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 March 31, 1996 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 March 31, 1996, 18,127,683 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 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Index of Exhibits 25
Exhibits 26
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
March 31, Sept. 30,
1996 1995
(Unaudited)
ASSETS
Cash (including $1,523 and $2,401, respectively,
required to be segregated under federal and other
regulations) ........................................ $ 23,162 $ 17,345
Receivable from other brokers and dealers ............ 147,089 55,708
Receivable from customers ............................ 425,038 371,667
Trading securities owned, at market .................. 134,611 58,651
Investments pursuant to mortgage-backed bonds ........ 47,557 52,949
Office equipment and leasehold improvements, at cost,
less accumulated depreciation of $51,415 and $47,621,
respectively......................................... 27,484 25,764
Deferred income tax asset ............................ 29,616 40,093
Other assets ......................................... 63,829 57,586
------ ------
$ 898,386 $ 679,763
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ................................ $ 203,885 $ 63,781
Checks and drafts payable ............................ 49,393 44,201
Payable to other brokers and dealers ................. 124,478 84,447
Payable to customers ................................. 79,755 78,874
Trading securities sold but not yet purchased,
at market........................................... 47,727 21,491
Mortgage-backed bonds payable ........................ 48,874 54,077
Employee compensation ................................ 60,950 63,678
Accrual for PJIGX settlement ......................... 48,289 51,500
Federal and state income taxes ....................... - 19,136
Other liabilities .................................... 69,202 42,854
------ ------
732,553 524,039
------- -------
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; 18,127,932 and 17,565,399 shares issued,
respectively ....................................... 18,128 17,566
Additional paid-in capital .......................... 18,718 11,901
Retained earnings ................................... 128,990 127,306
Treasury stock, at cost; 249 and
65,145 shares, respectively ........................ (3) (1,049)
------- ------
165,833 155,724
------- -------
$ 898,386 $ 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 Six Months Ended
March 31, March 31,
1996 1995 1996 1995
REVENUES
Commissions ..........................$ 48,744 $ 34,127 $ 91,390 $ 66,285
Profits on principal transactions..... 42,614 29,578 83,529 55,513
Investment banking ................... 19,929 10,672 44,952 22,080
Asset management fees ................ 9,561 10,848 19,135 22,651
Interest ............................. 10,076 8,363 19,539 16,299
Other income ......................... 6,668 4,269 11,573 7,528
----- ----- ------ -----
Total revenues ..................... 137,592 97,857 270,118 190,356
------- ------ ------- -------
EXPENSES
Employee compensation ................. 84,958 58,545 166,444 114,519
Floor brokerage and clearance ......... 2,301 2,129 4,405 3,834
Interest .............................. 4,386 3,148 7,429 5,995
Occupancy and equipment ............... 8,790 7,278 16,930 13,987
Communications ........................ 4,704 4,016 9,502 7,896
Travel and promotional ................ 4,183 4,107 7,801 7,859
Charge for PJIGX settlement ........... - 70,000 - 70,000
Other operating expenses .............. 32,257 9,247 50,686 19,257
------ ----- ------ ------
Total expenses ...................... 141,579 158,470 263,197 243,347
------- ------- ------- -------
Income (loss) before income taxes ..... (3,987) (60,613) 6,921 (52,991)
Income taxes (benefit) ................ (1,693) (23,339) 2,561 (20,367)
------ ------- ----- -------
Net income (loss) .....................$ (2,294) $ (37,274) $ 4,360 $(32,624)
======== ========= ======== ========
Net income (loss) per common and
common equivalent share
(primary and fully diluted) .......$ (.13) $ (2.17) $ .24 $ (1.90)
Weighted average number of
common and common equivalent
shares outstanding ................. 17,947 17,208 18,235 17,145
Dividends per share ....................$ .075 $ .075 $ .15 $ .15
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
March 31,
1996 1995
Operating activities:
Net income (loss) .................................. $ 4,360 $ (32,624)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................... 3,462 3,599
Accrual for PJIGX settlement .................... - 70,000
