INSURANCE MATTERS AGREEMENT

 

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                                                                    EXHIBIT 10.3

 

                           INSURANCE MATTERS AGREEMENT

 

                                 by and between

 

                                  U.S. Bancorp

 

                                       and

 

                             Piper Jaffray Companies

 

                          Dated as of December 23, 2003

 

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                  This INSURANCE MATTERS AGREEMENT, dated as of December 23,

2003, by and between U.S. Bancorp, a Delaware corporation ("Parent"), and Piper

Jaffray Companies, a Delaware corporation and an indirect, wholly owned

subsidiary of Parent ("Piper Jaffray", and together with Parent, the "Parties"

and each a "Party").

 

                  WHEREAS, the Board of Directors of Parent has determined that

it is in the best interests of Parent and its stockholders to separate Parent's

existing businesses into two independent companies;

 

                  WHEREAS, in furtherance of the foregoing, Parent and Piper

Jaffray have entered into a Separation and Distribution Agreement, dated as of

the date hereof (the "Separation and Distribution Agreement"), and other

ancillary agreements that will govern certain matters relating to the Separation

and the relationship of Parent, Piper Jaffray and their respective Subsidiaries

following the Distribution Date; and

 

                  WHEREAS, pursuant to the Separation and Distribution

Agreement, the Parties have agreed to enter into this Agreement for the purpose

of setting forth certain agreements regarding insurance matters.

 

                  NOW, THEREFORE, in consideration of the premises, and of the

representations, warranties, covenants and agreements set forth herein, and

intending to be legally bound hereby, the Parties hereby agree as follows:

 

                            ARTICLE I -- Definitions

 

                  Capitalized terms used in this Agreement that are not defined

in Article I or other provisions of this Agreement shall have the meanings

assigned to them in the Separation and Distribution Agreement.

 

                  1.1.     "Agreement" means this Insurance Matters Agreement,

including all the Schedules hereto.

 

                  1.2.     "Current Parent Policies" means Property and Casualty

insurance policies that insure Parent and one or more of its Subsidiaries or

Affiliates and that have policy periods that begin before and end after the

Distribution Date.

 

                  1.3.     "Other Policies" means Property and Casualty

insurance policies with policy periods that begin and end before the

Distribution Date and that provide insurance coverage to Parent or one or more

of its Subsidiaries or Affiliates as a result of the acquisition of assets or

shares of, or mergers or consolidations with, other Persons that had previously

purchased such policies or that had succeeded to rights to obtain coverage from

such policies prior to the time of the acquisition, merger or consolidation by

or with Parent or one or more of its Subsidiaries or Affiliates.

 

                  1.4.     "Prior Parent Policies" means Property and Casualty

insurance policies with policy periods that begin and end before the

Distribution Date that provide insurance coverage to Parent or one or more of

its Subsidiaries or Affiliates and that are neither Current Parent Policies nor

Other Policies.

 

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                  1.5.     "Property and Casualty" means property and casualty

as that term is commonly used in the insurance business and includes but is not

limited to liability policies (such as directors and officers liability

policies, employment practices liability policies, errors and omissions

liability policies, general liability policies), first party property policies,

crime and bond policies, mail policies, Excess SIPIC policies, excess securities

policies, and workers compensation policies.

 

                     ARTICLE II -- Current Parent Policies

 

                  2.1.     With respect to the Current Parent Policies listed in

Schedule A to this Agreement, which were issued for the period from August 1,

2003 to August 1, 2004, Parent hereby agrees, to the extent permitted by the

insurance policy or insurance contract and upon request by Piper Jaffray, to

provide the Piper Jaffray Group such insurance with respect to the Piper Jaffray

Liabilities as is afforded by those policies to the extent that Parent has the

right to do so without paying or incurring any additional premium or costs under

those policies. Prior to the currently scheduled expiration date of those

policies, August 1, 2004, unless earlier terminated by the applicable insurer,

Parent shall not cancel, terminate or amend those policies in a manner that

materially and adversely affects coverage for Piper Jaffray or the Piper Jaffray

Group. Prior to the Distribution Date, Piper Jaffray shall use its commercially

reasonable efforts to obtain written confirmation from the insurers that issued

those policies that Piper Jaffray and the Piper Jaffray Group shall continue to

be "Insured(s)" under those policies (as the term "Insured(s)" is defined in

those policies) from the Distribution Date to August 1, 2004. In the event that

Parent does not have the right to make Piper Jaffray and the Piper Jaffray Group

"Insureds" under those policies (or the insurers refuse to provide confirmation

of Parent's right to do so), Piper Jaffray shall at its own expense obtain

replacement coverage (or bear the risk that such coverage is not available under

the Current Parent Policies) and Parent shall not be directly or indirectly

liable for any failure on the part of Piper Jaffray to obtain coverage or

receive reimbursement under such policies from the insurers.

