UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the fiscal year ended September 30, 1995
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7421
PIPER JAFFRAY COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1233380
(State of incorporation) (IRS Employer Identification No.)
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 342-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 8, 1995, 17,539,395 shares of common stock were issued and
outstanding, and the aggregate market value of the shares of common stock held
by non-affiliates was approximately $127,672,000 (based upon the closing price
on the New York Stock Exchange).
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Item Document of Reference
PART II
Item 5.
Market for Registrant's Common "Market Prices and Dividends Per
Equity and Related Shareholder Share" from the Annual Report to
Matters Shareholders for the fiscal year ended
September 30, 1995 (the "1995
Annual Report")
Item 6.
Selected Financial Data "Financial Summary" from the 1995
Annual Report
Item 7.
Management's Discussion and "Management's Financial Discussion"
Analysis of Financial Condition from the 1995 Annual Report
and Results of Operation
Item 8.
Financial Statements and "Consolidated Financial Statements"
Supplementary Data and "Summary of Quarterly Results"
from the 1995 Annual Report
PART III
Item 10.
Directors and Executive Officers "Election of Directors" on pages 2-3
of the Registrant and "Compliance with Reporting
Requirements" on page 12 of the
Registrant's definitive Proxy Statement for
the Annual Meeting of Shareholders to be
held on January 24, 1996 (the "1995 Proxy
Statement") and to be filed within 120 days
after the Registrant's fiscal year ended
September 30, 1995
Item 11.
Executive Compensation "Executive Compensation" on pages 6-10
of the 1995 Proxy Statement
Item 12.
Security Ownership of Certain "Equity Securities Beneficially
Beneficial Owners and Owned by Directors and Executive
Management Officers" on page 5 of the 1995
Proxy Statement
Item 13.
Certain Relationships and "Transactions with Directors and
Transactions Officers" on page 12 of the 1995
Proxy Statement
PART IV
Item 14.(a):
1. Consolidated Financial "Consolidated Financial Statements"
Statements from the 1995 Annual Report to
Shareholders, included in Exhibit 13
filed herein
2. Financial Statement "Summary of Quarterly Results" from
Schedules the 1995 Annual Report to Shareholders,
Selected Quarterly Financial included in Exhibit 13 filed herein
Data
<PAGE>
PART I
Item 1. Business
Piper Jaffray Companies Inc. (the "Company"), a Delaware corporation, is a
holding company which offers individual investor, investment banking, investment
management and trust services through its wholly owned subsidiaries. The Company
is not engaged in any business activities other than certain investing and
administrative functions.
The Company's primary wholly owned subsidiaries include Piper Jaffray Inc.
(Piper Jaffray), its broker/dealer subsidiary; Piper Capital Management
Incorporated (Piper Capital), an asset management firm; Piper Trust Company
(Piper Trust); and Premier Acceptance Corporation (Premier), an issuer of
mortgage-backed bonds.
Piper Jaffray Inc.
Piper Jaffray is a Delaware corporation organized in 1969 as the successor to a
business established in 1895. Piper Jaffray is a securities broker/dealer and
investment banking firm. As such, it effects transactions in listed and unlisted
securities and options and futures contracts, underwrites corporate and
municipal securities, and sells mutual fund shares, U.S. government securities,
and other financial products and services.
Piper Jaffray is a member of the New York Stock Exchange, American Stock
Exchange, Chicago Stock Exchange, National Association of Securities Dealers,
National Futures Association, Cincinnati Stock Exchange, Minneapolis Grain
Exchange, and the New York Futures Exchange.
Piper Jaffray has 78 retail sales offices in 17 states and is licensed as a
broker/dealer in all states and Washington D.C.
Piper Capital Management Incorporated
Piper Capital, a Delaware corporation, was incorporated in 1983 and is an
investment adviser registered under the Investment Advisers Act of 1940. Piper
Capital furnishes investment advice to various clients, including pension and
profit sharing funds, corporations and individuals. Piper Capital is also the
investment adviser to 17 closed-end funds, the Piper Funds Inc. series of 14
open-end mutual funds, the Piper Institutional Funds Inc. series of two open-end
funds, the Piper Global Funds Inc., which currently has one global open-end
fund, and the Hercules Funds, Inc., which has six open-end funds. As of
September 30, 1995, Piper Capital's total assets under management were
approximately $9.4 billion.
Piper Trust Company
Piper Trust, chartered in Minnesota in 1989, provides trust services to
individuals and institutions, focusing primarily on employee benefit and
personal trust services. Personal trust administrators assist individual clients
in planning their estates, setting investment goals, and monitoring investment
activities. Piper Trust administrators also work with institutions to provide
401(k) and other employee-directed, company-sponsored retirement plans. Piper
Trust operates 17 common and collective funds and had $0.9 billion in client
assets under trust as of September 30, 1995.
Premier Acceptance Corporation
Premier was incorporated in Delaware in 1988 and is an issuer of bonds which are
collateralized by GNMA and FNMA certificates. During fiscal 1995, Premier issued
three series of mortgage-backed bonds with an aggregate original principal
amount of $54.4 million. As of September 30, 1995, $53.9 million remained
outstanding. The issuance of six series of mortgage-backed bonds with an
aggregate original principal amount of $176.1 million and the related purchase
of collateral has been accounted for financial reporting purposes as a sale.
Accordingly, the assets, liabilities, interest income, and interest expense
relating to these series do not appear on the financial statements.
Sources of Revenues
Commissions
Piper Jaffray charges a brokerage commission when acting as agent for the
purchaser or seller of a security or futures contract. If the security is listed
on an exchange and Piper Jaffray does not act as a principal in the security,
the transaction is generally effected through an automatic execution and
clearing system or Piper Jaffray's own floor brokers. If the security is traded
on the over-the-counter market, Piper Jaffray generally effects the transaction
directly with one of the firms making a market in that security. Piper Jaffray
also acts as agent with respect to the purchase and sale of futures and option
contracts. These transactions are effected through correspondent brokers. Piper
Jaffray purchases mutual fund shares at a specified discount from the price at
which the shares are resold to customers. Piper Jaffray is also a distributor of
Piper Capital's open-end mutual funds.
Principal Transactions
Profits on principal trading transactions represent the difference between the
cost of securities purchased by Piper Jaffray for its own account and the
proceeds received upon the sale of such securities. Such transactions occur with
respect to corporate equity and fixed income securities, municipal securities
(generally issued by states, their agencies and political subdivisions), and
U.S. government securities.
Piper Jaffray acts as a market maker for unlisted common stocks and convertible
debt securities of approximately 390 companies. As a market maker, Piper
Jaffray, for its own account, generally maintains a long or short inventory
position with respect to such securities and stands ready to effect purchase or
sale transactions with customers and other dealers. Piper Jaffray also acts as a
principal in the trading of approximately 85 listed stocks.
Piper Jaffray maintains inventories of non-convertible corporate debt
securities, preferred stocks, municipal securities, and government securities,
as well as equity and convertible securities in which Piper Jaffray does not
make a market. These inventories usually result from underwriting and other
positions that have not yet been sold to customers, but are maintained to
facilitate customers' transactions and trading.
Piper Jaffray is exposed to the possibility of a loss and has the opportunity to
profit as market prices of the securities in its inventory positions change. The
value of the common stock and convertible debt inventory positions is primarily
affected by changes in the general market for equity securities and the
financial prospects of the issuers of such securities. The value of the
corporate fixed income, municipal, and government securities inventory positions
is primarily affected by changes in market interest rates. In general, Piper
Jaffray's securities inventories are maintained to meet customers' trading
demands. Accordingly, it is the policy of Piper Jaffray to carry as low a level
of securities inventories as is necessary to conduct customer business.
Investment Banking
Piper Jaffray underwrites both municipal and corporate securities. In an
underwriting, Piper Jaffray generally joins with other securities firms in a
group which commits to purchase securities from an issuer at a fixed price and
to re-offer those securities to the public. While most of Piper Jaffray's
underwriting revenues are derived from acting as manager or co-manager, Piper
Jaffray also acts as a member of underwriting groups managed by other firms.
Participation in an underwriting exposes Piper Jaffray to certain risks. If all
of the securities that Piper Jaffray has committed to underwrite cannot be
resold at the agreed upon price, Piper Jaffray might incur losses. In addition,
federal and state securities laws and regulations affect the activities of
underwriters and impose potential liabilities in connection with sales of
securities by underwriters to the public.
It is generally more profitable to be manager or co-manager of an underwriting
than to be solely a member of the underwriting group. However, managers usually
must commit to underwrite a larger portion of the offering than other members of
the underwriting group.
In addition to the underwriting of securities, Piper Jaffray engages in other
investment banking activities. These include raising capital through the private
placement of securities, appraising corporate securities for tax or other
purposes, arranging and evaluating the terms of mergers and acquisitions, and
advising companies with respect to financing plans and related matters.
Compensation for such services is in the form of negotiated fees.
Asset Management
Piper Capital, as investment adviser to mutual funds, provides each fund with
advice and assistance in the selection and disposition of that fund's
investments. In return, each fund pays Piper Capital monthly advisory fees
generally equal to a certain percentage of the fund's average net assets. Piper
Capital also serves as investment adviser for individual and fiduciary accounts.
Piper Capital effects a wide range of securities transactions in managed
accounts as well as within managed mutual funds. Certain managed accounts and
funds invest in derivative and/or mortgage-backed derivative securities. The use
of these and other securities in managed accounts and funds is monitored for
both eligibility of type of security and limitations on amount of security in
accordance with policies applicable to the particular accounts and funds,
including investment management agreements and fund prospectus guidelines.
Piper Trust also generates substantially all of its revenues through a
percentage fee based on the market value of total assets under management for
each client's account and through fees for estate planning and custodial and
fiduciary services.
Interest Income
Customers' purchases of listed and certain over-the-counter securities may be
effected on either a cash or margin basis. If the purchase is made on a cash
basis, full payment is due by a designated settlement date, generally three
business days following the purchase date. In a margin transaction, however,
Piper Jaffray lends the customer a portion of the purchase price up to limits
set by the Federal Reserve Board. Such loans are collateralized by the
securities purchased. These receivable amounts are funded by equity capital,
bank lines of credit, and proceeds from securities lending, as well as
non-interest bearing liabilities. As collateral for short-term bank borrowings,
Piper Jaffray is generally permitted to use securities in a customer's margin
account with a total market value of up to 140% of the amount owed to Piper
Jaffray by the customer.
Other Revenues
Piper Jaffray provides other financial services and products, including
custodial services for IRA's and defined contribution plans, managed account
services, wrap accounts, and various insurance investment products through the
Piper Jaffray sales force. Piper Jaffray also derives revenue for services
provided in connection with tender and exchange offers, from dividend and
interest payments on securities owned, and other miscellaneous items.
Employees
At September 30, 1995, Piper Jaffray, Piper Capital and Piper Trust had 2,531,
126 and 46 full-time employees, respectively. Premier has no employees. Since
September 30, 1995, the core administrative and support services formerly housed
within Piper Jaffray, approximately 250 employees, have been moved to the
holding company. At September 30, 1995 there were 1,146 employees of Piper
Jaffray, including some officers, registered with the New York Stock Exchange as
investment executives involved in Piper Jaffray's retail and institutional sales
activities. Of these, 150 were located in the Company's corporate headquarters
sales offices in Minneapolis. The other 77 sales offices have from one to 60
investment executives each.
Competition
The Company's subsidiaries are subject to intense competition in all aspects of
their businesses, not only from other companies in the securities industry, but
also from banks, savings and loan associations, retailers, and other firms
offering financial services. Many of these companies are larger and have greater
financial resources than the Company. In addition to competition from such
companies, there is competition within the securities industry in obtaining and
retaining the services of investment executives.
Regulation
The rules and regulations of the Securities and Exchange Commission, the
exchanges of which Piper Jaffray is a member, and the other regulatory bodies
under the jurisdiction of which Piper Jaffray conducts its business, are complex
and extensive. Regulated areas include the effecting of securities transactions,
the financial condition of Piper Jaffray, its record keeping and reporting
procedures, relationships with customers, including the handling of cash and
margin accounts, the experience and training requirements for certain employees,
and business procedures with non-member firms.
The exchanges, the National Association of Securities Dealers, and the National
Futures Association are voluntary, self-regulatory bodies composed of members
which have agreed to abide by the respective bodies' rules and regulations. Each
of these organizations may expel, fine and otherwise discipline member firms and
their employees.
Piper Jaffray is registered as a securities broker/dealer and as an investment
adviser with the Securities and Exchange Commission. Piper Jaffray is also
registered with the Commodity Futures Trading Commission as a futures commission
merchant under the Commodity Exchange Act. In addition to being subject to
various federal laws, rules and regulations, Piper Jaffray must be licensed as a
broker/dealer in, and comply with the regulations of, the states in which it
does business.
Piper Jaffray is subject to the Uniform Net Capital Rule (the "Rule") of the
Securities and Exchange Commission and the net capital rule of the New York
Stock Exchange (the "Exchange"). Piper Jaffray has elected to use the
alternative method permitted by the Rule which requires that it maintain minimum
net capital of 2% of aggregate debit balances arising from customer
transactions. The Exchange may prohibit a member firm from expanding its
business or paying cash dividends if resulting net capital would be less than 5%
of aggregate debit balances. In addition, Piper Jaffray is subject to certain
notification requirements related to withdrawals of excess net capital. At
September 30, 1995, Piper Jaffray's net capital under the Rule was 22.0% of
aggregate debit balances.
Piper Capital is registered under the Investment Advisers Act of 1940 and is the
investment adviser for investment companies regulated under the Investment
Company Act of 1940. As such, Piper Capital and each of its funds are subject to
annual independent audits and periodic examinations by the Securities and
Exchange Commission.
Piper Capital is subject to capital requirements in several states in which it
is registered as an investment adviser. Under requirements of the most
restrictive state, excess net capital was $9.2 million at September 30, 1995.
As a Minnesota trust company, Piper Trust is subject to the rules and
regulations of the State of Minnesota and the Minnesota Department of Commerce.
Regulatory examiners conduct periodic examinations of Piper Trust.
The laws, rules and regulations of the various federal, state and other
regulatory bodies to which the businesses of Piper Jaffray, Piper Capital, and
Piper Trust are subject are constantly changing. While management of the Company
and its subsidiaries believes that they are currently in compliance in all
material respects with all laws, rules and regulations applicable to its
business, the effect of any such changes cannot be predicted.
<PAGE>
Joint Venture
During fiscal 1993, the Company entered into a 50/50 joint venture with Midland
Walwyn of Canada to develop and market an international group of mutual funds.
The Company was required to fund any losses from operations or cash needs of the
joint venture on a 50/50 basis. The joint venture, Hercules International
Management L.L.C., introduced mutual funds in fiscal 1994. The joint venture was
subsequently dissolved in fiscal 1995, and the Company brought the Hercules
international mutual funds into the Piper Capital fund family.
Item 2. Properties
The Company conducts its operations through 78 retail and capital markets
offices in 17 states, as well as London. All of its offices are leased with
various expiration dates through 2006. See Note 7 of the Notes to Consolidated
Financial Statements filed herein for information concerning leases.
Item 3. Legal Proceedings
The Company is currently a defendant in lawsuits and arbitrations and is subject
to regulatory inquiries related to various funds or assets managed by Piper
Capital. In addition, management is aware of unasserted claims which may contain
similar allegations. The Company is also a defendant in two cases involving an
underwriting by Piper Jaffray. The Company intends to defend or, in some cases,
negotiate to settle these actions. It is impossible to predict the outcome of
these actions, and, at the present time, the effect of these actions on the
consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
Piper Jaffray and Piper Capital have been cooperating in regulatory
investigations being conducted by the Securities and Exchange Commission (SEC),
the National Association of Securities Dealers (NASD), and the State of
Minnesota Department of Commerce (Minnesota DOC) and have been responding to
requests for information from several other states. These investigations and
inquiries primarily relate to disclosure and sales practices pertaining to the
sale of Piper Funds Inc. Institutional Government Income Portfolio. The NASD
staff has advised Piper Jaffray that it intends to recommend that the District
Business Conduct Committee of the NASD commence disciplinary proceedings against
Piper Jaffray. Similarly, the staff of the Minnesota DOC has advised Piper
Jaffray and Piper Capital that it intends to recommend that the Minnesota DOC
commence disciplinary proceedings against Piper Jaffray and Piper Capital. Piper
Jaffray and Piper Capital are engaged in discussions to resolve these matters
with the NASD and the Minnesota DOC, and management of the Company, after
consultations with counsel, believes that the resolution of these proceedings
will have no material adverse effect on its consolidated financial statements.
The Company is involved in various other lawsuits or arbitrations or threatened
lawsuits or arbitrations incidental to its securities business. Management of
the Company, after consultation with counsel, believes the resolution of these
various lawsuits, arbitrations and claims will have no material adverse effect
on the consolidated financial statements.
Actions which individually, or when aggregated with similar actions, make claims
for a material amount are described in more detail below:
A. Lawsuits Related to Various Funds or Assets Managed by Piper Capital
Management Incorporated
1. Institutional Government Income Portfolio
a. In Re Piper Funds Inc. Institutional Government Income Portfolio
Litigation (United States District Court, District of Minnesota).
This is a consolidated putative class action in which claims brought by 11
persons or entities have been consolidated under the title In Re Piper Funds
Inc. Institutional Government Income Portfolio Litigation (United States
District Court, District of Minnesota) ("PJIGX" action), pursuant to an
Amended Consolidated Class Action Complaint filed on October 5, 1994. The
named plaintiffs in that Amended Consolidated Class Action Complaint purport
to represent a class of individuals and groups who purchased shares of the
Institutional Government Income Portfolio, an open-ended fund managed by
Piper Capital, during the putative class period of July 1, 1991, through May
9, 1994.
The Amended Consolidated Class Action Complaint alleges violation of
Sections 11 and 12(2) of the Securities Act of 1933, as amended (the
"Securities Act"); violation of Section 10(b) of the Securities Exchange Act
of 1934, as amended (the "Securities Exchange Act"), and Rule 10b-5
promulgated thereunder; violation of Sections 13(a)(3), 18(f), 34(b) and
36(b) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"); violation of Section 80A.01 of the Minnesota Statutes;
negligent misrepresentation; and breach of fiduciary duty. Plaintiffs seek
rescission or damages, plus prejudgment interest, and attorneys' fees and
costs. The Amended Consolidated Class Action Complaint claims that the
Institutional Government Income Portfolio lost 24.6% of its value during the
period from January 1, 1994 to May 6, 1994. The Amended Consolidated
Complaint does not specify an amount of damages sought. The defendants filed
an Answer to the Amended Consolidated Class Action Complaint on October 21,
1994, in which the defendants deny liability.
The named plaintiffs and defendants have reached a settlement of this
matter, subject to final approval by the Court. The terms of the settlement
are set forth in a Settlement Agreement dated July 20, 1995, as modified by
an Addendum filed with the Court on July 28, 1995 (the "Settlement
Agreement"). The Settlement Agreement contained a provision which would have
permitted the defendants to cancel the agreement if shareholders who had
incurred a cumulative "Loss" (as defined under the Settlement Agreement) of
more than 10% of the Loss sustained by the entire class had opted out. The
October 2, 1995 deadline for requesting exclusion from the class has passed,
and the Loss sustained by persons requesting exclusion is less than 10%. A
hearing on final settlement approval was held on December 8, 1995. At the
December 8, 1995 hearing, plaintiffs estimated that, based on the formula
set forth in the Settlement Agreement and the number of persons requesting
exclusion from the class, the settlement would provide approximately $67.5
million to class members in payments scheduled during the next three years.
The parties stipulated that the stay of related arbitration actions and
lawsuits should end, allowing investors who requested exclusion from the
settlement class to proceed with their claims. The Court entered an "Order"
dated December 14, 1995, which granted final approval to the Settlement
Agreement and dismissed the litigation with prejudice in favor of the
defendants. The Order further directs class members who had previously filed
lawsuits or arbitration claims, but who failed to request exclusion from the
class, to immediately dismiss all such lawsuits or arbitrations. If no
appeals from the December 14, 1995 Order are filed on or before January 15,
1996, the Settlement Agreement will become effective on or about January 15,
1996.
b. Other Lawsuits Brought by Investors in Institutional Government Income
Portfolio.
The Company is party to the following actions which are based on claims
similar to those asserted in In Re Piper Funds, Inc. Institutional
Government Income Portfolio Litigation.
Gary Pashel and Gregg S. Hayutin, Trustees of the Mae Pashel Trust;
Mae Pashel, individually; Gary Pashel and Michael H. Feinstein,
Trustees of the Robert Hayutin Insurance Trust; Dennis E. Hayutin,
Gregg S. Hayutin and Gary Pashel, Trustees of the Marie Ellen Hayutin
Trust v. Piper Funds, Inc., Piper Capital Management Incorporated,
Piper Jaffray Inc. and Piper Jaffray Companies Inc. (United States
District Court, District of Colorado).
Action commenced on September 30, 1994. This lawsuit has been consolidated
with the PJIGX action and transferred to the District of Minnesota for
pretrial proceedings pursuant to an order of the Panel on Multidistrict
Litigation. Plaintiffs seek rescission of their alleged investment of
approximately $840,141.28 or monetary damages, plus interest, and attorneys'
fees and costs.
This claimant has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
Frank R. Berman, Trustee of Frank R. Berman Professional CP Pension
Plan Trust v. Piper Jaffray Inc., Piper Fund, Inc., Morton Silverman
and Worth Bruntjen (Minnesota State District Court, Hennepin County).
Action commenced on April 11, 1995. Plaintiff appears to fall within the
definition of the conditionally certified class in the PJIGX action. The
parties have stipulated to a stay of this action pending notice to class
members of the settlement in the PJIGX action, and the opportunity of those
class members to opt-out of the settlement. Plaintiff seeks monetary
damages, plus interest, and attorneys' fees and costs. The Complaint does
not specify an amount of damages sought.
This plaintiff has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
Beverly Muth vs. Piper Jaffray Inc. and Teresa L. Darnielle, (Montana
Thirteenth Judicial District Court, Yellowstone County).
Action commenced on June 22, 1995. Plaintiff appears to fall within the
definition of the conditionally certified class in the PJIGX action.
Plaintiff seeks monetary damages of over $12,000, a sum to be determined at
trial for extreme emotional distress and an award of punitive damages.
This plaintiff has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
In re the Conservatorship of Helen E. Durmick, (Minnesota State
District Court, Hennepin County Probate Court).
On February 9, 1995, conservator National City Bank and the estate of Helen
E. Durmick petitioned to reopen an accounting of the predecessor
conservators, Piper Trust and Warren Lampe, alleging that Piper Trust
Company and Lampe breached their fiduciary duties by investing in the
Institutional Government Income Portfolio and that Piper Trust Company
failed to disclose the risks of such investment. This matter is stayed
pending consideration of the proposed settlement agreement in the PJIGX
action. The petition objects to fees claimed in the accounting. The petition
does not specify an amount of damages sought.
This plaintiff has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
c. Arbitrations Brought by Investors in Institutional Government Income
Portfolio.
The following actions, which are based on claims similar to those asserted
in the PJIGX action, were commenced in arbitration by individual investors
in the Institutional Government Income Portfolio.
Fredrikson & Byron, P.A., Bertin A. Bisbee, William J. Brody, John P.
Byron, and Richard R. Hansen, as Trustees of the Fredrikson & Byron,
P.A. Money Purchase Pension Plan, Fredrikson & Byron, P.A. Money
Purchase Pension Trust, Fredrikson & Byron, P.A. Profit Sharing Plan
and Fredrikson & Byron, P.A. Profit Sharing Trust v. Piper Jaffray
Incorporated, Piper Capital Management Incorporated, Worth Bruntjen,
and John Gibas (National Association of Securities Dealers
Arbitration).
Claim filed November 11, 1994. Claimants seek to recover in excess of $1
million. This claimant has requested exclusion from the settlement class in
In re Piper Funds Inc. Institutional Government Income Portfolio.
Public Water Supply District No. 5 v. Piper Jaffray Inc., Robert
Williams, Branch Manager, and Charles Greenway, Assistant Vice
President Investments (National Association of Security Dealers
Arbitration).
Claim filed August 30, 1994. Claimant seeks to recover $12,263.37.
This claimant has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
Roger W. Arvold and Maxine E. Arvold v. Piper Jaffray Inc. (National
Association of Securities Dealers Arbitration).
Claim filed December 30, 1994. Claimants seek to recover
approximately $30,000. This claimant has requested exclusion from the
settlement class in In re Piper Funds Inc. Institutional Government
Income Portfolio.
William T. Egan v. Piper Jaffray Inc., Piper Capital Management
Incorporated, and Piper Funds Inc. (National Association of Securities
Dealers Arbitration).
Claim filed December 29, 1994. Claimant seeks to recover
approximately $59,000. This claimant has requested exclusion from the
settlement class in In re Piper Funds Inc. Institutional Government
Income Portfolio.
Park Nicollet Medical Foundation v. Piper Jaffray Inc. and Piper
Capital Management Incorporated (National Association of Securities
Dealers Arbitration).
Claim filed January 9, 1995. Claimant seeks to recover
$4,542,904.40. This claimant has requested exclusion from the
settlement class in In re Piper Funds Inc. Institutional Government
Income Portfolio.
David S. Bradford, M.D. v. Piper Capital Management Inc., Piper
Jaffray Inc., and Piper Jaffray Companies Inc. (National Association
of Securities Dealers Arbitration).
Claim filed February 22, 1995. Claimant seeks to recover
approximately $400,000. This claimant has requested exclusion from
the settlement class in In re Piper Funds Inc. Institutional
Government Income Portfolio.
South Dakota School of Mines and Technology Foundation, Inc. v. Piper
Jaffray Inc., Piper Jaffray Companies Inc., Piper Capital Management
Incorporated, Addison L. Piper, William H. Ellis, Dan L. Lastavich,
Delos V. Steenson, Worth Bruntjen, Jaye F. Dyer, Edward J. Kohler,
John T. Golle, and David T. Bennett (New York Stock Exchange
Arbitration).
Claim filed January 4, 1995. Claimant seeks to recover approximately
$17,500,000. This claimant has requested exclusion from the
settlement class in In re Piper Funds Inc. Institutional Government
Income Portfolio.
Joseph H. Reynebeau v. Piper Jaffray Inc. and Gerard Johnson (National
Association of Securities Dealers Arbitration).
Claim filed April 18, 1995. Claimant seeks to recover $9,999.99.
This claimant has requested exclusion from the settlement class in In
re Piper Funds Inc. Institutional Government Income Portfolio.
City of Mound v. Piper Funds Inc. Institutional Government Income
Portfolio, Piper Capital Management Incorporated, Piper Jaffray Inc.,
Piper Jaffray Companies Inc. and Bennett E. Marks (New York Stock
Exchange Arbitration).
Claim filed May 31, 1995. Claimant seeks to recover in excess of
$800,000. This claimant has requested exclusion from the settlement
class in In re Piper Funds Inc. Institutional Government Income
Portfolio.
Eric Wade Compton Russell v. Piper Funds Inc. Institutional Government
Income Portfolio, Piper Capital Management Incorporated, Piper Jaffray
Inc., Piper Jaffray Companies Inc. and Edwin Johnson (New York Stock
Exchange Arbitration).
Claim filed June 13, 1995. Claimant seeks to recover in excess of
$37,500. This claimant has requested exclusion from the settlement
class in In re Piper Funds Inc. Institutional Government Income
Portfolio.
The I-Team, Inc. and Richard W. Olson v. Piper Jaffray Inc.
Institutional Government Income Portfolio, Piper Capital Management
Incorporated, Piper Jaffray Inc., Piper Jaffray Companies Inc. and
Michael J. Hustad (National Association of Securities Dealers
Arbitration).
Claim filed September 11, 1995. Claimant alleges claims arising after the
class period in the PJIGX action. Claimants seek to recover approximately
$6,500. This claimant has requested exclusion from the settlement class in
In re Piper Funds Inc. Institutional Government Income Portfolio.
Robert J. Hilkemann, D.P.M., & Associates, P.C. and Dr. Robert J.
Hilkemann as Plan Participant on behalf of the Robert J. Hilkemann,
D.P.M., & Associates, P.C. Profit Sharing Plan and Trust v. Piper
Jaffray Inc. (New York Stock Exchange Arbitration).
Claim filed November 28, 1995. Claimants seek to recover damages in excess
of $50,000. Claimants have requested exclusion from the settlement class in
In re Piper Funds Inc. Institutional Government Income Portfolio.
Thomas Howe and Richard Westphal, Trustees of the Swanson FloSystems
Profit Sharing Trust under Agreement dated January 1, 1971 v. Piper
Capital Management Incorporated, Piper Jaffray Inc., Piper Funds Inc.,
Piper Jaffray Companies Inc., John J. Gibas, Thomas H. Hussian and
James S. Vieburg (National Association of Securities Dealers
Arbitration).
Claim filed December 11, 1995. Claimants seek to recover damages in excess
of $89,000. Claimants have requested exclusion from the settlement class in
In re Piper Funds Inc. Institutional Government Income Portfolio.
2. Adjustable Rate Term Trusts
a. Herman D. Gordon, Robert D. Moore, I.R.A., Frank Donio, I.R.A., Jane
Mazzagatte, I.R.A., Myra W. Smith, John M. Gobble, I.R.A., Morgan
Properties, Inc., Gerald D. Cashill, Richard Harbison, P. Joan
Spengler, I.R.A., James O. Chambers, and Mary A. Snively, on Behalf of
Themselves and All Others Similarly Situated v. American Adjustable
Rate Term Trust, Inc. 1996, American Adjustable Rate Term Trust, Inc.
1997, American Adjustable Rate Term Trust 1998; American Adjustable
Rate Trust 1999; Piper Jaffray Companies Inc.; Piper Capital
Management Inc., Piper Jaffray Inc.; Benjamin Rinkey; Jeffrey Griffin;
Charles N. Hayssen, Edward J. Kohler; and William H. Ellis (United
States District Court, District of Minnesota).
Frank Donio, I.R.A., Jane Mazzagatte, I.R.A., Myra Smith, John M.
Gobble, I.R.A., and Morgan Properties, Inc., on Behalf of Themselves
and All Others Similarly Situated v. American Adjustable Rate Term
Trust Inc. 1996; American Adjustable Rate Term Trust Inc. 1997;
American Adjustable Rate Term Trust Inc. 1998; American Adjustable
Rate Term Trust Inc. 1999; Piper Jaffray Companies Inc.; Piper Capital
Management Inc.; Piper Jaffray Inc.; Benjamin Rinkey; Jeffrey Griffin;
Charles N. Hayssen, Edward J. Kohler and William H. Ellis (United
States District Court, District of Minnesota).
Plaintiff Gordon, an investor in the American Adjustable Rate Term Trusts
Inc. 1998 and 1999, filed a putative class action lawsuit on October 20,
1994. Plaintiffs Donio, et al., investors in the American Adjustable Rate
Term Trusts Inc. 1996, 1997, 1998 and 1999 ("Trusts"), filed a putative
class action lawsuit on April 14, 1995. Plaintiffs in both actions filed a
Consolidated Amended Class Action Complaint on May 23, 1995. By Order dated
June 8, 1995, the Court consolidated the two putative class actions.
Plaintiffs purport to represent a class of persons who purchased shares in
the 1996 and 1997 Trusts during the period from April 15, 1992, through
October 31, 1994, and in the 1998 and 1999 Trusts during the period from
January 23, 1992, through October 31, 1994.
Plaintiffs allege violation of Sections 11, 12 (2) and 15 of the Securities
Act; violation of Sections 10(b) and 20(a) of the Securities Exchange Act,
and Rule 10b-5 promulgated thereunder; violation of Sections 17(j), 34(b),
36(a) and 36(b) of the Investment Company Act; violation of Section 80A.01
of the Minnesota Statutes; negligent misrepresentation and breach of
fiduciary duty. Plaintiffs seek rescission or damages, plus interest, and
attorneys' fees and costs. The Complaint does not specify an amount of
damages sought.
Although the plaintiffs in this action allege that it has been brought as a
class action, the Court has not yet determined whether a class will be
certified. Defendants have filed a motion to dismiss the consolidated action
in its entirety.
b. Other Lawsuits Brought by Investors in Adjustable Rate Term Trusts
Ernest Volinn v. Piper Jaffray Inc. (Washington State District Court,
King County).
Plaintiff, an investor in the American Adjustable Rate Term Trusts, Inc.
1997 and 1998, the American Strategic Portfolio, Inc. III and the American
Opportunity Income Fund, Inc., filed this action on August 11, 1995.
Plaintiff alleges the investments were unsuitable and seeks compensatory
damages in the amount of $3,543, costs and attorneys' fees.
The Ewing Company Profit Sharing Plan v. Piper Jaffray Inc. (United
States District Court, District of Idaho).
Plaintiff, an investor in the American Adjustable Rate Term Trusts, Inc.,
1995, 1996, 1997, 1998, 1999, the American Strategic Income Portfolio, and
the American Strategic Income Portfolio II, filed this action on November 1,
1995. Plaintiff alleges violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violation of the
Idaho Securities Act and the Idaho Consumer Protection Act; and common law
fraud. Plaintiff seeks to recover principal in excess of $90,000, interest
in excess of $32,000, attorneys' fees and costs and has reserved the right
to seek punitive damages.
c. Arbitration Claims Brought by Investors in Adjustable Rate Term Trusts
The Company is a party to the following arbitrations which are based
on claims similar to those asserted in Gordon, et al. v. American
Adjustable Rate Term Trust 1996, et al.
William J. Kenney v. John P. Murphy, Piper Capital Management Inc.,
and Kemper Securities, Inc. (National Association of Securities
Dealers Arbitration).
Claim filed February 24, 1995. Claimant seeks to recover approximately
$97,500.
Daniel J. Epstein and Continental America Properties, Ltd. v.
Dickinson & Company, Inc., Richard C. Barrett, Jr., Advest Company,
Inc., Piper Jaffray Inc., and Piper Capital Management Incorporated
(National Association of Securities Dealers Arbitration)
Claim filed June 21, 1995. Claimant seeks to recover in excess of $30,000 in
damages and in excess of $1 million in punitive damages.
Richard C. Mollin, Trustee, and Richard C. Mollin v. Piper Jaffray
Inc. and Philip H. Strom (National Association of Securities Dealers
Arbitration)
Claim filed May 5, 1995. Claimants seek to recover $42,656.13.
Robert Albright v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed May 8, 1995. Claimant seeks $68,000 in compensatory damages and
$182,000 in punitive damages.
Mia Stoick v. Piper Jaffray Inc., Piper Jaffray Co., Inc., and David
J. Lehrer (National Association of Securities Dealers Arbitration).
Claim filed July 28, 1995. Claimant seeks to recover lost profits in an
amount to be determined and rescission of certain transactions.
Satish C. & Roopa Bansal v. Gregory Schaff & Piper Jaffray Inc.
(National Association of Securities Dealers Arbitration).
Claim filed July 17, 1995. Claimants seek to recover $57,168.
F.A. Wittern Charitable Foundation; Selectivend, Inc.; Specialty Foods
Limited Partnership; 3-W Corporation; Vikart Industries, Inc.; Wittern
Investment Company v. Piper Jaffray Companies Inc. and Jed Willoughby
(NASD Arbitration).
Claim filed September 5, 1995. Claimants seek to recover approximately
$98,726.92.
Sylvia M. Gadbaw v. Doug Nichols and Piper Jaffray Inc. (National
Association of Securities Dealers Arbitration).
Claim filed November 2, 1995. Claimant seeks to recover approximately
$8,750.
3. American Opportunity Income Fund , American Strategic Income
Portfolio, Inc. II and other named funds
a. Gary E. Nelson, et al. v. American Strategic Income Portfolio Inc. II,
Piper Jaffray Companies Inc., Piper Capital Management Incorporated,
Piper Jaffray Inc., Worth Bruntjen, Charles Hayssen, Michael Jansen,
William Ellis and Edward Kohler (United States District Court, Western
District of Washington).
Christian Fellowship Foundation Peace United Church of Christ, Gary E.
Nelson and Lloyd Schmidt, et al. v. American Government Income Portfolio,
Inc., American Government Income Fund, Inc., American Government Term Trust,
Inc., American Strategic Income Portfolio, Inc., American Strategic Income
Portfolio, Inc. II, American Strategic Income Portfolio, Inc. III, American
Opportunity Income Fund, Inc., American Select Portfolio, Inc., Piper
Jaffray Companies Inc., Piper Capital Management Inc., Piper Jaffray Inc.,
Worth Bruntjen, Charles Hayssen, Michael Jansen, William H. Ellis and Edward
J. Kohler (United States District Court, Western District of Washington).
Plaintiff Nelson, an investor in the American Strategic Income Portfolio
Inc. II, filed a putative class action lawsuit on June 28, 1995. Nelson also
was an investor in the American Opportunity Income Fund, Inc. ("American
Opportunity Fund"), and filed a second putative class action lawsuit on July
12, 1995. On September 7, 1995, Plaintiffs Nelson, et al. filed an Amended
Complaint alleging claims against eight funds and various individuals and
entities, which included many of the allegations contained in the previous
two putative class action lawsuits, as well as new allegations. By Order
filed October 5, 1995, the Court consolidated the two putative class action
lawsuits. Plaintiffs seek to represent a global class of persons who
purchased shares in the eight funds during the period May 25, 1988 through
May 1, 1995, as well as certain subclasses.
With respect to some or all of the subclasses, Plaintiffs allege violations
of Sections 11, 12(2) and 15 of the Securities Act; Sections 10(b) and 20(a)
of the Securities Exchange Act and Rule 10b-5 promulgated thereunder;
Sections 13(a), 34(b), and 36(b) of the Investment Company Act; certain
subsections of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. ss. 1962 based on alleged predicate acts of mail fraud,
wire fraud, interstate transportation of money obtained through fraud, and
fraud in the sale of securities; the Washington State Securities Act; and
the Washington Consumer Protection Act. Plaintiffs may also purport to
allege claims under the common law of negligent misrepresentation and breach
of fiduciary duty. Under some or all of the claims, plaintiffs seek
rescission or monetary damages, treble damages, attorney's fees, prejudgment
interest and costs. The Amended Complaint does not specify a particular
amount of damages sought.
Although plaintiffs in this action allege that it has been brought as a
class action, the Court has not yet determined whether any classes will be
certified. Although defendants have not yet filed a formal answer, the
defendants deny liability.
b. Arbitration Claim Brought by Investor in American Opportunity Income
Fund
The following arbitration seeks recovery by an investor in the American
Opportunity Income Fund.
Penny DiRocco v. Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed March 27, 1995. Claimant seeks damages in excess of $500,000.
4. Managers Intermediate Mortgage Fund
a. Florence R. Hosea, Bobby W. Hosea, Getrud B. Dale and Peter M. Dale,
Andrew Poffel and Diane Poffel as tenants by the Entireties, Myrone
Barone, Donna M. DiPalo, Bernard B. Geltner as IRA custodian, IRA and
Bernard B. Geltner and Gail Geltner and Paul Delman v. The Managers
Funds, The Managers Funds, L.P., Robert P. Watson, Piper Capital
Management Incorporated, Piper Jaffray Inc., Worth Bruntjen and
Managers Intermediate Mortgage Fund (United States District Court,
District of Connecticut).
Karen E. Kopelman v. The Managers Fund, The Managers Funds, L.P.,
Robert P. Watson, Piper Capital Management Incorporated, Piper Jaffray
Inc., Worth Bruntjen and Managers Intermediate Mortgage Fund (United
States District Court, District of Connecticut).
Plaintiff Hosea filed a putative class action lawsuit on September 26, 1994.
Plaintiff Kopelman filed a putative class action lawsuit on November 4,
1994. By court order dated December 13, 1994, these two putative class
action lawsuits were consolidated. The plaintiffs purport to represent a
class of persons who purchased shares in the Managers Intermediate Mortgage
Fund ("Managers Intermediate") during the period from May 1, 1992, through
June 14, 1994. Managers Intermediate is a no-load, open-end mutual fund that
was generally managed by The Managers Funds, L.P. During the class period,
Piper Capital was the portfolio asset manager.
In their Amended and Restated Complaint, filed on July 19, 1995, plaintiffs
allege that defendants Piper Capital, Piper Jaffray and Worth Bruntjen (the
"Piper Defendants") violated Sections 11, 12(2) and 15 of the Securities
Act; Section 10(b) of the Securities Exchange Act, and Rule 10b-5
promulgated thereunder; Sections 34(b) and 36(b) of the Investment Company
Act; and engaged in negligent misrepresentation. Plaintiffs seek rescission
or monetary damages, plus prejudgment interest, punitive damages "where
appropriate," and attorneys' fees and costs. The Complaint does not specify
an amount of damages sought.
Although the plaintiffs in this consolidated action allege that it has been
brought as a class action, the Court has not yet determined whether a class
will be certified. The defendants have filed a motion to dismiss the
consolidated action in its entirety.
b. Arbitration Claim Brought by Investor in Managers Intermediate
Mortgage Fund
The following arbitration claim which is based on claims similar to
those asserted in Florence R. Hosea et al. v. The Managers Funds et
al. seeks recovery for investment in the Managers Intermediate Mortgage
Fund.
George P. Stacey v. The Managers Funds, The Managers Funds L.P., Piper
Jaffray Inc. and Piper Capital Management Inc. (National Association
of Securities Dealers Arbitration).
Claim filed July 27, 1995. Claimant seeks to recover approximately $45,000
in actual damages and $50,000 in punitive damages.
5. Managers Short Government Income Fund
a. Robert Fleck, on behalf of himself and all others similarly situated
v. The Managers Funds, The Managers Funds, L.P., Piper Jaffray Inc.,
Piper Capital Management Incorporated, Worth Bruntjen, Evaluation
Associates, Inc., Robert P. Watson, John E. Rosati, William M.
Graulty, Madeline H. McWhinney, Steven J. Paggioli, Thomas R.
Schneeweis and Managers Short Government Fund, F/K/A Managers Short
Government Income Fund (United States District Court, District of
Minnesota).
Plaintiff, a shareholder of the Managers Short Government Income Fund
("Managers Short"), filed this putative class action lawsuit on November 18,
1994. Plaintiff purports to represent a class of persons who purchased
shares of Managers Short during the period from May 1, 1993, through
September 12, 1994. Managers Short is a no-load, open-end mutual fund that
was generally managed by The Managers Funds, L.P. Piper Capital was the
portfolio asset manager until August 12, 1994.
Plaintiff alleges that defendants Piper Jaffray Inc., Piper Capital and
Worth Bruntjen (the "Piper Defendants") violated Section 10(b) of the
Securities Exchange Act, and Rule 10b-5 promulgated thereunder; Section
13(a)(3) of the Investment Company Act; and engaged in negligent
misrepresentation. Plaintiff seeks rescission and monetary damages, plus
prejudgment interest, punitive damages if appropriate, and attorneys' fees
and costs. The Complaint does not specify an amount of damages sought.
Although the plaintiff in this action alleges that it has been brought as a
class action, the Court has not yet determined whether a class will be
certified. On January 24, 1995, the Piper Defendants filed a motion to
dismiss the claims against them.
By Order filed November 24, 1995, the Court dismissed all claims against the
Piper Defendants for failure to state a claim. Plaintiff filed an amended
complaint on December 14, 1995. The Court denied, in part, a motion to
dismiss claims asserted against defendants other than the Piper Defendants,
including claims for alleged violation of Sections 11, 12(2) and 15 of the
Securities Act.
b. Other Lawsuit Brought by Investor in the Managers Short Government
Fund and the Managers Intermediate Mortgage Fund
First Commercial Trust Company, N.A. v. The Managers Funds, a
Massachusetts Business Trust, Managers Short Government Fund, Managers
Intermediate Mortgage Fund, Managers Short and Intermediate Bond Fund,
The Managers Funds, L.P., EAIMC Holdings Corporation, Evaluation
Associates Holding Corporation, EAI Partners, L.P., Evaluation
Associates, Inc., Robert P. Watson, William W. Graulty, Madeline H.
McWhinney, Steven J. Paggioli, Thomas R. Schneeweis, William J.
Crerend, Piper Capital Management Inc., Piper Jaffray Companies Inc.,
Worth Bruntjen, Standish, Ayer & Wood, Inc., TCW Funds Management,
Inc. and TCW Management Company (Connecticut Superior Court,
Stamford/Norwalk District).
According to the Complaint filed on October 26, 1995, plaintiff First
Commercial Trust Company ("FCTC") is an investor in the Managers Short
Government Fund, the Managers Intermediate Mortgage Fund, and the Managers
Short and Intermediate Bond Fund. Piper Capital was the portfolio asset
manager for the Managers Short Government Fund and the Managers Intermediate
Bond Fund, which are generally managed by The Managers Funds, L.P. Based on
the allegations in the Complaint, plaintiff appears to fall within the
definition of the proposed classes in both the Hosea/Kopelman and Fleck
actions described above.
Plaintiff alleges the Company, Piper Capital and Bruntjen (the "Piper
Defendants"), engaged in fraud, fraudulent concealment, breach of contract,
breach of fiduciary duty, breach of implied covenant of good faith and fair
dealing, negligent misrepresentation, civil conspiracy, negligent
interference with contractual relations, violation of the Connecticut Unfair
and Deceptive Trade Practices Act, and violation of the Connecticut
Securities Act. Plaintiff seeks compensatory damages in an unspecified
amount, punitive damages, attorneys' fees, interest and cost.
In a declaratory action filed on October 26, 1995 in the United States
District Court, District of Connecticut, the Piper Defendants, along with
The Managers Funds, L.P., The Managers Funds and related persons and
entities seek a declaration that they bear no liability to FCTC.
6. American Government Income Portfolio and the American Government
Income Fund
Carson H. Bradley v. American Government Income Fund, American
Government Income Portfolio, Piper Capital Management Inc., Piper
Jaffray Inc. and Worth Bruntjen (United States District Court,
District of Idaho).
Plaintiff, an individual investor in the American Government Income
Portfolio and the American Government Income Fund, both closed-end funds
offered by the defendants, filed this action on February 22, 1995. Plaintiff
invested approximately $62,000 in the Funds, alleges a loss of approximately
$40,000, and seeks rescission of his investments in those funds or monetary
damages, based on negligent misrepresentation, breach of fiduciary duty, and
breach of contract. The action was filed in Idaho State Court, Bannock
County, but has now been removed to Federal District Court for the District
of Idaho. Defendants filed a motion to dismiss on May 1, 1995.
7. American Strategic Income Portfolio III and the Americas Income Trust
a. John Darlington v. Piper Jaffray Inc. and Dick Tallent (Montana Second
Judicial District Court, Silver Bow County).
Plaintiff filed this action on November 1, 1995 based on his investment in
the American Strategic Income Portfolio III and the Americas Income Trust,
two closed end funds. Plaintiff alleges claims of breach of contract, breach
of the covenant of good faith and fair dealing, fraud and misrepresentation.
The Complaint seeks compensatory damages in an unspecified amount, damages
for mental and emotional distress and pain and suffering, punitive damages,
and costs and attorneys' fees.
b. The following arbitration seeks recovery for investment in the
American Strategic Income Portfolio III.
Daniel K. Nordby and Barbara L. Rawley v. Piper Jaffray Inc. and Gary
M. Petrucci (National Association of Securities Dealers Arbitration).
Claim filed in February, 1995. Claimants seek to recover approximately
$31,500.
8. Privately Managed Accounts
a. Minnesota Orchestral Association v. Piper Capital Management
Incorporated, Piper Jaffray Inc. and Piper Jaffray Companies Inc.
(National Association of Securities Dealers Arbitration).
In a claim filed on September 26, 1994, the claimant alleged that Piper
Capital breached an investment management agreement by investment in
derivative securities; breached its fiduciary duties; misrepresented
material facts; violated the Minnesota Securities Act; violated the
Minnesota Consumer Fraud Act; and violated the Investment Advisers Act.
Claimant further alleged that the Company and Piper Jaffray are liable under
the Minnesota securities laws as controlling persons of Piper Capital.
Claimant alleged that it has incurred damages in the principal amount of at
least $5,513,077, and requests damages along with an award of reasonable
attorneys' fees, forum fees, costs and disbursement.
On October 18, 1995, an Arbitration Panel awarded Claimant $4,017,865.51 in
compensatory damages, $2,000,000 in punitive damages, rescission of the one
remaining CMO derivative security purchased for claimant by respondents, and
interest on the entire sum at the statutory rate under Minnesota law from
and including September 26, 1994. Respondents have moved to vacate the award
of punitive damages.
b. Rodney P. Burwell v. Piper Jaffray Inc., Piper Capital Management,
Jeff Griffin and Piper Jaffray Companies Inc. (National Association of
Securities Dealers Arbitration).
Claim filed January 26, 1995. Claimant seeks to recover in excess of $2.5
million for losses sustained in a foreign index linked product purchased
through Piper Jaffray.
c. Hunter, Keith Industries, Inc. v. Piper Capital Management
Incorporated and Piper Jaffray Inc. (National Association of
Securities Dealers Arbitration).
Claim filed July 27, 1995. Claimant seeks to recover in excess of $500,000
and punitive damages, Claimant alleges violation of federal and state
securities laws, breach of fiduciary duty, breach of contract, common law
fraud and negligence. Claimant had individually managed accounts which
included investments in derivative products.
d. Craig A. Nalen v. Piper Capital Management and Worth Bruntjen
(National Association of Securities Dealers Arbitration).
Claim filed October 4, 1995. Claimant seeks to recover $670,000 and punitive
damages. Claimant alleges violation of the Securities and Exchange Act and
NASD rules, and common law claims of fraud and misrepresentation. Claimant's
individually managed account included investments in derivative products.
e. Regents of the University of Minnesota and Ruminco, Ltd. v. Piper
Capital Management Incorporated, Piper Jaffray Inc., Piper Jaffray
Companies Inc. and Worth Bruntjen (National Association of Securities
Dealers Arbitration).
Claim filed November 22, 1995. Claimants seek to recover over $15 million
and punitive damages. Claimants allege violation of federal and state
securities laws, breach of fiduciary duty, breach of contract, negligence
and violation of the Minnesota Consumer Fraud Act. Claimants' individually
managed account included investments in derivative products.
f. Rosemount Inc. v. Piper Capital Management Incorporated, Piper Jaffray
Inc. and Piper Jaffray Companies Inc. (National Association of
Securities Dealers Arbitration).
Claim filed December 15, 1995. Claimant seeks to recover in excess of $3.5
million and punitive damages. Claimant alleges violation of federal
securities laws, breach of fiduciary duty, common law fraud and negligence.
Claimant's individually managed account included investments in derivative
products.
B. Shareholder Litigation
Edward B. McDaid and Ronald Goldstein v. Piper Jaffray Companies Inc.,
Addison L. Piper, William H. Ellis and Charles N. Hayssen (United
States District Court, District of Delaware).
This putative class action lawsuit consolidates separate lawsuits previously
filed by Edward McDaid and Ronald Goldstein. Plaintiffs represent a class of
persons who purchased the Company's common stock during the period from May
12, 1993, through August 24, 1994.
In their consolidated complaint filed January 9, 1995, plaintiffs allege
that the Company and the individual defendants made misleading statements
and omissions which artificially inflated the market price of the Company's
common stock throughout the class period. Plaintiffs allege that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act,
and Rule 10b-5 promulgated thereunder.
The named plaintiffs and defendants have reached an agreement-in-principle
on a proposed settlement. If approved by the Court and a sufficiently large
percentage of the class, a settlement agreement consistent with the terms of
the agreement-in-principle would provide up to $1.95 million to plaintiffs,
consisting of $450,000 in cash, $700,000 in Piper Jaffray common stock to be
valued on the effective date of the settlement agreement and a note for
$800,000 to be paid with interest at 8% per annum 12 months from the
effective date of the settlement agreement.
C. Bonneville Pacific Corporation
Piper Jaffray has been named as one of many defendants in two lawsuits
separately filed in the United States District Court for the District of
Utah resulting from Piper Jaffray's dealings with Bonneville Pacific
Corporation ("BPCO"). Other defendants include BPCO's attorneys,
accountants, lenders and other investment bankers. BPCO is currently in
Chapter 11 reorganization proceedings in Utah.
The plaintiffs in the first-filed lawsuit originally brought their complaint
as a purported class action relating to the $63.25 million offering of
convertible subordinated debentures of BPCO in August 1989, for which Piper
Jaffray was a co-managing underwriter in a syndicate led by Kidder, Peabody
& Co. and secondary trading in BPCO's Common Stock from August 1989 through
the inception of BPCO's bankruptcy proceeding in January 1992. The
plaintiffs in their complaint alleged violations of federal and state
securities laws, common law fraud and negligent misrepresentation. On March
14, 1994, the plaintiffs filed a motion to amend their complaint seeking
leave to add additional parties and claims. The proposed amended complaint
seeks to add claims under RICO and to expand the class period, under a
common law fraud theory, to include the $22.5 million initial public
offering of BPCO's Common Stock in August 1986, for which Piper Jaffray
acted as the sole underwriter, and the $31 million secondary offering of
BPCO's Common Stock in August 1987, for which Piper Jaffray acted as
co-managing underwriter. In addition to actual damages, the proposed amended
complaint also seeks treble damages under RICO, punitive damages, interest,
costs and attorneys' fees. On April 29, 1994, motions to dismiss brought by
Piper Jaffray and the other underwriter defendants with respect to the
plaintiffs' claims of violations of Section 10(b) of the Securities Exchange
Act and Rule 10b-5 promulgated thereunder, conspiracy, aiding and abetting,
common-law fraud and negligent misrepresentation were granted. The judge in
the case certified to the Utah Supreme Court issues related to the
plaintiffs' claims under the Utah Uniform Securities Act and further denied
plaintiffs' March 14, 1994 motion for leave to file an amended complaint as
premature. The plaintiffs were given leave to amend all dismissed claims
except the conspiracy and aiding and abetting claims under Section 10(b),
which were dismissed with prejudice. By date of June 14, 1994, plaintiffs
served a second amended complaint, realleging claims under Sections 11 and
15 of the Securities Act and Section 10 of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder. Plaintiffs also asserted RICO claims and
claims under the Utah Uniform Securities Act, among others. On August 2,
1994, Piper Jaffray and the other defendants moved to dismiss the RICO,
Securities Exchange Act and Utah Uniform Securities Act claims and that
motion is pending.
The second lawsuit was brought by the BPCO bankruptcy trustee. The most
recent amendment to the complaint filed on February 3, 1995 asserts
conspiracy, RICO, common law fraud, breach of fiduciary duty and similar
theories arising out of the activities of BPCO from approximately 1984
through the inception of its bankruptcy proceeding. The plaintiff seeks
actual damages, treble damages under RICO, punitive damages, interest, costs
and attorneys' fees. On October 7, 1994, the plaintiff served its
preliminary damage calculations indicating that it sought $647,346,549 in
damages (before trebling under RICO) from the Company. The plaintiff sought
a similar amount from the other defendant underwriters and BPCO's
accountants, attorneys, lenders and others. On November 27, 1995 motions to
strike plaintiff's damages theory brought by Piper Jaffray and other
defendants were granted. Plaintiff has not yet served any new damage
information. Piper Jaffray and other defendants have also made motions to
dismiss the complaint or for a judgment on the pleadings which are currently
pending. The case is in the discovery stage.
D. NASDAQ Market-Maker Anti-Trust Securities Litigation and Justice
Department Investigation
Piper Jaffray has been named as a defendant in several purported class
action proceedings that allege anti-trust violations. Piper Jaffray was
joined as defendant in such actions during July 1994. All actions have been
consolidated under the title In re NASDAQ Market-Maker Anti-Trust and
Securities Litigation (United States District Court, Southern District of
New York ).
The plaintiffs allege that twenty-four defendants, including Piper Jaffray,
that act as dealers on the NASDAQ computerized quotations system, conspired
to raise and fix the spreads between the bid and ask prices of securities
traded on NASDAQ. Plaintiffs further allege that as a result of such
conspiracy, NASDAQ spreads are larger than spreads for stocks traded on the
New York Stock Exchange and the American Stock Exchange. The purported class
consists of all persons in the United States who are current customers and
who bought or sold securities through NASDAQ within four years prior to the
filing of the complaints. Plaintiffs seek treble damages of an unspecified
amount.
Following the initiation of these actions, Piper Jaffray has received a
request from the United States Department of Justice to provide information
and documents with respect to its NASDAQ market making activities. Piper
Jaffray has learned that the Department of Justice is conducting an
investigation of the NASDAQ market generally.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1995.
<PAGE>
PART II
All information required in Part II, Items 5 - 8 is contained in the 1995 Annual
Report to Shareholders, incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
All information required in Part III, Items 10-13 will be contained in the
Registrant's definitive Proxy Statement for the 1995 Annual Meeting of
Shareholders, incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a)
1. Consolidated financial statements:
Independent Auditors' Report
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Incorporated herein by reference is the 1995 Annual Report to Shareholders, a
copy of which is filed herewith as Exhibit 13.
2. Financial statement schedules:
Schedule III - Condensed Financial Information of Registrant
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given in the Consolidated
Financial Statements or notes thereto.
(b)
Reports on Form 8-K
On July 20, 1995, the Registrant filed a report on Form 8-K to the Securities
and Exchange Commission relating to the execution of a settlement agreement
for Institutional Government Income Portfolio
(PJIGX) mutual fund litigation.
<PAGE>
(c)
Exhibits:
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the
Registrant's Form 10-K for the fiscal year ended September 27, 1991, as
amended by Form 8 dated January 30, 1992, Commission File No. 1-7421).
3.3 Certificate of Ownership & Merger dated April 8, 1992, amending the
Restated Certificate of Incorporation of the Registrant to change the
Registrant's name to Piper Jaffray Companies Inc. (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 10-Q for the quarter
ended March 27, 1992, Commission File No. 1-7421).
4.1 Indenture dated July 19, 1988 between Premier Acceptance Corporation, a
wholly owned subsidiary of the Registrant, as issuer, and First Trust
National Association, as trustee, relating to the subsidiary's issuance
of mortgage-backed bonds (incorporated by reference to Exhibit A to
Premier Acceptance Corporation's Form 8-K dated July 22, 1988, Commission
File No.'s 33-21775, 33-25070, 33-33261).*
4.2 Indenture dated as of November 23, 1988 between Premier Acceptance
Corporation, as issuer, and First Bank National Association , as trustee
(incorporated by reference to Exhibit 4.1 to Premier Acceptance
Corporation's Form 8-K dated November 23, 1988, Commission
File No.'s 33-21775, 33-25070, 33-33261).*
10.1 Amended and Restated Limited Liability Company Agreement among the
Registrant, Midland Walwyn Capital Corporation and Hercules
International Management l.l.c. dated October 18, 1993. (incorporated
by reference to Exhibit 10.1 of the Registrant's Form 10-K for the
fiscal year ended September 30, 1993, Commission File No. 1-7421).
10.2 Lease Agreement between the Registrant and OB Joint Venture II dated as
of March 31, 1983, including amendments thereto through September 27,
1991, (portions of the lease have been omitted pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934) (incorporated by
reference to Exhibit 10.2 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).
10.3 1983 Book Value Stock Purchase Plan of the Registrant (incorporated by
reference to Exhibit 10.3 of the Registrant's S-8 Registration Statement
dated January 30, 1987, Commission File No. 33-11657).
10.4 Deferred Compensation Plan of the Registrant (incorporated by reference
to Exhibit 10.4 of the Registrant's Form 10-K for the fiscal year ended
September 27, 1991, as amended by Form 8 dated January 30, 1992,
Commission File No. 1-7421).
10.6 Piper Capital Management Incorporated 1988 Phantom Share Incentive Bonus
Plan (incorporated by reference to Exhibit 10.6 of the Registrant's Form
10-K for the fiscal year ended September 27, 1991, as amended by Form 8
dated February 25, 1992, Commission File No.
1-7421).
10.7 Piper Jaffray Inc. Participating Bonus Agreement for Premier Acceptance
Corporation Transactions (incorporated by reference to Exhibit 10.7 of
the Registrant's Form 10-K for the fiscal year ended September 27, 1991,
as amended by Form 8 dated February 25, 1992, Commission File No.
1-7421).
10.8 1993 Omnibus Stock Plan of the Registrant (incorporated by reference to
Appendix A to the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders held on January 28, 1993, Commission
File No. 1-7421).
10.9 Piper Jaffray Companies Stock Investment Plan (incorporated by reference
to Exhibit 4.03 of the Registrant's Form S-8 dated June 4, 1994,
Commission File No. 033-53979).
10.10 Piper Jaffray Companies Inc. 1995 Executive Performance Bonus Plan
(incorporated by reference to Appendix A to the Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders
held on January 25, 1995, Commission File No. 1-7421).
10.11 Agreement to dissolve Hercules International Management, Limited
Liability Company, between the Registrant and Midland Walwyn Capital
Corporation, dated November 16, 1995.
10.12 Piper Capital Management Incorporated 1995 Phantom Stock Option Plan.
10.13 Pledge and Collateral Administration Agreement, between Piper Jaffray
Inc. and Northern Trust Company, dated November 23, 1994.
10.14 Credit Agreement, between Piper Jaffray Inc. and Norwest Bank
Minnesota, National Association, dated November 23, 1994.
10.15 Credit Agreement, between Piper Jaffray Inc. and First Bank National
Association, dated November 23, 1994.
10.16 Credit Agreement, between Piper Jaffray Inc. and Northern Trust
Company, dated November 23, 1994.
10.17 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated December 28, 1994.
10.18 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
First Bank National Association, dated December 27, 1994.
10.19 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
Northern Trust Company, dated December 23, 1994.
10.20 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated November 7, 1995.
10.21 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
First Bank National Association, dated November 7, 1995.
10.22 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Northern Trust Company, dated November 9, 1995.
11 Statement Re: Computation of Per Share Earnings
13 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
* Premier Acceptance Corporation has filed Registration Statements
pursuant to which $900,000,000 in aggregate principal amount of
mortgage-backed bonds were registered under the Securities Act. The
bonds are issued in series, pursuant to series supplements and
supplemental indentures referenced in Item 14(a)(3) of Premier
Acceptance Corporation's Form 10-K for the fiscal year ended
September 30, 1995. Norwest Bank Minnesota, National Association was
appointed successor Trustee under the Indentures in 1991.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Piper Jaffray Companies Inc.
(Registrant)
Dated: December 22, 1995
By:
/s/ Addison L. Piper
Addison L. Piper
Chairman and Chief Executive Officer, and Director
/s/ William H. Ellis
William H. Ellis
President and Chief Operating Officer, and Director
/s/ Deborah K. Roesler
Deborah K. Roesler
Managing Director and Chief Financial Officer
/s/ Sandra G. Sponem
Sandra G. Sponem
Managing Director and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title Signature Title
/s/ Ralph W. Burnet Director Director
- ------------------------- -------------------------
Ralph W. Burnet Kathy Halbreich
Director Director
- ------------------------- -------------------------
John L. McElroy, Jr. Robert S. Slifka
/s/ David Stanley Director
- -------------------------
David Stanley
Dated: December 22, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Piper Jaffray Companies Inc.