Deferred income taxes ........................... 10,477 (21,661)
(Increase) decrease in:
Net receivable from customers .................. (52,490) 26,531
Net trading securities ......................... (49,724) (45,383)
Other .......................................... 17,316 (16,647)
Increase (decrease) in:
Net payable to other brokers and dealers ....... (51,350) 55,316
Checks and drafts payable ...................... 5,192 (4,109)
Employee compensation .......................... (2,728) (20,357)
Federal and state income taxes payable ......... (19,136) (181)
------- ------
Net cash (used in) provided by operating
activities ................................. (134,621) 14,484
-------- ------
Financing activities:
Net change in:
Short-term borrowings .............................. 140,104 (6,143)
Mortgage-backed bonds payable ...................... (5,203) 52,798
Investments and funds pursuant to mortgage-backed
bonds ........................................... 5,392 (51,858)
Payments made on capitalized lease obligations ..... (422) (788)
Net common stock issued ............................. 9,620 6,248
Treasury shares repurchased ......................... (1,195) (360)
Dividends paid ...................................... (2,676) (2,559)
------ ------
Net cash provided by (used in) financing
activities .................................. 145,620 (2,662)
------- ------
Net cash used for purchase of office
equipment and leasehold improvements ................ (5,182) (3,859)
Net increase in cash ................................. 5,817 7,963
Cash at beginning of period .......................... 17,345 12,070
------ ------
Cash at end of period ............................... $ 23,162 $ 20,033
========= =========
Supplemental disclosure of cash flow information.
Cash paid during the six months ended for:
Interest ............................................ $ 7,615 $ 5,410
Income taxes ........................................ $19,231 $ 1,476
See accompanying notes to consolidated financial statements.
<PAGE>
PIPER JAFFRAY COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended March 31, 1996
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 six months ended March 31, 1996, 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 March 31, 1996 and the
other consolidated financial information for the periods ended March 31, 1996
and 1995, 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 (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. For periods in which a net loss is reported, the
effect of common share equivalents is excluded from the calculation of per share
amounts as they are anti-dilutive.
2. NET CAPITAL REQUIREMENTS
At March 31, 1996, Piper Jaffray Inc. (Piper Jaffray), the Company's
broker-dealer subsidiary, had net capital under applicable regulations of $108.7
million, or 24.2% of aggregate debit balances and $99.4 million in excess of the
minimum required net capital.
3. LITIGATION AND CONTINGENCIES
On April 23, 1996, the Company reached an agreement in principle on a proposed
settlement of litigation relating to the American Adjustable Rate Term Trusts
Inc. 1996, 1997, 1998 and 1999 closed-end funds (the "American Adjustable Rate
Term Trusts") managed by Piper Capital Management Incorporated (Piper Capital).
The Company recorded a pre-tax charge of $14.0 million in the second quarter of
fiscal 1996, which is included in other operating expenses, to accrue for the
expense related to this proposed settlement.
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.
<PAGE>
4. SHAREHOLDERS' EQUITY
During the six months ended March 31, 1996, 87,000 shares of the Company's
common stock were repurchased by the Company, leaving a total of 198,000 shares
available for future repurchases pursuant to the Board of Directors'
authorizations to repurchase common stock to satisfy employee benefit plan
obligations.
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. The contribution was made 50 percent in cash and 50 percent in the
Company's newly issued common stock, thus adding $7.1 million in additional
shareholders' equity during the second quarter of fiscal 1996.
Through six months ended March 31, 1996, shareholders' equity increased by an
additional $2.5 million as new shares were issued pursuant to other employee
benefit plans. As of March 31, 1996, 249 common shares were held in the
treasury.
On April 22, 1996, the Board of Directors of the Company, at its regular
quarterly meeting, declared a quarterly dividend of 7.5 cents per share of
common stock, payable June 11, 1996, to shareholders of record on May 28, 1996.
