THIRD AMENDMENT AND WAIVER
THIS THIRD AMENDMENT AND WAIVER dated as of October 18, 1996 (this "Third
Amendment") amends and/or waives certain provisions of the Credit Agreement
dated as of October 7, 1994 (as heretofore amended or otherwise modified, the
"Credit Agreement") among THE MUSICLAND GROUP, INC. (the "Borrower"), MUSICLAND
STORES CORPORATION ("MSC"), various financial institutions (the "Banks") and
▇▇▇▇▇▇ GUARANTY TRUST COMPANY OF NEW YORK, as Agent (in such capacity, the
"Agent"). Terms defined in the Credit Agreement are, unless otherwise defined
herein or the context otherwise requires, used herein as defined therein.
WHEREAS, the Borrower, MSC, the Banks and the Agent have entered into the
Credit Agreement; and
WHEREAS, the parties hereto desire to amend and/or waive certain provisions
of the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 WAIVERS. Effective on (and subject to the occurrence of) the
Third Amendment Effective Date (as defined below), the Required Banks waive
compliance with, and waive any Default or Event of Default arising from any
failure to comply with, the following provisions of the Credit Agreement for the
dates and periods indicated:
(a) Section 5.23 (Debt and Trade Payables to Eligible Inventory Ratio) for
the months ending December 31, 1996, January 31, 1997, February 28,
1997 and for the 1996 Clean-down Date (as defined in Section 5.23).
(b) Section 5.24 (Clean-Down of Loans) for the period from December 15,
1996 through February 15, 1997.
(c) The requirement set forth in Section 3.2 that the Borrower make the
representation and warranty set forth in Section 4.4(c) for all Credit
Extensions prior to March 31, 1997.
SECTION 2 AMENDMENTS. Effective on (and subject to the occurrence of) the
Third Amendment Effective Date, the Credit Agreement shall be amended as set
forth below:
2.1 AMENDMENT TO DEFINITION OF 1996 RESTRUCTURING CHARGE. The definition
of "1996 Restructuring Charge" is amended in its entirety to read as follows:
"1996 Restructuring Charge" means liabilities recorded on the books of
MSC in 1996 and the first two quarters of 1997 in connection with facility
closing decisions which may be made, termination of employees and costs
related to the foregoing and for professional fees.
2.2 AMENDMENTS RELATING TO INCREASE IN 1996 RESTRUCTURING CHARGE. The
definitions of "Consolidated Net Worth" and "Net Income" are each amended by
deleting the language "up to $35,000,000 of the 1996 Restructuring Charge" and
inserting in lieu thereof the language "up to $60,000,000 of the 1996
Restructuring Charge for facility closing decisions which may be made,
termination of employees and costs related to the foregoing and up to $5,000,000
of the 1996 Restructuring Charge for professional fees."
2.3 AMENDMENT TO ELIGIBLE INVENTORY LIMIT. Clauses (b)(i) and (b)(ii) of
the definition of "Eligible Inventory Limit" are amended in their entirety to
read as follows:
(i) during the fiscal months of May, June, July, August, September and
October of each year, and during November and December of 1996 and
January, February and March of 1997 (except for March 31, 1997), 60%;
(ii) during the fiscal months of March and April of 1996 and on March 31,
1997 and during April of 1997, 55%; and.
2.4 AMENDMENTS TO CONDITIONS PRECEDENT TO CREDIT EXTENSIONS. (a) Section
3.2 is amended by deleting the word "and" after the semi-colon at the end of
clause (e), deleting the period at the end of clause (f) and substituting a
semi-colon therefor, and inserting the following new clauses (g) and (h):
(g) in the case of any Credit Extension (other than a Refunding
Borrowing) made after October 25, 1996 and before December 23, 1996, the
fact that, as of the most recent date reported on by the Borrower, the
aggregate amount of all trade accounts payable of MSC and its Subsidiaries
arising out of the purchase of inventory is not less than the amount set
forth for such date in the chart set forth in clause (p) of Section 6.1;
and
(h) except in the case of a Refunding Borrowing, the fact that the
Borrower shall have delivered a duly-completed certificate in the form of
Exhibit M hereto.
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(b) Section 3.2 is further amended by (i) deleting the language "and (f)"
in the last paragraph thereof and substituting therefor the language ", (f) and
(g)" and (ii) adding the following sentence at the end thereof:
The Borrower will provide such information as the Agent or the
Required Banks may reasonably request to demonstrate the accuracy of
such representation and warranty.
