SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8186
Inter-Regional Financial Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction (IRS Employer
of incorporation of organization) Identification
Number)
Dain Bosworth Plaza, 60 South Sixth Street
Minneapolis, Minnesota 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 371-7750
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of October 31, 1995, the Company had 8,067,681 shares of
common stock outstanding.
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
Page
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index of Exhibits
Exhibits
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
----------------------------
<C> <S> <S>
Assets:
Cash and cash equivalents $20,020 $22,764
Cash and short-term investments
segregated for regulatory purposes 459,000 338,000
Receivable from customers 703,934 710,647
Receivable from brokers and dealers 224,970 207,512
Securities purchased under
agreements to resell 300,196 198,561
Trading securities owned, at market 412,089 319,222
Equipment, leasehold improvements and
buildings, net 30,943 30,082
Other receivables 67,921 78,787
Deferred income taxes 29,001 29,001
Other assets 15,787 18,035
------ ------
$2,263,861 $1,952,611
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $181,537 $150,193
Drafts payable 38,929 35,021
Payable to customers 935,474 868,541
Payable to brokers and dealers 241,377 212,954
Securities sold under repurchase
agreements 268,951 173,972
Trading securities sold, but not yet
purchased, at market 184,988 116,883
Accrued compensation 76,785 68,755
Other accrued expenses and accounts
payable 71,863 77,344
Accrued income taxes 6,747 6,505
Subordinated and other debt 42,697 47,023
------ ------
2,049,348 1,757,191
--------- ---------
Shareholders' equity:
Common stock 1,008 1,005
Additional paid-in capital 74,575 73,924
Retained earnings 138,930 120,491
------- -------
214,513 195,420
------- -------
$2,263,861 $1,952,611
========= =========
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
<C> <S> <S> <S> <S>
Revenues:
Principal transactions $44,608 $34,347 $135,084 $101,193
Commissions 44,869 30,725 118,542 101,051
Investment banking and
underwriting 23,059 20,107 59,935 72,353
Interest 28,622 19,958 81,031 52,224
Asset management 7,285 5,180 19,384 13,684
Correspondent clearing 3,525 3,137 9,048 9,080
Other 8,196 4,718 18,382 17,256
----- ----- ------ ------
Total revenues 160,164 118,172 441,406 366,841
Interest expense (17,058) (10,307) (49,086) (25,840)
------- ------- ------- -------
Net revenues 143,106 107,865 392,320 341,001
------- ------- ------- -------
Expenses excluding interest:
Compensation and benefits 91,956 68,398 253,342 216,466
Communications 10,127 9,335 30,039 27,021
Occupancy and equipment
rental 8,186 7,042 24,341 20,514
Travel and promotional 4,890 4,727 14,188 13,803
Floor brokerage and
clearing fees 2,713 2,360 7,734 7,057
Other 8,268 6,662 23,437 21,092
----- ----- ------ ------
Total expenses excluding
interest 126,140 98,524 353,081 305,953
------- ------ ------- -------
Earnings:
Earnings before income
taxes 16,966 9,341 39,239 35,048
Income tax expense (6,150) (3,496) (14,224) (13,118)
------ ------ ------- -------
Net earnings $10,816 $5,845 $25,015 $21,930
====== ===== ====== ======
Earnings per common and
common equivalent share:
Primary $1.29 $.71 $3.00 $2,61
==== === ==== ====
Fully diluted $1.28 $.70 $2.95 $2.61
==== === ==== ====
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------------------------------
<C> <S> <S>
Cash flows from operating
activities:
Net earnings $25,015 $21,930
Adjustments to reconcile earnings
to cash provided (used) by
operating activities:
Depreciation and amortization 6,725 5,860
Deferred income taxes (1,005) (2,868)
Other non-cash items 6,558 5,448
Cash and short-term investments
segregated for regulatory purposes (121,000) 218,495
Net payable to brokers and dealers 10,965 (54,386)
Securities purchased under
agreements to resell (101,635) (270,621)
Net trading securities owned and
trading securities sold, but not
yet purchased (24,762) 62,708
Short-term borrowings and drafts
payable of securities companies 50,252 (11,238)
Net payable to customers 73,646 (143,503)
Securities sold under repurchase
agreements 94,979 175,515
Accrued compensation 8,030 (26,574)
Other 929 (9,986)
--- ------
Cash provided by operating activities 28,697 46,599
------ ------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 643 409
Subordinated and other debt -- 17,237
Payments for:
Revolving credit agreement, net (15,000) --
Subordinated and other debt (4,326) (1,767)
Dividends on common stock (3,882) (3,250)
Purchase of common stock (2,705) (3,265)
------ ------
Cash provided (used) by financing
activities (25,270) 9,364
------- -----
Cash flows from investing activities:
Proceeds from investment dividends
and sales 1,776 641
Payments for equipment, leasehold
improvements and other (7,947) (9,733)
------ ------
Cash (used) for investing activities (6,171) (9,092)
------ ------
Increase/(decrease) in cash and cash
equivalents (2,744) 46,871
Cash and cash equivalents:
At beginning of period 22,764 14,047
------ ------
At end of period $20,020 $60,918
====== ======
<FN>
Income tax payments totaled $13,967,000 and $19,619,000 and
interest payments totaled $47,620,000 and $25,092,000 during the
nine months ended September 30, 1995 and 1994, respectively.