Minneapolis, Minnesota
We have audited the consolidated financial statements of Piper Jaffray Companies
Inc. and subsidiaries as of September 30, 1995 and 1994, and for each of the
three years in the period ended September 30, 1995, and have issued our report
thereon dated November 8, 1995 (which includes an explanatory paragraph
regarding an uncertainty relating to litigation described in Note 8 of the
consolidated financial statements); such consolidated financial statements and
report are included in your 1995 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Piper Jaffray Companies Inc. and subsidiaries, listed in
Item 14(a)2. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 8, 1995
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Operations
Year ended Year ended Year ended
Sept. 30, Sept. 30, Sept. 30,
1995 1994 1993
Revenues
Interest income .................. $ 839 $ 460 $ 350
Land and facilities rental ....... 896 698 515
--------- --------- ---------
1,735 1,158 865
--------- --------- ---------
Expenses
Interest expense ................. 35 296 --
Loss on investments .............. 1,103 3,841 404
Amortization of leasehold
improvements .................... 661 548 284
PJIGX settlement, net ............ 56,090 -- --
Other settlements and
related expenses ............... 15,025 -- --
Other operating expenses ......... 21 38 3
--------- --------- ---------
72,935 4,723 691
--------- --------- ---------
(Loss) income before income
taxes and equity in
earnings of subsidiaries ......... (71,200) (3,565) 174
Income tax (benefit) expense ....... (27,468) (1,319) 70
--------- --------- ---------
(Loss) income before
equity in earnings of
subsidiaries ..................... (43,732) (2,246) 104
Equity in earnings of
subsidiaries ..................... 29,614 27,528 40,883
--------- --------- ---------
Net (loss) income .................. $(14,118) $ 25,282 $ 40,987
========= ========= =========
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Financial Condition
Sept. 30, Sept. 30,
1995 1994
ASSETS
Cash ....................................... $ 2 $ 2
Investments in subsidiaries ................ 194,172 172,058
Leasehold improvements ..................... 1,299 1,960
Prepaid employee benefits .................. -- 5,791
Firm investments, at estimated
market value ............................. 3,019 13,098
Advances to subsidiaries ................... 12,197 --
Deferred income tax asset .................. 32,918 704
Other assets ............................... -- 4
---------- ----------
$ 243,607 $ 193,617
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ...................... $ -- $ 10,000
Employee benefits payable .................. -- 5,791
Advances from subsidiaries ................. -- 6,895
Federal and state income
taxes payable ............................ 19,136 1,281
PJIGX settlement payable ................... 51,500 --
Other liabilities .......................... 17,247 1,847
---------- ----------
87,883 25,814
---------- ----------
Shareholders' equity:
Common stock ............................. 17,565 17,462
Additional paid-in capital ............... 11,902 7,163
Retained earnings ........................ 127,306 146,601
Treasury stock, at cost .................. (1,049) (3,423)
---------- ----------
155,724 167,803
---------- ----------
$ 243,607 $ 193,617
========== ==========
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Cash Flows
Year ended Year ended Year ended
Sept. 30, Sept. 30, Sept. 30,
1995 1994 1993
Net cash flows from
operating activities ............... $ 5,638 $ 6,667 $ 6,725
Investing activities:
Other changes in
investments in subsidiaries ........ 2,323 (1,276) (1,327)
Net additions to leasehold
improvements ....................... -- -- (1,349)
--------- --------- ---------
Net cash provided by (used in)
investing activities .............. 2,323 (1,276) (2,676)
--------- --------- ---------
Financing activities:
Short-term borrowings ................ (10,000) 10,000 --
Net common stock issued .............. 7,576 1,658 4,613
Dividends paid ....................... (5,177) (12,233) (8,662)
Acquisition of treasury stock ........ (360) (4,816) --
--------- --------- ---------
Net cash used in financing
activities ....................... (7,961) (5,391) (4,049)
--------- --------- ---------
Increase in cash ..................... -- -- --
Cash at beginning of year ............ 2 2 2
--------- --------- ---------
Cash at end of year .................. $ 2 $ 2 $ 2
========= ========= =========
* Net cash flows from operating activities includes dividends received from
subsidiaries of $5,177, $12,233, and $8,662 for fiscal years 1995, 1994, and
1993, respectively.
<PAGE>
INDEX TO EXHIBITS
Exhibit Description of Exhibit Form of Filing
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 of the Registrant's Form 10-K for the
fiscal year ended September 27, 1991, as amended by Form 8 dated
January 30, 1992, Commission File No. 1-7421).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of
the Registrant's Form 10-K for the fiscal year ended September 27,
1991, as amended by Form 8 dated January 30, 1992, Commission File No.
1-7421).
3.3 Certificate of Ownership & Merger dated April 8, 1992, amending the
Restated Certificate of Incorporation of the Registrant to change the
Registrant's name to Piper Jaffray Companies Inc. (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 10-Q for the quarter
ended March 27, 1992, Commission File No. 1-7421).
4.1 Indenture dated July 19, 1988 between Premier Acceptance Corporation, a
wholly owned subsidiary of the Registrant, as issuer, and First Trust
National Association, as trustee, relating to the subsidiary's issuance
of mortgage-backed bonds (incorporated by reference to Exhibit A to
Premier Acceptance Corporation's Form 8-K dated July 22, 1988,
Commission File No.'s 33-21775, 33-25070, 33-33261).*
4.2 Indenture dated as of November 23, 1988 between Premier Acceptance
Corporation, as issuer, and First Bank National Association , as
trustee (incorporated by reference to Exhibit 4.1 to Premier Acceptance
Corporation's Form 8-K dated November 23, 1988, Commission File No.'s
33-21775, 33-25070,
33-33261).*
10.1 Amended and Restated Limited Liability Company Agreement among
the Registrant, Midland Walwyn Capital Corporation and
Hercules International Management l.l.c. dated October 18,
1993 (incorporated by reference to Exhibit 10.1 of the
Registrant's Form 10-K for the fiscal year ended September 30,
1993, Commission File No. 1-7421).
10.2 Lease Agreement between the Registrant and OB Joint Venture II dated as
of March 31, 1983, including amendments thereto through September 27,
1991, (portions of the lease have been omitted pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934) (incorporated by
reference to Exhibit 10.2 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).
10.3 1983 Book Value Stock Purchase Plan of the Registrant
(incorporated by reference to Exhibit 10.3 of the
Registrant's S-8 Registration Statement dated January 30,
1987, Commission File No. 33-11657).
<PAGE>
Exhibit Description of Exhibit Form of Filing
10.4 Deferred Compensation Plan of the Registrant (incorporated by reference
to Exhibit 10.4 of the Registrant's Form 10-K for the fiscal year ended
September 27, 1991, as amended by Form 8 dated January 30, 1992,
Commission File No. 1-7421).
10.6 Piper Capital Management Incorporated 1988 Phantom Share Incentive
Bonus Plan (incorporated by reference to Exhibit 10.6 of the
Registrant's Form 10-K for the fiscal year ended September 27, 1991, as
amended by Form 8 dated February 25, 1992, Commission File No.
1-7421).
10.7 Piper Jaffray Inc. Participating Bonus Agreement for Premier Acceptance
Corporation Transactions (incorporated by reference to Exhibit 10.7 of
the Registrant's Form 10-K for the fiscal year ended September 27,
1991, as amended by Form 8 dated February 25, 1992, Commission File No.
1-7421).
10.8 1993 Omnibus Stock Plan of the Registrant (incorporated
by reference to Appendix A to the Registrant's definitive
Proxy Statement for the Annual Meeting of Shareholders
held on January 28, 1993, Commission File No. 1-7421).
10.9 Piper Jaffray Companies Stock Investment Plan (incorporated
by reference to Exhibit 4.03 of the Registrant's Form
S-8 dated June 4, 1994, Commission File No. 033-53979).
10.10 Piper Jaffray Companies Inc. 1995 Executive Performance
Bonus Plan (incorporated by reference to Appendix A to
the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders held on January 25, 1995,
Commission File No. 1-7421).
10.11 Agreement to dissolve Hercules International Management,
Limited Liability Company, between the Registrant and
Midland Walwyn Capital Corporation, dated electronic
November 16, 1995. transmission
10.12 Piper Capital Management Incorporated 1995 Phantom electronic
Stock Option Plan. transmission
10.13 Pledge and Collateral Administration Agreement,
between Piper Jaffray Inc. and Northern Trust electronic
Company, dated November 23, 1994. transmission
10.14 Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated electronic
November 23, 1994. transmission
10.15 Credit Agreement, between Piper Jaffray Inc. and
First Bank National Association, dated November 23, electronic
1994. transmission
10.16 Credit Agreement, between Piper Jaffray Inc. and electronic
Northern Trust Company, dated November 23, 1994. transmission
10.17 First Amendment to Credit Agreement, between Piper
Jaffray Inc. and Norwest Bank Minnesota, National electronic
Association, dated December 28, 1994. transmission
10.18 First Amendment to Credit Agreement, between First electronic
Bank National Association, dated December 27, 1994. transmission
10.19 First Amendment to Credit Agreement, between Northern electronic
Trust Company, dated December 23, 1994. transmission
10.20 Second Amendment to Credit Agreement, between Piper
Jaffray Inc. and Norwest Bank Minnesota, National electronic
Association, dated November 7, 1995. transmission
10.21 Second Amendment to Credit Agreement, between Piper
Jaffray Inc. and First Bank National Association, electronic
dated November 7, 1995. transmission
10.22 Second Amendment to Credit Agreement, between Piper
Jaffray Inc. and Northern Trust Company, dated electronic
November 9, 1995. transmission
11 Statement Re: Computation of Per Share Earnings electronic
transmission
13 1995 Annual Report to Shareholders electronic
transmission
21 Subsidiaries of the Registrant electronic
transmission
23 Independent Auditors' Consent electronic
transmission
27 Financial Data Schedule electronic
transmission
* Premier Acceptance Corporation has filed Registration Statements
pursuant to which $900,000,000 in aggregate principal amount of
mortgage-backed bonds were registered under the Securities Act.
The bonds are issued in series pursuant to series supplements and
supplemental indentures referenced in Item 14(a)(3) of Premier
Acceptance Corporation's Form 10-K for the fiscal year ended
September 30, 1995. Norwest Bank Minnesota, National Association
was appointed successor Trustee under the Indentures in 1991.
<PAGE>
U.S. HERCULES FUNDS
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
Unanimous Written Consent of Members
The undersigned, being all of the members of Hercules International
Management L.L.C. (the "Company"), a limited liability company formed under the
Delaware Limited Liability Company Act (the "Act"), pursuant to Section
18-801(3) of the Act do hereby unanimously adopt in writing the following
resolutions without a formal meeting of the members, or notice thereof, and
direct that this Unanimous Written Consent be filed with the Minutes of the
Board of Directors of the Company:
DISSOLUTION OF COMPANY
WHEREAS, Piper Jaffray Companies Inc., a Delaware corporation
("Piper"), and Midland Capital L.L.C., a Delaware limited liability company
("Midland"), each own a 50% limited liability company interest in the Company;
WHEREAS, Piper and Midland as members have agreed that it is in the
best interest of each party to dissolve the Company; and
WHEREAS, Piper and Midland desire to dissolve the Company and
distribute the assets of the Company equally, subject to the satisfaction of the
claims of the creditors of the Company and expenses of the Company incurred in
the course of its dissolution.
NOW, THEREFORE, BE IT RESOLVED, the Company is hereby dissolved
pursuant to Section 18-801(3) of the Act.
RESOLVED FURTHER, the Board of Directors of the Company, or the
officers of the Company acting under the direction of the Board, shall proceed
as soon as possible:
( i) to collect or make provision for the collection of
all debts due or owing to the Company;
( ii) to pay or to make provision for the payment of all
debts, obligations and liabilities of the Company
according to their priorities; and
(iii) to sell, lease, transfer or otherwise dispose of all or
substantially all of the remaining property and assets of the
Company for such consideration and upon such terms and
conditions, as they deem advisable.
RESOLVED FURTHER, that all tangible or intangible property,
including cash, remaining after the satisfaction of the debts, obligations and
liabilities of the Company be distributed to the members of the Company in
accordance with the terms and conditions of an Agreement of Dissolution
substantially in the form attached hereto as Exhibit A.
RESOLVED FURTHER, that upon the completion of winding up of the
Company, any officer of the Company, as an authorized person within the meaning
of the Act, hereby is authorized and directed to file a Certificate of
Cancellation of the Certificate of Formation of the Company with the Secretary
of State of the State of Delaware in accordance with Sections 18-203, 18-204 and
18-206 of the Act.
RESOLVED FURTHER, that the actions provided for in the foregoing
resolutions be commenced as soon as practicable and that the winding up of the
affairs of the Company be accomplished as soon as practicable.
RESOLVED FURTHER, that any one or more officers of the Company are
hereby authorized to make such modifications to the Agreement of Dissolution, to
execute such additional documents and instruments, and to take such further
action as such officer or officers may deem necessary or desirable to consummate
the winding up of the affairs of the Company under the Act and in accordance
with the foregoing resolutions.
Dated: July 19, 1995
PIPER JAFFRAY COMPANIES INC.
By: /s/ William H. Ellis
Its President
MIDLAND CAPITAL L.L.C.
By: /s/ Brigitte J. Geisler
Its Secretary
<PAGE>
AGREEMENT OF DISSOLUTION
OF
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
This AGREEMENT OF DISSOLUTION is dated as of July 19, 1995
("Agreement"), by and among PIPER JAFFRAY COMPANIES INC., a Delaware corporation
("Piper"), MIDLAND CAPITAL L.L.C., a Delaware limited liability company
("Midland"), and HERCULES INTERNATIONAL MANAGEMENT L.L.C., a limited liability
company formed under the Delaware Limited Liability Company Act (the "Company").
PRELIMINARY STATEMENTS
A. Piper and Midland each own a 50% limited liability company
interest in the Company, all as described in the Amended and Restated Limited
Liability Company Agreement of the Company, dated as of October 18, 1993 (the
"LLC Agreement").
B. The Company was formed to take advantage of the distribution
capabilities of Piper and the affiliates of Midland in their respective
geographic areas of operation and to combine such capabilities in one entity
whose principal purpose is to manage internationally open and closed-end mutual
funds in the United States and Canada (the "Business").
C. The Company, pursuant to that certain Amended and Restated
Investment Advisory and Management Agreement dated as of December 1, 1994
between the Company and Hercules Funds Inc., is manager of the mutual funds
listed on Exhibit A hereto (the "U.S. Hercules Funds").
D. The Company is the Manager of the mutual funds listed on
Exhibit B hereto (the "Canadian Hercules Funds").
E. Piper and Midland have agreed by unanimous written consent that
it is in the best interest of each party to dissolve the Company, distribute the
assets and liabilities of the Company equally, and separately pursue the
Business, with Piper, or its affiliate, operating the Business with respect to
all U.S. Hercules Funds and Midland, or its affiliate, operating the Business
with respect to all Canadian Hercules Funds.
F. Piper and Midland have agreed to dissolve the Company, distribute
the assets and liabilities of the Company and upon completion of such
distribution and winding up of the Company's affairs to file the Certificate of
Cancellation of the Certificate of Formation of the Company as required under
Delaware law (the date such Certificate of Cancellation is deemed filed with the
Secretary of State of Delaware being hereinafter referred to as the "Termination
Date").
G. Hercules Funds Inc. and Piper Capital Management
Incorporated, a Delaware corporation and wholly owned subsidiary of Piper
("PCM"), intend to enter into an Investment Advisory and Management Agreement
dated as of even date herewith, evidencing the appointment of PCM as manager
to the Company with respect to the U.S. Hercules Funds.
H. Piper and Midland desire to define their respective rights with
respect to certain matters arising out of the dissolution of the Company and
provide for a final accounting of the distribution and allocation of the assets
and liabilities of the Company.
NOW THEREFORE, in consideration of the preliminary statements and of
the mutual covenants and other terms and conditions contained herein, the
parties hereto agree as follows:
4. Purchase and Sale of Tangible Assets; Fund Shares.
4. 1. The Company agrees to sell, transfer, convey and deliver to
Piper, and Piper agrees to purchase from the Company, all equipment, office
equipment, computers, printers, supplies, accessories, furniture, and other
miscellaneous tangible personal property owned by the Company and utilized in,
or related to the Business, including, without limitation, the items listed on
Exhibit C hereto (the "Tangible Assets"). The total purchase price to be paid by
Piper to the Company for the Tangible Assets shall be $34,549.44. Each of the
parties hereto acknowledges and agrees that the purchase price is fair and
reasonable. The proceeds of the purchase price shall become assets of the
Company and shall be distributed to Piper and Midland in accordance with the
terms and conditions of Section 3.
4. 2. The Company agrees to sell, transfer, convey and deliver to
Piper and to Midland, and Piper and Midland each agrees to purchase from the
Company at current market value (i) in the case of Piper, all investments of the
Company in the shares or units of the U.S. Hercules Funds, and (ii) in the case
of Midland, all investments of the Company in the shares or units of the
Canadian Hercules Funds. The proceeds from the sale of such investments shall
become assets of the Company and shall be distributed to Piper and Midland in
accordance with the terms and conditions of Section 3.
5. Assignment of Trademark.
5. 1. The Company shall assign, transfer and convey to
Piper or its affiliate all right, title and interest in the Hercules
trademarks for use in the United States, including, without limitation, all
right, title and interest in and to the U.S. trademark registrations listed
in Exhibit D hereto together with the goodwill of the business symbolized by
the trademarks.
5. 2. The Company shall assign, transfer and convey to Midland
or its affiliate all right, title and interest in the Hercules trademarks for
use in Canada, including, without limitation, all right, title and interest in
and to the Canadian trademark registrations listed in Exhibit E hereto together
with the goodwill of the business symbolized by the trademarks.
6. Distribution of Assets and Liabilities. Subject to the
satisfaction (by payment or the making of reasonable provision therefor) of the
liabilities, claims and obligations of the Company, including all contingent,
conditional or unmatured claims and obligations, known to the Company, and all
claims and obligations which are known to the Company but for which the identity
of the claimant is unknown, and expenses of the Company incurred in the course
of dissolution as provided in Section 18-804(a) of the Delaware Limited
Liability Company Act, and notwithstanding anything in the LLC Agreement to the
contrary, the assets and liabilities of the Company shall be distributed as
follows:
( a) the proceeds from the sale of the Tangible
Assets shall be distributed fifty percent (50%) to Piper
and fifty percent (50%) to Midland;
( b) the proceeds from the sale of all investments
of the Company in the shares or units of the U.S. Hercules
Funds and the Canadian Hercules Funds shall be distributed
fifty percent (50%) to Piper and fifty percent (50%) to
Midland;
( c) the Company's interest in the Supplemental
Agreements shall be assigned to Piper or its affiliate
pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit F hereto;
( d) the Management Agreements relating to the management of
the Canadian Hercules Funds listed on Exhibit G hereto shall be
assigned, transferred, conveyed and/or assumed to or by Midland or
its affiliate pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit H hereto; and
( e) all right, title and interest in any remaining assets and
liabilities of the Company (including, without limitation, expenses
incurred by the Company in connection with the dissolution) shall be
assigned, transferred, conveyed and/or assumed to or by Piper and
Midland or their respective affiliates equally.
7. Final Accounting; Settlement Payment.
7. 1. To confirm that the assets and liabilities of the
Company are distributed equally as contemplated hereunder, Piper and
Midland each hereby agree to appoint Matthew J. Cole, Chief Operating
Officer of the Company as the designated person responsible for preparing
a written statement (the "Final Accounting Statement") detailing the
allocation of assets and liabilities. In the event Mr. Cole is unable to
perform or complete this function, Piper and Midland agree to promptly
appoint a replacement person.
7. 2. A proposed draft of the Final Accounting Statement shall
be delivered to Piper and Midland prior to the Termination Date for their
respective review. The Final Accounting Statement shall state, in
sufficient detail, the value of the assets and liabilities distributed
and/or assumed by Piper and Midland and shall state, if necessary, the
amount of any payment (the "Settlement Payment") to be made by Piper to
Midland or Midland to Piper, as the case may be, to reconcile any
difference in the net value of the assets distributed to each party. Piper
and Midland shall each have 10 days following receipt of the proposed
draft of the Final Accounting Statement to raise objections or request
changes to the proposed draft (the "Review Period"). Failure to object or
request changes during the Review Period shall be deemed to constitute
acceptance of the proposed draft of the Final Accounting Statement. Within
10 days following acceptance of the Final Accounting Statement, Piper or
Midland, as the case may be, shall pay, in immediately available funds,
the amount of any Settlement Payment owed by it pursuant to the Final
Accounting Statement.
8. Indemnification.
8. 1. Piper and Midland hereby acknowledge and agree that any
and all obligations, liabilities, judgments, assessments, costs and legal
and other expenses arising from the management and operation of the U.S.
Hercules Funds and the Canadian Hercules Funds at any time on or prior to
the Termination Date shall be borne equally by Piper and Midland.
8. 2. Piper hereby agrees to indemnify and hold harmless
Midland, its affiliates or any of its or its affiliates' respective
officers, directors, stockholders, employees, agents or authorized
representatives (each a "Midland Indemnified Person") from and against:
( a) any and all liabilities and obligations
of Piper or any of its affiliates arising from the
management and operation of the U.S. Hercules Funds at any
time after the Termination Date;
( b) any and all loss, injury, damage or
deficiency resulting from any non-fulfillment of any
covenant or agreement on the part of Piper or any of its
affiliates under this Agreement; and
( c) any and all demands, claims, actions,
suits, proceedings, assessments, judgments, costs and legal
and other expenses incident to any of the foregoing.
8. 3. Midland hereby agrees to indemnify and hold harmless
Piper, its affiliates or any of its or its affiliates' respective
officers, directors, stockholders, employees, agents or authorized
representatives (each a "Piper Indemnified Person") from and against:
( a) any and all liabilities and obligations
of Midland or any of its affiliates arising from the
management and operation of the Canadian Hercules Funds at
any time after the Termination Date;
( b) any and all loss, injury, damage or
deficiency resulting from any non-fulfillment of any
covenant or agreement on the part of Midland or any of its
affiliates under this Agreement; and
( c) any and all demands, claims, actions,
suits, proceedings, assessments, judgments, costs and legal
and other expenses incident to any of the foregoing.
8. 4. In the event any demands or claims are asserted against
Piper or Midland or any actions, suits or proceedings are commenced
against Piper or Midland relating to the management and operation of the
U.S. Hercules Funds and the Canadian Hercules Funds at any time on or
prior to the Termination Date, and to which the parties have agreed to
bear the cost of equally as provided in subsection 5.1, the party so
notified or having knowledge of any of the foregoing shall give notice
thereof to the other party within 5 days after having been notified or
obtaining such knowledge. The parties agree to promptly cooperate with
each other in evaluating the merits of the demand, claim, action, suit or
proceeding and to defend, settle or compromise the matter in a manner
mutually satisfactory to each party.
8. 5. In the event any demands or claims are asserted against
any Midland Indemnified Person or Piper Indemnified Person (collectively,
the "Indemnified Person"), or any actions, suits or proceedings are
commenced against any Indemnified Person for which Piper or Midland, as
the case may be (the "Indemnitor"), is obligated to indemnify under
subsections 5.2 and 5.3, then the Indemnified Person shall give timely
notice thereof to the Indemnitor to provide the Indemnitor with the
necessary time to evaluate the merits of such demand, claim, action, suit
or proceeding and defend, settle or compromise the same so that the
interests of the Indemnitor are not materially prejudiced; and in the
event the Indemnified Person fails to provide such timely notice, the
Indemnitor shall not have liability whatsoever to indemnify and defend the
Indemnified Person from such demand, claim, action, suit or proceeding
pursuant to subsection 5.2 or 5.3, as applicable, and the Indemnified
Person shall be solely responsible for the defense thereof and any and all
liability of the Indemnified Person arising therefrom. Within 15 days
after such notice, the Indemnitor shall assume the defense thereof with
counsel chosen by the Indemnitor or its insurer which counsel shall be
reasonably acceptable to the Indemnified Person. The Indemnitor shall not
be liable for any costs or expenses incurred by the Indemnified Person in
connection with any demand, claim, action, suit or proceeding for which
the Indemnitor is obligated to indemnify the Indemnified Person under
subsection 5.2 or 5.3, as applicable, provided that the Indemnitor, shall
have assumed the defense thereof in accordance with this subsection 5.5.
8. 6. The indemnification obligations of Piper and Midland
pursuant to this Section 5 shall survive the termination of this
Agreement.
9. Costs and Expenses. All costs and expenses incurred by the
Company in connection with the dissolution, including, without limitation,
severance to employees, expenses incurred in preparing and delivering the Final
Accounting Statement and attorneys' fees and expenses, shall be shared equally
by Piper and Midland; provided, however, costs and expenses (including, without
limitation, attorneys' fees and expenses) relating to the approval of a new
manager and subadvisors to the U.S. Hercules Funds shall be the sole
responsibility of Piper and its affiliates and costs and expenses (including,
without limitation, attorneys' fees and expenses) relating to the approval of a
new manager and subadvisors to the Canadian Hercules Funds shall be the sole
responsibility of Midland and its affiliates.
10. No waiver. The failure of any party to this Agreement to
enforce at any time any of its provisions shall not be construed as a waiver of
such provision or of the right of such party thereafter to enforce the same
provision or provisions.
11. Notices. Any notice required or permitted to be given under
this Agreement shall be deemed given when delivered by facsimile or personally
to an officer of any party which is a corporation, or, alternatively two (2)
business days after deposit with a nationally recognized overnight courier
service addressed as herein provided to the person or entity to be notified, or
to such other address as any of the parties may give to the other parties by
written notice in accordance with this Section 8. Until further notice in
writing is given by any party to the others hereto, notices may be sent as
follows:
If to Piper: Piper Jaffray Companies Inc.
222 South Ninth Street
Minneapolis, Minnesota 55402-3804
Attention: David Rosedahl
Fax No.: (612) 342-6085
If to Midland: Midland Capital L.L.C.
100 Federal Street
37th Floor
Boston, MA 20110
Attention: President
Fax No.: (617) 261-6694
With a copy to: Midland Walwyn Capital Inc.
BCE Place
181 Bay Street Suite 400
Toronto, Ontario M5J 2V8
Attention: Corporate Secretary
Fax No.: (416) 369-7438
If to the Company: Hercules International
Management L.L.C.
222 South Ninth Street
Minneapolis, Minnesota 55402-3804
Attention: Matthew Cole
Fax No.: (612) 342-1010
12. Entire Agreement; Amendments. This Agreement supersedes and is
in lieu of all existing agreements, arrangements or understandings among the
parties with respect to the matters covered herein, and may only be amended or
modified by a written instrument signed by the party against whom enforcement of
the amendment or modification is sought.
13. Severability. If any part or provision of this Agreement
is determined to be unenforceable, such part or provision shall be considered
severable, and the remaining parts and provisions of this Agreement shall
continue in full force and effect.
14. Arbitration; Applicable Law. Any dispute arising between or
among the parties in connection with this Agreement that cannot be amicably
resolved by them shall first be referred for resolution to the senior member of
the board of directors of each party. If the dispute cannot be resolved by this
procedure, then it shall be finally resolved by arbitration in Minneapolis,
Minnesota, pursuant to the International Arbitration Rules then applicable of
the American Arbitration Association. The parties hereto agree that any such
arbitration proceeding shall be presided over by a sole arbitrator who is both
learned in the law and familiar with the investment management business. In
resolving any such dispute, the arbitrator shall apply the substantive laws of
the State of Delaware except with respect to conflicts of laws. For purposes of
the preceding sentence, the parties intend that Delaware's Uniform Arbitration
Act shall not be considered as "substantive" law. The provisions of this section
shall not be construed to prevent any party hereto from seeking injunctive
relief against the other party from any judicial or administrative authority of
competent jurisdiction to enjoin such other party or parties from breaching any
provision of this Agreement pending the resolution of a dispute by arbitration.
15. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the day and year first above
written.
PIPER JAFFRAY COMPANIES INC. MIDLAND CAPITAL L. L. C.
By /s William H. Ellis By Brigitte J. Geisler
Its President Its Secretary
HERCULES INTERNATIONAL MANAGEMENT
L.L.C.
By William H. Ellis
Its President
<PAGE>
ACKNOWLEDGMENT AND GUARANTY
The undersigned, by its signature below, hereby certifies that it
has received a copy of the Agreement of Dissolution of Hercules International
Management L.L.C. dated as of July 19, 1995 among piper Jaffray Companies Inc.
("Piper"), Midland Capital L.L.C., and Hercules International Management L.L.C.
("Agreement"), has reviewed its terms and conditions, and agrees that in
consideration of Piper agreeing to be bound by the indemnification obligations
set forth in Section 5 of the Agreement, the undersigned hereby agrees to
guaranty the punctual payment and performance of any and all of the
indemnification obligations of Midland arising under Section 5 of the Agreement.
This guaranty is irrevocable and unconditional and Piper and/or its affiliates
shall have no duty to exhaust all remedies against Midland before presenting a
claim against the undersigned under this guaranty. The undersigned hereby waives
promptness, diligence and notice with respect to any obligation subject to this
guaranty. This guaranty shall be governed by the laws of the province of
Ontario, Canada.
Date: July 19, 1995 MIDLAND WALWYN CAPITAL INC.
By: /s/ Tom Monahas
Its: Senior Vice President and Treasurer
<PAGE>
EXHIBIT A
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
U.S. Hercules Funds
Hercules North American Growth and Income Fund
Hercules European Value Fund
Hercules Pacific Basin Value Fund
Hercules Latin American Value Fund
Hercules World Bond Fund
Hercules Money Market Fund
Hercules Emerging Markets Debt Fund
Hercules Global Short-Term Fund
<PAGE>
EXHIBIT B
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
Canadian Hercules Funds
Hercules NAFTA Fund (formerly Hercules North American Growth and Income Fund)
Hercules European Value Fund
Hercules Pacific Basin Value Fund
Hercules Latin American Value Fund
Hercules World Bond Fund
Hercules Money Market Fund
Hercules Emerging Markets Debt Fund
Hercules Global Short-Term Fund
<PAGE>
EXHIBIT C
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
List of Tangible Assets
Attached
<TABLE>
Hercules Fixed Assets as of June 30, 1995
<CAPTION>
6/30/95 Deprec
Asset Colloquial Date Acquisition Months Total Net Life Montly
Number Description Location Acquired Value Held Depreciation Value (Years) Charge
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7528 IBM PS/2 486DX2/66 MC, Paula's cube 9/30/93 2,686.00 21 1,566.83 1,119.17 3 74.61
7529 Sony CPD-1430 1024X MC, Paula's cube 9/30/93 1,509.30 21 880.43 628.88 3 41.93
Token ring adapter
Cable/LAN
7814 SAMIS System (Sales Reprts) 19th Floor 11/7/93 5,469.86 20 3,038.81 2,431.05 3 151.94
7936 FO-5400 Facsimile Machine Equipment row 12/1/93 2,989.58 19 1,577.83 1,411.75 3 83.04
7952 Portable Computer (Toshiba) Firm Acctg 12/22/93 3,509.56 18 1,754.78 1,754.78 3 97.49
7953 Laptop Software Firm Acctg 12/7/93 524.85 19 277.00 247.85 3 14.58
8505 HP Laserjet 4 (SAMIS) 19th Floor 3/1/94 1,490.03 16 662.24 827.79 3 41.39
8839 Entex Memory & Monitors PH, KMc,JF 5/2/94 3,308.35 14 1,286.58 2,021.77 3 91.90
9051 Entex PC Computers (PH,KMc,JF) 6/16/94 10,801.65 12 3,600.55 7,201.10 3 300.05
9073 Sony Monitors (2) (SG, BC) 4/19/94 1,156.40 14 449.71 706.69 3 32.12
9074 IBM PS/2 486/33 (SG, BC) 4/8/94 7,113.36 15 2,963.90 4,149.46 3 197.59
9500 IBM PS/2, Monitor, Memory (DA) 9/16/94 5,048.26 9 1,262.07 3,786.20 3 140.23
9734 Apple MacIntosh etc. Chelle's computer 12/29/94 9,146.86 6 914.69 8,232.17 5 152.45
Gross Total: 54,754.06 20,235.42 34,518.64 1,266.87
Total per 6/30/95 books: 34,549.44
Difference: (30.80)
</TABLE>
<PAGE>
EXHIBIT D
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
List of U.S. Trademark Applications
Mark: HERCULES INTERNATIONAL MANAGEMENT and Design
Appl. No.: 74-494,537
Filed: February 25, 1994
Mark: HERCULES CAPITAL MANAGEMENT
Appl. No.: 74-456,207
Filed: November 4, 1993
Mark: HERCULES INVESTMENT LIMITED
Appl. No.: 74-456,206
Filed: November 4, 1993
Mark: HERCULES INTERNATIONAL MANAGEMENT LIMITED
Appl. No.: 74-456,205
Filed: November 4, 1993
Mark: HERCULES FUNDS
Appl. No.: 74-456,204
Filed: November 4, 1993
<PAGE>
EXHIBIT E
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
List of Canadian Trademarks
Mark: HERCULES INTERNATIONAL MANAGEMENT GLOBAL REACH GLOBAL
STRENGTH AND DESIGN
Reg. No.: TMA440,542
Reg. Date: March 17, 1995
Mark: HERCULES CAPITAL MANAGEMENT
Reg. No.: TMA439,480
Reg. Date: February 17, 1995
Mark: HERCULES FUNDS
Reg. No.: TMA439,470
Reg. Date: February 17, 1995
Mark: HERCULES INVESTMENT LIMITED
Reg. No.: TMA439,469
Reg. Date: February 17, 1995
Mark: HERCULES INTERNATIONAL MANAGEMENT LIMITED
Reg. No.: TMA439,468
Reg. Date: February 17, 1995
Mark: N.A.F.T.A. Bond Fund
Reg. No.: 722,683
Reg. Date: February 12, 1993
Mark: N.A.F.T.A. Equity Fund
Reg. No.: 722,684
Reg. Date: February 12, 1993
Mark: N.A.F.T.A. Value Fund
Reg. No.: 765,265
Reg. Date: September 29, 1994
<PAGE>
EXHIBIT F
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
Form of Assignment and Assumption
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") effective as
of July 19, 1995 by and between HERCULES INTERNATIONAL MANAGEMENT L.L.C., a
Delaware limited liability company ("Hercules"), and PIPER CAPITAL MANAGEMENT
INCORPORATED, a Delaware corporation ("PCM").
PRELIMINARY STATEMENTS
A. Hercules is registered as an investment adviser under the
Investment Advisers Act of 1940 to Hercules Funds Inc. (the "Company") and
the portfolios of the U.S. funds listed on Exhibit A hereto (the "U.S. Family
of Funds").
B. Hercules is a party to the Second Amended and Restated
Supplemental agreements listed on Exhibit B hereto (the "Contracts").
C. Piper Jaffray Companies Inc., a Delaware corporation ("PJCI"),
and Midland Capital L.L.C., a Delaware limited liability company ("Midland"),
each own a 50% limited liability company interest in Hercules.
D. PJCI and Midland have agreed by unanimous written consent that it
is in the best interest of each party to dissolve Hercules, distribute the
assets and liabilities of Hercules equally, and separately pursue the business
of Hercules, with PJCI's wholly owned subsidiary PCM acting as investment
adviser to the U.S. Family of Funds.
E. As of July 19, 1995, the Board of Directors of the Company and
the shareholders of each of the funds of the U.S. Family of Funds have approved
the execution of a new investment advisory and management agreement between the
Company and PCM.
F. Hercules and PCM desire to enter into this Agreement to
evidence the assignment of the Contracts from Hercules to PCM.
NOW THEREFORE, in consideration of the preliminary statements and of
the mutual covenants and other terms and conditions contained herein, the
parties hereto agree as follows:
1. Assignment and Assumption. Hercules hereby conveys, transfers and
assigns to PCM all of Hercules's right, title and interest in the Contracts and
all documents related thereto (collectively, the "Assigned Contracts"). In
consideration of such assignment (which assignment PCM hereby accepts) and
subject to the terms, conditions, representations and warranties contained
herein, PCM hereby assumes all of the obligations of Hercules under the Assigned
Contracts and hereby agrees to be bound by all covenants and agreements of
Hercules set forth in the Assigned Contracts and to comply with all other terms
and conditions of the Assigned Contracts.
2. Representations Warranties and Covenants of Hercules. Hercules
represents, warrants and covenants to PCM as follows:
(a) Hercules is a limited liability company duly formed and validly
existing under the laws of the State of Delaware. Hercules has the requisite
power and authority to own and operate its business and to carry on its business
as now being conducted.
(b) The execution and delivery of this Agreement and performance of
the transactions contemplated hereby have been duly authorized by Hercules and
will not result in a breach by it or constitute a default by it under any
agreement, instrument or order to which it is a party or by which it is bound,
and will not be in conflict with or constitute a default under or violation of
any provision of its limited liability company agreement.
(c) This Agreement and all other instruments required hereby to be
executed and delivered to PCM are, or when delivered will be, legal and binding
instruments enforceable in accordance with their terms.
(d) The Assigned Contracts are assignable by Hercules to PCM
hereunder.
(e) Hercules has complied with all provisions of the Assigned
Contracts and neither Hercules nor any other parties to the Assigned Contracts
is in default under any thereof.
(f) Hercules has not, directly or indirectly, in any Assigned
Contract guaranteed performance or payment by any other corporation or person of
any obligation or liability.
(g) Hercules agrees to promptly furnish each of the other parties to
the Assigned Contracts with notice of the assignment hereunder of the Assigned
Contracts to PCM and agrees to promptly give PCM notice of any notice or
communication hereafter received by Hercules with respect to the Assigned
Contracts.
3. Representations, Warranties and Covenants of PCM.
(a) PCM is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. PCM has the corporate
power to own and operate its business and to carry on its business is now being
conducted.
(b) The execution and delivery of this Agreement and performance of
the transactions contemplated hereby have been duly authorized by PCM and will
not result in a breach by it or constitute a default by it under any agreement,
instrument or order to which it is a party or by which it is bound, and will not
be in conflict with or constitute a default under or violation of any provision
of its Articles of Incorporation or By-Laws.
(c) This Agreement and all other instruments required hereby to be
executed and delivered to Hercules are, or when delivered will be, legal and
binding instruments enforceable in accordance with their terms.
4. Further Instruments. Hercules hereby agrees to duly execute and deliver
to PCM all such other and further instruments of conveyance, transfer and
assignment and to take such other action as PCM may reasonably deem necessary to
more effectively convey and transfer to PCM the Assigned Contracts transferred
or intended to be transferred hereby. PCM agrees to duly execute and deliver to
Hercules all such other and further instruments of assumption and take such
other action as may reasonably be required by Hercules to effect the full and
complete assumption by PCM of the obligations of Hercules assumed or intended to
be assumed hereunder.
5. Indemnification. PCM hereby agrees to indemnify and hold Hercules
harmless from and against all actions, claims, demands and expenses, including
attorneys' fees, in respect of the obligations assumed hereunder other than any
actions, claims, demands and expenses arising from or in connection with any
misrepresentation or breach of warranty or covenant by Hercules hereunder.
Hercules hereby agrees to indemnify and hold PCM harmless from and against all
actions, claims, damages and expenses, including attorneys' fees, arising from
or in connection with any misrepresentation or breach of warranty or covenant by
Hercules hereunder.
6. Notices. Any notice or other communication provided for herein
or given hereunder to a party hereto shall be in writing and shall be
delivered in person to such party or mailed by first class mail, postage
prepaid, addressed as follows:
To Hercules:
Hercules International Management L.L.C.
222 South Ninth Street
Minneapolis, MN 55402-3804
Attn.: President
To PCM:
Piper Capital Management Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804
Attn.: President
or to such other address with respect to a party as such party shall notify the
other party in writing as provided above.
7. Complete Agreement. This Agreement contains a complete agreement
between the parties hereto with respect to the assignment of the Assigned
Contracts, assumption of obligations and other transactions contemplated hereby
and supersedes all prior agreements and understanding between the parties hereto
with respect thereto.
8. Successors and Assigns. This Agreement shall inure to the
benefit of and shall bind the successors, heirs, executors and assigns of the
parties hereto.
9. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the State of Minnesota.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of July 19, 1995.
HERCULES INTERNATIONAL
MANAGEMENT L.L.C.
By: /s/ William H. Ellis
Its: President
PIPER CAPITAL MANAGEMENT
INCORPORATED
By: William H. Ellis
Its: President
<PAGE>
EXHIBIT A
U.S. Family of Funds
Hercules North American Growth and Income Fund
Hercules European Value Fund
Hercules Pacific Basin Value Fund
Hercules Latin American Value Fund
Hercules World Bond Fund
Hercules Money Market Fund
Hercules Emerging Markets Debt Fund
Hercules Global Short-Term Fund
<PAGE>
EXHIBIT B
List of Contracts
1. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and Piper Capital Management Incorporated.
2. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and Acci Worldwide, S.A. de C.V.
3. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and AGF Investment Advisors, Inc.
4. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and Pictet International Management
Limited.
5. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and Edinburgh Fund Managers plc.
6. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, between the Company and Bankers Trust Company.
7. Second Amended and Restated Supplemental Agreement dated as of June
15, 1995, among the Company, Piper Capital Management Incorporated,
Midland Walwyn, Inc., Salomon Brothers Asset Management Inc., and
Salomon Brothers Asset Management Limited.
<PAGE>
EXHIBIT G
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
List of Canadian Management Agreements
<PAGE>
EXHIBIT H
to
AGREEMENT OF DISSOLUTION
of
HERCULES INTERNATIONAL MANAGEMENT L.L.C.
Form of Assignment and Assumption
Exhibit 10.12
PIPER CAPITAL MANAGEMENT INCORPORATED
1995 PHANTOM OPTION INCENTIVE BONUS PLAN
1. Purpose of Plan. The purpose of this 1995 Phantom Option
Incentive Bonus Plan (the "Plan") is to promote the interests of Piper Capital
Management Incorporated, a Delaware corporation (the "Company"), by providing
those key employees of the Company and its subsidiaries, if any, who participate
in the Plan with an opportunity to benefit from the continued growth of the
Company, and thereby stimulate the efforts of such employees by giving suitable
recognition to services which will contribute materially to the success of the
Company. It is intended that the Plan will aid in retaining, encouraging and
attracting employees of exceptional ability.
2. Definitions. For purposes of the Plan, the following terms
shall have the meaning set forth below:
(a) "Board" shall mean the board of directors of the
Company.
(b) "Cause" shall mean the repeated and willful failure or
refusal of an employee to perform the duties required of him or her as an
employee of the Company, violation by the employee of any statutory or
common law duty of loyalty to the Company, or personal conduct of the
employee that would injure the reputation of the Company or otherwise
adversely affect its interest if the employee were to continue to be
employed by the Company.
(c) "Estimated Value" shall mean, at any time after September
30, 1996, four times the average Operating Profit of the Company for the
three most recently completed fiscal years; provided, however, that during
the fiscal year ending September 30, 1997, "Estimated Value" shall mean
four times the Operating Profit for the fiscal year ending September 30,
1996, and that during the fiscal year ending September 30, 1998,
"Estimated Value" shall mean four times the average Operating Profit for
the fiscal years ending September 30, 1996 and 1997.
(d) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(e) "Exercise Price" shall mean, (i) with respect to any
Phantom Option awarded on or before September 30, 1996, $250, and (ii)
with respect to any Phantom Option awarded after September 30, 1996, the
Phantom Share Value as of the date such Phantom Option is awarded;
provided that the Exercise Price of any Phantom Option exercised pursuant
to Section 7(c) or (d) hereof shall be $1.00.
(f) "Operating Profit" for any fiscal year shall mean the
excess of operating revenues for such fiscal year over the sum of
operating expenses for such fiscal year, in each case as shown on the
audited consolidated financial statements of the Company and its
subsidiaries, if any, for such fiscal year. Operating Profit shall not be
reduced by any provision for income taxes on the earnings of the Company
and its subsidiaries, if any.
(g) A "PCM Event" shall be deemed to have occurred in each of
the following events:
(i) PJC or one or more of its subsidiaries shall, at any
time, beneficially own (as defined in Rule 13d-3 under the Exchange
Act) less than 51% of the outstanding voting stock of the Company;
(ii) the shareholders of the Company or of PJC approve a
definitive agreement or plan to sell or otherwise dispose of all or
substantially all of the assets of the Company (in one transaction
or a series of transactions) (other than a sale or other disposition
to PJC or one or more of its subsidiaries); or
(iii) the Company or PJC enters into an agreement in
principle or a definitive agreement relating to a PCM Event
described in Section 2(g)(i) or 2(g)(ii) above, which ultimately
results in such a PCM Event.
(h) "PJC" shall mean Piper Jaffray Companies Inc., a
Delaware corporation.
(i) a "PJC Event" shall be deemed to have occurred in
each of the following events:
(i) 20% or more of either (x) the then outstanding
shares of common stock of PJC (the "Outstanding PJC Common Stock")
or (y) the combined voting power of the then outstanding voting
securities of PJC entitled to vote generally in the election of the
board of directors of PJC (the "Outstanding PJC Voting Securities"),
is acquired or beneficially owned (as defined in Rule 13d-3 under
the Exchange Act) by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act);
provided, however, that the following acquisitions shall not
constitute PJC Events:
(A) any acquisition directly from PJC,
(B) any acquisition by PJC or any subsidiary
of PJC,
(C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by PJC or one or
more of its subsidiaries, or
(D) any acquisition by any corporation with
respect to which, immediately following such acquisition, more
than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding PJC Common
Stock and Outstanding PJC Voting Securities immediately prior
to such acquisition in substantially the same proportions as
was their ownership, immediately prior to such acquisition, of
the Outstanding PJC Common Stock and Outstanding PJC Voting
Securities, as the case may be;
(ii) individuals who, as of the effective date of the
Plan, constitute the board of directors of PJC (the "Incumbent PJC
Board") cease for any reason to constitute at least a majority of
the board of directors of PJC (the "PJC Board"); provided, however,
that any individual becoming a member of the PJC Board subsequent to
the effective date of the Plan whose election, or nomination for
election by the stockholders of PJC, was approved by a vote of at
least a majority of the directors then comprising the Incumbent PJC
Board shall be considered a member of the Incumbent PJC Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest which was (or, if threatened, would have been)
subject to Exchange Act Rule 14a-11;
(iii) approval by the stockholders of PJC of a
reorganization, merger, consolidation or statutory exchange of
Outstanding PJC Voting Securities, unless immediately following such
reorganization, merger, consolidation or exchange, all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding PJC Common Stock
and Outstanding PJC Voting Securities immediately prior to such
reorganization, merger, consolidation or exchange beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger, consolidation or
exchange in substantially the same proportions as was their
ownership, immediately prior to such reorganization, merger,
consolidation or exchange, of the Outstanding PJC Common Stock and
Outstanding PJC Voting Securities, as the case may be;
(iv) approval by the stockholders of PJC of (x) a
complete liquidation or dissolution of PJC or (y) the sale or other
disposition of all or substantially all of the assets of PJC, other
than to a corporation with respect to which, immediately following
such sale or other disposition, more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding PJC Common Stock
and Outstanding PJC Voting Securities immediately prior to such sale
or other disposition in substantially the same proportions as was
their ownership, immediately prior to such sale or other
disposition, of the Outstanding PJC Common Stock and Outstanding PJC
Voting Securities, as the case may be; or
(v) PJC enters into an agreement in principle or a
definitive agreement relating to a PJC Event described in Section
2(i)(i), 2(i)(ii), 2(i)(iii) or 2(i)(iv) above that ultimately
results in such a PJC Event or a tender or exchange offer or proxy
contest is commenced which ultimately results in a PJC Event
described in Section 2(i)(i) or 2(i)(ii) hereof.
Notwithstanding the above, a PJC Event shall not be deemed to occur with
respect to a Participant if (x) the acquisition of the 20% or greater
interest referred to in Section 2(i)(i) is by that Participant or by a
group, acting in concert, that includes that Participant or (y) if at
least 40% of the then outstanding common stock or combined voting power of
the then outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of PJC shall, immediately after a
reorganization, merger, consolidation, statutory share exchange or
disposition of assets referred to in Section 2(i)(iii) or 2(i)(iv), be
beneficially owned, directly or indirectly, by that Participant or by a
group, acting in concert, that includes that Participant.
(j) "Participant" shall mean an employee who has been awarded
Phantom Options pursuant to this Plan.
(k) "Permanent Disability" shall mean total and permanent
disability as evidenced by a determination of a doctor of medicine
approved by the Board.
(l) "Phantom Option" shall mean an option to acquire a Phantom
Share pursuant to this Plan.
(m) "Phantom Share" shall mean a share of participation in the
compensatory payments to be made pursuant to this Plan.
(n) "Phantom Share Value" shall mean, as of any date, an
amount equal to (i) the Estimated Value of the Company on such date,
divided by (ii) 100,000; provided that as of any date on or before
September 30, 1996, Phantom Share Value shall mean $250.
(o) "Redemption Price" shall mean, as of any date and with
respect to any Phantom Share, the excess of the Phantom Share Value as of
such date over the Exercise Price of the Phantom Option to which such
Phantom Share relates.
(p) "Retirement" shall mean the complete cessation of
employment of a participant with the Company or any of its subsidiaries or
PJC or any of its subsidiaries after reaching age 59-1/2.
(q) "Voluntary Resignation" shall mean that a Participant who
is employed by the Company or any of its subsidiaries or PJC or any of its
subsidiaries voluntarily terminates such employment. For this purpose, a
Participant who terminates his or her employment following occurrence of a
PJC Event shall not be deemed to have done so voluntarily if, following
such PJC Event:
(i) the Participant is not given substantially
equivalent or greater title, duties, responsibilities and authority
or substantially equivalent or greater salary and other remuneration
and fringe benefits (including paid vacation), in each case as
compared with the Participant's status immediately prior to the PJC
Event, other than for Cause or on account of Permanent Disability,
(ii) any successor to the Company or any of its
subsidiaries or PJC or any of its subsidiaries shall fail to assume
the obligations with respect to the Participant under any agreement
evidencing the award of Phantom Options pursuant to the Plan,
(iii) the Participant shall be required to relocate to
any place other than a location within twenty-five miles of the
location at which the Participant performed his duties immediately
prior to the PJC Event, or
(iv) the Participant shall be required to travel on
Company business to a substantially greater extent than required
immediately prior to the PJC Event.
3. Administration of Plan. The Plan shall be administered by the
Board, but all actions by the Board with respect to the Plan and Phantom Shares
awarded thereunder must be ratified by the Executive Compensation Committee of
PJC The decision of the Board on any matter affecting the Plan or the rights and
obligations arising under the Plan shall be final and binding on all persons. No
member of the Board shall be liable for any action or determination taken or
made in good faith with respect to the Plan.
4. Eligibility and Participation. Subject to the provisions of this
Plan, Phantom Options may be awarded only to such employees of the Company and
its subsidiaries, if any, who, in the opinion of the Board, after receiving the
recommendations of the management of the Company, exercise such functions or
discharge such responsibilities that they merit consideration as selected
employees. An eligible employee may be awarded Phantom Options hereunder and may
thereafter be awarded additional Phantom Options if the Board shall so
determine.
5. Awards of Phantom Options. The Board may award Phantom Options to
eligible employees from time to time upon the terms and conditions set forth in
this Plan. Awards under the Plan shall be in the form of Phantom Options. The
aggregate number of unexercised and unredeemed Phantom Options outstanding at
any time may not exceed 20,000. Each award of Phantom Options shall be made by
resolution of the Board, which shall name the Participant and specify the
effective date of the award, the number of Phantom Options awarded, and the
terms and conditions of the vesting and redemption of such Phantom Options, all
as determined by the Board in its sole discretion. Upon exercise as herein
provided of Phantom Options held by a participant, the participant shall have
credited to him or her one Phantom Share for each such Phantom Option so
exercised. Each award of Phantom Options pursuant to the Plan shall be evidenced
by a written agreement between the Company and the Participant.
6. Vesting of Phantom Options. Except as otherwise determined
by the Board, in its sole discretion:
(a) except as otherwise provided herein, 20% of each award of
Phantom Options shall vest on each anniversary of the effective date of
the award (i.e., 20% on the first anniversary, 20% on the second
anniversary, etc.), provided that the Participant shall have been in the
continuous employ of the Company or any of its subsidiaries or PJC or any
of its subsidiaries since the date of the award;
(b) if a Participant ceases to be employed by the Company or any of
its subsidiaries or PJC or any of its subsidiaries by reason of
Retirement, Permanent Disability or death, any Phantom Options awarded to
the Participant shall vest upon such termination of employment; and
(c) except as otherwise provided herein, if a Participant ceases to
be employed by the Company or any of its subsidiaries or PJC or any of its
subsidiaries for any reason other than Retirement, Permanent Disability or
death, any Phantom Options awarded to the Participant and not vested in
accordance with this Section 6 shall be forfeited without compensation by
the Company, and all rights of the Participant in respect of such Phantom
Options shall terminate and be of no further force or effect.
7. Automatic Exercise of Phantom Options and Redemption of
Phantom Shares.
(a) Upon a Participant's termination of employment by the
Company or any of its subsidiaries or PJC or any of its subsidiaries by
reason of Retirement, Permanent Disability or death, each Phantom Option
held by the Participant shall automatically be exercised as of the date of
such termination of employment and the Company shall redeem each Phantom
Share credited to the Participant upon such exercise.
(b) Except as otherwise determined by the Board, in its sole
discretion, on the fifth anniversary of the date of an award of Phantom
Options pursuant to the Plan, each vested Phantom Option granted pursuant
to such award that has not previously been exercised and redeemed shall
automatically be exercised and the Company shall redeem each Phantom Share
credited to the Participant upon such exercise.
(c) Except as otherwise determined by the Board, in its sole
discretion, prior to the PJC Event, if a PJC Event occurs and if within
one year thereafter a Participant ceases to be employed by the Company or
any of its subsidiaries or PJC or any of its subsidiaries for any reason
other than Retirement, Permanent Disability, death, Cause or the Voluntary
Resignation of the Participant, all rights of the Participant with respect
to each Phantom Option held by him or her shall immediately vest, such
Phantom Option shall automatically be exercised as of the date of
termination of employment and the Company shall redeem each Phantom Share
credited to the Participant upon such exercise.
(d) Except as otherwise determined by the Board, in its sole
discretion, prior to the PCM Event, if a PCM Event occurs then all rights
with respect to each Phantom Option held by a Participant who remains in
the continuous employ of the Company or any of its subsidiaries or PJC or
any of its subsidiaries from the date of award of the Phantom Option to
the date of the PCM Event shall immediately vest, such Phantom Option
shall automatically be exercised as of the date of the PCM Event and the
Company shall redeem each Phantom Share credited to such Participant upon
such exercise.
(e) Upon any redemption of Phantom Shares pursuant to this
Section 7, payment by the Company to the Participant or his or her estate,
as the case may be, shall be made in accordance with the following:
(i) for redemptions pursuant to Section 7(a), the
Company shall pay the Redemption Price of such Phantom Shares
computed as of the first day of the fiscal year following the fiscal
year in which such termination of employment occurs, provided,
however, that if a PJC Event or a PCM Event occurs in the fiscal
year in which such termination of employment occurs, then the
Redemption Price shall be computed as of the date of termination of
employment;
(ii) for redemptions pursuant to Section 7(b), the
Company shall pay (x) with respect to any Phantom Share credited to
a Participant who remains in the continuous employ of the Company or
any of its subsidiaries or PJC or any of its subsidiaries from the
date of the award of the related Phantom Option to the fifth
anniversary of the date of the award, the Redemption Price of such
Phantom Share computed as of the fifth anniversary of the date of
the award and (y) with respect to any Phantom Share credited to a
Participant whose employment with the Company or any of its
subsidiaries or PJC or any of its subsidiaries terminates, other
than by reason of Retirement, Permanent Disability, or death, prior
to the fifth anniversary of the date of the award of the related
Phantom Option, the Redemption Price of such Phantom Share computed
as of the date of such Participant's termination of employment;
(iii) for redemptions pursuant to Section 7(c), the
Company shall pay the Redemption Price of such Phantom Shares
computed as of the date of termination of employment; and
(iv) for redemptions pursuant to Section 7(d), the
Company shall pay the Redemption Price of such Phantom Shares
computed as of the date of the PCM Event.
All amounts paid to redeem Phantom Shares shall be paid in cash.
(f) If the amount to be paid for Phantom Shares on any given
date cannot be computed because financial statements for the Company for
the relevant fiscal year have not yet been issued, the Company may defer
the payment for such Phantom Shares until the lapse of five business days
following the issuance of such financial statements, but in no event more
than 80 days after the close of such fiscal year.
(g) Whenever the Company has paid the Redemption Price upon
the redemption of a Phantom Share pursuant to this Section 7, all rights
of a Participant with respect to such Phantom Share and related Phantom
Option shall terminate, and the Company shall have no further obligation
to make any payment to a Participant with respect to such Phantom Share.
(h) Notwithstanding the foregoing provisions of this Section
7, if as of the date the Redemption Price of any Phantom Share is to be
computed it is determined that the Redemption Price of such Phantom Share
is less than $0.00 because the Exercise Price of the related Phantom
Option exceeds the relevant Phantom Share Value, the Phantom Option shall
not be deemed to have been exercised but rather shall be deemed to have
expired and the Participant shall have no right to compensation from the
Company or any other rights with respect to such Phantom Option.
8. Absence of Stock Ownership. Neither a Participant nor his or her
heirs, successors, assigns or legal representatives shall be or have any of the
rights or privileges of a shareholder of the Company as a result of the granting
hereunder of Phantom Options. Phantom Options and Phantom Shares have been
created solely for the purpose of facilitating the incentive bonus program
described herein and shall have no effect whatsoever on legal ownership of the
Company.
9. Transferability. Neither Phantom Options nor Phantom Shares may
be transferred, assigned, pledged or hypothecated in any way, whether by
operation of law or otherwise, and shall not be subject to execution,
attachment, or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of a Phantom Option or Phantom Share contrary
to the provisions hereof, or upon the levy of any attachment or similar process
on such Phantom Option or Phantom Share, the Phantom Option or Phantom Share and
the rights and privileges conferred thereby shall immediately become null and
void at the option of the Company.
10. Employment. The Plan shall not give any Participant a right to
continued employment with the Company or any of its subsidiaries or PJC or any
of its subsidiaries, and the Company or any of its subsidiaries or PJC or any of
its subsidiaries, as the case may be, may terminate a Participant's employment
or otherwise deal with the Participant without regard to the effect it may have
on him or her under the Plan.
11. Withholding Taxes. The Company shall have the right to
deduct from all amounts paid pursuant to this Plan any withholding taxes
required by law to be withheld with respect to such payments.
12. Amendment of the Plan. The Company reserves the right through
its Board to alter, amend, modify, suspend or discontinue the Plan, except that
no amendment or modification of the Plan or any agreement thereunder shall
adversely affect any Participant with respect to any Phantom Option or Phantom
Share previously awarded without the consent of the Participant
13. Effective Date. This Plan shall be effective as of October
1, 1995.
Exhibit 10.13
PLEDGE AND
COLLATERAL ADMINISTRATION AGREEMENT
THIS PLEDGE AND COLLATERAL ADMINISTRATION AGREEMENT, dated as of November 23,
1994 (as amended, supplemented, amended and restated, or otherwise modified from
time to time, this "Agreement"), is entered into among PIPER JAFFRAY INC., a
Delaware corporation having its principal office at Minneapolis, Minnesota (the
"Pledgor"), THE NORTHERN TRUST COMPANY ("Northern"), as collateral administrator
for the holders of the Secured Obligations referred to below (in such capacity,
together with its successors and assigns in such capacity, the "Administrator"),
and each of the financial institutions (including Northern) that are, or that
may become, signatories hereto (collectively, the "Lenders").
WITNESSETH:
WHEREAS, the Pledgor is a registered broker-dealer of securities and has
entered into and may in the future enter into various secured financing
arrangements with one or more of the Lenders; and
WHEREAS, the Pledgor desires to simplify the process by which it pledges
Collateral (such term, and the other capitalized terms used in these Preliminary
Statements without definition, being defined as indicated in Section 1.1) by,
among other things, having all such Collateral held and administered by a single
collateral administrator; and
WHEREAS, Norwest Bank Minnesota, National Association, First Bank National
Association and Northern have each extended certain committed lines of credit to
the Pledgor and the loans, advances and other obligations in respect of all of
such credit facilities shall be included as part of the Secured Obligations; and
WHEREAS, Northern has agreed to act as Administrator for the holders from
time to time of the Secured Obligations pursuant to the terms of this Agreement.
NOW THEREFORE, the Pledgor, the Administrator, and the Lenders agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION 1.1 Certain Definitions.
As used herein:
"Administration Expenses" has the meaning given to such term in Section
10.4.
"Administrator" - - see Preamble.
"Assumption Agreement" has the meaning given to such term in section
14.1.
"Banking Day" means any day other than a Saturday, a Sunday, or a day on
which commercial banks are authorized or required to be closed in Chicago,
Illinois, New York, New York, or Minneapolis, Minnesota.
"Bankruptcy Code" has the meaning given to such term in Section 10.1(e)
(iv).
"Bankruptcy Event" means any Event of Default described in Section
10.1(e)
"Cash Collateral" has the meaning given to such term in Section 2.1(b).
"Cash Collateral Account" has the meaning given to such term in Section
5.1.
"Collateral" has the meaning given to such term in Section 2.1.
"Collateral Account" means any account established for the deposit of
Collateral by (i) the Administrator at PTC (in the case of GNMA Securities),
(ii) Northern, as financial intermediary for the Administrator at any Federal
Reserve Bank (in the case of Government Securities), (iii) the Administrator at
DTC (in the case of DTC Debt Securities, DTC Equity Securities and Government
Securities at DTC), or (iv) the Administrator at Northern (in the case of Cash
Collateral), as the case may be.
"Collateral Pool" means, collectively and at any time, the Securities then
held in the Collateral Accounts that comprise Customer Debt Collateral, Customer
Equity Collateral, and Customer Government Collateral.
"Collateral Value" of an Eligible Security at any time means a Dollar
amount equal to the product of (i) the Valuation Rate for the relevant type of
Security and (ii) the amount determined by the Administrator to be the Market
Value of such Security at such time. The Collateral Value of any Security other
than an Eligible Security shall be zero. The Collateral Value of Cash Collateral
shall be the amount thereof. The Collateral Value of the Collateral Pool shall
mean the aggregate Collateral Values of all Eligible Securities comprising the
Collateral Pool.
"Collection Expenses" has the meaning given to such term in Section
10.4.
