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 March 31, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8186
Interra Financial Incorporated
(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 April 30, 1997, the Company had 12,265,914 shares of
common stock outstanding.
<PAGE>
INTERRA FINANCIAL AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
----
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets...................... 1
Consolidated Statements of Operations............ 2
Consolidated Statements of Cash Flows............ 3
Notes to Consolidated Financial Statements....... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 5
II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................. 8
Signatures....................................... 9
Index of Exhibits................................ 10
Exhibits......................................... 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31, December 31,
-----------------------
1997 1996
-----------------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $41,043 $34,387
Cash and short-term investments
segregated for regulatory purposes 66,000 15,000
Receivable from customers 914,031 1,035,847
Receivable from brokers and dealers 252,033 202,040
Securities purchased under agreements
to resell 271,587 81,631
Trading securities owned, at market 450,589 288,824
Equipment, leasehold improvements and
buildings, at cost, net 33,715 32,946
Other receivables 82,719 75,685
Deferred income taxes 40,764 39,704
Other assets 19,629 21,361
--------- ---------
$2,172,110 $1,827,425
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $206,301 $25,000
Drafts payable 64,964 69,989
Payable to customers 741,182 869,641
Payable to brokers and dealers 326,007 229,852
Securities sold under repurchase
agreements 68,561 57,967
Trading securities sold, but not yet
purchased, at market 257,352 58,805
Accrued compensation 68,257 119,244
Other accrued expenses and accounts payable 122,833 93,751
Subordinated and other debt 23,855 27,290
--------- ---------
1,879,312 1,551,539
--------- ---------
Shareholders' equity:
Common stock 1,533 1,522
Additional paid-in capital 84,665 81,316
Retained earnings 206,600 193,048
--------- ---------
292,798 275,886
--------- ---------
$2,172,110 $1,827,425
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
<CAPTION>
Three Months Ended March 31,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Revenues:
Commissions $63,627 $54,860
Principal transactions 42,024 46,478
Investment banking and underwriting 25,868 26,142
Interest 28,734 26,930
Asset management 10,500 8,104
Correspondent clearing 5,062 3,829
Other 4,257 4,436
------- -------
Total revenues 180,072 170,779
Interest expense (14,110) (14,745)
------- -------
Net revenues 165,962 156,034
------- -------
Expenses excluding interest:
Compensation and benefits 101,484 97,112
Communications 11,309 10,084
Occupancy and equipment 9,763 8,589
Travel and promotional 6,577 4,796
Floor brokerage and clearing fees 2,927 2,467
Other 9,513 9,697
------- -------
Total expenses excluding interest 141,573 132,745
------- -------
Earnings:
Earnings before income taxes 24,389 23,289
Income tax expense (8,634) (8,209)
------- -------
Net earnings $15,755 $15,080
======= =======
Earnings per common and common
equivalent share:
Primary $1.20 $1.20
======= =======
Fully diluted $1.20 $1.20
======= =======
Dividends per share $.18 $.11
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERRA FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Three Months Ended March 31,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $15,755 $15,080
Adjustments to reconcile earnings to
cash provided (used) by operating
activities:
Depreciation and amortization 2,639 2,205
Deferred income taxes (1,060) (1,212)
Other non-cash items 1,872 3,231
Cash and short-term investments
segregated for regulatory purposes (51,000) (45,000)
Net receivable from/payable to
brokers and dealers 46,162 21,797
Securities purchased under
agreements to resell (189,956) (144,462)
Net trading securities owned and
trading securities sold, but not
yet purchased 36,782 145,621
Short-term borrowings and drafts
payable of securities companies 176,276 85,460
Net receivable from/payable to
customers (6,643) (3,761)
Securities sold under repurchase
agreements 10,594 (46,749)
Accrued compensation (50,987) (31,737)
Other 24,332 13,224
-------- --------
Cash provided by operating activities 14,766 13,697
-------- --------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 1,037 355
Payments for:
Subordinated and other debt (3,435) (4,272)
Dividends on common stock (2,203) (1,330)
Cash (used) by financing activities (4,601) (5,247)
-------- --------
Cash flows from investing activities:
Payments for equipment, leasehold
improvements and other (3,509) (3,328)
-------- --------
Increase/(decrease) in cash and cash
equivalents 6,656 5,122
Cash and cash equivalents:
At beginning of period 34,387 26,167
-------- --------
At end of period $41,043 $31,289
======== ========
<FN>
Income tax payments totaled $6,453,000 and $3,653,000 and
interest payments totaled $12,430,000 and $13,049,000 during the
three months ended March 31, 1997 and 1996, respectively.
