UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1995 Commission file number 1-7421
PIPER JAFFRAY COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1233380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Piper Jaffray Tower, 222 South 9th Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 342-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of December 31, 1995, 17,569,201 shares of the Registrant's common stock were
issued and outstanding.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Index of Exhibits 28
Exhibits 29
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
Dec. 31, Sept. 30,
1995 1995
(Unaudited)
ASSETS
Cash (including $2,431 and $2,401, respectively,
required to be segregated under federal and
other regulations) ................................ $ 25,665 $ 17,345
Receivable from other brokers and dealers .......... 112,417 55,708
Receivable from customers .......................... 437,830 371,667
Trading securities owned, at market ................ 75,750 58,651
Investments pursuant to mortgage-backed bonds ...... 51,811 52,949
Office equipment and leasehold improvements,
at cost, less accumulated depreciation of
$49,330 and $47,621, respectively ................. 26,609 25,764
Deferred income tax asset .......................... 31,942 40,093
Other assets ....................................... 61,024 57,586
--------- ---------
$ 823,048 $ 679,763
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings .............................. $ 194,082 $ 63,781
Checks and drafts payable .......................... 62,275 44,201
Payable to other brokers and dealers ............... 67,102 84,447
Payable to customers ............................... 105,583 78,874
Trading securities sold but not yet purchased,
at market ......................................... 14,971 21,491
Mortgage-backed bonds payable ...................... 52,889 54,077
Employee compensation .............................. 62,761 63,678
Federal and state income taxes ..................... -- 19,136
Other liabilities .................................. 101,269 94,354
--------- ---------
660,932 524,039
--------- ---------
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; 17,569,201 and 17,565,399 shares issued,
respectively ..................................... 17,569 17,566
Additional paid-in capital ........................ 11,905 11,901
Retained earnings ................................. 132,644 127,306
Treasury stock, at cost; 133 and
65,145 shares, respectively ...................... (2) (1,049)
--------- ---------
162,116 155,724
--------- ---------
$ 823,048 $ 679,763
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
December 31,
1995 1994
REVENUE
Commissions .......................................... $ 42,646 $ 32,158
Profits on principal transactions .................... 40,915 25,935
Investment banking ................................... 25,023 11,408
Interest ............................................. 9,463 7,936
Asset management fees ................................ 9,574 11,803
Other income ......................................... 4,905 3,259
-------- --------
Total revenue .................................... 132,526 92,499
-------- --------
EXPENSES
Employee compensation ................................ 81,486 55,974
Floor brokerage and clearance ........................ 2,104 1,705
Interest ............................................. 3,043 2,847
Occupancy and equipment .............................. 8,140 6,709
Communications ....................................... 4,798 3,880
Travel and promotional ............................... 3,618 3,752
Other operating expenses ............................. 18,429 10,010
-------- --------
Total expenses ................................... 121,618 84,877
-------- --------
Income before income taxes ........................... 10,908 7,622
Income taxes ......................................... 4,254 2,972
-------- --------
Net income ........................................... $ 6,654 $ 4,650
======== ========
Net income per common and common equivalent
share (primary and fully diluted) ................. $ .37 $ .27
Weighted average number of common and common
equivalent shares outstanding ..................... 18,037 17,400
Dividends per share .................................. $ .075 $ .075
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
December 31,
1995 1994
Operating activities:
Net income ........................................ $ 6,654 $ 4,650
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................. 1,773 1,771
Deferred income taxes .......................... 8,151 2,712
(Increase) decrease in:
Net receivable from customers ................. (39,454) 2,216
Net trading securities ........................ (23,619) (22,534)
Other ......................................... 3,835 (8,861)
Increase (decrease) in:
Net payable to other brokers and dealers ...... (74,054) (11,755)
Checks and drafts payable ..................... 18,074 5,974
Employee compensation ......................... (917) (10,267)
Federal and state income taxes payable ........ (19,136) (773)
--------- ---------
Net cash used in operating activities ........ (118,693) (36,867)
--------- ---------
Financing activities:
Net change in:
Short-term borrowings ............................ 130,301 55,331
Mortgage-backed bonds payable .................... (1,188) 40,297
Investments and funds pursuant to
mortgage-backed bonds ........................... 1,138 (39,410)
Net common stock issued ........................... 1,153 (210)
Payments made on capitalized lease obligations .... (358) (394)
Treasury shares repurchased ....................... (99) (360)
Dividends paid .................................... (1,316) (1,281)
--------- ---------
Net cash provided by financing activities .... 129,631 53,973
--------- ---------
Net cash used for purchase of office
equipment and leasehold improvements ............. (2,618) (1,507)
--------- ---------
Net increase in cash .............................. 8,320 15,599
Cash at beginning of period ....................... 17,345 12,070
--------- ---------
Cash at end of period ............................. $ 25,665 $ 27,669
========= =========
Supplemental disclosure of cash flow information Cash paid during the three
months ended for:
Interest ......................................... $ 2,904 $ 2,542
Income taxes ..................................... $ 18,346 $ 1,034
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of Piper Jaffray Companies
Inc. and its subsidiaries (the "Company") have been prepared in conformity with
generally accepted accounting principles and should be read in conjunction with
the Company's Annual Report for the year ended September 30, 1995. The results
of operations for the three months ended December 31, 1995, are not necessarily
indicative of the results to be expected for the year ending September 30, 1996.
