation without Good Reason (Paragraph 2(b)(1) above), Change of
Control (Paragraph 2(c) below), Disability (Paragraph 2(d) below) or Death
(Paragraph 2(e) below), this Option shall completely terminate on the earlier of
(i) the close of business on the one-month anniversary date of the termination
of his employment, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following such termination, this Option
shall be immediately exercisable to the extent it would have been exercisable
had the Optionee continued with his employment with the Company for the balance
of the term of the Employment Agreement plus twelve months. If Optionee does not
exercise this Option within the time specified in this Paragraph 2(b)(2), all
rights of Optionee under this Option shall be forfeited.
c. Change of Control. In the event of a "change of control transaction" as
defined below, this Option shall become immediately exercisable as to the total
number of shares set forth in Paragraph 1 above, provided, however, that if the
acquiring party seeks to have the transaction accounted for on a "pooling of
interests" basis, and, in the opinion of the Company's independent certified
public accountants, accelerating the exercisability of this Option would
preclude a pooling of interests under generally accepted accounting principles,
the exercisability of this Option shall not accelerate. If (i) Optionee ceases
to be an officer or employee of the Company or any Subsidiary in connection with
such a transaction, (ii) such transaction is treated as a "pooling of interests"
under generally accepted accounting principles, and (iii) Optionee is an
"affiliate" of the Company or Subsidiary under applicable legal and accounting
principles, this Option shall completely terminate on the later of (A) the close
of business on the one-month anniversary date of the termination of his
employment, and (B) the close of business on the date that is sixty (60) days
after the date on which affiliates are no longer restricted from selling,
transferring or otherwise disposing of the shares of stock received in the
change of control transaction. If Optionee does not exercise the Option within
the time specified in this Paragraph 2(c), all rights of Optionee under this
Option shall be forfeited.
<PAGE>
For purposes of this Paragraph 2(c), a "change of control transaction"
means some individual, group or institution other than existing Company or
future employee-related programs acquiring over 20% of the voting equity of the
Company, but not including (a) a transaction initiated by the Company to obtain
participation funds; (b) a transaction initiated by KII where the Company is the
surviving entity and Optionee is the CEO of the Company after the transaction;
or (c) a transaction initiated by an individual, group or institution acting at
the instigation of or in concert with the Optionee, whether or not Optionee's
employment terminates in connection with such transaction.
d. Disability. If Optionee ceases to be an officer or employee of the
Company or any Subsidiary because of disability (as such term is defined in Code
Section 22(e)(3), or any successor provision), this Option shall completely
terminate on the earlier of (i) the close of business on the six-month
anniversary date of the termination of his employment, and (ii) the expiration
date under this Option stated in Paragraph 2(a) above. In such period following
such termination, this Option shall be exercisable only to the extent the Option
was exercisable on the vesting date immediately preceding the termination of
Optionee's employment. If Optionee does not exercise the Option within the time
specified in this Paragraph 2(d), all rights of Optionee under this Option shall
be forfeited.
e. Death. In the event of Optionee's death, this Option shall terminate on
the earlier of (i) the close of business on the six-month anniversary date of
the date of Optionee's death, and (ii) the expiration date of this Option stated
in Paragraph 2(a) above. In such period following Optionee's death, this Option
may be exercised by the person or persons to whom Optionee's rights under this
Option shall have passed by Optionee's will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee's death. If such person or persons
fail to exercise this Option within the time specified in this Paragraph 2(e),
all rights under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or other proper
party in the event of death or incapacity), subject to the conditions of the
Plan and subject to such other administrative rules as the Administrator may
deem advisable, by delivering within the option period written notice of
exercise to the Company at its principal office. The notice shall state the
number of shares as to which the Option is being exercised and shall be
accompanied by payment in full of the option price for all shares designated in
the notice. The exercise of the Option shall be deemed effective upon receipt of
such notice by the Company and upon payment that complies with the terms of the
Plan and this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be exercised as to the unexercised shares any number of times
during the option period as provided herein.