2.5 AMENDMENTS TO INFORMATION COVENANTS. Section 5.1 is amended by
deleting the word "and" after the semi-colon at the end of clause (j),
redesignating clause (k) as clause (o), and adding the following clauses (k),
(l), (m) and (n) thereto in appropriate sequence:
(k) weekly not later than the Friday following the week ended
the previous Saturday, a certificate of the chief financial
officer or the Treasurer (or, in the absence of both of the
foregoing, an Assistant Treasurer) of MSC with respect to
inventory and trade accounts payable, substantially in the form
of Exhibit N hereto;
(l) not later than October 16, 1996, a weekly cash flow budget
through December 31, 1996 and a monthly cash flow budget through
March 31, 1997, substantially in the form of Exhibit O hereto;
(m) within five Domestic Business Days after the end of each
fiscal month, a weekly cash flow budget for the 13 weeks
following such month substantially in the form of Exhibit P
hereto (which budget shall be updated to reflect the results of
the most recently-ended month);
(n) weekly not later than the Wednesday following the week ended
the previous Saturday, a certificate of the chief financial
officer or the Treasurer (or, in the absence of both of the
foregoing, an Assistant Treasurer) of MSC with respect to cash
flows for such most recently-ended week, substantially in the
form of Exhibit Q; and.
2.6 AMENDMENT TO FIXED CHARGE COVERAGE RATIO. Clauses (c) and (d) of
Section 5.7 are amended in their entirety to read as follows:
(c) 0.75 to 1 for the period from July 1, 1996 to September 30, 1996;
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(d) 0.75 to 1 for the period from October 1, 1996 to December 31,
1996;.
2.7 AMENDMENT TO CONSOLIDATED TANGIBLE NET WORTH. The chart in clause (a)
of Section 5.8 is amended in its entirety to read as follows:
Period or Date Amount
-------------- ------
3/31/96 - 6/30/96 $50,000,000
7/1/96 - 3/30/97 $10,000,000
3/31/97 - 12/30/97 $50,000,000
12/31/97 $80,000,000
1/1/98 - 12/30/98 $65,000,000
12/31/98 and thereafter $80,000,000.
2.8 AMENDMENT TO DEBT TO CAPITALIZATION COVENANT. Clauses (b) and (c) of
Section 5.9 are amended in their entirety to read as follows:
(b) .85 to 1.0 for the period from July 1, 1996 to September 30,
1996;
(c) .85 to 1.0 for the period from October 1, 1996 to December 31,
1996;.
2.9 AMENDMENT TO DEBT COVENANT. Clause (e) of Section 5.11 is amended in
its entirety to read as follows:
(e) Intentionally deleted;
2.10 AMENDMENT TO SALE OF ASSETS COVENANT. Section 5.13 is amended by
adding the following sentence thereto:
"In addition to (and not in limitation of) the foregoing, MSC will
not, and will not permit any Subsidiary to, sell, exchange, lease, assign,
transfer or otherwise dispose of any asset outside the ordinary course of
business (excluding (a) sales of fixed assets (other than leasehold
interests) in connection with store closings and (b) the sale of the
Minneapolis distribution facility in 1996) if, after giving effect thereto,
the Net Cash Proceeds of all such transactions in any fiscal year would
exceed $10,000,000."
2.11 AMENDMENT TO LIEN COVENANT. Clause (g) of Section 5.14 is amended in
its entirety to read as follows:
"(g) other Liens securing Debt in an aggregate principal amount not
in excess of $5,000,000."
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2.12 AMENDMENT TO EVENTS OF DEFAULT. Section 6.1 is amended by deleting
the word "or" after the semi-colon at the end of clause (m), and adding the
following clauses (o) and (p):
(o) the aggregate amount of all trade accounts payable of MSC and its
Subsidiaries arising out of the purchase of inventory shall at any time
(including after giving effect to the use of the proceeds of any Credit
Extension) be less than the aggregate amount of the Outstanding Credit
Extensions; or
(p) the aggregate amount of all trade accounts payable of MSC and its
Subsidiaries arising out of the purchase of inventory is less than the
applicable amount set forth below for any two consecutive dates shown
below:
Date Amount
---- ------
October 26, 1996 $346,000,000
November 2, 1996 $374,000,000
November 9, 1996 $403,000,000
November 16, 1996 $432,000,000
November 23, 1996 $422,000,000
November 30, 1996 $419,000,000
December 7, 1996 $428,000,000
December 14, 1996 $413,000,000;
2.13 AMENDMENT OF EXHIBIT E. Exhibit E to the Credit Agreement is
replaced in its entirety by the EXHIBIT E attached hereto.