</TABLE>
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Condensed Consolidated Financial Statements
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the
instructions for Form 10-Q and do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements and
should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994. In
the opinion of management, all adjustments necessary for a
fair presentation of such interim consolidated financial
statements have been included. All such adjustments are of a
normal recurring nature. The results of operations for the
three-month and nine-month periods ended September 30, 1995,
are not necessarily indicative of results expected for
subsequent periods.
Certain prior year amounts in the financial statements have
been reclassified to conform to the 1995 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Item 7
(Management's Discussion and Analysis) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
Summary
Consolidated net earnings increased 85 percent to $10.8
million and net revenues increased 33 percent to $143.1 million
during the 1995 third quarter over the same quarter of 1994 as
the Company's revenues grew faster than expenses. The Company's
Retail business lines posted record revenues during the 1995
third quarter and the Company's Corporate Capital and Fixed
Income business lines posted revenues 38 and 33 percent higher,
respectively, than the third quarter of 1994. Consolidated net
earnings increased $3.1 million, or 14 percent, while net
revenues increased $51.3 million, or 15 percent, for the first
nine months of 1995 versus the same period of 1994.
Earnings comparisons for the 1995 third quarter and year-to-
date period ended September 30, 1995, were positively impacted by
two primary factors : (1) the relative stability in interest
rates in the United States during the 1995 period versus 1994
(the Federal Reserve Board initiated the first of a series of
interest rate increases during the latter portion of the 1994
first quarter) and (2) the investments that the Company made in
growing its primary businesses during 1994 that enabled the
Company to capitalize on the second and third quarter 1995
resurgence of stock and bond markets. Earnings comparisons for
the quarter and year-to-date periods were negatively impacted by:
(1) the effects of operating expense increases associated with
the significant growth during 1994 in the number of office
locations and investment executives and (2) increased
compensation and benefits expenses due to higher levels of
revenue and profit-based incentive compensation expense.
Finally, net interest income continued to be a strong contributor
to consolidated earnings for the quarter and nine-month periods
due to favorable spreads on customer balances and an increase in
average margin loan balances compared to 1994.
Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
<C> <S> <S> <S> <S>
Net revenues:
Dain Bosworth Incorporated $93,045 $67,603 $256,336 $216,247
Rauscher Pierce Refsnes,
Inc. 49,020 39,261 133,805 122,353
Corporate, other and
eliminations 1,041 1,001 2,179 2,401
----- ----- ----- -----
$143,106 $107,865 $392,320 $341,001
======= ======= ======= =======
Earnings (Loss) before
income taxes:
Dain Bosworth Incorporated $13,501 $6,708 $29,355 $24,004
Rauscher Pierce Refsnes,
Inc. 5,320 3,137 12,740 12,632
Corporate, other and
eliminations (1,855) (504) (2,856) (1,588)
------ ---- ------ ------
$16,966 $9,341 $39,239 $35,048
====== ===== ====== ======
</TABLE>
Principal transaction revenues increased $10.3 million, or
30 percent, during 1995 third quarter versus the third quarter of
1994 due primarily to improved over-the-counter equity and
taxable fixed income trading results. On a year-to-date basis
the largest component of the increase was improved revenues in
taxable fixed income trading with smaller improvements in trading
results for over-the-counter equity and tax-exempt fixed income
securities. The improved trading results for both the quarter
and year-to-date periods were primarily due to the increased
securities prices as well as increased trading volumes associated
with a larger institutional fixed income sales force and more
stable interest rate and financial market environments than were
present in 1994.
Commission revenues increased $14.1 million, or 46 percent, for
the quarter and $17.5 million, or 17 percent, for the nine month
period as a result of increased agency sales of over-the-counter
equity and listed equity securities by larger retail and
institutional sales forces. Such sales forces were approximately
4 percent larger for the quarter and 8 percent larger year-to-
date than the comparable 1994 periods. Also contributing to the
increases were higher New York Stock Exchange average daily
trading volumes and higher securities prices. While commission
revenues generated from sales of mutual fund securities were
slightly higher in the third quarter of 1995 than the third
quarter of 1994, they were slightly lower on a year-to-date
basis.
Investment banking and underwriting revenues increased $3.0
million, or 15 percent, in the third quarter and declined $12.4
million, or 17 percent, in the nine months ended September 30,
1995, versus the comparable periods of 1994. The increase in
revenues for the quarter was primarily the result of increased
fees and underwriting revenues earned from municipalites and
other state and local governmental entities as well as increased
underwriting activity from corporate clients. The decrease over
the nine-month period is primarily due to first-half 1995
declines in corporate underwriting transactions and fees and
fewer syndicate participations. These declines were partially
offset by increases in fees and underwriting revenues earned from
municipalities and other state and local governmental entities.
Net interest income increased $1.9 million, or 21 percent,
for the quarter and $5.6 million, or 21 percent, for the first
three quarters of 1995 over prior year levels due primarily to
increased margin loan balances, which resulted largely from
increases in the average number of retail investment executives
(3 percent for the quarter and 7 percent year-to-date), increased
individual investor activity by a larger number of Dain Bosworth
and Rauscher Pierce Refsnes customers and increased securities
lending and borrowing activities. Partially offsetting these
positive factors impacting net interest income was additional
interest expense incurred due to $27 million of subordinated,
long-term debt entered into by Dain Bosworth and Rauscher Pierce
Refsnes in September and October of 1994. As long as favorable
interest rate spreads are maintained and the level of interest-
bearing accounts remains stable, the Company expects net interest
income to continue to be a significant component of its earnings.