b. Form of Payment. Subject to the approval of the Administrator, payment
of the option price by Optionee shall be in the form of cash, personal check,
certified check or previously acquired shares of Common Stock of the Company, or
any combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, "previously acquired shares of Common Stock" shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the exercise of all
or any part of the Option, Optionee shall be recorded on the stock transfer
books of the Company as the owner of the shares purchased, and the Company shall
deliver to Optionee one or more duly issued stock
<PAGE>
certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
4. Miscellaneous.
a. Rights as Shareholder. This Agreement shall not confer on Optionee any
right with respect to the continuance of any relationship with the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate any such relationship. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof and that such shares will be not transferred or
disposed of except in compliance with applicable state and federal securities
laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 13 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Shares Reserved. The Company shall at all times during the option period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
e. Withholding Taxes. In order to permit the Company to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure that, if necessary, all applicable
federal or state payroll, income or other taxes are withheld from any amounts
payable by the Company to Optionee. If the Company is unable to withhold such
federal and state taxes, for whatever reason, Optionee hereby agrees to pay to
the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Optionee may, subject to the
approval and discretion of the Administrator or such administrative rules it may
deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
f. Transferability of Options. Optionee may, for no consideration, transfer
this Option to a member of Optionee's immediate family, to a trust for the
benefit of Optionee's immediately family member(s) or to a partnership in which
such family member(s) are the only partners. The family member to whom, or the
trust or partnership to which, this Option has been transferred shall be subject
<PAGE>
to all terms and conditions set forth herein, and shall not subsequently assign
or transfer this Option, either voluntarily or involuntarily, unless such
transfer is to another family member, trust or partnership which meets the
requirements of this Paragraph 4(f). If Optionee does not transfer this Option
to such a family member, trust or partnership, this Option shall be exercisable
only by Optionee or by Optionee's guardian or other legal representative and,
upon Optionee's death, shall be exercisable by the person or persons to whom
Optionee's rights under this Option have passed by will or by the laws of
descent and distribution.
g. 1997 Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
h. Lockup Period Limitation. Optionee agrees that in the event the Company
advises Optionee that it plans an underwritten public offering of its Common
Stock in compliance with the Securities Act of 1933, as amended, and that the
underwriter(s) seek to impose restrictions under which certain shareholders may
not sell or contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common Stock,
Optionee hereby agrees that for a period not to exceed 180 days from the
prospectus, Optionee will not sell or contract to sell or grant an option to buy
or otherwise dispose of this option or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).
i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days' prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed
given when delivered personally or when deposited in the United States mail,
first class postage prepaid and addressed to Optionee at the address of Optionee
on file with the Company.
j. Accounting Compliance. Optionee agrees that, in the event a "change of
control transaction" (as defined in Paragraph 4(g) above) is treated as a
"pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of pooling
accounting rules and Rule 145 under the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles as may be
applicable, and will execute any documents necessary to ensure such compliance.
k. Stock Legend. The certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) shall bear an
appropriate legend to reflect the restrictions of Paragraph 4(b), 4(h), 4(i) and
4(j) of this Agreement.
l. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 2(b) above.
<PAGE>
m. Arbitration. All disputes of claims arising out of or in any way
relating to this Agreement, including the making of this Agreement, shall be
submitted to and determined by final and binding arbitration before the National
Association of Securities Dealers, Inc. ("NASD") in accordance with the NASD
Code of Arbitration Procedure, or if the NASD refuses to accept jurisdiction,
before the American Arbitration Association ("AAA") under the AAA's Rules. The
award of the arbitrator(s), or a majority of them, shall be final and judgment
upon such award may be entered in any court of competent jurisdiction. This
arbitration provision shall continue in full force and effect after the
termination of any employment or other relationship of Optionee with the
Company. In addition to any other procedures provided for under the rules of the
NASD or the AAA, upon written request, each party shall, at least 14 days prior
to the date of any hearing, provide to the opposite party a copy of all
documents relevant to the issues raised by any claim or counterclaim and a list
of all witnesses to be called by that party at the hearing and each party shall
be permitted to take one (1) deposition at least fourteen (14) days prior to any
hearing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Kinnard Investments, Inc.
By: /s/ Hilding C. Nelson
Its: Chairman
/s/ William F. Farley
Optionee
Exhibit 10.6
Kinnard Investments, Inc.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(b) "Non- Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Kinnard Investments, Inc., a Minnesota
corporation.
(c) "Fair Market Value" shall mean (i) if such stock is reported by
the Nasdaq National Market or Nasdaq SmallCap Market or is listed upon
an established stock exchange or exchanges, the reported closing price
of such stock by the Nasdaq National Market or Nasdaq SmallCap Market
or on such stock exchange or exchanges on the date the option is
granted or, if no sale of such stock shall have occurred on that date,
on the next preceding day on which there was a sale of stock; (ii) if
such stock is not so reported by the Nasdaq National Market or Nasdaq
SmallCap Market or listed upon an established stock exchange, the
average of the closing "bid" and "asked" prices quoted by the National
Quotation Bureau, Inc. (or any comparable reporting service) on the
date the option is granted, or if there are no quoted "bid" and
"asked" prices on such date, on the next preceding date for which
there are such quotes; or (iii) if such stock is not publicly traded
as of the date the option is granted, the per share value as
determined by the Board, or the Committee, in its sole discretion by
applying principles of valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are
not employees of the Company or any subsidiary.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant
to this Plan.