During the three months ended March 31, 1997 and 1996,
respectively, the Company had non-cash financing activity of
$2,323,000 and $1,559,000 associated with the crediting of common
stock to deferred compensation plan participants.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
INTERRA FINANCIAL 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, 1996. 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 period ended March
31, 1997, are not necessarily indicative of results for
subsequent periods.
Certain prior year amounts in the financial statements have
been reclassified to conform to the 1997 presentation.
B. Shareholders' Equity
On April 30, 1997, the Company's Board of Directors adopted a
Shareholder Rights Plan ("the Plan"). Under the Plan, the Board
declared a dividend of one preferred share purchase right
("Right") for each outstanding share of common stock of the
Company. The dividend was payable to the stockholders of record
as of May 12, 1997. The Rights are attached to and automatically
trade with the outstanding shares of the Company's common stock
until they become exercisable.
The Rights become exercisable only in the event that any
person or group of affiliated persons becomes a holder of 15
percent or more of the Company's outstanding common shares, or
commences a tender or exchange offer which, if consummated, would
result in that person or group of affiliated persons owning at
least 15 percent of the Company's outstanding common shares.
Once the rights become exercisable they initially entitle holders
to purchase, by payment of a $140 exercise price, one one-
hundredth of a share of Series A Junior Participating Preferred
Stock. Both the exercise price and the number and kind of shares
issuable upon exercise are subject to adjustment in certain
circumstances. After a person or company acquires 15 percent or
more of the Company's outstanding common shares, the
rightsholders, other than the 15 percent acquirer, become
entitled to purchase for the then-current exercise price shares
of the Company's common stock having a market value equal to
twice the exercise price in lieu of the preferred stock. The
Rights would not be triggered, however, if the acquisition of 15
percent or more of the Company's outstanding common stock is
pursuant to a tender offer or exchange for all outstanding shares
of the Company's common stock which is determined by the Board of
Directors to be in the best interests of the Company and its
stockholders. If the Company is acquired in certain mergers or
other business combination transactions, or 50 percent or more of
its assets or earning power are sold, rightsholders thereafter
will have the right to receive upon exercise, shares of the
acquiring company's stock having a market value equal to twice
the exercise price. The Rights may be redeemed at a price of
$.01 per Right at any time prior to the acquisition of 15 percent
of the Company's outstanding common shares. The Rights will
expire on April 30, 2007 unless previously redeemed, exercised or
exchanged.
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, 1996.
Summary
Consolidated net earnings were $15.8 million in the 1997 first
quarter, just surpassing the Company's quarterly record set in
the fourth quarter of 1996 and $0.7 million or 4 percent higher
than the first quarter of 1996. Net revenues for the quarter
were also a Company record $166.0 million, $9.9 million or 6
percent higher than the first quarter of 1996. During the first
two months of 1997, the financial markets in which the Company
operates remained very strong and contributed to the strong
results posted by the Company's Private Client and Equity Capital
Markets Groups. In March, however, the Federal Reserve Board
announced an increase in short-term interest rates which had the
effect of increasing financial market volatility and decreasing
securities prices and investment banking volumes in the month of
March. These less favorable financial market characteristics
negatively impacted the securities industry's and the Company's
financial results late in the first quarter compared with the
very favorable conditions in which the Company had been operating
over the past six to eight quarters.
Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
(Unaudited, in thousands)
Net Revenues:
Dain Bosworth Incorporated $109,536 $103,312
Rauscher Pierce Refsnes, Inc. 47,803 46,169
Corporate, other and eliminations 8,623 6,553
------- -------
$165,962 $156,034
======= =======
Pretax Earnings:
Dain Bosworth Incorporated $16,792 $17,159
Rauscher Pierce Refsnes, Inc. 5,221 4,613
Corporate, other and eliminations 2,376 1,517
------- -------
$24,389 $23,289
======= =======
</TABLE>
Commission revenues increased $8.8 million or 16 percent during
the 1997 first quarter over the first quarter of 1996 as a result
of higher sales of mutual funds, listed securities and insurance
and annuity products, and higher sales of over-the counter equity
securities sold on an agency basis to individual and
institutional investors. Contributing also to the increase was a
20 percent rise in the New York Stock Exchange's average daily
trading volume in the 1997 first quarter as well as general
increases in securities prices, particularly during January and
February of 1997.