The Company continues to examine alternative cash management
products and services that it may offer to customers with credit
balances in their accounts. Management believes that
implementation of new cash management products and services would
not have a material effect on net earnings.
Asset management revenues increased $2.1 million, or 41
percent, for the quarter and $5.7 million, or 42 percent, for the
year-to-date period over prior year levels from higher levels of
assets in managed account programs at Dain Bosworth and Rauscher
Pierce Refsnes, as well higher levels of assets under management
at IFG Asset Management Services, Inc.
Approximately $1.6 million of the $3.5 million, or 74
percent increase in other revenues for the quarter was the result
of gains related to the sale of securities previously obtained as
part of compensation for underwriting activity. The remainder
of the increase for the quarter, as well as the majority of the
increase for the year-to-date period, relates principally to
increased service, IRA and other fees charged to Dain Bosworth
and Rauscher Pierce Refsnes customers.
Compensation and benefits expense increased $23.6 million,
or 34 percent, during the 1995 third quarter and $36.9 million,
or 17 percent, for the first three quarters of 1995 over the
comparable 1994 periods. The increases for the quarter and 9-
month periods, respectively, are due primarily to increased
commissions paid to revenue-producing employees generating higher
levels of operating revenues, increased incentive compensation
accruals due to higher levels of year-to-date earnings, increased
transition pay resulting from the recruitment of significant
numbers of investment executives during 1994 and a 3-percent
increase and 6-percent increase, respectively, in the average
number of employees. Adjustments to incentive compensation
accruals at the parent company based on increased levels of
consolidated earnings are the principal reasons for the increases
in the size of the "corporate and other" pretax loss for both
the quarter and year-to-date periods.
Expenses other than compensation and benefits increased $4.1
million, or 13 percent, for the quarter and $10.3 million, or 11
percent, year-to-date largely as a result of head count and
volume-driven increases in communications and market data
services, increased occupancy costs related to the larger number
and expansion of existing operating office locations and
increased legal expenses.
During the 1995 first half, management took steps to selectively
pare expenses and reduce or defer spending in light of the market
uncertainty in the first half of the year. Nonetheless,
management anticipates operating expenses will be somewhat higher
during the remainder of 1995 compared to 1994, in part due to the
effects of significant growth investments made during the last
three quarters of 1994. While the environment in which the
Company operates improved during the 1995 second and third
quarters, management anticipates exercising continued selectivity
regarding investments in the 1995 fourth quarter and also
anticipates continued efforts to control expenses throughout the
organization.
LIQUIDITY AND CAPITAL RESOURCES
As described in Note K to the Consolidated Financial
Statements of the Company's 1994 Annual Report on Form 10-K,
Regional Operations Group, Dain Bosworth and Rauscher Pierce
Refsnes must comply with certain regulations of the Securities
and Exchange Commission and the New York Stock Exchange, Inc.,
measuring capitalization and liquidity. All three broker-dealers
continue to operate above minimum net capital standards. At
September 30, 1995, net capital was $59.7 million at Regional
Operations Group, which was 8.0 percent of aggregate debit
balances and $22.3 million in excess of the 5-percent
requirement. At September 30, 1995, Dain Bosworth and Rauscher
Pierce Refsnes had net capital of $42.5 million and $16.4
million, respectively, in excess of the $1 million requirement.
During the second quarter of 1995, the Company entered into
a $15 million revolving credit facility to replace its $15
million facility that was set to expire on June 30, 1995. The
new facility expires on June 30, 1997. As was the case with the
expiring facility, the new agreement will be used for advances to
subsidiaries and general corporate purposes.
The Company anticipates entering into a seven-year operating
lease during the fourth quarter of 1995 to finance various
leaseholds and furnishings for the new Dallas headquarters space
Rauscher Pierce Refsnes began to occupy September 1, 1995. The
total commitment for the lease is expected to be between $4 and
$5 million.
In April 1994 the Company's Board of Directors authorized a
plan to repurchase up to 400,000 shares of the Company's common
stock. Purchases of the common stock will be made from time to
time at prevailing market prices in the open market, by block
purchases, or in privately negotiated transactions. The
repurchased shares will be used for the Company's employee stock
option and other benefit plans, or for other corporate purposes.
Through December 31, 1994, the Company had repurchased 162,500
shares in accordance with this program at a cost of $3.6 million.
During the first three quarters of 1995, 90,300 shares were
repurchased at a cost of approximately $2.8 million.
On October 31, 1995, the Company's Board of Directors
declared a three-for-two stock split to be effected in the form
of a 50-percent stock dividend payable on December 20, 1995, to
shareholders of record at the close of business on December 6,
1995. The Company believes that this action will help broaden
public interest in and improve trading liquidity of the Company's
stock. After the stock dividend, there will be approximately
12.1 million of the Company's shares outstanding. As part of
this action, the Company's Board of Directors increased the
numbers of shares authorized to be repurchased from 400,000 to
600,000. Approximately 219,000 shares (on a post-split basis)
remained to be repurchased under the share-repurchase program as
of October 31, 1995.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Agreement between registrant and
David A. Smith.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended
September 30, 1995.