The consolidated statement of financial condition as of December 31, 1995 and
the other consolidated financial information for the periods ended December 31,
1995 and 1994, is unaudited, but management of the Company believes that all
adjustments (consisting of normal recurring accruals) necessary for a fair
statement of the results of operations for the periods have been included.
Net income per common and common equivalent share is calculated by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding, which includes the dilutive effect of all outstanding
stock options.
2. NET CAPITAL REQUIREMENTS
At December 31, 1995, the Company's broker-dealer subsidiary's net capital under
applicable regulations was $101.2 million, or 22.4% of aggregate debit balances
and $92.2 million in excess of the minimum required net capital.
3. LITIGATION AND CONTINGENCIES
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 Inc. (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.
<PAGE>
4. SHAREHOLDERS' EQUITY
During the three months ended December 31, 1995, 7,500 shares of the Company's
common stock were repurchased by the Company pursuant to the Board of Directors'
authorizations to repurchase common stock to satisfy employee benefit plan
obligations.
Common shares authorized for repurchase - fiscal years:
1992 400,000
1994 500,000
-------
900,000
Common shares repurchased - fiscal years
1992 201,000
1993 --
1994 378,100
1995 35,900
1996 7,500
-------
622,500
-------
Common shares available at December 31, 1995 for
repurchase pursuant to authorizations 277,500
=======
Total common shares repurchased 622,500
Treasury shares reissued - fiscal years:
1992 6,262
1993 194,738
1994 104,740
1995 244,115
1996 72,512
-------
622,367
-------
Treasury shares outstanding at December 31, 1995 133
=======
On January 23, 1996, the Board of Directors authorized the contribution of
approximately $14.2 million to the Piper Jaffray Companies ESOP for fiscal year
1995 to be made 50 percent in cash and 50 percent in the Company's newly issued
common stock, thus adding approximately $7.1 million in additional shareholders'
equity during the second quarter of fiscal 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with Management's Financial
Discussion contained in the Company's Annual Report for the year ended September
30, 1995.
OPERATIONS
The Company's revenue for the three months ended December 31, 1995 increased 43%
over the same period of the prior fiscal year to $132.5 million. Net income for
the first quarter was $6.7 million, up 43% from $4.7 million recorded in the
first quarter of fiscal 1995. The Company's net income per share for the first
three months was $ .37, up 37% from $ .27 a year earlier.
Commissions, profits on principal transactions and investment banking revenues
for the quarter ended December 31, 1995 exceeded those of the same period of the
prior fiscal year by 33%, 58%, and 119%, respectively, in line with recent
strength in the securities markets. Asset management revenue decreased 19% for
the quarter ended December 31, 1995 compared to the same period in fiscal 1995
due to a decline in assets under management by Piper Capital Management
Incorporated (Piper Capital) to $9.3 billion from $10.3 billion a year earlier.
The decrease in assets under management was due primarily to mutual fund net
redemptions resulting from the reorganization of various closed end funds.
Interest income was up 19% to $9.5 million for the quarter ended December 31,
1995 due primarily to increased lending to customers.
Employee compensation, including broker compensation and employee incentives,
increased by $25.5 million, or 46% as compared to the first quarter of fiscal
1995, in line with increases in revenues. Occupancy and equipment expenses
increased by $1.4 million or 21% over the prior year, due to additional
depreciation and equipment rental related to new broker workstations and
increased rent expense and property taxes. Other operating expense increased 84%
over the same period of the prior fiscal year, 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.
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. 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.
Management believes that existing capital, funds from operations and current
credit lines will be sufficient to finance the Company's business. During fiscal
1995, the Company 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. In January of 1996, the Court entered an Order
granting final approval of the settlement, which will provide approximately
$67.5 million in payments to claimants over the next three years. This amount is
expected to be financed by tax refunds arising from the resulting net operating
loss, cash flow 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.
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
investment management subsidiary, Piper Capital, manages mutual funds and other
investment portfolios which do contain such derivatives.
The Company intends to continue to repurchase shares of its common stock
periodically, to satisfy obligations to present and future employee benefit
plans. See Note 4 to the consolidated financial statements.