2.14 ADDITION OF EXHIBITS. EXHIBITS M, N, O, P and Q attached hereto are
added to the Credit Agreement as Exhibits M, N, O, P and Q thereto.
SECTION 3 ADDITIONAL AGREEMENTS. Effective on (and subject to the
occurrence of) the Third Amendment Effective Date, and in consideration of the
waivers and amendments set forth in SECTIONS 1 an 2, MSC and the Borrower agree
with the Agent and the Banks as follows:
3.1 CASH SWEEP. Commencing on the Third Amendment Effective Date and
continuing until the time on December 20, 1996 at which the aggregate amount of
all Credit Extensions is $275,000,000 or less, all cash and cash equivalents of
MSC and its Subsidiaries in excess of the amounts permitted to be retained as
Investments pursuant to SECTION 3.4 below shall be transferred on each Domestic
Business Day to a demand deposit account maintained by the Borrower (for the
benefit of the Borrower, MSC and other Subsidiaries of MSC) with the Agent (such
account, the "Concentration Account"). Funds received in the
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Concentration Account shall (except to the extent used by MSC or a Subsidiary
thereof in compliance with the Credit Agreement) be promptly applied to prepay
Loans under the Credit Agreement (without any reduction of the Commitments
except as provided in SECTION 3.2 below).
3.2 REDUCTIONS OF COMMITMENTS AND AVAILABILITY; PREPAYMENTS. (a) The
aggregate amount of the Commitments shall be permanently reduced to $325,000,000
on December 9, 1996 and to $300,000,000 on December 16, 1996 (and each Bank's
Commitment shall be reduced by its pro rata share of each such reduction).
(b) Effective on December 20, 1996, the definition of Aggregate Available
Commitment is amended in its entirety to read as follows:
"Aggregate Available Commitment" means at any time the lesser of (i)
the aggregate amount of the Commitments of all Banks and (ii) the
Eligible Inventory Limit; PROVIDED that (unless the Required Banks
otherwise consent in writing with respect to any period after March
31, 1997), during the period from and including December 20, 1996 to
and including September 11, 1997, the Aggregate Available Commitment
shall not exceed $275,000,000.
(c) On each of December 9, 1996, December 16, 1996 and December 20, 1996,
the Borrower will prepay Loans (or otherwise reduce Outstanding Credit
Extensions) in an amount so that the Outstanding Credit Extensions as of the
close of business on such date do not exceed the aggregate amount of the
Commitments (or, in the case of December 20, the Aggregate Available Commitment)
as reduced on such date.
3.3 LIMITATION ON FIXED RATE BORROWINGS. To facilitate the prepayments
described in CLAUSE (c) of SECTION 3.2, the Borrower agrees that it will not
select any Interest Period for a Fixed Rate Borrowing which would result in the
aggregate amount of all Fixed Rate Borrowings having Interest Periods ending
after (i) December 9, 1996 being in excess of $325,000,000, (ii) December 16
being in excess of $300,000,000 or (iii) December 20, 1996 (other than
Borrowings made after September 11, 1997) being in excess of $275,000,000.
3.4 LIMITATION ON INVESTMENTS. Notwithstanding the provisions of Section
5.17 of the Credit Agreement, during the period from the Third Amendment
Effective Date to the time on December 20, 1996 at which the aggregate amount of
all Credit Extensions is $275,000,000 or less, MSC will not, and will not permit
any Subsidiary to, make or acquire any Investment in any Person other than:
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(a) Investments described in clause (c) of Section 5.17;
(b) Investments in deposit accounts maintained for retail stores of the
Borrower and its Subsidiaries, PROVIDED that the aggregate available
balance in all accounts maintained by any individual store shall not
exceed such store's receipts for the two preceding days on which the
financial institution maintaining such accounts was open for business
(except for exigencies beyond the control of the Borrower and the
applicable Subsidiary, which shall be corrected by the close of
business not later than the next day the applicable financial
institution is open for business);
(c) Investments in other deposit accounts, PROVIDED that the aggregate
available balance in all deposit accounts (excluding the retail store
accounts referred to in CLAUSE (b)) shall not at any time exceed
$10,000,000; and
(d) Subject to the last sentence of SECTION 3.1, Investments in the
Concentration Account.