Item reported:
Item 5 - Other Events - (Press release regarding resignation
of David A. Smith as director and executive officer of registrant
and as Chairman, President and Chief Executive Officer of
Rauscher Pierce Refsnes, Inc., a subsidiary of registrant).
Date of Report - September 27, 1995.
Financial Statements Filed - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTER-REGIONAL FINANCIAL GROUP, INC.
Registrant
Date: November 10, 1995 By Louis C. Fornetti
---------------------
Louis C. Fornetti
Executive Vice President,
Chief Financial Officer and
Treasurer
By Angela M. Chicoine
---------------------
Angela M. Chicoine
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1995
Exhibit 10.1 - Agreement between registrant and David A. Smith.
Filed herewith.
Exhibit 11 - Computation of Net Earnings Per Share
Filed herewith.
Exhibit 27 - Financial Data Schedule
Filed herewith.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
Inter-Regional Financial Group, Inc.'s September 30, 1995 Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 479020
<RECEIVABLES> 996825
<SECURITIES-RESALE> 300196
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 412089
<PP&E> 30943
<TOTAL-ASSETS> 2263861
<SHORT-TERM> 181537
<PAYABLES> 1287643
<REPOS-SOLD> 268951
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 184988
<LONG-TERM> 42697
<COMMON> 1008
0
0
<OTHER-SE> 213505
<TOTAL-LIABILITY-AND-EQUITY> 2263861
<TRADING-REVENUE> 135084
<INTEREST-DIVIDENDS> 81031
<COMMISSIONS> 118542
<INVESTMENT-BANKING-REVENUES> 59935
<FEE-REVENUE> 19384<F3>
<INTEREST-EXPENSE> 49086
<COMPENSATION> 253342
<INCOME-PRETAX> 39239
<INCOME-PRE-EXTRAORDINARY> 25015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25015
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 2.95
<FN>
<F1>Included in Receivables
<F2>Included in Payables
<F3>Includes fees from Asset Mangagement only
</FN>
</TABLE>
EXHIBIT 11
INTER-REGIONAL FINANCIAL GROUP, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited, amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
<C> <S> <S> <S> <S>
PRIMARY EARNINGS PER SHARE:
Net earnings $10,816 $5,845 $25,015 $21,930
====== ===== ====== ======
Average number of common
and common equivalent shares
outstanding:
Average common shares
outstanding 8,089 8,069 8,082 8,123
Incentive stock options 315 203 264 272
--- --- --- ---
8,404 8,272 8,346 8,395
===== ===== ===== =====
Primary earnings per share $1.29 $.71 $3.00 $2.61
==== === ==== ====
EARNINGS PER SHARE ASSUMING
FULL DILUTION:
Net earnings $10,816 $5,845 $25,015 $21,930
====== ===== ====== ======
Average number of common
and common equivalent shares
outstanding:
Average common shares
outstanding 8,089 8,069 8,082 8,123
Incentive stock options 391 238 406 272
--- --- --- ---
8,480 8,307 8,488 8,395
===== ===== ===== =====
Fully diluted earnings per
share: $1.28 $.70 $2.95 $2.61
==== === ==== ====
</TABLE>
Exhibit 10.1
AGREEMENT
This Agreement is made this 26th day of September, 1995, by and
between Inter-Regional Financial Group, Inc., a Delaware
corporation ("IFG"), and David A. Smith, a resident of Texas
("Employee").
Employee has been the President and Chief Executive Officer and
a director of Rauscher Pierce Refsnes, Inc. ("Rauscher") and an
Executive Vice President and director of IFG. IFG and Employee
wish to effect the termination of Employee's officer and director
status and his employment at the times and on the terms and
conditions set forth herein.
In consideration of the mutual covenants contained in this
Agreement, IFG and Employee hereby agree as follows:
1. Resignation.
(a) Except as otherwise specifically provided herein, Employee
hereby resigns all officer, director and other positions with IFG
and each of its subsidiaries effective September 30, 1995.
Subject to the terms hereof, including the terms of Section 1(c)
and Section 3, Employee's employment shall be terminated
effective at the close of business on the date (the "Employment
Termination Date") which is earliest to occur of: (i) December
31, 1998; (ii) any date as of which Employee elects to terminate
his obligations under Section 3(a) as provided therein; (iii) any
date as of which Employee becomes employed by another firm or
entity and becomes eligible for health and welfare benefits; and
(iv) any date as of which Employee's employment is terminated
pursuant to Section 6. IFG and its subsidiaries hereby accept
Employee's resignations effective as of such dates and times.
(b) From October 1, 1995 through December 31, 1995 (or such
earlier date as Employee may choose), Employee shall be provided
with office space and telephone, secretarial and other support
services comparable to what he received prior to September 30,
1995, except that Employee's office assignment shall be dependent
upon available space. During the period from October 1, 1995
through December 31, 1995, Employee shall perform such duties as
shall be requested or approved by the Chief Executive Officer of
IFG.