<PAGE>
(g) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
Director), employee or officer of the Company or any Subsidiary to
whom a nonqualified stock option has been granted pursuant to Section
10; or a Non-Employee Director to whom a nonqualified stock option has
been granted pursuant to Section 11.
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(i) The "Plan" means the Kinnard Investments, Inc. 1997 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan. Any
incentive stock options granted after adoption of the Plan by the Board of
Directors shall be treated as nonqualified stock options if shareholder approval
is not obtained within twelve months after the adoption of the Plan by the
Board.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
<PAGE>
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
Notwithstanding anything in the Plan to the contrary, an Optionee shall not, in
any calendar year, be granted incentive or nonqualified stock options which, in
total, provide for the purchase of more than 200,000 shares of Option Stock.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees, officers, directors,
consultants, and advisors of the Company or of any Subsidiary to whom
nonqualified stock options shall be granted under this Plan; provided, however,
that consultants or advisors shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or Subsidiary and such services are not in connection with the offer or
sale of securities in a capital raising transaction. The Administrator shall,
from time to time, at its discretion and without approval of the shareholders,
designate those employees of the Company or any Subsidiary to whom incentive
stock options shall be granted under this Plan. The Administrator may grant
additional incentive stock options or nonqualified stock options under this Plan
to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Administrator
shall also determine the number of shares to be optioned to each such
participant. The Board may from time to time designate individuals as being
ineligible to participate in the Plan.
<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock. One Million (1,000,000) shares of Option Stock
shall be reserved and available for options under the Plan; provided, however,
that the total number of shares of Option Stock reserved for options under this
Plan shall be subject to adjustment as provided in Section 13 of the Plan. In
the event that any outstanding option under the Plan for any reason expires or
is terminated prior to the exercise thereof, the shares of Option Stock
allocable to the unexercised portion of such option shall continue to be
reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant to
this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
Stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided,
<PAGE>
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the incentive stock
option. To the extent required to qualify the Option as an incentive
stock option under Section 422 of the Internal Revenue Code, or any
successor provision, the option price per share shall not be less than
one hundred percent (100%) of the Fair Market Value of the Common
Stock per share on the date the Administrator grants the option;
provided, however, that if an Optionee owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than ten (10) years after the date on which it
is granted; provided, however, that if an Optionee owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its parent or any
Subsidiary, the incentive stock option granted to such Optionee shall
be exercisable during a term of not more than five (5) years after the
date on which it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in
the Option Agreement. The Administrator may accelerate the
exercisability of any incentive stock option granted hereunder which
is not immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10 shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the nonqualified stock
option. Unless otherwise determined by the
<PAGE>
Administrator, the option price per share shall be one hundred percent
(100%) of the Fair Market Value of the Common Stock per share on the
date the Administrator grants the option.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator.
The Option Agreement shall state when the nonqualified stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event a nonqualified stock option
is exercisable immediately, the manner of exercise of the option in
the event it is not exercised in full immediately shall be specified
in the stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder
which is not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding
and employment-related taxes, the Administrator may, in its discretion
and pursuant to such rules as it may adopt, permit the Optionee to
satisfy such obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock otherwise issuable to the
Optionee as a result of the option's exercise equal to the amount
required to be withheld for tax purposes. Any stock elected to be
withheld shall be valued at its Fair Market Value, as of the date the
amount of tax to be withheld is determined under applicable tax law.
The Optionee's election to have shares withheld for this purpose shall
be made on or before the date the option is exercised or, if later,
the date that the amount of tax to be withheld is determined under
applicable tax law. Such election shall be approved by the
Administrator and otherwise comply with such rules as the
Administrator may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Election or Re-election to Board by Shareholders. Each
Non-Employee Director who, on and after the date this Plan is approved
by the Company's shareholders, is elected or re-elected as a director
of the Company or whose term of office continues after a meeting of
shareholders at which directors are elected shall, as of the date of
such re-election or shareholder meeting, automatically be granted an
option to purchase 2,500 shares of the Common Stock at an option price
per share equal to 100% of the Fair Market Value of the Common Stock
on the date of such election, re-election or shareholder meeting.
Options granted pursuant to this subsection (a) shall be immediately
exercisable in full.