Revenues from principal transactions declined $4.5 million or
10 percent primarily due to lower taxable fixed income sales and
trading results as well as lower sales and trading results in
over-the-counter equity securities. These declines were
partially offset by increases in sales and trading of tax-exempt
fixed income securities.
Investment banking and underwriting revenues declined $0.3
million or 1 percent during the first quarter from the same
quarter of 1996 due primarily to fewer transactions for
governmental and municipal clients. Offsetting the majority of
this decline, however, were increases in fees earned from
corporate clients related to merger and acquisition activity.
Net interest income increased $2.4 million or 20 percent during
the quarter, primarily due to a 13-percent increase in average
margin loan balances. The margin loan increase was due
principally to the transfer of several large customer accounts
from competitors during the 1996 third quarter. The resulting
increase in net interest income was partially offset by the
effects of a 20-percent decline in customer credit balances in
the 1997 first quarter versus the 1996 first quarter, along with
the corresponding decline in short-term investments segregated
for regulatory purposes precipitated by the 1996 second half
transfer of approximately $340 million of customer credit
balances to Company-sponsored money market funds. The transfers
occurred as a result of the Company offering new cash management
products to certain segments of its customers.
Asset management revenues increased $2.4 million or 30 percent
in the first quarter over the prior year due to increased levels
of assets in fee-based, managed account programs at Dain Bosworth
and Rauscher Pierce Refsnes and, to a lesser degree, a 28-percent
increase in assets under management at Interra Advisory Services
Inc.
Correspondent clearing revenues increased $1.2 million or 32
percent over the 1996 quarter as Correspondent Services benefited
primarily from increased correspondent trade volumes resulting
from favorable market conditions and growth in the size of such
correspondents.
During the 1997 first quarter, compensation and benefits
increased $4.4 million or 5 percent due principally to increased
commissions associated with higher levels of operating revenues
as well as a 6-percent rise in the average number of employees.
Expenses other than compensation and benefits increased $4.5
million or 13 percent over the 1996 first quarter principally due
to : (1) travel and promotional costs associated with the
generation of new business; (2) volume-driven increases in
communications market-data and clearing services; and (3)
increased occupancy costs associated with office expansions and
office operating costs, including real estate taxes.
Effect of Recent Accounting Standards
In February 1997 the Financial Accounting Standards Board
issued Statement No. 128 (SFAS 128), "Earnings Per Share." The
Company intends to adopt SFAS 128 when required in the fourth
quarter of 1997 and does not expect adoption of the Statement to
have a material effect on reported earnings per share amounts.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1997, the Company's Board of Directors adopted a
Shareholder Rights Plan ("the Plan"). Under the Plan, the Board
declared a dividend of one preferred share purchase right
("Right") for each outstanding share of common stock of the
Company. The dividend was payable to the shareholders of record
as of May 12, 1997. The Rights are attached to and automatically
trade with the outstanding shares of the Company's common stock
until they are distributed and become exercisable under the terms
of the Plan.
On April 30, 1997, the Company's Board of Directors also
approved the filing of a universal "shelf registration" statement
with the Securities and Exchange Commission. It would permit the
Company to sell at its discretion up to $200 million in secured
or unsecured debt, or equity securities. Management intends to
file the shelf registration statement in the second quarter of
1997. The Company may use any proceeds to finance acquisitions,
subsidiary financing, or other corporate purposes. The Company
has no current plans to issue any "shelf" securities.
During the 1997 second quarter, the Company expects to renew
its $15 million committed, unsecured revolving credit facility.
The facility is scheduled to expire on June 30, 1997.
Management's intention is to increase the size of the facility in
conjunction with the renewal.
As described in Note J of the Consolidated Financial Statements
of the Company's 1996 Annual Report on Form 10-K, Interra
Clearing Services, Dain Bosworth and Rauscher Pierce Refsnes must
comply with certain regulations of the Securities and Exchange
Commission and New York Stock Exchange, Inc. measuring
capitalization and liquidity. All three broker-dealers continue
to operate above minimum net capital standards. At March 31,
1997, net capital was $77.4 million at Interra Clearing, which
was 7.8 percent of aggregate debit balances and $27.7 million in
excess of the 5-percent requirement. At March 31, 1997, Dain
Bosworth and Rauscher Pierce Refsnes had net capital of $34.4
million and $31.3 million, respectively, in excess of their
minimum requirements.