(dollars in thousands, except share amounts)
<TABLE>
Additional Total
Common Stock Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earning Stock Equity
<S> <C> <C> <C> <C> <C> <C>
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
pursuant to employee
benefit plans 347,993 104 4,738 2,734 7,576
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
========== ======== ======== ======== ======= ========
Net income 4,360 4,360
Net stock issued
pursuant to employee
benefit plans 714,429 562 6,817 2,241 9,620
Cash dividends - $.15 per share (2,676) (2,676)
Treasury stock acquired (87,000) (1,195) (1,195)
------- ------ ------- --------- -------- --------
Balances at Mar. 31, 1996 18,127,683 $ 18,128 $ 18,718 $128,990 $ (3) $165,833
========== ======== ======== ======== ======= ========
</TABLE>
<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 reported a net loss of $2.3 million for the quarter ended March 31,
1996. The loss was due to a $14.0 million pre-tax charge to accrue for expenses
related to an agreement in principle to settle purported class action litigation
brought on behalf of shareholders of the American Adjustable Rate Term Trusts.
The after tax effect of this charge to earnings was $8.8 million, or $ .48 per
share for the quarter.
The Company's revenues for the six months ended March 31, 1996 were $270.1
million, a 42% increase over the same period of the prior fiscal year. Net
income for the first six months was $4.4 million, as compared to a net loss of
$32.6 million recorded in the prior fiscal year. The Company's net income per
share for the first six months of fiscal 1996 was $ .24 versus a net loss per
share of $1.90 a year earlier. The prior year's quarterly and six months results
included a $70 million pre-tax charge for the settlement of litigation relating
to the Institutional Government Income Portfolio (PJIGX) mutual fund, an
open-end fund managed by Piper Capital.
Revenues for the quarter ended March 31, 1996 were $137.6 million, a 41%
increase over the same period of the prior year. The Company incurred a net loss
of $2.3 million for the quarter ended March 31, 1996 versus a net loss of $37.3
million a year earlier. The net loss per share for the quarter ended March 31,
1996 was $.13 versus a net loss per share of $2.17 for the same period of the
prior fiscal year.
Commissions, profits on principal transactions and investment banking revenues
showed continued strength, increasing 38%, 51%, and 104%, respectively, over the
prior year's six months results. Increases were due to general market strength
and increased volume of mutual fund sales, initial public offerings and mergers
and acquisitions business. Asset management revenue decreased 16% for the six
months ended March 31, 1996 compared to the same period in fiscal 1995 due to a
decline in assets under management by Piper Capital to $9.3 billion from $10.1
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 20% to $19.5 million for the
six months ended March 31, 1996 due primarily to increased lending to customers
and other income increased 54% to $11.6 million due primarily to growth in
managed accounts.
Employee compensation, including broker compensation and employee incentives,
increased by $51.9 million, or 45% as compared to the same six months of fiscal
1995, in line with increases in revenues. Occupancy and equipment expenses
increased by $2.9 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 expenses, increased
over the the six months of the prior fiscal year primarily due to the $14.0
million accrual for the American Adjustable Rate Term Trusts proposed
settlement, other 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.
The $14.0 million American Adjustable Rate Term Trusts proposed settlement,
recorded in the second quarter of fiscal 1996, will be paid in a combination of
$500,000 cash payable upon execution of the definitive settlement agreement,
$1.5 million cash payable upon final approval by the court (effective date), and
payments of $3.0 million on each anniversary of the effective date for the next
four years. The deferred payments will accrue interest totaling as much as $1.8
million and are expected to be financed by cash flow from operations.
In January 1996, the Court entered an order granting final approval of the PJIGX
settlement, which will provide approximately $67.5 million in payments to
claimants over the next three years. Approximately $20 million of this
settlement was paid into an escrow fund on August 3, 1995 following the signing
of the definitive settlement agreement, and was, in turn, paid out to fund
shareholders during the second quarter of fiscal 1996. The remaining amount is
expected to be financed by tax refunds arising from the fiscal 1995 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 of present and future employee benefit
plans. See Note 6 of the Company's Annual Report for the year ended September
30, 1995.
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.
Without admitting or denying any findings, Piper Jaffray agreed to a settlement
with the National Association of Securities Dealers (NASD), and Piper Jaffray
and Piper Capital agreed to a settlement with the Minnesota Department of
Commerce (DOC). These settlements resolve a joint investigation by the NASD and
DOC which primarily related to disclosures and sales practices pertaining to the
sale of PJIGX. Piper Jaffray's settlement with the NASD includes censure, a fine
in the amount of $1,250,000, and an agreement to hire an independent consultant
to review and make recommendations primarily relating to sales practices for
Piper Capital's mutual funds. Piper Jaffray and Piper Capital's settlement with
the DOC includes censure, an agreement to hire an independent consultant to
review and make recommendations primarily relating to sales practices, payment
by each of $150,000 in civil penalties, and joint payment of $100,000 for
investigative costs, $200,000 to be paid to the Minnesota Food Bank Network, and
$50,000 to be paid to the Business Economics Education Foundation.