"Credit Extension" means the principal amount of each extension of credit
or proposed extension of credit (in the case of a loan that the Pledgor must
request prior to the date of funding thereof, such as a loan that will accrue
interest at a rate based upon the London interbank offered rate) by a Lender to
the Pledgor that has been the subject of an effective Lender Notice received by
the Administrator.
"Customer" means a retail or institutional customer of the Pledgor that
owns securities that are eligible for hypothecation by the Pledgor (acting as a
broker-dealer of securities) under all applicable laws and regulations.
"Customer Debt Collateral" means Collateral that is owned by a Customer
and that is a DTC Debt Security.
"Customer Equity Collateral" means Collateral that is owned by a Customer
and that is a DTC Equity Security.
"Customer Government Collateral" means Collateral that is owned by a
Customer and that is either a Government Security or a GNMA Security.
"Dollar" and "S" mean the lawful currency of the United States of
America.
"DTC" means The Depository Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section 17A of the Securities
Exchange Act of 1934, as amended.
"DTC Debt Security" means a "security" (as defined in ss.8-102(c) of the
UCC) that (i) is a debt security that is rated at one of the four highest rating
levels (without consideration of sublevels) for its maturity by Standard &
Poor's Corporation and Moody's Investors Service, Inc. and (ii) is capable of
being (a) identified by DTC by means of a DTC Pledge Summary Report as having
been pledged to the Administrator by the Pledgor or (b) transferred to the
Administrator's account at DTC pursuant to Section 5.6(a), whether or not such
identification or transfer has occurred.
"DTC Equity Security" means a "security" (as defined in ss.8-102(c) of the
UCC) that (i) is an equity security issued by a U.S. Person and (ii) is capable
of being (a) identified by DTC by means of a DTC Pledge Summary Report as having
been pledged to the Administrator by the Pledgor or (b) transferred to the
Administrator's account at DTC pursuant to Section 5.6(a), whether or not such
identification or transfer has occurred.
"DTC Pledge Summary Report" has the meaning given to such term in DTC's
"PTS Reference Manual" dated May, 1991.
"DTC System" has the meaning given to such term in the definition of
"Market Value".
"Effective Date" has the meaning given to such term in Section 15.6.
"Eligible Securities" means securities (i) that are legally available
to be pledged or hypothecated by the Pledgor to the Administrator for the
benefit of itself and the Lenders pursuant to the terms of this Agreement, (ii)
that are either DTC Debt Securities, DTC Equity Securities, GNMA Securities or
Government Securities, and (iii) that have not matured or been called prior to
their stated maturities; provided, however, that, in addition to the foregoing
requirements, DTC Debt Securities and DTC Equity Securities shall be Eligible
Securities only to the extent that (x) with respect to either DTC Debt
Securities or DTC Equity Securities, the Collateral Value of any such Securities
of a single issuer shall represent not more than 5% of the Collateral Value of
the Collateral Pool on the date of determination (Securities having Collateral
Value in excess of such amount shall, to the extent of such excess, not be
Eligible Securities and shall be excluded from the computation of the Minimum
Collateral Amount) and (y) with respect to DTC Equity Securities, any such
Security shall have a Market Value greater than $5.00 per share.
"Event of Default" has the meaning given to such term in Section 10.1.
"First Tier Lenders" has the meaning given to such term in Section 10.2.
"GNMA Security" means a mortgage-backed security which is (i)
guaranteed by the Government National Mortgage Association, (ii) is shown on the
books of PTC, (iii) is subject to the control of PTC, and (iv) is registered in
the name of PTC, another clearing corporation, or a nominee of either of them.
"Government Security" means a Security of any one or more of the following
types: a security issued by the United States Treasury, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the Resolution
Funding Corporation, the Student Loan Marketing Association, the Export-Import
Bank of the United States, the United States Postal Service, the Federal
Financing Bank, the Tennessee Valley Authority, the Federal Home Loan Bank, the
Farm Credit System or the Farmers Home Administration, or by any other agency of
the United States government that has been previously approved by the
Administrator and the Required Lenders as being eligible for pledging under this
Agreement and, with respect to each of the foregoing, that is maintained in
book-entry form on the records of a Federal Reserve Bank or DTC; provided, that
any of the foregoing types of Government Securities shall cease to be Government
Securities for purposes of this Agreement at any time that, as a result of
legislative, regulatory or judicial action, the Required Lenders notify the
Administrator that the relationship between the agency issuing such Government
Security and the United States government, or the status of such Government
Security with respect to its support by the United States government, has been
changed in any way. When used in this Agreement, a "Government Security at DTC"
means any Government Security pledged to the Administrator through DTC rather
than through a Northern account at a Federal Reserve Bank.
"Ineligible Collateral" means any Collateral other than Cash Collateral
that at any time fails to meet all of the requirements of Eligible Securities.
"Lender" - - see Preamble.
"Lender Expenses" has the meaning given to such term in Section 10.4.
"Lender Notice" has the meaning given to such term in Section 3.1(a).
"Liquidation Date" has the meaning given to such term in Section 10.2.
"Liquidation Notice" has the meaning given to such term in Section 10.2.
"Market Value" means, with respect to any Security, the final price bid
for such Security on the Banking Day immediately preceding the date of valuation
of such Security, as determined by the Administrator by reference (i) in the
case of DTC Equity Securities, DTC Debt Securities and Government Securities at
DTC, to the DTC "Participant Terminal Services" system provided by DTC to
Northern (the "DTC System"), (ii) in the case of Government Securities (other
than those held at DTC), to any securities pricing services that are regularly
recognized in national financial markets and that are available to the
Administrator from Northern's safekeeping department as the Administrator shall
select from time to time in its sole discretion, or, if no such pricing services
are available on any Banking Day, to The Wall Street Journal, and (iii) in the
case of GNMA Securities, to the pricing system provided by PTC to Northern (the
"PTC System"). Such determinations by the Administrator shall be made reasonably
and in good faith and shall be conclusive in the absence of manifest error.
"Minimum Collateral Amount" means at any time with respect to the
Collateral Pool, an amount equal to 1100- of the aggregate Customer-Secured
Obligations as measured by reference to the most recent Lender Notices received
by the Administrator prior to such time.
"Northern" - - see Preamble.
"Obligations" means the aggregate indebtedness, liabilities and
obligations of the Pledgor to the Lenders and/or to the Administrator,
including, without limitation, principal, interest, fees, expenses and
indemnities, as may be applicable, arising under or in connection with (i) this
Agreement, and (ii) each secured credit or other financing arrangement that the
Pledgor may have from time to time with any Lender.
"Pledgor" - - see Preamble.
"PTC" means Participants Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section 17A of the Securities
Exchange Act of 1934, as amended.
"PTC System" has the meaning given to such term in the definition of
"Market Value".
"Required Lenders" means (i) at any time prior to the occurrence of an
Event of Default, that number of Lenders comprising at least 51% of the total
number of Lenders party to this Agreement at such time; and (ii) after the
occurrence of an Event of Default, Lenders holding at least 51% of the principal
amount of the Secured Obligations outstanding at the time of such occurrence.
"Second Tier Lenders" has the meaning given to such term in Section
10.2.
"Secured Obligations" means, collectively, (i) all Obligations of the type
described in clause (i) of the definition of "Obligations" and (ii) all
Obligations of the type described in clause (ii) of such definition of which the
Administrator has received notice and with respect to which the Administrator
has confirmed the sufficiency of the Collateral in accordance with Article III.
"Securities" means, collectively, DTC Debt Securities, DTC Equity
Securities, Government Securities and GNMA Securities.
"SIPA" has the meaning given to such term in Section 10.1(e) (iv).
"Termination Date" has the meaning given to such term in Section
12.1(b).
"UCC" means the Uniform Commercial Code as in effect from time to time in
the State of Illinois.
"U.S. Person" means any corporation, partnership, association or trust
that issues Securities and that is organized under the laws of the United States
of America or any one of its states.
"Unmatured Event of Default" means any condition, occurrence, or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Valuation Rate" means, with respect to (i) Customer Equity Securities,
80%, (ii) Customer Debt Securities, 90% and (iii) Government Securities and GNMA
Securities, 95%.
1.2 Other Definitions. Unless the context otherwise requires, other
capitalized terms used but not defined in Section 1.1 shall have the respective
meanings set forth elsewhere in this Agreement.
1.3 Interpretation. An Article, a Section, an Exhibit or the Preamble is,
unless otherwise stated, a reference to an article of, a section of, an exhibit
to, or the preamble of, this Agreement, as the case may be. The words "hereof,"
"herein," "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole. Terms defined in the
singular and used as a plural shall have a correlative meaning and vice versa.
Unless otherwise defined therein, all terms defined herein shall have the
defined meanings when used in any certificate or other documents made or
delivered pursuant hereto.
1.4 Accounting Terms. As used herein, unless otherwise specifically
defined in this Agreement, and unless the context requires a different meaning,
all accounting terms shall be construed in accordance with United States
generally accepted accounting principles.
1.5 Time. Unless otherwise specifically indicated herein, each reference
to a time of day shall be deemed to be Chicago time.
ARTICLE II
GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. To secure the due and punctual
payment of all Secured Obligations, including, without limitation, the principal
amount thereof, and all interest, fees, expenses and indemnities with respect
thereto, the Pledgor hereby assigns and pledges to the Administrator for the
benefit of itself and the Lenders, and hereby grants to the Administrator, for
the benefit of the Administrator and the Lenders, a continuing, first priority
and perfected security interest in, all of the Pledgor's right, title and
interest in and to the following, whether now owned or hereafter acquired
(collectively, the "Collateral"):
(a) all Securities (whether or not Eligible Securities) that are
delivered or otherwise transferred to the Administrator by the Pledgor from time
to time pursuant to Section 4.1 or received by the Administrator as stock
dividends;
(b) all funds that are received or retained by the Administrator as
interest, dividends, or as other proceeds of Collateral or of the investment of
Cash Collateral pursuant to Section 5.5 "Cash Collateral");
(c) the Collateral Pool; and
(d) all proceeds of and distributions on any of the foregoing;
provided, however, that notwithstanding the foregoing, this Section 2.1 shall be
subject to the limitations regarding the application of the proceeds of the
Collateral that are set forth in Section 10.4.
2.2 Pari Passu; Pro Rata Lien. The lien and security interest hereby
evidenced is granted to the Administrator for the benefit of the Lenders
pursuant to the terms of this Agreement without any preference or priority of
any one Secured Obligation ever any other Secured Obligation by reason of
priority in time of the creation thereof or by reason of the purpose of the
creation thereof or otherwise except to the extent specified in Section 3.1(a)
or 10.4 or otherwise expressly provided herein.
ARTICLE III
SECURED OBLIGATIONS
3.1 Secured Obligations.
(a) Notice to Administrator of Secured Obligations. Any Lender may,
at any time, but in any event prior to 4:30 p.m. on any Banking Day, notify the
Administrator by telephone, in compliance with the procedures set forth in
Section 3.1(b), of any new Credit Extension which such Lender desires to
designate as a Secured Obligation pursuant to the terms hereof. Such telephonic
notification (a "Lender Notice") shall be recorded by the Administrator (and
each party hereto hereby consents to the recording of such telephone calls) and
shall specify (i) the amount and the date of such Credit Extension and (ii) the
aggregate principal balance (after giving effect to such Credit Extension) of
the Secured Obligations owed to such Lender. The Administrator will promptly
confirm to any Lender providing a Lender Notice whether or not the Collateral
Value of the Collateral Pool is sufficient to cover the Credit Extension that is
the subject of such Lender Notice. If the current Minimum Collateral Amount of
the Collateral Pool is not sufficient to secure all or a part of such Credit
Extension, (i) the Administrator shall so notify the Lender making such Credit
Extension, (ii) such Lender will notify the Administrator as to the amount of
the Credit Extension it will make in such circumstances, if any, and (iii) the
amount of the Credit Extension recorded in the Administrator's books and
records, and the Secured Obligation with respect thereto, shall be equal to the
amount, if any, so notified to the Administrator by such Lender. Any Credit
Extension made by a Lender shall become a Secured Obligation only at such time
and only to the extent that the Administrator has confirmed to such Lender the
sufficiency of the Collateral with respect thereto. Notwithstanding the
foregoing, each Lender shall have the right to extend secured or unsecured
credit to the Pledgor that does not constitute a Secured Obligation. Any such
Credit Extension shall become a Secured Obligation only when the procedures set
forth in this Section 3.1 have been fulfilled with respect thereto. The
Administrator may, in its sole discretion, accept Lender Notices after 4:30 p.m.
The Administrator shall determine whether a particular Credit Extension is a
Secured Obligation based on the order in which the relevant Lender Notices are
received. Each respective Lender shall notify the Administrator of the payment
Of any Secured Obligation extended by it, and any such notice shall be in
writing in the form set forth as Exhibit A hereto.
(b) Security Procedures for Notices. The Administrator will provide
the Pledgor and each Lender with one or more identification codes that each such
party will use in all telephonic communications with the Administrator. The
Pledgor and each Lender will implement such security measures as are necessary
to prevent access to such codes by any unauthorized persons, and the
Administrator shall be entitled to act upon any telephonic communication from
any person using a current and correct code. The Pledgor or any Lender may
request a new code from the Administrator at any time and the Administrator may
change codes from time to time as it deems necessary or desirable and shall
notify the parties hereto of all such changes. The Pledgor and each Lender shall
from time to time provide the Administrator with a list containing the name(s),
title(s) and signature(s) of those of its respective officers and/or employees
authorized to provide the Administrator with, in the case of the Pledgor,
requests for substitution or release of Collateral hereunder and, in the case of
the Lenders, the Lender Notices required by Section 3.1 and the Liquidation
Notices required by Section 10.2. The Administrator shall be entitled to rely on
such list until otherwise notified by the Pledgor or any Lender of any change in
such list.
(c) Pledgor Duty to Monitor Collateral. Notwithstanding the
foregoing, the Pledgor agrees that, prior to requesting any Credit Extension
that is intended to become a Secured Obligation, the Pledgor shall make its own
determination that the Administrator is the pledgee at such time of Eligible
Securities having Collateral Value at least equal to the Minimum Collateral
Amount after giving effect to such Credit Extension. Furthermore, the Pledgor
shall notify the Administrator promptly after having discovered that any
Securities have ceased to be Eligible Securities.
3.2 Assumptions Regarding Secured Obligation Balances. The Administrator
shall be entitled to assume, for purposes of its recordkeeping and computation
of the Minimum Collateral Amount, that the information contained in the Lender
Notice most recently received from each Lender, including the aggregate balance
of the Secured Obligations owed to the relevant Lender, is correct and the
Administrator shall also assume that such information continues to be correct
until the Administrator receives a subsequent Lender Notice from such Lender
containing revised information regarding such balance.
3.3 Administrator's Duties. From and after the Effective Date, the
Administrator shall maintain in its books and records an ongoing accounting of
the aggregate Obligations of which the Administrator has received notice
pursuant to the terms of Section 3.1. The Administrator shall be entitled to
rely exclusively on the information provided by the Lenders and shall have no
obligation to verify the accuracy of such information with the Pledgor or any
other source. Periodically during each Banking Day as the Administrator shall
deem reasonable under the circumstances (in its sole discretion), and at or
about 4:30 p.m. on each Banking Day, the Administrator shall compare the Minimum
Collateral Amount to the Collateral Value of the Eligible Securities in the
Collateral Pool for such day and shall take such actions with respect thereto as
shall be required by the provisions of Article IV. After 4:30 p.m. on each
Banking Day, the Administrator shall provide notices, by facsimile transmission,
to the Pledgor and each Lender stating (i) the aggregate amount of all Credit
Extensions made by such Lender on such Banking Day that have been confirmed by
the Administrator as being Secured Obligations, (ii) the aggregate principal
amount of the Secured Obligations owing to such Lender, (iii) the aggregate
principal amount of all Secured Obligations and (iv) the Collateral Value of the
Collateral Pool. Such information shall indicate such amounts as reflected in
the Administrator's records as of 4:30 p.m. on such Banking Day.
ARTICLE IV
THE COLLATERAL
4.1 Delivery, Additions and Releases of Collateral.
(a) Any voluntary additions of Eligible Securities initiated by the
Pledgor on any Banking Day shall be completed by 4:30 p.m. on such Banking Day.
Notwithstanding the foregoing, the Pledgor may make voluntary additions of
Collateral after 4:30 p.m. on any Banking Day, but the Administrator shall not
be obligated to include the value of such Collateral in the Collateral Value of
the Collateral Pool until the next succeeding Banking Day.
(b) If after 4:30 p.m. on any Banking Day the Minimum Collateral Amount
(after giving effect to all Lender Notices received by 4:30 p.m. on such day)
exceeds the Collateral Value of the Collateral Pool, the Pledgor shall, after
receiving notice thereof from the Administrator, deliver or cause to be
delivered to the Administrator Eligible Securities having a sufficient aggregate
Collateral Value to cause the Collateral Value of the Collateral Pool to be at
least equal to the Minimum Collateral Amount; provided, however, that the
Administrator shall be entitled to request delivery of additional Eligible
Securities hereunder at any time on any Banking Day if such request is based
upon a determination by the Administrator that the Collateral Value of the
Collateral Pool has declined. The Pledgor shall deliver all necessary Eligible
Securities not later than one hour after receipt of such a request from the
Administrator up to 4:30 p.m. on the day on which it receives a request therefor
from the Administrator or, if a request is received after 4:30 p.m. on any
Banking Day, not later than 10:00 a.m. on the next following Banking Day. For
the sake of clarity, it is agreed by the parties hereto that the presence of
Ineligible Collateral in the Collateral Pool shall not by itself affect the
Collateral Value of such Collateral Pool; provided, that the presence of
Ineligible Collateral shall not in any way alter the Pledgor's obligation to
maintain at all times the Minimum Collateral Amount.
(c) Subject to Section 5.6, if on any Banking Day (i) the Administrator
has not received actual notice of the existence of any Event of Default or
Unmatured Event of Default, (ii) the Collateral Value of the Collateral Pool
exceeds the Minimum Collateral Amount, (iii) no Lender Notice has been received
but not yet processed by the Administrator and (iv) no Liquidation Notice shall
be in effect, the Administrator shall process requests for releases of
Collateral as promptly as is reasonably practical and, in any event (other than
as described in Section 5.6), shall release Collateral within one hour of
receipt of any notice therefor that is received by the Administrator by 1:00
p.m.; provided that the Administrator shall release such Collateral only if each
of the conditions set forth in clauses (i) through (iv) above remain true as of
the time of such release. Requests for release of Collateral received after 1:00
p.m. on a Banking Day shall be processed not later than 10:00 am. on the next
following Banking Day. The Administrator shall not be obligated to return any
individual Security to the Pledgor pursuant hereto if the Collateral Value of
such Security exceeds the amount necessary to maintain the Minimum Collateral
Value of the Collateral Pool. In addition, subject to Section 5.6, if at any
time the Administrator has notified the Pledgor that certain Securities have
become Ineligible Collateral and the Pledgor has provided sufficient replacement
Eligible Securities to the Administrator, then the Administrator shall return
the relevant Ineligible Collateral to the Pledgor as promptly as is reasonably
practicable upon the Pledgor's request therefor.
4.2 Method of Collateral Delivery. The Pledgor shall deliver Collateral to
the Administrator, when required pursuant to Section 4.1(b) or permitted in
accordance with Section 4.1(a), in the following manner:
(a) Customer Equity and Debt Collateral. In the case of
Customer Equity Collateral and Customer Debt Collateral, by causing DTC to
make all appropriate entries in its records identifying such Collateral as
being pledged to the Administrator;
(b) Government Securities. In the case of Government Securities, by
transfer of such Government Securities to one or more book-entry accounts of
Northern, as financial intermediary for the Administrator, at The Federal
Reserve Bank of Chicago or, in the case of Government Securities at DTC, by
causing DTC to make appropriate entries in its records identifying such
Securities as being pledged to the Administrator; and
(c) GNMA Securities. In the case of GNMA Securities, by transfer of
such GNMA Securities to one or more "pledgee accounts" at PTC maintained by the
Administrator and specified from time to time by the Administrator.
4.3 Method of Collateral Return. The Administrator shall return Collateral
to the Pledgor, when required pursuant to Section 6.1 or Section 10.4 or
permitted in accordance with Section 4.1(c), in the following manner:
(a) DTC Equity and DTC Debt Securities. In the case of DTC Equity
Securities, DTC Debt Securities and Government Securities at DTC, by
implementing a release of such Securities on the DTC System;
(b) Government Securities. In the case of Government
Securities other than Government Securities at DTC, by transfer of such
Securities to a book-entry account at a Federal Reserve Bank designated in
writing from time to time to the Administrator by the Pledgor;
(c) GNMA Securities. In the case of GNMA Securities, by
transfer of such Securities to one or more PTC accounts designated in writing
from time to time to the Administrator by the Pledgor; or
(d) Cash Collateral. In the case of Cash Collateral, by wire
transfer to the Pledgor's account number _____________ at ________________.
4.4 Procedure for Valuation of Collateral. From and after the Effective
Date, the Administrator shall maintain in its books and records an on-going
accounting of the Collateral Value of the Collateral Pool and will make such
adjustments thereto as are required to reflect additions to and releases of
Collateral that occur during the course of each Banking Day. The Administrator
shall determine such Collateral Values solely by reference to the definition of
"Market Value" as used in this Agreement, and the Administrator shall have no
obligation to obtain valuations of the Collateral from other sources or to
verify the accuracy of the information obtained in accordance with such
definition; provided, that the Administrator may make more frequent or
additional determinations of Collateral Values as it in its discretion may
decide but the Administrator shall in no event be obligated to do so. Upon
request from any Lender on any Banking Day, the Administrator shall provide such
Lender with the then-current Collateral Value of the Collateral Pool as well as
the Minimum Collateral Amount, as soon as is reasonably practicable.
ARTICLE V
THE COLLATERAL ACCOUNTS
5.1 Establishment of Collateral Accounts. On or before the Effective Date,
the Administrator shall establish or cause to be established such Collateral
Accounts as may be necessary or desirable to administer the Collateral.
Thereafter, the Administrator shall take all steps reasonably necessary to
maintain all necessary Collateral Accounts and shall establish any new
Collateral Accounts as may be necessary or desirable (in the Administrator's
judgment) to maintain the security interest in the Collateral created by this
Agreement including, without limitation, a demand deposit account at Northern
which shall be owned by the Administrator and be established for the deposit of
Cash Collateral (together with any substitutions therefor made by the
Administrator, the "Cash Collateral Account").
5.2 Control of Collateral Accounts. The Collateral Accounts shall be
subject to the exclusive dominion and control of the Administrator, and the
Pledgor shall have no right to request any withdrawal from any Collateral
Account except as expressly permitted by the terms of this Agreement.
5.3 Proceeds of Securities. The Administrator shall be entitled to receive
all payments of interest, dividends and maturing principal in respect of
Collateral in the form of Securities, except that, prior to the occurrence of a
reregistration pursuant to Section 5.6(a), the Administrator shall receive stock
dividends on DTC Equity Securities, but the Pledgor shall receive all other
dividends and interest on all Securities. Subject to the foregoing and to
Section 5.6, (a) in the case of interest and cash dividends, the Administrator
shall remit to the Pledgor (promptly after the Administrator's receipt of
collected funds) an amount equal to the amount of any such payments received by
the Administrator, (b) in the case of principal, the Administrator shall retain
an amount equal to the amount of such payments received by the Administrator and
shall include such amount in the Cash Collateral and (c) in the case of stock
dividends, the Administrator shall add such dividends to the Collateral Pool.
5.4 No Interest on the Cash Collateral. The Pledgor shall not be entitled
to receive any interest or earnings on Cash Collateral or on investments of Cash
Collateral nor shall the Administrator be required to make any investment with
respect thereto. Any such interest or earnings received by the Administrator
shall be added to the Cash Collateral Account and shall constitute Cash
Collateral.
5.5 No Commingling of Cash Collateral. Cash Collateral shall be
credited to the Cash Collateral Account as received, shall not be commingled
with any other funds of the Administrator.
5.6 After Default. At any time that the Administrator is in actual receipt
of notice that an Event of Default or Unmatured Event of Default has occurred
and is continuing, the Collateral shall be managed as follows:
(a) The Administrator (if it has not previously done so) may take
such steps as it deems necessary to change the account at DTC in which any DTC
Equity Securities, DTC Debt Securities or Government Securities at DTC are held,
at the Federal Reserve Bank in which any Government Securities are held, or at
PTC in which any GNMA Securities are held;
(b) The Administrator shall hold as Cash Collateral all payments of
interest, dividends and principal received by the Administrator in respect of
Collateral in the form of Securities; and
(c) No substitution or release of Collateral pursuant to Section
4.1(c) or 4.3 shall be permitted.
5.7 Payment of Interest and Other Proceeds. Remittance of interest and
proceeds required under this Article V shall be made only after such funds are
received and collected by the Administrator and shall be made by credit to the
Pledgor's demand deposit account number 898643 at Northern.
5.8 Setoff. If the Administrator is otherwise obligated to pay or remit an
amount of interest or dividends as provided in this Article V at a time when the
Pledgor is obligated to deliver additional Collateral pursuant to Section 4.1,
the Administrator shall retain such amount and include such amount in the Cash
Collateral Account to the extent of the Pledgor's obligation.
5.9 Rights in Collateral. The Pledgor shall not have any right to modify,
amend or waive any terms or conditions of the Collateral, or any rights or
interests therein, without the advance written consent of the Lenders; provided,
that nothing herein shall be deemed to affect the pledge, substitution and
release of Collateral in the ordinary course as contemplated by this Agreement.
This Agreement constitutes a security agreement, and the Administrator, for the
benefit of itself and the Lenders, shall have all of the rights of a secured
party under Articles 8 and 9 of the UCC and all other applicable law in respect
of the Collateral.
5.10 Care of Collateral.
(a) General. The Administrator shall exercise reasonable care in the
administration and preservation of the Collateral to the extent required by
applicable law and in any event shall be deemed to have exercised reasonable
care if it (i) takes such action for that purpose as the Pledgor shall request
in writing (but no omission to comply with any request of the Pledgor shall of
itself be deemed a failure to exercise reasonable care) or (ii) exercises at
least the same degree of care as it would exercise with respect to its own
property.
(b) Collection of Collateral. The Administrator shall not be
obligated to collect interest or dividends on, or principal of, any Collateral
or give any notice with respect to any Collateral, and the Administrator shall
have no obligation hereunder to exercise any other right against any obligor or
guarantor on or with respect to any Collateral.
ARTICLE VI
FINAL RELEASE OF COLLATERAL
6.1 Return of Collateral upon Termination of this Agreement. Upon the
Administrator's receipt of written notice from the Pledgor and each Lender that
the Pledgor has satisfied in full all of its Secured Obligations owed to such
Lender, and that such Lender will not be making any further Credit Extensions to
the Pledgor that are to be secured by the Collateral, or otherwise to the effect
that the Lenders no longer desire the collateral arrangements set forth in this
Agreement to continue, this Agreement shall be terminated and the Administrator
shall return to the Pledgor (as promptly as is reasonably practicable and in
accordance with the procedures set forth in Section 4.3) all Securities
previously pledged to the Administrator hereunder and an amount equal to the
Collateral Value of the Cash Collateral; provided, however, that the
Administrator may retain Collateral deemed by the Administrator to be sufficient
to satisfy the Pledgor's obligations to the Administrator pursuant to Section
7.5 and Article XI, which obligations shall survive the termination of this
Agreement.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR
7.1 Representations and Warranties. In order to induce the Lenders
and the Administrator to enter into this Agreement, and to induce the Lenders to
make and maintain Credit Extensions from time to time, the Pledgor represents
and warrants to the Administrator and each Lender as set forth in this Section
7.1.
(a) Organization, etc. The Pledgor is a corporation validly
organized and existing and in good standing under the laws of the State of
Delaware, is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business requires
such qualification, and has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into, pledge and
grant security interests in Collateral under, and otherwise to perform its
obligations under, this Agreement, and to own and hold its property and to
conduct its business as substantially and currently conducted by it.
(b) Due Authorization, Noncontravention, etc. The Pledgor's
execution, delivery and performance of this Agreement, and the Pledgor's pledge
of, and grant of a security interest in, Collateral, are within the Pledgor's
corporate powers, have been duly authorized by all necessary corporate actions,
and do not (i) contravene the Pledgor's organizational documents or (ii)
contravene any contractual restriction, law or governmental regulation or court
decree or order binding on or affecting the Pledgor.
(c) Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery or
performance by the Pledgor of this Agreement, or for the pledge of, and grant of
a security interest in, Collateral. No such authorization, approval or other
action is necessary for the validity or enforceability of this Agreement. The
Pledgor is a registered "broker-dealer" within the meaning of the Securities
Exchange Act of 1934, as amended, and is in good standing, and is authorized to
conduct business, as a broker-dealer. The Pledgor is neither an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
nor a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(d) Validity, etc. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of the Pledgor
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights generally and to the effect of general principles of equity (whether
considered in equity or at law).
(e) Perfection of Security Interest. Upon delivery of
Collateral in the manner specified in Section 4.2 and,
(i) in the case of any transfer of Government Securities other
than Government Securities at DTC, the relevant Federal Reserve Bank's
confirmation of such transfer to Northern, followed by Northern's (1)
identification (by book-entry or otherwise) of such Securities as
"belonging to" the Administrator (within the meaning of Section
8-313(i)(d) of the UCC) and (2) confirmation of such identification to the
Administrator,
(ii) in the case of any pledge of DTC Equity Securities, DTC
Debt Securities or Government Securities maintained at DTC, the
recordation of appropriate entries on the books of DTC acknowledging that
such Securities have been pledged to the Administrator, and
(iii) in the case of any transfer of GNMA Securities, the
recordation of appropriate entries on the books of PTC effecting a
transfer of such Collateral to the account at PTC specified by the
Administrator;
the Administrator, for the benefit of itself and the Lenders, shall have a
perfected pledge of and security interest in such Collateral and all proceeds
thereof (subject to ss.9-306 of the UCC), which security interest shall be prior
to all other interests in such Collateral.
(f) Ownership, No Liens, etc. Immediately before giving effect to
each delivery of Securities by the Pledgor to the Administrator, the Pledgor
will have the rights with respect thereto as set forth in Section 7.1(j), and
the Pledgor will have the right to receive all payments on such Securities, in
each case free and clear of all liens, security interests and adverse a claims
other than (i) the lien hereof and any interests in such Collateral created or
permitted to exist by the Administrator and (ii) claims of Customers, which
claims are subordinate to the rights of the Administrator under this Agreement.
(g) Valid Security Interest. The delivery of Securities to the
Administrator, together with the actions described in the foregoing subsection
(e), is effective to create a valid, perfected, first priority security interest
in all such Securities and all proceeds thereof received and retained by the
Administrator, securing the Secured Obligations. No filings or other action will
be necessary to perfect such security interest.
(h) Taxpayer ID Number. The Pledgor's U.S. tax payer
identification number is 41-0953246.
(i) Compliance with Laws. The Pledgor is in compliance with the
requirements of all applicable laws (including, without limitation, the
provisions of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended), and rules and regulations and orders of every
governmental authority, securities exchange and broker-dealer self-regulatory
organization, including, without limitation, the National Association of
Securities Dealers, the noncompliance with which might adversely affect the
value of the Collateral or the worth of the Collateral as collateral security
for the Secured Obligations.
(j) Securities. No Security pledged to the Administrator pursuant to
the terms of this Agreement is subject to any restriction on transfer,
including, without limitation, Rules 144 and 144A under the Securities Act of
1933, as amended, and any other rule promulgated thereunder, and each Security
comprising the Collateral Pool is eligible to be pledged and hypothecated under
Rules 8c-1 and 15c2-1 and any other applicable regulations under the Securities
Exchange Act of 1934, as amended, all regulations issued in connection therewith
(including, without limitation, the requirement that the Customer that owns such
Security has expressly consented to such hypothecation), and all relevant
regulations of the Board of Governors of the Federal Reserve System, as each of
the foregoing may be amended from time to time.
(k) Time of Rendering. The representations and warranties contained
in this Section 7.1 shall be deemed to be made by the Pledgor to the
Administrator on the date of each Credit Extension and each delivery of
Collateral to the Administrator pursuant hereto.
(l) Federal Reserve Regulations. Each of the Credit Extensions
has been extended in full compliance with Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System.
7.2 Compliance Certificate. Not later than seven Banking Days following
the end of each of the Pledgor's fiscal quarters, the Pledgor shall deliver to
the Administrator and the Lenders a compliance certificate substantially in the
form of Exhibit B, properly completed.
7.3 Title Covenants. The Pledgor covenants that at no time shall it:
(a) create, permit or suffer to be created any lien or security
interest in the Collateral other than the lien hereof; or
(b) sell, transfer, assign, deliver or otherwise dispose of any
Collateral or any interest therein without the Administrator's prior written
consent. The Pledgor further covenants and agrees to defend the Collateral
against the claims and demands of all other parties.
7.4 Further Assurances. The Pledgor shall at its sole expense file,
record, make, execute and deliver all such notices, instruments, statements and
other documents, and take such acts, as the Administrator may reasonably request
from time to time to register in the name of the Administrator, perfect,
preserve or otherwise protect the security interest of the Administrator, for
the benefit of itself and the Lenders, in the Collateral or any part thereof, or
to give effect to the rights, powers and remedies of the Administrator
hereunder, including but not limited to execution and delivery of financing
statements. The Pledgor shall be obligated to perform its obligations under this
Agreement notwithstanding the ability of the Administrator to take such actions
pursuant to the provisions of Section 7.6,
7.5 Costs of Transfer; Taxes; and Expenses.
(a) The Pledgor shall be obligated to pay all transfer taxes and
other costs incurred in connection with all transfers of Collateral made in
respect of this Agreement.
(b) The Pledgor agrees to pay the Administrator the reasonable costs
and expenses, including but not limited to attorneys' fees and other charges,
incurred by the Administrator in connection with making collections on any
Collateral.
7.6 Administrator May Perform.
(a) If the Pledgor fails to perform any agreement contained herein
to be performed by it, the Administrator may, upon the written instructions of
the Required Lenders, itself file, record, make, execute and deliver all such
notices, instruments, statements and other documents, and take such acts, as the
Required Lenders may determine to be necessary or desirable from time to time to
perfect, preserve or otherwise protect the security interest of the
Administrator, for the benefit of itself and the Lenders and otherwise perform,
or cause performance of, any other such actions as the Required Lenders shall
determine are necessary or desirable, and the reasonable expenses of the
Administrator incurred in connection therewith shall be payable by the Pledgor
and shall be part of the Secured Obligations.
(b) The Pledgor hereby irrevocably appoints the Administrator the
Pledgor's attorney-in-fact, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, with full power of
substitution, at any time when any Event of Default shall have occurred and be
continuing, to take any action and to execute any instrument from time to time
in accordance with the written instructions of the Required Lenders which the
Required Lenders may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(i) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(ii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, if any, in connection with
clause (i) above; and
(iii) to file any claims or take any action or institute
any proceedings which the Required Lenders may deem necessary for the
collection of any of the Collateral or otherwise to enforce the rights
of the Administrator with respect to any of the Collateral.
7.7 Form U-1. The Pledgor covenants to execute and deliver a Form
U-1 to any Lender requesting the delivery thereof, together with any updates
thereof reasonably requested by such Lender.
ARTICLE VIII
THE ADMINISTRATOR'S REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties. The Administrator hereby
represents and warrants to the Lenders and the Pledgor as follows:
(a) Organization. The Administrator is an Illinois banking
corporation, duly organized, validly existing and in good standing under the
laws of the State of Illinois;
(b) Due Authorization, etc. The Administrator has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement and it has taken all action necessary for the due execution, delivery
and performance of this Agreement;
(c) No Violation of Law, etc. The execution, delivery and
performance of this Agreement by the Administrator do not and will not
contravene any law or contractual restriction binding upon or affecting it, or
require the consent, authorization, approval or other action by, or notice to or
filing with, any person, corporation or other legal entity (including, without
limitation, any governmental authority or regulatory body) except filings,
notices and other action required to perfect the liens and security interests
contemplated by this Agreement;
(d) Validity, etc. This Agreement constitutes the legal, valid and
binding obligation of the Administrator, enforceable against the Administrator
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and to the effect of general principles of equity (whether considered
in equity or at law);
(e) Course of Business. The Administrator is eligible to maintain
and does maintain at least one account with each of DTC, PTC and, through the
financial intermediation of Northern, The Federal Reserve Bank of Chicago, in
which it holds securities for the account of its customers; and
(f) Clearing Corporation. The Administrator is not a "clearing
corporation" (as such term is defined in ss.8-102(3) of the UCC).
ARTICLE IX
THE LENDERS' REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations and Warranties. Each Lender hereby represents
and warrants to the other Lenders, the Administrator, and the Pledgor as
follows:
(a) Organization. It is either a state banking corporation, a
national banking association or a branch of a foreign banking corporation
licensed to do business in the State of Illinois, as the case may be, and is
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization;
(b) Due Authorization, etc. It has all requisite power and authority
to execute, deliver and perform its respective obligations under this Agreement
and it has taken all action necessary for the due execution, delivery and
performance of this Agreement;
(c) No Violation of Law, etc. The execution, delivery and
performance of this Agreement by it does not and will not contravene any law or
contractual restriction binding upon or affecting it, or require the consent,
authorization, approval or other action by, or notice to or filing with, any
person, corporation or other legal entity (including, without limitation, any
governmental authority or regulatory body);
(d) Validity. This Agreement constitutes the legal, valid and
binding obligation of such Lender enforceable against it in accordance with its
terms subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights generally and to the effect of
general principles of equity (whether considered in equity or at law);
(e) Form U-1. It has received and maintains in its records
such duly completed and executed Forms U-1 with respect to the Credit
Extensions as may be required by applicable law; and
(f) Knowledge of Claims. It has received no "notice" (as that term
is defined in ss.1-201 of the UCC) of any "adverse claim" (as that term is
defined in ss.8-302(2) of the UCC) with respect to any Securities to be pledged
under this Agreement (it being understood, however, that knowledge that certain
Securities to be pledged hereunder are owned by one or more Customers of the
Pledgor shall not in itself be deemed to be actual or constructive knowledge of
such an "adverse claim").
(g) Credit Decisions. It has, independently of the Administrator and
each other Lender, and based on such documents, information and investigations
as such Lender has deemed appropriate, made its own credit decision to make
Credit Extensions to the Pledgor that are or may be Secured Obligations
hereunder; provided, however, that in making such decisions the Lenders will
utilize information regarding Collateral Values provided to them by the
Administrator pursuant to Sections 3.1 and 4.4; and provided, further, that
nothing contained in this subsection (g) shall be deemed to impose any duties on
the Administrator other than those expressed in this Agreement. Such Lender also
represents and warrants that it will, independently of the Administrator and
each other Lender, continue to make its own credit decisions as to exercising or
not exercising from time to time any rights available to it under this Agreement
or under any promissory note, loan agreement or any other document or instrument
evidencing any Credit Extension.
9.2 Covenant to Maintain Form U-1. Each Lender, as applicable, hereby
covenants with the Administrator, the Pledgor, and each other Lender that it
will obtain and maintain in its books and records such Forms U-1 with respect to
its respective Credit Extensions as may be required under applicable law.
ARTICLE X
EVENTS OF DEFAULT; THE ADMINISTRATOR'S
RIGHTS UPON DEFAULT BY THE PLEDGOR
10.1 Events of Default. Each of the following events or occurrences
shall constitute an "Event of Default".
(a) Non-Payment of Obligations. The Pledgor shall have
defaulted in the payment or prepayment when due of any Secured Obligation.
(b) Breach of Warranty. Any representation or warranty of the
Pledgor made or deemed to be made hereunder or any other writing or certificate
furnished by or on behalf of the Pledgor to the Administrator or any Lender
pursuant to this Agreement is or shall be incorrect in any material respect when
made or deemed to be made.
(c) Non-Performance of Certain Covenants and Obligations. The
Pledgor shall default in the due performance and observance of any of its
obligations under Section 4.1, 7.3 or 7.4.
(d) Non-Performance of Other Covenants and Obligations. The Pledgor
shall default in the due performance and observance of any other agreement
contained herein and such default shall continue unremedied for a period of 10
days after notice thereof shall have been given to the Pledgor by the
Administrator or any Lender.
(e) Bankruptcy, Insolvency, etc. The Pledgor shall
(i) become insolvent or generally fail to pay, or admit
in writing its inability or unwillingness to pay, debts as they become
due;
(ii) apply for, consent to, or acquiesce in, the appointment
of a trustee, receiver, sequestrator or other custodian for the Pledgor or
any property of the Pledgor, or make a general assignment for the benefit
of creditors;
(iii) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Pledgor or for a
substantial part of the Pledgor's property, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 30 days,
provided that the Pledgor hereby expressly authorizes the Administrator
and each Lender to appear in any court conducting any relevant proceeding
during such 30-day period to preserve, protect and defend their rights
under this Agreement and any other documents evidencing any of the Secured
Obligations;
(iv) commence, or permit or suffer to exist the commencement,
of any bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, including, without limitation, under
the federal bankruptcy code (11 U.S.C. ss.101 et seq.) (the "Bankruptcy
Code") or the Securities Investor Protection Act ("SIPA"), as either of
them may be amended from time to time, in respect of the Pledgor and, if
any such case or proceeding is not commenced by the Pledgor such case or
proceeding shall be consented to or acquiesced in by the Pledgor or shall
result in the entry of an order for relief or shall remain for 30 days
undismissed, provided that the Pledgor hereby expressly authorizes the
Administrator and each Lender to appear in any court conducting any such
case or proceeding during such 30-day period to preserve, protect and
defend their rights under this Agreement and any other documents
evidencing any of the Secured Obligations; or
(v) take any corporate action authorizing, or in
furtherance of, any of the foregoing.
(f) Impairment of Security, etc. Any lien granted hereunder shall
(except in accordance with its terms), in whole or in part, terminate, cease to
be effective or cease to be the legally valid, binding and enforceable
obligation of the Pledgor; the Pledgor or any other party shall, directly or
indirectly, contest in any manner such effectiveness, validity, binding nature
or enforceability; or any lien securing any Secured Obligation shall, in whole
or in part, cease to be a perfected first priority lien.
(g) Default under Indebtedness. An "Event of Default" as therein
defined, shall occur under any loan or credit agreement between the Pledgor and
any Lender, and that Lender shall give notice thereof to the Administrator.
10.2 Right to Deliver Liquidation Notices Upon Event of Default. If any
Event of Default shall occur for any reason, whether voluntary or involuntary,
and be continuing, each Lender shall have the right, but not the obligation, to
deliver to the Administrator a notice (a "Liquidation Notice") in the form set
forth as Exhibit C hereto, with appropriate insertions, in which such Lender
directs the Administrator to take such steps as are provided in Section 10.3 in
order to realize upon the Collateral and to pay to such Lender the aggregate
Secured Obligations (as reflected in the books and records of the Administrator)
owed to such Lender as of the date which is the earlier of (a) the afternoon of
the first Banking Day after the date such Liquidation Notice is received by the
Administrator or (b) the date the Administrator shall have received a
Liquidation Notice from every Lender (such earlier date being herein called a
"Liquidation Date"), provided that any Liquidation Notice received by the
Administrator after 12:00 p.m. shall be deemed to have been received on the next
Banking Day. Upon receipt of any Liquidation Notice, the Administrator shall, on
the same Banking Day, notify all other Lenders thereof and each other Lender
shall have the right, but not the obligation, to send a Liquidation Notice with
respect to such Lender's own Secured Obligations, provided, that each such
Lender shall be deemed to have tendered a Liquidation Notice with respect to its
own Secured Obligations unless any particular Lender notifies the Administrator
to the contrary (with respect to itself) no later than 12:00 p.m. on the
Liquidation Date. Each Lender which has been deemed to have tendered a
Liquidation Notice agrees to cooperate with the Administrator as promptly as
possible in providing all relevant information that would otherwise have been
set forth in a Liquidation Notice. Lenders providing, or deemed to have
provided, a Liquidation Notice shall be referred to herein as "First Tier
Lenders". After 12:00 p.m. on the Liquidation Date, the Administrator shall
commence the liquidation of the Collateral and the application of the proceeds
thereof to the payment of the Secured Obligations of the First Tier Lenders
pursuant to the terms of this Article X, provided that the Administrator shall
have the right, but not the obligation, to begin to liquidate Collateral upon
receipt of any Liquidation Notice, but shall not apply any proceeds thereof
against any Secured Obligations (other than those described in clauses first and
second of Section 10.4) until after 12:00 p.m. on the Liquidation Date. The
Administrator shall notify the Pledgor of its intent to begin such liquidation
on or before the day such liquidation is to be commenced, but the failure of the
Administrator to provide such notice shall not impair the validity of the
liquidation proceedings. Any Liquidation Notice received by the Administrator
after 12:00 p.m. on any Liquidation Date shall be treated by the Administrator
as a new Liquidation Notice and the Administrator shall notify any Lenders that
were not First Tier Lenders ("Second Tier Lenders") of the receipt of such new
Liquidation Notice. No Second Tier Lender shall receive any proceeds of
Collateral until all First Tier Lenders have been paid in full, at which time
the Administrator shall liquidate Collateral and apply the proceeds thereof to
the Secured Obligations owed to the Second Tier Lenders, if any. Upon the
occurrence of a Bankruptcy Event all Lenders shall be deemed to have given a
Liquidation Notice as of the date and time of such Bankruptcy Event.
10.3 Remedies. The Administrator, under the circumstances set forth in the
last sentence of this Section 10.3, shall take such steps as it believes to be
reasonably necessary in the exercise of its rights and remedies as a secured
party with respect to the Collateral, including any such rights and remedies
under the UCC, and may, in addition, to the extent permitted by applicable law,
without demand of performance and without notice to the Pledgor except as
provided below, take one or more of the actions listed below:
(a) Sale. Sell, assign, give options to purchase, contract to sell
or otherwise dispose of and deliver the Collateral or any part thereof, in one
lot or in separate parcels, for cash or on credit or for future delivery, at the
option and in the sole discretion of the Administrator or its designee, without
any assumption of credit risk on the part of the Administrator and free of all
rights and claims of the Pledgor therein and thereto, including, without
limitation, any and all right of redemption, stay or appraisal, at any public or
private sale, and at such price or prices as the Administrator or its designee
may deem appropriate, without prior notice of intention to sell or of time or
place of sale (all of which are expressly waived by the Pledgor to the extent
permitted by applicable law). Any notice of intended sale of any of the
Collateral required by law shall be deemed reasonably and properly given if
given as set forth in Section 10.2 of this Agreement. The parties agree that
such notice shall constitute reasonable notice under ss.9-504(3) of the UCC. The
Administrator or any Lender may be the purchaser of any or all of the Collateral
so sold.
(b) Retention. Give the Pledgor notice of the Administrator's
proposal to retain the Cash Collateral for distribution on account of the
Secured Obligations that are subject to Liquidation Notices and, if the Pledgor
does not give the Administrator notice of objection and make complete payment
(in full and in immediately available funds) of such outstanding Secured
Obligations on the same day notice thereof is given to the Pledgor in accordance
with Section 10.2, apply such Cash Collateral in satisfaction of such
Obligations, free of all rights and claims of the Pledgor therein and thereto.
The Administrator shall notify the Pledgor of its intent to retain the Cash
Collateral pursuant to this subsection (b) on or before the day of such
retention and the parties agree that such form of notice shall constitute
reasonable notice within the meaning of ss.9-504(3) of the UCC.
The Administrator is hereby authorized to take any and all of such steps
(i) without further consent from any Lender upon the occurrence of an Event of
Default of a type specified in Section 10.1(e) or (ii) at the direction of all
Lenders giving or deemed to have given Liquidation Notices with respect to a
particular Liquidation Date.
10.4 Application of Proceeds. Both the proceeds of any sale of all or any
part of the Collateral pursuant to Section 10.3(a) and any Cash Collateral
retained pursuant to Section 10.3(b) shall be applied by the Administrator:
first, to all reasonable expenses (including, without limitation, fees and
expenses of legal counsel (who may be employees of the Administrator)) or taxes
imposed or incurred in connection with (i) the administration, care, sale or
collection of, or realization upon, any of the Collateral or (ii) the
preservation or enforcement of any rights of the Administrator hereunder (the
"Collection Expenses");
second, to the payment of accrued and unpaid reasonable fees and expenses
of the Administrator relating to the administration of this Agreement (the
"Administration Expenses");
third, to the payment of accrued interest on the Secured Obligations that
are subject to Liquidation Notices at such time (pro rata in accordance with the
respective amounts of interest owed); provided, that default interest accrued on
any such Secured Obligations shall, for purposes of inclusion in this clause
third, not include any amounts accrued which are in excess of amounts that would
have accrued at a rate equal to 2% plus the contract rate for such Secured
Obligations;
fourth, to the payment of the principal amount of the Secured Obligations
that are subject to Liquidation Notices at such time (pro rata in accordance
with the respective principal amounts owed);
fifth, to the payment of all expenses (including, without limitation, fees
and expenses of legal counsel (who may be employees of a Lender)) incurred by a
Lender in connection with the enforcement of any rights of such Lender hereunder
and under any document or instrument evidencing such Lender's Secured
Obligations (pro rata in accordance with the respective aggregate expenses owed)
(such expenses being herein called each Lender's "Lender Expenses"), together
with accrued default interest in excess of the amount specified in clause third
aboveo plus any contractual "make-whole" premiums in connection with such
Secured Obligations; and
sixth, if all Lenders shall have given the Administrator a Liquidation
Notice at such time, then the balance remaining, if any, to the Pledgor. The
Pledgor shall remain liable for any such Secured Obligations remaining unpaid as
well as for any Secured Obligations that are owing to a Lender that has elected
not to send a Liquidation Notice to the Administrator, if applicable, together
with all Obligations that are not Secured Obligations. In allocating and
applying the proceeds of such sale and retention, the Administrator shall be
entitled to rely on the information contained in the Liquidation Notice provided
by each Lender, conclusively and without verification from any source, with
respect to principal, interest and Lender Expenses owed to such Lender.
Following such application of the proceeds of such sale and retention, and so
long as all the Secured Obligations shall have been fully satisfied, the
Administrator shall return to the Pledgor, as promptly as is reasonably
practicable, any remaining Securities previously pledged to the Administrator
hereunder, any remaining proceeds of such sale and any remaining Cash
Collateral, all in accordance with the procedures set forth in Section 4.3 and
at the Pledgor's expense. Notwithstanding the foregoing, and notwithstanding any
other provision of this Agreement, in no event shall Collateral be used to pay
any Obligations other than (w) Collection Expenses, Administration Expenses and
such Lender Expenses as were incurred with respect to the Customer-Secured
Obligations and (x) the Customer-Secured Obligations. If at any time any Lender
having Secured Obligations outstanding shall not have given any Liquidation
Notice to the Administrator, then this Agreement shall continue in full force
and effect with respect to the Administrator, the Pledgor and such Lender(s),
except as otherwise provided in Section 6.1.
10.5 Right to Initiate Judicial Proceedings, Etc. Upon the occurrence of a
Bankruptcy Event, or otherwise on a Liquidation Date at the direction of the
Required Lenders (or all of those Lenders having tendered or having been deemed
to have tendered Liquidation Notices on such Liquidation Date), (i) the
Administrator shall institute and maintain such suits and proceedings as it may
deem appropriate to protect and enforce the rights vested in it by this
Agreement, and (ii) the Administrator shall proceed by suit or suits at law or
in equity to enforce such rights and to foreclose upon the Collateral and to
sell all or, from time to time, any of the Collateral under the judgment or
decree of a court of competent jurisdiction.
10.6 Appointment of a Receiver. If a receiver of the Collateral shall be
appointed in judicial proceedings,' the Administrator (or any entity acting as
successor Administrator hereunder) may be appointed as such receiver.
10.7 Remedies Not Exclusive.
(a) No remedy conferred upon or reserved to the Administrator herein
is intended to be exclusive of any other remedy or remedies, but every such
remedy shall be cumulative and shall be in addition to every other remedy
conferred herein or now or hereafter existing at law or in equity or by statute.
(b) No delay or omission of the Administrator or any Lender to
exercise any right, remedy or power accruing upon the occurrence and continuance
of any Event of Default shall impair any such right, remedy or power or be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every right, power and remedy given to the Administrator and each
Lender under this Agreement may be exercised from time to time and as often as
may be deemed expedient by the Administrator or the Required Lenders.
(c) In case the Administrator shall have proceeded to enforce any
right, remedy or power under this Agreement and the proceeding for the
enforcement thereof shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Administrator, then and in every
such case the Pledgor, the Administrator and the Lenders shall, subject to any
effect of or determination in such proceeding, severally and respectively be
restored to their former positions and rights hereunder with respect to the
Collateral and in all other respects, and thereafter all rights, remedies and
powers of the Administrator shall continue as though no such proceeding had been
taken.
(d) All rights of action and rights to assert claims upon or under
this Agreement may be enforced by the Administrator without the possession of
any documentation evidencing any Secured Obligation or the production thereof in
any trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Administrator shall be brought in its name as Administrator,
for the benefit of itself and the Lenders, and any recovery relating to any
judgment shall be held as part of the Collateral.
10.8 Waiver of Certain Rights. The Pledgor and each Lender, to the extent
each of them lawfully may do so, on behalf of itself and all who may claim
through or under it, including any and all subsequent creditors, vendees,
assignees and lienors, expressly waives and releases any, every and all rights
to demand or to have any marshaling of the Collateral upon any sale, whether
made under any power of sale granted hereunder, or pursuant to judicial
proceedings or upon any foreclosure or any enforcement of this Agreement and
consents and agrees that all the Collateral may at any such sale be offered and
sold as an entirety. In addition, the Pledgor covenants with the Administrator
and the Lenders that, in the event of the filing of any voluntary or involuntary
petition in bankruptcy or any action taken by the Securities Investors
Protection Corporation under SIPA with respect to the Pledgor, the Pledgor shall
not assert or request any other party to assert that any automatic stay
provision under the Bankruptcy Code or SIPA shall operate or be interpreted to
stay, interdict, condition, reduce or inhibit the ability of the Administrator
and the Lenders to enforce any rights they may have under this Agreement, and
the Pledgor hereby irrevocably consents to an order granting relief from all
stays, including the automatic stay imposed by Section 362 of the Bankruptcy
Code.
10.9 Limitation by Law. All the provisions of this Article X are intended
to be subject to all applicable mandatory provisions of law which may be
controlling in the premises and to be limited to the extent necessary so that
they will not render this Agreement invalid, unenforceable in whole or in part
or not entitled to be recorded, registered, or filed under the provisions of any
applicable law.
ARTICLE XI
EXPENSES AND INDEMNITIES
11.1 Compensation and Expenses. The Pledgor agrees to pay to the
Administrator, from time to time, upon demand, (a) reasonable compensation for
its services hereunder and for administering the Collateral and (b) all of the
fees, costs and expenses of the Administrator (including the reasonable fees and
other charges of its counsel and such special counsel as the Administrator
elects to retain) (i) arising in connection with the preparation, execution,
delivery, administration, modification, restatement, amendment or termination of
this Agreement or the enforcement (whether in the context of a civil action,
adversary proceeding, workout or otherwise) of any of the provisions hereof or
thereof and (ii) incurred or required to be advanced in connection with the
administration of the Collateral, the sale or other disposition of Collateral
pursuant hereto and the preservation, protection or defense of the
Administrator's rights under this Agreement and in and to the Collateral. The
Pledgor also agrees to pay to each Lender upon demand all of the fees, costs and
expenses of such Lender (including the reasonable fees and disbursements of its
counsel) incurred or required to be advanced in connection with the enforcement
(whether in the context of a civil action, adversary proceedings, workout or
otherwise) of this Agreement.
11.2 Stamp and Other Similar Taxes. The Pledgor agrees to indemnify and
hold harmless the Administrator and each Lender from any present or future claim
for liability for any stamp or other similar tax and any penalties or interest
with respect thereto, which may be assessed, levied or collected by any
jurisdiction in connection with this Agreement, the Collateral or the attachment
or perfection of the security interest granted to the Administrator, for the
benefit of itself and the Lenders, in any Collateral. The obligations of the
Pledgor under this Section 11.2 shall survive the termination of the other
provisions of this Agreement.
11.3 Filing Fees, Excise Taxes, etc. The Pledgor agrees (a) to pay or to
reimburse the Administrator and the Lenders for any and all amounts in respect
of all search, filing, recording and registration fees, taxes, excise taxes and
other similar imposts which may be payable or determined to be payable in
respect of the execution, delivery, performance and enforcement of this
Agreement and (b) to save the Administrator and the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees. The obligations of the Pledgor
under this Section 11.3 shall survive the termination of the other provisions of
this Agreement.
11.4 Indemnification.
(a) The Pledgor agrees to protect, indemnify and save harmless the
Administrator, each Lender, each Lender's and the Administrator's respective
officers, directors, shareholders, controlling persons, employees and agents
(each an "Indemnified Party") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever with respect to or
in connection with the execution and delivery of this Agreement or the
enforcement, performance and administration of this Agreement or any of the
powers granted to the Administrator hereunder, unless arising from the gross
negligence or willful misconduct of such Indemnified Party. If for any reason
the indemnification provided above in this Section 11.4(a) is unavailable to an
Indemnified Party or is insufficient to hold an Indemnified Party harmless, then
the Pledgor shall contribute to the amount paid or payable by such Indemnified
Party as a result of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements in such proportion
as is appropriate to reflect not only the relative benefits received by such
Indemnified Party on the one hand and the Pledgor on the other hand but also the
relative fault of such Indemnified Party as well as any other relevant equitable
considerations.
(b) In any suit, proceeding or action brought by the Administrator
under or with respect to the Collateral for any sum owing thereunder, or to
enforce any provisions thereof, the Pledgor will indemnify, save and keep
harmless the Administrator and the Lenders from and against all expense, loss
and damage suffered by reason of any defense, set-off, counterclaim, recoupment
or reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by the Pledgor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of such
obligor or its successors from the Pledgor, and all such obligations of the
Pledgor shall be and remain enforceable against and only against the Pledgor and
shall not be enforceable against the Administrator or any Lender.
(c) The agreements in this Section 11.4 shall survive the
termination of the other provisions of this Agreement.
ARTICLE XII
THE ADMINISTRATOR
12.1 Acceptance of Appointment; Term of Agreement.
(a) The Administrator, for itself and its successors, hereby
accepts its appointment as such upon the terms and conditions hereof, including
those contained in this Article XII.
(b) Unless otherwise terminated pursuant to the terms of this
Agreement, this Agreement shall continue in effect for a period commencing on
the date hereof and ending one year later (the "Termination Date") and
automatically shall be renewed for additional one-year periods commencing on the
then-effective Termination Date unless either the Administrator or the Pledgor,
at least 30 days prior to a Termination Date, notifies the other parties hereto
that it is terminating the Agreement as of the then-effective Termination Date;
provided, that in no event shall this Agreement terminate following the
occurrence and during the continuance of an Event of Default of which the
Administrator has actual knowledge until all Secured Obligations have been paid
in full or all Collateral liquidated and disbursed by the Administrator in
accordance with the terms of this Agreement.
(c) Subject to any contrary agreement between the Pledgor and any
Lender, any Lender may, upon 30 days' prior written notice to the Pledgor and
the Administrator, cease to be a Lender under the terms of this Agreement. Such
notice shall specify a date not less 30 nor more than 45 days from the date of
such notice as the date of such cessation. The Administrator, the Pledgor and
such Lender shall agree on a final accounting of the Secured Obligations owed to
such Lender as of such date. The Pledgor and such Lender shall independently
make such arrangements as they may determine regarding the disposition of the
Credit Extensions representing such Secured Obligations after such date. After
such date such Credit Extensions shall no longer constitute Secured Obligations
and the Administrator and the Pledgor shall have no further obligations to such
Lender under this Agreement.
12.2 Exculpatory Provisions.
(a) Except for those representations and warranties set forth in
Article VIII, the Administrator shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties herein contained, all of which are made solely by the Pledgor and the
Lenders (including Northern in its capacity as a Lender). The Administrator
makes no representations as to the value or condition of the Collateral or any
part thereof, or as to the title of the Pledgor thereto or as to the security
afforded by this Agreement, or as to the validity, execution (except its own
execution), enforceability, legality or sufficiency of this Agreement or of any
of the Obligations, and the Administrator shall incur no liability or
responsibility in respect of any such matters; provided, that the determination
by the Administrator of Collateral Values shall be deemed to be a representation
by the Administrator only that such Collateral Values have been arithmetically
calculated in accordance with the terms of this Agreement. The Administrator
shall not be responsible for determining whether Collateral constitutes Eligible
Securities. The Administrator shall not be responsible for insuring the
Collateral or for the payment of taxes, charges, assessments or liens upon the
Collateral. The Administrator shall be entitled to charge the Pledgor's demand
deposit account number 898643 at Northern or any Collateral Account for the
payment of any such taxes, charges, assessments, and liens.
(b) The Administrator shall not be required to ascertain or inquire
as to the performance by the Pledgor or any Lender of any of the covenants or
agreements contained herein or in any document or instrument creating, governing
or evidencing any of the Obligations except as specifically provided herein with
respect to substitution of Collateral and provision of additional Collateral.
Whenever it is necessary or, in the opinion of the Administrator, advisable for
the Administrator to ascertain the amount of Secured Obligations then owed to a
Lender, the Administrator may rely on a certificate of such Lender as to such
amount, and if any Lender shall not have given such information to the
Administrator within one Banking Day after the Administrator's request therefor,
it shall not be entitled to receive distributions hereunder (in which case such
distributions, as established by the Administrator on the basis of the
information available to it, shall be held for the benefit of such Lender) until
such Lender has given such information to the Administrator and the
Administrator has had a reasonable amount of time to act upon such information.
(c) The Administrator shall not be personally liable for any action
taken or omitted to be taken by it in accordance with this Agreement in its
capacity as Administrator except for its own gross negligence or willful
misconduct.
12.3 Delegation of Duties. The Administrator may execute any of the powers
hereof and perform any duty hereunder either directly or by or through agents or
attorneys-in-fact. The Administrator shall be entitled to advice of counsel
concerning all matters pertaining to such powers and duties. None of such agents
or attorneys-in-fact shall be personally liable to the Pledgor or the Lenders
for any action taken or omitted to be taken by it in accordance with its
appointment except for its own gross negligence or willful misconduct. The
Administrator shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it without gross negligence or willful
misconduct.
12.4 Reliance by Administrator.
(a) Whenever in the administration of this Agreement the
Administrator shall deem it necessary or desirable that a matter be proved or
established with respect to the Pledgor in connection with the taking, suffering
or omitting of any action hereunder by the Administrator, such matter (unless
other evidence in respect thereof is specifically prescribed elsewhere in this
Agreement) may be deemed to be conclusively proved or established by a
certificate of an authorized officer of the Pledgor delivered to the
Administrator, and such certificate shall be full warranty to the Administrator
for any action taken, suffered or omitted in reliance thereon;
(b) The Administrator may consult with counsel, and any opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken or suffered by it hereunder in accordance therewith. The
Administrator shall have the right at any time to seek instructions concerning
the administration of the Collateral from any court of competent jurisdiction.