(c) From January 1, 1996 (or such earlier date as Employee
leaves the Rauscher executive offices), through the Employment
Termination Date, Employee shall occupy such office space and
receive such telephone, secretarial and other support as he shall
arrange. Employee shall be reimbursed for costs incurred
therefor through December 31, 1996, in accordance with the
provisions of Section 2(e). From January 1, 1996, through the
Employment Termination Date, Employee will perform the duties of
a retail commissioned salesperson for Rauscher (or such other
duties as shall be mutually agreeable to IFG and Employee) and
will operate for regulatory purposes as a satellite of another
branch office of Rauscher. At all times on or prior to the
Employment Termination Date, Employee agrees to abide by all
compliance and other policies and procedures of Rauscher and IFG,
including all policies relating to approval of outside business
activities.
2. Severance Compensation and Arrangements. As consideration
for past services to IFG and its subsidiaries, the noncompetition
and other covenants set forth in Section 3 and the release of any
and all claims relating to employment as set forth in Section 7,
and subject to the terms hereof, IFG agrees as follows:
(a) IFG will pay to Employee the sum of $16,666.67 per month,
for the months of October 1995 through December 31, 1995. Unless
otherwise mutually agreed, such amount will be paid in semi-
monthly installments in accordance with Rauscher's regular
payroll procedures and shall have deducted from it all applicable
federal and state withholding taxes, FICA and benefits deductions
currently applicable to Employee. In addition, IFG will pay to
Employee the lump sum of $400,000 (less the amount Employee
previously elected to defer pursuant to the IFG Executive
Deferred Compensation Plan) in complete payment of Employee's
bonus for the year ended December 31, 1995. Such bonus shall be
paid in late January or early February 1996, at substantially the
same time as other employee discretionary bonuses for 1995 are
paid (but, in any event, no later than February 29, 1996), and
shall have deducted from it all applicable federal and state
withholding taxes and FICA . Employee shall receive the employer
matching contribution on the deferred portion of such bonus in
accordance with his previous election pursuant to the IFG
Executive Deferred Plan, but shall reimburse IFG for the cost of
any contribution related thereto under IFG's Profit Sharing or
other benefit plans. Employee agrees to execute a "Termination
of Pretax Payroll Deduction" form (SB/PS02) terminating his
voluntary participation in IFG's Profit Sharing and Stock Bonus
Plans and to return such form immediately to IFG's Benefits
Administration Department.
(b) Subject to the provisions of Sections 2 (c), 3(a) and 6,
for the period commencing January 1, 1996, and ending December
31, 1998, IFG will pay to Employee the aggregate sum of
$500,000 ($200,000 per year annualized for the first two years
and $100,000 per year annualized for the third year), payable in
equal monthly installments of $16,666.67 for the first twenty-
four months and $8,333.34 for the final twelve months. Such
amounts (which shall be characterized as payment for Employee's
noncompetition/ nonsolicitation covenant and not as recognized
compensation for purposes of IFG's various benefit plans) shall
be paid in monthly installments along with, and on substantially
the same schedule as, any commissions to be paid Employee as a
result of activities contemplated in Section 1(c). All such
payments shall have deducted from them all applicable federal and
state withholding taxes, FICA and benefits deductions currently
applicable to Employee except as otherwise provided herein. In
the event of Employee's death prior to the Employment Termination
Date, such payments shall continue to be made to the beneficiary
designated for Employee in connection with his interest in the
IFG Profit Sharing Plan.
(c) From October 1, 1995 through the Employment Termination
Date, Employee will continue to receive coverage under IFG's
health insurance plan and basic group life insurance plan at the
levels and upon the terms currently being provided to Employee,
subject, in each case, to the terms and provisions of such plan.
From and after December 31, 1996, Employee shall be required to
reimburse IFG for the premiums incurred in providing Employee
such benefits. After the Employment Termination Date, Employee
shall become eligible to continue his health insurance coverage
at his own expense for up to eighteen months under the federal
COBRA rules and shall be entitled to any other continuation,
conversion or distribution rights then available under the terms
of IFG's plans or federal or state laws. Except as otherwise
specifically provided herein, Employee agrees to reimburse IFG
for all costs incurred in providing any benefits under any
employee benefit plans to Employee from October 1, 1995 through
the Employment Termination Date. Employee agrees that any costs
to be paid or reimbursed to IFG hereunder shall be deducted from
the compensation otherwise payable to Employee pursuant to
Sections 2(a) and (b) or from any commissions to be paid Employee
as a result of activities pursuant to Section 1(c). IFG agrees
that Employee's resignations from his director and officer
positions effective September 30, 1995, execution of this
Agreement, including specifically the
noncompetition/nonsolicitation covenant contained in Section
3(a)(1), and termination of his employment on the Employment
Termination Date shall, as of the Employment Termination Date,
constitute an "Approved Retirement" under the terms of IFG's
Executive Deferred Compensation Plan and Deferred Compensation
Plan for Excess Contributions.
(d) IFG will pay or reimburse Employee's club membership fees
(excluding meals and other use charges) for the balance of 1995
and for the period beginning January 1, 1996 (or such earlier
date as Employee leaves the Rauscher executive offices) and
ending December 31, 1996, and will transfer at its expense
ownership of the corporate membership at Glen Eagles Country Club
to Employee (subject to any applicable rules, regulations or
restrictions imposed by such club).
(e) IFG will reimburse Employee an aggregate of up to $60,000
for expenses incurred for the period through December 31, 1996,
for office space, telephone, secretarial and clerical services,
parking, and outplacement, tax, accounting, financial planning
and legal services related to Employee's resignations.