(b) General. No director shall receive more than one option pursuant
to subsection (a) of this Section 11 in any one fiscal year. All
options granted pursuant to this Section 11 shall be designated as
nonqualified options and shall be subject to the same terms and
provisions as are
<PAGE>
then in effect with respect to granting of nonqualified options to
officers and employees of the Company except that the option shall
expire on the earlier of (i) one month after the Optionee ceases to be
a director (except by death) and (ii) five years after the date of
grant. Notwithstanding the foregoing, in the event of the death of a
Non-Employee Director, any option granted to such Non-Employee
Director pursuant to this Section 11 may be exercised at any time
within six months of the death of such Non-Employee Director or on the
date on which the option, by its terms expires, whichever is earlier.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part, by
the Optionee other than by will or by the laws of descent and distribution and,
during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock reserved under Section 6 hereof and the number
of shares of Option Stock covered by each outstanding option and the price per
share thereof shall be adjusted by the Board to reflect such change. Additional
shares which may be credited pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.
Unless otherwise provided in the stock option agreement, in the event of an
acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's
<PAGE>
independent certified public accountants, accelerating the exercisability of
such options would preclude a pooling of interests under generally accepted
accounting principles, the exercisability of such options shall not accelerate.
In addition to the foregoing, in the event of such a transaction, the Board may
provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company
or shares of stock of any corporation succeeding the Company by reason
of such transaction, such shares having a value equal to the cash
payment herein; or
(c) the continuance of the Plan with respect to the exercise of
options which were outstanding as of the date of adoption by the Board
of such plan for such transaction and provide to Optionees holding
such options the right to exercise their respective options as to an
equivalent number of shares of stock of the corporation succeeding the
Company by reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Option Stock to Optionee, the Administrator may require Optionee to
(i) represent that the shares of Option Stock are being acquired for investment
and not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(ii) represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.
As a further condition to the grant of any incentive or nonqualified stock
option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with
the Securities Act of 1933, as amended, and the
<PAGE>
underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to
buy or otherwise dispose of part or all of their stock purchase rights
of the underlying Common Stock, Optionee will not, for a period not to
exceed 180 days from the prospectus, sell or contract to sell or grant
an option to buy or otherwise dispose of any incentive or nonqualified
stock option granted to Optionee pursuant to the Plan or any of the
underlying shares of Common Stock without the prior written consent of
the underwriter(s) or its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights
so as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or
portions thereof which Optionee does not exercise prior to or
contemporaneously with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock certificate
issued upon exercise of an option granted pursuant to the Plan to assure
compliance with this Section 14.
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may
<PAGE>
be granted, or (iv) materially increase the benefits accruing to Optionees under
the Plan without the approval of the shareholders of the Company if such
approval is required for compliance with the requirements of any applicable law
or regulation. Furthermore, the Plan may not, without the approval of the
shareholders, be amended in any manner that will cause incentive stock options
to fail to meet the requirements of Section 422 of the Internal Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
KINNARD INVESTMENTS, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this ____ day of _____________,
19____, by and between Kinnard Investments, Inc., a Minnesota corporation (the
"Company"), and ____________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee or officer of the
Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to Optionee
to purchase shares of the Company's Common Stock pursuant to the Company's 1997
Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator of the Plan has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the effective
date of this Agreement, the fair market value of the Company's Common Stock is
$_____________ per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of ____________________ (__________)
shares of Common Stock at a per share price of $___________ on the terms and
conditions set forth herein, and subject to adjustment pursuant to Section 13 of
the Plan. Except as otherwise provided in Paragraphs 2(b) and 2(c), this Option
is intended to be an incentive stock option within the meaning of Section 422,
or any successor provision, of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
___________,_________, except as otherwise provided in Paragraphs 2(b) through
2(e) below. This Option shall become exercisable according to the following
schedule:
Percentage/Number
Vesting Date of Shares
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms
<PAGE>
and conditions of this Agreement until the termination of the Option as provided
herein. If Optionee does not purchase upon an exercise of this Option the full
number of shares which Optionee is then entitled to purchase, Optionee may
purchase upon any subsequent exercise prior to this Option's termination such
previously unpurchased shares in addition to those Optionee is otherwise
entitled to purchase.