(c) The Administrator may rely, and shall be fully protected in
acting, upon any resolution, statement, certificate, instrument, opinion,
report, notice, request, consent, order, bond or other paper or document which
it has no reason to believe to be other than genuine and to have been signed or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence of
its own gross negligence or willful misconduct, the Administrator may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Administrator and conforming to the requirements of this Agreement.
(d) If the Administrator has been requested to take action pursuant
to Section 7.6 or 10.2, the Administrator shall not be under any obligation to
exercise any of the rights or powers vested in the Administrator by this
Agreement unless the Administrator shall have been provided adequate security
and indemnity by the Lenders requesting such action against the costs, expenses
and liabilities which may be incurred by it in compliance with such request or
direction, except such costs, expenses and liabilities incurred solely as a
result of its own gross negligence or willful misconduct, including such
reasonable advances as may be requested by the Administrator.
12.5 Limitations on Duties of Administrator.
(a) Prior to the occurrence of an Event of Default other than of the
type specified in Section 10.1(e), the Administrator shall be obliged to perform
only such duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the
Administrator. The Administrator shall, during the existence of any such Event
of Default of which it has actual knowledge, exercise the rights and powers
vested in it by this Agreement, and the Administrator shall not be liable with
respect to any action taken or omitted by it in accordance with the direction of
any Lender pursuant to Section 10.2 or any other provision of this Agreement.
(b) Except as herein otherwise expressly provided, including upon
the written request of any Lender pursuant to Section 10.2, the Administrator
shall not be under any obligation to take any action which is discretionary with
the Administrator under the provisions hereof. The Administrator shall make
available for inspection and copying by each of the Lenders each certificate or
other paper furnished to the Administrator by the Pledgor under or in respect of
this Agreement or any of the Collateral. The Pledgor and the Administrator each
agree to provide to any Lender from time to time, as promptly as is reasonably
practicable, any information regarding this Agreement or the Collateral as may
be reasonably requested by such Lender.
12.6 Resignation and Removal of the Administrator.
(a) The Administrator may at any time, by giving written notice
to the Pledgor and the Lenders, resign and be discharged of the responsibilities
hereby created, such resignation to become effective upon (i) the appointment of
a successor collateral administrator, (ii) the approval of such successor
collateral administrator (evidenced in writing) by the Required Lenders, and
(iii) the acceptance of such appointment by such successor collateral
administrator. The Administrator may be removed at any time only for cause and a
successor collateral administrator appointed by the affirmative vote of the
Required Lenders; provided that the Administrator shall be entitled to its fees
and expenses to the date of removal. If no successor collateral administrator is
appointed within 30 days from the date of the giving of the aforesaid notice of
resignation or within 30 days from the date of such removal, the Administrator
(notwithstanding the termination of all of its other duties and obligations
hereunder by reason of such resignation) shall, or any Lender may, apply to any
court of competent jurisdiction to appoint a successor collateral administrator
to act until such time, if any, as a successor collateral administrator shall
have been appointed as above provided. Any successor collateral administrator so
appointed by such court shall immediately and without further act be superseded
by any successor collateral administrator approved by the Required Lenders as
above provided.
(b) If at any time the Administrator shall be removed or otherwise
become incapable of acting, or if at any time a vacancy shall occur in the
office of the Administrator for any other cause, a successor collateral
administrator may be appointed by the Required Lenders, and the powers, duties,
authority and title of the predecessor collateral administrator may be
terminated and canceled without procuring the resignation of such predecessor
collateral administrator, and without any other formality (except as may be
required by applicable law) than the appointment and designation of a successor
collateral administrator in writing, duly acknowledged, delivered to the
predecessor collateral administrator and the Pledgor, and filed for record in
each public office, if any, in which this Agreement is required to be filed.
(c) The appointment and designation referred to in the foregoing
subsection (b) shall, after any required filing, be full evidence of the right
and authority to make the same and of all the facts therein recited, and this
Agreement shall vest in such successor collateral administrator, without any
further act, deed or conveyance, all of the estate and title of its predecessor,
and upon such filing for record the successor collateral administrator shall
become fully vested with all the estates, properties, rights, powers, duties,
authority and title of its predecessor; but such predecessor shall,
nevertheless, on the written request of the Required Lenders, the Pledgor or its
successor collateral administrator, execute and deliver an instrument
transferring to such successor all the estates, properties, rights, powers,
duties, authority and title of such predecessor hereunder and shall deliver all
securities and moneys held by it to such successor collateral administrator.
Should any deed, conveyance or other instrument in writing from the Pledgor be
required by any successor collateral administrator for more fully and certainly
vesting in such successor collateral administrator the estates, properties,
rights, powers, duties, authority and title vested or intended to be vested in
the predecessor collateral administrator, any and all such deeds, conveyances
and other instruments in writing shall, on request of such successor collateral
administrator, be executed, acknowledged and delivered by the Pledgor.
(d) Any required filing for record of the instrument appointing a
successor collateral administrator as hereinabove provided shall be at the
expense of the Pledgor. The resignation of any collateral administrator and the
instrument or instruments removing any collateral administrator, together with
all other instruments, deeds and conveyances provided for in this Article XII
shall, if required by law, be forthwith recorded, registered and filed by and at
the expense of the Pledgor, wherever this Agreement is recorded, registered and
filed.
12.7 Status of Successors to the Administrator. Every successor to the
Administrator appointed pursuant to Section 12.6 shall be a bank or trust
company in good standing and having power so to act, incorporated under the laws
of the United States or any State thereof or the District of Columbia, having
its principal corporate trust office within the 48 contiguous States and which
is able to make each of the representations and warranties of the type set forth
in Article VIII.
12.8 Merger of the Administrator. Any corporation into which the
Administrator shall be merged, or with which it shall be consolidated, or any
corporation resulting from any merger or consolidation to which the
Administrator shall be a party, shall be Administrator under this Agreement
without the execution or filing of any paper or any further act on the part of
the parties hereto.
ARTICLE XIII
CONDITIONS TO EFFECTIVENESS
The effectiveness of this Agreement is subject to the prior
satisfaction of each of the following conditions precedent:
13.1 Resolutions, etc. The Administrator shall have received from the
Pledgor a certificate, dated a date satisfactory to the Administrator, of an
authorized officer of the Pledgor (whose own signature shall have been certified
by another of the Pledgor's authorized officers) certifying the correctness of
(a) resolutions of the Pledgor then in full force and effect authorizing the
execution, delivery and performance of this Agreement and the pledge of, and
grant of a security interest in, the Collateral hereunder, (b) the incumbency
and signatures of those of its officers and employees authorized to act with
respect to this Agreement, upon which certificate the Administrator and each
Lender may conclusively rely until otherwise notified by the Pledgor, (c) the
true and correct status of the Pledgor's representations and warranties
hereunder and the absence of any Event of Default or Unmatured Event of Default
and (d) a copy of the Pledgor's most recent organizational documents and
agreements.
13.2 Opinions of Counsel. The Administrator shall have received opinions,
dated the Effective Date and addressed to the Administrator and all Lenders from
David Rosedahl, General Counsel to the Pledgor, substantially in the form of
Exhibit D hereto.
13.3 Closing Fees. Expenses, etc. The Administrator shall have received
for its own account, or for the account of each Lender as the case may be, all
fees, costs and expenses due and payable in connection with this Agreement, if
then invoiced.
13.4 Satisfactory Legal Form. All documents executed or submitted pursuant
hereto by or on behalf of the Pledgor shall be satisfactory in form and
substance to the Administrator and its counsel, and the Administrator and its
counsel shall have received all information, approvals, opinions, documents or
instruments as the Administrator or its counsel may reasonably request.
ARTICLE XIV
ADDITION OF NEW LENDERS
14.1 New Lenders. Subject to the prior consent of the Administrator, which
consent shall not be unreasonably withheld, one or more financial institutions
may become parties to this Agreement and may become "Lenders" hereunder by
delivering to the Administrator a duly executed Assumption Agreement
substantially in the form set forth as Exhibit E hereto, with appropriate
insertions, dated a date satisfactory to the Administrator. The Administrator
agrees to notify each existing Lender when a new financial institution has
become a Lender pursuant to this Section 14.1.
ARTICLE XV
GENERAL
15.1 Notices.
(a) Collateral. All notices and other communications provided to any
party requesting Collateral to be delivered or returned pursuant to Section 4.1
or Collateral to be returned pursuant to Section 4.1(c) may be given orally
(including telephonically to such party's telephone number set forth on the
signature pages hereof or any other telephone number such party may notify to
the other parties hereto in writing) during normal business hours in the city in
which such party is located on any Banking Day to the officer, if any, named in
the signature pages hereof or to any other officer of such party at such
telephone number who identifies himself or herself as being permitted to receive
oral communications with respect hereto, subject, however, to the requirements
of Section 3.1(b). Any such oral communication will be deemed received and
effective when actually received by any such officer. Notwithstanding the
foregoing, any party may send communications (i) with respect to DTC Debt
Securities, DTC Equity Securities or Government Securities at DTC, to another
party via the DTC System and (ii) with respect to GNMA Securities, to another
party via the PTC System.
(b) Other. Any notice of any other nature shall be in writing and
(i) if mailed with proper postage and return receipt requested, shall be deemed
to have been received 3 Banking Days following deposit thereof in the United
States mail; (ii) if by facsimile, shall be deemed to have been received on the
day such notice is sent and confirmation of receipt thereof received by the
sender (provided that a machine-generated facsimile confirmation shall not be
deemed to be confirmation of receipt thereof); and (iii) if by courier, shall be
deemed to have been received on the next succeeding Banking Day following
deposit thereof with such courier. Notices under Article X may be given by
facsimile or by telephone promptly confirmed by facsimile.
15.2 Amendments, Supplements and Waivers.
(a) The Administrator, the Required Lenders, and the Pledgor may,
from time to time, enter into written agreements supplemental hereto for the
purpose of adding to or waiving any provision of this Agreement or amending the
definition of any capitalized term used herein, as such capitalized term is used
herein, or changing in any manner the rights of the Administrator, the Lenders
or the Pledgor hereunder; provided, however, that no such supplemental agreement
shall:
(i) amend, modify or waive any provision of this Section 15.2,
any definition set forth in Section 1.1 or, subject to subsection (c)
hereof or any provision of Articles III, IV, V or X without the written
consent of each Lender;
(ii) amend, modify or waive any provision of Section 10.4 or
the definition of the term "Secured Obligations" without the written
consent of any Lender whose rights in relation to the rights of the other
Lenders would be adversely affected thereby; or
(iii) amend, modify or waive any provision of this Agreement
so as to adversely affect any of the Administrator's rights, immunities or
indemnities hereunder or enlarge its duties hereunder without the written
consent of the Administrator.
Any such supplemental agreement shall be binding upon the Pledgor, the Lenders
and the Administrator and their respective successors; provided, that any such
supplemental agreement that is not of a nature as to be governed by clause (i),
(ii) or (iii) above shall become effective immediately upon the execution of
such supplemental agreement by the Pledgor, the Administrator and each Lender
or, if executed by the Pledgor, the Administrator and the Required Lenders only,
shall become effective five days after such execution. Prior to executing any
amendment pursuant to the terms of this Section 15.2(a), the Administrator shall
be entitled to receive an opinion of counsel to the effect that the execution of
such document is authorized hereunder.
(b) Without the consent of any Lender, the Pledgor and the
Administrator, at any time and from time to time, may enter into one or more
agreements supplemental hereto, in form satisfactory to the Administrator, to
cure any ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein; provided, that any
such action contemplated by this subsection (b) shall not adversely affect the
interests of the Lenders in any material respect.
(c) No failure or delay on the part of the Administrator or any
Lender in exercising any power or right under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Pledgor in any case shall
entitle it to any notice or demand in similar or other circumstances. No waiver
or approval by the Administrator or any Lender under this Agreement shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
15.3 Headings. The table of contents of this Agreement and article,
section, subsection, clause and other headings used in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
15.4 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
15.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT
THAT THE PERFECTION OF THE ADMINISTRATOR'S SECURITY INTEREST, FOR THE BENEFIT OF
ITSELF AND THE LENDERS, IN ANY COLLATERAL IS GOVERNED BY THE LAWS OF ANY OTHER
JURISDICTION AND AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW.
15.6 Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts and by the different parties on separate counterparts,
each of which shall be an original but all of which taken together shall
constitute one and the same instrument. This Agreement shall become effective on
the date (the "Effective Date") on which (a) counterparts of this Agreement
executed on behalf of each party hereto (or notice of such execution
satisfactory to the Administrator) shall have been received by the
Administrator, (b) all conditions to such effectiveness set forth in Article
XIII shall have been satisfied, and (c) notice of the foregoing shall have been
given by the Administrator to the other parties hereto.
15.7 Payment of Costs and Expenses. The Pledgor agrees to pay, and to save
harmless the Administrator and the Lenders from all liability for, any stamp or
other taxes which may be payable in connection with the execution or delivery of
this Agreement or any other documents in connection herewith. The Pledgor also
agrees to reimburse the Administrator and each Lender upon demand for all
reasonable out-of-pocket expenses (including attorneys' fees and legal expenses)
incurred by the Administrator or such Lender in connection with (x) the
preparation of any amendment to this agreement requested by the Pledgor, (y) the
negotiation of any restructuring or "work-out", whether or not consummated, of
any Obligations and (z) the enforcement of any Obligations. The obligations of
the Pledgor under this Section 15.7 shall survive the termination of this
Agreement.
15.8 Entire Agreement. This Agreement constitutes the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect thereto.
15.9 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and shall inure to the benefit
of the respective successors and assigns of the Administrator and the Lenders;
provided, however, that the Pledgor may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Administrator and
all Lenders. Nothing herein is intended or shall be construed to give any other
person any right, remedy or claim under, to or in respect of this Agreement or
the Collateral.
15.10 Other Transactions. Nothing contained herein shall preclude the
Administrator or any other Lender from engaging in any transaction, in addition
to those contemplated by this Agreement, with the Pledgor or any of its
affiliates in which the Pledgor or such affiliate is not restricted hereby from
engaging with any other person. 15.11 Forum Selection and Consent to
Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT 0F1 UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATOR, THE
LENDERS OR EACH PARTY HERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
ADMINISTRATOR'S OPTION, IN THE COURTS OF ANY JURISDICTION `WHERE SUCH COLLATERAL
OR OTHER PROPERTY MAY BE FOUND. EACH PARTY HERETO EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH
PARTY HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF ILLINOIS. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR
HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PARTY HERETO HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, SUCH PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT.
15.12 Waiver of Jury Trial. EACH PARTY HERETO HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. EACH
PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE ADMINISTRATOR AND THE LENDERS ENTERING INTO THIS AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
PLEDGOR
PIPER JAFFRAY INC., a Delaware corporation
By /s/ Charles N. Hayssen
Title Chief Financial Officer
Piper Jaffray Tower, 16th Floor
222 South Ninth Street
Minneapolis, Minnesota 55402
Attention: Charles N. Hayssen
Telephone: (612) 342-6032
Facsimile: (612) 342-6085
<PAGE>
ADMINISTRATOR
THE NORTHERN TRUST COMPANY, as
Administrator
By /s/ Peggy O'Leary
Title Senior Vice President
50 South LaSalle Street
Chicago, Illinois 60675
Attention: Gerald A. Frey
Telephone: (312) 444-4386
Facsimile: (312) 444-4906
Exhibit 10.14
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 23, 1994, is by and between
PIPER JAFFRAY INC., a Delaware corporation (the "Company"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Bank").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural form of the terms defined, as
the context may require):
"Adjusted Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, an interest rate per annum (rounded
upward, if necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate for such Interest Period by 1 minus the Eurodollar
Reserve Percentage.
"Administrator": As defined in the Collateral Agreement.
"Advance": Any portion of the outstanding Loans as to which the
Company has elected one of the available interest rate options and, if
applicable, an Interest Period. An Advance may be a Eurodollar Rate Advance
or a Federal Funds Rate Advance.
"Affiliate": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturer and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Aggregate Debit Items": At any time, the aggregate debit items of
the Company at such time as computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers, Exhibit A to Rule
15c3-3.
"Agreement to Pledge": An agreement substantially in the form of
Exhibit A hereto.
"Applicable Margin": With respect to:
(a) Eurodollar Rate Advances -- 12 of 1% per annum.
(b) Federal Funds Rate Advances -- 1/2 of 1% per
annum.
"Bank": As defined in the opening paragraph hereof.
"Board": The Board of Governors of the Federal Reserve System or
any successor thereto.
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open for business in Minneapolis, Minnesota and on which the NYSE is open for
trading.
"Cash Collateral": As defined in the Collateral Agreement.
"Capitalized Lease": A lease of (or other agreement conveying
the right to use) real or personal property with respect to which at least a
portion of the rent or other amounts thereon constitute Capitalized Lease
Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board) and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance witho GAAP (including such Statement
No. 13).
"Change of Control": The occurrence, after the Closing Date, of any
of the following circumstances: (a) the Parent not owning, directly or
indirectly, securities of the Company representing 100% (exclusive of directors'
qualifying shares) of securities of the Company entitled to vote in the election
of directors, or (b) any Person or two or more Persons acting in concert
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Commission under the Exchange Act), directly or indirectly, of securities of the
Company (or other securities convertible into such securities) representing 20%
or more of the combined voting power of all securities of the Parent entitled to
vote in the election of directors, or (c) during any period of up to twelve
consecutive months, whether commencing before or after the Closing Date,
individuals who at the beginning of such twelve-month period were directors of
the Parent ceasing for any reason to constitute a majority of the Board of
Directors of the Parent (other than by reason of death, disability or scheduled
retirement), or (d) any Person or two or more Persons acting in concert
acquiring by contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition of, control over
securities of the Parent (or other securities convertible into such securities)
representing 20% or more of the combined voting power of all securities of the
Parent entitled to vote in the election of directors.
"Closing Date": Any Business Day between the date of this Agreement
and December l, 1994 selected by the Company for the making of the initial Loan
hereunder: provided that all the conditions precedent to the obligation of the
Bank to make the initial Loan, as set forth in Article Ill, have been, or, on
such Closing Date, will be, satisfied. The Company shall give the Bank not less
than one Business Day's prior notice of the day selected as the Closing Date.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Agreement": The Pledge and Collateral Administration
Agreement dated as of November 23, 1994 among the Company, the Bank, various
other Lenders, and the Northern Trust Company, as Administrator.
"Collateral Pool": As defined in the Collateral Agreement.
"Collateral Value": At any time of determination, with respect
to an Eligible Security, a Dollar amount equal to the product of (a) the
valuation rate set forth in the Collateral Agreement for the relevant type of
Security (in the case of Customers' Securities) or 80% (in the case of Firm
Securities), and (b) the amount determined by the Bank (in the case of Firm
Securities) or the Administrator (in the case of Customers' Securities) to be
the Market Value of the Security at such time. The Collateral Value of any
Security other than an Eligible Security shall be zero. The Collateral Value of
Cash Collateral shall be the amount thereof. The Collateral Value of the
Collateral Pool shall mean the aggregate Collateral Values of all Eligible
Securities comprising the Collateral Pool.
"Commission": The Securities and Exchange Commission, or any
regulatory body that succeeds to the functions thereof.
"Commitment": The obligation of the Bank to make Committed Loans to
the Company in an aggregate principal amount outstanding at any time not to
exceed the Commitment Amount upon the terms and subject to the conditions and
limitations of this Agreement.
"Commitment Amount": The maximum unpaid principal amount of Loans
which may from time to time be outstanding hereunder, being initially
$75,000,000 but as the same may from time to time be reduced pursuant to Section
2.9.
"Commitment Date": November 3, 1994
"Commitment Ending Date": As defined in Section 2.14.
"Committed Loan": As defined in Section 2.1.
"Company": As defined in the opening paragraph hereof.
"Contingent Obligation": With respect to any Person at the time
of any determination, without duplication, any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
miner, whether directly or otherwise: (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any dirt or indirect
security therefor, (b)to purchase property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness, (c) to maintain working capital, equity capital or other financial
statement condition of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or otherwise to protect the owner thereof against loss
in respect thereof, or (d) entered into for the purpose of assuring in any
manner the owner of such Indebtedness of the payment of such Indebtedness or to
protect the owner against loss in respect thereof; provided, that the term
"Contingent Obligation" shall not include endorsements for collection or
deposit, in each case in the ordinary course of business.
"Customer": A retail or institutional customer of the Company that
owns securities that are eligible for hypothecation by the Company (acting as a
broker-dealer of securities) under all applicable laws and regulations.
"Customers' Securities": Securities that are "securities carried
for the account of any customer, as that term is defined in Rules 8c-1 and
15c2-1 of the Commission, 17 C.F.R. ss.ss. 240. 8c-1 and 240.15c2-1.
"Customer Securities Availability": At any given time, the Bank's
Pro Rata Share of the maximum amount of Secured Obligations permitted to be
outstanding under the Collateral Agreement, based upon the Collateral Value of
the Eligible Securities and Cash Collateral in the Collateral Pool at that time.
"Customers' Securities Note": As defined in Section 2.4.
"Default": Any event which, with the giving of notice (whether
such notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"Discretionary Credit Subfacility": The discretionary credit
facility established pursuant to Section 2.2.
"Discretionary Credit Subfacility Amount": The maximum unpaid
principal amount of Discretionary Loans which may from time to time be
outstanding hereunder, being initially $15,000,000 but as the same may be from
time to time reduced as the parties may agree in writing.
"Discretionary Loan": As defined in Section 2.2.
"DTC": The Depository Trust Company, a New York limited purpose
trust company and a registered "clearing agency" under Section 17A of the
Exchange Act.
"DTC Debt Security": A "security" (as defined in Section 8-102(c) of
the UCC) that (a) is a debt security that is rated at one of the four highest
rating levels (without consideration of sublevels) for its maturity by Standard
& Poor's Corporation, Moody's Investors Service, Inc. or other comparable
nationally recognized rating service and (b) is capable of being (i)identified
by DTC by means of a DTC Pledge Summary Report as having been pledged to the
Bank by the Company or (ii) transferred to the account of the Bank or its agent
at DTC, whether or not such identification or transfer has occurred.
"DTC Equity Security": A "security" (as defined in Section 8-102(c)
of the UCC) that (a) is an equity security issued by a U.S. Person and (b) is
capable of being (i) identified by DTC by means of a DTC Pledge Summary Report
as having been pledged to the Bank by the Company or (ii) transferred to the
account of the Bank or its agent at DTC, whether or not such identification or
transfer has occurred.
"DTC Pledge Summary Report": As defined in DTC's "PTS Reference
Manual" dated May, 1991.
"Eligible Security": For purposes of the definitions, "Customer
Securities Availability" and "Collateral Value" (as it pertains to Customers'
Securities), the term "Eligible Security" is as defined in the Collateral
Agreement. For purposes of the Discretionary Credit Subfacility, the term
"Eligible Security" means a Security that (a) is legally available to be pledged
or hypothecated by the Company to the Bank, pursuant to an Agreement to Pledge,
(b)is subject as of the transfer thereof to the Bank to (i) a validly perfected
first priority security interest in favor of the Bank, (ii) no Lien other than
the Lien in favor of the Bank created by the Loan Documents and (iii) no adverse
claims (as defined in Section 8-302 of the UCC) known to the Company which would
impair the value thereof as collateral, (c) is a DTC Debt Security, GNMA
Security or Government Security, (d) is a DTC Equity Security with respect to
which the Company is a qualified OTC market marker (as such term is used in
Regulation U), (e) has not matured or been called prior to its stated maturity
and otherwise is not in default, (f) has not been deemed by the Bank, in its
sole discretion, to be illiquid, and (g) is not a Customers' Security.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day for
trading by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": With respect to each Interest Period applicable
to a Eurodollar Rate Advance, the interest rate per annum (rounded upward, if
necessary, to the next one-sixteenth of one percent) at which United States
dollar deposits are offered to the Bank in the interbank Eurodollar market two
Eurodollar Business Days prior to the first day of such Interest Period for
delivery in Immediately Available Funds in the interbank Eurodollar market on
the first day of such Interest Period and in an amount approximately equal to
the Advance to which such Interest Period is to apply as determined by the Bank
and for a maturity comparable to the Interest Period; provided, that in lieu of
determining the rate in the foregoing manner, the Bank may substitute the per
annum Eurodollar rate (LIBOR) for United States dollars displayed on the
Telerate Systems, Inc. screen, page 3750 (or other applicable page), on the
first day of such Interest Period or may substitute a rate derived from at least
two or more rates which appear on the Reuters Screen LIBO Page as of 11:00 a.m.
London time, on the day that is two Eurodollar Business Days prior to the first
day of the Interest Period for such Eurodollar Rate Advance. A rate derived from
two or more rates that appear on the Reuters Screen LIBO Page shall be the
arithmetic mean of such rates (rounded as provided above). "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London InterBank offered rates of major banks for
United States dollar deposits).
"Eurodollar Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that percentage
expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System, with deposits comparable in amount to those held by the Bank, in respect
of "Eurocurrency liabilities" as such term is defined in Regulation D of the
Board. The rate of interest applicable to any outstanding Eurodollar Rate
Advances shall be adjusted automatically on and as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
"Examining Authority": The organization designated by the
Securities and Exchange Commission as the Examining Authority for the Company as
provided in paragraph(c)(12) of Rule 15c3-1.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Facility Fees": As defined in Section 3.11.
"Federal Funds Rate": For any borrowing of Federal Funds Rate
Advances, the rate at which the Bank is offered overnight Federal funds at or
about the rate setting time for such borrowing by three Federal Funds brokers
selected by the Bank. The "rate setting time" with respect to any such borrowing
shall be at 10:00 a.m., 11:00 a.m., 12:00 noon, 1:00 p.m. or 2:00 p.m.,
Minneapolis time, on the date such borrowing is to be made and not less than one
hour after the Bank has received notice of such borrowing pursuant to Section
2.3 hereof, or at any later time that is on the hour on such date, so long as
such later time is prior to the closing of the Federal Funds wire in New York
City as such rate setting time is selected by the Company in the notice of such
borrowing delivered pursuant to Section 2.3 hereof. The "closing of the Federal
Funds wire" shall mean the time at which the Federal Funds wire in New York City
customarily closes or, if there has been a system-wide extension of such closing
time, the time to which the closing of the Federal Funds wire has been extended.
"Federal Funds Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Federal Funds Rate.
"Firm Collateral Agreement": The Collateral Agreement dated as
of November 23, 1994, between the Company and the Bank.
"Firm Securities": All Securities owned or held by the Company
that are not Customers' Securities.
"Firm Securities Note": As defined in Section 2.4.
"Focus Report": The Financial and Operational Combined Uniform
Single Report required to be filed on a monthly or quarterly basis, as the case
may be, with the Commission or the NYSE, or any report that is required in lieu
of such report.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"GNMA Securities": As defined in the Collateral Agreement.
"Governmental Authority": Any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislation, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, the Commission.
"Government Securities": A security of any one or more of the
following types: a security issued by the United States Treasury, the Federal
national Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Resolution Funding Corporation, the Student Loan Marketing Association, the
Export-Import Bank of the United States, the United States Postal Service, the
Federal Financing Bank, the Tennessee Valley Authority, the Federal Home Loan
Bank, the Farm Credit System or the Farmers Home Administration, or by any other
agency of the United States government that has been previously approved by the
Bank as being eligible for pledging under this Agreement and, with respect to
each of the foregoing, that is maintained in book-entry form on the records of a
Federal Reserve Bank or DTC; provided, that any of the foregoing types of
Government Securities shall cease to be Government Securities for purposes of
this Agreement at any time that, as a result of legislative, regulatory or
judicial action, the relationship between the agency issuing such Government
Security and the United States government, or the status of such Government
Security with respect to its support by the United States government, has been
changed in any way.
"Immediately Available Funds": Funds with good value on the day
and in the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent of otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, o)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Period": With respect to each Eurodollar Rate Advance, the
period commencing on the date such Advance is made or converted from a Federal
Funds Rate Advance or on the last day of the immediately preceding Interest
Period, if any, applicable to an outstanding Advance and ending seven, fourteen,
thirty, sixty or ninety days thereafter, as the Company may elect in the
applicable notice of borrowing, continuation or conversion; provided that:
(a) Any Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day unless such Eurodollar Business
Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Eurodollar Business Day; (b)
Any Interest Period which begins on the last Eurodollar Business Day
of a calendar month (or a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month; and (c) No Interest Period shall end alter the Commitment
Ending Date. "Investment": The acquisition, purchase, making or
holding of
any stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase stock or other debt or equity securities of or any interest in another
Person or any integral part of any business or the assets comprising such
business or part thereof. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-owns or
write-offs with respect to such Investment.
"Knowledge": With respect to any occurrence or event, when such
occurrence or event is brought to the attention of a responsible officer of the
Company or should have been brought to such officer's attention if the Company
had exercised due diligence.
"Lenders": As defined in the Collateral Agreement.
"Leverage Ratio": At the time of any determination, the ratio of
(a) Total Assets to (b) Tangible Net Worth of the Company.
"Lien": With respect to any Person, any security interest,
mortgage, pledge, lien, charge, encumbrance, the retention agreement or
analogous instrument or device (including the interest of each lessor under any
Capitalize Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Liquidation Notice": As defined in the Collateral Agreement.
"Loan": A Committed Loan or a Discretionary Loan.
"Loan Date": The date of the making of any Loan hereunder.
"Loan Documents": This Agreement, the Notes, the Collateral
Agreement, the Firm Collateral Agreement and any Agreements to Pledge.
"Market Value": For purposes of the Discretionary Credit
Subfacility, the term "Market Value" means, with respect to any Security, the
final price bid for such Security on the Business Day immediately preceding the
date of valuation of such Security, as determined by reference (a) in the case
of DTC Equity Securities, DTC Debt Securities and Government Securities at DTC,
to the DTC "Participant Terminal Services" system, (b) in the case of
Governmental Securities (other than those held at DTC), to any securities
pricing services that are regularly recognized in national financial markets or,
if no such pricing services are available on any Business Day, to The Wall
Street Journal, and (c) in the case of GNMA Securities, to the pricing system
provided by PTC. Such determinations shall be made reasonably and in good faith
and shall be conclusive in the absence of manifest error. For purposes of the
Commitment, the term "Market Value" is as defined in the Collateral Agreement.
"Material Subsidiary": A Subsidiary having Tangible Net Worth in
excess of $1,000,000.
"Multiemployer Plan": A multiemployer plan, as such term is defined
in Section 4001(a) (3) of ERISA, which is maintained (on the Closing Date,
within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of the Company or any ERISA Affiliate.
"NASD": The National Association of Securities Dealers, Inc., or any
other self-regulatory organization that succeeds to the functions thereof.
"Net Capital": As determined in accordance with the capital
requirements, rules and regulations of the NYSE that are applicable to the
Company at any time of determination.
"Notes": Collectively, the Customers' Securities Note and the
Firm Securities Note.
"NYSE": The New York Stock Exchange.
"Obligations": (a) The Company's obligations in respect of the due
and punctual payment of principal and interest on the Notes when and as due,
whether by acceleration or otherwise and (b) all fees (including Facility Fees),
expenses, indemnities, reimbursements and other obligations of the Company under
this Agreement or any other Loan Document, in all cases whether now existing or
hereafter arising or incurred.
"Official Lien": means any Lien which represents (a) a lien in favor
of a Governmental Authority (i) to secure obligations owing to such Governmental
Authority in its official capacity (and not as a lender or transaction
counterparty or in another similar capacity that may be undertaken by a Person
that is not a Governmental Authority) or (ii) to enforce or secure, or imposed
as, a penalty, fine, forfeiture or other like remedy or (b) a Lien effected by
judicial process, unless in the case of either clause (a) or (b), such Lien has
been discharged, stayed, vacated or bonded (by property other than the Pledged
Securities). For purposes of this definition, (x) "Lien" includes any Lien which
has not yet become effective but the effectiveness of which in the future is
provided for in an order, decree or other determination of a court or other
applicable Governmental Authority or in an agreement to which the owner of the
interest in the property to be subject thereto is a party if such effectiveness
will occur solely upon the passage of time and not as a result of any action or
inaction on the part of any Person, whether or not such Lien would otherwise be
a "Lien" hereunder and (y) "Official Lien" includes any Lien which secures a
bond of any other Official Lien or of any judgment, claim, order or other
determination of a Governmental Authority in its official capacity or which is
granted or entered in connection with any judicial process.
"Parent": Piper Jaffray Companies Inc., a Delaware corporation.
"PBGC": The Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Plan": Each employee benefit plan (whether in existence on the
Closing Date or thereafter instituted), as such term is defined in Section 3 of
ERISA, maintained for the benefit of employees, officers or directors of the
Company or of any ERISA Affiliate.
"Pledged Securities": Firm Securities subject to Agreements to
Pledge and Customers' Securities subject to the Collateral Agreement.
"Pro Rata Share": The fraction whose numerator is the principal
amount outstanding of the Committed Loans and whose denominator is the aggregate
principal amount outstanding of the Lenders' Secured Obligations (including the
outstanding Committed Loans).
"Producer Loan": A Loan made to an employee of the Company pursuant
to which the Company has agreed to forgive all or a portion of such loan upon
the achievement of certain production goals by such employee.
"Prohibited Transaction": The respective meanings assigned to such
term in Section 4975 of the Code and Section 406 of ERISA.
"PTC": Participants Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section 17.A of the Exchange
Act.
"Regulations D, T, U and X": Regulations D, T, U and X,
respectively, of the Board, as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change": Any change after the Closing Date in federal,
state or foreign laws or regulations or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including the Bank under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.
"Rule 15c3-3": Rule 15c3-3 promulgated under the Exchange Act.
"Secured Obligations": As defined in the Collateral Agreement.
"Securities": Collectively, DTC Debt Securities, DTC Equity
Securities, Government Securities and GNMA Securities.
"Securities Act": The Securities Act of 1933, as amended.
"Self-Regulatory Organization": As defined in Section 3(a)(26)
of the Exchange Act.
"SIPA": The Securities Investor Protection Act of 1970, as
amended.
"Special Reserve Account": The special reserve bank account
maintained by the Company with the Bank for the exclusive benefit of Customers
pursuant to Rule 15c3-3.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Company either directly or through one or more Subsidiaries.
"Tangible Net Worth": With respect to any Person, at the date of any
determination, the sum of the amounts set forth on the consolidated, if
applicable, balance sheet of such Person, as the sum of the common stock,
preferred stock, additional paid-in capital and retained earnings of such Person
(excluding treasury stock), less the net book value of all assets of such Person
and its subsidiaries (to the extent reflected as an asset on such consolidated
balance sheet) that would be treated as intangibles under GAAP, including all
such items as goodwill, trademarks, trade names, service marks, copyrights,
patents, licenses, unamortized debt discount and expenses and the excess of the
purchase price of the assets of any business acquired by such Person or any
subsidiary over the book value of such assets, and less obligations owed to such
person by any Affiliate. Tangible Net Worth of the Parent shall exclude loans
made by the Parent to any of its officers, directors or employees.
"Termination Date": The earliest of (a) the Commitment Ending Date,
(b)the date on which the Commitment is terminated pursuant to Section 7.2 or (c)
the date on which the Commitment Amounto is reduced to zero or the Commitment is
terminated pursuant to Section 2.9 hereof.
"Total Assets": At the time of any determination, the net book
value of all assets of the Company as determined in accordance with GAAP.
"UCC": The Uniform Commercial Code as in effect from time to
time in the State of Minnesota.
"U.S. Person": Any corporation, partnership, association or trust
that issues Securities and that is organized under the laws of the United States
of America or any one of its states.
Section 1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP. To the extent any change in GAAP affects any computation
or determination required to be made pursuant to this Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless the Company and the Bank agree in writing on an adjustment to
such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.4 Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and the references are to
this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
TERMS OF LENDING
Section 2.1 The Commitment. On the terms and subject to the conditions
hereof, the Bank agrees to make loans (each, a "Committed Loan" and,
collectively, the "Committed Loans") to the Company on a revolving basis at any
time and from time to time from the Closing Date to the Termination Date, during
which period the Company may borrow, repay and reborrow in accordance with the
provisions hereof; provided, that (a) the unpaid principal amount of outstanding
Loans (inclusive of outstanding Discretionary Loans) shall not at any time
exceed the Commitment Amount, and (b)the unpaid principal amount of outstanding
Committed Loans shall not at any tune exceed the Customers' Securities
Availability. Loans may be obtained and maintained, at the election of the
Company but subject to the limitations' hereof, as Federal Funds Rate Advances
or Eurodollar Rate Advances or any combination thereof.
Section 2.2 Discretionary Credit Subfacility.
2.2(a) Discretionary Credit Subfacility. The Bank agrees to consider
the Company's requests, from time to time, for Loans in an aggregate principal
amount outstanding from time to time from the Effective Date until the
Termination Date, not to exceed the Discretionary Credit Subfacility Amount, and
the Bank may (in its sole and unlimited discretion) make the requested Loans
(the "Discretionary Loans"). Nothing contained in this Agreement shall be
construed to constitute a commitment to make any Discretionary Loan even if the
Company satisfies all terms and conditions specified herein with respect to
Discretionary Loans.
2.2(b) Special Borrowing Procedures. In addition to the procedures
specified in Section 2.3 of this Agreement, the Company will deliver to the Bank
by no later than 5:00 p.m. (Minneapolis time) on any day on which the Company
has made a request for a Discretionary Loan an Agreement to Pledge covering Firm
Securities that upon delivery to the Bank must qualify as Eligible Securities
with an attached list of such Firm Securities stating the Market Value thereof.
On any Business Day on which a Discretionary Loan remains outstanding as of 3:00
p.m. (Minneapolis time), the Company shall deliver to the Bank by no later than
5:00 p.m. (Minneapolis time) a list of the Firm Securities subject to the
Agreement to Pledge that was delivered with the request for such Discretionary
Loan, whether or not such Firm Securities have been delivered to the Bank,
stating the Market Value thereof. By delivering each such list or Agreement to
Pledge, the Company shall be deemed to grant the Bank a security interest in the
listed Firm Securities and to represent and covenant that: (i) the listed
Securities are Eligible Securities; (ii) the listed Securities will not be sold,
pledged or otherwise transferred to any person other than the Bank prior to 9:00
a.m. on the Business Day after the day on which the Company delivers the list to
the Bank; (iii) the Company will, upon demand by the Bank, deliver all
Securities described in any such list then current, or (if such demand is made
after 9:00 a.m. on the Business Day after the Bank's receipt of the most recent
such list), other Firm Securities acceptable to the Bank that are Eligible
Securities with an aggregate Market Value at least equal to the aggregate Market
Value of the listed Securities, to the Bank, and pledge those Securities to the
Bank as security for all Discretionary Loans then outstanding; and (iv) any
Securities listed in Agreements to Pledge in effect for 15 consecutive calendar
days will be delivered and pledged to the Bank by the Company as security for
all Discretionary Loans then outstanding (as applicable on the first Business
Day following that fifteenth consecutive day).
2.2(c) Minimum Collateral Value. The aggregate Collateral Value of
Firm Securities subject to Agreements to Pledge in favor of the Bank shall at
all times equal or exceed the aggregate unpaid principal amount of Discretionary
Loans.
Section 2.3 Procedure for Loans. Any request by the Company for a Loan
shall be in writing, or by telephone promptly confirmed in writing, and must be
given so as to be received by the Bank not later than 3:30 p.m. (Minneapolis
time) two Eurodollar Business Days prior to the requested Loan Date if the Loan
is requested as a Eurodollar Rate Advance, and not later than 3:30 p.m.
(Minneapolis time) on the requested Loan Date if the Loan is requested as a
Federal Funds Rate Advance. The Bank may, in its sole discretion, accept
requests for Loans after 3:30 p.m. (Minneapolis time). Each request for a Loan
shall be irrevocable and shall be deemed a representation by the Company that on
the requested Loan Date and after giving effect to such Loan the applicable
conditions specified in Article III have been and will continue be satisfied.
Each request for a Loan shall specify (a) the requested Loan Date, (b)the amount
of such Loan which shall be in a minimum amount of $500,000 or, if more, an
integral multiple thereof, (c) whether such Loan is to be funded as a Federal
Funds Rate Advance or a Eurodollar Rate Advance, (d) in the case of a Loan made
as a Eurodollar Rate Advance, the duration of the initial Interest Period
applicable thereto, and (e) whether such Loan is requested as a Committed Loan
or a Discretionary Loan. Unless the Bank determines that any applicable
condition specified in Section 2.1 or in Article III has not been satisfied, or
has determined (in its sole and unlimited discretion) not to make a requested
Discretionary Loan, the Bank will make available to the Company at the Bank's
principal office in Minneapolis, Minnesota in Immediately Available Funds not
later than 4:00 p.m. (Minneapolis time) on the requested Loan Date the amount of
the requested Loan. In the event that the Bank determines that the Customers'
Securities Availability is not sufficient to cover a requested Committed Loan,
the Bank may, in its sole discretion, make a Committed Loan in an amount that is
covered by Customers' Securities Availability. Without in any way limiting the
Company's obligation to confirm in writing any telephonic request for a Loan,
the Bank may rely on any such request which it believes in good faith to be
genuine; and the Company hereby waives the right to dispute the Bank's record of
the terms of such telephonic request for a Loan.
Section 2.4 The Notes. The Company's obligation to repay all Committed
Loans shall be evidenced by a promissory note substantially in the form of
Exhibit B hereto (the "Customers' Securities Note"). The Company's obligation to
repay all Discretionary Loans shall be evidenced by a promissory note
substantially in the form of Exhibit C hereto (the "Firm Securities Note"). The
Bank shall enter in its ledgers and records the amount of each Loan, the various
Advances made, converted or continued and the payments made thereon, and the
Bank is authorized by the Company to enter on a schedule attached to each Note a
record of such Loans, Advances and payments; provided, however that the failure
by the Bank to make any such entry or any error in making such entry shall not
limit or otherwise affect the obligation of the Company hereunder and on the
Notes, and, in all events, the principal amount owing by the Company in respect
of the Notes shall be the aggregate amount of all Loans made by the Bank less
all payments of principal thereof made by the Company.
Section 2.5 Conversions and Continuations. On the terms and subject to the
limitations hereof, the Company shall have the option at any time and from time
to time to convert all or any portion of the Advances into Federal Funds Rate
Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate Advance
as such; provided, however that a Eurodollar Rate Advance may be converted or
continued only on the last day of the Interest Period applicable thereto and no
Advance may be converted or continued as a Eurodollar Rate Advance if a Default
or Event of Default has occurred and is continuing on the proposed date of
continuation or conversion. Advances may be converted to, or continued as,
Eurodollar Rate Advances only in amounts of $500,000 or an integral multiple
thereof. The Company shall give the Bank written notice of any continuation or
conversion of any Advance and such notice must be given so as to be received by
the Bank not later than 12:00 noon (Minneapolis time) two Eurodollar Business
Days prior to the requested date of conversion or continuation in the case of
the continuation of, or conversion to, a Eurodollar Rate Advance or conversion
to a Federal Funds Rate Advance. Each such notice shall specify (a) the amount
to be continued or converted, (b)the date for the continuation or conversion
(which must be (i) the last day of the preceding Interest Period for any
continuation or conversion of Eurodollar Rate Advances, (ii) a Eurodollar
Business Day in the case of conversions to or continuations as Eurodollar
Advances, and (iii) a Business Day in the case of conversions to Federal Funds
Rate Advances, and (c) in the case of conversions to or continuations as
Eurodollar Rate Advances, the Interest Period applicable thereto. Any notice
given by the Company under this Section shall be irrevocable. If the Company
shall fail to notify the Bank of the continuation of any Eurodollar Rate Advance
within the time required by this Section, such Advance shall, on the last day of
the Interest Period applicable thereto, automatically be converted into a
Federal Funds Rate Advance of the same principal amount.
Section 2.6 Interest Rates, Interest Payments and Default Interest.
Interest shall accrue and be payable as follows:
2.6(a) Each Eurodollar Rate Advance shall bear interest on the
unpaid principal amount thereof during the Interest Period applicable thereto at
a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for such
Interest Period, plus (ii) the Applicable Margin.
2.6(B) Each Federal Funds Rate Advance shall bear interest on the
unpaid principal amount thereof at a floating rate per annum equal to the sum of
(i) the Federal Funds Rate, plus (ii) the Applicable Margin.
2.6(c) Effective upon notice from the Bank, whenever any Default or
Event of Default shall have occurred and be continuing (whether or not the
maturity of the Notes shall have been accelerated), interest shall accrue on
each Advance until such Default or Event of Default shall have been cured to the
written satisfaction of the Bank or, if such Default or Event of Default
consists of the Company's failure to pay the Bank any amount owing under any
Loan Document, until such amount shall have been paid in full (i) during the
balance of any Interest Period applicable to such Advance, at a rate per annum
equal to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0% and (ii) otherwise, at a rate per annum equal to the sum of (x)
the Federal Funds Rate, plus (y) the Applicable Margin for Federal Funds
Advances, plus (z) 2.0%.
2.6(d) Interest shall be payable (i) with respect to each Eurodollar
Rate Advance on the last day of the Interest Period applicable thereto; (ii)
with respect to any Federal Funds Rate Advance, on the fat day of each month;
(iii) with respect to Discretionary Loans, upon each day that principal is due;
(iv) with respect to all Advances, upon any permitted prepayment (on the amount
prepaid); and (v) with respect to all Advances, on the Termination
Date;-provided that interest under Section 2.6(c) shall be payable on demand.
Section 2.7 Repayment.
2.7(a) Principal of the Committed Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on the Termination Date.
2.7(b) Principal of Discretionary Loans together with all accrued
and unpaid interest thereon, shall be due and payable on demand, which demand
may be for payment in whole or in part, irrespective of the occurrence or
non-occurrence of any Default or Event of Default. If demand is not sooner made,
each Discretionary Loan shall be due and payable on the first Business Day
following the date on which such Discretionary Loan was made together with all
accrued and unpaid interest thereon.
Section 2.8 Optional Prepayments. The Company may prepay Federal Funds
Rate Advances, in whole or in part, at any time, without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $500,000 or an
integral multiple thereof. Except upon an acceleration following an Event of
Default or upon termination of the Commitment under Section 2.9, the Company may
pay a Eurodollar Rate Advance only on the last day of the Interest Period
applicable thereto. Amounts paid (unless following an acceleration or upon
termination of the Commitment) or prepaid under this Section 2.8 may be
reborrowed upon the terms and subject to the conditions and limitations of this
Agreement.
Section 2.9 Optional Reduction of Commitment Amount or Termination of
Commitment. The Company may, at any time, upon not less than five Business Days
prior written notice to the Bank, reduce the Commitment Amount, with any such
reduction in a minimum amount of $500,000, or, if more, in an integral multiple
of $500,000; provided, however, that the Company may not reduce the Commitment
Amount at a time and in an amount if such reduction and the payment required by
the next sentence would result in any outstanding Eurodollar Rate Advance being
repaid, in whole or in part, prior to the last day of the Interest Period
applicable to such Advance. Upon any reduction in the Commitment Amount pursuant
to this Section, the Company shall pay to the Bank the amount, if any, by which
the aggregate unpaid principal amount of outstanding Loans exceeds the
Commitment Amount as so reduced. Amounts so paid cannot be reborrowed. The
Company may, at any time, upon not less than five Business Days prior written
notice to the Bank, terminate the Commitment in its entirety. Upon termination
of the Commitment pursuant to this Section, the Company shall pay to the Bank
the full amount of all outstanding Loans, all accrued and unpaid interest
thereon, all unpaid Facility Fees accrued to the date of such termination, any
indemnities payable pursuant to Section 2.19 and all other unpaid obligations of
the Company to the Bank hereunder.
Section 2.10 Delivery of Collateral; Mandatory Prepayments.
2.10(a) At any time that the outstanding principal amount of the
Customers' Securities Note exceeds the Customers' Securities Availability, the
Company shall comply with Section 4.1(b) of the Collateral Agreement.
2.10(b) Without limiting to any degree the demand nature of the
Obligations under the Firm Securities Note, the Company shall at any time that
the outstanding principal amount of the Firm Securities Note exceeds the
aggregate Collateral Value of the Firm Securities subject to Agreements to
Pledge, immediately prepay the principal amount of the Firm Securities Note in
the amount of such excess and pay all accrued and unpaid interest on such
amount.
Section 2.11 Facility Fee. The Company shall pay to the Bank fees (the
"Facility Fees") in an amount determined by applying a rate of .20% per annum to
the amount of the Commitment for the period from the Commitment Date to the
Termination Date. Such Facility Fees are payable quarterly in arrears on the
last day of each quarter, commencing on December 31, 1994, and on the
Termination Date.
Section 2.12 Computation. Facility Fees and interest on Advances shall be
computed on the basis of actual days elapsed and a year of 360 days.
Section 2.13 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 p.m. (Minneapolis time) on the
dates called for under this Agreement at the main office of the Bank in
Minneapolis, Minnesota. Funds received on any day after such time shall be
deemed to have been received by the Bank on the next Business Day. Whenever any
payment to be made hereunder or on either Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time, in the case of a payment of
principal, shall be included in the computation of any interest on such
principal payment.
Section 2.14 Commitment Ending Date and Extension. The "Commitment Ending
Date" is November 17, 1995; provided, however, that if the Company by written
notice given to the Bank at least 45 days but not more than 180 days prior to
the Commitment Ending Date requests in writing an initial extension of the
Commitment Ending Date for an additional period of time, not to exceed 180 days,
and if the Bank, in its sole and absolute discretion and based on such review of
the Company's financial performance and condition and such other factors as the
Bank considers relevant (which may include future loan policies and other
policies adopted by the Bank unrelated to the Company's financial condition),
consents in writing to such extension, then the Commitment Ending Date shall be
extended for such additional period of time, which in the case of the initial
extension shall not exceed 180 days, and in such extended period the Company may
repeat its request within the same time limit and, if the Bank consents, the
Commitment Ending Date shall be further extended for an additional period, not
to exceed 360 days, and so on from time to time; provided, that in the case of
the initial extension period, the written notice given to the Bank during such
period shall be given not more than 90 days prior to the Commitment Ending Date.
The Bank's failure to respond to the Company's written request for an extension
within 45 days of the Bank's receipt thereof shall be deemed a denial of such
request. In the case of any such extension, the "Commitment Ending Date" shall
be the last day of the period to which such extension has been granted. The Bank
shall be under no obligation or commitment to extend the Commitment Ending Date,
and no such obligation or commitment on the part of the Bank should be inferred
from the provisions of this Section.
Section 2.15 Use of Proceeds. The proceeds of the initial Loan shall be
used first for paying all outstanding Indebtedness of the Company to the Bank.
Any remaining balance of the initial Loan and the proceeds of any subsequent
Loans shall be used for the Company's short-term working capital needs in
compliance with all applicable legal and regulatory requirements, including,
without limitation, Regulations T, U and X and the Securities Act and the
Exchange Act and the regulations thereunder. The Bank shall have no
responsibility as to the use of any such proceeds.
Section 2.16 Interest Rate Not Ascertainable, Etc. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the Interest
Period for any requested Eurodollar Rate Advance, the Bank determines (which
determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being
made available to the Bank in the relevant market for such Interest
Period, or (b) the Adjusted Eurodollar Rate will not adequately and
fairly reflect the cost to the Bank of funding or maintaining
Eurodollar
Rate Advances for such Interest Period,
the Bank shall forthwith give notice to the Company of such determination,
whereupon the obligation of the Bank to make or continue, or to convert any
Advances to Eurodollar Rate Advances shall be suspended until the Bank notifies
the Company that the circumstances giving rise to such suspension no longer
exist. No such suspension shall affect the interest rate then in effect during
the applicable Interest Period for any Eurodollar Rate Advance outstanding at
the time such suspension is imposed.
Section 2.17 Increased Cost. If any Regulatory Change: (a) shall subject
the Bank to any tax, duty or other charge with respect to Eurodollar
Rate Advances, the Note or its obligation to make Eurodollar Rate
Advances, or shall change the basis of taxation of payment to the
Bank of the principal of or interest on Eurodollar Rate Advances or
any other amounts due under this Agreement in respect of Eurodollar
Rate Advances or its obligation to make Eurodollar Rate Advances
(except for changes in the rate of tax on the overall net income of
the Bank imposed by the laws of the United States or any
jurisdiction in which the Bank's principal office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including any
such requirement imposed by the Board, but excluding any Eurodollar
Rate Advance any such requirement to the extent included in
calculating the applicable Adjusted Eurodollar Rate) against assets
of, deposits with or for the account of, or credit extended by, the
Bank or shall impose on the Bank or on the interbank Eurodollar
market any other condition affecting Eurodollar Rate Advances, the
Notes or its obligation to make Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Eurodollar Rate Advance, or to reduce the amount of
any sum received or receivable by the Bank under this Agreement or under either
Note, then, within 30 days after demand by the Bank, the Company shall pay to
the Bank such additional amount or amounts as will compensate the Bank for such
increased cost or reduction. The Bank will promptly notify the Company of any
event of which it has knowledge, occurring after the date hereof, which will
entitle the Bank to compensation pursuant to this Section. A certificate of the
Bank claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable detail
the basis for the charge and the method of computation, shall be conclusive in
the absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of the Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable with respect to any Interest Period shall not constitute a waiver of
the Bank's rights to demand compensation for any increased costs or reduction in
amounts received or receivable in any subsequent Interest Period.
Section 2.18 Illegality. If any Regulatory Change shall make it unlawful
or impossible for the Bank to make, maintain or fund Eurodollar Rate Advances,
the Bank shall notify the Company, whereupon the obligation of the Bank to make
Eurodollar Rate Advances shall be suspended until the Bank notifies the Company
that the circumstances giving rise to such suspension no longer exist. If the
Bank determines that it may not lawfully continue to maintain any outstandingo
Eurodollar Rate Advances to the end of the applicable Interest Periods, all of
the affected Advances shall be automatically converted to Federal Funds Rate
Advances as of the date of the Bank's notice, and upon such conversion the
Company shall indemnify the Bank in accordance with Section 2.20.
Section 2.19 Capital Adequacy. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return (by an amount
the Bank deems material) on the Bank's capital or the capital of its parent
corporation as a consequence of the Commitment and/or the Loans to a level below
that which the Bank or the Bank's parent `corporation could have achieved but
for such Regulatory Change (taking into account the Bank's policies and the
policies of the Bank's parent corporation with respect to capital adequacy),
then the Company shall, within five days after written notice and demand from
the Bank, pay to the Bank additional amounts sufficient to compensate the Bank
or the Bank's parent corporation for such reduction; provided, however, that no
payment shall be required due to any increase in capital due to a regulatory
authority's assessment of the Bank's or its parent corporation's financial
condition. Any determination by the Bank under this Section and any certificate
as to the amount of such reduction given to the Company by the Bank shall be
final, conclusive and binding for all purposes, absent error.
Section 2.20 Funding Losses. The Company shall compensate the Bank, upon
its written request, for all losses, expenses and liabilities (including any
interest paid by the Bank to lenders of funds borrowed by it to make or carry
Eurodollar Rate Advances to the extent not recovered by the Bank in connection
with the re-employment of such funds and including loss of anticipated profits)
which the Bank may sustain: (a) if for any reason, other than a default by the
Bank, a funding of a Eurodollar Rate Advance does not occur on the date or in
the amount specified therefor in the Company's request or notice as to such
Advance under Section 2.2(b) or 2.3, or (b) if, for whatever reason (including
acceleration of the maturity of the Note following an Event of Default), any
repayment of a Eurodollar Rate Advance, or a conversion pursuant to Section
2.17, occurs on any day other than the last day of the Interest Period
applicable thereto. The Bank's request for compensation shall set forth the
basis for the amount requested and shall be final, conclusive and binding,
absent error.
Section 2.21 Discretion of Bank as to Manner of Funding. The Bank shall be
entitled to fund and maintain its funding of Eurodollar Rate Advances in any
manner it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including determinations under Section
2.20), shall be made as if the Bank had actually funded and maintained each
Eurodollar Rate Advance during the Interest Period for such Advance through the
purchase of deposits, having a maturity corresponding to the last day of the
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Loan. The obligation of the Bank to make
the initial Loan hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:
3.1(a)Documents. The Bank shall have received the following: (i)
The Notes executed by a duly authorized officer (or officers)
of the Company and dated the Closing Date. (ii) The Collateral
Agreement duly executed by the Company, the Administrator and
the Lenders. (iii) The Firm Collateral Agreement duly executed
by the Company. (iv) A copy of the corporate resolutions of
the Company authorizing the execution, delivery and
performance of the Loan Documents, certified as of the Closing
Date by the Secretary or an Assistant Secretary of the
Company. (v) An incumbency certificate showing the names and
titles, and bearing the signatures of, the officers of the
Company authorized to execute the Loan Documents and to
request Loans and conversions and continuations of Advances
hereunder, certified as of the Closing Date by the Secretary
or an Assistant Secretary of the Company. (vi) A copy of the
Certificate of Incorporation of the Company with all
amendments thereto, certified by the appropriate governmental
official of the jurisdiction of its incorporation as of a date
not more than ten days prior to the Closing Date. (vii) A
certificate of good standing for the Company in the
jurisdiction of its incorporation and in the States of
Minnesota and Delaware, certified by the appropriate
governmental officials as of a date not more than ten days
prior to the Closing Date. (viii) A copy of the bylaws of the
Company, certified as of the Closing Date by the Secretary or
an Assistant Secretary of the Company. (ix) A certificate
dated the Closing Date of the chief executive officer or chief
financial officer of the Company certifying as to the matters
set forth in Sections 3.2(a) and 3.2(b) below.
3.1(b) Opinion. The Company shall have requested Faegre & Benson,
its counsel, to prepare a written opinion, addressed to the Bank and dated the
Closing Date, covering the matters set forth in Exhibit D hereto, and such
opinion shall have been delivered to the Bank; provided, that with respect to
certain matters the Bank may accept the opinion of general counsel to the
Company.
3.1(c) Compliance. The Company shall have performed and complied
with all agreements, terms and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or simultaneously with
the Closing Date.
3.1(d) Adequacy of Collateral. All of the conditions to the
effectiveness of the Collateral Agreement specified in Article XIII thereof
shall have occurred and the Administrator shall have confirmed to the Bank
pursuant to Section 3.1(a) thereof that the Collateral Value of the Collateral
Pool is sufficient to secure all of the initial Committed Loan.
3.1(e) Other Matters. All corporate and legal proceedings relating
to the Company and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Bank and its counsel, and the Bank shall have received all
information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper corporate or
governmental authorities.
3.1(d) Fees and Expenses. The Bank shall have received all fees and
other amount due and payable by the Company on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Bank payable
pursuant to Section 8.2.
Section 3.2 Conditions Precedent to all Loans. The obligation of the Bank
to make any Loan hereunder (including the initial Loan) shall be subject to the
fulfillment of the following conditions:
3.2(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of the
Loan Date of each Loan, with the same force and effect as if made on such date.
3.2(b) No Default. No Default or Event of Default shall have
occurred and be continuing on the Loan Date of each Loan, will exist after
giving effect to such Loan or is reasonably anticipated to occur.
3.2(c) Loan Request. The Bank shall have received the Company's
request for such Loan as required under Section 2.3.
3.2(d) Adequacy of Collateral. The Administrator shall have
confirmed to the Bank pursuant to Section 3.1(a) of the Collateral Agreement
that the Collateral Value of the Collateral Pool is sufficient to secure all of
such Committed Loan.
3.2(e) Form U-1. The Bank shall have received a properly
completed Form U-1 (as referred to in Regulation U) duly executed by the
Company if so requested by the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, to grant the
Commitment and to make Loans hereunder, the Company represents and warrants to
the Bank:
Section 4.1 Organization, Standing, Etc. The Company is a corporation duly
incorporated and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the Loan
Documents. Each Material Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted. Each of the Company and the Material Subsidiaries
(a) holds all certificates of authority, licenses and permits necessary to carry
on its business as presently conducted in each jurisdiction in which it is
carrying on such business, except where the failure to hold such certificates,
licenses or permits would not have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Company and the Material Subsidiaries taken as a whole, and (b) is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character of the properties owned, leased or operated by it or the
business conducted by it makes such qualification necessary and the failure so
to qualify would permanently preclude the Company or such Material Subsidiary
from enforcing its rights with respect to any assets or expose the Company or
such Material Subsidiary to any liability, which in either case would be
material to the Company and the Subsidiaries taken as a whole.
Section 4.2 Authorization and Validity. The execution, delivery and
performance by the Company of the Loan Documents have been duly authorized by
all necessary corporate action by the Company, and this Agreement constitutes,
and the Notes and other Loan Documents when executed will constitute, the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 4.3 No Conflict; No Default. The execution, delivery and
performance by the Company of the Loan Documents will not (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to the Company, (b) violate
or contravene any provision of the Certificate of Incorporation or bylaws of the
Company, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which the Company is a party or by which it or any of its properties may be
bound or result in the creation of any Lien thereunder. Neither the Company nor
any Material Subsidiary is in default under or in violation of any such law,
statute, rule or regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit agreement or other
agreement, lease or instrument in any case in which the consequences of such
default or violation could have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the
Company and the Subsidiaries taken as a whole.
Section 4.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption, by, any governmental or public body or authority is required on the
part of the Company to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents.
Section 4.5 Financial Statements and No Material Adverse Change. The
Company's audited financial statements as at September 30, 1993 and its
unaudited financial statements as at September 30, 1994, as heretofore furnished
to the Bank, have been prepared in accordance with GAAP on a consistent basis
(except for year-end audit adjustments as to the interim statements) and fairly
present the financial condition of the Company as at such dates and the results
of its operations and changes in financial position for the respective periods
then ended. As of the dates of such financial statements, the Company had no
material obligation, contingent liability, liability for taxes or long term
lease obligation which is not reflected in such financial statements or in the
notes thereto, except in connection with the litigation disclosed in Schedule
4.6 hereto or reported to the Bank pursuant to Section 5.9. Since September 30,
1994, there has been no material adverse change in the business, operations,
property, assets or condition, financial or otherwise, of the Company, except as
disclosed in Schedule 4.5 hereto.
Section 4.6 Litigation.
4.6(a) General Litigation. Except as disclosed on Schedule 4.6
hereto, there are no actions, suits or proceedings pending or, to the knowledge
of the Company, threatened against or affecting the Company or any Subsidiary or
any of their properties before any court or arbitrator, or any Governmental
Authority which has had, or, if determined adversely to the Company or such
Subsidiary, would have, a material adverse effect on the business, operations,
property or condition (financial or otherwise) of the Company and the
Subsidiaries taken as a whole or on the ability of the Company to perform its
obligations under any Loan Document.
4.6(b) Litigation Affecting this Agreement. There are no actions,
suits, arbitrations, investigations or proceedings pending or, to its knowledge,
threatened against the Company before any Governmental Authority or the NYSE or
any other stock or securities or commodities exchange which questions the
validity or enforceability of this Agreement or any action to be taken in
connection with the transactions contemplated hereby.