During the 1997 first quarter, the Company declared and paid
its regular quarterly dividend on its common stock of $.18 per
share, an increase of $.03 per share over the previous rate of
$.15 per share. The determination of the amount of future cash
dividends, if any, to be declared and paid will depend on the
Company's future financial condition, earnings and available
funds.
In August 1996 the Company's Board of Directors approved a
100,000 share extension of its previously completed common stock
repurchase plan. Purchases of the common stock may be made from
time to time at prevailing 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
incentive and other benefit plans, or for other corporate
purposes. Through April 30, 1997, no shares had been repurchased
pursuant to this extension.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item No. Item Method of Filing
- -------- ---------------------------- ----------------------
3.1 Restated Certificate of Incorporated by
Incorporation of the Company reference to Exhibit
as amended. 4.1 to the Company's
Registration Statement
on Form S-8 dated
May 13, 1997, File
No. 333-26947.
4.1 Second Amendment to Credit
Agreement dated April 16,1997. Filed herewith.
4.2 Eighth Amendment to Term Loan
Agreement dated April 16, 1997. Filed herewith.
11 Computation of Net Earnings
Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended
March 31, 1997.
Items reported:
Item 5 - Other Events (Press releases regarding: (1) an
increase in the registrant's regular quarterly cash dividend
from $.15 to $.18 per share; (2) registrant changing its name
from Inter-Regional Financial Group, Inc. to Interra Financial
Incorporated; and (3) registrant changing its NYSE ticker
symbol from "IFG" to "IFI").
Date of Report - February 4, 1997
Financial Statements Filed - 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.
INTERRA FINANCIAL
Registrant
Date: May 14, 1997 By Louis C. Fornetti
------------------ ------------------
Louis C. Fornetti
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By Daniel J. Reuss
------------------
Daniel J. Reuss
Senior Vice President,
Corporate Controller
and Treasurer
(Principal Accounting
Officer)
<PAGE>
INTERRA FINANCIAL AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
(a) Exhibits
Item No. Item Method of Filing
- -------- ---------------------------- ----------------------
3.1 Restated Certificate of Incorporated by
Incorporation of the Company reference to Exhibit
as amended. 4.1 to the Company's
Registration Statement
on Form S-8 dated
May 13, 1997, File
No. 333-26947.
4.1 Second Amendment to Credit
Agreement dated April 16,1997. Filed herewith.
4.2 Eighth Amendment to Term Loan
Agreement dated April 16, 1997. Filed herewith.
11 Computation of Net Earnings
Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended March
31, 1997.
Items reported:
Item 5 - Other Events (Press releases regarding: (1) an
increase in the registrant's regular quarterly cash dividend
from $.15 to $.18 per share; (2) registrant changing its name
from Inter-Regional Financial Group, Inc. to Interra Financial
Incorporated; and (3) registrant changing its NYSE ticker
symbol from "IFG" to "IFI").
Date of Report - February 4, 1997
EXHIBIT 4.1
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of this 16th day of April, 1997, by
and among INTERRA FINANCIAL INCORPORATED, a Delaware corporation,
formerly known as Inter-Regional Financial Group, Inc. (the
"Borrower"), the financial institutions that have executed this
Amendment (the "Banks") and Norwest Bank Minnesota, National
Association, a national banking association, as agent for the
Banks (the "Agent").
The Borrower, the Banks and the Agent have entered into a
Credit Agreement dated as of June 29, 1995, as amended by a First
Amendment to Credit Agreement dated as of March 14, 1996 (the
"Credit Agreement"). The Banks have agreed, severally but not
jointly, to make loans to the Borrower on the terms and
conditions set forth in the Credit Agreement.
Loans made by the Banks under the Credit Agreement are
evidenced by promissory notes dated as of June 29, 1995 executed
by the Borrower in favor of each Bank (each, a "Note"). The
Notes mature on June 30, 1997.
The Borrower has requested that the Banks and the Agent amend
certain provisions of the Credit Agreement, and the Banks and the
Agent are willing to do so pursuant to the terms and conditions
set forth in this Amendment.
ACCORDINGLY, the parties hereto hereby agree as follows:
1. Terms used in this Amendment which are defined in
the Credit Agreement shall have the same meanings as defined
therein, unless otherwise defined herein.