(f) To the extent permissible under all applicable laws, rules
and regulations (including the rules and regulations of any
securities exchange or self-regulatory body of which IFG or any
of its subsidiaries is a member), as determined in the sole
discretion of IFG, IFG agrees to continue to do all things
necessary to assist Employee in maintaining the currency of
Employee's securities licenses and registrations from October 1,
1995 through the Employment Termination Date.
(g) IFG agrees that all stock options previously granted to
Employee having vesting dates on or before March 1, 1997 are
listed in Exhibit A hereto, that the vesting of all such options
with original vesting dates occurring after the date of this
Agreement has been accelerated and that such options are vested
in full as of the date of this Agreement, that the terms of all
options listed on Exhibit A have been modified to provide that
they expire on March 1, 1996 unless exercised prior to that date
by Employee and that Employee may exercise such options, in
whole or in part, at any time and from time to time prior to
March 1, 1996, at which time any unexercised options will be
forfeited.
3. Covenants of Employee.
(a) Noncompetition/Nonsoliciation.
(1) "Approved Retirement" Agreement. In order for Employee's
resignations pursuant to Section 1 hereof and the execution of
this Agreement to constitute an "Approved Retirement" under the
terms and conditions of IFG's Executive Deferred Compensation
Plan and Deferred Compensation Plan for Excess Contributions,
Employee agrees, for the one-year period commencing October 1,
1995 and ending September 30, 1996, to refrain from performing
any services for or otherwise participating, directly or
indirectly, in the business of any broker/dealer or other entity
(other than IFG and its subsidiaries) engaged in any business in
which IFG or any IFG Affiliate (as defined in the IFG Executive
Deferred Compensation Plan) is engaged in any state in which IFG
or any IFG Affiliate has an office.
(2) Basic Agreement. Except as other wise provided in this
Section (2)(a)(2), through the close of business on December 31,
1998, Employee will not, directly or indirectly, without the
prior written consent of IFG, (A) accept employment in or
otherwise become affiliated or associated any manner or capacity
(e.g., as an advisor, principal, agent, partner, officer,
director, stockholder, employee, independent consultant or
otherwise) with any of the firms (or any affiliate of any firm)
listed on Exhibit B attached hereto or any other firm or unit
within any firm primarily engaging in any general retail or
institutional investment banking or securities brokerage or
trading business of any type generally engaged in by IFG or its
subsidiaries in any state in which Rauscher maintains an office,
unless the total revenues derived by such firm or unit, together
with all of its affiliates, from such investment banking,
securities brokerage or trading business does not exceed $5
million per year, or (B) in any manner assist or encourage any
employee or client of IFG or any subsidiary of IFG to leave the
firm or to remove, transfer or materially reduce any investment
account with IFG or its subsidiaries or open an investment
account with any other brokerage firm, or assist any other person
in carrying out any activity that would be prohibited hereunder
if such activity were carried out by Employee, either directly or
indirectly. Ownership by Employee, as a passive investment, of
less than 5% of the outstanding shares of stock of any firm (or
an affiliate of any firm) listed on Exhibit B shall not
constitute a breach of this Section, nor shall acceptance by
Employee of employment with a firm primarily engaged in the
business of banking, merchant banking, asset management or
venture capital, so long as the department or unit of such firm
in which Employee is engaged does not derive more that $5 million
in revenues per year from investment banking, securities
brokerage or trading activities. Notwithstanding the foregoing,
Employee shall be entitled to terminate his obligation under this
Section (a)(2) for the period beginning January 1, 1998 and
ending December 31, 1998 (or any portion thereof) by giving
written notice to IFG of his desire to do so, provided, however,
that Employee will thereupon forfeit his entitlement to all
payments under Section 2(b) of this Agreement payable on or after
the date of such written notice. In such event, Employee shall
forfeit the $100,000 annualized payment provided in Section 2(b)
(or a pro rata portion thereof representing payment for the month
in which such written notice is given through December 31, 1998).
In addition Employee shall be obligated to pay $100,000 to IFG as
consideration for the acceleration of the vesting of options
referred to in Section 2(g). Employee agrees that such amount
shall be deducted from amounts otherwise required to be
distributed to Employee following the Employment Termination Date
from the IFG Deferred Compensation Plan for Excess Contributions.
(b) Cooperation. Employee agrees to cooperate with IFG and its
subsidiaries in effecting a smooth transition. Employee further
agrees to cooperate with IFG and its subsidiaries to the extent
requested or approved by the Chief Executive Officer of IFG in
the management and conduct of any litigation, arbitration or
agency or other investigation, whether commenced prior to or
after the date hereof. After December 31, 1995, IFG agrees to
pay Employee a per diem of $1,000 per day for each full day (over
3-1/2 hours) or $500 per day for each half day (3-1/2 hours or
less) for time spent by Employee at the request of IFG or its
subsidiaries engaged in consulting or other activities with
respect to the transition, any special projects mutually agreed
to by IFG or its subsidiaries and Employee or participating in
any interviews, analysis, file or document review, deposition or
testifying at or attending any trial, motion or arbitration
hearing or other event in connection with any litigation,
arbitration or agency or other investigation. IFG agrees to
provide Employee with reasonable advance notice of any such
requested activities and will reimburse Employee for reasonable
out-of-pocket travel expenses actually incurred in connection
therewith.