b. Termination of Employment (other than Change of Control, Disability or
Death). If Optionee's employment with the Company or any Subsidiary is
terminated for any reason other than because of a "change of control
transaction" as described in Paragraph 2(c) or because of disability or death,
this Option shall completely terminate on the earlier of (i) the close of
business on the one-month anniversary date of such termination of employment,
and (ii) the expiration date of this Option stated in Paragraph 2 above. In such
period following the termination of Optionee's employment or, if applicable,
such other relationship, this Option shall be exercisable only to the extent the
Option was exercisable on the vesting date immediately preceding such
termination of employment or such other relationship, but had not previously
been exercised. To the extent this Option was not exercisable upon such
termination of employment or such other relationship, or if Optionee does not
exercise the Option within the time specified in this Paragraph 2(b), all rights
of Optionee under this Option shall be forfeited.
c. Change of Control. If (i) Optionee's employment with the Company or any
Subsidiary is terminated because of a "change of control transaction," (ii) such
transaction is treated as a "pooling of interests" under generally accepted
accounting principles, and (iii) Optionee is an "affiliate" of the Company or
Subsidiary under applicable legal and accounting principles, this Option shall
completely terminate on the later of (A) the close of business on the one-month
anniversary date of such termination of employment or (B) the close of business
on the date that is sixty (60) days after the date on which affiliates are no
longer restricted from selling, transferring or otherwise disposing of the
shares of stock received in the change of control transaction. Notwithstanding
the foregoing, if, upon such termination of employment, Optionee continues to
serve as a consultant, advisor or nonemployee director of the Company or
Subsidiary, this Option shall terminate on the later of (X) the close of
business on the one-month anniversary date of the termination of all of
Optionee's relationships with the Company or Subsidiary, and (Y) the close of
business on the date that is sixty (60) days after the date on which affiliates
are no longer restricted from selling, transferring or otherwise disposing of
the shares of stock received in the change of control transaction, and this
Option shall not, upon Optionee's termination of employment, be treated as an
incentive stock option within the meaning of Code Section 422.
In such period following the termination of Optionee's employment or, if
applicable, such other relationship, this Option shall be exercisable only to
the extent the Option was exercisable on the vesting date immediately preceding
such termination of employment or such other relationship, but had not
previously been exercised, unless the exercisability of this Option has been
accelerated as provided in Section 13 of the Plan. To the extent this Option was
not exercisable upon such termination of employment or such other relationship,
or if Optionee does not exercise the Option within the time specified in this
Paragraph 2(c), all rights of Optionee under this Option shall be forfeited. If
Optionee exercises this Option on a date that is after the three-month
anniversary of the termination of Optionee's employment or on a date that is
more than ten years (or five years, if applicable) after the Date of Grant, this
Option shall not be treated as an incentive stock option within the meaning of
Code Section 422.
For purposes of this Paragraph 2(c), a "change of control transaction"
means an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture (including a spin-off) or liquidation of the Company.
<PAGE>
d. Disability. If Optionee ceases to be an employee of the Company or any
Subsidiary due to disability (as such term is defined in Code Section 22(e)(3),
or any successor provision), this Option shall completely terminate on the
earlier of (i) the close of business on the six-month anniversary date of such
termination of employment, and (ii) the expiration date under this Option stated
in Paragraph 2(a) above. In such period following such termination of
employment, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding the date of Optionee's
termination of employment. If Optionee does not exercise the Option within the
time specified in this Paragraph 2(d), all rights of Optionee under this Option
shall be forfeited.
e. Death. In the event of Optionee's death, this Option shall terminate on
the earlier of (i) the close of business on the six-month anniversary date of
the date of Optionee's death, and (ii) the expiration date of this Option stated
in Paragraph 2(a) above. In such period following Optionee's death, this Option
shall be exercisable by the person or persons to whom Optionee's rights under
this Option shall have passed by Optionee's will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee's death. If such person or persons do
not exercise this Option within the time specified in this Paragraph 2(e), all
rights under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or other proper
party in the event of death or incapacity), subject to the conditions of the
Plan and subject to such other administrative rules as the Administrator may
deem advisable, by delivering within the Option Period written notice of
exercise to the Company at its principal office. The notice shall state the
number of shares as to which the Option is being exercised and shall be
accompanied by payment in full of the Option price for all shares designated in
the notice. The exercise of the Option shall be deemed effective upon receipt of
such notice by the Company and upon payment that complies with the terms of the
Plan and this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the Option period as provided herein.
b. Form of Payment. Subject to approval by the Administrator, payment of
the Option price by Optionee shall be in the form of cash, personal check,
certified check or previously acquired shares of Common Stock of the Company, or
any combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, "previously acquired shares of Common Stock" shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the effective
exercise of all or any part of the Option, Optionee shall be recorded on the
stock transfer books of the Company as the owner of the shares purchased, and
the Company shall deliver to Optionee one or more duly issued stock certificates
evidencing such ownership. All requisite original issue or transfer documentary
stamp taxes shall be paid by the Company.