2. The Exhibit C referred to in Section 4.4 of the
Credit Agreement is hereby replaced with the Exhibit C attached
to this Amendment, which new Exhibit C reflects that (i) Interra
Lending Services Inc. is a Subsidiary of the Borrower, (ii)
Regional Operations Group, Inc. has changed its name to Interra
Clearing Services Inc. and (iii) IFG Asset Management Services,
Inc. has changed its name to Interra Advisory Services Inc.
3. The Credit Agreement is hereby amended by adding
the following new Section 5.10 immediately following existing
Section 5.9:
"Section 5.10 Policy and Procedures for Lending by
Interra Lending Services. Attached as Exhibit A to the
Second Amendment to Credit Agreement dated as of April 16,
1997 are the Policy and Procedures which have been
established for Interra Lending Services Inc. ("ILS"). The
Borrower covenants and agrees that it will promptly deliver
to the Banks any amendment, supplement or restatement to
such Policy and Procedures which is adopted after the date
of the Second Amendment to Credit Agreement."
4. Section 6.3(c) of the Credit Agreement is hereby
amended by deleting existing Section 6.3(c) in its entirety and
by substituting therefor the following new Section 6.3(c):
"(c) in addition to any guaranties set forth in
Exhibit E,
(i) a guaranty by the Borrower of indebtedness of
Interra Lending Services Inc. ("ILS") to The Chase
Manhattan Bank ("Chase") pursuant to the guaranty (the
"Chase Guaranty") in the form of Exhibit B attached to
the Second Amendment to Credit Agreement dated as of
April 16, 1997, among the Borrower, the Bank and the
Agent; provided, however, that the Banks' consent to
the Chase Guaranty is and shall remain effective only
for so long as the Borrower and ILS are in compliance
with each of the following requirements: (A) the credit
facility (and the outstanding indebtedness thereunder)
of Chase to ILS does not exceed at any time $50,000,000
in the aggregate, (B) all loans made by Chase to ILS
are secured by ILS's pledge of the underlying loans
made by ILS to its customers, including the stock
pledged by customers of ILS to ILS, (C) if the stock
pledged by the customers of ILS to ILS are subject to
Rule 144/Rule 145 restrictions, such pledged stock
meets Rule 144/Rule 145 requirements for saleability
and are not subject to a lockup or other restrictions,
(D) all loans made by ILS to its customers meet the
following minimum equity to collateral requirements
with respect to the pledged stock: (1) with respect to
each loan at the time such loan is made, the ratio of
the pledged stock value minus the loan amount to the
pledged stock value is at least 50% and (2) with
respect to each loan at all times after the time such
loan is made, the ratio of the pledged stock value
minus the loan amount to the pledged stock value is at
least 35%, and (E) the Chase Guaranty has not been
amended without the prior written consent of the Banks,
(ii) a guaranty by the Borrower of indebtedness
of ILS to Norwest Bank Minnesota, National Association
("Norwest") and/or First Bank National Association
("First Bank") or a syndicate of financial institutions
of which Norwest and First Bank are parties (such
lender or lenders is herein called the "Additional ILS
Lender") pursuant to a guaranty (the "Additional
Guaranty") which is similar to the Chase Guaranty;
provided, however, that the Banks' consent to the
Additional Guaranty is and shall remain effective only
for so long as the Borrower and ILS are in compliance
with each of the following requirements: (A) the sum of
the outstanding indebtedness of Chase to ILS and of the
Additional ILS Lender to ILS does not exceed at any
time $50,000,000 in the aggregate, (B) all loans made
by the Additional ILS Lender to ILS are secured by
ILS's pledge of the underlying loans made by ILS to its
customers, including the stock pledged by customers of
ILS to ILS, (C) if the stock pledged by the customers
of ILS to ILS are subject to Rule 144/Rule 145
restrictions, such pledged stock meets Rule 144/Rule
145 requirements for saleability and are not subject
to a lockup or other restrictions, (D) all loans made
by ILS to its customers meet the following minimum
equity to collateral requirements with respect to the
pledged stock: (1) with respect to each loan at the
time such loan is made, the ratio of the pledged stock
value minus the loan amount to the pledged stock value
is at least 50% and (2) with respect to each loan at
all times after the time such loan is made, the ratio
of the pledged stock value minus the loan amount to the
pledged stock value is at least 35%, and (E) the
Additional Guaranty has not been amended without the
prior written consent of the Banks, and
(iii) guaranties by the Borrower of indebtedness
(including capitalized lease obligations) and operating
leases of the Subsidiaries (other than the guaranties
permitted by Sections 6.3(c)(i) or (ii), 6.3(d) and
6.3(e)(i)); provided that the sum of the aggregate
principal amount of indebtedness guaranteed plus the
aggregate amount of all payments under operating leases
guaranteed under this clause (iii) shall not exceed
$6,000,000;"
5. All references in the Loan Documents to Inter-
Regional Financial Group, Inc. are hereby amended to be
references to Interra Financial Corporation. All references in
the Loan Documents to Regional Operations Group, Inc. or "ROG"
are hereby amended to be references to Interra Clearing Services
Inc. All references in the Loan Documents to IFG Asset
Management Services, Inc. are hereby amended to be references to
Interra Advisory Services Inc.