4. Additional Agreements of IFG. IFG shall use its best
efforts to offer Employee's current secretary, Virginia Morin,
another suitable position based on her abilities and tenure with
the company. If Ms. Morin is not offered or does not accept
another position with IFG or a subsidiary of IFG or resigns or is
dismissed on or prior to June 30, 1996 from any position which
she accepts, Ms. Morin will be offered severance arrangements no
less favorable than those typically offered by IFG or its
subsidiaries in the case of a job elimination.
5. Confidential Information. Employee agrees he will not at
any time divulge, furnish or make accessible to anyone any
knowledge or information held in confidence by IFG or its
subsidiaries which is not in the public domain, including, but
not limited to, the identity, financial situation or plans of
clients, the functions, responsibilities or production levels of
employees, the financial or competitive position, strategies or
plans of IFG or its subsidiaries or product or other business
information (including technological information) considered
proprietary by IFG or its subsidiaries.
6. Effect of Breach. If IFG believes Employee has breached or
violated any material obligation imposed under this Agreement,
IFG shall give Employee written notice specifying the breach in
reasonable detail. If Employee fails to cure the specified
breach within 10 days after Employee received such notice of
breach from IFG, IFG shall have the right to terminate this
Agreement and all further obligations to Employee hereunder or to
those others whose rights may derive from him and to terminate
Employee's employment. Provided, that if Employee disagrees with
IFG and gives written notice of such disagreement within 10 days
after Employee received such notice of breach from IFG, Employee
shall have the right to require that the matter be submitted to
arbitration within 30 days after the expiration of such 10-day
period pursuant to Section 17 hereof. If Employee's employment is
terminated pursuant to this Section 6, Employee shall be
obligated to pay $100,000 to IFG as consideration for the
acceleration of the vesting of options referred to in Section
2(g). Employee agrees that such amount shall be deducted from
amounts otherwise required to be distributed to Employee
following the Employment Termination Date from the IFG Deferred
Compensation Plan for Excess Contributions. Employee
acknowledges that it would be difficult to compensate IFG and its
subsidiaries for damages for any violation of this Agreement,
including without limitation the provisions of Sections 3 and 5.
Accordingly Employee specifically agrees that IFG shall be
entitled to temporary and permanent injunctive relief to enforce
the provisions of this Agreement and that such relief may be
granted without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not, however,
diminish the right of IFG or its subsidiaries to claim and
recover damages in addition to injunctive relief.
7. Releases and Indemnities.
(a) Employee, for himself, his heirs, successors and assigns,
hereby releases and forever discharges IFG and its affiliates and
all directors, officers, agents, employees, successors and
assigns of IFG or any of its affiliates from any and all claims,
demands, actions, liability, damages or rights of any kind,
whether known or unknown, arising out of or resulting from any
matter, fact or thing occurring prior to the date of this
Agreement, including, without limitation, Employee's employment
with IFG and its subsidiaries, the resignation of Employee from
his director and officer positions, the termination of his
employment and the provisions made herein with respect thereto
(but excluding Employee's rights under this Agreement and the
various benefit plans of IFG and its subsidiaries, and Employee's
rights under the Indemnification Agreement dated June 20, 1987
between Employee and IFG or otherwise with respect to
indemnification under the Certificate of Incorporation or Bylaws
of IFG and/or its subsidiaries, directors and officers insurance
carried by IFG and its subsidiaries and under the laws of the
State of Delaware). Employee further agrees that he will not
institute nor authorize any other party, either governmental or
otherwise, to institute any administrative or legal proceedings
against IFG or its affiliates or any directors, officers, agents,
employees, successors and assigns of IFG or its affiliates as a
result of any claims of any kind or character which Employee
might have arising from or related to any matter, fact or thing
occurring prior to the date of this Agreement, including, without
limitation, Employee's employment with IFG and its subsidiaries,
the resignation of Employee from his director and officer
positions, the termination of his employment and the provisions
made herein with respect thereto.
(b) IFG, for itself, its successors and assigns, hereby
releases and forever discharges Employee from any and all claims,
demands, actions, liability, damages or rights of any kind,
whether known or unknown, arising out of or resulting from any
matter, fact or thing occurring prior to the date of this
Agreement, including, without limitation, Employee's employment
with IFG and its subsidiaries. IFG further agrees that it will
not institute nor authorize any other party, either governmental
or otherwise, to institute any administrative or legal
proceedings against Employee as a result of any claims of any
kind or character which IFG might have arising from or related to
any matter, fact or thing occurring prior to the date of this
Agreement, including, without limitation, Employee's employment
with IFG and its subsidiaries.
(c) This Agreement is intended to extend to and include, among
other things, any claim of discrimination, on the basis of age or
otherwise, arising under the Minnesota Human Rights Act, Minn.
Stat. Section 363.01 et seq., the Minnesota Age Discrimination
Law, Minn. Stat. Section 181.81 et seq., and the Age
Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.,
and any claim arising under the Employee Retirement and Income
Security Act, 29 U.S.C. Section 1001 et seq. Employee has been
informed of his right to revoke this Agreement insofar as it
extends to potential claims under the Age Discrimination
Employment Act by informing IFG of his intent to revoke this
Agreement within seven (7) calendar days following his execution
of this Agreement. Employee has likewise been informed of his
right to rescind this release insofar as it relates to potential
claims under the Minnesota Human Rights Act by written notice to
IFG within fifteen (15) calendar days following the execution of
this Agreement. In the event of any such revocation or
rescission, IFG will have no obligations whatsoever under this
Agreement, and all payments previously made or benefits conferred
hereunder shall by returned by Employee to IFG.