Section 4.7 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.
Section 4.8 Margin Regulations. The Company is a broker-dealer subject to
Regulation T. The Company maintains procedures and internal controls reasonably
adapted to ensure that the Company does not extend or maintain credit to or for
its customers other than in accordance with the provisions of Regulation T, and
the activities of employees of the Company to ensure that the Company does not
extend or maintain credit to or for its customers other than in accordance with
the provisions of Regulation T. Neither the making of any Loan hereunder, nor
the use of proceeds thereof, will violate or be inconsistent with the provisions
of Regulations T, U or X.
Section 4.9 Title to Property; Liens; Possession Under Leases. Each of the
Company and the Material Subsidiaries has (a) good and marketable title to its
real properties and (b) good and sufficient title to or valid, subsisting and
enforceable leasehold interests in, its other material properties and assets,
including all real properties, other properties and assets, referred to as owned
by the Company and the Subsidiaries in the most recent financial statements
referred to in Section 4.5 (other than property disposed of since the date of
such financial statements in the ordinary course of business).
Section 4.10 Taxes. Each of the Company and the Material Subsidiaries has
filed all federal, state and local tax returns required to be filed and has paid
or made provision for the payment of all taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
and all other taxes, fees and other charges imposed on it or any of its property
by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Company). No tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Company in
respect of taxes and other governmental charges are adequate and the Company
knows of no proposed material tax assessment against it or any Material
Subsidiary or any basis therefor.
Section 4.11 Trademarks. Each of the Company and the `Subsidiaries
possesses or has the right to use all of the trademarks, trade names, service
marks and copyrights used in or necessary for the conduct of its business,
without known conflict with the rights of others.
Section 4.12 Burdensome Restrictions. Neither the Company nor any Material
Subsidiary is a party to or otherwise bound by any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which would foreseeably have a material adverse
effect on the business, properties, assets, operations or condition (financial
or otherwise) of the Company or such Material Subsidiary or on the ability of
the Company or any Material Subsidiary to carry out its obligations under any
Loan Document.
Section 4.13 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.
Section 4.14 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or of a subsidiary company of a
holding company within the meaning of the Public Utility Holding Company Act of
1940, as amended.
Section 4.15 Full Disclosure. Subject to the following sentence, neither
the financial statements referred to in Section 4.5 nor any other certificate,
written statement, exhibit or report furnished by or on behalf of the Company in
connection with or pursuant to this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained therein not misleading, which has not been corrected by
more current information provided to the Bank by the Company. Certificates or
statements furnished by or on behalf of the Company to the Bank consisting of
projections or forecasts of future results or events have been prepared in good
faith and are based on good faith estimates and assumptions of the management of
the Company, and the Company has no reason to believe that such projections or
forecasts are not reasonable.
Section 4.16 Subsidiaries. The Company has no Subsidiaries other than
the Subsidiaries identified in Schedule 4.16.
Section 4.17 Registered Broker-Dealer; Membership. The Company is duly
registered with the Securities and Exchange Commission as a broker-dealer and is
a member in good standing of the NASD and is a member organization in good
standing of the NYSE.
Section 4.18 SIPC Assessments. The Company is not in arrears with respect
to any assessment made upon it by the SIPC.
Section 4.19 Examining Authority. The NYSE has been designated as the
Examining Authority for the Company.
Section 4.20 Ownership. The Parent owns all (other than director's
qualifying shares) of the voting shares of the Company.
Section 4.21 Compliance with Laws and Other Agreements. Neither the
Company nor any of its Material Subsidiaries is in default with respect to any
order, writ, injunction or decree of any Governmental Authority or
Self-Regulatory organization or, to the knowledge of the Company, in violation
of any law, statute, rule or regulation to which the Company or such Material
Subsidiary or any Property of the Company or any such Subsidiary is or are
subject, which default or violation could reasonably be expected to have a
material adverse effect on the business, operations, property, assets or
condition, financial or otherwise, of the Company. Without limiting the
foregoing, the Company and each of its Material Subsidiaries is in compliance in
compliance with all capital requirements of all Governmental Authorities
applicable to the Company or any such Subsidiary, including, without limitation,
Rule 15c3-1. Neither the Company nor any of its Subsidiaries is in default in
the payment or performance of any of its obligations or in the performance of
any mortgage, indenture, lease, contract or other agreement to which it is a
party or by which it or any of its property is bound, which default could
reasonably be expected to have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Company.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Company will furnish
to the Bank:
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Company and the Parent, the financial
statements of the Company, and the consolidated financial statements of the
Parent, consisting of at least statements of income, cash flow, changes in
financial position and stockholders' equity, and a balance sheet as at the end
of such year, setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified without qualification with
respect to whether each of the Company and the Parent is a "going concern" by
Deloitte & Touche or other independent certified public accountants of
recognized national standing selected by the Company and the Parent and
acceptable to the Bank, together with a letter from such accountants addressed
to the Bank (a) acknowledging that the Bank is extending credit in reliance on
such financial statements and authorizing such reliance and (b) confirming that
no management letter, management report or other supplementary comments or
reports to the Company or the Parent or to either of their boards of directors
furnished by such accountants advised the recipients of the same of any material
weakness.
5.1(b) Together with the audited financial statements required under
Section 5.1 (a), a statement by the accounting firm performing such audit to the
effect that it has reviewed this Agreement and that in the course of performing
its examination nothing came to its attention that caused it to believe that any
Default or Event of Default exists, or, if such Default or Event of Default
exists, describing its nature.
5.1(c) As soon as available and in any event within 30 days after
the end of each fiscal month, an unaudited statement of income for the Company
and consolidated and consolidating unaudited statements of income for the Parent
for such month and in each case for the period from the beginning of such fiscal
year to the end of such month, and an unaudited balance sheet of the Company and
unaudited consolidated and consolidating balance sheet of the Parent as at the
end of such month, setting forth in comparative form figures for the
corresponding period for the preceding fiscal year, accompanied by a certificate
signed by the chief financial officer of the Company, in the case of the
Company's statements, and the chief financial officer of the Parent, in the case
of the Parent's statements, stating that such financial statements present
fairly the financial condition of the Company and that the same have been
prepared in accordance with GAAP.
5.1(d) As soon as practicable and in any event within 30 days after
the end of each fiscal month, a statement signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or noncompliance,
as the case may be) with Sections 5.12 and 6.9 as at the end of such month and
stating that as at the end of such month there did not exist any Default or
Event of Default or, if such Default or Event of Default existed, specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5.1(e) Promptly upon the filing thereof with NYSE or the Commission,
Part II of the Company's Focus Report, as filed for the most recent quarterly
period for which such report is required to be filed.
5.1(f) Immediately upon the Company obtaining Knowledge of any
Default or Event of Default, a notice describing the nature thereof and what
action the Company proposes to take with respect thereto.
5.1(g) Immediately upon the Company obtaining Knowledge of the
occurrence, with respect to any Plan, of any Reportable Event or any Prohibited
Transaction, a notice specifying the nature thereof and what action the Company
proposes to take with respect thereto, and, when received, copies of any notice
from PBGC of intention to terminate or have a trustee appointed for any Plan.
5.1(h) Promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the Parent's
shareholders; copies of all registration statements, periodic reports and other
documents filed by the Parent with the Commission or any national securities
exchange; and copies of all registration statements relating to the Company's
own securities and of any periodic reports and other documents relating to the
Company's own business filed by the Company with the Commission or any national
securities exchange.
5.1(i) Promptly upon a request, such other information regarding the
business, operation and financial condition of the Company as the Bank may
reasonably request from time to time.
Section 5.2 Corporate Existence. The Company will, and cause each Material
Subsidiary to, (a) maintain its corporate existence in good standing under the
laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction where failure so to qualify would permanently
preclude the Company or such Material Subsidiary from enforcing its rights with
respect to any material asset or would expose the Company or such Material
Subsidiary to any material liability; provided, however, that nothing herein
shall prohibit the merger or liquidation of any Subsidiary allowed under Section
6.1, and (b) do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business.
Section 5.3 Insurance. The Company will maintain, and cause each Material
Subsidiary to maintain, with financially sound and reputable insurance companies
such insurance as may be required by law and such other insurance in such
amounts and against such hazards as is customary in the case of reputable
corporations engaged in the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Company will file, and cause
each Material Subsidiary to file, all tax returns and reports which are required
by law to be filed by it and will pay, and cause each Material Subsidiary to
pay, before they become delinquent, all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Company's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Company's or such Subsidiary's books
in accordance with GAAP.
Section 5.5 Inspection. The Company will permit any Person designated by
the Bank to visit and inspect any of the properties, corporate books and
financial records of the Company and the Material Subsidiaries, to examine and
to make copies of the books of accounts and other financial records of the
Company and the Material Subsidiaries, and to discuss the affairs, finances and
accounts of the Company and the Material Subsidiaries with, and to be advised as
to the same by, its officers at such reasonable times and intervals as the Bank
may designate. So long as no Event of Default exists, such visits, inspections
and examinations shall be at the expense of the Bank, but any such visits,
inspections and examinations made while any Event of Default is continuing shall
be at the expense of the Company.
Section 5.6 Maintenance of Properties. The Company will maintain, and
cause each Material Subsidiary to maintain, its properties used or useful in the
conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Company will keep, and will cause each
Material Subsidiary to keep, adequate and proper records and books of account in
which full and correct entries will be made of its dealings, business and
affairs.
Section 5.8 Compliance. The Company will comply, and will cause each
Material Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards of or by
any Governmental Authority or Self- Regulatory Organization to which it may be
subject; provided, however, that failure so to comply shall not be a breach of
this covenant if such failure does not have, or is not reasonably expected to
have, a materially adverse effect on the properties, business, prospects or
condition (financial or otherwise) of the Company or such Subsidiary and the
Company or such Subsidiary is acting in good faith and with reasonable dispatch
to cure such noncompliance.
Section 5.9 Notice of Litigation. The Company will give prompt written
notice to the Bank of the commencement of any action, suit or proceeding before
any court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Company or any Material Subsidiary or any property
of the Company or a Material Subsidiary or to which the Company or a Material
Subsidiary is a party in which an adverse determination or result could have a
material adverse effect (as determined by the Company in the exercise of its
reasonable judgment) on the business, operations, property or condition
(financial or otherwise) of the Company and the Subsidiaries taken as a whole or
on the ability of the Company or any Material Subsidiary to perform its
obligations under this Agreement and the other Loan Documents, stating the
nature and status of such action, suit or proceeding. The Company shall give the
Bank prompt written notice of any decision by the Company, its Parent or an
Affiliate, to settle any suit or proceeding, whether now pending or hereafter
commenced, for an amount of $2,000,000 or more; provided, however, that the
Company will provide the amount which it, its Parent or any Affiliate has
decided to pay in settlement, but will not provide any further information
concerning the settlement, unless the Bank agrees to the terms of a written
confidentiality agreement on terms reasonably acceptable to the Company.
Section 5.10 ERISA. The Company will maintain, and cause each Material
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Company or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $1,000,000, (b)fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Company or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $1,000,000 or (c) fail to make any payments in an
aggregate amount exceeding $1,000,000 to any Multiemployer Plan that the Company
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Broker-Dealer Registration. The Company will maintain its
registration as a broker-dealer with the Commission in full force and effect and
maintain its membership in good standing in such organizations as are necessary
to enable it to engage in the securities business and take all action necessary
to comply in all material respects with the rules and regulations of such
organizations.
Section 5.12 Net Capital. The Company will maintain at all times Net
Capital of not less than 10% of Aggregate Debit Items as determined as of the
close of each Business Day.
Section 5.13. Leverage Ratio. The Company will maintain at all times
a Leverage Ratio of not more than 5.0 to 1.0.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 6.1 Merger. The Company will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any Material Subsidiary to do any of the foregoing; provided, however, any
Subsidiary may be merged with or liquidated into the Company or any wholly-owned
Subsidiary (if the Company or such wholly-owned Subsidiary is the surviving
corporation).
Section 6.2 Sale of Assets. The Company will not, and will not permit any
Material Subsidiary to, sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for sales in the ordinary course of
business and except for sales or other transfers by a Subsidiary to the Company
or a wholly-owned Subsidiary.
Section 6.3 Plans. The Company will not permit, and will not allow any
Material Subsidiary to permit, any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause the
Lien provided for in Section 4068 of ERISA to attach to any assets of the
Company or any Subsidiary; and the Company will not permit the underfunded
amount of Plan benefits guaranteed under Title IV of ERISA to exceed $1,000,000.
Section 6.4 Change in Nature of Business. The Company will not, and will
not permit any Material Subsidiary to, make any material change in the nature of
the business of the Company or such Material Subsidiary, as carried on at the
date hereof.
Section 6.5 Subsidiaries. The cumulative net worth of all
Subsidiaries of the Company shall not exceed $1,000,000 at any time.
Section 6.6 Negative Pledges. The Company will not enter into any
agreement, bond, note or other instrument with or for the benefit of any Person
other than the Bank which would prohibit the Company from granting, or otherwise
limit the ability of the Company to grant, to the Bank any Lien on any assets or
properties of the Company. No grant of security interests to Lenders that are
parties to the Collateral Agreement, whether or not pursuant to the Collateral
Agreement, no loans of securities by the Company in the ordinary course of its
business and no negative pledges with respect to immaterial assets shall be
deemed to violate this Section 6.6.
Section 6.7 Liens. The Company will not create, incur, assume or suffer to
exist, any Lien on Pledged Securities other than Liens on Customers' Securities
pursuant to the Collateral Agreement.
Section 6.8 Tangible Net Worth. The Company will not permit its Tangible
Net Worth at any time to be less than $100,000,000.
Section 6.9 Loans, Advances, Investments, Joint Ventures and Contingent
Obligations. The Company, other than in the ordinary course of its broker-dealer
business will not, and not permit any Material Subsidiary to (x) make or permit
to remain outstanding any loan or advance to any other Person, (y) directly or
indirectly guarantee, endorse, be or become contingently liable for or enter
into any contract which is, in economic effect, substantially equivalent to a
guaranty of the obligation of any other Person, or (z) own, purchase or make any
commitment to purchase the securities of any corporation or own, purchase or
make any commitment to purchase for cash or any consideration, any obligations,
other securities, the business or integral part of the business of any other
Person or enter into a joint venture or partnership with any other Person,
except:
(a) by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the ordinary course of business;
(b) Producer Loans in an aggregate amount not to exceed
$15,000,000 at any tune outstanding;
(c) advances to officers and employees, other than Producer
Loans, in an aggregate amount not to exceed $1,000,000 at any time
outstanding; and
(d) Investments of the type currently held by the Company, as
described on Schedule 6.9 hereto, in an aggregate amount not to exceed
$20,000,000 at any time outstanding.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default:
7.1(a) The Company shall fail to make when due, whether on demand,
by acceleration or otherwise, any payment of principal of or interest on either
Note or any other Obligation required to be made to the Bank pursuant to this
Agreement.
7.1(b) Any representation or warranty made by or on behalf of the
Company, or any Subsidiary in this Agreement or any other Loan Document or by or
on behalf of the Company, or any Subsidiary in any certificate, statement,
report or document herewith or hereafter furnished to the Bank pursuant to this
Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.
7.1(c) The Company shall fail to comply with Sections 5.2, 5.3, 5.11
or 5.12 or any Section of Article VI.
7.1(d) The Company shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other than
those hereinabove set forth in this Section 7.1) and such failure to comply
shall continue for three calendar days after whichever of the following dates is
the earliest: (i) the date the Company gives notice of such failure to the Bank,
(ii) the date the Company should have given notice of such failure to the Bank
pursuant to Section 5.1, or (iii) the date the Bank gives notice of such failure
to the Company.
7.1(e) Any default (however denominated or defined) shall occur
under the Collateral Agreement, the Firm Collateral Agreement or any Agreement
to Pledge or any Liquidation Notice shall be provided to the Administrator by
any Lender.
7.1(f) The Company or any Material Subsidiary shall become insolvent
or shall generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee or
receiver of the Company or any Material Subsidiary or for a substantial part of
the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Company or any Material Subsidiary or for a substantial part of the property
thereof and shall not be discharged within 45 days, or the Company shall make an
assignment for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Company or any Material Subsidiary, and, if instituted against the
Company or any Material Subsidiary, shall have been consented to or acquiesced
in by the Company or such Material Subsidiary, or shall remain undismissed for
60 days, or an order for relief shall have been entered against the Company or
such Subsidiary.
7.1(h) Any dissolution or liquidation proceeding not permitted by
Section 6.1 shall be instituted by or against the Company or any Material
Subsidiary and, if instituted against the Company or any Material Subsidiary,
shall be consented to or acquiesced in by the Company or such Material
Subsidiary or shall remain for 45 days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess of
the sum of $10,000,000 in the aggregate shall be rendered against the Company or
a Material Subsidiary and the Company or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or procure a
stay of execution thereof, prior to any execution on such judgment by such
judgment creditor, within 60 days from the date of entry thereof, and within
said period of 60 days, or such longer period during which execution of such
judgment shall be stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
7.1(j) The maturity of any material Indebtedness of the Company
(other than Indebtedness under this Agreement) or a Material Subsidiary shall be
accelerated, or the Company or a Material Subsidiary shall fail to pay any such
material Indebtedness when due (after the lapse of any applicable grace period)
or, in the case of such Indebtedness payable on demand, when demanded (after the
lapse of any applicable grace period), or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or permitting the
holder of any such Indebtedness or any trustee or other Person acting on behalf
of such holder to cause, such material Indebtedness to become due prior to its
stated maturity or to realize upon any collateral given as security therefor.
For purposes of this Section, Indebtedness of the Company or a Material
Subsidiary shall be deemed "material" if it exceeds $10,000,000 as to any item
of Indebtedness or in the aggregate for all items of Indebtedness with respect
to which any of the events described in this Section 7.1(j) has occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Company or any Material Subsidiary shall
be taken or attempted to be taken and the same shall not have been vacated or
stayed within 30 days after the issuance thereof.
7.1(l) Any Official Lien on all or a portion of the Pledged
Securities shall have been created and such Official Lien shall not have been
discharged, released or bonded (with property other than the Pledged Securities)
within 30 days of such creation.
7.1(m) The Collateral Agreement, the Firm Collateral Agreement or
any Agreement to Pledge shall, at any time, cease to be in full force and effect
or shall be judicially declared null and void, or the validity or enforceability
thereof shall be contested by the Company, or the Bank shall cease to have a
valid and perfected security interest having the priority contemplated
thereunder in all of the collateral described therein.
7.1(n) Any Change of Control shall occur.
7.1(o) Any Self-Regulatory Organization shall revoke the
Company's membership therein or shall suspend such membership and such
membership shall not be reinstated within 10 days of such suspension if, in the
case of any Self-Regulatory Organization other than the NYSE and the NASD, such
revocation or suspension could reasonably be expected to have a Material Adverse
Effect.
7.1(p) The DTC or PTC shall revoke the Company's membership therein
or shall suspend such membership and such membership shall not be reinstated
within 10 days of such suspension.
7.1(q) The Commission shall revoke the Company's status as a broker-
dealer or shall suspend such status and such status shall not be reinstated
within 10 days of such suspension.
7.1(r) The SIPC shall have applied or shall have announced its
intention to apply for a decree adjudicating that customers of the Company are
in need of protection under SIPA.
7.1(s) The Parent shall fail to maintain at all times Tangible Net
Worth of $125,000,000.
Section 7.2 Remedies. If (a) any Event of Default described Sections 7.1
(f), (g) or (h) shall occur with respect to the Company, the Commitment shall
automatically terminate and the Obligations shall automatically become
immediately due and payable, or (b) any other Event of Default shall occur and
be continuing, then the Bank may (i) declare the Commitment terminated,
whereupon the Commitment shall terminate, (ii) declare the Obligations to be
forthwith due and payable, whereupon the Obligations shall immediately become
due and payable, in each case without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding, (iii) exercise all
rights and remedies under any of the other Loan Documents, and (iv) enforce all
rights and remedies under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Company hereby irrevocably authorizes the Bank to set off the
Obligations against all deposits and credits (other than with respect to the
Special Reserve Account) of the Company with, and any and all claims of the
Company against, the Bank. Such right shall exist whether or not the Bank shall
have made any demand hereunder or under any other Loan Document, whether or not
the Obligations, or any part thereof, or deposits and credits held for the
account of the Company is or are matured or unmatured, and regardless of the
existence or adequacy of any collateral, guaranty or any other security, right
or remedy available to the Bank. The Bank agrees that, as promptly as is
reasonably possible after the exercise of any such setoff right, it shall notify
the Company of its exercise of such setoff right; provided, however, that the
failure of the Bank to provide such notice shall not affect the validity of the
exercise of such setoff rights. Nothing in this Agreement shall be deemed a
waiver or prohibition of or restriction on the Bank to all rights of banker's
Lien, setoff and counterclaim available pursuant to law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
the Company; provided that no amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Company therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and then such amendment, modifications, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company agrees to reimburse the Bank
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Bank (including filing and recording costs and fees and expenses of Dorsey &
Whitney, counsel to the Bank) in connection with the negotiation, preparation,
approval, review, execution, delivery, amendment, modification, interpretation,
collection and enforcement of this Agreement, the Notes and any other Loan
Documents and any commitment letters relating thereto. The Bank is authorized by
the Company to make a Loan to the Company under this Agreement (as a Federal
Funds Rate Advance) in the amount of any such expenses and to apply the proceeds
of such Loan to the payment of such expenses. The obligations of the Company
under this Section shall survive any termination of this Agreement.
Section 8.3 Waivers, etc. No failure on the part of the Bank or any holder
of a Note to exercise and no delay in exercising any power or right hereunder or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any power or right or any abandonment or
discontinuance of the enforcement thereof preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies of
the Bank hereunder and under the other Loan Documents are cumulative and not
exclusive of any right or remedy the Bank otherwise has.
Section 8.4 Notices. Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Bank under Article II hereof shall be deemed to have been
given only when received by the Bank.
Section 8.5 Taxes. The Company agrees to pay, and save the Bank harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement or the issuance of the
Note, which obligation of the Company shall survive the termination of this
Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Company may
not assign its rights or delegate its obligations hereunder or under any other
Loan Document without the prior written consent of the Bank. The Bank may at any
time sell, assign, transfer, grant participations in, or otherwise dispose of
any portion of the Commitment, the Loans and/or Advances (each such interest so
disposed of being herein called a "Transferred Interest") to banks or other
financial institutions ("Transferees"). The Company agrees that each Transferee
shall be entitled to the benefits of Sections 2.16, 2. 17 2.18, 2.19 and 8.2
with respect to its Transferred Interest and that each Transferee may exercise
any and all rights of banker's Lien, setoff and counterclaim as if such
Transferee were a direct lender to the Company. If the Bank makes any assignment
to a Transferee, then upon notice to the Company such Transferee, to the extent
of such assignment (unless otherwise provided therein) shall become a "Bank"
hereunder and shall have all the rights and obligations of the Bank hereunder
and the Bank shall be released from its duties and obligations under this
Agreement to the extent of such assignment. Notwithstanding the sale by the Bank
of any participation hereunder, (a) no participant shall be deemed to be or have
the rights and obligations of the Bank hereunder except that any participant
shall have a right of setoff under Section 7.3 as if it were the Bank and the
amount of its participation were owing directly to such participant by the
Company and (b) the Bank shall not in connection with selling any such
participation condition the Bank's rights in connection with consenting to
amendments or granting waivers concerning any matter under any Loan Document
upon obtaining the consent of such participant other than on matters relating to
(i) any reduction in the amount of any principal of, or the amount of or rate of
interest on, the Notes or any Advance, (ii) any postponement of the date faxed
for any payment of principal of or interest on the Notes or any Loan, or (iii)
the release or subordination of any material portion of any collateral other
than pursuant to the terms of the Collateral Agreement, the Firm Collateral
Agreement or an Agreement to Pledge.
Section 8.7 Confidentiality of Information. The Bank shall use reasonable
efforts to assure that information about the Company and its operations, affairs
and financial condition, not generally disclosed to the public or to trade and
other creditors, which is furnished to the Bank pursuant to the provisions
hereof is used only for the purposes of this Agreement and any other
relationships between the Bank and the Company and shall not be divulged to any
Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to its attorneys and accountants,
(b)in connection with the enforcement of the rights of the Bank hereunder and
under the Notes, the Collateral Agreement, the Firm Collateral Agreement or
otherwise in connection with applicable litigation, (c) in connection with
assignments and participations and the solicitation of prospective assignees and
participants referred to in Section 8,6, and (d) as may otherwise be required or
requested by any regulatory authority having jurisdiction over the Bank or as
required by any applicable law, rule regulation or judicial process, the opinion
of the Bank's counsel concerning the making of such disclosure to be binding on
the parties hereto. The Bank shall not incur any liability to the Company by
reason of any disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY NE INTERNAL
LAWS OF NE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under law applicable
thereto, but, if any provision of this Agreement, the other Loan Documents or
any other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under law
applicable thereto or in any other jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, the other Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA OR, IN THE
CASE OF ISSUES RELATING TO THE COLLATERAL AGREEMENT, IN ANY ILLINOIS STATE OR
FEDERAL COURT SITTING IN CHICAGO, ILLINOIS; AND THE COMPANY CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND AS ABOVE DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED
UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE COMPANY AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN OR ACTIONS OF ANY PARTY
HERETO. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANK IN ENTERING INTO THIS AGREEMENT.
Section 8.11 Survival of Agreement. All representations, warranties,
covenants and agreement made by the Company herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Bank and shall survive the making of
the Loans by the Bank and the execution and delivery to the Bank by the Company
of the Notes, regardless of any investigation made by or on behalf of the Bank,
and shall continue in full force and effect as long as any Obligation is
outstanding and unpaid and so long as the Commitment has not been terminated;
provided, however, that the obligations of the Company under Sections 2.16,
2.17, 2.18. 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations
and the termination of the Commitment.
Section 8.12 Indemnification. The Company hereby agrees to defend,
protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers. employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any
commitments relating thereto, or any transaction contemplated by any
Loan Document; or (b) by reason of, relating to or in connection
with any credit extended or used under the Loan Documents or any act
done or omitted by any Person, or the exercise of any rights or
remedies thereunder, including the acquisition of any collateral by
the Bank by way of foreclosure of the Lien thereon, deed or bill of
sale in lieu of such foreclosure or otherwise;
provided, however, that the Company shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's' s gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Company may otherwise have. Without prejudice to the survival of any other
obligation of the Company hereunder the indemnities and obligations of the
Company contained in this Section shall survive the payment in full of the other
Obligations.
Section 8.13 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.14 Entire Agreement; No Third Party Beneficiaries. This
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Company and the Bank with respect to the subject
matter hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof. Nothing contained in this
Agreement or in any other Loan Document, expressed or implied, is intended to
confer upon any Person other than the parties hereto and thereto any rights
remedies, obligations or liabilities hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 8.16 Company Acknowledgments. The Company hereby acknowledges that
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents, (b) the Bank has no fiduciary
relationship to the Company, the relationship being solely that of borrower and
lender, (c) no joint venture exists between the Company and the Bank, and (d)
the Bank undertakes no responsibility to the Company to review or inform the
Company of any matter in connection with any phase of the business or operations
of the Company and the Company shall rely entirely upon its own judgment with
respect to its business, and any review, inspection or supervision of, or
information supplied to, the Company by the Bank is for the protection of the
Bank and neither the Company nor any third party is entitled to rely thereon.
Section 8.17 Subsidiary Reference. Any reference herein to a Subsidiary or
Subsidiaries of the Company and any financial definition, ratio, restriction or
other provision of this Agreement which is stated to be applicable to "the
Company" and the Subsidiaries or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent the Company has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with the Company for financial reporting purposes. References to a
Subsidiary or Subsidiaries shall not be construed as constituting a consent to
the existence, creation or acquisition of any Subsidiary.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PIPER JAFFRAY INC.
By: /s/ Charles N. Hayssen
Print Name: Charles N. Hayssen
Title: Chief Financial Officer
222 South Ninth Street
Minneapolis, MN 55402
FAX: 612-342-6085
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By:/s/ D.E. Jackson
Print Name: D. E. Jackson
Title: Vice President
Norwest Center
Sixth Street and Marquette
Minneapolis, Minnesota 55479-1026
FAX: 612-667-4399
Exhibit 10.15
Execution Copy
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 23, 1994, is by and between
PIPER JAFFRAY INC., a Delaware corporation (the "Company"), and FIRST BANK
NATIONAL ASSOCIATION, a national banking association (the "Bank").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):
"Adjusted Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, an interest rate per annum (rounded
upward, if necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate for such Interest Period by 1.00 minus the
Eurodollar Reserve Percentage.
"Administrator": As defined in the Collateral Agreement.
"Advance": Any portion of the outstanding Loans as to which the
Company has elected one of the available interest rate options and, if
applicable, an Interest Period. An Advance may be a Eurodollar Rate Advance or a
Federal Funds Rate Advance.
"Affiliate": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent of
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturer and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Aggregate Debit Items": At any time, the aggregate debit items of
the Company at such time as computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers, Exhibit A to Rule
15c3-3.
"Agreement to Pledge": An agreement substantially in the form of
Exhibit A hereto.
"Applicable Margin": With respect to:
(a) Eurodollar Rate Advances --1/2 of 1% per annum.
(b) Federal Funds Rate Advances --1/2 of 1% per annum.
"Bank": As defined in the opening paragraph hereof.
"Board": The Board of Governors of the Federal Reserve System or
any successor thereto.
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open for business in Minneapolis, Minnesota and on which the NYSE is open for
trading.
"Cash Collateral": As defined in the Collateral Agreement.
"Capitalized Lease": A lease of (or other agreement conveying the
right to use) real or personal property with respect to which at least a portion
of the rent or other amounts thereon constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board) and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Change of Control": The occurrence, after the Closing Date, of any
of the following circumstances: (a) the Parent not owning, directly or
indirectly, securities of the Company representing 100% (exclusive of directors'
qualifying shares) of securities of the Company entitled to vote in the election
of directors, or (b) any Person or two or more Persons acting in concert
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Commission under the Exchange Act), directly or indirectly, of securities of the
Company (or other securities convertible into such securities) representing 20%
or more of the combined voting power of all securities of the Parent entitled to
vote in the election of directors, or (c) during any period of up to twelve
consecutive months, whether commencing before or after the Closing Date,
individuals who at the beginning of such twelvemonth period were directors of
the Parent ceasing for any reason to constitute a majority of the Board of
Directors of the Parent (other than by reason of death, disability or scheduled
retirement), or (d) any Person or two or more Persons acting in concert
acquiring by contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition of, control over
securities of the Parent (or other securities convertible into such securities)
representing 20% or more of the combined voting power of all securities of the
Parent entitled to vote in the election of directors.
"Closing Date": Any Business Day between the date of this Agreement
and December 1, 1994 selected by the Company for the making of the initial Loan
hereunder; provided that all the conditions precedent to the obligation of the
Bank to make the initial Loan, as set forth in Article III, have been, or, on
such Closing Date, will be, satisfied. The Company shall give the Bank not less
than one Business Day's prior notice of the day selected as the Closing Date.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Agreement": The Pledge and Collateral Administration
Agreement dated as of November 23, 1994 among the Company, the Bank, various
other Lenders, and the Northern Trust Company, as Administrator.
"Collateral Pool": As defined in the Collateral Agreement.
"Collateral Value": At any time of determination, with respect to an
Eligible Security, a Dollar amount equal to the product of (a) the valuation
rate set forth in the Collateral Agreement for the relevant type of Security (in
the case of Customers' Securities) or 80% (in the case of Firm Securities), and
(b) the amount determined by the Bank (in the case of Firm Securities) or the
Administrator (in the case of Customers' Securities) to be the Market Value of
the Security at such time. The Collateral Value of any Security other than an
Eligible Security shall be zero. The Collateral Value of Cash Collateral shall
be the amount thereof. The Collateral Value of the Collateral Pool shall mean
the aggregate Collateral Values of all Eligible Securities comprising the
Collateral Pool.
"Commission": The Securities and Exchange Commission, or any
regulatory body that succeeds to the functions thereof.
"Commitment": The obligation of the Bank to make Committed Loans to
the Company in an aggregate principal amount outstanding at any time not to
exceed the Commitment Amount upon the terms and subject to the conditions and
limitations of this Agreement.
"Commitment Amount": The maximum unpaid principal amount of Loans
which may from time to time be outstanding hereunder, being initially
$75,000,000 but as the same may from time to time be reduced pursuant to Section
2.9.
"Commitment Date": October 31, 1994.
"Commitment Ending Date": As defined in Section 2.14.
"Committed Loan": As defined in Section 2.1.
"Company": As defined in the opening paragraph hereof.
"Contingent Obligation": With respect to any Person at the time of
any determination, without duplication, any obligation, contingent or otherwise,
of such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect the owner against
loss in respect thereof; provided that the term "Contingent Obligation" shall
not include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Customer": A retail or institutional customer of the Company that
owns securities that are eligible for hypothecation by the Company (acting as a
broker-dealer of securities) under all applicable laws and regulations.
"Customers' Securities": Securities that are "securities carried
for the account of any customer," as that term is defined in Rules 8c-1 and
15c2-1 of the Commission, 17 C.F.R. ss.ss. 240.8c-1 and 240.15c2-1.
"Customer Securities Availability": At any given time, the Bank's
Pro Rata Share of the maximum amount of Secured Obligations permitted to be
outstanding under the Collateral Agreement, based upon the Collateral Value of
the Eligible Securities and Cash Collateral in the Collateral Pool at that time.
"Customers' Securities Note": As defined in Section 2. 4.
"Default": Any event which, with the giving of notice (whether such
notice is required under Section 7.1. or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"Discretionary Credit Subfacility": The discretionary credit
facility established pursuant to Section 2.2.
"Discretionary Credit Subfacility Amount": The maximum unpaid
principal amount of Discretionary Loans which may from time to time be
outstanding hereunder, being initially $15,000,000 but as the same may be from
time to time reduced as the parties may agree in writing.
"Discretionary Loan": As defined in Section 2.2.
"DTC": The Depository Trust Company, a New York limited purpose
trust company and a registered "clearing agency" under Section 17A of the
Exchange Act.
"DTC Debt Security": A "security" (as defined in Section 8-102(c) of
the UCC) that (a) is a debt security that is rated at one of the four highest
rating levels (without consideration of sublevels) for its maturity by Standard
& Poor's Corporation, Moody's Investors Service, Inc. or other comparable
nationally recognized rating service and (b) is capable of being (i) identified
by DTC by means of a DTC Pledge Summary Report as having been pledged to the
Bank by the Company or (ii) transferred to the account of the Bank or its agent
at DTC, whether or not such identification or transfer has occurred.
"DTC Equity Security": A "security" (as defined in Section 8-102(c)
of the UCC) that (a) is an equity security issued by a U.S. Person and (b) is
capable of being (i) identified by DTC by means of a DTC Pledge Summary Report
as having been pledged to the Bank by the Company or (ii) transferred to the
account of the Bank or its agent at DTC, whether or not such identification or
transfer has occurred.
"DTC Pledge Summary Report": As defined in DTC's "PTS Reference
Manual" dated May, 1991.
"Eligible Security": For purposes of the definitions, "Customer
Securities Availability" and "Collateral Value" (as it pertains to Customers'
Securities), the term "Eligible Security" is as defined in the Collateral
Agreement. For purposes of the Discretionary Credit Subfacility, the term
"Eligible Security" means a Security that (a) is legally available to be pledged
or hypothecated by the Company to the Bank, pursuant to an Agreement to Pledge,
(b) is subject as of the transfer thereof to the Bank to (i) a validly perfected
first priority security interest in favor of the Bank, (ii) no Lien other than
the Lien in favor of the Bank created by the Loan Documents and (iii) no adverse
claims (as defined in Section 8-302 of the UCC) known to the Company which would
impair the value thereof as collateral, (c) is a DTC Debt Security, GNMA
Security or Government Security, (d) is a DTC Equity Security with respect to
which the Company is a qualified OTC market marker (as such term is used in
Regulation U), (e) has not matured or been called prior to its stated maturity
and otherwise is not in default, (f) has not been deemed by the Bank, in its
sole discretion, to be illiquid, and (g) is not a Customers' Security.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day for
trading by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": With respect to each Interest Period applicable
to a Eurodollar Rate Advance, the interest rate per annum (rounded upward, if
necessary, to the next one-sixteenth of one percent) at which United States
dollar deposits are offered to the Bank in the interbank Eurodollar market two
Eurodollar Business Days prior to the first day of such Interest Period for
delivery in Immediately Available Funds in the interbank Eurodollar market on
the first day of such Interest Period and in an amount approximately equal to
the Advance to which such Interest Period is to apply as determined by the Bank
and for a maturity comparable to the Interest Period; provided, that in lieu of
determining the rate in the foregoing manner, the Bank may substitute the per
annum Eurodollar rate (LIBOR) for United States dollars displayed on the
Telerate Systems, Inc. screen, page 3750 (or other applicable page), on the
first day of such Interest Period or may substitute a rate derived from at least
two or more rates which appear on the Reuters Screen LIBO Page as of 11:00 am.
London time, on the day that is two Eurodollar Business Days prior to the first
day of the Interest Period for such Eurodollar Rate Advance. A rate derived from
two or more rates that appear on the Reuters Screen LIBO Page shall be the
arithmetic mean of such rates (rounded as provided above). "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London InterBank offered rates of major banks for
United States dollar deposits).
"Eurodollar Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that percentage
expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System, with deposits comparable in amount to those held by the Bank, in respect
of "Eurocurrency liabilities" as such term is defined in Regulation D of the
Board. The rate of interest applicable to any outstanding Eurodollar Rate
Advances shall be adjusted automatically on and as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
"Examining Authority": The organization designated by the Securities
and Exchange Commission as the Examining Authority for the Company as provided
in paragraph (c)(12) of Rule 15c3-1.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Facility Fees": As defined in Section 3.11.
"Federal Funds Rate": For any borrowing of Federal Funds Rate
Advances, the rate at which the Bank is offered overnight Federal funds at or
about the rate setting time for such borrowing by three Federal Funds brokers
selected by the Bank. The "rate setting time" with respect to any such borrowing
shall be at 10:00 am., 11:00 am., 12:00 noon, 1:00 p.m. or 2:00 p.m, Minneapolis
time, on the date such borrowing is to be made and not less than one hour after
the Bank has received notice of such borrowing pursuant to Section 2.3 hereof,
or at any later time that is on the hour on such date, so long as such later
time is prior to the closing of the Federal Funds wire in New York City as such
rate setting time is selected by the Company in the notice of such borrowing
delivered pursuant to Section 2.3 hereof. The "closing of the Federal Funds
wire" shall mean the time at which the Federal Funds wire in New York City
customarily closes or, if there has been a system-wide extension of such closing
time, the time to which the closing of the Federal Funds wire has been extended.
"Federal Funds Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Federal Funds Rate.
"Firm Collateral Agreement": The Collateral Agreement dated as
of November 23, 1994, between the Company and the Bank.
"Firm Securities": All Securities owned or held by the Company
that are not Customers' Securities.
"Firm Securities Note": As defined in Section 2.4.
"Focus Report": The Financial and Operational Combined Uniform
Single Report required to be filed on a monthly or quarterly basis, as the case
may be, with the Commission or the NYSE, or any report that is required in lieu
of such report.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"GNMA Securities": As defined in the Collateral Agreement.
"Governmental Authority": Any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislation, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, the Commission.
"Government Securities": A security of any one or more of the
following types: a security issued by the United States Treasury, the Federal
national Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Resolution Funding Corporation, the Student Loan Marketing Association, the
Export-Import Bank of the United States, the United States Postal Service, the
Federal Financing Bank, the Tennessee Valley Authority, the Federal Home Loan
Bank, the Farm Credit System or the Farmers Home Administration, or by any other
agency of the United States government that has been previously approved by the
Bank as being eligible for pledging under this Agreement and, with respect to
each of the foregoing, that is maintained in book-entry form on the records of a
Federal Reserve Bank or DTC; provided that any of the foregoing types of
Government Securities shall cease to be Government Securities for purposes of
this Agreement at any time that, as a result of legislative, regulatory or
judicial action, the relationship between the agency issuing such Government
Security and the United States government, or the status of such Government
Security with respect to its support by the United States government, has been
changed in any way.
"Immediately Available Funds": Funds with good value on the day
and in the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent of otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, (j)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Period": With respect to each Eurodollar Rate Advance, the
period commencing on the date such Advance is made or converted from a Federal
Funds Rate Advance or on the last day of the immediately preceding Interest
Period, if any, applicable to an outstanding Advance and ending seven, fourteen,
thirty, sixty or ninety days thereafter, as the Company may elect in the
applicable notice of borrowing, continuation or conversion; provided that:
(a) Any Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next
succeeding Eurodollar Business Day unless such Eurodollar Business
Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Eurodollar Business Day;
(b) Any Interest Period which begins on the last Eurodollar Business
Day of a calendar month (or a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month; and
(c) No Interest Period shall end after the Commitment Ending
Date.
"Investment": The acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms), any acquisitions of real or personal
property (other than real and personal property acquired in the ordinary course
of business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of or any interest in another Person or any integral
part of any business or the assets comprising such business or part thereof. The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"Knowledge": With respect to any occurrence or event, when such
occurrence or event is brought to the attention of a responsible officer of the
Company or should have been brought to such officer's attention if the Company
had exercised due diligence.
"Lenders": As defined in the Collateral Agreement.
"Leverage Ratio": At the time of any determination, the ratio of
(a) Total Assets to (b) Tangible Net Worth of the Company.
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Liquidation Notice": As defined in the Collateral Agreement.
"Loan": A Committed Loan or a Discretionary Loan.
"Loan Date": The date of the making of any Loan hereunder.
"Loan Documents": This Agreement, the Notes, the Collateral
Agreement, the Firm Collateral Agreement and any Agreements to Pledge.
"Market Value": For purposes of the Discretionary Credit
Subfacility, the term "Market Value" means, with respect to any Security, the
final price bid for such Security on the Business Day immediately preceding the
date of valuation of such Security, as determined by reference (a) in the case
of DTC Equity Securities, DTC Debt Securities and Government Securities at DTC,
to the DTC "Participant Terminal Services" system, (b) in the case of
Governmental Securities (other than those held at DTC), to any securities
pricing services that are regularly recognized in national financial markets or,
if no such pricing services are available on any Business Day, to The Wall
Street Journal, and (c) in the case of GNMA Securities, to the pricing system
provided by PTC. Such determinations shall be made reasonably and in good faith
and shall be conclusive in the absence of manifest error. For purposes of the
Commitment, the term "Market Value" is as defined in the Collateral Agreement.
"Material Subsidiary": A Subsidiary having Tangible Net Worth in
excess of $1,000,000.
"Multiemployer Plan": A multiemployer plan, as such term is defined
in Section 4001(a)(3) of ERISA, which is maintained (on the Closing Date, within
the five years preceding the Closing Date, or at any time after the Closing
Date) for employees of the Company or any ERISA Affiliate.
"NASD": The National Association of Securities Dealers, Inc. ,
or any other self-regulatory organization that succeeds to the functions
thereof.
"Net Capital": As determined in accordance with the capital
requirements, rules and regulations of the NYSE that are applicable to the
Company at any time of determination.
"Notes": Collectively, the Customers' Securities Note and the
Firm Securities Note.
"NYSE": The New York Stock Exchange.
"Obligations": (a) The Company's obligations in respect of the due
and punctual payment of principal and interest on the Notes when and as due,
whether by acceleration or otherwise and (b) all fees (including Facility Fees),
expenses, indemnities, reimbursements and other obligations of the Company under
this Agreement or any other Loan Document, in all cases whether now existing or
hereafter arising or incurred.
"Official Lien": means any Lien which represents (a) a Lien in favor
of a Governmental Authority (i) to secure obligations owing to such Governmental
Authority in its official capacity (and not as a lender or transaction
counterparty or in another similar capacity that may be undertaken by a Person
that is not a Governmental Authority) or (ii) to enforce or secure, or imposed
as, a penalty, fine, forfeiture or other like remedy or (b) a Lien effected by
judicial process, unless in the case of either clause (a) or (b),such Lien has
been discharged, stayed, vacated or bonded (by property other than the Pledged
Securities). For purposes of this definition, (x) "Lien" includes any Lien which
has not yet become effective but the effectiveness of which in the future is
provided for in an order, decree or other determination of a court or other
applicable Governmental Authority or in an agreement to which the owner of the
interest in the property to be subject thereto is a party if such effectiveness
will occur solely upon the passage of time and not as a result of any action or
inaction on the part of any Person, whether or not such Lien would otherwise be
a "Lien" hereunder and (y) "Official Lien" includes any Lien which secures a
bond of any other Official Lien or of any judgment, claim, order or other
determination of a Governmental Authority in its official capacity or which is
granted or entered in connection with any judicial process.
"Parent": Piper Jaffray Companies Inc., a Delaware corporation.
"PBGC": The Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Plan": Each employee benefit plan (whether in existence on the
Closing Date or thereafter instituted), as such term is defined in Section 3 of
ERISA, maintained for the benefit of employees, officers or directors of the
Company or of any ERISA Affiliate.
"Pledged Securities": Firm Securities subject to Agreements to
Pledge and Customers' Securities subject to the Collateral Agreement.
"Pro Rata Share": The fraction whose numerator is the principal
amount outstanding of the Committed Loans and whose denominator is the aggregate
principal amount outstanding of the Lenders' Secured Obligations (including the
outstanding Committed Loans).
"Producer Loan": A loan made to an employee of the Company pursuant
to which the Company has agreed to forgive all or a portion of such loan upon
the achievement of certain production goals by such employee.
"Prohibited Transaction": The respective meanings assigned to such
term in Section 4975 of the Code and Section 406 of ERISA.
"PTC": Participants Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section 17.A of the Exchange
Act.
"Regulations D, T, U and X": Regulations D, T, U and X,
respectively, of the Board, as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change": Any change after the Closing Date in federal,
state or foreign laws or regulations or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including the Bank under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.
"Rule 15c3-3": Rule 15c3-3 promulgated under the Exchange Act.
"Secured Obligations": As defined in the Collateral Agreement.
"Securities": Collectively, DTC Debt Securities, DTC Equity
Securities, Government Securities and GNMA Securities.
"Securities Act": The Securities Act of 1933, as amended.
"Self-Regulatory Organization": As defined in Section 3(a)(26)
of the Exchange Act.
"SIPA": The Securities Investor Protection Act of 1970, as
amended.
"Special Reserve Account": The special reserve bank account
maintained by the Company with the Bank for the exclusive benefit of Customers
pursuant to Rule 15c3-3.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Company either directly or through one or more Subsidiaries.
"Tangible Net Worth": With respect to any Person, at the date of any
determination, the sum of the amounts set forth on the consolidated, if
applicable, balance sheet of such Person, as the sum of the common stock,
preferred stock, additional paid-in capital and retained earnings of such Person
(excluding treasury stock), less the net book value of all assets of such Person
and its subsidiaries (to the extent reflected as an asset on such consolidated
balance sheet) that would be treated as intangibles under GAAP, including all
such items as goodwill, trademarks, trade names, service marks, copyrights,
patents, licenses, unamortized debt discount and expenses and the excess of the
purchase price of the assets of any business acquired by such Person or any
subsidiary over the book value of such assets, and less obligations owed to such
person by any Affiliate. Tangible Net Worth of the Parent shall exclude loans
made by the Parent to any of its officers, directors or employees.
"Termination Date": The earliest of (a) the Commitment Ending Date,
(b) the date on which the Commitment is terminated pursuant to Section 7.2 or
(c) the date on which the Commitment Amount is reduced to zero or the Commitment
is terminated pursuant to Section 2.9 hereof.
"Total Assets": At the time of any determination, the net book
value of all assets of the Company as determined in accordance with GAAP.
"UCC": The Uniform Commercial Code as in effect from time to
time in the State of Minnesota.
"U.S. Person": Any corporation, partnership, association or trust
that issues Securities and that is organized under the laws of the United States
of America or any one of its states.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP. To the extent any change in GAAP affects any
computation or determination required to be made pursuant to this Agreement,
such computation or determination shall be made as if such change in GAAP had
not occurred unless the Company and the Bank agree in writing on an adjustment
to such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.4 Other Definitional Terms. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
TERMS OF LENDING
Section 2.1 The Commitment. On the terms and subject to the conditions
hereof, the Bank agrees to make loans (each, a "Committed Loan" and,
collectively, the "Committed Loans") to the Company on a revolving basis at any
time and from time to time from the Closing Date to the Termination Date, during
which period the Company may borrow, repay and reborrow in accordance with the
provisions hereof; provided that (a) the unpaid principal amount of outstanding
Loans (inclusive of outstanding Discretionary Loans) shall not at any time
exceed the Commitment Amount, and (b) the unpaid principal amount of outstanding
Committed Loans shall not at any time exceed the Customers' Securities
Availability. Loans may be obtained and maintained, at the election of the
Company but subject to the limitations hereof, as Federal Funds Rate Advances or
Eurodollar Rate Advances or any combination thereof.
Section 2.2 Discretionary Credit Subfacility.
2.2(a) Discretionary Credit Subfacility. The Bank agrees to consider
the Company s requests, from time to time, for Loans in an aggregate principal
amount outstanding from time to time from the Effective Date until the
Termination Date, not to exceed the Discretionary Credit Subfacility Amount, and
the Bank may (in its sole and unlimited discretion) make the requested Loans
(the "Discretionary Loans"). Nothing contained in this Agreement shall be
construed to constitute a commitment to make any Discretionary Loan even if the
Company satisfies all terms and conditions specified herein with respect to
Discretionary Loans.
2.2(b) Special Borrowing Procedures. In addition to the procedures
specified in Section 2.3 of this Agreement, the Company will deliver to the Bank
by no later than 5:00 p.m. (Minneapolis time) on any day on which the Company
has made a request for a Discretionary Loan an Agreement to Pledge covering Firm
Securities that upon delivery to the Bank must qualify as Eligible Securities
with an attached list of such Firm Securities stating the Market Value thereof.
On any Business Day on which a Discretionary Loan remains outstanding as of 3:00
p.m. (Minneapolis time), the Company shall deliver to the Bank by no later than
5:00 p.m. (Minneapolis time) a list of the Firm Securities subject to the
Agreement to Pledge that was delivered with the request for such Discretionary
Loan, whether or not such Firm Securities have been delivered to the Bank,
stating the Market Value thereof. By delivering each such list or Agreement to
Pledge, the Company shall be deemed to grant the Bank a security interest in the
listed Firm Securities and to represent and covenant that: (i) the listed
Securities are Eligible Securities; (ii) the listed Securities will not be sold,
pledged or otherwise transferred to any person other than the Bank prior to 9:00
a.m. on the Business Day after the day on which the Company delivers the list to
the Bank; (iii) the Company will, upon demand by the Bank, deliver all
Securities described in any such list then current, or (if such demand is made
after 9:00 am. on the Business Day after the Bank's receipt of the most recent
such list), other Firm Securities acceptable to the Bank that are Eligible
Securities with an aggregate Market Value at least equal to the aggregate Market
Value of the listed Securities, to the Bank, and pledge those Securities to the
Bank as security for all Discretionary Loans then outstanding; and (iv) any
Securities listed in Agreements to Pledge in effect for 15 consecutive calendar
days will be delivered and pledged to the Bank by the Company as security for
all Discretionary Loans then outstanding (as applicable on the first Business
Day following that fifteenth consecutive day).
2.2(c) Minimum Collateral Value. The aggregate Collateral Value of
Firm Securities subject to Agreements to Pledge in favor of the Bank shall at
all times equal or exceed the aggregate unpaid principal amount of Discretionary
Loans.
Section 2.3 Procedure for Loans. Any request by the Company for a Loan
shall be in writing, or by telephone promptly confirmed in writing, and must be
given so as to be received by the Bank not later than 3:30 p.m. (Minneapolis
time) two Eurodollar Business Days prior to the requested Loan Date if the Loan
is requested as a Eurodollar Rate Advance, and not later than 3:30 p.m.
(Minneapolis time) on the requested Loan Date if the Loan is requested as a
Federal Funds Rate Advance. The Bank may, in its sole discretion, accept
requests for Loans after 3:30 p.m. (Minneapolis time). Each request for a Loan
shall be irrevocable and shall be deemed a representation by the Company that on
the requested Loan Date and after giving effect to such Loan the applicable
conditions specified in Article III have been and will continue be satisfied.
Each request for a Loan shall specify (a) the requested Loan Date, (b) the
amount of such Loan which shall be in a minimum amount of $500,000 or, if more,
an integral multiple thereof, (c) whether such Loan is to be funded as a Federal
Funds Rate Advance or a Eurodollar Rate Advance, (d) in the case of a Loan made
as a Eurodollar Rate Advance, the duration of the initial Interest Period
applicable thereto, and (e) whether such Loan is requested as a Committed Loan
or a Discretionary Loan. Unless the Bank determines that any applicable
condition specified in Section 2.1 or in Article III has not been satisfied, or
has determined (in its sole and unlimited discretion) not to make a requested
Discretionary Loan, the Bank will make available to the Company at the Bank's
principal office in Minneapolis, Minnesota in Immediately Available Funds not
later than 4:00 p.m. (Minneapolis time) on the requested Loan Date the amount of
the requested Loan. In the event that the Bank determines that the Customers
Securities Availability is not sufficient to cover a requested Committed Loan,
the Bank may, in its sole discretion, make a Committed Loan in an amount that is
covered by Customers' Securities Availability. Without in any way limiting the
Company's obligation to confirm in writing any telephonic request for a Loan,
the Bank may rely on any such request which it believes in good faith to be
genuine; and the Company hereby waives the right to dispute the Bank's record of
the terms of such telephonic request for a Loan.
Section 2.4 The Notes. The Company's obligation to repay all Committed
Loans shall be evidenced by a promissory note substantially in the form of
Exhibit B hereto (the "Customers' Securities Note"). The Company's obligation to
repay all Discretionary Loans shall be evidenced by a promissory note
substantially in the form of Exhibit C hereto (the "Firm Securities Note"). The
Bank shall enter in its ledgers and records the amount of each Loan, the various
Advances made, converted or continued and the payments made thereon, and the
Bank is authorized by the Company to enter on a schedule attached to each Note a
record of such Loans, Advances and payments; provided, however, that the failure
by the Bank to make any such entry or any error in making such entry shall not
limit or otherwise affect the obligation of the Company hereunder and on the
Notes, and, in all events, the principal amount owing by the Company in respect
of the Notes shall be the aggregate amount of all Loans made by the Bank less
all payments of principal thereof made by the Company.
Section 2.5 Conversions and Continuations. On the terms and subject to the
limitations hereof, the Company shall have the option at any time and from time
to time to convert all or any portion of the Advances into Federal Funds Rate
Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate Advance
as such; provided, however, that a Eurodollar Rate Advance may be converted or
continued only on the last day of the Interest Period applicable thereto and no
Advance may be converted or continued as a Eurodollar Rate Advance if a Default
or Event of Default has occurred and is continuing on the proposed date of
continuation or conversion. Advances may be converted to, or continued as,
Eurodollar Rate Advances only in amounts of $500,000 or an integral multiple
thereof. The Company shall give the Bank written notice of any continuation or
conversion of any Advance and such notice must be given so as to be received by
the Bank not later than 12:00 noon. (Minneapolis time) two Eurodollar Business
Days prior to the requested date of conversion or continuation in the case of
the continuation of, or conversion to, a Eurodollar Rate Advance or conversion
to a Federal Funds Rate Advance. Each such notice shall specify (a) the amount
to be continued or converted, (b) the date for the continuation or conversion
(which must be (i) the last day of the preceding Interest Period for any
continuation or conversion of Eurodollar Rate Advances, (ii) a Eurodollar
Business Day in the case of conversions to or continuations as Eurodollar
Advances, and (iii) a Business Day in the case of conversions to Federal Funds
Rate Advances, and (c) in the case of conversions to or continuations as
Eurodollar Rate Advances, the Interest Period applicable thereto. Any notice
given by the Company under this Section shall be irrevocable. If the Company
shall fail to notify the Bank of the continuation of any Eurodollar Rate Advance
within the time required by this Section, such Advance shall, on the last day of
the Interest Period applicable thereto, automatically be converted into a
Federal Funds Rate Advance of the same principal amount.
Section 2.6 Interest Rates, Interest Payments and Default Interest.
Interest shall accrue and be payable as follows:
2.6(a) Each Eurodollar Rate Advance shall bear interest on the
unpaid principal amount thereof during the Interest Period applicable thereto at
a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for such
Interest Period, plus (ii) the Applicable Margin.
2.6(b) Each Federal Funds Rate Advance shall bear interest on the
unpaid principal amount thereof at a floating rate per annum equal to the sum of
(i) the Federal Funds Rate, plus (ii) the Applicable Margin.
2.6(c) Effective upon notice from the Bank, whenever any Default or
Event of Default shall have occurred and be continuing (whether or not the
maturity of the Notes shall have been accelerated), interest shall accrue on
each Advance until such Default or Event of Default shall have been cured to the
written satisfaction of the Bank or, if such Default or Event of Default
consists of the Company's failure to pay the Bank any amount owing under any
Loan Document, until such amount shall have been paid in full (i) during the
balance of any Interest Period applicable to such Advance, at a rate per annum
equal to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0% and (ii) otherwise, at a rate per annum equal to the sum of (x)
the Federal Funds Rate, plus (y) the Applicable Margin for Federal Funds
Advances, plus (z) 2.0%.
2.6(d) Interest shall be payable (i) with respect to each Eurodollar
Rate Advance on the last day of the Interest Period applicable thereto; (ii)
with respect to any Federal Funds Rate Advance, on the first day of each month;
(iii) with respect to Discretionary Loans, upon each day that principal is due;
(iv) with respect to all Advances, upon any permitted prepayment (on the amount
prepaid); and (iv) with respect to all Advances, on the Termination Date;
provided that interest under Section 2.6(c) shall be payable on demand.
Section 2.7 Repayment.
2.7(a) Principal of the Committed Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on the Termination Date.
2.7(b) Principal of Discretionary Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on demand, which demand
may be for payment in whole or in part, irrespective of the occurrence or non-
occurrence of any Default or Event of Default. If demand is not sooner made,
each Discretionary Loan shall be due and payable on the first Business Day
following the date on which such Discretionary Loan was made together with all
accrued and unpaid interest thereon.
Section 2.8 Optional Prepayments. The Company may prepay Federal Funds
Rate Advances, in whole or in part, at any time, without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $500,000 or an
integral multiple thereof. Except upon an acceleration following an Event of
Default or upon termination of the Commitment under Section 2.9, the Company may
pay a Eurodollar Rate Advance only on the last day of the Interest Period
applicable thereto. Amounts paid (unless following an acceleration or upon
termination of the Commitment) or prepaid under this Section 2.8 may be
reborrowed upon the terms and subject to the conditions and limitations of this
Agreement.
Section 2.9 Optional Reduction of Commitment Amount or Termination of
Commitment. The Company may, at any time, upon not less than five Business Days
prior written notice to the Bank, reduce the Commitment Amount, with any such
reduction in a minimum amount of $500,000, or, if more, in an integral multiple
of $500,000; provided, however, that the Company may not reduce the Commitment
Amount at a time and in an amount if such reduction and the payment required by
the next sentence would result in any outstanding Eurodollar Rate Advance being
repaid, in whole or in part, prior to the last day of the Interest Period
applicable to such Advance. Upon any reduction in the Commitment Amount pursuant
to this Section, the Company shall pay to the Bank the amount, if any, by which
the aggregate unpaid principal amount of outstanding Loans exceeds the
Commitment Amount as so reduced. Amounts so paid cannot be reborrowed. The
Company may, at any time, upon not less than five Business Days prior written
notice to the Bank, terminate the Commitment in its entirety. Upon termination
of the Commitment pursuant to this Section, the Company shall pay to the Bank
the full amount of all outstanding Loans, all accrued and unpaid interest
thereon, all unpaid Facility Fees accrued to the date of such termination, any
indemnities payable pursuant to Section 2.19 and all other unpaid obligations of
the Company to the Bank hereunder.
Section 2.10 Delivery of Collateral; Mandatory Prepayments.
2.10(a) At any time that the outstanding principal amount of the
Customers' Securities Note exceeds the Customers' Securities Availability, the
Company shall comply with Section 4.1(b) of the Collateral Agreement.
2.10(b) Without limiting to any degree the demand nature of the
Obligations under the Firm Securities Note, the Company shall at any time that
the outstanding principal amount of the Firm Securities Note exceeds the
aggregate Collateral Value of the Firm Securities subject to Agreements to
Pledge, immediately prepay the principal amount of the Firm Securities Note in
the amount of such excess and pay all accrued and unpaid interest on such
amount.
Section 2.11 Facility Fee. The Company shall pay to the Bank fees (the
"Facility Fees") in an amount determined by applying a rate of .20% per annum to
the amount of the Commitment for the period from the Commitment Date to the
Termination Date. Such Facility Fees are payable quarterly in arrears on the
last day of each quarter, commencing on December 31, 1994, and on the
Termination Date.
Section 2.12 Computation. Facility Fees and interest on Advances shall be
computed on the basis of actual days elapsed and a year of 360 days.
Section 2.13 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 p.m. (Minneapolis time) on the
dates called for under this Agreement at the main office of the Bank in
Minneapolis, Minnesota. Funds received on any day after such time shall be
deemed to have been received by the Bank on the next Business Day. Whenever any
payment to be made hereunder or on either Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time, in the case of a payment of
principal, shall be included in the computation of any interest on such
principal payment.
Section 2.14 Commitment Ending Date and Extension. The "Commitment Ending
Date" is November 17,1995; provided, however, that if the Company by written
notice given to the Bank at least 45 days but not more than 180 days prior to
the Commitment Ending Date requests in writing an initial extension of the
Commitment Ending Date for an additional period of time, not to exceed 180 days,
and if the Bank, in its sole and absolute discretion and based on such review of
the Company's financial performance and condition and such other factors as the
Bank considers relevant (which may include future loan policies and other
policies adopted by the Bank unrelated to the Company's financial condition),
consents in writing to such extension, then the Commitment Ending Date shall be
extended for such additional period of time, which in the case of the initial
extension shall not exceed 180 days, and in such extended period the Company may
repeat its request within the same time limit and, if the Bank consents, the
Commitment Ending Date shall be further extended for an additional period, not
to exceed 360 days, and so on from time to time; provided, that in the case of
the initial extension period, the written notice given to the Bank during such
period shall be given not more than 90 days prior to the Commitment Ending Date.
The Bank's failure to respond to the Company's written request for an extension
within 45 days of the Bank's receipt thereof shall be deemed a denial of such
request. In the case of any such extension, the "Commitment Ending Date" shall
be the last day of the period to which such extension has been granted. The Bank
shall be under no obligation or commitment to extend the Commitment Ending Date,
and no such obligation or commitment on the part of the Bank should be inferred
from the provisions of this Section.