6. Except as explicitly amended by this Amendment, all
of the terms and conditions of the Credit Agreement shall remain
in full force and effect.
7. The Borrower hereby represents and warrants to the
Banks as follows:
(a) The Borrower has all requisite power and authority
to execute this Amendment and to perform all of its
obligations hereunder, and this Amendment has been duly
executed and delivered by the Borrower and constitutes the
legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the
Borrower of this Amendment have been duly authorized by all
necessary corporate action and do not (i) require any
authorization, consent or approval by any governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation or of any order,
writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of
incorporation or by-laws of the Borrower, or (iii) result in
a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it
or its properties may be bound or affected.
(c) All of the representations and warranties contained
in Article IV of the Credit Agreement are correct on and as
of the date hereof as though made on and as of such date,
except to the extent that such representations and
warranties relate solely to an earlier date.
8. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as
amended hereby; and any and all references in the Loan Documents
shall be deemed to refer to the Credit Agreement as amended
hereby.
9. The execution of this Amendment and acceptance of
any documents related hereto shall not be deemed to be a waiver
of any Default or Event of Default under the Credit Agreement, or
breach, default or event of default under any Loan Document or
other document held by the Agent, whether or not known to the
Agent and whether or not existing on the date of this Amendment.
10. The Borrower hereby reaffirms its agreement under
the Credit Agreement to pay or reimburse the Agent on demand for
all costs and expenses incurred by the Agent in connection with
the Loan Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality
of the foregoing, the Borrower specifically agrees to pay all
fees and disbursements of counsel to the Agent for the services
performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental
hereto.
11. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall
be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
INTERRA FINANCIAL INCORPORATED
By: Daniel J. Reuss
----------------------
Daniel J. Reuss
Its: Senior Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as agent
By: Edward J. Meyer
----------------------
Edward J. Meyer
Its: Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: Edward J. Meyer
----------------------
Edward J. Meyer
Its: Vice President
FIRST BANK NATIONAL ASSOCIATION
By: Robert York
----------------------
Robert York
Its: Senior Vice President
EXHIBIT 4.2
EIGHTH AMENDMENT TO
TERM LOAN AGREEMENT
This Amendment is made as of this 16th day of April, 1997, by
and between INTERRA FINANCIAL INCORPORATED, a Delaware
corporation, formerly known as Inter-Regional Financial Group,
Inc. (the "Borrower") and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Bank").
The Borrower and the Bank have entered into a Term Loan
Agreement dated as of October 16, 1992, as amended by a First
Amendment to Term Loan Agreement dated as of March 12, 1993, a
Second Amendment to Term Loan Agreement dated as of June 23,
1993, a Third Amendment to Term Loan Agreement dated as of
November 30, 1993, a Fourth Amendment to Term Loan Agreement
dated as of June 27, 1994, a Fifth Amendment to Term Loan
Agreement dated as of September 30, 1994, a Sixth Amendment to
Term Loan Agreement dated as of June 29, 1995 and a Seventh
Amendment to Term Loan Agreement dated as of March 15, 1996 (as
amended, the "Loan Agreement"), pursuant to which the Bank made
the Term Loan to the Borrower subject to the terms and conditions
set forth in the Loan Agreement.
The Term Loan made by the Bank to the Borrower under the Loan
Agreement is evidenced by the Term Note of the Borrower dated
October 16, 1992, payable to the order of the Bank in the
original principal of $2,000,000 (the "Term Note").
The Borrower has requested that the Bank amend certain
provisions of the Loan Agreement and the Bank is willing to do so
pursuant to the terms and conditions set forth in this Agreement.
ACCORDINGLY, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless
specifically defined herein, shall have the meanings given to
such terms in the Loan Agreement.