PART II. OTHER INFORMATION
Item 1. 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 action, 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, the terms of which 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%. At the December 8, 1995 hearing on final
settlement approval, 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. At the
parties' request, that order was vacated and reissued on January 12, 1996 in
substantially identical form for the purpose of severing a controversy
relating to a particular fund account. If no appeals from the January 12
Order are filed on or before February 12, 1996, the Settlement Agreement
will become effective on or about February 12, 1996.
b. Other Lawsuits Brought by Investors in Institutional Government Income
Portfolio.
The following actions are based on claims similar to those asserted in In
Re Piper Funds, Inc. Institutional Government Income Portfolio
Litigation. Plaintiffs in these actions have requested exclusion from
the settlement class in In re Piper Funds Inc. Institutional Government
Income Portfolio.
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. Plaintiffs seek rescission of their
alleged investment of approximately $840,141.28 or monetary damages, plus
interest, and attorneys' fees and costs.
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 seeks monetary damages, plus
interest, and attorneys' fees and costs. The Complaint does not specify an
amount of damages sought.
Beverly Muth vs. Piper Jaffray Inc. and Teresa L. Darnielle, (Montana
Thirteenth Judicial District Court, Yellowstone County).
Action commenced on June 22, 1995. 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.
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. The petition objects to
fees claimed in the accounting. The petition does not specify an amount of
damages sought.
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. Claimants in these
arbitrations have requested exclusion from the settlement class in In re
Piper Funds Inc. 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Hart v. Piper Jaffray Inc. (National Association of Securities Dealers
Arbitration).
Claim filed December 28, 1995. Claimant seeks to recover in excess of
$804,629.
North Dakota State College of Science Foundation v. Piper Capital
Management Incorporated, Piper Jaffray Inc. and Piper Jaffray Companies
Inc. (National Association of Securities Dealers Arbitration).
Claim filed January 8, 1996. Claimant seeks to recover compensatory damages,
attorneys' fees, costs and punitive damages in an unspecified amount.
Catholic Charities of the Diocese of Winona v. Piper Jaffray Inc.
(National Association of Securities Dealers Arbitration).
Claim filed January 15, 1996. Claimant seeks to recover in excess of
$377,271.
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 following arbitrations 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
(National Association of Securities Dealers 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.
Charles O. Wheeler v. Piper Jaffray Inc. and Dennis E. Gove, (National
Association of Securities Dealers Arbitration).
Claim filed January 26, 1996. Claimant seeks to recover approximately
$32,490.
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. Plaintiff filed a Second Amended Complaint on February 5, 1996.
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. S-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 Second 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. 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.
c. The following arbitration seeks recovery by investors in the American
Strategic Income Portfolio Inc. I; American Strategic Income Portfolio
Inc. II; American Strategic Income Portfolio Inc. III; and American
Select Portfolio Inc.
Frederick Poole and Jane Poole; George Chapman; Dolores Patterson; Craig
Carter; Elliott J. Ashford and Linda K. Ashford; Elliott J. Ashford as the
Custodian for the accounts of Katie Stoltz and Zachary Stoltz; Linda K.
Ashford, as custodian for the account of Shelby Ashford; Kenneth Powers and
Marlene Powers; Robert Ferris and William Ferris, Custodians for the account
of Eva Ferris; Jim Toomey and Linda Toomey; Jeffrey Erwin and Lynda Erwin;
Alan Citron and Kathy Citron; Mishelle Barr as the custodian for the account
of Maria Barr; J. Kerry Wilcox and Sally E. Wilcox; Willard R. Helton and
Lenora J. Helton; Richard Austin and Joan Austin; Sydney Bannister; F. Alan
Boyd and Viola Boyd; Joseph Brown and Wanda Brown; Peter Crane and Jody
Gebbers; Robert Fately and Regna Fately; Millard Fowler and Frankie Fowler;
Marilyn Gearing; Edward Godsey and Nancy Godsey; James Keaton; R. L.
McDonald; Nora Rappe and Elmer Rappe;; Doris Riggs; Larry Simms and Bonnie
Simms; Kenneth Willig and Noreen Willig, as trustees for the Kenneth A.
Willig 1976 Trust; Talleta Wibmer and Helmut Wibmer v. Piper Jaffray &
Hopwood Incorporated; Piper Capital Management Inc; American Strategic
Income Portfolio, Inc., I; American Strategic Income Portfolio, Inc., II;
American Strategic Income Portfolio, III; American Select, Inc.; Piper
Jaffray Companies Inc.; Piper Jaffray Inc.; and Mike Jansen (National
Association of Securities Dealers Arbitration).
Claim filed January 2, 1996. Claimants seek rescission or damages, interest
and costs in an unspecified amount.
4. Managers Intermediate Mortgage Fund
a. Florence R. Hosea, Bobby W. Hosea, Getrude 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.