Piper Jaffray and Piper Capital have been continuing to cooperate in an
investigation being conducted by the Securities and Exchange Commission and have
been responding to requests for information from several other states.
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. Lawsuits Brought by Investors in the Institutional Government Income
Portfolio.
The following actions have been brought by investors in the Institutional
Government Income Portfolio. Plaintiffs in these actions requested exclusion
from a previously settled consolidated class action, In re Piper Funds Inc.
Institutional Government Income Portfolio (United States District Court,
District of Minnesota) ("PJIGX" action). The PJIGX action had included
claims based on allegations of misrepresentation and improper management.
The claims alleged in the following actions are similar to the claims which
had been alleged in the PJIGX action.
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 in the District of Colorado. The
action has been transferred to Minnesota for discovery. 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 in Minnesota State District Court,
Hennepin County. This action was removed to United States District Court,
District of Minnesota. 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.
b. Arbitrations Brought by Investors in Institutional Government Income
Portfolio.
The following arbitrations, commenced by investors in the Institutional
Government Income Portfolio, are based on claims similar to the claims which
had been alleged in the PJIGX action. Claimants in these arbitrations
requested exclusion from the settlement class in the PJIGX action.
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.
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.
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.
James T. Dootson, Elizabeth O. Dootson Trust, Jeto Enterprises, Inc., and
Sterling Irrevocable Trust v. Piper Funds Inc. Institutional Government
Income Portfolio, Piper Capital Management Inc., Piper Jaffray Inc. and
Piper Jaffray Companies Inc. (National Association of Securities Dealers
Arbitration).
Claim filed February 16, 1996. Claimants seek to recover in excess of
$262,450.
Fairview Hospital v. Piper Capital Management Incorporated, Piper Jaffray
Inc. and Piper Jaffray Companies Inc. (National Association of Securities
Dealers Arbitration).
Claim filed March 1, 1996. Claimant seeks to recover in excess of $1.5
million.
City of Rapid City, South Dakota 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 March 29, 1996. Claimant seeks to recover $20,000,000.
Central Iowa Hospital Corporation v. Piper Funds Inc. Institutional
Government Income Portfolio, Piper Capital Management Incorporated, Piper
Jaffray Inc., and Piper Jaffray Companies Inc. (National Association of
Securities Dealers Arbitration).
Claim filed April 12, 1996. Claimant seeks to recover in excess of
$1,700,000.
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, 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 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.
The parties have reached an agreement in principle to settle all outstanding
claims of the purported class action. 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 $14.0
million in principal payments consisting of $500,000 payable upon execution
of the settlement agreement, $1.5 million payable on the effective date, and
payments of $3.0 million on each anniversary of the effective date for the
next four years, with accrued interest of up to $1.8 million.
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 Inc.,
and the American Strategic Income Portfolio Inc.-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.
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.
Patricia LaFrenz v. Piper Jaffray Inc. (National Association of Securities
Dealers Arbitration).
Claim filed March 15, 1996. Claimant seeks to recover $16,850.
3. American Strategic Income Portfolio Inc., American Opportunity Income Fund,
and other named funds
a. The following actions have been brought by investors in the American
Strategic Income Portfolio Inc., the American Opportunity Income Fund Inc.,
and other closed-end funds.
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 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.
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 Inc.-III and the Americas Income
Trust Inc. 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.
Kenneth Schneider v. Piper Jaffray Inc. and Richard Tallent (Montana Second
Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on his investment in the
American Select Portfolio. Plaintiff alleges claims of misrepresentation and
negligent misrepresentation. The Complaint seeks compensatory damages in an
unspecified amount, punitive damages, and costs and attorneys' fees.