Section 2.15 Use of Proceeds. The proceeds of the initial Loan shall be
used first for paying all outstanding Indebtedness of the Company to the Bank.
Any remaining balance of the initial Loan and the proceeds of any subsequent
Loans shall be used for the Company s short-term working capital needs in
compliance with all applicable legal and regulatory requirements, including,
without limitation, Regulations T, U and X and the Securities Act and the
Exchange Act and the regulations thereunder. The Bank shall have no
responsibility as to the use of any such proceeds.
Section 2.16 Interest Rate Not Ascertainable, Etc. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the Interest
Period for any requested Eurodollar Rate Advance, the Bank determines (which
determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not
being made available to the Bank in the relevant market for such
Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to the Bank of funding or maintaining Eurodollar
Rate Advances for such Interest Period,
the Bank shall forthwith give notice to the Company of such determination,
whereupon the obligation of the Bank to make or continue, or to convert any
Advances to Eurodollar Rate Advances shall be suspended until the Bank notifies
the Company that the circumstances giving rise to such suspension no longer
exist. No such suspension shall affect the interest rate then in effect during
the applicable Interest Period for any Eurodollar Rate Advance outstanding at
the time such suspension is imposed.
Section 2.17 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other charge with
respect to Eurodollar Rate Advances, the Note or its obligation to
make Eurodollar Rate Advances, or shall change the basis of taxation
of payment to the Bank of the principal of or interest on Eurodollar
Rate Advances or any other amounts due under this Agreement in
respect of Eurodollar Rate Advances or its obligation to make
Eurodollar Rate Advances (except for changes in the rate of tax on
the overall net income of the Bank imposed by the laws of the United
States or any jurisdiction in which the Bank's principal office is
located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including any
such requirement imposed by the Board, but excluding any Eurodollar
Rate Advance any such requirement to the extent included in
calculating the applicable Adjusted Eurodollar Rate) against assets
of, deposits with or for the account of, or credit extended by, the
Bank or shall impose on the Bank or on the interbank Eurodollar
market any other condition affecting Eurodollar Rate Advances, the
Notes or its obligation to make Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Eurodollar Rate Advance, or to reduce the amount of
any sum received or receivable by the Bank under this Agreement or under either
Note, then, within 30 days after demand by the Bank, the Company shall pay to
the Bank such additional amount or amounts as will compensate the Bank for such
increased cost or reduction. The Bank will promptly notify the Company of any
event of which it has knowledge, occurring after the date hereof, which will
entitle the Bank to compensation pursuant to this Section. A certificate of the
Bank claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable detail
the basis for the charge and the method of computation, shall be conclusive in
the absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of the Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable with respect to any Interest Period shall not constitute a waiver of
the Bank's rights to demand compensation for any increased costs or reduction in
amounts received or receivable in any subsequent Interest Period.
Section 2.18 Illegality. If any Regulatory Change shall make it unlawful
or impossible for the Bank to make, maintain or fund Eurodollar Rate Advances,
the Bank shall notify the Company, whereupon the obligation of the Bank to make
Eurodollar Rate Advances shall be suspended until the Bank notifies the Company
that the circumstances giving rise to such suspension no longer exist. If the
Bank determines that it may not lawfully continue to maintain any outstanding
Eurodollar Rate Advances to the end of the applicable Interest Periods, all of
the affected Advances shall be automatically converted to Federal Funds Rate
Advances as of the date of the Bank's notice, and upon such conversion the
Company shall indemnify the Bank in accordance with Section 2.20.
Section 2.19 Capital Adequacy. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return (by an amount
the Bank deems material) on the Bank's capital or the capital of its parent
corporation as a consequence of the Commitment and/or the Loans to a level below
that which the Bank or the Bank's parent corporation could have achieved but for
such Regulatory Change (taking into account the Bank's policies and the policies
of the Bank's parent corporation with respect to capital adequacy), then the
Company shall, within five days after written notice and demand from the Bank,
pay to the Bank additional amounts sufficient to compensate the Bank or the
Bank's parent corporation for such reduction; provided, however, that no payment
shall be required due to any increase in capital due to a regulatory authority's
assessment of the Bank's or its parent corporation's financial condition. Any
determination by the Bank under this Section and any certificate as to the
amount of such reduction given to the Company by the Bank shall be final,
conclusive and binding for all purposes, absent error.
Section 2.20 Funding Losses. The Company shall compensate the Bank, upon
its written request, for all losses, expenses and liabilities (including any
interest paid by the Bank to lenders of funds borrowed by it to make or carry
Eurodollar Rate Advances to the extent not recovered by the Bank in connection
with the re-employment of such funds and including loss of anticipated profits)
which the Bank may sustain: (a) if for any reason, other than a default by the
Bank, a funding of a Eurodollar Rate Advance does not occur on the date or in
the amount specified therefor in the Company's request or notice as to such
Advance under Section 2.2(b) or 2.3, or (b) if, for whatever reason (including
acceleration of the maturity of the Note following an Event of Default), any
repayment of a Eurodollar Rate Advance, or a conversion pursuant to Section 2.17
occurs on any day other than the last day of the Interest Period applicable
thereto. The Bank's request for compensation shall set forth the basis for the
amount requested and shall be final, conclusive and binding, absent error.
Section 2.21 Discretion of Bank as to Manner of Funding. The Bank shall be
entitled to fund and maintain its funding of Eurodollar Rate Advances in any
manner it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including determinations under Section
2.20), shall be made as if the Bank had actually funded and maintained each
Eurodollar Rate Advance during the Interest Period for such Advance through the
purchase of deposits, having a maturity corresponding to the last day of the
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Loan. The obligation of the Bank to make
the initial Loan hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:
3.1(a) Documents. The Bank shall have received the following:
(i) The Notes executed by a duly authorized officer (or
officers) of the Company and dated the Closing Date.
(ii) The Collateral Agreement duly executed by the
Company, the Administrator and the Lenders.
(iii) The Firm Collateral Agreement duly executed by the
Company.
(iv) A copy of the corporate resolutions of the Company
authorizing the execution, delivery and performance of the
Loan Documents, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Company.
(v) An incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of the Company
authorized to execute the Loan Documents and to request Loans
and conversions and continuations of Advances hereunder,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Company.
(vi) A copy of the Certificate of Incorporation of the Company
with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation
as of a date not more than ten days prior to the Closing Date.
(vii) A certificate of good standing for the Company in the
jurisdiction of its incorporation and in the States of
Minnesota and Delaware, certified by the appropriate
governmental officials as of a date not more than ten days
prior to the Closing Date.
(viii) A copy of the bylaws of the Company, certified
as of the Closing Date by the Secretary or an Assistant
Secretary of the Company.
(ix) A certificate dated the Closing Date of the chief
executive officer or chief financial officer of the Company
certifying as to the matters set forth in Sections 3.2(a) and
3.2(b) below.
3.1(b) Opinion. The Company shall have requested Faegre & Benson,
its counsel, to prepare a written opinion, addressed to the Bank and dated the
Closing Date, covering the matters set forth in Exhibit D hereto, and such
opinion shall have been delivered to the Bank; provided that with respect to
certain matters the Bank may accept the opinion of general counsel to the
Company.
3.1(c) Compliance. The Company shall have performed and complied
with all agreements, terms and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or simultaneously with
the Closing Date.
3.1(d) Adequacy of Collateral. All of the conditions to the
effectiveness of the Collateral Agreement specified in Article XIII thereof
shall have occurred and the Administrator shall have confirmed to the Bank
pursuant to Section 3.1(a) thereof that the Collateral Value of the Collateral
Pool is sufficient to secure all of the initial Committed Loan.
3.1(e) Other Matters. All corporate and legal proceedings relating
to the Company and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Bank and its counsel, and the Bank shall have received all
information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper corporate or
governmental authorities.
3.1(f) Fees and Expenses. The Bank shall have received all fees and
other amount due and payable by the Company on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Bank payable
pursuant to Section 8.2.
Section 3.2 Conditions Precedent to all Loans. The obligation of the Bank
to make any Loan hereunder (including the initial Loan) shall be subject to the
fulfillment of the following conditions:
3.2(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of the
Loan Date of each Loan, with the same force and effect as if made on such date.
3.2(b) No Default. No Default or Event of Default shall have
occurred and be continuing on the Loan Date of each Loan, will exist after
giving effect to such Loan or is reasonably anticipated to occur.
3.2(c) Loan Request. The Bank shall have received the Company's
request for such Loan as required under Section 2.3.
3.2(d) Adequacy of Collateral. The Administrator shall have
confirmed to the Bank pursuant to Section 3.1(a) of the Collateral Agreement
that the Collateral Value of the Collateral Pool is sufficient to secure all of
such Committed Loan.
3.2(e) Form U-1. The Bank shall have received a properly
completed Form U-1 (as referred to in Regulation U) duly executed by the
Company if so requested by the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, to grant the Commitment
and to make Loans hereunder, the Company represents and warrants to the Bank:
Section 4.1 Organization, Standing, Etc. The Company is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to issue the Notes and to perform its obligations
under the Loan Documents. Each Material Subsidiary is a corporation duly
incorporated and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted. Each of the Company and the
Material Subsidiaries (a) holds all certificates of authority, licenses and
permits necessary to carry on its business as presently conducted in each
jurisdiction in which it is carrying on such business, except where the failure
to hold such certificates, licenses or permits would not have a material adverse
effect on the business, operations, property, assets or condition, financial or
otherwise, of the Company and the Material Subsidiaries taken as a whole, and
(b) is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary and the
failure so to qualify would permanently preclude the Company or such Material
Subsidiary from enforcing its rights with respect to any assets or expose the
Company or such Material Subsidiary to any liability, which in either case would
be material to the Company and the Subsidiaries taken as a whole.
Section 4.2 Authorization and Validity. The execution, delivery and
performance by the Company of the Loan Documents have been duly authorized by
all necessary corporate action by the Company, and this Agreement constitutes,
and the Notes and other Loan Documents when executed will constitute, the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 4.3 No Conflict; No Default. The execution, delivery and
performance by the Company of the Loan Documents will not (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to the Company, (b) violate
or contravene any provision of the Certificate of Incorporation or bylaws of the
Company, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which the Company is a party or by which it or any of its properties may be
bound or result in the creation of any Lien thereunder. Neither the Company nor
any Material Subsidiary is in default under or in violation of any such law,
statute, rule or regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit agreement or other
agreement, lease or instrument in any case in which the consequences of such
default or violation could have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the
Company and the Subsidiaries taken as a whole.
Section 4.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Company to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents.
Section 4.5 Financial Statements and No Material Adverse Change. The
Company's audited financial statements as at September 30, 1993 and its
unaudited financial statements as at September 30, 1994, as heretofore furnished
to the Bank, have been prepared in accordance with GAAP on a consistent basis
(except for yearend audit adjustments as to the interim statements) and fairly
present the financial condition of the Company as at such dates and the results
of its operations and changes in financial position for the respective periods
then ended. As of the dates of such financial statements, the Company had no
material obligation, contingent liability, liability for taxes or long term
lease obligation which is not reflected in such financial statements or in the
notes thereto, except in connection with the litigation disclosed in Schedule
4.6 hereto or reported to the Bank pursuant to Section 5.9. Since September 30,
1994, there has been no material adverse change in the business, operations,
property, assets or condition, financial or otherwise, of the Company, except as
disclosed in Schedule 4.5 hereto.
Section 4.6 Litigation.
4.6(a) General Litigation. Except as disclosed on Schedule 4.6
hereto, there are no actions, suits or proceedings pending or, to the knowledge
of the Company, threatened against or affecting the Company or any Subsidiary or
any of their properties before any court or arbitrator, or any Governmental
Authority which has had, or, if determined adversely to the Company or such
Subsidiary, would have, a material adverse effect on the business, operations,
property or condition (financial or otherwise) of the Company and the
Subsidiaries taken as a whole or on the ability of the Company to perform its
obligations under any Loan Document.
4.6(b) Litigation Affecting this Agreement. There are no actions,
suits, arbitrations, investigations or proceedings pending or, to its knowledge,
threatened against the Company before any Governmental Authority or the NYSE or
any other stock or securities or commodities exchange which questions the
validity or enforceability of this Agreement or any action to be taken in
connection with the transactions contemplated hereby.
Section 4.7 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.
Section 4.8 Margin Regulations. The Company is a broker-dealer subject to
Regulation T. The Company maintains procedures and internal controls reasonably
adapted to ensure that the Company does not extend or maintain credit to or for
its customers other than in accordance with the provisions of Regulation T, and
the activities of employees of the Company to ensure that the Company does not
extend or maintain credit to or for its customers other than in accordance with
the provisions of Regulation T. Neither the making of any Loan hereunder, nor
the use of proceeds thereof, will violate or be inconsistent with the provisions
of Regulations T, U or X.
Section 4.9 Title to Property; Liens; Possession Under Leases. Each of the
Company and the Material Subsidiaries has (a) good and marketable title to its
real properties and (b) good and sufficient title to or valid, subsisting and
enforceable leasehold interests in, its other material properties and assets,
including all real properties, other properties and assets, referred to as owned
by the Company and the Subsidiaries in the most recent financial statements
referred to in Section 4.5 (other than property disposed of since the date of
such financial statements in the ordinary course of business).
Section 4.10 Taxes. Each of the Company and the Material Subsidiaries has
filed all federal, state and local tax returns required to be filed and has paid
or made provision for the payment of all taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
and all other taxes, fees and other charges imposed on it or any of its property
by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Company). No tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Company in
respect of taxes and other governmental charges are adequate and the Company
knows of no proposed material tax assessment against it or any Material
Subsidiary or any basis therefor.
Section 4.11 Trademarks. Each of the Company and the Material Subsidiaries
possesses or has the right to use all of the trademarks, trade names, service
marks and copyrights used in or necessary for the conduct of its business,
without known conflict with the rights of others.
Section 4.12 Burdensome Restrictions. Neither the Company nor any Material
Subsidiary is a party to or otherwise bound by any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which would foreseeably have a material adverse
effect on the business, properties, assets, operations or condition (financial
or otherwise) of the Company or such Material Subsidiary or on the ability of
the Company or any Material Subsidiary to carry out its obligations under any
Loan Document.
Section 4.13 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.
Section 4.14 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or of a subsidiary company of a
holding company within the meaning of the Public Utility Holding Company Act of
1940, as amended.
Section 4.15 Full Disclosure. Subject to the following sentence, neither
the financial statements referred to in Section 4.5 nor any other certificate,
written statement, exhibit or report furnished by or on behalf of the Company in
connection with or pursuant to this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained therein not misleading, which has not been corrected by
more current information provided to the Bank by the Company. Certificates or
statements furnished by or on behalf of the Company to the Bank consisting of
projections or forecasts of future results or events have been prepared in good
faith and are based on good faith estimates and assumptions of the management of
the Company, and the Company has no reason to believe that such projections or
forecasts are not reasonable.
Section 4.16 Subsidiaries. The Company has no Subsidiaries other than
the Subsidiaries identified in Schedule 4.16.
Section 4.17 Registered Broker-Dealer; Membership. The Company is duly
registered with the Securities and Exchange Commission as a broker-dealer and is
a member in good standing of the NASD and is a member organization in good
standing of the NYSE.
Section 4.18 SIPC Assessments. The Company is not in arrears with respect
to any assessment made upon it by the SIPC.
Section 4.19 Examining Authority. The NYSE has been designated as the
Examining Authority for the Company.
Section 4.20 Ownership. The Parent owns all (other than directors'
qualifying shares) of the voting shares of the Company.
Section 4.21 Compliance with Laws and Other Agreements. Neither the
Company nor any of its Material Subsidiaries is in default with respect to any
order, writ, injunction or decree of any Governmental Authority or
Self-Regulatory Organization or, to the knowledge of the Company, in violation
of any law, statute, rule or regulation to which the Company or such Material
Subsidiary or any Property of the Company or any such Subsidiary is or are
subject, which default or violation could reasonably be expected to have a
material adverse effect on the business, operations, property, assets or
condition, financial or otherwise, of the Company. Without limiting the
foregoing, the Company and each of its Material Subsidiaries is in compliance in
compliance with all capital requirements of all Governmental Authorities
applicable to the Company or any such Subsidiary, including, without limitation,
Rule 15c3-1. Neither the Company nor any of its Subsidiaries is in default in
the payment or performance of any of its obligations or in the performance of
any mortgage, indenture, lease, contract or other agreement to which it is a
party or by which it or any of its property is bound, which default could
reasonably be expected to have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Company.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Company will
furnish to the Bank:
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Company and the Parent, the financial
statements of the Company, and the consolidated financial statements of the
Parent, consisting of at least statements of income, cash flow, changes in
financial position and stockholders' equity, and a balance sheet as at the end
of such year, setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified without qualification with
respect to whether each of the Company and the Parent is a "going concern" by
Deloitte & Touche or other independent certified public accountants of
recognized national standing selected by the Company and the Parent and
acceptable to the Bank, together with a letter from such accountants addressed
to the Bank (a) acknowledging that the Bank is extending credit in reliance on
such financial statements and authorizing such reliance and (b) confirming that
no management letter, management report or other supplementary comments or
reports to the Company or the Parent or to either of their boards of directors
furnished by such accountants advised the recipients of the same of any material
weakness.
5.1(b) Together with the audited financial statements required under
Section 5.1(a) a statement by the accounting firm performing such audit to the
effect that it has reviewed this Agreement and that in the course of performing
its examination nothing came to its attention that caused it to believe that any
Default or Event of Default exists, or, if such Default or Event of Default
exists, describing its nature.
5.1(c) As soon as available and in any event within 30 days after
the end of each fiscal month, an unaudited statement of income for the Company
and consolidated and consolidating unaudited statements of income for the Parent
for such month and in each case for the period from the beginning of such fiscal
year to the end of such month, and an unaudited balance sheet of the Company and
unaudited consolidated and consolidating balance sheet of the Parent as at the
end of such month, setting forth in comparative form figures for the
corresponding period for the preceding fiscal year, accompanied by a certificate
signed by the chief financial officer of the Company, in the case of the
Company's statements, and the chief financial officer of the Parent, in the case
of the Parent's statements, stating that such financial statements present
fairly the financial condition of the Company and that the same have been
prepared in accordance with GAAP.
5.1(d) As soon as practicable and in any event within 30 days after
the end of each fiscal month, a statement signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or noncompliance,
as the case may be) with Sections 5.12 and 6.9 as at the end of such month and
stating that as at the end of such month there did not exist any Default or
Event of Default or, if such Default or Event of Default existed, specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5.1(e) Promptly upon the filing thereof with NYSE or the Commission,
Part II of the Company's Focus Report, as filed for the most recent quarterly
period for which such report is required to be filed.
5.1(f) Immediately upon the Company obtaining Knowledge of any
Default or Event of Default, a notice describing the nature thereof and what
action the Company proposes to take with respect thereto.
5.1(g) Immediately upon the Company obtaining Knowledge of the
occurrence, with respect to any Plan, of any Reportable Event or any Prohibited
Transaction, a notice specifying the nature thereof and what action the Company
proposes to take with respect thereto, and, when received, copies of any notice
from PBGC of intention to terminate or have a trustee appointed for any Plan.
5.1(h) Promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the Parent's
shareholders; copies of all registration statements, periodic reports and other
documents filed by the Parent with the Commission or any national securities
exchange; and copies of all registration statements relating to the Company's
own securities and of any periodic reports and other documents relating to the
Company's own business filed by the Company with the Commission or any national
securities exchange.
5.1(i) Promptly upon a request, such other information regarding the
business, operation and financial condition of the Company as the Bank may
reasonably request from time to time.
Section 5.2 Corporate Existence. The Company will, and cause each Material
Subsidiary to, (a) maintain its corporate existence in good standing under the
laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction where failure so to qualify would permanently
preclude the Company or such Material Subsidiary from enforcing its rights with
respect to any material asset or would expose the Company or such Material
Subsidiary to any material liability; provided, however, that nothing herein
shall prohibit the merger or liquidation of any Subsidiary allowed under Section
6.1, and (b) do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business.
Section 5.3 Insurance. The Company will maintain, and cause each Material
Subsidiary to maintain, with financially sound and reputable insurance companies
such insurance as may be required by law and such other insurance in such
amounts and against such hazards as is customary in the case of reputable
corporations engaged in the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Company will file, and cause
each Material Subsidiary to file, all tax returns and reports which are required
by law to be filed by it and will pay, and cause each Material Subsidiary to
pay, before they become delinquent, all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Company's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Company's or such Subsidiary's books
in accordance with GAAP.
Section 5.5 Inspection. The Company will permit any Person designated by
the Bank to visit and inspect any of the properties, corporate books and
financial records of the Company and the Material Subsidiaries, to examine and
to make copies of the books of accounts and other financial records of the
Company and the Material Subsidiaries, and to discuss the affairs, finances and
accounts of the Company and the Material Subsidiaries with, and to be advised as
to the same by, its officers at such reasonable times and intervals as the Bank
may designate. So long as no Event of Default exists, such visits, inspections
and examinations shall be at the expense of the Bank, but any such visits,
inspections and examinations made while any Event of Default is continuing shall
be at the expense of the Company.
Section 5.6 Maintenance of Properties. The Company will maintain, and
cause each Material Subsidiary to maintain, its properties used or useful in the
conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Company will keep, and will cause each
Material Subsidiary to keep, adequate and proper records and books of account in
which full and correct entries will be made of its dealings, business and
affairs.
Section 5.8 Compliance. The Company will comply, and will cause each
Material Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards of or by
any Governmental Authority or Self-Regulatory Organization to which it may be
subject; provided, however, that failure so to comply shall not be a breach of
this covenant if such failure does not have, or is not reasonably expected to
have, a materially adverse effect on the properties, business, prospects or
condition (financial or otherwise) of the Company or such Subsidiary and the
Company or such Subsidiary is acting in good faith and with reasonable dispatch
to cure such noncompliance.
Section 5.9 Notice of Litigation. The Company will give prompt written
notice to the Bank of the commencement of any action, suit or proceeding before
any court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Company or any Material Subsidiary or any property
of the Company or a Material Subsidiary or to which the Company or a Material
Subsidiary is a party in which an adverse determination or result could have a
material adverse effect (as determined by the Company in the exercise of its
reasonable judgment) on the business, operations, property or condition
(financial or otherwise) of the Company and the Subsidiaries taken as a whole or
on the ability of the Company or any Material Subsidiary to perform its
obligations under this Agreement and the other Loan Documents, stating the
nature and status of such action, suit or proceeding. The Company shall give the
Bank prompt written notice of any decision by the Company, its Parent or an
Affiliate to settle any suit or proceeding, whether now pending or hereafter
commenced, for an amount of $2,000,000 or more; provided, however, that the
Company will provide the amount which it, its Parent or any Affiliate has
decided to pay in settlement, but will not provide any further information
concerning the settlement, unless the Bank agrees to the terms of a written
confidentiality agreement on terms reasonably acceptable to the Company.
Section 5.10 ERISA. The Company will maintain, and cause each Material
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Company or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $1,000,000, (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Company or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $1,000,000 or (c) fail to make any payments in an
aggregate amount exceeding $1,000,000 to any Multiemployer Plan that the Company
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Broker-Dealer Registration. The Company will maintain its
registration as a broker-dealer with the Commission in full force and effect and
maintain its membership in good standing in such organizations as are necessary
to enable it to engage in the securities business and take all action necessary
to comply in all material respects with the rules and regulations of such
organizations.
Section 5.12 Net Capital. The Company will maintain at all times Net
Capital of not less than 10% of Aggregate Debit Items as determined as of the
close of each Business Day.
Section 5.13. Leverage Ratio. The Company will maintain at all times
a Leverage Ratio of not more than 5.0 to 1.0.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 6.1 Merger. The Company will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any Material Subsidiary to do any of the foregoing; provided, however, any
Subsidiary may be merged with or liquidated into the Company or any wholly-owned
Subsidiary (if the Company or such wholly-owned Subsidiary is the surviving
corporation).
Section 6.2 Sale of Assets. The Company will not, and will not permit any
Material Subsidiary to, sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for sales in the ordinary course of
business and except for sales or other transfers by a Subsidiary to the Company
or a wholly-owned Subsidiary.
Section 6.3 Plans. The Company will not permit, and will not allow any
Material Subsidiary to permit, any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause the
Lien provided for in Section 4068 of ERISA to attach to any assets of the
Company or any Subsidiary; and the Company will not permit the underfunded
amount of Plan benefits guaranteed under Title IV of ERISA to exceed $1,000,000.
Section 6.4 Change in Nature of Business. The Company will not, and will
not permit any Material Subsidiary to, make any material change in the nature of
the business of the Company or such Material Subsidiary, as carried on at the
date hereof.
Section 6.5 Subsidiaries. The cumulative net worth of all
Subsidiaries of the Company shall not exceed $1,000,000 at any time.
Section 6.6 Negative Pledges. The Company will not enter into any
agreement, bond, note or other instrument with or for the benefit of any Person
other than the Bank which would prohibit the Company from granting, or otherwise
limit the ability of the Company to grant, to the Bank any Lien on any assets or
properties of the Company. No grant of security interests to Lenders that are
parties to the Collateral Agreement, whether or not pursuant to the Collateral
Agreement, no loans of securities by the Company in the ordinary course of its
business and no negative pledges with respect to immaterial assets shall be
deemed to violate this Section 6.6.
Section 6.7 Liens. The Company will not create, incur, assume or suffer to
exist any Lien on Pledged Securities other than Liens on Customers' Securities
pursuant to the Collateral Agreement.
Section 6.8 Tangible Net Worth. The Company will not permit its Tangible
Net Worth at any time to be less than $100,000,000.
Section 6.9 Loans, Advances, Investments, Joint Ventures and Contingent
Obligations. The Company, other than in the ordinary course of its broker-dealer
business, will not, and not permit any Material Subsidiary to (x) make or permit
to remain outstanding any loan or advance to any other Person, (y) directly or
indirectly guarantee, endorse, be or become contingently liable for or enter
into any contract which is, in economic effect, substantially equivalent to a
guaranty of the obligation of any other Person, or (z) own, purchase or make any
commitment to purchase the securities of any corporation or own, purchase or
make any commitment to purchase for cash or any consideration, any obligations,
other securities, the business or integral part of the business of any other
Person or enter into a joint venture or partnership with any other Person,
except:
(a) by the endorsement of negotiable instruments for
deposit or collection (or similar transactions) in the ordinary course
of business;
(b) Producer Loans in an aggregate amount not to exceed
$15,000,000 at any time outstanding;
(c) advances to officers and employees, other than
Producer Loans, in an aggregate amount not to exceed $1,000,000 at any
time outstanding; and
(d) Investments of the type currently held by the Company, as
described on Schedule 6.9 hereto, in an aggregate amount not to exceed
$20,000,000 at any time outstanding.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default:
7.1(a) The Company shall fail to make when due, whether on demand,
by acceleration or otherwise, any payment of principal of or interest on either
Note or any other Obligation required to be made to the Bank pursuant to this
Agreement.
7.1(b) Any representation or warranty made by or on behalf of the
Company, or any Subsidiary in this Agreement or any other Loan Document or by or
on behalf of the Company, or any Subsidiary in any certificate, statement,
report or document herewith or hereafter furnished to the Bank pursuant to this
Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.
7.1(c) The Company shall fail to comply with Sections 5.2,5.3, 5.11
or 5.12 or any Section of Article VI.
7.1(d) The Company shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other than
those hereinabove set forth in this Section 7.1) and such failure to comply
shall continue for three calendar days after whichever of the following dates is
the earliest: (i) the date the Company gives notice of such failure to the Bank,
(ii) the date the Company should have given notice of such failure to the Bank
pursuant to Section 5.1, or (iii) the date the Bank gives notice of such failure
to the Company.
7.1(e) Any default (however denominated or defined) shall occur
under the Collateral Agreement, the Firm Collateral Agreement or any Agreement
to Pledge or any Liquidation Notice shall be provided to the Administrator by
any Lender.
7.1(f) The Company or any Material Subsidiary shall become insolvent
or shall generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee or
receiver of the Company or any Material Subsidiary or for a substantial part of
the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Company or any Material Subsidiary or for a substantial part of the property
thereof and shall not be discharged within 45 days, or the Company shall make an
assignment for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Company or any Material Subsidiary, and, if instituted against the
Company or any Material Subsidiary, shall have been consented to or acquiesced
in by the Company or such Material Subsidiary, or shall remain undismissed for
60 days, or an order for relief shall have been entered against the Company or
such Subsidiary.
7.1(h) Any dissolution or liquidation proceeding not permitted by
Section 6.1 shall be instituted by or against the Company or any Material
Subsidiary and, if instituted against the Company or any Material Subsidiary,
shall be consented to or acquiesced in by the Company or such Material
Subsidiary or shall remain for 45 days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess of
the sum of $10,000,000 in the aggregate shall be rendered against the Company or
a Material Subsidiary and the Company or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or procure a
stay of execution thereof, prior to any execution on such judgment by such
judgment creditor, within 60 days from the date of entry thereof, and within
said period of 60 days, or such longer period during which execution of such
judgment shall be stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
7.1(j) The maturity of any material Indebtedness of the Company
(other than Indebtedness under this Agreement) or a Material Subsidiary shall be
accelerated, or the Company or a Material Subsidiary shall fail to pay any such
material Indebtedness when due (after the lapse of any applicable grace period)
or, in the case of such Indebtedness payable on demand, when demanded (after the
lapse of any applicable grace period), or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or permitting the
holder of any such Indebtedness or any trustee or other Person acting on behalf
of such holder to cause, such material Indebtedness to become due prior to its
stated maturity or to realize upon any collateral given as security therefor.
For purposes of this Section, Indebtedness of the Company or a Material
Subsidiary shall be deemed "material" if it exceeds $10,000,000 as to any item
of Indebtedness or in the aggregate for all items of Indebtedness with respect
to which any of the events described in this Section 7.1(j) has occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Company or any Material Subsidiary shall
be taken or attempted to be taken and the same shall not have been vacated or
stayed within 30 days after the issuance thereof.
7.1(l) Any Official Lien on all or a portion of the Pledged
Securities shall have been created and such Official Lien shall not have been
discharged, released or bonded (with property other than the Pledged Securities)
within 30 days of such creation.
7.1(m) The Collateral Agreement, the Firm Collateral Agreement or
any Agreement to Pledge shall, at any time, cease to be in full force and effect
or shall be judicially declared null and void, or the validity or enforceability
thereof shall be contested by the Company, or the Bank shall cease to have a
valid and perfected security interest having the priority contemplated
thereunder in all of the collateral described therein.
7.1(n) Any Change of Control shall occur.
7.1(o) Any Self-Regulatory Organization shall revoke the Company's
membership therein or shall suspend such membership and such membership shall
not be reinstated within 10 days of such suspension if, in the case of any
Self-Regulatory Organization other than the NYSE and the NASD, such revocation
or suspension could reasonably be expected to have a Material Adverse Effect.
7.1(p) The DTC or PTC shall revoke the Company's membership therein
or shall suspend such membership and such membership shall not be reinstated
within 10 days of such suspension.
7.1(q) The Commission shall revoke the Company's status as a
broker-dealer or shall suspend such status and such status shall not be
reinstated within 10 days of such suspension.
7.1(r) The SIPC shall have applied or shall have announced its
intention to apply for a decree adjudicating that customers of the Company are
in need of protection under SIPA.
7.1(s) The Parent shall fail to maintain at all times Tangible Net
Worth of $125,000,000.
Section 7.2 Remedies. If (a) any Event of Default described Sections 7.1
(f), (g) or (h) shall occur with respect to the Company, the Commitment shall
automatically terminate and the Obligations shall automatically become
immediately due and payable, or (b) any other Event of Default shall occur and
be continuing, then the Bank may (i) declare the Commitment terminated,
whereupon the Commitment shall terminate, (ii) declare the Obligations to be
forthwith due and payable, whereupon the Obligations shall immediately become
due and payable, in each case without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding, (iii) exercise all
rights and remedies under any of the other Loan Documents, and (iv) enforce all
rights and remedies under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in Section 7.2
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Company hereby irrevocably authorizes the Bank to set off the
Obligations against all deposits and credits (other than with respect to the
Special Reserve Account) of the Company with, and any and all claims of the
Company against, the Bank. Such right shall exist whether or not the Bank shall
have made any demand hereunder or under any other Loan Document, whether or not
the Obligations, or any part thereof, or deposits and credits held for the
account of the Company is or are matured or unmatured, and regardless of the
existence or adequacy of any collateral, guaranty or any other security, right
or remedy available to the Bank. The Bank agrees that, as promptly as is
reasonably possible after the exercise of any such setoff right, it shall notify
the Company of its exercise of such setoff right; provided, however, that the
failure of the Bank to provide such notice shall not affect the validity of the
exercise of such setoff rights. Nothing in this Agreement shall be deemed a
waiver or prohibition of or restriction on the Bank to all rights of banker's
Lien, setoff and counterclaim available pursuant to law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
the Company; provided that no amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Company therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and then such amendment, modifications, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company agrees to reimburse the Bank
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Bank (including filing and recording costs and fees and expenses of Dorsey &
Whitney, counsel to the Bank) in connection with the negotiation, preparation,
approval, review, execution, delivery, amendment, modification, interpretation,
collection and enforcement of this Agreement, the Notes and any other Loan
Documents and any commitment letters relating thereto. The Bank is authorized by
the Company to make a Loan to the Company under this Agreement (as a Federal
Funds Rate Advance) in the amount of any such expenses and to apply the proceeds
of such Loan to the payment of such expenses. The obligations of the Company
under this Section shall survive any termination of this Agreement.
Section 8.3 Waivers, etc. No failure on the part of the Bank or any holder
of a Note to exercise and no delay in exercising any power or right hereunder or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any power or right or any abandonment or
discontinuance of the enforcement thereof preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies of
the Bank hereunder and under the other Loan Documents are cumulative and not
exclusive of any right or remedy the Bank otherwise has.
Section 8.4 Notices. Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Bank under Article II hereof shall be deemed to have been
given only when received by the Bank.
Section 8.5 Taxes. The Company agrees to pay, and save the Bank harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement or the issuance of the
Note, which obligation of the Company shall survive the termination of this
Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Company may
not assign its rights or delegate its obligations hereunder or under any other
Loan Document without the prior written consent of the Bank. The Bank may at any
time sell, assign, transfer, grant participations in, or otherwise dispose of
any portion of the Commitment, the Loans and/or Advances (each such interest so
disposed of being herein called a "Transferred Interest") to banks or other
financial institutions ("Transferees"). The Company agrees that each Transferee
shall be entitled to the benefits of Sections 2.16,2.17,2.18,2.19 and 8.2 with
respect to its Transferred Interest and that each Transferee may exercise any
and all rights of banker's Lien, setoff and counterclaim as if such Transferee
were a direct lender to the Company. If the Bank makes any assignment to a
Transferee, then upon notice to the Company such Transferee, to the extent of
such assignment (unless otherwise provided therein) shall become a "Bank"
hereunder and shall have all the rights and obligations of the Bank hereunder
and the Bank shall be released from its duties and obligations under this
Agreement to the extent of such assignment. Notwithstanding the sale by the Bank
of any participation hereunder, (a) no participant shall be deemed to be or have
the rights and obligations of the Bank hereunder except that any participant
shall have a right of setoff under Section 7.3 as if it were the Bank and the
amount of its participation were owing directly to such participant by the
Company and (b) the Bank shall not in connection with selling any such
participation condition the Bank's rights in connection with consenting to
amendments or granting waivers concerning any matter under any Loan Document
upon obtaining the consent of such participant other than on matters relating to
(i) any reduction in the amount of any principal of, or the amount of or rate of
interest on, the Notes or any Advance, (ii) any postponement of the date fixed
for any payment of principal of or interest on the Notes or any Loan, or (iii)
the release or subordination of any material portion of any collateral other
than pursuant to the terms of the Collateral Agreement, the Firm Collateral
Agreement or an Agreement to Pledge.
Section 8.7 Confidentiality of Information. The Bank shall use reasonable
efforts to assure that information about the Company and its operations, affairs
and financial condition, not generally disclosed to the public or to trade and
other creditors, which is furnished to the Bank pursuant to the provisions
hereof is used only for the purposes of this Agreement and any other
relationships between the Bank and the Company and shall not be divulged to any
Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to its attorneys and accountants,
(b) in connection with the enforcement of the rights of the Bank hereunder and
under the Notes, the Collateral Agreement, the Firm Collateral Agreement or
otherwise in connection with applicable litigation, (c) in connection with
assignments and participations and the solicitation of prospective assignees and
participants referred to in Section 8.6, and (d) as may otherwise be required or
requested by any regulatory authority having jurisdiction over the Bank or as
required by any applicable law, rule regulation or judicial process, the opinion
of the Bank's counsel concerning the making of such disclosure to be binding on
the parties hereto. The Bank shall not incur any liability to the Company by
reason of any disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under law applicable
thereto, but, if any provision of this Agreement, the other Loan Documents or
any other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under law
applicable thereto or in any other jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, the other Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA OR, IN THE
CASE OF ISSUES RELATING TO THE COLLATERAL AGREEMENT, IN ANY ILLINOIS STATE OR
FEDERAL COURT SITTING IN CHICAGO, ILLINOIS; AND THE COMPANY CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE COMPANY AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY
HERETO. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANK IN ENTERING INTO THIS AGREEMENT.
Section 8.11 Survival of Agreement. All representations, warranties,
covenants and agreement made by the Company herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Bank and shall survive the making of
the Loans by the Bank and the execution and delivery to the Bank by the Company
of the Notes, regardless of any investigation made by or on behalf of the Bank,
and shall continue in full force and effect as long as any Obligation is
outstanding and unpaid and so long as the Commitment has not been terminated;
provided, however, that the obligations of the Company under Sections 2.16,
2.17, 2.18, 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations
and the termination of the Commitment.
Section 8.12 Indemnification. The Company hereby agrees to defend,
protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers, employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any
commitments relating thereto, or any transaction contemplated by any
Loan Document; or
(b) by reason of, relating to or in connection with any credit
extended or used under the Loan Documents or any act done or omitted
by any Person, or the exercise of any rights or remedies thereunder,
including the acquisition of any collateral by the Bank by way of
foreclosure of the Lien thereon, deed or bill of sale in lieu of
such foreclosure or otherwise;
provided, however, that the Company shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of is Section. The
indemnification provisions set forth above shall be in addition to any liability
the Company may otherwise have. Without prejudice to the survival of any other
obligation of the Company hereunder the indemnities and obligations of the
Company contained in this Section shall survive the payment in full of the other
Obligations.
Section 8.13 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.14 Entire Agreement; No Third Party Beneficiaries. This
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Company and the Bank with respect to the subject
matter hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof. Nothing contained in this
Agreement or in any other Loan Document, expressed or implied, is intended to
confer upon any Person other than the parties hereto and thereto any rights
remedies, obligations or liabilities hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 8.16 Company Acknowledgments. The Company hereby acknowledges that
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents, (b) the Bank has no fiduciary
relationship to the Company, the relationship being solely that of borrower and
lender, (c) no joint venture exists between the Company and the Bank, and (d)
the Bank undertakes no responsibility to the Company to review or inform the
Company of any matter in connection with any phase of the business or operations
of the Company and the Company shall rely entirely upon its own judgment with
respect to its business, and any review, inspection or supervision of, or
information supplied to, the Company by the Bank is for the protection of the
Bank and neither the Company nor any third party is entitled to rely thereon.
Section 8.17 Subsidiary Reference. Any reference herein to a Subsidiary or
Subsidiaries of the Company and any financial definition, ratio, restriction or
other provision of this Agreement which is stated to be applicable to "the
Company" and the Subsidiaries or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent the Company has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with the Company for financial reporting purposes. References to a
Subsidiary or Subsidiaries shall not be construed as constituting a consent to
the existence, creation or acquisition of any Subsidiary.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PIPER JAFFRAY INC.
By /s/ Charles N. Hayssen
Charles N. Hayssen
Managing Director and Chief Financial
Officer
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Fax: 612-342-6085
FIRST BANK NATIONAL ASSOCIATION
By /s/ Jose A. Peris
Jose A. Peris
Vice President
First Bank Place
601 Second Avenue south
Minneapolis, MN 55402-4302
Fax: 612-973-0825
Signature Page to Credit Agreement
Exhibit 10.16
Execution Copy
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 23, 1994, is by and between
PIPER JAFFRAY INC., a Delaware corporation (the "Company"), and THE NORTHERN
TRUST COMPANY, an Illinois state banking association (the "Bank").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):
"Adjusted Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, an interest rate per annum (rounded
upward, if necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate for such Interest Period by 1.00 minus the
Eurodollar Reserve Percentage.
"Administrator": As defined in the Collateral Agreement.
"Advance": Any portion of the outstanding Loans as, to which the Company
has elected one of the available interest rate options and, if applicable, an
Interest Period. An Advance may be a Eurodollar Rate Advance or a Federal Funds
Rate Advance.
"Affiliate": When used with reference to any Person, (a) each Person that,
directly or indirectly, controls, is controlled by or is under common control
with, the Person referred to, (b) each Person which beneficially owns or holds,
directly or indirectly, five percent or more of any class of voting stock of the
Person referred to (or if the Person referred to is not a corporation, five
percent or more of the equity interest), (c) each Person, five percent or more
of the voting stock (or if such Person is not a corporation, five percent or
more of the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Person referred to, and (d) each of such Person's officers,
directors, joint venturer and partners. The term control (including the terms
"controlled by" and "under common control with") means the possession, directly,
of the power to direct or cause the direction of the management and policies of
the Person in question.
"Aggregate Debit Items": At any time, the aggregate debit items of the
Company at such time as computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers, Exhibit A to Rule
15c3-3.
"Agreement to Pledge": An agreement substantially in the form of
Exhibit A hereto.
"Applicable Margin": With respect to:
(a) Eurodollar Rate Advances --1/2of 1% per annum.
(b) Federal Funds Rate Advances --1/2of 1% per annum.
"Bank": As defined in the opening paragraph hereof.
"Board": The Board of Governors of the Federal Reserve System or any
successor thereto.
"Business Day": Any day (other than a Saturday, Sunday or legal holiday in
the State of Minnesota) on which national banks are permitted to be open for
business in Chicago, Illinois and on which the NYSE is open for trading.
"Cash Collateral": As defined in the Collateral Agreement.
"Capitalized Lease": A lease of (or other agreement conveying the right to
use) real or personal property with respect to which at least a portion of the
rent or other amounts thereon constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. l 3 of the Financial Accounting Standards Board) and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Change of Control": The occurrence, after the Closing Date, of any of the
following circumstances: (a) the Parent not owning, directly or indirectly,
securities of the Company representing 100% (exclusive of directors' qualifying
shares) of securities of the Company entitled to vote in the election of
directors, or (b) any Person or two or more Persons acting in concert acquiring
beneficial ownership (within the meaning of Rule l 3d-3 of the Commission under
the Exchange Act), directly or indirectly, of securities of the Company (or
other securities convertible into such securities) representing 20% or more of
the combined voting power of all securities of the Parent entitled to vote in
the election of directors, or (c) during any period of up to twelve consecutive
months, whether commencing before or after the Closing Date, individuals who at
the beginning of such twelve-month period were directors of the Parent ceasing
for any reason to constitute a majority of the Board of Directors of the Parent
(other than by reason of death, disability or scheduled retirement), or (d) any
Person or two or more Persons acting in concert acquiring by contract or
otherwise, or entering into a contract or arrangement which upon consummation
will result in its or their acquisition of, control over securities of the
Parent (or other securities convertible into such securities) representing 20%
or more of the combined voting power of all securities of the Parent entitled to
vote in the election of directors.
"Closing Date": Any Business Day between the date of this Agreement and
December l, 1994 selected by the Company for the mailing of the initial Loan
hereunder; provided that all the conditions precedent to the obligation of the
Bank to make the initial Loan, as set forth in Article III, have been, or, on
such Closing Date, will be, satisfied. The Company shall give the Bank not less
than one Business Day's prior notice of the day selected as the Closing Date.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Agreement": The Pledge and Collateral Administration Agreement
dated as of November 23, 1994 among the Company, the Bank, various other
Lenders, and The Northern Trust Company, as Administrator.
"Collateral Pool": As defined in the Collateral Agreement.
"Collateral Value": At any time of determination, with respect to an
Eligible Security, a Dollar amount equal to the product of (a) the valuation
rate set forth in the Collateral Agreement for the relevant type of Security (in
the case of Customers' Securities) or 80% (in the case of Firm Securities), and
(b) the amount determined by the Bank (in the case of Firm Securities) or the
Administrator (in the case of Customers' Securities) to be the Market Value of
the Security at such time. The Collateral Value of any Security other than an
Eligible Security shall be zero. The Collateral Value of Cash Collateral shall
be the amount thereof. The Collateral Value of the Collateral Pool shall mean
the aggregate Collateral Values of all Eligible Securities comprising the
Collateral Pool.
"Commission": The Securities and Exchange Commission, or any
regulatory body that succeeds to the functions thereof.
"Commitment": The obligation of the Bank to make Committed Loans to the
Company in an aggregate principal amount outstanding at any time not to exceed
the Commitment Amount upon the terms and subject to the conditions and
limitations of this Agreement.
"Commitment Amount": The maximum unpaid principal amount of Loans which
may from time to time be outstanding hereunder, being initially $35,000,000 but
as the same may from time to time be reduced pursuant to Section 2.9.
"Commitment Date": November 23, 1994.
"Commitment Ending Date": As defined in Section 2.14.
"Committed Loan": As defined in Section 2.1.
"Company": As defined in the opening paragraph hereof.
"Contingent Obligation": With respect to any Person at the time of any
determination, without duplication, any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect the owner against
loss in respect thereof; provided, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Customer": A retail or institutional customer of the Company that owns
securities that are eligible for hypothecation by the Company (acting as a
broker-dealer of securities) under all applicable laws and regulations.
"Customers' Securities": Securities that are "securities carried for
the account of any customer," as that term is defined in Rules 8c-l and
l5c2-l of the Commission, 17 C.F.R. ss.ss. 240.8c-l and 240.l5c2-l.
"Customer Securities Availability": At any given time, the Bank's Pro Rata
Share of the maximum amount of Secured Obligations permitted to be outstanding
under the Collateral Agreement, based upon the Collateral Value of the Eligible
Securities and Cash Collateral in the Collateral Pool at that time.
"Customers' Securities Note": As defined in Section 2.4.
"Default": Any event which, with the giving of notice (whether such notice
is required under Section 7.1, or under some other provision of this Agreement,
or otherwise) or lapse of time, or both, would constitute an Event of Default.
"Discretionary Credit Extension": As defined in Section 2.2.
"Discretionary Credit Subfacility Amount": The maximum aggregate unpaid
principal amount of Discretionary Loans plus unreimbursed Letters of Credit
which may from time to time be outstanding hereunder, being initially
$15,000,000 but as the same may be from time to time reduced as the parties may
agree in writing.
"Discretionary Loan": As defined in Section 2.2.
"DTC": The Depository Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section 17A of the Exchange
Act.
"DTC Debt Security": A "security" (as defined in Section 8-102(c) of the
UCC) that (a) is a debt security that is rated at one of the four highest rating
levels (without consideration of sublevels) for its maturity by Standard &
Poor's Ratings Group, Moody's Investors Service, Inc. or other comparable
nationally recognized rating service and (b) is capable of being (i) identified
by DTC by means of a DTC Pledge Summary Report as having been pledged to the
Bank by the Company or (ii) transferred to the account of the Bank or its agent
at DTC, whether or not such identification or transfer has occurred.
"DTC Equity Security": A "security" (as defined in Section 8-102(c) of the
UCC) that (a) is an equity security issued by a U.S. Person and (b) is capable
of being (I) identified by DTC by means of DTC Pledge Summary Report as having
been pledged to the Bank by the Company or (ii) transferred to the account of
the Bank or its agent at DTC, whether or not such identification or transfer has
occurred.
"DTC Pledge Summary Report": As defined in DTC's "PTD Reference
Manual" dated May, 1991.
"Eligible Security": For purposes of the definitions, "Customer Securities
Availability" and "Collateral Value" (as it pertains to Customers' Securities),
the term "Eligible Security" is as defined in the Collateral Agreement. For
purposes of the Discretionary Credit Subfacility, the term "Eligible Security"
means a Security that (a) is legally available to be pledged or hypothecated by
the Company to the Bank, pursuant to an Agreement to Pledge, (b) is subject as
of the transfer thereof to the Bank to (I) a validly perfected first priority
security interest in favor of the Bank, (ii) no Lien other than the Lien in
favor of the Bank created by the Loan Documents and (iii) no adverse claims (as
defined in Section 8-302 of the UCC) known to the Company which would impair the
value thereof as collateral, (c) is a DTC Debt Security, GNMA Security or
Government Security, (d) is a DTC Equity Security with respect to which the
Company is a qualified OTC market marker (as such term is used in Regulation U),
(e) has not matured or been called prior to its stated maturity or otherwise is
not in default, (f) has not been deemed by the Bank, in its sole discretion, to
be illiquid, and (g) is no a Customers' Security.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Company is a member and which is
treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day for trading
by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": With respect to each Interest Period applicable to a
Eurodollar Rate Advance, the interest rate per annum (rounded upward, if
necessary, to the next one sixteenth of one percent) at which United States
dollar deposits are offered to the Bank in the interbank Eurodollar market two
Eurodollar Business Days prior to the first day of such Interest Period for
delivery in Immediately Available Funds in the interbank Eurodollar market on
the first day of such Interest Period and in an amount approximately equal to
the Advance to which such Interest Period is to apply as determined by the Bank
and for a maturity comparable to the Interest Period; provided, that in lieu of
determining the rate in the foregoing manner, the Bank may substitute the per
annum Eurodollar rate (LIBOR) for United States dollars displayed on the
Telerate Systems, Inc. screen, page 3750 (or other applicable page), on the
first day of such Interest Period or may substitute a rate derived from at least
two or more rates which appear on the Reuters Screen LIBO Page as of 11:00 a.m.
London time, on the day that is two Eurodollar Business Days prior to the first
day of the Interest Period for such Eurodollar Rate Advance. A rate derived from
two or more rates that appear on the Reuters Screen LIBO Page shall be the
arithmetic mean of such rates (rounded as provided above). "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuter Monitor Money
Rates Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London InterBank offered rates of major banks for
United States dollar deposits).
"Eurodollar Rate Advance": An Advance with respect to which the interest
rate is determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that percentage expressed
as a decimal) which is in effect on such day, as prescribed by the Board for
determining the maximum reserve requirement (including any basic, supplemental
or emergency reserves) for a member bank of the Federal Reserve System, with
deposits comparable in amount to those held by the Bank, in respect of
"Eurocurrency liabilities" as such term is defined in Regulation D of the Board.
The rate of interest applicable to any outstanding Eurodollar Rate Advances
shall be adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
"Examining Authority": The organization designated by the Securities and
Exchange Commission as the Examining Authority for the Company as provided in
paragraph (c)(12) of Rule l5c3-l.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Facility Fees": As defined in Section 3.11.
"Federal Funds Rate": For any borrowing of Federal Funds Rate Advances,
the rate at which the Bank is offered overnight Federal funds at or about the
rate setting time for such borrowing by three Federal Funds brokers selected by
the Bank. The "rate setting time" with respect to any such borrowing shall be at
10:00 a.m., 11:00 a.m., 12:00 noon, 1:00 p.m. or 2:00 p.m., Chicago time, on the
date such borrowing is to be made and not less than one hour after the Bank has
received notice of such borrowing pursuant to Section 2.3 hereof, or at any
later time that is on the hour on such date, so long as such later time is prior
to the closing of the Federal Funds wire in New York City as such rate setting
time is selected by the Company in the notice of such borrowing delivered
pursuant to Section 2.3 hereof. The "closing of the Federal Funds wire" shall
mean the time at which the Federal Funds wire in New York City customarily
closes or, if there has been a system-wide extension of such closing time, the
time to which the closing of the Federal Funds wire has been extended.
"Federal Funds Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Federal Funds Rate.
"Firm Collateral Agreement": The Collateral Agreement dated as of
November 23, 1994, between the Company and the Bank.
"Firm Securities": All Securities owned or held by the Company that
are not Customers' Securities.
"Firm Securities Note": As defined in Section 2.4.
"Focus Report": The Financial and Operational Combined Uniform Single
Report required to be filed on a monthly or quarterly basis, as the case may be,
with the Commission or the NYSE, or any report that is required in lieu of such
report.
"GAAP": Generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of any date of determination.
"GNMA Securities": As defined in the Collateral Agreement.
"Governmental Authority": Any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including, without limitation, the Commission.
"Government Securities": A security of any one or more of the following
types: a security issued by the United States Treasury, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the Resolution
Funding Corporation, the Student Loan Marketing Association, the Export-Import
Bank of the United States, the United States Postal Service, the Federal
Financing Bank, the Tennessee Valley Authority, the Federal Home Loan Bank, the
Farm Credit System or the Farmers Home Administration or by any other agency of
the United States government that has been previously approved by the Bank as
being eligible for pledging under this Agreement and, with respect to each of
the foregoing, that is maintained in book-entry form on the records of a Federal
Reserve Bank or DTC; provided, that any of the foregoing types of Government
Securities shall cease to be Government Securities for purposes of this
Agreement at any time that, as a result of legislative, regulatory or judicial
action, the relationship between the agency issuing such Government Security and
the United States government, or the status of such Government Security with
respect to its support by the United States government, has been changed in any
way.
"Immediately Available Funds": Funds with good value on the day and in
the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, (j)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Period": With respect to each Eurodollar Rate Advance, the
period commencing on the date such Advance is made or converted from a Federal
Funds Rate Advance or on the last day of the immediately preceding Interest
Period, if any, applicable to an outstanding Advance and ending seven, fourteen,
thirty, sixty or ninety days thereafter, as the Company may elect in the
applicable notice of borrowing, continuation or conversion; provided that:
(a) Any Interest Period which would otherwise end on a day which is not a
Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in the
next calendar month, in which case such Interest Period shall end on the
next preceding Eurodollar Business Day;
(b) Any Interest Period which begins on the last Eurodollar Business Day
of a calendar month (or a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month; and
(c) No Interest Period shall end after the Commitment Ending Date.
"Investment": The acquisition, purchase, mailing or holding of any stock
or other security, any loan, advance, contribution to capital, extension of
credit (except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real or personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of or any interest in another Person or any integral
part of any business or the assets comprising such business or part thereof. The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"Knowledge": With respect to any occurrence or event, when such occurrence
or event is brought to the attention of a responsible officer of the Company or
should have been brought to such officer's attention if the Company had
exercised due diligence.
"Lenders": As defined in the Collateral Agreement.
"Letter of Credit": As defined in Section 2.2.
"Leverage Ratio": At the time of any determination, the ratio of (a)
Total Assets to (b) Tangible Net Worth of the Company.
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Liquidation Notice": As defined in the Collateral Agreement.
"Loan": A Committed Loan or a Discretionary Loan.
"Loan Date": The date of the mailing of any Loan hereunder.
"Loan Documents": This Agreement, the Notes, the Collateral Agreement,
the Firm Collateral Agreement and any Agreements to Pledge.
"Market Value": For purposes of the Discretionary Credit Subfacility, the
term "Market Value" means, with respect to any Security, the final price bid for
such Security on the Business Day immediately preceding the date of valuation of
such Security, as determined by reference (a) in the case of DTC Equity
Securities, DTC Debt Securities and Government Securities at DTC, to the DTC
"Participant Terminal Services" system, (b) in the case of Governmental
Securities (other than those held at DTC), to any securities pricing services
that are regularly recognized in national financial markets or, if no such
pricing services are available on any Business Day, to The Wall Street Journal,
and (c) in the case of GNMA Securities, to the pricing system provided by PTC.
Such determinations shall be made reasonably and in good faith and shall be
conclusive in the absence of manifest error. For purposes of the Commitment, the
term "Market Value" is as defined in the Collateral Agreement.
"Material Subsidiary": A Subsidiary having Tangible Net Worth in
excess of $l,000,000.
"Multiemployer Plan": A multiemployer plan, as such term is defined in
Section 4001(a)(3) of ERISA, which is maintained (on the Closing Date, within
the five years preceding the Closing Date, or at any time after the Closing
Date) for employees of the Company or any ERISA Affiliate.
"NASD": The National Association of Securities Dealers, Inc., or any other
self-regulatory organization that succeeds to the functions thereof.
"Net Capital": As determined in accordance with the capital requirements,
rules and regulations of the NYSE that are applicable to the Company at any time
of determination.
"Notes": Collectively, the Customers' Securities Note and the Firm
Securities Note.
"NYSE": The New York Stock Exchange.
"Obligations": (a) The Company's obligations in respect of the due and
punctual payment of principal and interest on the Notes when and as due, whether
by acceleration or otherwise and (b) all fees (including Facility Fees),
expenses, indemnities, reimbursements and other obligations of the Company under
this Agreement or any other Loan Document, in all cases whether now existing or
hereafter arising or incurred.
"Official Lien": means any Lien which represents (a) a Lien in favor of a
Governmental Authority (i) to secure obligations owing to such Governmental
Authority in its official capacity (and not as a lender or transaction
counterparty or in another similar capacity that may be undertaken by a Person
that is not a Governmental Authority) or (ii) to enforce or secure, or imposed
as, a penalty, fine, forfeiture or other like remedy or (b) a Lien effected by
judicial process, unless in the case of either clause (a) or (b), such Lien has
been discharged, stayed, vacated or bonded (by property other than the Pledged
Securities). For purposes of this definition, (x) "Lien" includes any Lien which
has not yet become effective but the effectiveness of which in the future is
provided for in an order, decree or other determination of a court or other
applicable Governmental Authority or in an agreement to which the owner of the
interest in the property to be subject thereto is a party if such effectiveness
will occur solely upon the passage of time and not as a result of any action or
inaction on the part of any Person, whether or not such Lien would otherwise be
a "Lien" hereunder and (y) "Official Lien" includes any Lien which secures a
bond of any other Official Lien or of any judgment, claim, order or other
determination of a Governmental Authority in its official capacity or which is
granted or entered in connection with any judicial process.
"Parent": Piper Jaffray Companies Inc., a Delaware corporation.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions
thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Plan": Each employee benefit plan (whether in existence on the Closing
Date or thereafter instituted), as such term is defined in Section 3 of ERISA,
maintained for the benefit of employees, officers or directors of the Company or
of any ERISA Affiliate.
"Pledged Securities": Firm Securities subject to Agreements to Pledge
and Customers' Securities subject to the Collateral Agreement.
"Pro Rata Share": The fraction whose numerator is the principal amount
outstanding of the Committed Loans and whose denominator is the aggregate
principal amount outstanding of the Lenders' Secured Obligations (including the
outstanding Committed Loans).
"Producer Loan": A loan made to an employee of the Company pursuant to
which the Company has agreed to forgive all or a portion of such loan upon the
achievement of certain production goals by such employee.
"Prohibited Transaction": The respective meanings assigned to such term in
Section 4975 of the Code and Section 406 of ERISA.
"PTC": Participants Trust Company, a New York limited purpose trust
company and a registered "clearing agency" under Section l7.A of the Exchange
Act.
"Regulations D, T, U and X": Regulations D, T, U and X, respectively, of
the Board, as the same may be modified and supplemented and in effect from time
to time.
"Regulatory Change": Any change after the Closing Date in federal, state
or foreign laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks including
the Bank under any federal, state or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of ERISA
and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.
"Rule l5c3-3": Rule 15c3-3 promulgated under the Exchange Act.
"Secured Obligations": As defined in the Collateral Agreement.
"Securities": Collectively, DTC Debt Securities, DTC Equity
Securities, Government Securities and GNMA Securities.
"Securities Act": The Securities Act of 1933, as amended.
"Self-Regulatory Organization": As defined in Section 3(a)(26) of the
Exchange Act.
"SIPA": The Securities Investor Protection Act of 1970, as amended.
"Special Reserve Account": The special reserve bank account maintained by
the Company with the Bank for the exclusive benefit of Customers pursuant to
Rule l5c3-3.
"Subsidiary": Any corporation or other entity of which securities or other
ownership interests having ordinary voting power for the election of a majority
of the board of directors or other Persons performing similar functions are
owned by the Company either directly or through one or more Subsidiaries.
"Tangible Net Worth": With respect to any Person, at the date of any
determination, the sum of the amounts set forth on the consolidated, if
applicable, balance sheet of such Person, as the sum of the common stock,
preferred stock, additional paid-in capital and retained earnings of such Person
(excluding treasury stock), less the net book value of all assets of such Person
and its subsidiaries (to the extent reflected as an asset on such consolidated
balance sheet) that would be treated as intangibles under GAAP, including all
such items as goodwill, trademarks, trade names, service marks, copyrights,
patents, licenses, unamortized debt discount and expenses and the excess of the
purchase price of the assets of any business acquired by such Person or any
subsidiary over the book value of such assets, and less obligations owed to such
person by any Affiliate. Tangible Net Worth of the Parent shall exclude loans
made by the Parent to any of its officers, directors or employees.
"Termination Date": The earliest of (a) the Commitment Ending Date, (b)
the date on which the Commitment is terminated pursuant to Section 7.2 or (c)
the date on which the Commitment Amount is reduced to zero or the Commitment is
terminated pursuant to Section 2.9 hereof.
"Total Assets": At the time of any determination, the net book value
of all assets of the Company as determined in accordance with GAAP.
"UCC": The Uniform Commercial Code as in effect from time to time in
the State of Minnesota.
"U.S. Person": Any corporation, partnership, association or trust that
issues Securities and that is organized under the laws of the United States of
America or any one of its states.
Section 1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP. To the extent any change in GAAP affects any computation
or determination required to be made pursuant to this Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless the Company and the Bank agree in writing on an adjustment to
such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.4 Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
TERMS OF LENDING
Section 2. l The Commitment. On the terms and subject to the conditions
hereof, the Bank agrees to make loans (each, a "Committed Loan" and,
collectively, the "Committed Loans") to the Company on a revolving basis at any
time and from time to time from the Closing Date to the Termination Date, during
which period the Company may borrow, repay and reborrow in accordance with the
provisions hereof; provided, that (a)(i) the unpaid principal amount of
outstanding Loans (inclusive of outstanding Discretionary Loans) and (ii) the
unreimbursed face amount of all outstanding Letters of Credit shall not at any
time exceed the Commitment Amount, and (b) the unpaid principal amount of
outstanding Committed Loans shall not at any time exceed the Customers'
Securities Availability. Loans may be obtained and maintained, at the election
of the Company but subject to the limitations hereof, as Federal Funds Rate
Advances or Eurodollar Rate Advances or any combination thereof.
Section 2.2 Discretionary Credit Subfacility.