By Order filed November 24, 1995, the Court dismissed all claims against the
Piper Defendants for failure to state a claim. The Court ordered that
plaintiff may file an amended complaint on or before December 20, 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.
On December 14, 1995, plaintiff served an Amended Complaint alleging that
defendants Piper Jaffray Inc., Piper Capital 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; Section 13(a)(3) of the Investment Company Act; and engaged in
common law fraud. Plaintiff seeks rescission and monetary damages, plus
prejudgment interest, punitive damages if appropriate, and attorneys' fees
and costs. The Amended 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. The Piper Defendants have filed a motion to dismiss the claims
against them in the Amended Complaint.
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 that Piper Jaffray Companies Inc., 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.
The Piper Defendants have joined a motion brought by other defendants to
dismiss the Complaint or alternatively to stay the action.
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. FCTC has
brought a motion to dismiss the declaratory action.
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 moved to vacate the award of
punitive damages, and Claimant moved to confirm the arbitration award. By
Order dated January 24, 1996, a Judge in Minnesota State District Court,
Hennepin County, vacated the punitive damages award, and in connection
therewith the parties agreed to a resolution of the dispute over the
punitive damages award.
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 Piper Jaffray Companies Inc. common stock during the
period from May 12, 1993, through August 24, 1994.
In their consolidated complaint filed January 9, 1995, plaintiffs allege
that Piper Jaffray Companies Inc. 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.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were approved by shareholders at the Company's Annual
Meeting of Shareholders held on January 24, 1996:
1. Election of Directors
For Authority Withheld
Addison L. Piper 14,953,823 709,980
William H. Ellis 14,857,666 806,138
Ralph W. Burnet 15,103,429 560,374
Kathy Halbreich 14,536,933 1,126,870
John L. McElroy 15,099,281 564,522
Robert S. Slifka 15,096,333 567,471
David Stanley 15,011,739 652,064
2. Proposal to approve the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending September 30,
1996:
For 15,563,180
Against 83,412
Abstain 86,418
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement Regarding Computation of Per Share Earnings.
27 - Financial Data Schedule (filed electronically).
(b) Reports on Form 8-K
The Company was not required to file any reports on Form 8-K to the
Securities and Exchange Commission during the quarter ended December 31,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIPER JAFFRAY COMPANIES INC.
(Registrant)
Dated February 9, 1996 /s/ Deborah K. Roesler
DEBORAH K. ROESLER
Chief Financial Officer and Managing Director
Dated February 9, 1996 /s/ William H. Ellis
WILLIAM H. ELLIS
President and Chief Operating Officer
<PAGE>
PIPER JAFFRAY COMPANIES INC.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10Q
Exhibit Description of Exhibit Form of Filing
11 Statement Regarding Computation of Per Share Earnings Electronic
transmission
27 Financial Data Schedule Electronic
transmission
<PAGE>
Exhibit 11
PIPER JAFFRAY COMPANIES INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
December 31,
1995 1994
PRIMARY NET INCOME PER SHARE:
Net income ....................................... $ 6,654 $ 4,650
======= =======
Average number of common and common equivalent shares outstanding:
Average common shares outstanding ............... 17,541 17,084
Dilutive effect of CSE's:
Book value plan options ....................... 198 201
Executive incentive stock options ............. 263 109
------- -------
18,002 17,394
======= =======
Primary net income per share ..................... $ 0.37 $ 0.27
======= =======
NET INCOME PER SHARE
ASSUMING FULL DILUTION:
Net income ....................................... $ 6,654 $ 4,650
======= =======
Average number of common and common equivalent shares outstanding:
Average common shares outstanding ............... 17,541 17,084
Dilutive effect of CSE's:
Book value plan options ....................... 205 206
Executive incentive stock options ............. 291 110
------- -------
18,037 17,400
======= =======
Fully diluted net income per share ................. $ 0.37 $ 0.27
======= =======
<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 DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 25,665
<RECEIVABLES> 550,247
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 127,561
<PP&E> 26,609
<TOTAL-ASSETS> 823,048
<SHORT-TERM> 194,082
<PAYABLES> 398,990
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 14,971
<LONG-TERM> 52,889
0
0
<COMMON> 17,569
<OTHER-SE> 144,547
<TOTAL-LIABILITY-AND-EQUITY> 823,048
<TRADING-REVENUE> 40,915
<INTEREST-DIVIDENDS> 9,463
<COMMISSIONS> 42,646
<INVESTMENT-BANKING-REVENUES> 25,023
<FEE-REVENUE> 14,479
<INTEREST-EXPENSE> 3,043
<COMPENSATION> 81,486
<INCOME-PRETAX> 10,908
<INCOME-PRE-EXTRAORDINARY> 10,908
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,654
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