Margaret Nagel v. Piper Jaffray Inc. and Richard Tallent (Montana Second
Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on her investment in the
American Select Portfolio Inc. Plaintiff alleges claims of misrepresentation
and negligent misrepresentation. The Complaint seeks compensatory damages in
an unspecified amount, punitive damages, and costs and attorneys' fees.
b. The following arbitration claim 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 claims seek 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.
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.
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.
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 costs.
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. Privately Managed Accounts
The following arbitration claims seek recovery for accounts managed by Piper
Capital Management Incorporated:
a. 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.
b. 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.
c. 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.
d. 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, which has been preliminarily approved by the
Court. The hearing on final approval of the settlement is scheduled for June
13, 1996, in federal court in Wilmington, Delaware. 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 Piper Jaffray. 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 served a revised preliminary damage
calculation on March 26, 1996 seeking $573,257,728 in damages (before
trebling under RICO) from the Company. Piper Jaffray and other defendants
have also made motions to dismiss the complaint or for a judgment on the
pleadings which are currently pending. On April 25, 1996, Piper Jaffray
filed a motion for summary judgment on all claims. On May 6, 1996, Piper
Jaffray filed a motion to exclude the admission of plaintiff's revised
damage calculation. A pre-trial conference before the presiding judge
commenced on May 6, 1996 in Salt Lake City and is continuing. No trial date
has been set.
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
requests 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. Additionally, the Securities
and Exchange Commission is also conducting an investigation of NASDAQ market
making activities and has requested the production of information and
documents from Piper Jaffray in connection with that investigation.
<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
On March 6, 1996, the Company filed a report on Form 8-K announcing the
agreements with the NASD and the DOC related to their joint
investigations of the Company's marketing and sale of the PJIGX fund.
On April 23, 1996, the Company filed a report on Form 8-K announcing the
agreement in principle to settle purported class action litigation
brought on behalf of shareholders of the American Adjustable Rate Term
Trusts.
<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 May 13, 1996 /s/ Deborah K. Roesler
DEBORAH K. ROESLER
Chief Financial Officer and Managing Director
Dated May 13, 1996 /s/ William H. Ellis
WILLIAM H. ELLIS
President
<PAGE>
PIPER JAFFRAY COMPANIES INC.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
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 Six Months Ended
March 31 March 31
1996 1995 1996 1995
PRIMARY NET INCOME (LOSS) PER SHARE:
Net income (loss) $ (2,294) $(37,274) $ 4,360 $(32,624)
======== ======== ======= =======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 17,947 17,208 17,743 17,145
Dilutive effect of CSE's:
Book value plan options - - 193 -
Executive incentive stock options - - 276 -
---- ---- ---- ----
17,947 17,208 18,212 17,145
Primary net income (loss) per share $ (.13) $ (2.17) $ .24 $ (1.90)
======= ======== ====== ======
NET INCOME (LOSS) PER SHARE
ASSUMING FULL DILUTION:
Net income (loss) $ (2,294) $ (37,274) $ 4,360 $(32,624)
======== ========= ====== ========
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 17,947 17,208 17,743 17,145
Dilutive effect of CSE's:
Book value plan options - - 197 -
Executive incentive stock options - - 295 -
---- ---- ---- ----
17,947 17,208 18,235 17,145
Fully diluted net income (loss) per share $ (.13) $ (2.17) $ .24 $ (1.90)
====== ======= ====== ======
<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 MARCH 31, 1996 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> MAR-31-1996
<CASH> 23,162
<RECEIVABLES> 572,127
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 134,611
<PP&E> 27,484
<TOTAL-ASSETS> 898,386
<SHORT-TERM> 203,885
<PAYABLES> 314,576
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 47,727
<LONG-TERM> 48,874
0
0
<COMMON> 18,128
<OTHER-SE> 147,705
<TOTAL-LIABILITY-AND-EQUITY> 898,386
<TRADING-REVENUE> 83,529
<INTEREST-DIVIDENDS> 19,539
<COMMISSIONS> 91,390
<INVESTMENT-BANKING-REVENUES> 44,952
<FEE-REVENUE> 30,708
<INTEREST-EXPENSE> 7,429
<COMPENSATION> 166,444
<INCOME-PRETAX> 6,921
<INCOME-PRE-EXTRAORDINARY> 6,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,360
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