3.5 CONTINUED RETENTION OF FINANCIAL CONSULTANT. Unless the Required
Banks otherwise agree in writing, MSC and the Borrower shall at all times
continue to retain Price Waterhouse LLP, or another consultant consented to by
the Required Banks (which consent shall not be unreasonably withheld), to advise
MSC and the Borrower on operational and financial matters.
3.6 BUSINESS PLAN, ETC. MSC agrees that it will use reasonable efforts
to implement one or more asset sales and/or to issue additional equity the
proceeds of which will be used, pursuant to agreement between MSC and the
Banks, in part to reduce the Commitments and prepay the Credit Extensions. In
furtherance of the foregoing, MSC shall deliver to the Banks, not later than
January 31, 1997, a business plan which shall include a comprehensive
business and debt restructuring and asset sale program.
3.7 AMENDMENT FEE. The Borrower agrees to pay to the Agent for the
account of the Banks (pro rata according to their Commitments) an amendment fee
of $875,000. The first $100,000 of such fee shall be paid on or before the
Third Amendment Effective Date. The remaining $775,000 of such fee shall be
paid on January 15, 1997. The Agent shall, promptly after receipt thereof from
the Borrower, remit to each Bank its pro rata share of the amendment fee.
3.8 FAILURE TO COMPLY WITH CERTAIN PROVISIONS OF THIS AMENDMENT. MSC and
the Borrower acknowledge and agree that
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failure of MSC or the Borrower to comply with or to perform any provision of
this SECTION 3 shall constitute an Event of Default under the Credit Agreement.
3.9 ACKNOWLEDGMENT BY AGENT AND BANKS. The Agent and the Required Banks
acknowledge and agree that no Default shall arise under Section 5.7, 5.8, 5.9 or
5.23 of the Credit Agreement at any time prior to March 31, 1997 based on
anticipated ratios or financial condition as of March 31, 1997 or any date
thereafter.
SECTION 4 REPRESENTATIONS AND WARRANTIES. The Borrower and MSC
represent and warrant to the Agent and the Banks that (a) the execution and
delivery by the Borrower and MSC of this Third Amendment and the performance
by the Borrower and MSC of their respective obligations under the Credit
Agreement, as amended hereby (as so amended, the "Amended Credit Agreement"),
(i) are within the corporate powers of the Borrower and MSC, (ii) have been
duly authorized by all necessary corporate action on the part of the Borrower
and MSC, (iii) have received all necessary governmental and regulatory
approval and (iv) do not and will not contravene or conflict with, or result
in or require the creation or imposition of any Lien under, or create any
default under, any provision of Applicable Law or of the respective
certificate of incorporation or by-laws of the Borrower or MSC or of any
agreement, instrument, order or decree which is binding upon the Borrower or
MSC; (b) the Amended Credit Agreement is the legal, valid and binding
obligation of each of the Borrower and MSC, enforceable against the Borrower
and MSC in accordance with its terms; and (c) after giving effect to this
Third Amendment, no Default shall have occurred and be continuing.
SECTION 5 EFFECTIVENESS. The waivers set forth in SECTION 1, the
amendments set forth in SECTION 2 and the agreements set forth in SECTIONS 3 and
6.5 shall become effective on such date (the "Third Amendment Effective Date")
when the Agent shall have received all of the following:
(i) Counterparts of this Third Amendment executed by the Borrower,
MSC and the Required Banks (it being understood that, in the case of any
Bank, the Agent may rely upon facsimile confirmation of the execution of a
counterpart hereof by such Bank for purposes of determining the
effectiveness hereof).
(ii) The first installment of the amendment fee referred to in
SECTION 3.7 (it being understood that promptly upon receipt thereof the
Agent shall distribute to each Bank its pro rata share thereof).
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(iii) An opinion of ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, Assistant General Counsel of
the Borrower, substantially in the form of ATTACHMENT I hereto.