<PAGE>
4. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to continuance of employment by the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 13 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Shares Reserved. The Company shall at all times during the option period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
e. Withholding Taxes on Disqualifying Disposition. In the event of a
disqualifying disposition of the shares acquired through the exercise of this
Option, Optionee hereby agrees to inform the Company of such disposition. Upon
notice of a disqualifying disposition, the Company may take such action as it
deems appropriate to insure that, if necessary to comply with all applicable
federal or state income tax laws or regulations, all applicable federal and
state payroll, income or other taxes are withheld from any amounts payable by
the Company to Optionee. If the Company is unable to withhold such federal and
state taxes, for whatever reason, Optionee hereby agrees to pay to the Company
an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Optionee may, subject to the approval and
discretion of the Administrator or such administrative rules it may deem
advisable, elect to have all or a portion of such tax withholding obligations
satisfied by delivering shares of the Company's Common Stock having a fair
market value equal to such obligations.
f. Nontransferability. During the lifetime of Optionee, the accrued Option
shall be exercisable only by Optionee or by the Optionee's guardian or other
legal representative, and shall not be assignable or transferable by Optionee,
in whole or in part, other than by will or by the laws of descent and
distribution.
<PAGE>
g. 1997 Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
h. Lockup Period Limitation. Optionee agrees that in the event the Company
advises Optionee that it plans an underwritten public offering of its Common
Stock in compliance with the Securities Act of 1933, as amended, and that the
underwriter(s) seek to impose restrictions under which certain shareholders may
not sell or contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common Stock,
Optionee hereby agrees that for a period not to exceed 180 days from the
prospectus, Optionee will not sell or contract to sell or grant an option to buy
or otherwise dispose of this option or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).
i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days' prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed
given when delivered personally or when deposited in the United States mail,
first class postage prepaid and addressed to Optionee at the address of Optionee
on file with the Company.
j. Accounting Compliance. Optionee agrees that, in the event a "change of
control transaction" (as defined in Paragraph 4(g) above) is treated as a
"pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of pooling
accounting rules and Rule 145 under the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles as may be
applicable, and will execute any documents necessary to ensure such compliance.
k. Stock Legend. The certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) shall bear an
appropriate legend to reflect the restrictions of Paragraphs 4(b), 4(h), 4(i)
and 4(j) of this Agreement.
l. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 4(f) above.
m. Arbitration. All disputes of claims arising out of or in any way
relating to this Agreement, including the making of this Agreement, shall be
submitted to and determined by final and binding arbitration before the National
Association of Securities Dealers, Inc. ("NASD") in accordance with the NASD
Code of Arbitration Procedure, or if the NASD refuses to accept jurisdiction,
before the American Arbitration Association ("AAA") under the AAA's Rules. The
award of the arbitrator(s), or a majority of them, shall be final and judgment
upon such award may be entered in any court of competent jurisdiction. This
arbitration provision shall continue in full force and effect after the
<PAGE>
termination of any employment or other relationship of Optionee with the
Company. In addition to any other procedures provided for under the rules of the
NASD or the AAA, upon written request, each party shall, at least 14 days prior
to the date of any hearing, provide to the opposite party a copy of all
documents relevant to the issues raised by any claim or counterclaim and a list
of all witnesses to be called by that party at the hearing and each party shall
be permitted to take one (1) deposition at least fourteen (14) days prior to any
hearing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
KINNARD INVESTMENTS, INC.
By:
Its:
Optionee
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
KINNARD INVESTMENTS, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this ______ day of ___________, 19___,
by and between Kinnard Investments, Inc., a Minnesota corporation (the
"Company"), and ________________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee, officer,
consultant, nonemployee director or advisor of the Company or one of its
Subsidiaries; and
WHEREAS, the Company wishes to grant a nonqualified stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator has authorized the grant of a nonqualified stock
option to Optionee and has determined that, as of the effective date of this
Agreement, the fair market value of the Company's Common Stock is $______ per
share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of __________________________
(______________) shares of Common Stock at a per share price of $________ on the
terms and conditions set forth herein, and subject to adjustment pursuant to
Section 12 of the Plan. This Option is a nonqualified stock option and will not
be treated as an incentive stock option, as defined under Section 422, or any
successor provision, of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
_________________________,______________, except as otherwise provided in
Paragraphs 2(b) through 2(e) below. This Option shall become exercisable
according to the following schedule:
Percentage/Number
Vesting Date of Shares
<PAGE>
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.