 

                  2.2.     With respect to the Current Parent Policies listed in

Schedule B to this Agreement, the period of such policies shall be deemed to end

as of the Distribution Date insofar as Piper Jaffray and the Piper Jaffray Group

are concerned, and Piper Jaffray and the Piper Jaffray Group shall have no right

to extend the period for reporting claims, circumstances or occurrences under

such policies. Piper Jaffray shall use commercially reasonable efforts to

obtain, for the period commencing with the Distribution Date, replacement

insurance policies for risks that would otherwise have been covered by such

policies, or shall self-insure such risks and Parent shall not be directly or

indirectly liable for any failure on the part of Piper Jaffray to insure for

such risks.

 

                  2.3.     With respect to the coverage of the type provided by

Current Parent Policies, Piper Jaffray shall use commercially reasonable efforts

to obtain its own separate replacement policies that provide substantially

equivalent coverage with commercially appropriate limits for the period

commencing with the Distribution Date. Piper Jaffray shall inform Parent about

the replacement policies that it plans to obtain, and, with respect solely to

the first set of replacement policies obtained for the period

 

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commencing with the Distribution Date, obtain the consent of Parent to the type

of coverage and the limits obtained by Piper Jaffray, provided that Parent may

not unreasonably withhold such consent.

 

       ARTICLE III -- Rights in Policies with Inception Dates Prior to the

                                Distribution Date

 

                  3.1.     As of the Distribution Date, Parent and the Parent

Group assign to Piper Jaffray and the Piper Jaffray Group all rights to

insurance coverage provided for Piper Jaffray Liabilities under the Current

Parent Policies, Prior Parent Policies and Other Policies in accordance with the

terms of such policies and applicable principles of law and equity, subject to

the applicable limits of such policies.

 

                  3.2.     As of the Distribution Date, Parent and the Parent

Group retain all rights to insurance coverage provided for Parent Liabilities

under the Current Parent Policies, Prior Parent Policies and Other Policies in

accordance with the terms of such policies and applicable principles of law and

equity, subject to the applicable limits of such policies.

 

                  3.3.     For purposes of the exhaustion of any limits that

apply to coverage available under Current Parent Policies, Prior Parent Policies

or Other Policies, amounts shall be allocated to the policies on a first

come/first served basis. That means that amounts covered by such policies shall

be allocated to such policies in the order in which such amounts were paid by or

on behalf of Parent or the Parent Group, or Piper Jaffray or the Piper Jaffray

Group, with respect to the Parent Liabilities or the Piper Jaffray Liabilities,

respectively. Where the policies provide coverage with respect to the Parent

Liabilities or the Piper Jaffray Liabilities for amounts that are not paid by or

on behalf of Parent or the Parent Group, or Piper Jaffray or the Piper Jaffray

Group, such as for example in the case of first party coverage for the value of

property that is destroyed but not replaced, amounts shall be allocated to

policies in the order in which the relevant losses occurred.

 

            ARTICLE IV -- Self-Insured Retentions and Related Matters

 

                  4.1.     With respect to Parent Liabilities, Parent shall pay

or cause to be paid any self-insured retentions, deductibles, retrospective

premiums or other amounts payable by an insured that apply under Current Parent

Policies, Prior Parent Policies or Other Policies. With respect to such

liabilities, Parent shall also pay amounts that are not otherwise covered by the

Current Parent Policies, Prior Parent Policies or Other Parent Policies. In

addition, to the extent that there is any obligation after the Distribution Date

to provide or continue to provide security or collateral to any insurer with

respect to Parent Liabilities, Parent shall provide or cause to be provided such

security or collateral and pay or cause to be paid the cost of doing so.