(iv) Confirmation that the Borrower has paid (a) to the Agent, all
reasonable out-of-pocket expenses payable to the Agent pursuant to Section
10.3 of the Credit Agreement to the extent then billed and (b) to each of
Ernst & Young LLP, ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP,
professional advisors to the Agent and the Banks, (x) all reasonable fees
and charges relating to the Credit Agreement (including any waivers or
amendments thereto) to the extent then billed and (y) a deposit, in each
case in the amount of $100,000 (inclusive of any remaining balance of any
previously paid deposit), to cover future fees and charges relating to the
Credit Agreement.
(v) All documents the Agent may reasonably request relating to the
existence of the Borrower and the other Loan Parties, the corporate
authority for and the validity of this Third Amendment and the other Loan
Documents, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent.
SECTION 6 MISCELLANEOUS.
6.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Third Amendment Effective Date, all
references in the Credit Agreement and the other Loan Documents to "Credit
Agreement", "Agreement" or similar terms shall refer to the Amended Credit
Agreement.
6.2 COUNTERPARTS. This Third Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Third Amendment.
6.3 GOVERNING LAW. This Third Amendment shall be a contract made under
and governed by the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
6.4 SUCCESSORS AND ASSIGNS. This Third Amendment shall be binding upon
the Borrower, MSC, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Borrower, MSC, the Banks and the
Agent and the respective successors and assigns of the Banks and the Agent.
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6.5 COSTS AND EXPENSES. Without limiting the provisions of Section 10.3
of the Credit Agreement, the Borrower agrees to pay (i) the reasonable fees
and charges of ▇▇▇▇▇, ▇▇▇▇▇ & Platt, Zalkin, Rodin & ▇▇▇▇▇▇▇ LLP and Ernst &
Young LLP, professional advisors to the Agent and the Banks, in connection
with the Credit Agreement, this Third Amendment and matters relating thereto
(including the monitoring and administration of the provisions hereof), and
any additional amendments to or waivers under the Credit Agreement (such fees
and charges to be billed monthly and paid, without application of any
deposit, not later than 20 days after receipt by the Borrower) and (ii) the
reasonable out-of-pocket expenses of the Banks (excluding professional fees
other than (x) those described above and (y) those provided for in Section
10.3 of the Credit Agreement; it being understood and agreed that the Banks
are not entitled to payment of any professional fees under Section
10.3(a)(ii) of the Credit Agreement based on any Event of Default occurring
prior to the Third Amendment Effective Date) in connection with the Credit
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
THE MUSICLAND GROUP, INC.
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
Title: ▇▇▇▇ ▇▇▇▇▇▇▇
Executive Vice Pres. & CFO
MUSICLAND STORES CORPORATION
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
Title: ▇▇▇▇ ▇▇▇▇▇▇▇
Executive Vice Pres. & CFO
▇▇▇▇▇▇ GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Houston ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Title: Vice President
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FIRST BANK NATIONAL ASSOCIATION
By
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Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By
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Title:
THE BANK OF TOKYO - MITSUBISHI,
LTD.
By
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Title:
THE BANK OF NOVA SCOTIA
By
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Title:
COMERICA BANK
By
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Title:
CREDIT AGRICOLE
By /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
Title: ▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President
Branch Manager
CREDIT LYONNAIS NEW YORK BRANCH
By
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Title:
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▇▇▇▇▇ FARGO BANK
By
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Title:
THE FUJI BANK, LIMITED
By
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Title:
THE HOKKAIDO TAKUSHOKU BANK, LTD.,
NEW YORK BRANCH
By
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Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-------------------------------------
Title: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Vice President & Deputy
General Manager
NBD BANK, N.A.
By
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Title:
PNC BANK, NATIONAL ASSOCIATION
By
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Title:
THE SAKURA BANK, LIMITED
By
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Title:
-▇▇-
▇▇▇▇▇ ▇▇▇▇
By
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Title:
SOCIETE GENERALE
By /s/ ▇▇▇▇ ▇. ▇▇▇▇
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Title: Vice President
BANK AUSTRIA AKTIENGESELLSCHAFT
By
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Title:
BEAR ▇▇▇▇▇▇▇ GOVERNMENT SECURITIES,
INC.
By
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Title:
▇▇▇▇▇▇▇ LYNCH, PIERCE, ▇▇▇▇▇▇
& ▇▇▇▇▇ INCORPORATED
By
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Title:
SWISS BANK CORPORATION
By
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Title:
By
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Title:
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