2. The Exhibit B referred to in Section 4.04 of the Credit
Agreement is hereby replaced with the Exhibit C attached to this
Amendment, which new Exhibit C reflects that (i) Interra Lending
Services Inc. is a Subsidiary of the Borrower, (ii) Regional
Operations Group, Inc. has changed its name to Interra Clearing
Services, Inc. and (iii) IFG Asset Management Services, Inc. has
changed its name to Interra Advisory Services Inc.
3. The Loan Agreement is hereby amended by adding the
following new Section 5.10 immediately following existing Section
5.09:
"Section 5.10 Policy and Procedures for Lending by
Interra Lending Services. Attached as Exhibit A to the
Eighth Amendment to Term Loan Agreement dated as of April
16, 1997 are the Policy and Procedures which have been
established for Interra Lending Services Inc. ("ILS"). The
Borrower covenants and agrees that it will promptly deliver
to the Bank any amendment, supplement or restatement to such
Policy and Procedures which is adopted after the date of the
Eighth Amendment to Credit Agreement."
4. Section 6.03(c) of the Loan Agreement is hereby amended
by deleting existing Section 6.03(c) in its entirety and by
substituting therefor the following new Section 6.03(c):
"(c) in addition to any guaranties set forth in
Exhibit D,
(i) a guaranty by the Borrower of indebtedness of
Interra Lending Services Inc. ("ILS") to The Chase
Manhattan Bank ("Chase") pursuant to the guaranty (the
"Chase Guaranty") in the form of Exhibit B attached to
the Eighth Amendment to Term Loan Agreement dated as of
April 16, 1997, between the Borrower, the Bank;
provided, however, that the Bank's consent to the Chase
Guaranty is and shall remain effective only for so long
as the Borrower and ILS are in compliance with each of
the following requirements: (A) the credit facility
(and the outstanding indebtedness thereunder) of Chase
to ILS does not exceed at any time $50,000,000 in the
aggregate, (B) all loans made by Chase to ILS are
secured by ILS's pledge of the underlying loans made by
ILS to its customers, including the stock pledged by
customers of ILS to ILS, (C) if the stock pledged by
the customers of ILS to ILS are subject to Rule
144/Rule 145 restrictions, such pledged stock meets
Rule 144/Rule 145 requirements for saleability and are
not subject to a lockup or other restrictions, (D) all
loans made by ILS to its customers meet the following
minimum equity to collateral requirements with respect
to the pledged stock: (1) with respect to each loan at
the time such loan is made, the ratio of the pledged
stock value minus the loan amount to the pledged stock
value is at least 50% and (2) with respect to each loan
at all times after the time such loan is made, the
ratio of the pledged stock value minus the loan amount
to the pledged stock value is at least 35%, and (E) the
Chase Guaranty has not been amended without the prior
written consent of the Bank,
(ii) a guaranty by the Borrower of indebtedness
of ILS to the Bank and/or First Bank National
Association ("First Bank") or a syndicate of financial
institutions of which the Bank and First Bank are
parties (such lender or lenders is herein called the
"Additional ILS Lender") pursuant to a guaranty (the
"Additional Guaranty") which is similar to the Chase
Guaranty; provided, however, that the Bank's consent to
the Additional Guaranty is and shall remain effective
only for so long as the Borrower and ILS are in
compliance with each of the following requirements: (A)
the sum of the outstanding indebtedness of Chase to ILS
and of the Additional ILS Lender to ILS does not exceed
at any time $50,000,000 in the aggregate, (B) all loans
made by the Additional ILS Lender to ILS are secured by
ILS's pledge of the underlying loans made by ILS to its
customers, including the stock pledged by customers of
ILS to ILS, (C) if the stock pledged by the customers
of ILS to ILS are subject to Rule 144/Rule 145
restrictions, such pledged stock meets Rule 144/Rule
145 requirements for saleability and are not subject to
a lockup or other restrictions, (D) all loans made by
ILS to its customers meet the following minimum equity
to collateral requirements with respect to the pledged
stock: (1) with respect to each loan at the time such
loan is made, the ratio of the pledged stock value
minus the loan amount to the pledged stock value is at
least 50% and (2) with respect to each loan at all
times after the time such loan is made, the ratio of
the pledged stock value minus the loan amount to the
pledged stock value is at least 35%, and (E) the
Additional Guaranty has not been amended without the
prior written consent of the Bank, and
(iii) guaranties by the Borrower of indebtedness
(including capitalized lease obligations) and operating
leases of the Subsidiaries (other than the guaranties
permitted by Sections 6.03(c)(i) or (ii), 6.03(d) and
6.03(e)); provided that the sum of the aggregate
principal amount of indebtedness guaranteed plus the
aggregate amount of all payments under operating leases
guaranteed under this clause (iii) shall not exceed
$6,000,000;"
5. All references in the Loan Documents to Inter-Regional
Financial Group, Inc. are hereby amended to be references to
Interra Financial Corporation. All references in the Loan
Documents to Regional Operations Group, Inc. or "ROG" are hereby
amended to be references to Interra Clearing Services Inc. All
references in the Loan Documents to IFG Asset Management
Services, Inc. are hereby amended to be references to Interra
Advisory Services Inc.