 

                  4.2.     With respect to Piper Jaffray Liabilities, Piper

Jaffray shall pay or cause to be paid any self-insured retentions, deductibles,

retrospective premiums or other amounts payable by an insured that apply under

Current Parent Policies, Prior Parent Policies or Other Policies. With respect

to such liabilities, Piper Jaffray shall also pay

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amounts that are not otherwise covered by the Current Parent Policies, Prior

Parent Policies or Other Parent Policies. In addition, to the extent that there

is any obligation after the Distribution Date to provide or continue to provide

security or collateral to any insurer with respect to Piper Jaffray Liabilities,

Piper Jaffray shall provide or cause to be provided such security or collateral

and pay or cause to be paid the cost of doing so.

 

                  4.3.     To the extent that Parent continues after the

Distribution Date to make any payments or incur any costs that Piper Jaffray is

obligated to make or incur under Section 4.2, for any reason, including as a

result of contractual obligations or for the purpose of ensuring a smooth

transition, Piper Jaffray shall promptly reimburse Parent for the amount of such

payments or costs. Similarly, to the extent that Piper Jaffray continues after

the Distribution Date to make any payments or incur any costs that Parent is

obligated to make or incur under Section 4.1, for any reason, including as a

result of contractual obligations or for the purpose of ensuring a smooth

transition, Parent shall promptly reimburse Piper Jaffray for such payments or

costs.

 

                  4.4.     To the extent that Parent continues after the

Distribution Date to provide security or collateral to any insurer with respect

to Piper Jaffray Liabilities, Piper Jaffray shall: (a) use commercially

reasonable efforts, in cooperation with Parent, to persuade the insurer to

release Parent from such obligation and to substitute security or collateral

from Piper Jaffray; (b) to the extent requested to do so by Parent, until Parent

is released from such obligations, provide Parent at the expense of Piper

Jaffray with equivalent security or collateral; (c) reimburse Parent for the

cost of continuing to provide such security or collateral; and (d) to the extent

not satisfied by the security or collateral contemplated by subsection (b), at

Parent's option either pay on behalf of Parent any collateral or security

amounts that become due with respect to Piper Jaffray Liabilities or promptly

reimburse Parent for security or collateral amounts paid by Parent with respect

to such liabilities.

 

                  4.5.     For purposes of the exhaustion of any limits that

apply to self-insured retentions, deductibles, retrospective premiums or other

amounts payable by an insured that apply under Current Parent Policies, Prior

Parent Policies or Other Policies, amounts shall be allocated to such limits on

a first come/first served basis. That means that amounts shall be allocated to

such limits in the order in which such amounts were paid by or on behalf of

Parent or the Parent Group, or Piper Jaffray or the Piper Jaffray Group, with

respect to the Parent Liabilities or the Piper Jaffray Liabilities,

respectively. Where the limits with respect to the Parent Liabilities or the

Piper Jaffray Liabilities apply to amounts that are not paid by or on behalf of

Parent or the Parent Group, or Piper Jaffray or the Piper Jaffray Group, such as

for example in the case of first party coverage for the value of property that

is destroyed but not replaced, amounts shall be allocated to such limits in the

order in which the relevant losses occurred.

 

                  4.6.     Piper Jaffray, on its own behalf and on behalf of the

Piper Jaffray Group, and their directors, officers and employees, hereby agrees

that insurance policies issued by Midwest Indemnity Inc. do not provide any

insurance coverage to Piper Jaffray or any member of the Piper Jaffray Group or

any of the directors, officers or employees of the foregoing in their capacity

as such.

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                  4.7.     With respect to Piper Jaffray Liabilities that are

insured under Current Parent Policies, Other Policies, and Prior Parent Policies

issued by commercial insurers who are entitled to reinsurance or indemnification

for such liabilities in whole or in part from Parent or a member of the Parent

Group, Piper Jaffray shall: (a) use commercially reasonable efforts, in

cooperation with Parent, to persuade the insurer to release Parent and the

Parent Group from such reinsurance or indemnification obligation and substitute

a reinsurance or indemnification obligation from Piper Jaffray or one of the

Piper Jaffray Subsidiaries; (b) until Parent and the Parent Group are released

from such obligations, provide Parent at the expense of Piper Jaffray with

commercially reasonable security or collateral; and (c) to the extent not

satisfied by the security or collateral contemplated by subsection (b), at

Parent's option either pay on behalf of Parent any reins