(d) Employee has also been informed that the terms of this
Agreement will be open for acceptance and execution by him for a
period of twenty-one (21) days during which time he may consider
whether to accept this Agreement. No payments or benefits
pursuant to this Agreement shall become due until Employee has
executed this Agreement.
8. Successors and Assigns of Employee. Neither this Agreement
nor any of the rights, interests or benefits of Employee
hereunder shall be assigned, transferred, pledged, hypothecated
or otherwise disposed of or encumbered by Employee (except on
Employee's death or disability), and, to the extent permitted by
law, no such rights, interests or benefits shall be subject to
attachment, execution or similar process. Any attempted
assignment, transfer, pledge, hypothecation, encumbrance or other
disposition of this Agreement or of any such rights, interests or
benefits, and any such attachment, execution, levy or similar
process, shall be null and void and without effect. This
Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors,
administrators, successors, heirs and legatees. If Employee
should die and any amount is payable hereunder, such amounts
shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee or other designee or, if there is no
such designee, to Employee's estate.
9. Successors and Assigns of IFG. This Agreement shall inure
to the benefit of and be binding upon IFG, its successors and
assigns, including without limitation any person, partnership or
corporation that may acquire all or substantially all of IFG's
assets and business or with or into which IFG be consolidated or
merged or which may hold a majority of IFG's capital stock.
10. Non-Admissions. This Agreement does not constitute and
shall not in any way be construed as an admission by IFG that it
has acted wrongfully with respect to Employee or any other
person, or that Employee has any rights whatsoever against IFG or
its subsidiaries, and IFG specifically disclaims any liability to
Employee.
11. Applicable Law. This Agreement and all questions arising
in connection therewith shall be governed by the laws of the
State of Minnesota.
12. Severability. To the extent any provision of this
Agreement shall be determined to be invalid or unenforceable,
such provision shall be deleted from this Agreement, and the
validity and enforceability of the remainder of such provision
and of this Agreement shall be unaffected. In furtherance and
not in limitation of the foregoing, Employee expressly agrees
that should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in
excess of that which is valid or enforceable under applicable
law, then such provision shall be construed to cover only that
duration, extent or activities that may validly or enforceably be
covered. Employee acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement shall
be construed in a manner that renders its provisions valid and
enforceable to the maximum extent (not exceeding its express
terms) possible under applicable law.
13. Waiver; Amendment. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Employee and
the Chief Executive Officer of IFG. No waiver by either party
hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time
or at any prior or subsequent time.
14. Reasonable Restrictions. Employee acknowledges and agrees
that the restrictions imposed in this Agreement are reasonable
both as to time and area. Employee further acknowledges and
agrees that his compliance with the covenants and restrictions
set forth herein are reasonable and necessary for the protection
of IFG's and its subsidiaries' future interest in and the value
of their respective businesses.
15. Employee's Acknowledgment. Employee hereby affirms and
acknowledges that he has read the foregoing Agreement and that he
has been given an opportunity to consult with, and has, in fact,
consulted with an attorney prior to signing this Agreement.
Employee acknowledges that he has entered into this Agreement
freely and voluntarily, having obtained such advice and
assistance of legal counsel as he, in his sole discretion,
determined to be necessary or prudent.
16. Notices. Any written notice permitted or required to be
given by Employee to IFG under the terms of this Agreement shall
be addressed and delivered in person or by first class or
certified U.S. mail, overnight delivery service or facsimile to:
Inter-Regional Financial Group, Inc.
Attn: Irv Weiser, Chairman, President
and Chief Executive Officer
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402
Facsimile: (612)371-7203
Any written notice permitted or required to be given by IFG to
Employee under the terms of this Agreement shall be addressed and
delivered in person or by first class or certified U.S. mail,
overnight delivery service or facsimile to:
David A. Smith
17212 Graystone Drive
Dallas, Texas 75248
Facsimile: (214) 733-0130
17. Disputes. In the event of a dispute between the parties
regarding any matter relating to this Agreement, the parties
hereby agree to submit such dispute to binding arbitration. The
decision of the arbitrator(s) shall be final and binding on the
parties. All disputed matters shall be submitted to arbitration
in accordance with the rules of the National Association of
Securities Dealers. In connection with any such arbitration
proceeding, the parties shall have the same rights of discovery
as in a civil proceeding in this state courts of Minnesota,
except that the notice requirements shall be reduced to 14 days.
18. Counterparts. This Agreement may be executed in
counterparts with the same effect as if each of the parties had
signed the same document. All counterparts shall be construed
together and constitute one agreement. A facsimile signature
shall be binding upon any party providing the same and any party
providing a facsimile signature agrees to provide the original
thereof to the other party within a reasonable period of time.
INTER-REGIONAL FINANCIAL GROUP, INC.
By Irving Weiser
---------------------
Irving Weiser,
Chairman, President and
Chief Executive Officer
David A. Smith
---------------------
David A. Smith
("Employee")