2.2(a) Discretionary Credit Subfacility. The Bank agrees to consider
the Company's requests, from time to time, for Loans (the "Discretionary Loans")
and standby letters of credit (as may be evidenced by such documents and
agreements as the Bank may from time to time determine, the "Letters of Credit")
having an aggregate principal or face amount, as the case may be, outstanding
from time to time from the Effective Date until the Termination Date, not to
exceed the Discretionary Credit Subfacility Amount, and the Bank may (in its
sole and unlimited discretion) make the requested Loans or issue the requested
Letters of Credit (collectively, the "Discretionary Credit Extensions"). Nothing
contained in this Agreement shall be construed to constitute a commitment to
make any Discretionary Credit Extension even if the Company satisfies all terms
and conditions specified herein with respect to Discretionary Credit Extensions.
2.2(b) Special Borrowing Procedures. In addition to the procedures
specified in Section 2.3 of this Agreement, the Company will deliver to the Bank
no later than 5:00 p.m. (Chicago time) on any day on which the Company has made
a request for a Discretionary Credit Extension an Agreement to Pledge covering
Firm Securities that upon delivery to the Bank must qualify as Eligible
Securities with an attached list of such Firm Securities stating the Market
Value thereof. On any Business Day on which a Discretionary Credit Extension
remains outstanding as of 3:30 p.m. (Chicago time), the Company shall deliver to
the Bank a list of the Firm Securities subject to the Agreement to Pledge that
was delivered with the request for such Discretionary Credit Extension, whether
or not such Firm Securities have been delivered to the Bank, stating the Market
Value thereof. By delivering each such list or Agreement to Pledge, the Company
shall be deemed to grant the Bank a security interest in the listed Firm
Securities and to represent and covenant that: (i) the listed Securities are
Eligible Securities; (ii) the listed Securities will not be sold, pledged or
otherwise transferred to any person other than the Bank prior to 9:00 a.m. on
the Business Day after the day on which the Company delivers the list to the
Bank; (iii) the Company will, upon demand by the Bank, deliver all Securities
described in any such list then current, or (if such demand is made after 9:00
a.m. on the Business Day after the Bank's receipt of the most recent such list),
other Firm Securities acceptable to the Bank that are Eligible Securities with
an aggregate Market Value at least equal to the aggregate Market Value of the
listed Securities, to the Bank, and pledge those Securities to the Bank as
security for all Discretionary Credit Extensions then outstanding; and (iv) any
Securities listed in Agreements to Pledge in effect for 15 consecutive calendar
days will be delivered and pledged to the Bank by the Company as security for
all Discretionary Credit Extensions then outstanding (as applicable on the first
Business Day following that fifteenth consecutive day).
2.2(c) Minimum Collateral Value. The aggregate Collateral Value of
Firm Securities subject to Agreements to Pledge in favor of the Bank shall at
all times equal or exceed the aggregate unpaid principal amount of all
Discretionary Loans and unreimbursed face amount of all Letters of Credit.
Section 2.3 Procedure for Loans. Any request by the Company for a Loan
shall be in writing, or by telephone promptly confirmed in writing, and must be
given so as to be received by the Bank not later than 3:30 p.m. (Chicago time)
two Eurodollar Business Days prior to the requested Loan Date if the Loan is
requested as a Eurodollar Rate Advance, and not later than 3:30 p.m. (Chicago
time) on the requested Loan Date if the Loan is requested as a Federal Funds
Rate Advance. The Bank may, in its sole discretion, accept requests for Loans
after 3:30 p.m. (Chicago time). Each request for a Loan shall be irrevocable and
shall be deemed a representation by the Company that on the requested Loan Date
and after giving effect to such Loan the applicable conditions specified in
Article III have been and will continue to be satisfied. Each request for a Loan
shall specify (a) the requested Loan Date, (b) the amount of such Loan which
shall be in a minimum amount of $500,000 or, if more, an integral multiple
thereof, (c) whether such Loan is to be funded as a Federal Funds Rate Advance
or a Eurodollar Rate Advance, (d) in the case of a Loan made as a Eurodollar
Rate Advance, the duration of the initial Interest Period applicable thereto,
and (e) whether such Loan is requested as a Committed Loan or a Discretionary
Loan. Unless the Bank determines that any applicable condition specified in
Section 2. l or in Article III has not been satisfied, or has determined (in its
sole and unlimited discretion) not to make a requested Discretionary Credit, the
Bank will make available to the Company at the Bank's principal office in
Chicago, Illinois in Immediately Available Funds not later than 4:30 p.m.
(Chicago time) on the requested Loan Date the amount of the requested Loan. In
the event that the Bank determines that the Customers' Securities Availability
is not sufficient to cover a requested Committed Loan, the Bank may, in its sole
discretion, make a Committed Loan in an amount that is covered by Customers'
Securities Availability. Without in any way limiting the Company's obligation to
confirm in writing any telephonic request for a Loan, the Bank may rely on any
such request which it believes in good faith to be genuine; and the Company
hereby waives the right to dispute the Bank's record of the terms of such
telephonic request for a Loan. Each request by the Company for the issuance of a
Letter of Credit shall be processed by the Bank in accordance with its normal
procedures and practices with respect to standby letters of credit and the Bank
shall determine (in its sole and unlimited discretion) whether or not to issue
any particular Letter of Credit.
Section 2.4 The Notes. The Company's obligation to repay all Committed
Loans shall be evidenced by a promissory note substantially in the form of
Exhibit B hereto (the "Customers' Securities Note"). The Company's obligation to
repay all Discretionary Loans shall be evidenced by a promissory note
substantially in the form of Exhibit C hereto (the "Firm Securities Note"). The
Bank shall enter in its ledgers and records the amount of each Loan, the various
Advances made, converted or continued and the payments made thereon, and the
Bank is authorized by the Company to enter on a schedule attached to each Note a
record of such Loans, Advances and payments; provided, however that the failure
by the Bank to make any such entry or any error in making such entry shall not
limit or otherwise affect the obligation of the Company hereunder and on the
Notes, and, in all events, the principal amount owing by the Company in respect
of the Notes shall be the aggregate amount of all Loans made by the Bank less
all payments of principal thereof made by the Company.
Section 2.5 Conversions and Continuations. On the terms and subject to the
limitations hereof, the Company shall have the option at any time and from time
to time to convert all or any portion of the Advances into Federal Funds Rate
Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate Advance
as such; provided, however that a Eurodollar Rate Advance may be converted or
continued only on the last day of the Interest Period applicable thereto and no
Advance may be converted or continued as a Eurodollar Rate Advance if a Default
or Event of Default has occurred and is continuing on the proposed date of
continuation or conversion. Advances may be converted to, or continued as,
Eurodollar Rate Advances only in amounts of $500,000 or an integral multiple
thereof. The Company shall give the Bank written notice of any continuation or
conversion of any Advance and such notice must be given so as to be received by
the Bank not later than 12:00 noon (Chicago time) two Eurodollar Business Days
prior to the requested date of conversion or continuation in the case of the
continuation of, or conversion to, a Eurodollar Rate Advance or conversion to a
Federal Funds Rate Advance. Each such notice shall specify (a) the amount to be
continued or converted, (b) the date for the continuation or conversion (which
must be (i) the last day of the preceding Interest Period for any continuation
or conversion of Eurodollar Rate Advances, (ii) a Eurodollar Business Day in the
case of conversions to or continuations as Eurodollar Advances, and (iii) a
Business Day in the case of conversions to Federal Funds Rate Advances, and (c)
in the case of conversions to or continuations as Eurodollar Rate Advances, the
Interest Period applicable thereto. Any notice given by the Company under this
Section shall be irrevocable. If the Company shall fail to notify the Bank of
the continuation of any Eurodollar Rate Advance within the time required by this
Section, such Advance shall, on the last day of the Interest Period applicable
thereto, automatically be converted into a Federal Funds Rate Advance of the
same principal amount.
Section 2.6 Interest Rates, Interest Payments and Default Interest.
Interest shall accrue and be payable as follows:
2.6(a) Each Eurodollar Rate Advance shall bear interest on the
unpaid principal amount thereof during the Interest Period applicable thereto at
a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for such
Interest Period, plus (ii) the Applicable Margin.
2.6(b) Each Federal Funds Rate Advance shall bear interest on the
unpaid principal amount thereof at a floating rate per annum equal to the sum of
(i) the Federal Funds Rate, plus (ii) the Applicable Margin.
2.6(c) Effective upon notice from the Bank, whenever any Default or
Event of Default shall have occurred and be continuing (whether or not the
maturity of the Notes shall have been accelerated), interest shall accrue on
each Advance until such Default or Event of Default shall have been cured to the
written satisfaction of the Bank or, if such Default or Event of Default
consists of the Company's failure to pay the Bank any amount owing under any
Loan Document, until such amount shall have been paid in full (i) during the
balance of any Interest Period applicable to such Advance, at a rate per annum
equal to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0% and (ii) otherwise, at a rate per annum equal to the sum of (x)
the Federal Funds Rate, plus (y) the Applicable Margin for Federal Funds
Advances, plus (z) 2.0%.
2.6(d) Interest shall be payable (i) with respect to each Eurodollar
Rate Advance on the last day of the Interest Period applicable thereto; (ii)
with respect to any Federal Funds Rate Advance, on the first day of each month;
(iii) with respect to Discretionary Loans, upon each day that principal is due;
(iv) with respect to all Advances, upon any permitted prepayment (on the amount
prepaid); and (iv) with respect to all Advances, on the Termination Date;
provided that interest under Section 2.6(c) shall be payable on demand.
Section 2.7 Repayment.
2.7(a) Principal of the Committed Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on the Termination Date.
2.7(b) Principal of Discretionary Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on demand, which demand
may be for payment in whole or in part, irrespective of the occurrence or
nonoccurrence of any Default or Event of Default. If demand is not sooner made,
each Discretionary Loan shall be due and payable on the first Business Day
following the date on which such Discretionary Loan was made, together with all
accrued and unpaid interest thereon.
Section 2.8 Optional Prepayments. The Company may prepay Federal Funds
Rate Advances, in whole or in part, at any time, without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $500,000 or an
integral multiple thereof. Except upon an acceleration following an Event of
Default or upon termination of the Commitment under Section 2.9, the Company may
pay a Eurodollar Rate Advance only on the last day of the Interest Period
applicable thereto. Amounts paid (unless following an acceleration or upon
termination of the Commitment) or prepaid under this Section 2.8 may be
reborrowed upon the terms and subject to the conditions and limitations of this
Agreement.
Section 2.9 Optional Reduction of Commitment Amount or Termination of
Commitment. The Company may, at any time, upon not less than five Business Days
prior written notice to the Bank, reduce the Commitment Amount, with any such
reduction in a minimum amount of $500,000, or, if more, in an integral multiple
of $500,000; provided, however, that the Company may not reduce the Commitment
Amount at a time and in an amount if such reduction and the payment required by
the next sentence would result in any outstanding Eurodollar Rate Advance being
repaid, in whole or in part, prior to the last day of the Interest Period
applicable to such Advance. Upon any reduction in the Commitment Amount pursuant
to this Section, the Company shall pay to the Bank the amount, if any, by which
the aggregate unpaid principal amount of outstanding Loans exceeds the
Commitment Amount as so reduced. Amounts so paid cannot be reborrowed. The
Company may, at any time, upon not less than five Business Days prior written
notice to the Bank, terminate the Commitment in its entirety. Upon termination
of the Commitment pursuant to this Section, the Company shall pay to the Bank
the full amount of all outstanding Loans, all accrued and unpaid interest
thereon, all unpaid Facility Fees accrued to the date of such termination, any
indemnities payable pursuant to Section 2.19 and all other unpaid obligations of
the Company to the Bank hereunder.
Section 2.10 Delivery of Collateral; Mandatory Prepayments.
2.10(a) At any time that the outstanding principal amount of the
Customers' Securities Note exceeds the Customers' Securities Availability, the
Company shall comply with Section 4.1(b) of the Collateral Agreement.
2.10(b) Without limiting to any degree the demand nature of the
Obligations under the Firm Securities Note, the Company shall at any time that
the outstanding principal amount of the Firm Securities Note exceeds the
aggregate Collateral Value of the Firm Securities subject to Agreements to
Pledge, immediately prepay the principal amount of the Finn Securities Note in
the amount of such excess and pay all accrued and unpaid interest on such
amount.
Section 2.11 Facility Fee. The Company shall pay to the Bank fees (the
"Facility Fees") in an amount determined by applying a rate of .20% per annum to
the amount of the Commitment for the period from the Commitment Date to the
Termination Date. Such Facility Fees are payable quarterly in arrears on the
last day of each quarter, commencing on December 31, 1994, and on the
Termination Date.
Section 2.12 Computation. Facility Fees and interest on Advances
shall be computed on the basis of actual days elapsed and a year of 360 days.
Section 2. l3 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 p.m. (Chicago time) on the dates
called for under this Agreement at the main office of the Bank in Chicago,
Illinois. Funds received on any day after such time shall be deemed to have been
received by the Bank on the next Business Day. Whenever any payment to be made
hereunder or on either Note shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time, in the case of a payment of principal, shall be included
in the computation of any interest on such principal payment.
Section 2.14 Commitment Ending Date and Extension. The "Commitment Ending
Date" is November 22, 1995; provided, however, that if the Company by written
notice given to the Bank at least 45 days but not more than 180 days prior to
the Commitment Ending Date requests in writing an initial extension of the
Commitment Ending Date for an additional period of time, not to exceed l 80
days, and if the Bank, in its sole and absolute discretion and based on such
review of the Company's financial performance and condition and such other
factors as the Bank considers relevant (which may include future loan policies
and other policies adopted by the Bank unrelated to the Company's financial
condition), consents in writing to such extension, then the Commitment Ending
Date shall be extended for such additional period of time, which in the case of
the initial extension shall not exceed 180 days, and in such extended period the
Company may repeat its request within the same time limit and, if the Bank
consents, the Commitment Ending Date shall be further extended for an additional
period, not to exceed 360 days, and so on from time to time; provided, that in
the case of the initial extension period, the written notice given to the Bank
during such period shall be given not more than 90 days prior to the Commitment
Ending Date. The Bank's failure to respond to the Company's written request for
an extension within 45 days of the Bank's receipt thereof shall be deemed a
denial of such request. In the case of any such extension, the "Commitment
Ending Date" shall be the last day of the period to which such extension has
been granted. The Bank shall be under no obligation or commitment to extend the
Commitment Ending Date, and no such obligation or commitment on the part of the
Bank should be inferred from the provisions of this Section.
Section 2.15 Use of Proceeds. The proceeds of the initial Loan shall be
used first for paying all outstanding Indebtedness of the Company to the Bank.
Any remaining balance of the initial Loan and the proceeds of any subsequent
Loans shall be used for the Company's short-term working capital needs in
compliance with all applicable legal and regulatory requirements, including,
without limitation, Regulations T, U and X and the Securities Act and the
Exchange Act and the regulations thereunder. The Bank shall have no
responsibility as to the use of any such proceeds.
Section 2.16 Interest Rate Not Ascertainable, Etc. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the Interest
Period for any requested Eurodollar Rate Advance, the Bank determines (which
determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not
being made available to the Bank in the relevant market for such
Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to the Bank of funding or maintaining Eurodollar
Rate Advances for such Interest Period,
the Bank shall forthwith give notice to the Company of such determination,
whereupon the obligation of the Bank to make or continue, or to convert any
Advances to Eurodollar Rate Advances shall be suspended until the Bank notifies
the Company that the circumstances giving rise to such suspension no longer
exist. No such suspension shall affect the interest rate then in effect during
the applicable Interest Period for any Eurodollar Rate Advance outstanding at
the time such suspension is imposed.
Section 2. l7 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other charge with
respect to Eurodollar Rate Advances, the Note or its obligation to
make Eurodollar Rate Advances, or shall change the basis of taxation
of payment to the Bank of the principal of or interest on Eurodollar
Rate Advances or any other amounts due under this Agreement in
respect of Eurodollar Rate Advances or its obligation to make
Eurodollar Rate Advances (except for changes in the rate of tax on
the overall net income of the Bank imposed by the laws of the United
States or any jurisdiction in which the Bank's principal office is
located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including any
such requirement imposed by the Board, but excluding any Eurodollar
Rate Advance any such requirement to the extent included in
calculating the applicable Adjusted Eurodollar Rate) against assets
of, deposits with or for the account of, or credit extended by, the
Bank or shall impose on the Bank or on the interbank Eurodollar
market any other condition affecting Eurodollar Rate Advances, the
Notes or its obligation to make Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Eurodollar Rate Advance, or to reduce the amount of
any sum received or receivable by the Bank under this Agreement or under either
Note, then, within 30 days after demand by the Bank, the Company shall pay to
the Bank such additional amount or amounts as will compensate the Bank for such
increased cost or reduction. The Bank will promptly notify the Company of any
event of which it has knowledge, occurring after the date hereof, which will
entitle the Bank to compensation pursuant to this Section. A certificate of the
Bank claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable detail
the basis for the charge and the method of computation, shall be conclusive in
the absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of the Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable with respect to any Interest Period shall not constitute a waiver of
the Bank's rights to demand compensation for any increased costs or reduction in
amounts received or receivable in any subsequent Interest Period.
Section 2.18 Illegality. If any Regulatory Change shall make it unlawful
or impossible for the Bank to make, maintain or fund Eurodollar Rate Advances,
the Bank shall notify the Company, whereupon the obligation of the Bank to make
Eurodollar Rate Advances shall be suspended until the Bank notifies the Company
that the circumstances giving rise to such suspension no longer exist. If the
Bank determines that it may not lawfully continue to maintain any outstanding
Eurodollar Rate Advances to the end of the applicable Interest Periods, all of
the affected Advances shall be automatically converted to Federal Funds Rate
Advances as of the date of the Bank's notice, and upon such conversion the
Company shall indemnify the Bank in accordance with Section 2.20.
Section 2.19 Capital Adequacy. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return (by an amount
the Bank deems material) on the Bank's capital or the capital of its parent
corporation as a consequence of the Commitment and/or the Loans to a level below
that which the Bank or the Bank's parent corporation could have achieved but for
such Regulatory Change (taking into account the Bank's policies and the policies
of the Bank's parent corporation with respect to capital adequacy), then the
Company shall, within five days after written notice and demand from the Bank,
pay to the Bank additional amounts sufficient to compensate the Bank or the
Bank's parent corporation for such reduction; provided, however, that no payment
shall be required due to any increase in capital due to a regulatory authority's
assessment of the Bank's or its parent corporation's financial condition. Any
determination by the Bank under this Section and any certificate as to the
amount of such reduction given to the Company by the Bank shall be final,
conclusive and binding for all purposes, absent error.
Section 2.20 Funding Losses. The Company shall compensate the Bank, upon
its written request, for all losses, expenses and liabilities (including any
interest paid by the Bank to lenders of funds borrowed by it to make or carry
Eurodollar Rate Advances to the extent not recovered by the Bank in connection
with the re-employment of such funds and including loss of anticipated profits)
which the Bank may sustain: (a) if for any reason, other than a default by the
Bank, a funding of a Eurodollar Rate Advance does not occur on the date or in
the amount specified therefor in the Company's request or notice as to such
Advance under Section 2.2(b) or 2.3, or (b) if, for whatever reason (including
acceleration of the maturity of the Note following an Event of Default), any
repayment of a Eurodollar Rate Advance, or a conversion pursuant to Section 2.17
occurs on any day other than the last day of the Interest Period applicable
thereto. The Bank's request for compensation shall set forth the basis for the
amount requested and shall be final, conclusive and binding, absent error.
Section 2.21 Discretion of Bank as to Manner of Funding. The Bank shall be
entitled to fund and maintain its funding of Eurodollar Rate Advances in any
manner it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including determinations under Section
2.20), shall be made as if the Bank had actually funded and maintained each
Eurodollar Rate Advance during the Interest Period for such Advance through the
purchase of deposits, having a maturity corresponding to the last day of the
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
ARTICLE III
CONDITIONS PRECEDENT
Section 3. l Conditions of Initial Loan. The obligation of the
Bank to make the initial Loan hereunder shall be subject to the prior or
simultaneous fulfillment of each of the following conditions:
3.1(a) Documents. The Bank shall have received the
following:
(i) The Notes executed by a duly authorized officer (or
officers) of the Company and dated the Closing Date.
(ii) The Collateral Agreement duly executed by the
Company, the Administrator and the Lenders.
(iii) The Firm Collateral Agreement duly executed by the
Company.
(iv) A copy of the corporate resolutions of the Company
authorizing the execution, delivery and performance of the
Loan Documents, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Company.
(v) An incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of the Company
authorized to execute the Loan Documents and to request Loans
and conversions and continuations of Advances hereunder,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Company.
(vi) A copy of the Certificate of Incorporation of the Company
with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation
as of a date not more than ten days prior to the Closing Date.
(vii) A certificate of good standing for the Company in the
jurisdiction of its incorporation and in the State of
Minnesota, certified by the appropriate governmental officials
as of a date not more than ten days prior to the Closing Date.
(viii) A copy of the bylaws of the Company, certified
as of the Closing Date by the Secretary or an Assistant
Secretary of the Company.
(ix) A certificate dated the Closing Date of the chief
executive officer or chief financial officer of the Company
certifying as to the matters set forth in Sections 3.2(a) and
3.2(b) below.
3.1(b) Opinion. The Company shall have requested David Rosedahl, its
general counsel, to prepare a written opinion, addressed to the Bank and dated
the Closing Date, covering the matters set forth in Exhibit D hereto, and such
opinion shall have been delivered to the Bank.
3.1(c) Compliance. The Company shall have performed and complied
with all agreements, terms and conditions contained ill this Agreement required
to be performed or complied with by the Company prior to or simultaneously with
the Closing Date.
3. l(d) Adequacy of Collateral. All of the conditions to the
effectiveness of the Collateral Agreement specified in Article XII thereof shall
have occurred and the Administrator shall have confirmed to the Bank pursuant to
Section 3.1(a) thereof that the Collateral Value of the Collateral Pool is
sufficient to secure all of the initial Committed Loan.
3.1(e) Other Matters. A1l corporate and legal proceedings relating
to the Company and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Bank and its counsel, and the Bank shall have received all
information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper corporate or
governmental authorities.
3.1(f) Fees and Expenses. The Bank shall have received all fees and
other amounts due and payable by the Company on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Bank payable
pursuant to Section 8.2.
Section 3.2 Conditions Precedent to all Loans. The obligation of the Bank
to make ally Loan hereunder (including the initial Loan) shall be subject to the
fulfillment of the following conditions:
3.2(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of the
Loan Date of each Loan, with the same force and effect as if made on such date.
3.2(b) No Default. No Default or Event of Default shall have
occurred and be continuing on the Loan Date of each Loan, will exist after
giving effect to such Loan or is reasonably anticipated to occur.
3.2(c) Loan Request. The Bank shall have received the
Company's request for such Loan as required under Section 2.3.
3.2(d) Adequacy of Collateral. The Administrator shall have
confirmed to the Bank pursuant to Section 3.1(a) of the Collateral Agreement
that the Collateral Value of the Collateral Pool is sufficient to secure all of
such Committed Loan.
3.2(e) Form U-1. The Bank shall have received a properly
completed Form VI (as referred to in Regulation U) duly executed by the
Company if so requested by the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, to grant the Commitment
and to make Loans hereunder, the Company represents and warrants to the Bank:
Section 4.1 Organization, Standing. Etc. The Company is a corporation duly
incorporated and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the Loan
Documents. Each Material Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted. Each of the Company and the Material Subsidiaries
(a) holds all certificates of authority, licenses and permits necessary to carry
on its business as presently conducted in each jurisdiction in which it is
carrying on such business, except where the failure to hold such certificates,
licenses or permits would not have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Company and the Material Subsidiaries taken as a whole, and (b) is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character of the properties owned, leased or operated by it or the
business conducted by it makes such qualification necessary and the failure so
to qualify would permanently preclude the Company or such Material Subsidiary
from enforcing its rights with respect to any assets or expose the Company or
such Material Subsidiary to any liability, which in either case would be
material to the Company and the Subsidiaries taken as a whole.
Section 4.2 Authorization and Validity. The execution, delivery and
performance by the Company of the Loan Documents have been duly authorized by
all necessary corporate action by the Company, and this Agreement constitutes,
and the Notes and other Loan Documents when executed will constitute, the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 4.3 No Conflict; No Default. The execution, delivery and
performance by the Company of the Loan Documents will not (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to the Company, (b) violate
or contravene any provision of the Certificate of Incorporation or bylaws of the
Company, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which the Company is a party or by which it or any of its properties may be
bound or result in the creation of any Lien thereunder. Neither the Company nor
any Material Subsidiary is in default under or in violation of any such law,
statute, rule or regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit agreement or other
agreement, lease or instrument in any case in which the consequences of such
default or violation could have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the
Company and the Subsidiaries taken as a whole.
Section 4.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Company to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents.
Section 4.5 Financial Statements and No Material Adverse Change. The
Company's audited financial statements as at September 30, 1993 and its
unaudited financial statements as at September 30, 1994, as heretofore furnished
to the Bank, have been prepared in accordance with GAAF on a consistent basis
(except for year-end audit adjustments as to the interim statements) and fairly
present the financial condition of the Company as at such dates and the results
of its operations and changes in financial position for the respective periods
then ended. As of the dates of such financial statements, the Company had no
material obligation, contingent liability, liability for taxes or long term
lease obligation which is not reflected in such financial statements or in the
notes thereto, except in connection with the litigation disclosed in Schedule
4.6 hereto or reported to the Bank pursuant to Section 5.9. Since September 30,
1994, there has been no material adverse change in the business, operations,
property, assets or condition, Financial or otherwise, of the Company, except as
disclosed in Schedule 4.5 hereto.
Section 4.6 Litigation.
4.6(a) General Litigation. Except as disclosed on Schedule 4.6
hereto, there are no actions, suits or proceedings pending or, to the knowledge
of the Company, threatened against or affecting the Company or any Subsidiary or
any of their properties before any court or arbitrator, or any Governmental
Authority which has had, or, if determined adversely to the Company or such
Subsidiary, would have, a material adverse effect on the business, operations,
property or condition (financial or otherwise) of the Company and the
Subsidiaries taken as a whole or on the ability of the Company to perform its
obligations under any Loan Document.
4.6(b) Litigation Affecting this Agreement. There are no actions,
suits, arbitrations, investigations or proceedings pending or, to its knowledge,
threatened against the Company before any Governmental Authority or the NYSE or
any other stock or securities or commodities exchange which questions the
validity or enforceability of this Agreement or any action to be taken in
connection with the transactions contemplated hereby.
Section 4.7 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. A1l of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.
Section 4.8 Margin Regulations. The Company is a broker-dealer subject to
Regulation T. The Company maintains procedures and internal controls reasonably
adapted to ensure that the Company does not extend or maintain credit to or for
its customers other than in accordance with the provisions of Regulation T, and
the activities of employees of the Company to ensure that the Company does not
extend or maintain credit to or for its customers other than in accordance with
the provisions of Regulation T. Neither the mailing of any Loan hereunder, nor
the use of proceeds thereof, will violate or be inconsistent with the provisions
of Regulations T, U or X.
Section 4.9 Title to Property; Liens; Possession Under Leases. Each of the
Company and the Material Subsidiaries has (a) good and marketable title to its
real properties and (b) good and sufficient title to or valid, subsisting and
enforceable leasehold interests in, its other material properties and assets,
including all real properties, other properties and assets, referred to as owned
by the Company and the Subsidiaries in the most recent financial statements
referred to in Section 4.5 (other than property disposed of since the date of
such financial statements in the ordinary course of business).
Section 4.10 Taxes. Each of the Company and the Material Subsidiaries has
filed all federal, state and local tax returns required to be filed and has paid
or made provision for the payment of all taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
and all other taxes, fees and other charges imposed on it or any of its property
by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Company). No tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Company in
respect of taxes and other governmental charges are adequate and the Company
knows of no proposed material tax assessment against it or any Material
Subsidiary or any basis therefor.
Section 4.11 Trademarks. Each of the Company and the Material Subsidiaries
possesses or has the right to use all of the trademarks, trade names, service
marks and copyrights used in or necessary for the conduct of its business,
without known conflict with the rights of others.
Section 4.12 Burdensome Restrictions. Neither the Company nor any Material
Subsidiary is a party to or otherwise bound by any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which would foreseeably have a material adverse
effect on the business, properties, assets, operations or condition (financial
or otherwise) of the Company or such Material Subsidiary or on the ability of
the Company or any Material Subsidiary to carry out its obligations under any
Loan Document.
Section 4.13 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.
Section 4.14 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or of a subsidiary company of a
holding company within the meaning of the Public Utility Holding Company Act of
1940, as amended.
Section 4.15 Full Disclosure. Subject to the following sentence, neither
the financial statements referred to in Section 4.5 nor any other certificate,
written statement, exhibit or report furnished by or on behalf of the Company in
connection with or pursuant to this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained therein not misleading, which has not been corrected by
more current information provided to the Bank by the Company. Certificates or
statements furnished by or on behalf of the Company to the Bank consisting of
projections or forecasts of future results or events have been prepared in good
faith and are based on good faith estimates and assumptions of the management of
the Company, and the Company has no reason to believe that such projections or
forecasts are not reasonable.
Section 4.16 Subsidiaries. The Company has no Subsidiaries other
than the Subsidiaries identified in Schedule 4.16.
Section 4.17 Registered Broker-Dealer; Membership. The Company is duly
registered with the Securities and Exchange Commission as a broker-dealer and is
a member in good standing of the NASD and is a member organization in good
standing of the NYSE.
Section 4.18 SIPC Assessments. The Company is not in arrears with respect
to any assessment made upon it by the SIPC.
Section 4.19 Examining Authority. The NYSE has been designated as
the Examining Authority for the Company.
Section 4.20 Ownership. The Parent owns all (other than
directors' qualifying shares) of the voting shares of the Company.
Section 4.21 Compliance with Laws and Other Agreements. Neither the
Company nor any of its Material Subsidiaries is in default with respect to any
order, writ, injunction or decree of any Governmental Authority or
Self-Regulatory Organization or, to the knowledge of the Company, in violation
of any law, statute, rule or regulation to which the Company or such Material
Subsidiary or ally Property of the Company or any such, Subsidiary is or are
subject, which default or violation could reasonably be expected to have a
material adverse effect on the business, operations, property, assets or
condition, financial or otherwise, of the Company. Without limiting the
foregoing, the Company and each of its Material Subsidiaries is in compliance
with all capital requirements of all Governmental Authorities applicable to the
Company or any such Subsidiary, including, without limitation, Rule 15c3-l.
Neither the Company nor any of its Subsidiaries is in default in the payment or
performance of any of its obligations or in the performance of any mortgage,
indenture, lease, contract or other agreement to which it is a party or by which
it or any of its property is bound, which default could reasonably be expected
to have a material adverse effect on the business, operations, property, assets
or condition, financial or otherwise, of the Company.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid ill full, unless the Bank
shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Company will furnish
to the Bank:
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Company and the Parent, the financial
statements of the Company, and the consolidated financial statements of the
Parent, consisting of at least statements of income, cash flow, changes in
financial position and stockholders' equity, and a balance sheet as at the end
of such year, setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified without qualification with
respect to whether each of the Company and the Parent is a "going concern" by
Deloitte & Touche or other independent certified public accountants of
recognized national standing selected by the Company and the Parent and
acceptable to the Bank, together with a letter from such accountants addressed
to the Bank (a) acknowledging that the Bank is extending credit ill reliance on
such financial statements and authorizing such reliance and (b) confirming that
no management letter, management report or other supplementary comments or
reports to the Company or the Parent or to either of their boards of directors
furnished by such accountants advised the recipients of the same of any material
weakness.
5.1(b) Together with the audited financial statements required under
Section 5. l (a), a statement by the accounting firm performing such audit to
the effect that it has reviewed this Agreement and that in the course of
performing its examination nothing came to its attention that caused it to
believe that any Default or Event of Default exists, or, if such Default or
Event of Default exists, describing its nature.
5.1(c) As soon as available and in any event within 30 days after
the end of each fiscal month, an unaudited statement of income for the Company
and consolidated and consolidating unaudited statements of income for the Parent
for such month and in each case for the period from the beginning of such fiscal
year to the end of such month, and an unaudited balance sheet of the Company and
unaudited consolidated and consolidating balance sheet of the Parent as at the
end of such month, setting forth in comparative form figures for the
corresponding period for the preceding fiscal year, accompanied by a certificate
signed by the chief financial officer of the Company, in the case of the
Company's statements, and the chief financial officer of the Parent, in the case
of the Parent's statements, stating that such financial statements present
fairly the financial condition of the Company and that the same have been
prepared in accordance with GAAP.
5.1(d) As soon as practicable and in any event within 30 days after
the end of each fiscal month, a statement signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or noncompliance,
as the case may be) with Sections 5.12 and 6.9 as at the end of such month and
stating that as at the end of such month there did not exist any Default or
Event of Default or, if such Default or Event of Default existed, specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5.1(e) Promptly upon the filing thereof with NYSE or the Commission,
Part II of the Company's Focus Report, as filed for the most recent quarterly
period for which such report is required to be filed.
5.1(f) Immediately upon the Company obtaining Knowledge of any
Default or Event of Default, a notice describing the nature thereof and what
action the Company proposes to take with respect thereto.
5.1(g) Immediately upon the Company obtaining Knowledge of the
occurrence, with respect to any Plan, of any Reportable Event or any Prohibited
Transaction, a notice specifying the nature thereof and what action the Company
proposes to take with respect thereto, and, when received, copies of any notice
from PBGC of intention to terminate or have a trustee appointed for any Plan.
5.1(h) Promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the Parent's
shareholders; copies of all registration statements, periodic reports and other
documents filed by the Parent with the Commission or any national securities
exchange; and copies of all registration statements relating to the Company's
own securities and of any periodic reports and other documents relating to the
Company's own business filed by the Company with the Commission or any national
securities exchange.
5.1(i) Promptly upon a request, such other information regarding the
business, operation and financial condition of the Company as the Bank may
reasonably request from time to time.
Section 5.2 Corporate Existence. The Company will, and cause each Material
Subsidiary to, (a) maintain its corporate existence in good standing under the
laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction where failure so to qualify would permanently
preclude the Company or such Material Subsidiary from enforcing its rights with
respect to any material asset or would expose the Company or such Material
Subsidiary to any material liability; provided, however, that nothing herein
shall prohibit the merger or liquidation of any Subsidiary allowed under Section
6. l, and (b) do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business.
Section 5.3 Insurance. The Company will maintain, and cause each Material
Subsidiary to maintain, with financially sound and reputable insurance companies
such insurance as may be required by law and such other insurance m such amounts
and against such hazards as is customary in the case of reputable corporations
engaged in the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Company will file, and cause
each Material Subsidiary to file, all tax returns and reports which are required
by law to be filed by it and will pay, and cause each Material Subsidiary to
pay, before they become delinquent, all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Company's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Company's or such Subsidiary's books
in accordance with GAAP.
Section 5.5 Inspection. The Company will permit any Person designated by
the Bank to visit and inspect any of the properties, corporate books and
financial records of the Company and the Material Subsidiaries, to examine and
to make copies of the books of accounts and other financial records of the
Company and the Material Subsidiaries, and to discuss the affairs, finances and
accounts of the Company and the Material Subsidiaries with, and to be advised as
to the same by, its officers at such reasonable times and intervals as the Bank
may designate. So long as no Event of Default exists, such visits, inspections
and examinations shall be at the expense of the Bank, but any such visits,
inspections and examinations made while any Event of Default is continuing shall
be at the expense of the Company.
Section 5.6 Maintenance of Properties. The Company will maintain, and
cause each Material Subsidiary to maintain, its properties used or useful in the
conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Company will keep, and will cause each
Material Subsidiary to keep, adequate and proper records and books of account in
which full and correct entries will be made of its dealings, business and
affairs.
Section 5.8 Compliance. The Company will comply, and will cause each
Material Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards of or by
any Governmental Authority or Self-Regulatory Organization to which it may be
subject; provided, however, that failure so to comply shall not be a breach of
this covenant if such failure does not have, or is not reasonably expected to
have, a materially adverse effect on the properties, business, prospects or
condition (financial or otherwise) of the Company or such Subsidiary and the
Company or such Subsidiary is acting in good faith and with reasonable dispatch
to cure such noncompliance.
Section 5.9 Notice of Litigation. The Company will give prompt written
notice to the Bank of the commencement of any action, suit or proceeding before
any court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Company or any Material Subsidiary or any property
of the Company or a Material Subsidiary or to which the Company or a Material
Subsidiary is a party in which an adverse determination or result could have a
material adverse effect (as determined by the Company in the exercise of its
reasonable judgment) on the business, operations, property or condition
(financial or otherwise) of the Company and the Subsidiaries taken as a whole or
on the ability of the Company or any Material Subsidiary to perform its
obligations under this Agreement and the other Loan Documents, stating the
nature and status of such action, suit or proceeding. The Company shall give the
Bank prompt written notice of any decision by the Company, its Parent or an
Affiliate to settle any suit or proceeding, whether now pending or hereafter
commenced, for an amount of $2,000,000 or more; provided, however, that the
Company will provide the amount which it has decided to pay in settlement, and
not any further information concerning the settlement, unless the Bank agrees to
the terms of a written confidentiality agreement on terms acceptable to the
Company.
Section 5.10 ERISA. The Company will maintain, and cause each Material
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Company or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $1,000,000, (b) fail to make full payment when due of all amounts
which under the provisions of any Plan, the Company or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $1,000,000 or (c) fail to make any payments in an
aggregate amount exceeding $1,000,000 to any Multiemployer Plan that the Company
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Broker-Dealer Registration. The Company will maintain its
registration as a broker-dealer with the Commission in full force and effect and
maintain its membership ill good standing in such organizations as are necessary
to enable it to engage in the securities business and take all action necessary
to comply in all material respects with the rules and regulations of such
organizations.
Section 5.12 Net Capital. The Company will maintain at all times Net
Capital of not less than 10% of Aggregate Debit Items as determined as of the
close of each Business Day.
Section 5.13 Leverage Ratio. The Company will maintain at all
times a Leverage Ratio of not more than 5.0 to 1.0.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment shall have expired or been terminated and the Notes
and all of the other Obligations shall have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 6.1 Merger. The Company will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any Material Subsidiary to do any of the foregoing; provided, however, any
Subsidiary may be merged with or liquidated into the Company or any wholly-owned
Subsidiary (if the Company or such wholly-owned Subsidiary is the surviving
corporation).
Section 6.2 Sale of Assets. The Company will not, and will not permit any
Material Subsidiary to, sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for sales in the ordinary course of
business and except for sales or other transfers by a Subsidiary to the Company
or a wholly-owned Subsidiary.
Section 6.3 Plans. The Company will not permit, and will not allow any
Material Subsidiary to permit, any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause the
Lien provided for in Section 4068 of ERISA to attach to any assets of the
Company or any Subsidiary; and the Company will not permit the underfunded
amount of Plan benefits guaranteed under Title IV of ERISA to exceed $1,000,000.
Section 6.4 Change in Nature of Business. The Company will not, and will
not permit any Material Subsidiary to, make any material change in the nature of
the business of the Company or such Material Subsidiary, as carried on at the
date hereof.
Section 6.5 Subsidiaries. The cumulative net worth of all Subsidiaries
of the Company shall not exceed $1,000,000 at any time.
Section 6.6 Negative Pledges. The Company will not enter into any
agreement, bond, note or other instrument with or for the benefit of any Person
other than the Bank which would prohibit the Company from granting, or otherwise
limit the ability of the Company to grant, to the Bank any Lien on any assets or
properties of the Company. No grant of security interests to Lenders that are
parties to the Collateral Agreement, whether or not pursuant to the Collateral
Agreement, no loans of securities by the Company in the ordinary course of its
business and no negative pledges with respect to immaterial assets shall be
deemed to violate this Section 6.6.
Section 6.7 Liens. The Company will not create, incur, assume or suffer to
exist any Lien on Pledged Securities other than Liens on Customers' Securities
pursuant to the Collateral Agreement.
Section 6.8 Tangible Net Worth. The Company will not permit its Tangible
Net Worth at any time to be less than $100,000,000.
Section 6.9 Loans, Advances, Investments, Joint Ventures and Contingent
Obligations. The Company, other than in the ordinary course of its broker-dealer
business, will not, and not permit any Material Subsidiary to (x) make or permit
to remain outstanding any loan or advance to any other Person, (y) directly or
indirectly guarantee, endorse, be or become contingently liable for or enter
into any contract which is, in economic effect substantially equivalent to a
guaranty of the obligation of any other Person, or (z) own, purchase or make any
commitment to purchase the securities of any corporation or own, purchase or
make any commitment to purchase for cash or any consideration, any obligations,
other securities, the business or integral part of the business of any other
Person or enter into a joint venture or partnership with any other Person,
except:
(a) by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the ordinary course of business;
(b) Producer Loans in an aggregate amount not to exceed
$15,000,000 at any time outstanding;
(c) advances to officers and employees, other than Producer
Loans, in an aggregate amount not to exceed $1,000,000 at any time
outstanding; and
(d) Investments of the type currently held by the Company, as
described on Schedule 6.9 hereto, in an aggregate amount not to exceed
$20,000,000 at any time outstanding.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default:
7.1(a) The Company shall fail to make when due, whether on demand,
by acceleration or otherwise, any payment of principal of or interest on either
Note or any other Obligation required to be made to the Bank pursuant to this
Agreement.
7.1(b) Any representation or warranty made by or on behalf of the
Company, or any Subsidiary in this Agreement or any other Loan Document or by or
on behalf of the Company, or any Subsidiary in any certificate, statement,
report or document herewith or hereafter furnished to the Bank pursuant to this
Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.
7.1(c) The Company shall fail to comply with Sections 5.2, 5.3, 5.11
or 5.12 or any Section of Article VI.
7.1(d) The Company shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other than
those hereinabove set forth in this Section 7.1) and such failure to comply
shall continue for three calendar days after whichever of the following dates is
the earliest: (i) the date the Company gives notice of such failure to the Bank,
(ii) the date the Company should have given notice of such failure to the Bank
pursuant to Section 5.1, or (iii) the date the Bank gives notice of such failure
to the Company.
7.1(e) Any default (however denominated or defined) shall occur
under the Collateral Agreement, the Firm Collateral Agreement or any Agreement
to Pledge or any Liquidation Notice shall be provided to the Administrator by
any Lender.
7.1(f) The Company or any Material Subsidiary shall become insolvent
or shall generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee or
receiver of the Company or any Material Subsidiary or for a substantial part of
the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Company or any Material Subsidiary or for a substantial part of the property
thereof and shall not be discharged within 45 days, or the Company shall make an
assignment for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Company or any Material Subsidiary, and if instituted against the
Company or any Material Subsidiary, shall have been consented to or acquiesced
in by the Company or such Material Subsidiary, or shall remain undismissed for
60 days, or an order for relief shall have beet, entered against the Company or
such Subsidiary.
7. l(h) Any dissolution or liquidation proceeding not permitted by
Section 6.l shall be instituted by or against the Company or any Material
Subsidiary and, if instituted against the Company or ally Material Subsidiary,
shall be consented to or acquiesced in by the Company or such Material
Subsidiary or shall remain for 45 days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess of
the sum of $10,000,000 in the aggregate shall be rendered against the Company or
a Material Subsidiary and the Company or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or procure a
stay of execution thereof prior to any execution on such judgment by such
judgment creditor, within 60 days from the date of entry thereof, and within
said period of 60 days, or such longer period during which execution of such
judgment shall be stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
7.1(j) The maturity of any material Indebtedness of the Company
(other than Indebtedness under this Agreement) or a Material Subsidiary shall be
accelerated, or the Company or a Material Subsidiary shall fail to pay any such
material Indebtedness when due (after the lapse of any applicable grace period)
or, in the case of such Indebtedness payable on demand, when demanded (after the
lapse of any applicable grace period), or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if ally,
applicable thereto and shall have the effect of causing, or permitting the
holder of any such Indebtedness or any trustee or other Person acting on behalf
of such holder to cause, such material Indebtedness to become due prior to its
stated maturity or to realize upon any collateral given as security therefor.
For purposes of this Section, Indebtedness of the Company or a Material
Subsidiary shall be determined "material" if it exceeds $10,000,000 as to any
item of Indebtedness or in the aggregate for all items of Indebtedness with
respect to which any of the events described in this Section 7.1(j) has
occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Company or any Material Subsidiary shall
be taken or attempted to be taken and the same shall not have been vacated or
stayed within 30 days after the issuance thereof.
7.1(l) Any Official Lien on all or a portion of the Pledged
Securities shall have been created and such Official Lien shall not have been
discharged, released or bonded (with property other than the Pledged Securities)
within 30 days of such creation.
7.1(m) The Collateral Agreement, the Firm Collateral Agreement or
any Agreement to Pledge shall, at any time, cease to be in full force and effect
or shall be judicially declared null and void, or the validity or enforceability
thereof shall be contested by the Company, or the Bank shall cease to have a
valid and perfected security interest having the priority contemplated
thereunder in all of the collateral described therein.
7.1(n) Any Change of Control shall occur.
7.1(o) Any Self-Regulatory Organization shall revoke the Company's
membership therein or shall suspend such membership and such membership shall
not be reinstated within 10 days of such suspension if, in the case of any
Self-Regulatory Organization other than the NYSE and the NASD, such revocation
or suspension could reasonably be expected to leave a Material Adverse Effect.
7.1(p) The DTC or PTC shall revoke the Company's membership therein
or shall suspend such membership and such membership shall not be reinstated
within 10 days of such suspension.
7.1(q) The Commission shall revoke the Company's status as a
broker-dealer or shall suspend such status and such status shall not be
reinstated within 10 days of such suspension.
7.1(r) The SIPC shall have applied or shall have announced its
intention to apply for a decree adjudicating that customers of the Company are
in need of protection under SIPA.
7.1(s) The Parent shall fail to maintain at all times
Tangible Net Worth of $125,000,000.
Section 7.2 Remedies. If (a) any Event of Default described in Sections
7.1(f), (g) or (h) shall occur with respect to the Company, the Commitment shall
automatically terminate and the Obligations shall automatically become
immediately due and payable, or (b) any other Event of Default shall occur and
be continuing, then the Bank may (i) declare the Commitment terminated,
whereupon the Commitment shall terminate, (ii) declare the Obligations to be
forthwith due and payable, whereupon the Obligations shall immediately become
due and payable, in each case without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding, (iii) exercise all
rights and remedies under any of the other Loan Documents, and (iv) enforce all
rights and remedies under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Company hereby irrevocably authorizes the Bank to set off the
Obligations against all deposits and credits (other than with respect to the
Special Reserve Account) of the Company with, and any and all claims of the
Company against, the Bank. Such right shall exist whether or not the Bank shall
have made any demand hereunder or under any other Loan Document, whether or not
the Obligations, or any part thereof, or deposits and credits held for the
account of the Company is or are matured or unmatured, and regardless of the
existence or adequacy of any collateral, guaranty or any other security, right
or remedy available to the Bank. The Bank agrees that, as promptly as is
reasonably possible after the exercise of ally such setoff right, it shall
notify the Company of its exercise of such setoff right; provided, however, that
the failure of the Bank to provide such notice shall not affect the validity of
the exercise of such setoff rights. Nothing in this Agreement shall be deemed a
waiver or prohibition of or restriction on the Bank to all rights of banker's
Lien, setoff and counterclaim available pursuant to law.
ARTICLE VIII
MISCELLANEOUS
Section 8. l Modifications. Notwithstanding any provisions to the contrary
herein. any term of this Agreement may be amended with the written consent of
the Company; provided that no amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Company therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and then such amendment, modifications, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company agrees to reimburse the Bank
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Bank (including filing and recording costs and fees and expenses of Mayer, Brown
& Platt, counsel to the Bank) in connection with the negotiation, preparation,
approval, review, execution, delivery, amendment, modification, interpretation,
collection and enforcement of this Agreement, the Notes and any other Loan
Documents and any commitment letters relating thereto. The Bank is authorized by
the Company to make a Loan to the Company under this Agreement (as a Federal
Funds Rate Advance) in the amount of any such expenses and to apply the proceeds
of such Loan to the payment of such expenses. The obligations of the Company
under this Section shall survive any termination of this Agreement.
Section 8.3 Waivers. etc. No failure on the part of the Bank or any holder
of a Note to exercise and no delay in exercising any power or right hereunder or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any power or right or any abandonment or
discontinuance of the enforcement thereof preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies of
the Bank hereunder and under the other Loan Documents are cumulative and not
exclusive of any right or remedy the Bank otherwise has.
Section 8.4 Notices. Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified oil the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Bank under Article II hereof shall be deemed to have been
given only when received by the Bank.
Section 8.5 Taxes. The Company agrees to pay, and save the Bank harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement or the issuance of the
Note, which obligation of the Company shall survive the termination of this
Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Company may
not assign its rights or delegate its obligations hereunder or under any other
Loan Document without the prior written consent of the Bank. The Bank may at any
time sell, assign, transfer, grant participations in, or otherwise dispose of
any portion of the Commitment, the Loans and/or Advances (each such interest so
disposed of being herein called a "Transferred Interest") to banks or other
financial institutions ("Transferees"). The Company agrees that each Transferee
shall be entitled to the benefits of Sections 2.16, 2.17, 2.18, 2.19 and 8.2
with respect to its Transferred Interest and that each Transferee may exercise
any and all rights of banker's Lien, setoff and counterclaim as if such
Transferee were a direct lender to the Company. If the Bank makes any assignment
to a Transferee, then upon notice to the Company such Transferee, to the extent
of such assignment (unless otherwise provided therein) shall become a "Bank"
hereunder and shall have all the rights and obligations of the Bank hereunder
and the Bank shall be released from its duties and obligations under this
Agreement to the extent of such assignment. Notwithstanding the sale by the Bank
of any participation hereunder, (a) no participant shall be deemed to be or have
the rights and obligations of the Bank hereunder except that any participant
shall have a right of setoff under Section 7.3 as if it were the Bank and the
amount of its participation were owing directly to such participant by the
Company and (b) the Bank shall not in connection with selling any such
participation condition the Bank's rights in connection with consenting to
amendments or granting waivers concerning any matter under any Loan Document
upon obtaining the consent of such participant other than on matters relating to
(i) any reduction in the amount of any principal of, or the amount of or rate of
interest on, the Notes or any Advance, (ii) any postponement of the date fixed
for any payment of principal of or interest on the Notes or any Loan, or (iii)
the release or subordination of any material portion of any collateral other
than pursuant to the terms of the Collateral Agreement, the Firm Collateral
Agreement or an Agreement to Pledge.
Section 8.7 Confidentiality of Information. The Bank shall use reasonable
efforts to assure that information about the Company and its operations, affairs
and financial condition, not generally disclosed to the public or to trade and
other creditors, which is furnished to the Bank pursuant to the provisions
hereof is used only for the purposes of this Agreement and any other
relationships between the Bank and the Company and shall not be divulged to any
Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to its attorneys and accountants,
(b) in connection with the enforcement of the rights of the Bank hereunder and
under the Notes, the Collateral Agreement, the Firm Collateral Agreement or
otherwise in connection with applicable litigation, (c) in connection with
assignments arid participations and the solicitation of prospective assignees
and participants referred to in Section 8.6, and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over the
Bank or as required by any applicable law, rule, regulation or judicial process,
the opinion of the Bank's counsel concerning the mailing of such disclosure to
be binding on the parties hereto. The Bank shall not incur any liability to the
Company by reason of any disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under law applicable
thereto, but, if any provision of this Agreement, the other Loan Documents or
any other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under law
applicable thereto or in ally other jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, the other Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA OR IN ANY
ILLINOIS STATE OR FEDERAL COURT SITTING IN CHICAGO, ILLINOIS; AND THE COMPANY
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE COMPANY AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY
HERETO. EACH FARM HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANK IN ENTERING INTO THIS AGREEMENT.
Section 8.11 Survival of Agreement. All representations, warranties,
covenants and agreements made by the Company herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Bank and shall survive the making of
the Loans by the Bank and the execution and delivery to the Bank by the Company
of the Notes, regardless of any investigation made by or on behalf of the Bank,
and shall continue in full force and effect as long as any Obligation is
outstanding and unpaid and so long as the Commitment has not been terminated;
provided, however, that the obligations of the Company under Sections 2.16,
2.17, 2.18, 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations
and the termination of the Commitment.
Section 8.12 Indemnification. The Company hereby agrees to defend,
protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers, employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any commitments
relating thereto, or any transaction contemplated by any Loan Document; or
(b) by reason of, relating to or in connection with any credit extended or
used under the Loan Documents or any act done or omitted by any Person, or
the exercise of any rights or remedies thereunder, including the
acquisition of any collateral by the Bank by way of foreclosure of the
Lien thereon, deed or bill of sale in lieu of such foreclosure or
otherwise;
provided, however, that the Company shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Company may otherwise have. Without prejudice to the survival of any other
obligation of the Company hereunder the indemnities and obligations of the
Company contained in this Section shall survive the payment in full of the other
Obligations.
Section 8.13 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.14 Entire Agreement: No Third Party Beneficiaries. This
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Company and the Bank with respect to the subject
matter hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof. Nothing contained in this
Agreement or in any other Loan Document, expressed or implied, is intended to
confer upon any Person other than the parties hereto and thereto any rights,
remedies, obligations or liabilities hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 8.16 Company Acknowledgments. The Company hereby acknowledges that
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents, (b) the Bank has no fiduciary
relationship to the Company, the relationship being solely that of borrower and
lender, (c) no joint venture exists between the Company and the Bank, and (d)
the Bank undertakes no responsibility to the Company to review or inform the
Company of any matter in connection with any phase of the business or operations
of the Company and the Company shall rely entirely upon its own judgment with
respect to its business, and any review, inspection or supervision of, or
information supplied to, the Company by the Bank is for the protection of the
Bank and neither the Company nor any third party is entitled to rely thereon.
Section 8.17 Subsidiary Reference. Any reference herein to a Subsidiary or
Subsidiaries of the Company and any financial definition, ratio, restriction or
other provision of this Agreement which is stated to be applicable to "the
Company" and the Subsidiaries or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent the Company has any
Subsidiaries and. where applicable, to the extent any such Subsidiaries are
consolidated with the Company for financial reporting purposes. References to a
Subsidiary or Subsidiaries shall not be construed as constituting a consent to
the existence, creation or acquisition of any Subsidiary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
PIPER JAFFRAY INC.
By /s/ Charles N. Hayssen
Print Name Charles N. Hayssen
Title Chief Financial Officer
Piper Jaffray Tower, 16th Floor
222 South Ninth Street
Minneapolis, Minnesota 55402
Fax (612) 342-7085
THE NORTHERN TRUST COMPANY
By /s/ Peggy O'Leary
Print Name Peggy O'Leary
Title Senior Vice President
50 South LaSalle Street
Chicago, Illinois 60675
Fax (312) 557-8337
Exhibit 10.17
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made
and entered into as of December 28, 1994, is by and between Piper Jaffray Inc.,
a Delaware corporation (the "Company"), and Norwest Bank Minnesota, a national
banking association (the "Bank").
RECITALS
1. The Bank and the Company entered into a Credit
Agreement dated as of November 23, 1994 (the "Credit Agreement"); and
2. The Bank and the Company desire to amend certain
provisions of the Credit Agreement subject to the terms and conditions set
forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended
as follows:
(a) Section 5.1(d) of the Credit Agreement is hereby amended in
its entirety as follows:
5.1(d) As soon as practicable and in any event within 30 days
after the end of each fiscal month, a certificate, substantially in
the form of Exhibit E hereto, signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or
noncompliance, as the case may be) with Sections 5.12, 5.13, 6.8 and
7.1(s) as at the end of such month and stating that as at the end of
such month there did not exist any Default or Event of Default or,
if such Default or Event of Default existed, specifying the nature
and period of existence thereof and what action the Company proposes
to take with respect thereto.
(b) The Credit Agreement is hereby further amended by adding Exhibit
E in the form attached hereto.
Section 3. Effectiveness of Amendment. This Amendment shall
become effective upon its execution and delivery by the Company and the Bank.
Section 4. Representations; No Default. The Company hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date hereof
as though made on and as of such date, except for changes permitted by the terms
of the Credit Agreement, and (b) there will exist no Default or Event of Default
under the Credit Agreement as amended by this Amendment. The Company represents
and warrants that the Company has the power and legal right and authority to
enter into this Amendment.
Section 5. Affirmation, Further References. The Bank and the Company
each acknowledge and affirm that the Credit Agreement, as hereby amended, is
hereby ratified and confirmed in all respects and all terms, conditions and
provisions of the Credit Agreement, except as amended by this Amendment, shall
remain unmodified and in full force and effect. All references in any document
or instrument to the Credit Agreement are hereby amended and shall refer to the
Credit Agreement as amended by this Amendment.
Section 6. Counterparts. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to the Amendment may
execute any such agreement by executing a counterpart of such Agreement.
Section 7. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict of
law principles thereof, but giving effect to federal laws applicable to national
banks, their holding companies and their affiliates.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
COMPANY: PIPER JAFFRAY INC.
By: /s/ Deborah K. Roesler
Title: Treasurer
BANK: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ D. E. Jackson
Title: Vice President
<PAGE>
EXHIBIT E
TO CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
Pursuant to Section 5.1(d) of the Credit Agreement dated as of November
23, 1994 (as the same may be amended from time to time, the "Credit Agreement"),
the undersigned, _________________ of Piper Jaffray Inc. (the "Company")
certifies to Norwest Bank Minnesota, National Association ("Bank") as follows:
1. The financial statements of Company attached hereto for the period
ending _________________, 19____ (the "Financial Statements") have been prepared
in accordance with GAAP (as such term and other terms used herein and not
otherwise defined herein are defined in the Credit Agreement) applied on a
consistent basis subject only to year-end adjustments which, in the aggregate,
are not materially adverse.
2. The representations and warranties contained in Article IV of the
Credit Agreement are true and correct as of the date hereof.
3. As of __________________, 19____, (the "Reporting Date") no Default or
Event of Default has occurred and is continuing [except (describe here any
Default or Event of Default and the action which the undersigned proposes to
take with respect thereto.)]
================================================================
================================================================
4. Net Capital (Section 5.12). As of the Reporting Date, the
required Net Capital was not less than 10% of Aggregate Debit Items and the
actual Net Capital was ____% of Aggregate Debt Items.
5. Leverage Ratio (Section 5.13). As of the Reporting Date, Total Assets
were $_______________ and Tangible Net Worth of the Company was
$_________________, the required maximum Leverage Ratio was 5.0 to 1.0, and the
actual Leverage Ratio was _____ to 1.0, as required to be computed in accordance
with the Credit Agreement.
6. Tangible Net Worth (Section 6.8). As of the Reporting Date, the
required Minimum Tangible Net Worth of the Company was $100,000,000, and the
actual Tangible Net Worth of the Company was $_______________, as required to be
computed in accordance with the Credit Agreement.
7. Tangible Net Worth of Parent (Section 7.1(s). As of the
Reporting Date, the required Minimum Tangible Net Worth of the Parent was
$125,000,000 and the actual Tangible Net Worth of the Parent was
$-----------------.
PIPER JAFFRAY INC.
By: _________________________
Title: ______________________
Exhibit 10.18
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made
and entered into as of December 27, 1994, is by and between Piper Jaffray Inc.,
a Delaware corporation (the "Company"), and First Bank National Association, a
national banking association (the "Bank").
RECITALS
1. The Bank and the Company entered into a Credit
Agreement dated as of November 23, 1994 (the "Credit Agreement"); and
2. The Bank and the Company desire to amend certain
provisions of the Credit Agreement subject to the terms and conditions set
forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended
as follows:
(a) Section 5.1(d) of the Credit Agreement is hereby amended in
its entirety as follows:
5.1(d) As soon as practicable and in any event within 30 days
after the end of each fiscal month, a certificate, substantially in
the form of Exhibit E hereto, signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or
noncompliance, as the case may be) with Sections 5.12, 5.13, 6.8 and
7.1(s) as at the end of such month and stating that as at the end of
such month there did not exist any Default or Event of Default or,
if such Default or Event of Default existed, specifying the nature
and period of existence thereof and what action the Company proposes
to take with respect thereto.
(b) The Credit Agreement is hereby further amended by adding Exhibit
E in the form attached hereto.
Section 3. Effectiveness of Amendment. This Amendment shall
become effective upon its execution and delivery by the Company and the Bank.
Section 4. Representations; No Default. The Company hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date hereof
as though made on and as of such date, except for changes permitted by the terms
of the Credit Agreement, and (b) there will exist no Default or Event of Default
under the Credit Agreement as amended by this Amendment. The Company represents
and warrants that the Company has the power and legal right and authority to
enter into this Amendment.
Section 5. Affirmation, Further References. The Bank and the Company
each acknowledge and affirm that the Credit Agreement, as hereby amended, is
hereby ratified and confirmed in all respects and all terms, conditions and
provisions of the Credit Agreement, except as amended by this Amendment, shall
remain unmodified and in full force and effect. All references in any document
or instrument to the Credit Agreement are hereby amended and shall refer to the
Credit Agreement as amended by this Amendment.
Section 6. Legal Expenses. The Company agrees to reimburse the Bank,
upon execution of this Amendment, for all reasonable out-of-pocket expenses
(including reasonable attorneys' fees and legal expenses of counsel for the
Bank) incurred in connection with the negotiation, preparation and execution of
this Amendment and all other documents negotiated, prepared and executed in
connection with this Amendment.
Section 7. Counterparts. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to the Amendment may
execute any such agreement by executing a counterpart of such Agreement.
Section 8. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict of
law principles thereof, but giving effect to federal laws applicable to national
banks, their holding companies and their affiliates.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
COMPANY: PIPER JAFFRAY INC.
By: /s/ Deborah K. Roesler
Title: Treasurer
BANK: FIRST BANK NATIONAL ASSOCIATION
By: /s/ Jose A. Peris
Title: Vice President
<PAGE>
EXHIBIT E
TO CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
Pursuant to Section 5.1(d) of the Credit Agreement dated as of November
23, 1994 (as the same may be amended from time to time, the "Credit Agreement"),
the undersigned, the Chief Financial Officer of Piper Jaffray Inc. (the
"Company") certifies to First Bank National Association ("Bank") as follows:
1. The financial statements of Company attached hereto for the period
ending _________________, 19____ (the "Financial Statements") have been prepared
in accordance with GAAP (as such term and other terms used herein and not
otherwise defined herein are defined in the Credit Agreement) applied on a
consistent basis subject only to year-end adjustments which, in the aggregate,
are not materially adverse.
2. The representations and warranties contained in Article IV of the
Credit Agreement are true and correct as of the date hereof.
3. As of __________________, 19____, (the "Reporting Date") no Default or
Event of Default has occurred and is continuing [except (describe here any
Default or Event of Default and the action which the undersigned proposes to
take with respect thereto.)]