b. Termination of Relationship (other than Change of Control, Disability or
Death). If Optionee ceases to be an employee, consultant, nonemployee director
or an advisor of the Company or any Subsidiary for any reason other than because
of a "change of control transaction" as described in Paragraph 2(c) or because
of disability or death, this Option shall completely terminate on the earlier of
(i) the close of business on the one-month anniversary date of the termination
of all such relationships, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following such termination, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the date on which all of Optionee's
relationships with the Company or Subsidiary have terminated, but had not
previously been exercised. To the extent this Option was not exercisable upon
the termination of such relationship, or if Optionee does not exercise the
Option within the time specified in this Paragraph 2(b), all rights of Optionee
under this Option shall be forfeited.
c. Change of Control. If (i) Optionee ceases to be an employee, consultant,
nonemployee director or advisor of the Company or any Subsidiary because of a
"change of control transaction," (ii) such transaction is treated as a "pooling
of interests" under generally accepted accounting principles, and (iii) Optionee
is an "affiliate" of the Company or Subsidiary under applicable legal and
accounting principles, this Option shall completely terminate on the later of
(A) the close of business on the one-month anniversary date of the termination
of all such relationships, and (B) the close of business on the date that is
sixty (60) days after the date on which affiliates are no longer restricted from
selling, transferring or otherwise disposing of the shares of stock received in
the change of control transaction. In such period following such termination,
this Option shall be exercisable only to the extent the Option was exercisable
on the vesting date immediately preceding the date on which all of Optionee's
relationships with the Company or Subsidiary have terminated, but had not
previously been exercised, unless the exercisability of this Option has been
accelerated as provided in Section 13 of the Plan. To the extent this Option was
not exercisable upon such termination of such relationships, or if Optionee does
not exercise the Option within the time specified in this Paragraph 2(c), all
rights of Optionee under this Option shall be forfeited.
For purposes of this Paragraph 2(c), a "change of control transaction"
means an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company.
d. Disability. If Optionee ceases to be an employee, consultant,
nonemployee director or advisor of the Company or any Subsidiary because of
disability (as such term is defined in Code Section 22(e)(3), or any successor
provision), this Option shall completely terminate on the earlier of (i) the
close of business on the six-month anniversary date of the termination of all
such relationships, and (ii) the expiration date under this Option stated in
Paragraph 2(a) above. In such period following such termination, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the termination of all of Optionee's
relationships. If Optionee does not exercise the Option within the time
specified in this Paragraph 2(d), all rights of Optionee under this Option shall
be forfeited.
<PAGE>
e. Death. In the event of Optionee's death, this Option shall terminate on
the earlier of (i) the close of business on the six-month anniversary date of
the date of Optionee's death, and (ii) the expiration date of this Option stated
in Paragraph 2(a) above. In such period following Optionee's death, this Option
may be exercised by the person or persons to whom Optionee's rights under this
Option shall have passed by Optionee's will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee's death. If such person or persons
fail to exercise this Option within the time specified in this Paragraph 2(e),
all rights under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or other proper
party in the event of death or incapacity), subject to the conditions of the
Plan and subject to such other administrative rules as the Administrator may
deem advisable, by delivering within the option period written notice of
exercise to the Company at its principal office. The notice shall state the
number of shares as to which the Option is being exercised and shall be
accompanied by payment in full of the option price for all shares designated in
the notice. The exercise of the Option shall be deemed effective upon receipt of
such notice by the Company and upon payment that complies with the terms of the
Plan and this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be exercised as to the unexercised shares any number of times
during the option period as provided herein.
b. Form of Payment. Subject to the approval of the Administrator, payment
of the option price by Optionee shall be in the form of cash, personal check,
certified check or previously acquired shares of Common Stock of the Company, or
any combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, "previously acquired shares of Common Stock" shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the effective
exercise of all or any part of the Option, Optionee shall be recorded on the
stock transfer books of the Company as the owner of the shares purchased, and
the Company shall deliver to Optionee one or more duly issued stock certificates
evidencing such ownership. All requisite original issue or transfer documentary
stamp taxes shall be paid by the Company.