6. The Borrower hereby represents and warrants to the Bank
that:
(a) The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver this Amendment and
perform all of its obligations under the Loan Agreement, as
amended by this Amendment, and under the Term Note.
(b) The execution, delivery and performance by the
Borrower of its obligations under the Loan Agreement, as
amended by this Amendment, and under the Term Note have been
duly authorized by all necessary corporate action on the
part of the Borrower and do not and will not (1) require any
consent or approval of the stockholders of the Borrower, or
any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (2) violate any
provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the
Borrower or of the Certificate of Incorporation or Bylaws of
the Borrower, (3) result in a breach of or constitute a
default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or its
properties may be bound or affected, or (4) result in, or
require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
(c) The Loan Agreement, as amended by this Amendment,
and the Term Note constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
(d) All of the representations and warranties contained
in Article IV of the Loan Agreement are correct on and as of
the date hereof, except to the extent that such
representations and warranties relate solely to an earlier
date.
7. On the date this Amendment becomes effective, all
references in the Loan Agreement to "this Agreement" and all
references in the Term Note to the "Term Loan Agreement" shall be
deemed to refer to the Loan Agreement as amended by this
Amendment.
8. Except as explicitly amended by this Amendment, all of
the original terms and conditions of the Loan Agreement and the
Term Note shall remain in full force and effect.
9. The Borrower hereby agrees to pay all reasonable fees and
disbursements of counsel to the Bank for the services performed
by such counsel in connection with the preparation of this
Amendment and any documents or instruments incidental thereto.
10. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all such counterparts, taken together, shall constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above
written.
INTERRA FINANCIAL INCORPORATED
By: Daniel J. Reuss
----------------------
Daniel J. Reuss
Its: Senior Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: Edward J. Meyer
----------------------
Edward J. Meyer
Its: Vice President
EXHIBIT 11
<TABLE>
INTERRA FINANCIAL AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited, in thousands, except per-share amounts)
<CAPTION>
Three Months ended March 31,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings $15,755 $15,080
====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 12,213 12,081
Stock options 732 403
Shares credited to deferred
compensation plan participants 172 59
------ ------
13,117 12,543
====== ======
Primary earnings per share $1.20 $1.20
====== ======
EARNINGS PER SHARE ASSUMING
FULL DILUTION:
Net earnings $15,755 $15,080
====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 12,213 12,081
Stock options 732 417
Shares credited to deferred
compensation plan participants 172 59
------ ------
13,117 12,557
====== ======
Fully diluted earnings per share $1.20 $1.20
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from Interra
Financial Incorporated's March 31, 1997, Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 107,043
<RECEIVABLES> 1,248,783
<SECURITIES-RESALE> 271,587
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 450,589
<PP&E> 33,715
<TOTAL-ASSETS> 2,172,110
<SHORT-TERM> 206,301
<PAYABLES> 1,254,986
<REPOS-SOLD> 68,561
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 257,352
<LONG-TERM> 23,855
<COMMON> 1,533
0
0
<OTHER-SE> 291,265
<TOTAL-LIABILITY-AND-EQUITY> 292,798
<TRADING-REVENUE> 42,024
<INTEREST-DIVIDENDS> 28,734
<COMMISSIONS> 63,627
<INVESTMENT-BANKING-REVENUES> 25,868
<FEE-REVENUE> 10,500<F3>
<INTEREST-EXPENSE> 14,110
<COMPENSATION> 101,484
<INCOME-PRETAX> 24,389
<INCOME-PRE-EXTRAORDINARY> 15,755
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,755
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<FN>
<F1>Included in receivables.
<F2>Included in payables.
<F3>Includes fees from Asset Management only.
</FN>
</TABLE>