================================================================
================================================================
4. Net Capital (Section 5.12). As of the Reporting Date, the
required Net Capital was not less than 10% of Aggregate Debit Items and the
actual Net Capital was ____% of Aggregate Debt Items.
5. Leverage Ratio (Section 5.13). As of the Reporting Date, Total Assets
were $_______________ and Tangible Net Worth of the Company was
$_________________, the required maximum Leverage Ratio was 5.0 to 1.0, and the
actual Leverage Ratio was _____ to 1.0, as required to be computed in accordance
with the Credit Agreement.
6. Tangible Net Worth (Section 6.8). As of the Reporting Date, the
required Minimum Tangible Net Worth of the Company was $100,000,000, and the
actual Tangible Net Worth of the Company was $_______________, as required to be
computed in accordance with the Credit Agreement.
7. Tangible Net Worth of Parent (Section 7.1(s). As of the
Reporting Date, the required Minimum Tangible Net Worth of the Parent was
$125,000,000 and the actual Tangible Net Worth of the Parent was
$-----------------.
PIPER JAFFRAY INC.
By: _________________________
Its Chief Financial Officer
Exhibit 10.19
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made
and entered into as of December 23, 1994, is by and between Piper Jaffray Inc.,
a Delaware corporation (the "Company"), and The Northern Trust Company, an
Illinois state banking association (the "Bank").
RECITALS
1. The Bank and the Company entered into a Credit
Agreement dated as of November 23, 1994 (the "Credit Agreement"); and
2. The Bank and the Company desire to amend certain
provisions of the Credit Agreement subject to the terms and conditions set
forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended
as follows:
(a) Section 5.1(d) of the Credit Agreement is hereby amended in
its entirety as follows:
5.1(d) As soon as practicable and in any event within 30 days
after the end of each fiscal month, a certificate, substantially in
the form of Exhibit E hereto, signed by the chief financial officer
of the Company demonstrating in reasonable detail compliance (or
noncompliance, as the case may be) with Sections 5.12, 5.13, 6.8 and
7.1(s) as at the end of such month and stating that as at the end of
such month there did not exist any Default or Event of Default or,
if such Default or Event of Default existed, specifying the nature
and period of existence thereof and what action the Company proposes
to take with respect thereto.
(b) The Credit Agreement is hereby further amended by adding Exhibit
E in the form attached hereto.
Section 3. Effectiveness of Amendment. This Amendment shall
become effective upon its execution and delivery by the Company and the Bank.
Section 4. Representations; No Default. The Company hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date hereof
as though made on and as of such date, except for changes permitted by the terms
of the Credit Agreement, and (b) there will exist no Default or Event of Default
under the Credit Agreement as amended by this Amendment. The Company represents
and warrants that the Company has the power and legal right and authority to
enter into this Amendment.
Section 5. Affirmation, Further References. The Bank and the Company
each acknowledge and affirm that the Credit Agreement, as hereby amended, is
hereby ratified and confirmed in all respects and all terms, conditions and
provisions of the Credit Agreement, except as amended by this Amendment, shall
remain unmodified and in full force and effect. All references in any document
or instrument to the Credit Agreement are hereby amended and shall refer to the
Credit Agreement as amended by this Amendment.
Section 6. Counterparts. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to the Amendment may
execute any such agreement by executing a counterpart of such Agreement.
Section 7. Governing Law. This Amendment shall be governed by the
internal laws of the State of Illinois, without giving effect to conflict of law
principles thereof, but giving effect to federal laws applicable to national
banks, their holding companies and their affiliates.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
COMPANY: PIPER JAFFRAY INC.
By: /s/ Deborah K. Roesler
Title: Treasurer
BANK: THE NORTHERN TRUST COMPANY
By: /s/ Peggy O'Leary
Title: Senior Vice President
<PAGE>
EXHIBIT E
TO CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
Pursuant to Section 5.1(d) of the Credit Agreement dated as of November
23, 1994 (as the same may be amended from time to time, the "Credit Agreement"),
the undersigned, _________________ of Piper Jaffray Inc. (the "Company")
certifies to The Northern Trust Company ("Bank") as follows:
1. The financial statements of Company attached hereto for the period
ending _________________, 19____ (the "Financial Statements") have been prepared
in accordance with GAAP (as such term and other terms used herein and not
otherwise defined herein are defined in the Credit Agreement) applied on a
consistent basis subject only to year-end adjustments which, in the aggregate,
are not materially adverse.
2. The representations and warranties contained in Article IV of the
Credit Agreement are true and correct as of the date hereof.
3. As of __________________, 19____, (the "Reporting Date") no Default or
Event of Default has occurred and is continuing [except (describe here any
Default or Event of Default and the action which the undersigned proposes to
take with respect thereto.)]
================================================================
================================================================
4. Net Capital (Section 5.12). As of the Reporting Date, the
required Net Capital was not less than 10% of Aggregate Debit Items and the
actual Net Capital was ____% of Aggregate Debt Items.
5. Leverage Ratio (Section 5.13). As of the Reporting Date, Total Assets
were $_______________ and Tangible Net Worth of the Company was
$_________________, the required maximum Leverage Ratio was 5.0 to 1.0, and the
actual Leverage Ratio was _____ to 1.0, as required to be computed in accordance
with the Credit Agreement.
6. Tangible Net Worth (Section 6.8). As of the Reporting Date, the
required Minimum Tangible Net Worth of the Company was $100,000,000, and the
actual Tangible Net Worth of the Company was $_______________, as required to be
computed in accordance with the Credit Agreement.
7. Tangible Net Worth of Parent (Section 7.1(s). As of the
Reporting Date, the required Minimum Tangible Net Worth of the Parent was
$125,000,000 and the actual Tangible Net Worth of the Parent was
$-----------------.
PIPER JAFFRAY INC.
By: _________________________
Title: ______________________
Exhibit 10.20
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment is made as of this 7th day of November, 1995, by and
between Norwest Bank Minnesota, National Association (the "Bank") and Piper
Jaffray Inc. (the "Company").
The Bank and the Company have made and entered into a Credit Agreement
dated as of November 23, 1994, as amended by a First Amendment dated as of
December 28,1994 and extended by the Bank's letter dated October 13, 1995 (the
"Credit Agreement"), pursuant to which, among other things, the Bank has agreed
to consider the Company's requests for Loans in an aggregate principal amount
outstanding from time to time not to exceed the Discretionary Credit Subfacility
Amount. The Bank and the Company have agreed to increase the Discretionary
Credit Subfacility Amount.
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Credit Agreement.
2. The definition of the term "Discretionary Credit Subfacility Amount" in
Section 1.1 of the Credit Agreement is hereby amended by changing the amount
specified therein from $15,000,000 to $35,000,000.
3. On or before November __, 1995, the Company shall execute and deliver
to the Bank a promissory note in the form of Exhibit A hereto in replacement of
the Firm Securities Note dated November 23, 1994. Promptly upon receipt of such
note, the Bank will mark such replaced note "Replaced but not paid" and return
it to the Company.
4. Upon and following the Bank's receipt of the replacement promissory
note referred to in Section 3 hereof, references in the Credit Agreement to the
"Firm Securities Note" shall be deemed to refer to such replacement note and
references to "this Agreement" shall be deemed to refer to the Credit Agreement,
as amended by this Second Amendment.
5. Except as amended hereby, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect.
Signature Page Follows
<PAGE>
In witness whereof, the Bank and the Company have executed this Second
Amendment as of the day and year first above written.
PIPER JAFFRAY INC.
By /s/ Deborah K. Roesler
Print name:Deborah K. Roesler
Title: Chief Financial Officer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ D. E. Jackson
Print name: D.E. Jackson
Title: Vice President
Exhibit 10.21
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment is made as of this 7th day of November, 1995, by and
between First Bank National Association (the "Bank") and Piper Jaffray Inc. (the
"Company").
The Bank and the Company have made and entered into a Credit Agreement
dated as of November 23, 1994, as amended by a First Amendment dated as of
December 27,1995 and extended by the Bank's letter dated September 12, 1995 (the
"Credit Agreement"), pursuant to which, among other things, the Bank has agreed
to consider the Company's requests for Loans in an aggregate principal amount
outstanding from time to time not to exceed the Discretionary Credit Subfacility
Amount. The Bank and the Company have agreed to increase the Discretionary
Credit Subfacility Amount.
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Credit Agreement.
2. The definition of the term "Discretionary Credit Subfacility Amount" in
Section 1.1 of the Credit Agreement is hereby amended by changing the amount
specified therein from $15,000,000 to $40,000,000.
3. On or before November __, 1995, the Company shall execute and deliver
to the Bank a promissory note in the form of Exhibit A hereto in replacement of
the Firm Securities Note dated November 23, 1994. Promptly upon receipt of such
note, the Bank will mark such replaced note "Replaced but not paid" and return
it to the Company.
4. Upon and following the Bank's receipt of the replacement promissory
note referred to in Section 3 hereof, references in the Credit Agreement to the
"Firm Securities Note" shall be deemed to refer to such replacement note and
references to "this Agreement" shall be deemed to refer to the Credit Agreement,
as amended by this Second Amendment.
5. Except as amended hereby, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect.
Signature Page Follows
<PAGE>
In witness whereof, the Bank and the Company have executed this Second
Amendment as of the day and year first above written.
PIPER JAFFRAY INC.
By /s/ Deborah K. Rosler
Print name: Deborah K. Roesler
Title: Chief Financial Officer
FIRST BANK NATIONAL ASSOCIATION
By /s/ Jose A. Peris
Print name: Jose A. Peris
Title: Vice President
Exhibit 10.22
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment is made as of this 7th day of November, 1995, by and
between The Northern Trust Company (the "Bank") and Piper Jaffray Inc.
(the "Company").
The Bank and the Company have made and entered into a Credit Agreement
dated as of November 23, 1994, as amended by a First Amendment dated as of
December 23, 1994 and extended by the Bank's letter dated October 20, 1995 (the
"Credit Agreement"), pursuant to which, among other things, the Bank has agreed
to consider the Company's requests for Loans in an aggregate principal amount
outstanding from time to time not to exceed the Discretionary Credit Subfacility
Amount. The Bank and the Company have agreed to increase the Discretionary
Credit Subfacility Amount.
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Credit Agreement.
2. The definition of the term "Discretionary Credit Subfacility Amount" in
Section 1.1 of the Credit Agreement is hereby amended by changing the amount
specified therein from $15,000,000 to $20,000,000.
3. On or before November __, 1995, the Company shall execute and deliver
to the Bank a promissory note in the form of Exhibit A hereto in replacement of
the Firm Securities Note dated November 23, 1994. Promptly upon receipt of such
note, the Bank will mark such replaced note "Replaced but not paid" and return
it to the Company.
4. Upon and following the Bank's receipt of the replacement promissory
note referred to in Section 3 hereof, references in the Credit Agreement to the
"Firm Securities Note" shall be deemed to refer to such replacement note and
references to "this Agreement" shall be deemed to refer to the Credit Agreement,
as amended by this Second Amendment.
5. Except as amended hereby, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect.
Signature Page Follows
<PAGE>
In witness whereof, the Bank and the Company have executed this Second
Amendment as of the day and year first above written.
PIPER JAFFRAY INC.
By /s/ Deborah K. Roesler
Print name: Deborah K. Roesler
Title: Chief Financial Officer
THE NORTHERN TRUST COMPANY
By /s/ Christina Jakuc
Print name: Christina Jakuc
Title: Officer
Exhibit 11
PIPER JAFFRAY COMPANIES INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Unaudited, amounts in thousands except per share data)
Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30,
1995 1994 1993
PRIMARY NET (LOSS) INCOME PER SHARE:
Net (loss) income ......................... $(14,118) $ 25,282 $ 40,987
--------- --------- ---------
Average number of common and common
equivalent shares outstanding:
Average common shares
outstanding ............................. 17,300 17,455 17,313
Dilutive effect of CSE's:
Book value plan options ................... -- 312 375
Executive incentive
stock options ........................... -- 178 259
--------- --------- ---------
17,300 17,945 17,947
--------- --------- ---------
Primary net (loss) income per share ....... $ (.82) $ 1.41 $ 2.28
========= ========= =========
NET (LOSS) INCOME PER SHARE
ASSUMING FULL DILUTION:
Net (loss) income ......................... $(14,118) $ 25,282 $ 40,987
--------- --------- ---------
Average number of common and common
equivalent shares outstanding:
Average common shares
outstanding ............................. 17,300 17,455 17,313
Dilutive effect of CSE's:
Book value plan options ................... -- 312 375
Executive incentive
stock options ........................... -- 178 259
--------- --------- ---------
17,300 17,945 17,947
--------- --------- ---------
Fully diluted net
(loss) income per share ................. $ (.82) $ 1.41 $ 2.28
========= ========= =========
<PAGE>
Exhibit 13
<TABLE>
Financial Summary
<CAPTION>
(Dollars in thousands,
except per share amounts)
Fiscal years ending September 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenue
Commissions ................ $ 145,492 $ 147,539 $ 128,940 $ 103,292 $ 82,290
Profits on principal
transactions ............. 124,910 101,381 95,656 85,950 72,361
Investment banking ......... 64,138 61,146 112,829 101,521 61,367
Interest 33,765 24,792 19,110 17,994 17,941
Asset management fees 43,913 51,917 40,811 28,649 18,420
Other Income 19,489 10,736 13,379 22,613 12,095
---------- ---------- ---------- ---------- ----------
Total revenue ........... 431,707 397,511 410,725 360,019 264,474
Expenses
Employee compensation ...... 262,110 245,567 254,198 220,171 161,162
Other operating expenses ... 180,509 104,572 83,441 74,475 66,983
Interest expense ........... 11,741 7,242 4,774 3,956 5,558
---------- ---------- ---------- ---------- ----------
Total expenses .......... 454,360 357,381 342,413 298,602 233,703
Income (loss) before income
taxes .................... (22,653) 40,130 68,312 61,417 30,771
Income taxes ............... (8,535) 14,848 27,325 23,890 11,460
---------- ---------- ---------- ---------- ----------
Net income (loss) .......... $ (14,118) $ 25,282 $ 40,987 $ 37,527 $ 19,311
========== ========== ========== ========== ==========
Per Share Data
Net income ................. $ (.82) $ 1.41 $ 2.28 $ 2.21 $ 1.16
Dividends .................. .30 .70 .50 .35 .28
Shareholders' equity ....... 8.90 9.76 9.01 7.05 5.21
Other Data (At year end)
Total assets .............. $ 679,763 584,447 535,146 480,554 614,859
Shareholders' equity ...... $ 155,724 167,803 157,912 120,447 87,474
Common shares outstanding
(In thousands) .......... 17,500 17,188 17,531 17,089 16,783
Total full-time employees . 2,703 2,658 2,427 2,165 1,928
Total retail branch offices 77 74 72 67 63
Piper Capital assets under
management (In billions) $ 9.4 $ 11.6 $ 12.0 $ 8.9 $ 5.4
</TABLE>
The Company and/or its subsidiaries are defendants in lawsuits. See Note 8 to
the consolidated financial statements.
<PAGE>
Management's Financial Discussion
Business Environment
Piper Jaffray Companies Inc. (the Company) is principally engaged in general
securities brokerage, corporate and public finance services and investment
management. These businesses are highly competitive and sensitive to many
factors, including the volatility and price level of securities markets, the
volume, size and timing of securities transactions, the demand for investment
banking services and the level and volatility of interest rates. A significant
portion of the Company's expenses, including salaries and benefits, occupancy
and communications, are relatively fixed and do not vary with market activity.
Consequently, the Company's revenues and net income have been and may continue
to be subject to wide fluctuations. In addition, the Company is currently a
defendant in lawsuits and arbitrations and is subject to regulatory inquiries
related to various funds or assets managed by Piper Capital. It is impossible to
predict the outcome of these actions and, at the present time, the effect of
these actions on the consolidated financial statements cannot be determined.
The accompanying table summarizes the changes in the major categories of
revenues and expenses for the past two years.
Increase (Decrease) Increase (Decrease)
1995 vs. 1994 1994 vs. 1993
Amount % Amount %
(In thousands)
Revenue
Commissions .............. $ (2,047) (1) $ 18,599 14
Profits on principal
transactions ........... 23,529 23 5,725 6
Investment banking ....... 2,992 5 (51,683) (46)
Interest ................. 8,973 36 5,682 30
Asset management fees .... (8,004) (15) 11,106 27
Other income ............. 8,753 82 (2,643) (20)
--------- ----- --------- -----
Total revenue ......... 34,196 9 (13,214) (3)
--------- ----- --------- -----
Expenses
Employee compensation .... 16,543 7 (8,631) (3)
Floor brokerage and
clearance .............. 704 10 869 13
Interest ................. 4,499 62 2,468 52
Occupancy and
equipment .............. 2,726 10 2,463 10
Communications ........... 1,560 11 3,134 28
Travel and
promotional ............ 125 1 2,264 17
Charge for PJIGX
settlement, net ........ 56,090 100 -- --
Other operating
expenses ............... 14,732 37 12,401 46
--------- ----- --------- -----
Total expenses ........ 96,979 27 14,968 4
--------- ----- --------- -----
Income before income taxes (62,783) (156) (28,182) (41)
Income taxes ............. (23,383) (157) (12,477) (46)
--------- ----- --------- -----
Net income ............... $(39,400) (156) $(15,705) (38)
========= ===== ========= =====
Operations
Fiscal 1995 vs. Fiscal 1994
Revenue was a record $431.7 million in fiscal 1995, increasing 9 percent ($34.2
million) from fiscal 1994. Revenue was reflective of favorable industry trends
in the second half of the year. However, net income declined $39.4 million (156
percent), and net income per share declined 158 percent, due to a $70 million
pretax charge for settlement of Institutional Government Income Portfolio
(PJIGX) mutual fund litigation. The charge, taken in the second quarter, was
partially offset during the third quarter by $13.9 million of insurance
proceeds, net of related expenses. Excluding the PJIGX net settlement charge,
net income and net income per share for fiscal 1995 would have been $20.4
million and $1.14, respectively. Fiscal 1995 results also reflect additional
legal actions, including provisions for a $1.95 million proposed settlement,
subject to court approval, of a Piper Jaffray Companies shareholder lawsuit, and
an arbitration award of approximately $6 million related to losses in a Piper
Capital privately managed account. The weighted average number of common shares
and common share equivalents outstanding decreased slightly (4 percent) to 17.3
million.
Commission revenue, or the income realized in securities transactions in which
the Company acts as agent, decreased 1percent ($2.0 million), as the increase in
equity commissions was offset by a decrease in mutual fund sales. Profits on
principal transactions, or the income realized in securities transactions in
which the Company acts as principal in the secondary market trading of the
securities, increased 23 percent ($23.5 million). The increase reflects strong
growth in trading of equity securities and the success of our effort to increase
secondary trading of corporate debt securities and municipal bonds. Investment
banking revenues were up 5 percent ($3.0 million) as additional corporate equity
and debt underwriting and merger and acquisition fees were offset by an
industry-wide slowdown in municipal underwriting.
Interest income increased 36 percent ($9.0 million), reflective of the increase
in interest rates charged on customers' interest-bearing margin loans. The
decrease in asset management fees of 15 percent ($8.0 million) in fiscal 1995
corresponds to the decline in assets under management by Piper Capital from
$11.6 billion to $9.4 billion. Assets under management decreased due to the
closing of privately managed accounts and mutual fund net redemptions, of which
approximately $500 million were a result of reorganizing certain mutual funds
during fiscal 1995. Other income increased 82 percent ($8.8 million) reflecting
increased fees in wrap accounts and capital gains. In addition, the Company
recognized a loss of $0.8 million, in the Hercules International Management LLC
joint venture compared to a loss of $2.7 million in fiscal 1994. The Company
dissolved the joint venture agreement during fiscal 1995 and brought the
Hercules international mutual funds into the Piper Capital fund family.
The Company's expenses grew 27 percent ($97.0 million) in fiscal 1995 including
the impact of the PJIGX settlement and other litigation and legal expenses
related to funds or assets managed by Piper Capital. Excluding the net PJIGX
settlement, expenses increased 11 percent ($40.9 million).
Employee compensation increased 7 percent ($16.5 million) due to growth in
revenue-based broker compensation, profit-based incentive compensation and
salaries from targeted additions to staff. Interest expense increased 62 percent
($4.5 million) in fiscal 1995 as bank borrowings increased to fund higher
average inventory levels and customer margin loans.
The addition of three branch offices, as well as the significant investment in
broker workstation technology, caused occupancy and equipment expenses to
increase 10 percent ($2.7 million). The investment in technology and increase in
the number of investment executives also were reflected in the 11 percent ($1.6
million) increase in communication expense.
Travel and promotional expenses for fiscal 1995 were essentially flat compared
to the prior year. An increase in institutional sales travel and investor
conference costs was offset by a decrease in marketing and incentive trips.
Other operating expenses increased 37 percent ($14.7 million) due primarily to
legal settlements, professional fees, and other costs resulting from lawsuits
and arbitrations related to various funds or assets managed by Piper Capital.
The Company anticipates other operating expenses in fiscal 1996 will be higher
than average due to ongoing legal costs related to these actions.
Fiscal 1994 vs. Fiscal 1993
After five consecutive years of record revenue, the Company's fiscal 1994
revenue declined. Favorable conditions in the securities industry characterized
the first half of the fiscal year. In the second quarter of fiscal 1994,
interest rates began to rise, lowering stock and bond prices and dampening
commissions, underwriting volume and trading profits. Revenues in fiscal 1994 of
$397.5 million were down 3 percent ($13.2 million), while expenses grew 4
percent ($15.0 million), resulting in a 38 percent ($15.7 million) decline in
net income, from $41.0 million in fiscal 1993 to $25.3 million in fiscal 1994.
Earnings per share also declined 38 percent, from $2.28 to $1.41. The weighted
average number of common shares and share equivalents outstanding was largely
unchanged at 17.9 million shares.
Commission revenues, or the income realized in securities transactions in which
the Company acts as agent, increased 14 percent ($18.6 million) in fiscal 1994.
The growth was the result of generally favorable equity market performance and
volume during much of the fiscal year and growth of the sale of mutual funds and
annuity products, which were up 22 percent ($10.7 million).
Profits on principal transactions, or the income realized in securities
transactions in which the Company acts as principal in the secondary market
trading of the securities, increased 6 percent ($5.7 million). Despite interest
rate increases during the Company's third and fourth quarter and resulting
modest losses on fixed income inventory positions, fixed income trading revenues
grew 10 percent ($4.3 million) in fiscal 1994. Investment banking revenue
declined in fiscal 1994 by 46 percent ($51.7 million) due to the absence of
closed-end bond fund underwritings, which were a significant source of revenues
in prior years, and a slowdown in municipal underwritings.
Interest income increased 30 percent ($5.7 million), consistent with both the
growth in customer margin loans receivable and an increase in interest rates
during the year. Asset management fees grew 27 percent ($11.1 million) in fiscal
1994, reflecting the continuing strong growth of the Company's investment
management and trust businesses. Finally, other income declined 20 percent ($2.6
million) due principally to the start-up losses recognized on the Company's
joint venture in Hercules International Management LLC. The Company was
responsible for one-half of the joint venture's expense.
The Company's expenses grew 4 percent ($15.0 million) during the year, with a
slight decrease in compensation being offset by increases in all other expenses.
Compensation declined 3 percent ($8.6 million) due to decreases in revenue-based
broker compensation and profit-based incentive compensation. Floor brokerage and
clearance expenses grew 13 percent ($0.9 million), in line with the growth in
commission revenues on which they are generally based. Interest expense
increased 52 percent ($2.5 million) in fiscal 1994 as bank borrowings grew to
finance greater margin loans to customers and interest rates increased.
Reflecting a continuing upgrade and modest growth in the Company's branch
offices and depreciation on significant technology expenditures, occupancy and
equipment expense increased 10 percent ($2.5 million) in fiscal 1994.
Communication expense also grew, up 28 percent ($3.1 million), largely the
result of increased market data services and related terminals.
Travel and promotional expenses were up 17 percent ($2.3 million) due to larger
and more frequent investor conferences and additional image advertising.
Finally, other operating expenses grew 46 percent ($12.4 million) in fiscal 1994
because of a $5 million cash infusion into the American Adjustable Term Trust -
1995, a closed-end mutual fund managed by Piper Capital. Other expenses also
increased as a result of additions to estimated accruals for various exposures
arising from uncollectible customer receivables, trading errors and litigation,
which are ongoing factors in the securities industry. In addition other expenses
contain higher professional fees, including litigation expenses.
Liquidity and Capital Resources
The Company has a liquid balance sheet. Most of the Company's assets consist of
cash and assets readily convertible into cash. Securities inventories are stated
at market value and are generally readily marketable. Customers' margin loans
are collateralized by securities and have floating interest rates. Other
receivables and payables with customers and other brokers and dealers usually
settle within a few days. The Company's assets are financed by its equity
capital, bank lines of credit and proceeds from securities lending, in addition
to non-interest bearing liabilities such as checks and drafts payable, payables
to customers and employee compensation payable. The fluctuations in cash flows
from financing activities are directly related to operating activities due to
the liquid nature of the Company's balance sheet.
The Company's securities broker/dealer, Piper Jaffray, is required by Securities
and Exchange Commission regulations to meet certain liquidity and capital
standards. At Sept. 30, 1995, Piper Jaffray had net capital, as defined in the
regulations, of $87.3 million, which exceeded the minimum net capital
requirements by $79.3 million. Piper Jaffray's regulatory capital consists
entirely of shareholder's equity.
The Company's margin loans to customers were essentially flat in fiscal 1995,
following a 19 percent increase in fiscal 1994. The Company regularly reviews
the credit quality of these margin loans.
The Company's securities inventories consist principally of corporate equity and
debt securities and municipal debt obligations. Inventories are maintained
generally to provide product and liquidity for the Company's customers rather
than for firm investment or market speculation purposes and are kept at
relatively low levels with relatively high turnover. At Sept. 30, 1995,
approximately $2.9 million of such inventories were aged over 30 days. The
Company's trading inventories do not contain a significant amount of securities
which derive their value from other investment products (derivatives). The
Company's investment management subsidiary, Piper Capital, manages mutual funds
and other investment portfolios which do contain such derivatives.
In the ordinary course of business, the Company may hold high-yield debt
obligations which are either unrated or rated below investment grade. At Sept.
30, 1995, Piper Jaffray held approximately $1.2 million of such securities in
inventory. Consistent with Piper Jaffray's inventory pricing policy, these
securities are recorded on a market value basis with unrealized gains and losses
being recognized currently in earnings.
The Company's growth during recent years has been financed principally by the
earnings and borrowings of Piper Jaffray. The ability of Piper Jaffray to fund
the activities of its parent or affiliates is subject to restrictions under
applicable net capital rules as previously mentioned.
During fiscal 1995, Piper Jaffray entered into operating lease commitments of
approximately $8 million for personal computer hardware and software relating to
a new workstation system for investment executives. Piper Jaffray expects to
commit an additional $3 million in operating leases for software in fiscal 1996.
There were no other material commitments for capital expenditures or lease
commitments as of Sept. 30, 1995.
At Sept. 30, 1995, Piper Jaffray had $185 million in committed credit agreements
collateralized by customers' margin securities. The committed facility included
up to $45 million in uncommitted lines collateralized by securities inventories.
Subsequent to Sept. 30, 1995, the uncommitted lines were increased to $95
million. Piper Jaffray has additional credit facilities which provide $45
million in uncommitted credit lines collateralized by customers' margin
securities and $75 million in uncommitted credit lines collateralized by
government securities inventories. All credit arrangements bear interest at
rates based on the federal funds rate. Management believes that existing
capital, funds from operations, current credit lines, and other available
resources will be sufficient to finance the Company's business.
During fiscal 1995, as part of the PJIGX settlement, the Company deposited $20
million cash into an escrow fund to be distributed to fund shareholders in early
1996. The balance of the settlement, approximately $50 million, is payable over
a three-year period with interest at 8 percent. This amount is expected to be
financed by tax refunds arising from the net operating loss, cash from
operations, and available credit facilities.
The Company is currently a defendant in other lawsuits and arbitrations and is
subject to regulatory inquiries related to various funds or assets managed by
Piper Capital. In addition, management is aware of unasserted claims which may
contain similar allegations. The Company is also a defendant in two cases
involving an underwriting by Piper Jaffray. The Company intends to defend or, in
some cases, negotiate to settle these actions. It is impossible to predict the
outcome of these actions, and, at the present time, the effect of these actions
on the consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
The Company is involved in various other lawsuits or arbitrations or threatened
lawsuits or arbitrations incidental to its securities business. Management of
the Company, after consultation with counsel, believes the resolution of these
various lawsuits, arbitrations and claims will have no material adverse effect
on the consolidated financial statements.
Inflation
The Company's net assets are primarily monetary, consisting of cash, securities
inventories and receivables less monetary liabilities. These monetary net assets
are generally liquid in nature and turn over rapidly and thus are not
significantly affected by inflation. However, to the extent that inflation
affects the Company's costs, such costs may not be readily recoverable in the
price of its services.
Concern over inflation is one of the factors influencing the Federal Reserve's
interest rate increases. Actions by the Federal Reserve could cause rates to go
higher, which would generally have an unfavorable impact on the Company's
financial results.
Effects of Recent Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, which
requires adoption of the disclosure provisions no later than fiscal years
beginning after Dec. 15, 1995. The accounting requirements of the new method are
effective for all employee awards granted after the beginning of the fiscal year
of adoption. The Company has not yet determined if it will elect to change to
the fair value method, nor has it determined the effect the new standard will
have on net income and earnings per share should it elect to make such a change.
Adoption of the new standard will have no effect on the Company's cash flows.
<PAGE>
Consolidated Statements of Operations
Year Year Year
Ended Ended Ended
Sept. 30 Sept. 30 Sept. 30
(In thousands, except per 1995 1994 1993
share amounts)
Revenue
Commissions ............................... $ 145,492 $ 147,539 $ 128,940
Profits on principal
transactions ............................ 124,910 101,381 95,656
Investment banking ........................ 64,138 61,146 112,829
Interest .................................. 33,765 24,792 19,110
Asset management fees ..................... 43,913 51,917 40,811
Other income .............................. 19,489 10,736 13,379
---------- ---------- ----------
Total revenue .......................... 431,707 397,511 410,725
---------- ---------- ----------
Expenses
Employee compensation ..................... 262,110 245,567 254,198
Floor brokerage and
clearance ............................... 8,137 7,433 6,564
Interest .................................. 11,741 7,242 4,774
Occupancy and
equipment ............................... 30,571 27,845 25,382
Communications ............................ 16,028 14,468 11,334
Travel and
promotional ............................. 15,550 15,425 13,161
Charge for PJIGX
settlement, net ......................... 56,090 -- --
Other operating
expenses ................................ 54,133 39,401 27,000
---------- ---------- ----------
Total expenses ......................... 454,360 357,381 342,413
---------- ---------- ----------
Income (loss) before
income taxes ............................ (22,653) 40,130 68,312
Income taxes .............................. (8,535) 14,848 27,325
---------- ---------- ----------
Net income (loss) ......................... $ (14,118) $ 25,282 $ 40,987
========== ========== ==========
Net income (loss) per common and
common equivalent share (primary
and fully diluted) ...................... $ (.82) $ 1.41 $ 2.28
Weighted average number of
common and common
equivalent shares
outstanding ............................ 17,300 17,945 17,947
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
<CAPTION>
Total
Common Stock Additional Share-
------------------ Paid-In Retained Treasury holders'
(In thousands, except Shares Amount Capital Earnings Stock Equity
share and per share
amounts)
<S> <C> <C> <C> <C> <C> <C>
Balances at
Sept. 25, 1992 ....... 17,088,842 $ 17,284 $ 4,167 $ 100,860 $(1,864) $ 120,447
Net income ........ 40,987 40,987
Net stock issued:
Book value stock
purchase plan . 361,830 199 2,493 1,567 4,259
Executive
incentive stock
option plan ... 80,200 48 169 (160) 297 354
Cash dividends-$.50
per share ....... (8,662) (8,662)
Tax benefit of cash
dividend to ESOP 527 527
---------- --------- --------- ---------- -------- ----------
Balances at
Sept. 30, 1993 ....... 17,530,872 17,531 6,829 133,552 -- 157,912
Net income ........ 25,282 25,282
Net stock issued
(redeemed):
Book value stock
purchase plan . (116,839) (159) 19 708 568
Executive
incentive stock
option plan ... 89,520 90 315 405
Stock investment
plan .......... 62,708 685 685
Cash dividends-$.70
per share ....... (12,233) (12,233)
Treasury stock
acquired ........ (378,100) (4,816) (4,816)
---------- --------- --------- ---------- -------- ----------
Balances at
Sept. 30, 1994 ....... 17,188,161 17,462 7,163 146,601 (3,423) 167,803
Net loss .......... (14,118) (14,118)
Net stock issued
(redeemed):
Book value stock
purchase plan . (558,991) (559) (2,292) (2,851)
Executive
incentive stock
option plan ... 12,000 12 39 51
Shares issued to
directors ..... 5,082 5 49 54
Stock investment
plan .......... 244,115 2,734 2,734
ESOP contribution 645,787 646 6,942 7,588
Cash dividends-$.30
per share ....... (5,177) (5,177)
Treasury stock
acquired ........ (35,900) (360) (360)
---------- --------- --------- ---------- -------- ----------
Balances at
Sept. 30, 1995 ....... 17,500,254 $ 17,566 $ 11,901 $ 127,306 $(1,049) $ 155,724
========== ========= ========= ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Financial Condition
<CAPTION>
Sept. 30 Sept. 30
1995 1994
(In thousands, except share amounts)
<S> <C> <C>
Assets
Cash (including $2,401 and $448,
respectively, which was required
to be segregated under federal
and other regulations) .................................. $ 17,345 $ 12,070
Receivable from other
brokers and dealers ..................................... 55,708 52,821
Receivable from customers ................................. 371,667 371,163
Trading securities owned,
at market ............................................... 58,651 49,132
Investments pursuant to
mortgage-backed bonds ................................... 52,949 1,605
Office equipment and leasehold improvements, at cost
(less accumulated depreciation of
$44,838 and 44,033, respectively) ....................... 25,764 25,979
Deferred income tax asset ................................. 40,093 4,190
Other assets .............................................. 57,586 67,487
---------- ----------
$ 679,763 $ 584,447
========== ==========
Liabilities and Shareholders' Equity
Short-term borrowings ..................................... 63,781 108,132
Checks and drafts payable ................................. 44,201 43,935
Payable to other brokers
and dealers ............................................. 84,447 76,976
Payable to customers ...................................... 78,874 72,478
Trading securities sold but not
yet purchased, at market ................................ 21,491 14,689
Mortgage-backed bonds payable ............................. 54,077 1,602
Employee compensation ..................................... 63,678 59,087
Federal and state income taxes ............................ 19,136 1,281
Other accounts payable and
accrued expenses ........................................ 94,354 38,464
---------- ----------
524,039 416,644
---------- ----------
Shareholders' equity:
Preferred stock, $1 par
value; authorized,
300,000 shares; none issued
and outstanding ...................................... -- --
Common stock, $1 par
value; authorized,
40,000,000 shares;
17,565,399 and
17,461,521 shares
issued, respectively ................................. 17,566 17,462
Additional paid-in
capital .............................................. 11,901 7,163
Retained earnings ...................................... 127,306 146,601
Treasury stock, at cost; 65,145 and
273,360 shares, respectively ......................... (1,049) (3,423)
---------- ----------
155,724 167,803
---------- ----------
$ 679,763 $ 584,447
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Consolidated Statements of Cash Flows
Year Year Year
Ended Ended Ended
Sept. 30 Sept. 30 Sept. 30
(In thousands) 1995 1994 1993
Operating Activities
Net income (loss) .................... $ (14,118) $ 25,282 $ 40,987
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization .. 7,478 7,246 6,622
Loss on disposal of
fixed assets ................. 604 -- --
Deferred income taxes .......... (35,903) (5,101) (604)
Accrual for PJIGX settlement,
net of escrow deposit ........ 51,500 -- --
Decrease (increase) in:
Net receivable
from customers ............ 5,892 (36,455) (38,110)
Net trading securities ...... (2,717) 25,136 40,013
Other ....................... 15,868 (6,913) (1,980)
Increase (decrease)
in:
Checks and drafts payable ... 266 5,252 902
Net payable to other
brokers and dealers ....... 4,584 (34,813) (20,110)
Employee compensation ....... 4,591 (15,769) 4,075
Federal and state
income taxes payable ...... 17,855 (2,181) 363
--------- --------- ---------
Net cash provided by (used
in) operating activities .. 55,900 (38,316) 32,158
--------- --------- ---------
Financing Activities
Net change in:
Short-term borrowings ............. (44,351) 62,578 (11,777)
Mortgage-backed bonds
payable ......................... 52,475 (1,533) (9,330)
Investments and funds pursuant
to mortgage-backed bonds ........ (51,344) 1,514 8,965
Payments made on capitalized
lease obligations .................. (1,577) (1,349) (1,127)
Acquisition of treasury
stock .............................. (360) (4,816) --
Net common stock issued .............. 7,576 1,658 4,613
Dividends paid ....................... (5,177) (12,233) (8,662)
--------- --------- ---------
Net cash (used in) provided
by financing activities ... (42,758) 45,819 (17,318)
--------- --------- ---------
Net cash used for purchases of
office equipment and
leasehold improvements ............. (7,867) (15,317) (8,973)
--------- --------- ---------
Increase (decrease) in cash .......... 5,275 (7,814) 5,867
Cash at beginning of year ............ 12,070 19,884 14,017
--------- --------- ---------
Cash at end of year .................. $ 17,345 $ 12,070 $ 19,884
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest .......................... $ 11,011 $ 6,883 $ 4,735
Income taxes ...................... $ 9,513 $ 22,130 $ 27,038
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Piper Jaffray Companies Inc. is the parent company of Piper Jaffray Inc. (Piper
Jaffray), a securities broker/dealer and investment banking firm; Piper Capital
Management Incorporated (Piper Capital), an asset management firm; Piper Trust
Company, which provides trust services to individuals and institutions; Premier
Acceptance Corporation (Premier), an issuer of mortgage-backed bonds; and other
immaterial subsidiaries. All operate within or are related to the securities
industry. The consolidated financial statements include the accounts of Piper
Jaffray Companies Inc. and its subsidiaries (the Company), all of which are
wholly owned. All material intercompany accounts and transactions have been
eliminated. The Company also had a 50 percent ownership in Hercules
International Management LLC, an international investment management joint
venture which was dissolved during fiscal 1995. See Note 7 to the consolidated
financial statements.
Customer securities transactions are recorded on a settlement date basis with
the related commission revenue and expenses recorded on a trade date basis.
Principal securities transactions are also recorded on trade date. Prior to
fiscal 1994, securities transactions were recorded on a settlement date basis.
Prior year amounts were not restated as the impact on trading securities and
income, net of related expenses, was not materially different than if
transactions had been recorded on a trade date basis.
Substantially all of the Company's assets and liabilities consist of cash and
assets readily convertible to cash and liabilities which by their short-term
nature approximate current fair value. Trading securities owned and sold but not
yet purchased are stated at market value and are generally readily marketable.
Market value is determined by using published market quotes or last-traded
prices for most securities. In the event a market price is not available for a
security, other valuation methods are used depending on the type of security and
related market.
Depreciation of office equipment is provided using straight-line and accelerated
methods over estimated useful lives of three to seven years. Leasehold
improvements are amortized over the life of the lease.
Net income (loss) per common and common equivalent share is calculated by
dividing net income (loss) by the weighted average number of common shares and
common share equivalents outstanding, which includes the dilutive effect of all
outstanding stock options. Stock options were antidilutive in 1995.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, effective Oct. 1, 1993. Prior years'
financial statements have not been restated to apply the provisions of
SFAS No. 109. See Note 12 to the consolidated financial statements.
The Company adopted SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions, effective Oct. 1, 1993. The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 112, Employers'
Accounting for Postemployment Benefits, effective Oct. 1, 1994. Adoption
of these statements did not have a material impact on the consolidated
financial statements of the Company. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, which requires adoption of the
disclosure provisions no later than fiscal years beginning after Dec. 15,
1995. The Company has not yet determined if it will elect to change to the
fair value method, nor has it determined the effect the new standard will
have on net income and earnings per share should it elect to make such a
change. Adoption of the new standard will have no effect on the Company's
cash flows.
2. Receivable From and Payable to Customers
(In thousands)
Amounts receivable from customers include cash accounts totaling $37,122 and
$31,720 and margin accounts totaling $334,545 and $339,443 at Sept. 30, 1995 and
1994, respectively. Substantially all receivables from customers are
collateralized by customers' marketable securities. Amounts payable to customers
include free credit balances of $55,782 and $53,111 at Sept. 30, 1995 and 1994,
respectively.
<PAGE>
3. Trading Securities
(In thousands)
Trading securities are as follows (at market value):
Sept. 30, Sept. 30,
1995 1994
Owned:
Corporate securities
Equity ............................... $17,236 $ 9,504
Fixed income ......................... 7,097 8,407
Government
securities ............................ 1,729 4,132
Municipal securities .................... 32,589 27,089
------- -------
$58,651 $49,132
======= =======
Sold but not yet
purchased:
Corporate securities
Equity ............................... $19,631 $ 9,909
Fixed income ......................... 1,410 1,467
Government
securities ............................ 405 3,166
Municipal securities .................... 45 147
------- -------
$21,491 $14,689
======= =======
4. Short-Term Borrowings
Piper Jaffray borrows from banks under various committed and uncommitted secured
lines of credit principally to finance customers' purchases on margin and dealer
trading securities. These borrowings are primarily collateralized by securities
held in customer margin accounts and trading securities owned and bear interest
at rates based on the federal funds rate. At Sept. 30, 1995, the market value of
customer securities pledged as collateral against outstanding borrowings was
approximately $200 million and approximately $166 million of additional credit
was available under committed and uncommitted lines of credit. As of Sept. 30,
1995, no formal compensating balance agreements existed and Piper Jaffray was in
compliance with all debt covenants related to these committed facilities.
At Sept. 30, 1995, the Company had $11 million in letters of credit
outstanding, primarily representing margin deposits on various securities
exchanges. The market value of trading securities pledged as collateral
for the letters of credit at Sept. 30, 1994, was $13.5 million.
5. Mortgage-Backed Bonds
(In thousands)
Premier periodically issues bonds which are collateralized by GNMA and FNMA
certificates. The bonds are obligations solely of Premier and bondholders' only
recourse is to the underlying series' collateral. The collateral, which was
purchased with the issuance proceeds, is held by a trustee and is classified as
available for sale under SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The collateral is carried at market value, which
approximates amortized cost and is based on quoted market prices. Principal and
interest payments on the collateral are used to meet the debt service of the
mortgage-backed bonds.
During the fiscal year, Premier issued three series of mortgage-backed bonds
with an aggregate principal amount of $54,400. Prior to fiscal 1995, Premier
issued six series of mortgage-backed bonds with a remaining aggregate principal
amount of $29,574 and purchased related collateral which has been accounted for
financial reporting purposes as a sale. Accordingly, the assets, liabilities,
interest income and interest expense relating to these series do not appear on
the consolidated financial statements of the Company.
Interest revenue and expense related to mortgage-backed bonds have been recorded
net in the consolidated statements of income. Gross interest revenue was $3,412,
$230 and $497, and interest expense was $3,512, $205 and $448 for fiscal years
1995, 1994 and 1993, respectively.
<PAGE>
6. Shareholders' Equity
In 1994, the Company authorized the repurchase of 500,000 shares of its common
stock to satisfy employee benefit plan obligations, of which 35,900 and 378,100
shares were repurchased during fiscal 1995 and 1994, respectively.
On Nov. 8, 1995, the Board of Directors declared a quarterly dividend of
7.5 cents per share, payable on Dec. 12, 1995, to shareholders of record
on Nov. 28, 1995.
Effective July 1, 1994, the Company offered the Piper Jaffray Companies Stock
Investment Plan, which allows eligible employees the opportunity to purchase the
Company's common stock at a discount through after-tax payroll deductions. Each
month the payroll deductions are used to purchase the Company's common stock at
85 percent of the closing market price on the last day of the month. The plan
provides for no more than 1,000,000 shares of common stock to be purchased by
employees under the plan. The Company satisfies the share obligations by
reissuing treasury shares. At Sept. 30, 1995, a total of 306,823 common shares
had been issued. Compensation expense charged to operations as a result of the
plan was $117,000 and $102,000 for fiscal year 1995 and 1994, respectively.
The Company's book value stock purchase plan provided for up to 3.2 million
shares to be sold to certain key employees. Effective Nov. 9, 1993, the Board
suspended offerings under this plan and no additional shares are expected to be
issued, but the status of the outstanding shares and options under the plan is
unchanged. The plan allowed certain employees the right to purchase the
Company's common stock at a price equal to the book value per share at the time
of sale. These shares are entitled to full dividend and voting rights. Within
seven years from date of issuance, the shares must have been sold back to the
Company at the current book value per share or exchanged for a specific number
of freely transferable shares based on the relative market and book values at
the date of purchase. Any shares repurchased or exchanged by the Company may be
reissued under the plan. Stock options also have been granted under the plan for
additional book value shares. Shares acquired by an employee upon the exercise
of an option would generally be subject to the same rights and restrictions
described above. Compensation expense charged to operations as a result of the
increase in book value of shares issued under the plan was $1.2 million, $2.4
million and $1.6 million for fiscal years 1995, 1994 and 1993, respectively.
The Company issues executive incentive stock options to certain employees to
purchase shares of the Company's common stock under the 1993 Piper Jaffray
Companies Inc. Omnibus Stock Plan. The number of shares available for
distribution under the plan shall not exceed 2 million and 343,000 shares
remained available as of Sept. 30, 1995. During fiscal 1995 executive incentive
stock options totalling 405,250 were canceled to provide approximately 600,000
special option grants to certain key employees. The purchase price of each share
subject to an option is fixed, but is not less than 100 percent of the fair
market value at the time the option is granted. Options expire 10 years from the
date of grant or earlier as determined by the Company. No charges have been made
to operations under this plan.
<PAGE>
The following table summarizes activity for the book value shares and options
and the executive incentive stock option plan for the three years ended Sept.
30, 1995:
Fiscal Years Ending September ... 1995 1994 1993
Book value plan shares outstanding:
Beginning of year ............... 1,719,800 2,255,850 2,199,250
Sold to participants ............ -- -- 433,000
Options exercised ............... 64,650 94,600 71,300
Converted to market
shares .......................... (254,000) (523,975) (408,650)
Repurchased ..................... (606,950) (106,675) (39,050)
----------- ----------- -----------
End of year ..................... 923,500 1,719,800 2,255,850
=========== =========== ===========
Participants' cost
per share $ 3.85 $ 3.80 $ 3.67
outstanding at to to to
end of year ................... $ 7.45 $ 7.45 $ 7.45
Book value plan shares available under options:
Beginning of year ............... 427,000 529,850 505,850
Granted ......................... -- -- 108,250
Exercised ....................... (64,650) (94,600) (71,300)
Cancelled ....................... (22,600) (8,250) (12,950)
----------- ----------- -----------
End of year ..................... 339,750 427,000 529,850
=========== =========== ===========
$ 2.85 $ 2.85 $ 2.67
Exercise price to to to
per share ....................... $ 7.45 $ 7.45 $ 7.45
Executive incentive stock options outstanding and exercisable:
Beginning of year ............... 1,020,220 945,740 431,940
Granted ......................... 769,850 164,000 594,000
Exercised ....................... (12,000) (89,520) (80,200)
Cancelled ....................... (405,250) -- --
----------- ----------- -----------
End of year ..................... 1,372,820 1,020,220 945,740
=========== =========== ===========
$ 4.25 $ 4.25 $ 4.25
Exercise price to to to
per share ....................... $ 16.50 $ 16.50 $ 15.25
<PAGE>
7. Commitments and Contingent Liabilities
(In thousands)
The Company and its subsidiaries lease office space and equipment under various
noncancelable leases. Certain leases have renewal options and clauses for
escalation and operating cost adjustments.
Aggregate minimum lease commitments as of Sept. 30, 1995, under operating leases
are as follows for the fiscal years ending in September:
1996 $ 20,961
1997 20,279
1998 19,398
1999 17,944
2000 14,530
Thereafter 18,490
--------
$111,602
========
Rental expense, including operating costs and real estate taxes, charged to
operations was $27,779, $25,010 and $22,893 in fiscal years 1995, 1994 and 1993,
respectively.
In the normal course of business, Piper Jaffray enters into underwriting and
other commitments. The ultimate settlement of such transactions open at year-end
is not expected to have a material effect on the consolidated financial
statements.
During fiscal 1993, the Company entered into a 50/50 joint venture in Hercules
International Management LLC with Midland Walwyn of Canada to develop and market
an international group of mutual funds. For fiscal years 1995 and 1994, the
Company contributed capital of $800 and $3,025 and recorded a loss on investment
of $828 and $2,750, respectively. During fiscal 1995, the Company and Midland
Walwyn mutually agreed to dissolve the joint venture. On Nov. 16, 1995, Hercules
International Management LLC was liquidated.
8. Litigation
The Company has entered into a settlement agreement for litigation relating to
the Institutional Government Income Portfolio (PJIGX) mutual fund, an open-end
fund managed by Piper Capital. The Company recorded a pretax charge of $70
million to accrue for the settlement in the second quarter of fiscal 1995. The
$70 million charge was offset in the third quarter by $13.9 million, which
represents insurance proceeds, net of related expenses. As part of the
settlement, the Company deposited $20 million cash into an escrow fund to be
distributed to shareholders in early 1996. The balance of the settlement is
payable over a three-year period with interest at 8 percent.
The Company is currently a defendant in other lawsuits and arbitrations and is
subject to regulatory inquiries related to various funds or assets managed by
Piper Capital. In addition, management is aware of unasserted claims which may
contain similar allegations. The Company is also a defendant in two cases
involving an underwriting by Piper Jaffray. The Company intends to defend or, in
some cases, negotiate to settle these actions. It is impossible to predict the
outcome of these actions, and, at the present time, the effect of these actions
on the consolidated financial statements cannot be determined. Accordingly, no
provision for losses that may result has been recorded in the consolidated
financial statements. However, the aggregate cost of litigation and any
judgments, settlements or regulatory action relating to these cases could have a
material adverse effect on the consolidated financial statements.
The Company is involved in various other lawsuits or arbitrations or threatened
lawsuits or arbitrations incidental to its securities business. Management of
the Company, after consultation with counsel, believes the resolution of these
various lawsuits, arbitrations and claims will have no material adverse effect
on the consolidated financial statements.
<PAGE>
9. Financial Instruments With Off-Balance-Sheet Risk
In the normal course of business, the Company's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities transactions. These activities may expose the
Company to off-balance-sheet risk in the event the other party to the
transaction is unable to fulfill its contractual obligations.
The Company utilizes financial futures contracts to a limited extent to hedge
fixed income inventories against market interest rate fluctuations. Such
transactions are subject to the same controls as all trading for the Company's
own account. The Company also enters into government reverse repurchase
agreements to facilitate hedging. The Company does not, and has no plans to,
enter into for either hedging or speculative purposes the following types of
transactions: interest rate swaps, foreign currency contracts or significant
amounts of futures, options, forwards, mortgage-backed derivatives, or other
securities whose value is derived from other investment products (derivatives).
The Company's financing and customer securities activities involve the Company
using securities as collateral. In the event the counterparty does not meet its
contractual obligation to return securities used as collateral or customers do
not deposit additional securities or cash for margin when required, the Company
may be exposed to the risk of reacquiring the securities or selling the
securities at unfavorable market prices in order to satisfy its obligations to
its customers or counterparties. The Company controls this risk, as does the
securities industry, by monitoring the market value of securities pledged or
used as collateral on a daily basis and requiring adjustments in the event of
excess market exposure.
The Company sells securities not yet purchased (short sales) for its own
account. The establishment of short positions exposes the Company to
off-balance-sheet risk in the event prices increase, as the Company may be
obligated to acquire the securities at unfavorable market prices.
Concentrations of Credit Risk:
The Company provides investment, financing and related services to a diverse
group of domestic and foreign customers including governments, corporations, and
institutional and individual investors. The Company's exposure to credit risk
associated with the nonperformance of customers in fulfilling their contractual
obligations pursuant to securities transactions can be directly impacted by
volatile securities markets, credit markets and regulatory changes. This
exposure is measured on an individual customer basis, as well as for groups of
customers that share similar attributes. To alleviate the potential for risk
concentrations, credit limits are established and continually monitored in light
of changing customer and market conditions.
As of Sept. 30, 1995, the Company did not have significant concentrations
of credit risk with any one single or group of customers or counterparties.
10. Net Capital Requirements
(In thousands)
Piper Jaffray is subject to the Uniform Net Capital Rule (the Rule) of the
Securities and Exchange Commission (SEC) and the net capital rule of the New
York Stock Exchange (the Exchange). Piper Jaffray has elected to use the
alternative method permitted by the Rule, which requires that it maintain
minimum net capital of 2 percent of aggregate debit balances arising from
customer transactions. The Exchange may prohibit a member firm from expanding
its business or paying cash dividends if resulting net capital would be less
than 5 percent of aggregate debit balances. In addition, Piper Jaffray is
subject to certain notification requirements related to withdrawals of excess
net capital.
At Sept. 30, 1995, net capital under the Rule was $87,302 or 22 percent of
aggregate debit balances and $79,326 in excess of the minimum required net
capital.
<PAGE>
11. Employee Benefit Plans
(In thousands)
The Company has a qualified employee stock ownership plan (ESOP) and 401(k)
plans which cover substantially all employees. The plans are self-administered
and may be altered or terminated at any time by the Company. The Company's
contributions to the plans are determined by the Board of Directors within
limits to qualify as deductions for income tax purposes. Charges to operations
for contributions to the ESOP were $17,971, $16,735 and $27,399 in fiscal years
1995, 1994 and 1993, respectively. Contribution expense for the 401(k) plan was
$1,693, $1,599 and $1,293 in fiscal years 1995, 1994 and 1993, respectively.
12. Income Taxes
(In thousands)
The Company adopted SFAS No. 109, Accounting for Income Taxes, effective
Oct. 1, 1993. Implementation resulted in no material effect on
shareholders' equity. Prior years' financial statements have not been
restated to apply the provisions of SFAS 109.
Year Year Year
Ended Ended Ended
Sept. 30 Sept.30 Sept. 30
1995 1994 1993
The provision (benefit) for income
taxes consists of:
Current:
Federal ....................... $ 22,188 $ 16,240 $ 23,042
State ......................... 5,180 3,709 4,887
-------- -------- --------
27,368 19,949 27,929
-------- -------- --------
Changes in deferred taxes:
Federal ....................... (31,290) (4,463) (522)
State ......................... (4,613) (638) (82)
-------- -------- --------
$ (8,535) $ 14,848 $ 27,325
======== ======== ========
The sources of the changes in
deferred taxes are:
Deferred employee compensation ... (5,870) (1,086) (1,078)
Partnership
investment losses .............. 252 320 506
Capital infusion for
proprietary fund ............... 2,000 (2,000) --
PJIGX settlement ................. (27,000) -- --
Other, principally accruals or
their reversal, not currently
deductible for tax purposes .... (5,285) (2,335) (32)
--------- --------- ---------
$(35,903) $ (5,101) $ (604)
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes using enacted tax rates in
effect in the years in which the differences are expected to reverse. The tax
effects of significant items comprising the Company's net deferred tax assets
are as follows:
Sept. 30 Sept. 30
1995 1994
Deferred tax assets:
Accruals not currently deductible $22,531 $10,606
PJIGX settlement ................ 27,000 --
Other, including
mark-to-market accounting
and depreciation .............. 841 3,449
------- -------
50,372 14,055
------- -------
Deferred tax liabilities:
Partnership investments ......... 7,828 7,588
Other, including
mark-to-market accounting
and prepaid expenses .......... 2,451 2,277
------- -------
10,279 9,865
------- -------
Net deferred tax asset ............. $40,093 $ 4,190
======= =======
<PAGE>
Reconciliations of the expected federal income tax provision (benefit) and the
actual income taxes provided are as follows:
Year Year Year
Ended Ended Ended
Sept. Sept. Sept.
1995 1994 1993
Computed federal income tax at the
weighted statutory rate of
35%, 35% and 34.75% for 1995,
1994 and 1993, respectively ... $ (7,929) $ 14,046 $ 23,738
Increase (reduction) in
taxes resulting from:
State income taxes net
of federal tax benefit ........ (394) 1,879 3,267
Net tax-exempt municipal
bond interest ................. (872) (654) (485)
Other ......................... 660 (423) 805
--------- --------- ---------
Income taxes provided ............ $ (8,535) $ 14,848 $ 27,325
========= ========= =========
Effective tax rate ............... 37.7% 37.0% 40.0%
<PAGE>
Report of Management
Financial Reporting Responsibility
Management is responsible for the content of the consolidated financial
statements of Piper Jaffray Companies Inc. The statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgments. The financial information
throughout the Annual Report is consistent with that in the financial
statements.
To meet its responsibility for the integrity of the financial statements,
management relies on an internal control structure that recognizes that there
are inherent limitations in all internal control structures, and that the cost
of such a structure should never exceed the benefits to be derived. Management
believes its internal control structure provides reasonable assurance that the
consolidated financial statements are free of material misstatement.
The internal control structure is reviewed by the internal audit staff and the
independent auditors, Deloitte & Touche LLP. The Audit Committee of the Board of
Directors, comprising outside directors, also provides an oversight review of
the internal control structure. The Audit Committee meets periodically with the
director of internal audit and with Deloitte & Touche LLP to review matters
related to the internal control structure, and to discuss the nature, extent and
results of audit efforts. Such meetings are held with and without management
present.
The consolidated financial statements have been audited by Deloitte & Touche
LLP. Their report expresses their independent professional opinion as to the
fairness of the financial statements and is based upon audits made in accordance
with generally accepted auditing standards.
/s/ Addison L. Piper
Addison L. Piper
Chairman of the Board and Chief Executive Officer
/s/ William H. Ellis
William H. Ellis
President
/s/ Deborah K. Roesler
Deborah K. Roesler
Managing Director and Chief Financial Officer
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Piper Jaffray Companies Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated statements of financial condition
of Piper Jaffray Companies Inc. and subsidiaries as of Sept. 30, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended Sept. 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Piper Jaffray Companies Inc. and
subsidiaries as of Sept. 30, 1995 and 1994, and the results of their operations
and cash flows for each of the three years in the period ended Sept. 30, 1995,
in conformity with generally accepted accounting principles.
As discussed in paragraph 2 of Note 8 to the consolidated financial statements,
the Company and/or its subsidiaries are defendants in lawsuits, the ultimate
outcome of which cannot presently be determined. Accordingly, no provision for
any loss that may result upon resolution of these matters has been recorded in
the accompanying consolidated financial statements.
/s/ Deloitte and Touche LLP
Minneapolis, Minnesota
Nov. 8, 1995
<PAGE>
<TABLE>
Summary of Quarterly Results (Unaudited)
<CAPTION>
(In thousands, except
per share amounts) .................. First Second Third Fourth
<S> <C> <C> <C> <C>
Fiscal 1995
Revenue .......................... $ 92,499 $ 97,857 $ 109,156 $ 132,195
Income before income taxes ....... 7,622 (60,613) 21,468 8,870
Net income ....................... 4,650 (37,274) 13,095 5,411
Net income per share ............. .27 (2.17) .73 .30
Fiscal 1994
Revenue .......................... 106,188 102,833 91,830 96,660
Income before income taxes ....... 16,627 11,032 7,938 4,533
Net income ....................... 9,976 6,896 4,842 3,568
Net income per share ............. .55 .38 .27 .20
Market Prices and Dividends Per Share
Fiscal 1995
Market Price Range
High .......................... 11.63 12.75 15.50 17.00
Low ........................... 9.50 9.75 11.63 14.38
Dividends Paid ................... .075 .075 .075 .075
Fiscal 1994
Market Price Range
High .......................... 18.50 18.25 15.88 14.25
Low ........................... 15.88 14.88 11.88 9.88
Dividends Paid ................... .175 .175 .175 .175
</TABLE>
The common stock of Piper Jaffray Companies Inc. (NYSE:PJC) is listed on
the New York Stock Exchange. At Nov. 27, 1995, there were approximately
756 registered shareholders of the Company's common stock.
Cash dividends have been paid on common shares in each year since 1971. The
Company's policy is to pay regular quarterly dividends on the common stock in
March, June, September and December. On Nov. 8, 1995, the Board of Directors
declared a quarterly dividend of 7.5 cents per share of its common stock.
The second quarter of fiscal 1995 includes a $70 million charge for settlement
of Institutional Government Income Portfolio (PJIGX) mutual fund litigation,
which was partially offset in the third quarter of fiscal 1995 by $13.9 million
of insurance proceeds, net of related expenses.
Exhibit 21
PIPER JAFFRAY COMPANIES INC.
SUBSIDIARIES OF THE REGISTRANT
September 30, 1995
Percentage
of Voting
State of Securities
Subsidiary Name Incorporation Owned
Piper Jaffray Inc. Delaware 100%
Piper Jaffray International Inc. Delaware 100%
(a wholly owned subsidiary of
Piper Jaffray Inc.)
Piper Capital Management Incorporated Delaware 100%
Piper Trust Company Minnesota 100%
Premier Acceptance Corporation Delaware 100%
Piper Realty Management Incorporated Delaware 100%
Piper Mortgage Incorporated Delaware 100%
Piper Jaffray Ventures, Inc. Delaware 100%
Piper Mortgage Acceptance Corporation Delaware 100%
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-88699, No. 33-4542 and No. 33-11657 on Form S-8, of our reports dated November
8, 1995 (which includes an explanatory paragraph regarding an uncertainty
relating to litigation described in Note 8 of the consolidated financial
statements) appearing in and incorporated by reference in the Annual Report on
Form 10-K of Piper Jaffray Companies Inc. for the fiscal year ended September
30, 1995.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
December 26, 1995
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PIPER JAFFRAY COMPANIES INC. AS OF
AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 17,345
<RECEIVABLES> 427,375
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 111,600
<PP&E> 25,764
<TOTAL-ASSETS> 679,763
<SHORT-TERM> 63,781
<PAYABLES> 365,554
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 21,491
<LONG-TERM> 73,213
<COMMON> 17,566
0
0
<OTHER-SE> 138,158
<TOTAL-LIABILITY-AND-EQUITY> 679,763
<TRADING-REVENUE> 124,910
<INTEREST-DIVIDENDS> 33,765
<COMMISSIONS> 145,492
<INVESTMENT-BANKING-REVENUES> 64,138
<FEE-REVENUE> 63,402
<INTEREST-EXPENSE> 11,741
<COMPENSATION> 262,110
<INCOME-PRETAX> (22,653)
<INCOME-PRE-EXTRAORDINARY> (22,653)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,118)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