4. Miscellaneous.
a. Rights as Shareholder. This Agreement shall not confer on Optionee any
right with respect to the continuance of any relationship with the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate any such relationship. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such
<PAGE>
exercise shall be held, until such time that such Common Stock is registered and
freely tradable under applicable state and federal securities laws, for
Optionee's own account without a view to any further distribution thereof and
that such shares will be not transferred or disposed of except in compliance
with applicable state and federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 13 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Shares Reserved. The Company shall at all times during the option period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
e. Withholding Taxes. In order to permit the Company to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure that, if necessary, all applicable
federal or state payroll, income or other taxes are withheld from any amounts
payable by the Company to Optionee. If the Company is unable to withhold such
federal and state taxes, for whatever reason, Optionee hereby agrees to pay to
the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Optionee may, subject to the
approval and discretion of the Administrator or such administrative rules it may
deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
f. Transferability of Options. Optionee may, for no consideration, transfer
this Option to a member of Optionee's immediate family, to a trust for the
benefit of Optionee's immediately family member(s) or to a partnership in which
such family member(s) are the only partners. The family member to whom, or the
trust or partnership to which, this Option has been transferred shall be subject
to all terms and conditions set forth herein, and shall not subsequently assign
or transfer this Option, either voluntarily or involuntarily, unless such
transfer is to another family member, trust or partnership which meets the
requirements of this Paragraph 4(f). If Optionee does not transfer this Option
to such a family member, trust or partnership, this Option shall be exercisable
only by Optionee or by Optionee's guardian or other legal representative and,
upon Optionee's death, shall be exercisable by the person or persons to whom
Optionee's rights under this Option have passed by will or by the laws of
descent and distribution.
g. 1997 Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
h. Lockup Period Limitation. Optionee agrees that in the event the Company
advises Optionee that it plans an underwritten public offering of its Common
Stock in compliance with the Securities Act of 1933, as amended, and that the
underwriter(s) seek to impose restrictions under which certain shareholders may
not sell or contract to sell or grant any option to buy or otherwise dispose of
<PAGE>
part or all of their stock purchase rights of the underlying Common Stock,
Optionee hereby agrees that for a period not to exceed 180 days from the
prospectus, Optionee will not sell or contract to sell or grant an option to buy
or otherwise dispose of this option or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).
i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days' prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed
given when delivered personally or when deposited in the United States mail,
first class postage prepaid and addressed to Optionee at the address of Optionee
on file with the Company.
j. Accounting Compliance. Optionee agrees that, in the event a "change of
control transaction" (as defined in Paragraph 4(g) above) is treated as a
"pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of pooling
accounting rules and Rule 145 under the Securities Act of 1933, as amended, and
the requirements of such other legal or accounting principles as may be
applicable, and will execute any documents necessary to ensure such compliance.
k. Stock Legend. The certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) shall bear an
appropriate legend to reflect the restrictions of Paragraph 4(b), 4(h), 4(i) and
4(j) of this Agreement.
l. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 2(b) above.
m. Arbitration. All disputes of claims arising out of or in any way
relating to this Agreement, including the making of this Agreement, shall be
submitted to and determined by final and binding arbitration before the National
Association of Securities Dealers, Inc. ("NASD") in accordance with the NASD
Code of Arbitration Procedure, or if the NASD refuses to accept jurisdiction,
before the American Arbitration Association ("AAA") under the AAA's Rules. The
award of the arbitrator(s), or a majority of them, shall be final and judgment
upon such award may be entered in any court of competent jurisdiction. This
arbitration provision shall continue in full force and effect after the
termination of any employment or other relationship of Optionee with the
Company. In addition to any other procedures provided for under the rules of the
NASD or the AAA, upon written request, each party shall, at least 14 days prior
to the date of any hearing, provide to the opposite party a copy of all
documents relevant to the issues raised by any claim or counterclaim and a list
of all witnesses to be called by that party at the hearing and each party shall
be permitted to take one (1) deposition at least fourteen (14) days prior to any
hearing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
KINNARD INVESTMENTS, INC.
By:
Its:
Optionee
EXHIBIT 10.7
PROMISSORY NOTE
$95,000.00 Date: April 30, 1997
For value received, the undersigned hereby promises to pay to the order of
Kinnard Investments, Inc., the principal sum of ninety-five thousand and 00/100
dollars ($95,000.00). No interest shall be accrued on this note until the note
becomes due and payable. After this note becomes due and payable, interest shall
accrue daily at the rate of 6% simple interest per year.
All unpaid principal shall become immediately due and payable when the
undersigned ceases to be employed by Kinnard Investments, Inc. or if the
proceeds of this note are used other than for purchase of an equity interest in
the Spring Hill Country Club (or any successor thereto).
The undersigned hereby waives demand, presentment, notice of nonpayment,
protest, notice of protest and notice of dishonor. The failure of the holder
hereof to exercise any of its rights hereunder in any instance shall not
constitute a waiver thereof in that or any other instance. The undersigned
agrees to pay all costs of collection and reasonable attorneys' fees.
/s/ William F. Farley
William F. Farley
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